Blog Archives

Gulf drilling, economies remain sluggish

image

BY LAWRENCE J. MCQUILLAN

The House Natural Resources Committee held a hearing recently on President Barack Obama‘s drilling moratorium in the Gulf of Mexico one year after the ban was lifted. The results are not pretty if you’re concerned about rising energy prices and lost jobs.

Though drilling in the Gulf is allowed again, slow permitting and burdensome regulations are hindering operations. Activity has yet to rebound to pre-moratorium rates. A study by Quest Offshore Resources shows the number of active rigs is 37 percent less than before the Deepwater Horizon oil spill.

Before Obama imposed the deepwater drilling moratorium, there were 33 floating rigs with 29 drilling wells operating in the Gulf. The number of operating rigs was expected to reach 44 by mid-2012. Analysts now hope that activity will just climb back to pre-ban levels by mid-2012.

A robust oil sector is vital to Gulf economies and the country. Expediting drilling permits, which have tumbled by 59 percent, and facilitating the full return of oil operations will prevent the loss of thousands of jobs, boost economic growth and yield substantial government revenue.

During the moratorium, many companies shifted work to other offshore regions. Eleven rigs left the Gulf. Seven went to African countries; three to South America, and one to Vietnam. This translated to 60 wells lost and 11,500 jobs destroyed.

And the rigs that remained in the Gulf are not operating at capacity. The use rate of offshore drilling units in Gulf waters is 54 percent. Worldwide use rates average 80 percent. In Europe, rates regularly approach 90 percent.

Gulf economies are clearly underperforming, and there is no urgency from the Obama administration to change this alarming course. Interior Secretary Ken Salazar postponed auctions of leases scheduled for the remainder of 2011 until next year, potentially making 2011 the first year since 1965 that the federal government didn’t sell a lease in the Gulf.

The drop in Gulf drilling also impacts federal revenues. The economic forecasting company IHS Global Insight estimates that royalties, lease bids and rent payments amounted to more than $6 billion in 2009. Federal, state and local taxes related to Gulf offshore oil and natural gas operations totaled $13 billion. If drilling continues to stagnate, so will these revenues.

The ripple effect from a hurting oil industry extends to other sectors of the economy and beyond the Gulf area. Bruce Craul with Legendary Hospitality explained at the oversight hearing how the moratorium and sluggish recovery have damaged his industry. Many visitors to Florida are traveling on energy-related business. Without a thriving oil industry, they don’t come.

Inland states are bleeding jobs too. In Oklahoma, the Consumer Energy Alliance estimates slow government permitting is costing about 20,000 jobs in various industries.

The crisis is now. If the Gulf region’s enormous potential is to be realized, government obstacles to recovery must be eliminated.

McQuillan is director of business and economic studies at the Pacific Research Institute (www.pacificresearch.org).

Source

How to produce energy and jobs without all the waste

image

Simply issue drilling permits, and Gulf oil rigs will do the rest.

By Jim Noe
The Washington Times

As news continues to break about the bankruptcy of the government-backed solar- panel manufacturer Solyndra LLC, much commentary has focused on who said what inside the ad- ministration prior to the company’s collapse. But the implosion of a company once touted as a symbol of the booming job creation that would accompany America’s energy future brings larger lessons about our country’s energy and economic needs.

Our country’s energy future hinges in large part on how we manage the gradual transition to a blended energy supply portfolio based in part on next-generation, sustainable energy sources such as solar, geothermal, wind and others that have yet to emerge. The question we need to ask ourselves as we undertake this long-term process is: What do Americans need now, and where can we find it?

Unfortunately, the administration seems inclined to duck that question, favoring poster-ready solutions like Solyndra over more pragmatic discussions about how best to use our country’s existing resources. Its reluctance is a shame, as it comes at the cost of unrealized energy production and forsaken American jobs – particularly in the Gulf of Mexico region.

How have administration energy policies – so friendly to unproven prospects like the solar-powered Solyndra – treated the proven assets we have in the Gulf of Mexico? Not quite as sunnily, to say the least. A host of new permitting requirements have been developed in the past 1 1/2 years for exploration and development of offshore resources in the Gulf. While meant to promote the safest and most environmentally friendly operations possible – goals heartily shared by industry, whose long-term viability depends on sustainable production – the process by which companies secure permits for exploration and production has become unpredictable and opaque.

While there is robust demand for drilling in the Gulf, the pace of issuing permits for new wells (5.2 per month) has slowed to a trickle not seen since energy demand nearly evaporated during the recessionary days of 2009. What this means in real-world terms is that it can take an operator three months to secure a permit for a new well – a time frame that is insufficient to satisfy demand. On top of that, the backlog of permits awaiting decisions within the Department of the Interior just reached its highest level since the Gulf spill 1 1/2 years ago.

According to the administration’s own Energy Information Administration (EIA), U.S. energy output is slated to decrease by 250,000 barrels per day per year under domestic energy production policies. EIA forecasts show Gulf production declining 14 percent both this year and next, a drop of approximately one-third of 2010 amounts by the end of 2012.

By the same token, our current energy policies have allowed a historic loss of drilling rigs to occur, jeopardizing our ability to produce our natural resources. Since 2001, 78 jack-up drilling rigs have left the Gulf, leaving 42 currently available. Thirteen rigs have left the Gulf since April 2010 alone. The departure of these high-technology, capital-intensive rigs means our country’s capacity to ramp up production likely has been curtailed for years to come.

The job losses associated with the administration’s reluctance to support offshore production are also severe. According to a study by IHS Global Insight, run by renowned energy analyst Daniel Yergin, “In 2012, the [Gulf oil and gas] industry could create 230,000 American jobs, generate more than $44 billion of U.S. [gross domestic product], contribute $12 billion in tax and royalty revenues, produce 150 million barrels of domestic oil, and reduce by $15 billion the amount the U.S. sends to foreign governments for imported oil.” The study also cites benefits outside of the Gulf, with one-third of new jobs generated in California, Florida, Illinois, Georgia and Pennsylvania.

There is one final lesson to be noted here. While the Solyndra collapse likely will end up costing the American taxpayers who helped fund the company’s expansion, production of our natural resources in the Gulf adds money to the U.S. Treasury – something you don’t see a lot these days. In 2008, the offshore industry paid $8.3 billion in royalties and $9.4 billion in bids on new leases. In 2010, the numbers fell sharply because of the spill and the drilling moratorium, with payments falling to $4 billion in royalties and just $979 million in lease bids. The outlook for 2011 revenues under the current pace of permitting is more on track with 2010 than 2008.

The future of U.S. energy supplies will no doubt hinge on developing resources that are only now emerging onto the scene. Today’s needs call for more tangible action. To boost jobs, energy supplies and U.S. Treasury revenue, the administration should prioritize improvement in the Gulf permitting regime rather than let energy policy be guided by politics.

Jim Noe is senior vice president, general counsel and chief compliance officer of Hercules Offshore Inc., the largest shallow-water drilling company in the Gulf of Mexico. He also is executive director of the Shallow Water Energy Security Coalition.

Original Article

Obama’s Interior Chokehold on America

image

By Jim Adams

How could a bureaucratic bottleneck in the Gulf of Mexico cost the U.S. economy nearly $20 billion and wipe out hundreds of thousands of jobs as far away as Ohio, Pennsylvania and California? Unfortunately, with this White House administration, anything is possible.

President Obama recently announced yet another jobs initiative — knowing all the while that one very simple action on his part would indeed create new jobs, infuse federal and state budgets with billions of dollars, and make us less reliant on imports. But that didn’t happen.

On Oct. 12, 2010, Interior Secretary Ken Salazar said, “We’re open for business,” signaling that drilling for new oil in the Gulf of Mexico would resume. But, Mr. Salazar has an odd interpretation of the words “open for business.”

Eleven months after the Secretary’s announcement, drilling in the Gulf remains near a standstill. The government has used every stall tactic imaginable to delay permits and other administrative approvals that would help our economy and put hundreds of thousands back to work.

The Gulf Economic Survival Team (GEST) commissioned IHS Global Insight and IHS CERA Inc. to quantify the economic impacts of the government’s slow pace of permitting since lifting the moratorium. Their study revealed that the number of exploration plans and permit applications are on par with levels in 2009 through early 2010, clearly signaling the industry’s intent to return to full operations. Industry also has invested billions of dollars in well containment technology to stop a Macondo-size spill if it ever became necessary. So safety can no longer be blamed for permitting delays.

That leaves the Department of the Interior. The IHS study points to a backlog of project approvals. Despite their earnest efforts to process the growing stack of applications, regulators on the front line don’t appear to understand the new regulations that Washington D.C. has foisted upon them.  The blame for this falls squarely on the shoulders of this Administration’s politically appointed bureaucrats, who know nothing of the complexities involved in safe and environmentally sound deepwater drilling. Naturally, they don’t let expertise or experience get in the way, they just pile on more regulations.

This politically minded bureaucracy comes at tremendous cost.

The number of people who depend on a thriving oil and gas industry is staggering. Another research study, by Quest Offshore Resources, found that energy production in the Gulf of Mexico employed 240,000 Americans in 2010. And not all of them worked directly for the oil and natural gas industry, as oil rigs need everything from steel pipes to IT support.

What’s more, the effects of the government’s continued foot-dragging isn’t limited to the Gulf. The study’s authors found that for every industry job tied to operations in the Gulf, three non-industry jobs are reliant in sectors such as manufacturing, construction and real estate. And for every three Gulf Coast workers, there’s one American employed elsewhere — in New York, Michigan, California, Oklahoma, Colorado, Pennsylvania, Ohio, Illinois and nearly every other state.

The Quest study also came to a distressing conclusion: Had the Administration truly lifted the moratorium last October, the industry would have created nearly 190,000 more jobs in the U.S. over a three-year period. That would have meant 8,500 additional jobs in California, where unemployment currently flirts with 12 percent; 10,000 more jobs in Pennsylvania and Ohio, manufacturing-dependent states; and in the President’s home state of Illinois, a total of 3,000 jobs.

Keeping Americans out of work. Denying struggling state and local governments billions of dollars in additional revenue. Making us more dependent on energy imports. Is this the change Mr. Obama says we can believe in?

Or can we only believe in shovel-ready jobs if they’re created by the alternative energy industry? Would we even be having this yearlong debate if solar energy producers contributed more than $12 billion a year in tax and royalty revenues to state and federal treasuries? What if hydro energy producers accounted for $44 billion of GDP? The only thing separating 190,000 Americans from a paycheck and states from more than $7 billion in local taxes is obvious: Political will.

President Obama talks about job growth, stimulating the economy and investing in innovation that will lead the way forward, but turns a blind eye to an obvious, if not practical, solution. Mr President: Lift your de facto moratorium on energy exploration in the Gulf of Mexico; business will safely do the rest.

Jim Adams is president and CEO of Offshore Marine Service Association, which represents the owners and operators of U.S. flag offshore service vessels and the shipyards and other businesses that support that industry.

Original Article

Offshore Vessel Operators Suffer As Gulf Oil Output Sags

Susan Buchanan
Sunday, September 11, 2011

File Marine Management, LLC managing member Cliffe Laborde (left), with Peter Laborde

Marine Management, LLC managing member Cliffe Laborde (left), with Peter Laborde

As seen in the August edition of MarineNews, Susan Buchanan updates readers on the GOM oil production situation.

BP’s gushing well was capped more than a year ago but life is hardly back to normal in the U.S. Gulf–where rigs and vessels remain underutilized. At least ten rigs have moved overseas since last summer. Gulf oil production is below pre-spill levels and won’t recover anytime soon, analysts say. Issuance of drilling permits picked up this spring as operators agreed to use oil-containment systems but permitting lags earlier rates.

Paul Candies, president and CEO of Otto Candies, LLC, in Des Allemands, La., said offshore activity has increased recently, and “we expect to see a slow trend toward more drilling “ But the marine industry shouldn’t get lulled into a false sense of security. “We need to continue to push for more permitting of rigs and simplification of that process,” he said. Candies gave a positive report about his company, saying “all of our platform supply vessels are committed at present for extended periods. We have three inspection, maintenance and repair vessels on long-term commitments, and should have a fourth IMR vessel committed by year end.” Otto Candies is a marine transportation and offshore services company.

At Laborde Marine Management, LLC, in New Orleans, managing member Cliffe Laborde said “I think the worst is over, but we’re a long way from getting back to where we were shortly before the Macondo spill.” Laborde Marine, with operations in Morgan City, La., services the deep and shallow water drilling industry.

  • Gulf Assets Move Overseas

Laborde provided some recent history, and explained how promising times in the Gulf had turned sour. “In early 2010, as the economy emerged from a two-year recession, the Gulf energy industry was beginning to bloom,” he said. “Utilization rates for deepwater support vessels were high, and charter rates were rising again. The outlook was very good, but then came the spill and the market has languished since.”

Laborde continued, saying “many deepwater vessels and rigs have moved out of the GOM to foreign areas, and many vessels and rigs that stayed in the Gulf are idle now, waiting on BOEMRE to issue new permits.” The granting of new drill permits has been “alarmingly anemic,” he added.

Rigs are underutilized in the Gulf this summer. The fleet utilization rate for all 52, offshore Gulf platforms was 40.4% on July 22, less than half the worldwide usage rate for platforms, according to ODS-Petrodata, Inc. Utilization of mobile rigs in the Gulf stood at 53.7% on July 22.

Meanwhile, other drilling regions in the world are closer to full capacity. In Europe and the Mediterranean, 96.3% of all platform rigs and 87.7% of mobile rigs were in use in late July. Oil and marine companies can’t afford to keep assets in waters where they’re not needed. Since the start of the deepwater moratorium in May 2010, at least ten rigs have left the Gulf of Mexico, and headed to Angola, Egypt, Congo, Nigeria, French Guiana, Liberia, Brazil and Vietnam. One of those rigs returned to the Gulf in March, however, and another is slated to come back this fall.

  • Shallow Water Activity Could Slow Further At Late Year

In Morgan City, La., Dave Barousse, business development director at Fleet Operators, Inc., said “in the shelf market, or non-deep water at depths of 1,000 feet and less, we have not seen an increase in business because of the end of the moratorium. However, business has been steady as a result of the normal construction and maintenance work offshore that generally takes place during the summer months.” But, he said, activity is considerably slower than before the deepwater moratorium.” Fleet Operators owns and charters supply vessels for the offshore oil and gas industry. And Barousse said “we’re preparing for things to slow down tremendously once winter weather is upon us. The outlook is not very positive at the moment, and will be even worse by the end of the year.”

  • Gulf Oil Output Projected To Decline This Year and Next

Crude oil production from the federal Gulf of Mexico is expected to shrink from 1.64 million barrels per day in 2010 to 1.49 million bpd this year and 1.38 million bpd in 2012, according to the U.S. Energy Information Administration‘s short-term energy outlook, released in July. Gulf output should drop by 150,000 barrels a day this year and another 110,000 bpd in 2012.

The EIA said this year’s decline stems from lower production in existing fields, last year’s drilling moratorium and a subsequent delay in issuing new drilling permits. Even before the BP spill and the drilling ban, the EIA expected Gulf oil output to fall this year.

  • Issuance of Drilling Permits Lags Pre-Moratorium Pace

Jim Adams, president and chief executive of Offshore Marine Service Association, an industry group in Harahan, La., said the Administration’s approval rate for exploration and development plans is down 85% from pre-moratorium levels, and the number of drilling permits covered by exploration and development plans is off nearly 65%. He cited a study called “Restarting the Engine–Securing American Jobs, Investment and Energy Security,” released by IHS CERA and IHS Global Insight in late July.

Adams said “no industry can operate with that kind of shutdown.” He said the Obama Administration is sending rigs, boats and jobs overseas in an indefensible policy. OMSA represents more than 250 member companies, including about 100 firms that own and operate marine-service vessels. “The offshore marine industry remains in a state of crisis, almost as if the drilling moratorium was never lifted, and the only relief from excess capacity is overseas opportunities,” Adams said. “The Administration has strangled offshore drilling, and until that changes, we can’t look for better times in the marine industry.”

Adams said Washington has choked the Gulf shallow sector though it never had any significant spills. “There’s no reason that shallow water permits shouldn’t be 100% of what they were in the spring of last year, but we’re not even close,” he said. “The Administration isn’t interested in shallow-water or deepwater exploration.”
OMSA sent a letter to President Obama in February complaining about suspended offshore drilling and its impact on marine industry jobs. “We never heard back from the Administration and that’s because they know we’re right,” Adams said. According to OMSA, more than 50,000 wells have been safely drilled in the Gulf of Mexico over the past fifty years.

  • Problems with Rig Permit Numbers

Adams said “BOEMRE numbers on Gulf drilling permits are completely misleading. We need to know how many wells are brand new that will lead to exploration and how many wells are being re-permitted from last year.” Someone looking at BOEMRE’s website might think that new wells are keeping pace with pre-moratorium levels, but they aren’t, he said. He added that oil and marine industries need to be able to compare how many exploratory wells are permitted. “It takes an average seven permits for a well to start producing,” he noted. In March, Senator David Vitter (R-La.) also sent a letter to U.S/ Interior Dept. Secretary Ken Salazar and BOEMRE director Michael Bromwich, complaining about inaccurate, federal information on Gulf drilling permits.

In their July study, IHS CERA and IHS Global Insight said an analysis of BOEMRE data provided several findings. “The current pace of plan and permit approvals is significantly below historical norms and indicates that the process is not working smoothly,” researchers said. And “the growing backlog of plans awaiting approval indicates that the industry remains ready to invest as quickly as it is permitted to do so.”

  • Rigs and Vessels Adopt Oil Containment Systems

One way to get your vessel hired in the Gulf is to outfit it with spill-response equipment. After BP’s accident, BOEMRE issued new regulations requiring that rig operators be able to respond to subsea leaks and surface spills. In late July of this year, two Hornbeck Offshore Services vessels were added to the fleet of ships that can respond to a Gulf accident, the Marine Spill Response Corp. said. MSRC is a non-profit company that was established in 1990. Hornbeck’s HOS Centerline and HOS Strongline are vessels with oil-skimming systems, ocean boom, support boats and navigational systems that can support skimming at night and in stormy weather.

Hornbeck, based in Covington, La., in late May posted its first quarterly loss in over six years, but said it was diversifying by moving vessels into foreign markets. This summer, BOEMRE director Bromwich said his agency will issue more safety measures for Gulf rigs soon. At the fifth, annual World National Oil Companies Congress in the U.K. in late June, he said “offshore drilling in the U.S. and around the world will never be the same as it was a year ago. Changes that we have put in place will endure because they were urgent, necessary and appropriate.” More regulations will be issued, but not at the frantic pace of the past year, he said.

  • Report Delayed On Who’s To Blame for Spill

In late July, a U.S. team examining the causes of the BP spill delayed the release of a final report as it continued weighing evidence. BOEMRE and the U.S. Coast Guard were expected to issue results of a joint investigation on July 27 but said they needed more time. The Gulf marine industry wants additional rigs to start drilling soon. Laborde said “the oil companies, the rig operators and the energy-service companies are all anxious and ready to get back to work. This would create jobs, improve the economy, increase government revenues through royalty income and taxes, and enhance our national security by lessening dependence on foreign oil.” Where the Gulf oil and marine industries go from here is up to decision makers in Washington, he said.

Original Article

White House bluster hides truth

image

by STEVE HUNTLEY

That’s a mighty wind blowing from the east. No, I’m not talking about Hurricane Irene. It’s the blustery gusts stirred up long before Irene by the constant whining from the Obama White House: Everything but the administration’s own policies are responsible for the faltering economy.

Irene is only the latest of the “head winds” White House officials blame for feeble economic growth and persistent high unemployment. There was the earthquake/tsunami in Japan, the fiscal crisis in Greece, the civil war in Libya on top of Arab Spring uprisings in other Arab countries and, of course, Republicans refusing to go along with President Barack Obama’s spending binge, er, “investments.” One adviser even found head winds from the East Coast earthquake, though its most notable damage appeared to be cracks in the foundation of the Washington Monument.

No doubt these events did create drag for the economy. But Democrats never cut that kind of slack for President George W. Bush. They constantly talk about him inheriting a surplus from the Clinton years but ignore that he also inherited a deteriorating economy that produced a recession in March of 2011 just weeks after he was sworn in.

Liberals ignore the economic devastation of the Sept. 11, 2001, terror attacks in New York and Washington. Air traffic was grounded for days, commerce came practically to a halt. But none of that was allowed to intrude into the left’s narrative of Bush squandering the surplus.

Hurricane Katrina was a convenient cudgel to pound Bush over the failure of government to respond effectively to the disaster, though it was the Democratic-run governments of New Orleans and Louisiana, the first responders, that were the most guilty. Here again the Democratic narrative leaves out the economic consequences of Katrina.

The point is that any president has to deal with “head winds” to the economy from unexpected and uncontrollable events domestic and foreign. What’s remarkable about this presidency is the never-ending whining about them.

This finger-pointing is just passing the buck to avoid responsibility for policies that have failed to revive the economy and, worse, served to prolong the economic suffering.

There’s the nearly trillion-dollar stimulus that failed its goal of keeping unemployment from breaching 8 percent. ObamaCare and the new financial regulatory law have bureaucrats working overtime writing new regulations. That’s frozen investment by businesses large and small worried about the yet-to-be-determined costs of the new rules.

Obama and his advisers never flinch from anti-business rhetoric, further undermining investment. They rail about millionaires and billionaires but their tax proposals would hit small businesses earning far less than a million dollars.

Democrats sneer at the Texas job growth story by pointing out that a significant part of it is based in the oil and gas industry, revealing left-wing job-killing hostility to developing traditional energy resources. A study by the business analysis firm IHS Global Insight asserts increased offshore energy production could produce nearly 230,000 jobs, add $44 billion to the economy and provide nearly $12 billion in tax and royalty revenues to state and federal governments.

But documents released by Sen. David Vitter (R-La.) show that the administration’s campaign against deepwater drilling in the Gulf of Mexico caused 10 oil rigs to leave for better opportunities in waters off Egypt, Congo and other places — including Brazil where, ironically, Obama has promoted the ocean exploration he frustrates at home.

Meanwhile the administration pursues alternative energy jobs, though the New York Times reported this month that “federal and state efforts to stimulate creation of green jobs have largely failed.”

All the finger pointing, whining and passing the buck can’t hide the failure of Obamanomics.

Original Article

The Fiscal Impact of the Offshore Drilling Moratorium

April 27, 2011

Due to declining production at existing wells and bureaucratic delays on new wells in the Gulf of Mexico since the Deepwater Horizon oil rig blowout in 2010, the federal government is forfeiting revenues of more than $4.7 million per day.  The losses will grow significantly if the federal government does not sell new drilling leases in the Gulf of Mexico this year, says Rob Bluey, director of the Center for Media and Public Policy at the Heritage Foundation and an adjunct scholar with the National Center for Policy Analysis’ E-Team.

The lack of new leases ultimately means the government will collect less rent.  The number grows even larger when royalty payments are coupled with a lack of Gulf lease sales and fewer rental payments.  Those three components — royalties, leases and rent — make up a sizable amount of revenue each year.

For example:

  • In 2008, the offshore industry paid $237 million in rent, $8.3 billion in royalties and $9.4 billion for bids on new leases.
  • By comparison, last year those numbers dropped to $245 million in rent, $4 billion in royalties and just $979 million in lease bids.

The Obama administration has dismissed the financial impact of less production, but the economic forecasting firm IHS Global Insight estimates that royalties, lease bids and rent payments amounted to more than $6 billion in 2009.  Federal, state and local taxes related to the offshore oil and gas operations in the Gulf totaled $13 billion.  That $19 billion pot of money could go a long way toward deficit reduction, says Bluey.

Source: Rob Bluey, “The Fiscal Impact of the Offshore Drilling Moratorium,” National Center for Policy Analysis, April 27, 2011.

Original Article

%d bloggers like this: