Drilling ban may temporarily cost 8,000-12,000 jobs, panel told

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Sept. 17 -- The Obama administration’s deepwater drilling moratorium could cut net oil and gas spending on the Gulf Coast by $1.8 billion and temporarily cost 8,000-12,000 jobs, an administration official told the US Senate Small Business and Entrepreneurship Committee.

But Rebecca M. Blank, undersecretary for economic affairs at the US Department of Commerce, emphasized that job losses may be limited since most Gulf of Mexico producers and drilling contractors have retained their skilled employees.

“In addition, these highly skilled workers are able to conduct some backlogged rig maintenance and improvement,” she said in her written testimony. “Some rig workers have been deployed to work outside the Gulf of Mexico. Based on our information, we estimate that fewer than 2,000 (about 20%) out of 9,700 rig workers have been laid off or have left the gulf to work elsewhere.”

Most of the businesses which are feeling impacts from offshore drilling suspensions following the Apr. 20 Macondo well blowout, rig explosion, and oil spill in the gulf provide supplies and support, Blank indicated. “The magnitude of the spill response and cleanup spending in the Gulf Coast is large enough, however, that some of these businesses may have been able to replace some of their lost earnings by serving other customers,” she said.

Obama’s administration also has tried to mitigate the moratorium’s impacts on workers, she continued. It proposed legislation in May calling for new unemployment assistance modeled after the Disaster Unemployment Assistance Program to provide benefits to workers who lose their jobs as a result of a spill of national significance, she said.

Also, as part of discussions which created an independent claims facility and a $20 billion trust fund, the White House negotiated with BP PLC, the Macondo well’s operator, to establish the Rig Worker Assistance Fund to which the British major donated $100 million, Blank said.

Spending declines
She noted that while employment on deepwater rigs in the gulf has not fallen substantially, spending has dropped because operations have been suspended, particularly for drilling supplies, materials, and services.

“For those rigs that remain in the gulf but are no longer working, we assume that rig leasing costs continue to be paid (about 50% of total costs) plus a small amount for supplies and materials for workers remaining on the rigs, but any remaining spending has dropped to zero,” Blank said. Some of this reduced spending has been offset by other sources, she added, such as the up to $30,000 in wage replacement unemployed rig workers are eligible to receive through the BP Rig Worker Assistance Fund.

Early predictions that many deepwater rigs would leave the gulf and virtually all of their 9,700 workers would lose their jobs because of the moratorium have not come true, she told the committee. “Of the 46 rigs in the gulf in April, 41 of them were still there as of Sept. 13,” she said.

Blank said the estimated job losses from the moratorium may be overstated since the analysis assumed that deepwater drilling activities would have continued at nearly the same level before the Apr. 20 accident. “In the aftermath of this event, [they] likely would have been curtailed even without a moratorium as rig operators and contractors reviewed their safety procedures and as regulators examined the effectiveness of existing safety regulations,” she said. “Even in the absence of a moratorium, some of this spending would have been temporarily lost in the wake of such a serious disaster.”

The committee also heard from John Fernandez, assistant US Commerce secretary for economic development, who outlined the response by the department’s Economic Development Administration to impacts from the spill and deepwater drilling moratorium on Gulf Coast states and communities.

Bipartisan concerns
Following the hearing, American Petroleum Institute Pres. Jack N. Gerard said it included strong bipartisan concerns that the deepwater drilling moratorium is harming the Gulf Coast and weakening US energy security. Deepwater rigs in the gulf were appropriately inspected following the Apr. 20 accident and the industry has been working hard to improve safety and is ready to go back to work, he said in a statement.

“Oil and gas companies are doing everything possible to hold onto these jobs and retain the highly skilled workers necessary to operate,” said Gerard. “However, they must now make long-term capital expenditure decisions, and the current level of uncertainty about the openness of the Gulf of Mexico for development could threaten that investment and send capital and American jobs overseas.”

The moratorium already has forced some offshore drilling contractors to move rigs from the gulf, he observed. “We strongly encourage the Department of the Interior to establish a solid timeline for putting our companies and highly skilled employees in the gulf region back to work,” Gerard said.

National Ocean Industries Association Pres. Randall B. Luthi noted that the report reduced original job loss projections from 23,000 to 8,000-12,000, but added that it downplayed the deepwater drilling moratorium’s true impact on the region. “Thankfully, offshore oil and gas companies are good corporate citizens who have retained their skilled employees during this unprecedented time in hopes that the moratorium is lifted soon, permits are issued and drilling activity resumes,” he said. “However, this ability to keep these workers without work cannot last much longer.”

Luthi also said the report fails to recognize that temporary work many laid-off employees may have found assisting with oil spill response and cleanup will end soon now that the Macondo well has been capped and leaks from it have been stopped. “These workers will only be able to resume full-time work when gulf drilling activity resumes,” he said.

Contact Nick Snow at nicks@pennwell.com.

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