By Debbie Glover
St. Tammany News
Things are not much better for shallow water permits. While an average of 7.3 permits are being issued a month, about 14.7 permits per months were issued before the oil spill.
In addition, the number of days it is taking for a plan to be approved is now 115, compared to the historical average of 61 days. All deep-water plans that include any type of drilling activity must now undergo an environmental assessment process; for those plans requiring them in 2011, the average approval time is 235 days, significantly higher than the overall average approval time. Additionally, in 2011, 37 percent of plans submitted to BOEMRE are being approved, or about half of the historical 73.4 percent approval rate. At a St. Tammany West Chamber of Commerce meeting earlier this year, Sam Giberga, senior vice president and general counsel of Hornbeck Offshore Service said the typical cost of a well is $120 million. The success rates of wells is about 15 percent. “You’ve got to drill a lot wells to get oil,” said Giberga.
“Companies are dying every day,” he said. “Each barrel of oil that is used has to be replaced and it is getting harder and more expensive to replace it.” Giberga said that from the first leasing of the territory to a working, producing drilling rig is about five years. Plans must be approved, testing and explorations are done long before the rig is built. Therefore, even though the statistics that are released show a permit has been issued, this does not mean a rig will suddenly appear and produce oil.
In fact, some of those permits that have been given since the moratorium was declared over last October are permits that are being re-issued from last year, not new wells that can drill that day and oil will flow. Since last October, only four drilling plans have been approved. There is a backlog of plans pending approval for both deepwater and shallow water in exploration and development.
With the new regulations that have been issued by the executive branch, new sources of conflict are arising because of environment assessments that are now required for all permits, spurring environmental groups for the first time regarding drilling in the Gulf of Mexico.
There is a lot of confusion over the new regulations. “There exists now a cloud over the industry. Do we need to rebuild existing structure? What kinds of adjustment must be made? Other questions entering the minds of the industry are what’s coming into the future?” asked Giberga. When so much capital is needed prior to realizing any return, companies are asking if it’s worth it.
The lack of drilling is also affecting other industries. “Shutting down rigs has caused a ripple effect,” said Giberga. “There is a web of infrastructure that depends upon this industry, and if the assets leave, they won’t be coming back… There is a direct threat to companies and the country at large.”
Sadly, many states around the country still don’t understand the plight of the industry in the Gulf. For one thing, Giberga confirmed that it is true that other countries are drilling in areas of the Gulf not regulated by the United States. In other words, drills from Mexico, Venezeula and other countries can drill in other parts of the Gulf and could cause a spill due to lack of safety or poor decisions that would still effect the United States’ coastlines, not to mention the economy.
The affects of the new regulations on permits and plans and the long range energy economy will be seen for many years to come. Meanwhile, the permits are being approved—very slowly.
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- Push for permits in Gulf of Mexico (mb50.wordpress.com)
- Obama’s obligation to free up Gulf oil (mb50.wordpress.com)
- Feds approve Murphy drilling project using Helix emergency equipment (mb50.wordpress.com)
More oil-drilling permits would bolster economy and decrease deficit
By Lori LeBlanc The Washington Times
One year ago last week, President Obama lifted his moratorium on deepwater drilling that five months earlier had halted operations on 33 rigs producing energy in the Gulf of Mexico. Since then, the industry has worked tirelessly to comply with new federal regulations and permitting requirements, while independently developing and implementing operating practices designed to further enhance safety and environmental protection on deepwater rigs. Yet a full year after the moratorium was lifted, federal permitting for drilling in the Gulf continues to greatly lag behind America’s demand – and capacity – for domestic energy development.
Every day, thousands of Americans whose livelihoods depend on a healthy Gulf energy industry feel the impact of the Gulf slowdown through lost wages, delayed jobs and a general sense of unpredictability about the future of an industry they count on to put food on the table. Local, state and federal government budgets also feel the impact through decreased sales tax and royalty revenue. The Gulf energy industry stands ready and waiting to provide jobs to a nation desperately in need of them. It’s high time to put American energy back to work.
In the wake of the Gulf spill, industry and government have collaborated in an unprecedented effort to rethink and re-engineer safety and response procedures and capabilities in the Gulf of Mexico. Workers are ready to get back to work fueling this nation. The rest lies in the hands of the Department of the Interior, whose regulators verify compliance and issue permits for exploration and drilling operations. Unfortunately, this permitting process continues to move at a pace that does not reflect an industry’s capability to invest and create good-paying jobs.
Permits are essential to the industry’s viability. Since the deepwater moratorium was lifted, only 14 permits have been issued for unique new wells allowing operators to drill to full depth for the purpose of production. For such a capital-intensive industry, where each new deepwater drill ship costs about $1 billion and employs hundreds of workers, those 14 permits over an entire year are simply insufficient to meet production demand or even to keep rigs in the Gulf. Of the original 33 rigs affected by the moratorium, 10 have left the Gulf in favor of markets where permitting is more predictable and transparent. Given the time and expense required to move these floating factories, it’s unlikely they’ll return anytime soon.
The most glaring loss, however, is the significant job opportunities forsaken each and every day as the permitting slowdown lingers. A recent study by IHS CERA concluded that a more-efficient and timely permitting process could create more than 200,000 new jobs in the United States, one-third of which would be generated outside the Gulf region in states like California, Florida, Illinois, Pennsylvania and New York. In today’s world, that amounts to a stimulus package in itself – and one that doesn’t require American taxpayers to foot the bill.
In fact, a healthy Gulf industry puts money back into the pockets of American taxpayers via revenue flows to the U.S. Treasury. The offshore industry paid $8.3 billion in royalties and $9.4 billion in new lease bids in 2008. In 2010, those numbers shrank to $4 billion in royalties and $979 million in lease bids. While the numbers for 2011 aren’t in yet, they’re likely on track with 2010 figures. Yet, according to the IHS CERA study, an industry operating under an improved permitting process could generate $12 billion in tax and royalty revenues by 2012.
The last ripple effect of the permitting slowdown may not pinch Americans today, but it has the potential to hit our pocketbooks in the months and years to come. By allowing rigs to depart the Gulf and discouraging the large-scale investment necessary to meet our future energy needs, our government’s lack of urgency to restoring Gulf energy puts us all in a precarious position. If and when we decide to harness the true potential of the Gulf, we may find that the investment and equipment simply isn’t there. This translates to greater reliance on foreign suppliers, less control of our own energy supplies, and living in the hope that unforeseen political developments somewhere overseas don’t push prices at the pump even higher.
The Gulf has a lot to offer Americans: jobs, revenue and a valuable domestic energy supply. A multitude of American workers are motivated to get back to work today. Virtually every American stands to gain by encouraging investment in domestic energy production. It’s time for our government to clear the permitting bottlenecks for Gulf drilling activity and get this nation back to work with American energy.
Lori LeBlanc is the executive director of the Gulf Economic Survival Team.
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- Collateral Damage: Lost Gulf Rigs from Obama Obstructionism (10 down, more to go?) (mb50.wordpress.com)
- USA: Chevron Strikes Oil in Deepwater Gulf of Mexico (mb50.wordpress.com)
- Push for permits in Gulf of Mexico (mb50.wordpress.com)
- By Blocking Gulf Drilling, Obama Costs Jobs and Raises Gas Prices (usnews.com)
- Obama Doesn’t Care About Creating Jobs (mb50.wordpress.com)
- Rigged For Failure (mb50.wordpress.com)
While now facing greater scrutiny from regulators, contractors in the oil-service industry have considerable liability protection to fight the citations and any subsequent fines, legal experts say. They also have enough market muscle to strengthen liability protection in their contracts with oil companies.
Previously, U.S. regulators have held the rig operator responsible for whatever happens under its watch. The operator hired contractors, who perform drilling, seismic or cementing operations and whose contracts protected them from any liability.
That was upended by the Deepwater Horizon mishap in April 2010, which resulted in 11 deaths, the biggest accidental marine oil spill in history, and tens of billions of dollars in costs. BP said blame also falls on Halliburton, which was in charge of cementing the failed well shut, and Transocean, the drilling contractor that owned the Deepwater Horizon rig. U.S. investigations have widely cast the blame among all three companies.
The citations, issued Wednesday, set a precedent for holding contractors at least partially responsible for such accidents, and may increase the contractors’ exposure to civil suits from anyone claiming damages from the spill, analysts said.
The contractors have pledged to fight the accusations. Halliburton said that it is fully protected against penalties and losses from the Deepwater Horizon incident by its contract with BP. Transocean also said it intends to appeal.
However, if the courts determine that the government has the right to issue a citation to oil-service contractors, there is no contract that will protect them from the fine, according to Larry Nettles, an environmental attorney with Vinson & Elkins, a Houston law firm. “In most jurisdictions the courts do not allow indemnification for fines and penalties, because it defeats the purpose,” which is to punish bad behavior, Mr. Nettles said.
Still the industry is expected to bulk up its contracts even more in the wake of the regulators’ action, legal experts say, to get as much liability protection as possible. The contractors currently have considerable bargaining power to win such new concessions from rig operators on contract protection. Relatively high oil prices have led to a shortage of drilling crews and have put oilfield services at a premium, giving the contractors the upper hand in negotiations.
“When oil prices are high and there’s lots of activity, service contractors can drive a very hard bargain,” said Owen Anderson, a professor of law specializing in energy at the University of Oklahoma.
(c) 2011 Dow Jones & Company, Inc.
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- Oil Firms Face Liability Protection Issues (online.wsj.com)
- BP Contractors Could Face Fines Over Gulf Oil Spill (gcaptain.com)
- BP Contractors Could Face Deepwater Fines (online.wsj.com)
- Serious New Regulatory Risks Arise for Oil Contractors (BP, RIG, HAL, CAM, SLB, BHI, NOV) (247wallst.com)