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Drilling ban had ‘hidden victims’


Written by
Claire Taylor

Half of the South Louisiana oilfield service and supply companies responding to an online survey were forced to lay off employees because of the drilling moratorium and slow permitting in the wake of the BP oil spill in April 2010.

Greater New Orleans Inc., a regional economic alliance, released the results Monday of its online survey of 102 Louisiana offshore supply and service company owners and workers.

The survey was an attempt to document the financial impact of the drilling moratorium and permitting delay on “hidden victims,” particularly small and mid-sized companies

The federal government, on May 30, 2010, enacted a six-month moratorium on deepwater drilling. No new permits were issued. The action effectively shut down the oil and gas industry in the Gulf of Mexico. Additional regulations also affected shallow water drilling, severely slowing permitting for months.

Even though the federal government lifted the moratorium in October 2010, permitting continues to lag. Before the BP spill, on average seven deepwater permits and 14.7 shallow-water permits were issued per month historically. In the past three months, on average two

deepwater and 2.3 shallow-water permits were issued.

Officials at the GNO survey release ceremony on Monday referred to the moratorium and permit restrictions as a “permatorium” and called on President Obama to ease the permitting process, allowing oilfield workers and support personnel to get back to work.

“We’ve got to see this ridiculous bureaucracy change,” Plaquemines Parish President Billy Nungesser said during a press conference Monday.

The hidden victims of the federal “permatorium” include a small mom-and-pop business in Plaquemines Parish that cleaned linens for the offshore industry. They had to shut down, Nungesser said.

“We have jobs here that we don’t have to create,” Jefferson Parish President John Young said, echoing calls to ease or speed the permitting process.

Of the businesses surveyed, 39 percent reported they retained workers but cut salaries and/or hourse to save money. Lori Davis, owner of Rig-Chem, is one of those small Louisiana businesses. As a result, a couple of her employees quit to take jobs at larger companies that still offer benefits, she said.

Larger companies are more global and were able to shift assets elsewhere, insulating them from the moratorium and permitting slow down. Small and mid-sized companies and independents in the oil and gas business don’t have the same capital assets and ability to relocate.

Forty of the businesses surveyed reported they are not making a profit. Four companies reported selling all of their assets and/or going out of business because of the “permatorium,” GNO Inc. reported.

The new federal regulations are making it very difficult for small and medium sized companies to compete, Davis said.

A New Iberia transportation company described the problem in the survey: “Costs of training associated with safety have increased 75 percent. Meanwhile, the competitive nature of the lack of work has driven daily vessel rates down.”

Davis said the regulations are “going to strangle the small business.”


Gulf index still shows oil permits behind


By Debbie Glover
St. Tammany News

Before oil spill, deep water drilling permits were being issued at a rate of an average of 7 per month. Today, only 4 are being issued on average a month.

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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