Study estimates costs of congested offshore permitting process

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, July 22 -- Swift action to reduce the growing deepwater exploration plan backlog in the Gulf of Mexico and the approval pace for those plans and associated drilling permits would increase employment in almost every US state; boost tax and royalty revenue for federal, state, and local governments; and improve US energy security, a new study by IHS-CERA and IHS Global Insight concluded.

“These benefits could materialize rapidly,” the study said. “Early alignment between the capacity to properly regulate oil and gas activities, and the pace and scale of investment opportunities would capture the largest possible share of the activity gap.”

Closing this gap between what the study’s authors said was a current slow-recovery scenario, and one in which offshore permits were approved at a rate matching the US oil and gas industry’s production and investment potential would produce 230,000 more jobs, more than $44 billion of gross domestic product, nearly $12 billion in taxes and royalties to federal and state governments, and an additional 400,000 boe/d of production by 2012.

It also would reduce the US crude oil import bill next year by about $15 billion, it added. Since the deepwater drilling moratorium—imposed by US Interior Sec. Ken Salazar following the Macondo well accident and subsequent oil spill—expired in October, the dramatically slower approval process caused by new regulations and procedures has cost the US about 1 billion bbl/year of new supplies, the study said.

“It’s a new regulatory environment,” said James Burkhard, managing director of IHS-CERA’s global oil group, in a July 21 teleconference. “Our job was to identify the congestion points to help inform the debate about bringing the regulatory capacity in line with the industry’s capacity to invest. There’s a mismatch between the two. Right now, the regulatory capacity is a constraint.”

Basis of comparison
The study, “Restarting the Engine: Securing American Jobs, Investment, and Energy Security,” was commissioned by the Gulf Economic Survival Team, an independent nonprofit group that serves as a liaison between the oil and gas industry and federal, state, and local in an effort to resolve federal permitting issues that are delaying a return to previous drilling and production levels in the gulf. IHS said it compared current activity with what could be achieved with appropriate resources consistent with the industry’s capacity to operate safely and in an environmentally responsible manner in the gulf based on its historic behavior.

“It’s quite clear that after last year’s accident and spill, there’s no going back to the old regulatory regime,” said IHS-CERA Chairman Daniel Yergin. “We didn’t try to say what the reason was, but where the congestion was. There obviously are different viewpoints on what’s causing it and what needs to be done.”

The study examined plan and permit activity levels in the 6 months since the lifting of the moratorium in the gulf in October 2010. It found an 86% decline in the pace of regulatory approvals for plans, a 38% increase in the time to secure each regulatory approval, a 250% increase in the backlog of deepwater plans pending approval (from an average of 18/year to a current pace of 67/year), and a 60% decline in drilling permits issued (combined shallow water and deepwater).

“There’s a new regulatory environment, institutional change, and new safety and environmental requirements,” said Burkhard. “That regulatory capacity could be aligned in a more beneficial way. It will take time and effort, and closer collaboration between government and industry.”

Strong commitment
The study said the significant increase in the number of plans pending and the slower pace of plan and permit approvals demonstrates that the oil and gas industry’s commitment and desire to continue investing in the gulf remains strong, and that it is trying to proactive work through and adapt to new safety requirements and the new regulatory environment. It also shows that the revised regulatory process is not yet working smoothly as the US Bureau of Ocean Energy Management, Regulation, and Enforcement struggles with a growing backlog and implementation of new processes, the study indicated.

“Our analysis demonstrates that the slower pace of plan and permit approvals (regardless of the cause) is resulting in lower activity levels than the operational capacity of the industry,” it said. “Successfully restoring the activity levels in a safe and environmentally responsible fashion will have significant benefits for America’s energy independence and continued economic recovery.”

Burkhard said, “This is a new regulatory environment, with more responsibilities. That would seem to indicate a need for more capacity to oversee these new regulations. The growing number of plans pending approval reflects the industry’s plan to continue making investment, but there seems to be some frustration in meeting requirements.”

Yergin added, “A lot has been evolving, including the regulatory system and structure. The well containment capability was not in place a year ago. There also has been a tendency to see this as an economic issue focused on the gulf, but it affects all the states. The model doesn’t capture all the impacts, but it does bring very clearly that in a larger economic context, the nationwide impacts are substantial.”

Responding to the study, National Ocean Industries Association Pres. Randall B. Luthi said it complements one commissioned by the American Petroleum Institute and NOIA of the gulf oil and gas industry’s economic impacts. “Both confirm that the jobs and economic benefits generated by gulf offshore industry stretch nationwide,” Luthi said, adding, “Both also confirm how a slow permitting process has diminished these benefits. Clearly, stoking the engine of the gulf offshore oil and gas industry will provide American energy, fuel the American economy, and create American jobs.”

Contact Nick Snow at nicks@pennwell.com.

Related Articles

Deloitte studies oil supply growth for 2015-16

02/04/2015 A Deloitte MarketPoint analysis suggested large-field projects, each producing more than 25,000 b/d, could bring on 1.835 million b/d in oil supply...

Inpex starts development drilling at Ichthys field

02/04/2015

Inpex Corp. has started development drilling in Ichthys gas-condensate field in the Browse basin, about 200 km offshore Western Australia.

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...

IHS sees second-half end of US output surge

02/03/2015

Expectations are moderating about growth of oil production in the US this year.

Gazprom Neft starts shale oil production in western Siberian field

02/03/2015 JSC Gazprom Neft reported start of shale oil production from the Bazhenov formation during tests of two wells in southern Priobskoye field in centr...

Anadarko reports 2014 loss, remains upbeat about Wattenberg

02/03/2015 Anadarko Petroleum Corp. announced a 2014 net loss of $1.75 billion, or $3.47/share diluted, including a net loss of $4.05 billion associated with ...

CNOOC cuts capital budget, starts production from Jinzhou 9-3

02/03/2015 CNOOC Ltd. is slashing its capital budget for 2015 by 26-35% to $11.25-12.86 billion compared with last year’s budget. Capital expenditures for exp...

MARKET WATCH: NYMEX crude oil stays positive on lower rig count

02/03/2015 Oil prices on the New York and London markets closed higher Feb. 2 on positive momentum generated by a falling US rig count, suggesting cuts in pro...
White Papers

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

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
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

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