Study outlines economic impact of independents in gulf

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, July 23 -- Excluding independent producers from the deepwater Gulf of Mexico would eliminate 265,000 jobs and $106 billion in federal, state, and local tax revenue by 2020, a new study by IHS Global Insight in Lexington, Mass., concluded. If independents left the gulf completely, 300,000 jobs and $147 billion in taxes in the region would be lost over 10 years, it added.

“Our analysis demonstrates that the independents are responsible for a substantial amount of oil and gas production in the gulf and contribute substantially to the economies of Gulf Coast states, counties, and communities,” said James Diffley, group managing director of US Regional Economics at IHS Global Insight and the report’s lead author.

“By 2020, we project that the independents’ contribution will have risen to 60% of the total from offshore oil and gas activity in the gulf,” he told reporters during a July 22 teleconference as the report, “The Economic Impact of the Gulf of Mexico Offshore Oil & Natural Gas Industry & the Role of the Independents,” was released. It is available online at www.ihsglobalinsight.com/gulfoileconomicimpact.

The study was commissioned by Cobalt International Energy Inc., a Houston independent with assets in the gulf and off West Africa. “Policies which have the effect of excluding independents from the gulf would shrink offshore activity, threaten hundreds of thousands of jobs, and result in billions of dollars of lost economic activity,” said Joseph H. Bryant, the company’s president.

“According to the analysis, in 2009, independents operating in the gulf accounted for more than 200,000 jobs, $38 billion in economic benefits, and $10 billion in federal and state revenue and royalty payments,” he continued. “There were 121,000 jobs generated by independents in the deepwater gulf alone.”

Larger losses
Actual federal tax losses would be larger because the economic analysis covered only Louisiana, Texas, Mississippi, and Alabama and not revenue impacts on income earned elsewhere in the US from manufacturing and investment activities related to the gulf, the report said.

This resulting “vacuum” would be filled only “marginally” by the majors, it said. “The loss of the independents could actually precipitate an overall decline in activities because of the integration between majors and independents. Because of the scale of the independents’ involvement in the gulf, including the deepwater, their exclusion would likely lead to ‘a significant shrinkage in offshore oil and gas activity…and a dilution of the US technological and industry leadership.’ This would mean a significant decline in oil output from what otherwise would be the ‘growth engine’ of domestic US oil production.”

Samuel H. Gillespie, general counsel and executive vice-president, Cobalt International, said the company commissioned the study because of federal legislative proposals following the Apr. 20 Macondo well blowout and resulting oil spill, which effectively could raise liability limits so high that independents would not be able to get insurance to continue operating in the gulf.

“Views have been voiced that the only people drilling in the deepwater should be companies with balance sheets so large they can self-insure even for events as large and tragic as the Deepwater Horizon spill,” Gillespie said during the teleconference. “We wanted to get facts from a credible source about the value smaller companies bring to the gulf.”

The US Senate Environment and Public Works Committee passed a measure on June 30 that would make offshore oil spill liability under the 1990 Oil Pollution Act unlimited for responsible parties. The approved measure was an amended version of a bill offered on June 3 by Sen. Robert Menendez (D-NJ) that would have raised the liability limit to $10 billion from $75 million. US Rep. Rush J. Holt’s (D-NJ) similar bill passed the House Transportation and Infrastructure Committee on July 2.

Full participants
Gillespie said the new report outlines the integration of independents into the gulf’s oil and gas operations. “If you look at the leases there, in both shallow and deep water, the vast majority are operated by independents. They are producing well over a third of the reserves,” he noted.

“While an independent was a partner in the Macondo well, there are many situations where independents are operators and majors are nonoperating partners,” the Cobalt International official said, adding, “The report itself lays out this integration between independents and majors that exists across the gulf. It’s that integration which should be maintained as an important value to the gulf and the nation as a whole.”

The report pointed out that in the deepwater gulf, independents have taken an average of over 70% of the farmed-out acreage from the majors over the last 10 years and now operate nearly 3 billion boe that the majors originally discovered. It said independents’ share of deepwater gulf exploration and development drilling has steadily grown from less than 15% in 1998 to more than 50% in 4 of the last 7 years.

“While the growth in total drilling is impressive, the independents’ role in exploration is even more so,” it continued. “Independents have drilled, as operators, over half of the total exploration wells in the deepwater gulf for the past 10 years. With a success rate of 29%, their skill in discovery is on a par with the major’s 32% deepwater [gulf] success rate.”

Independents also contribute to bringing new volumes on stream, the report added. “Although the volumes of hydrocarbons currently under production operated by majors is more than double that operated by independents, the volumes that are currently being appraised or being developed are roughly equal (4.2 billion boe for independents vs. 4.4 billion boe for majors) indicate the independents are catching up and may well exceed the impact of the majors in the future,” it said.

“The study demonstrates the significant contribution and important role of independents in the Gulf of Mexico offshore oil and gas industry, both today and in the future when measured in jobs, economic value and government revenue,” said Diffley. “The offshore gulf also plays a huge part in the nation's energy security and is a leading contributor to the economic vitality of the four-state gulf region.”

Contact Nick Snow at nicks@pennwell.com.

Related Articles

Kerry expects to receive other agencies’ Keystone XL reports soon

02/02/2015 US Sec. of State John F. Kerry said he expects to receive other federal agencies and departments’ reports soon on the proposed Keystone XL crude oi...

Union strike under way at US refineries, petchem plants

02/02/2015 The United Steelworkers Union (USW) has instituted a strike at nine US refining and petrochemical production plants following a breakdown in negoti...

Victoria extends drilling, fracing ban

01/30/2015 The new Victorian Labor government of premier Daniel Andrews has extended the coal seam gas (CSG) exploration and hydraulic fracturing ban in the s...

US Senate passes bill approving Keystone XL pipeline project

01/30/2015 The US Senate has passed a bill approving construction of the proposed Keystone XL crude oil pipeline by a 62-36 vote after 3 weeks of debate. Nine...

Pennsylvania governor reinstates state forest drilling moratorium

01/29/2015 Pennsylvania Gov. Tom Wolf (D) signed an executive order fully reinstating a 2010 moratorium on new oil and gas leases in state forests and parks. ...

DOE could meet 45-day LNG export decision deadline, Senate panel told

01/29/2015 The US Department of Energy would have no trouble meeting a 45-day deadline to reach a national interest determination for proposed LNG export faci...

PHMSA outlines community steps to reduce pipeline incident risks

01/27/2015 The US Pipeline and Hazardous Materials Safety Administration released a guide to best practices for communities to reduce risks from pipeline inci...

DOI’s 2017-22 draft proposed OCS program includes Mid-Atlantic sale

01/27/2015 The US Department of the Interior released a draft proposed 2017-22 Outer Continental Shelf management program that included 14 potential oil and g...

OGUK: Push to ban fracing in UK ‘ill-informed’

01/26/2015 The House of Commons Environmental Audit Committee’s proposed amendment to the infrastructure bill that would introduce a moratorium on hydraulic f...

White Papers

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by

Available Webcasts



Global LNG: Adjusting to New Realties

When Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

When Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST



On Demand

The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected