Deloitte: Oil firms evaluating potential US offshore regulations

Oil and gas companies are evaluating their changing risk exposure in the Gulf of Mexico following the blowout of BP PLC’s Macondo well and subsequent massive oil spill, industry executives said in a Deloitte LLP survey released Nov. 18 at Deloitte’s energy conference in Houston.

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Nov. 18 -- Oil and gas companies are evaluating their changing risk exposure in the Gulf of Mexico following the blowout of BP PLC’s Macondo well and subsequent massive oil spill, industry executives said in a Deloitte LLP survey released Nov. 18 at Deloitte’s energy conference in Houston.

“The new environment for risk means that managers of most companies are betting the entire company on every well, regardless of the likelihood of another disaster like the Deepwater Horizon,” said Gary A. Adams, Deloitte vice-chairman of oil and gas.

Transocean Ltd. drilled the Macondo well using its Deepwater Horizon semisubmersible drilling rig, which sank on Apr. 22 after an Apr. 20 explosion and fire killed 11 workers. Since then, a liability cap of $75 million has been waived. Deloitte said estimated costs to cover the cleanup, claims, and related expenses eventually could reach or exceed $30 billion.

Deloitte believes only 10 companies operating in the gulf have a market capitalization of $30 billion, said Adams, who also wrote a white paper entitled “The Gulf of Mexico—Open for Business.” In its survey, Deloitte interviewed 201 oil and gas professionals during Nov. 1-8. All participants have worked in the industry for at least 5 years and earn at least $100,000/year.

Survey participants overwhelmingly agree potential post-spill regulations will cause job losses in the US oil and gas industry, boost drilling costs, and prompt higher crude oil prices in both the near and medium term.

Some 75% of survey participants expect more delays in the gulf drilling permit process and 61% expect increased drilling costs tied to those delays.

Changing offshore regulations also are likely to be reflected within future contracts between project partners and also in their contracts with drilling contractors, Adams said.

“Because liability may be shared among operators, as well as joint venture partners and contractors, the number of companies affected is even greater,” Adams said. “As a result, the gulf could become a game for only the biggest companies.”

Half the survey participants expect increased merger and acquisition activity among companies operating in the gulf following the Deepwater Horizon accident. Nearly 80% said the new regulations pose a threat of US drilling operations moving to other areas.

Deepwater Brazil and Africa pose the biggest potential as likely alternatives for companies looking to drill outside the US, Adams said. While all other regions were seen as having less stringent offshore regulations than the US, Africa was seen by the survey participants as having the least stringent requirements.

“Overall, 70% of oil and gas professionals [polled] expect the gulf spill and its consequences to decrease deepwater offshore development,” Adams said. Deepwater drilling currently accounts for about 30% of US oil production.

Contact Paula Dittrick at paulad@ogjonline.com.

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