Government inertia causing offshore companies to flee the Gulf of Mexico

The announcement on Feb. 7 that Ensco will acquire Pride International in a $7.3 billion transaction served as a reminder that offshore drilling companies are starting to leave the US Gulf of Mexico. This is due mainly to the failure of the Obama administration to tell offshore operators how drilling will move forward in the Gulf. The silence from the White House on this critical economic matter that impacts thousands of jobs is deafening.

Houston-based Pride operates a fleet of 25 rigs, including four deepwater drillships, and the fleet operates primarily in the waters off Brazil and West Africa. Pride has been moving its rigs out of the Gulf for some time. London-based Ensco, the larger company, has a larger offshore fleet with a major presence in the North Sea, Southeast Asia, the Middle East, and a dwindling presence in North America. The merger will create the world's second-largest offshore drilling company.

In the wake of last year's Deepwater Horizon explosion some 40 miles off the coast of Louisiana and the subsequent oil spill that affected parts of the central Gulf Coast, the US government decided to issue a temporary moratorium on deepwater offshore drilling in the Gulf. The government's investigation determined that part of the reason for the disaster was lax regulatory enforcement by the Minerals Management Service. As a result, that agency was dissolved and a new one created, the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE).

The blowout of BP's Macondo well last April 20 shook the industry in much the same way that the Challenger explosion rattled NASA in January of 1986. It's caused a great deal of soul searching and a reassessment of safety standards.

This week (Feb. 11), the Baker Institute for Public Policy at Rice University is holding a conference that will examine the policy implications of the disaster in light of new scientific and technical information. And on June 14-15, PennWell Corporation, parent of Offshore magazine, Oil & Gas Journal, and Oil & Gas Financial Journal, will hold Petrosafe Offshore in New Orleans. The conference will bring together industry experts and risk professionals to explore ways to make offshore drilling safer and foster an improved culture of safety in the offshore drilling industry.

In short, the industry isn't sitting still. Offshore operators, drilling contractors, and oilfield service companies are examining engineering challenges and other issues with the intent to mitigate the risks inherent in offshore exploration and development and move forward.

Unfortunately, the government isn't doing its part. Despite a lifting of the moratorium on drilling in the deepwater Gulf of Mexico, BOEMRE has been dragging its feet on the issuance of drilling permits. This has created contractual disputes between operators and drillers, and the uncertainty has caused some operators and drilling companies to move their operations elsewhere.

Noble Corp. is among the drillers that have grown tired of waiting for Washington to act. The company recently said it will move its Clyde Boudreaux rig to Brazil because the current leaseholder declined to extend its contract with Noble due to the lack of permits being issued by the government.

Roger Hunt, Noble's senior vice president for marketing and new contracts, told analysts in a conference call that the company has endured the moratorium but finally has decided it cannot wait any longer. He said there was too much uncertainty, and this situation had contributed to a serious decline in fourth-quarter profits.

The offshore industry will adapt to the situation in the Gulf of Mexico by moving on. There is no shortage of places to explore for and develop offshore oil and gas resources around the globe, and the current high price of crude oil (hovering close to $100 per barrel) is proof that demand is up. However, at a time when the United States needs to develop its own resources to reduce its dependence on the overseas supplies, the government appears to have turned off the spigot to a major resource in our own back yard, the Gulf of Mexico, where deepwater drilling technology has opened up vast reserves that were not accessible just a decade or so ago.

Until this inertia on the part of the federal government changes, the United States will continue to suffer the economic consequences.

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