SMU: Shallow-water permit delays threaten 40,000 jobs

A marked slowdown in the US government’s issuing of new Gulf of Mexico shallow-water drilling permits poses serious implications for the US Gulf Coast’s economy, a new Southern Methodist University study concluded.

Oct 7th, 2010

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Oct. 7 -- A marked slowdown in the US government’s issuing of new Gulf of Mexico shallow-water drilling permits poses serious implications for the US Gulf Coast’s economy, a new Southern Methodist University study concluded. Nearly 40,000 jobs related to the region’s shallow-water drilling industry are in jeopardy, SMU said.

The Obama administration ordered all US offshore drilling shut down for safety reasons after the Apr. 20 Macondo well accident and subsequent massive oil spill. It lifted a ban on drilling in water less than 500 ft deep in late May, noted the Oct. 6 study by Bernard L. Weinstein, associate director of the Maguire Energy Institute at SMU’s Cox School of Business.

“Yet despite the official removal of the limitation on shallow-water operations, the rate at which the [US] Department of the Interior’s Bureau of Ocean Energy Management, Regulation, and Enforcement now issues permits authorizing drilling of new shallow-water drilling wells has slowed markedly in comparison to pre-Apr. 20 levels,” the study said.

Shallow-water drillers have a 60-year record of considerable reliability and safety, Weinstein said. He cited BOE records that show in the last 15 years, more than 11,000 wells have been drilled in the gulf’s US shallow water with only 15 bbl of oil spilled.

“Despite the industry safety record and straight-forward approach to subsurface energy resource extraction, as of Sept. 22, BOE had issued only six permits for new shallow-water wells in the 5 months since the Apr. 20 Deepwater Horizon accident,” the study said. “Prior to the spill, [DOI] issued an average of 10-15 new permits for new shallow-water wells per month.”

Idled jack ups
The study reported that 14 jack up rigs, representing 30% of the US gulf’s total fleet, had been idled by the end of August as a result. “Unlike deepwater rigs that are on contract for months or years at a time, shallow-water drilling rigs move from project to project on a 6-week work cycle, meaning that [DOI’s] failure to approve permits can mothball an entire industry,” it explained. The number of idled jack ups could reach 27, or 60%, by Oct. 31 and 33, or 73%, by Nov. 30 if no new permits are issued, it added.

Weinstein noted that a recent study by CapAnalysis Group LLC calculated that if 75% of the US gulf jack up fleet is stacked because of BOE inaction in issuing new permits, direct economic losses to US businesses and workers would be nearly $4.35 billion, with Louisiana and Mississippi taking the biggest direct hits ($2.22 billion and $1.25 billion, respectively). “Adding in the ripple effects of lower indirect and induced spending, which affect all areas of the economy, the nation’s income losses could exceed $12.5 billion,” he said.

The study said that combined with the continuing deepwater drilling moratorium, the de facto shallow-water ban seriously threatens not just the domestic oil and gas industry, but the entire nation.

“If the bans remain in place much longer, additional exploration and production will move overseas, destroying thousands of high-wage American jobs while weakening the nation’s economic and national security as larger quantities of fossil fuels are imported,” it indicated. “And as more rigs relocate to other countries, the US risks losing its global technical leadership in offshore drilling, just as it has in nuclear energy.”

Responding to the study’s conclusions, Independent Petroleum Association of America Pres. Barry Russell said it brings further clarity to the massive impact that far-reaching and misguided policies such as shallow-water permit “slow-walking” have on the country. “Stalling is an unacceptable policy, and will not help Americans get back to work, safeguard our environment, stabilize energy prices for consumers, or drive down our nation’s dependence on unstable foreign oil,” he declared.

Contact Nick Snow at nicks@pennwell.com.

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