Monday, May 31, 2010 12:43:17 PM
Offshore drilling ban would be a blow to Louisiana economy
By Rebecca Mowbray, The Times-Picayune
May 30, 2010, 10:16PM
Port Fourchon is the launching point for 90 percent of the deepwater activities in the Gulf of Mexico.
To coastal communities and marine-related industries across southern Louisiana, President Barack Obama's announcement Thursday that work at 33 deepwater drilling operations would be suspended immediately was like sealing the region's economic death from the ongoing oil plume gushing into the Gulf of Mexico.
"It's bad enough that we have an oil spill to deal with and the fishermen can't work. Now they're going to take away the oil industry, and we'll have nothing, " said Chett Chiasson, executive director for the Greater Lafourche Port Commission, which runs Port Fourchon, the launching point for 90 percent of the deepwater activities in the Gulf of Mexico.
If the rigs stop prospecting for oil, then catering companies stop cooking food for rig workers, boats stop bringing them supplies, mechanics stop servicing the supply boats and so on.
Chiasson predicts the hardest-hit communities will lose jobs that won't easily be recovered.
"This industry should not have to suffer because of one company's horrible mistake, " Chiasson said. "This will cause people to lose their jobs. I have no doubt about it."
The president and Interior Secretary Ken Salazar's announcement late last week to halt all deepwater drilling in the Gulf of Mexico "at the first safe stopping point" while the Interior Department figures out what regulatory changes are necessary for offshore oil prospecting seemed designed to reassure the nation that drilling would only proceed in a safe and environmentally sensitive manner.
But to those who work in the offshore industry and in the communities at the epicenter of the spiraling disaster from the April 20 Deepwater Horizon rig explosion and oil leak, it smacked of a lack of understanding of the role that the oil business plays in the Louisiana economy.
In the 2008 presidential election, no coastal parishes except for Orleans supported Obama; last week's offshore drilling announcement only seemed to make his administration even less popular in the oil-affected parishes.
"The president now needs to come down and talk to the offshore industry and reassure us that we're not going to be thrown to the wolves. I think they owe us that, " said Ken Wells, president of the Offshore Marine Service Association. "Our economy around here cannot sustain a collapse of this industry."
Sixteen companies have operations that will be affected by the six-month shutdown, including Shell, Chevron, BP, Marathon, Eni, Petrobras, Hess and LLOG Exploration, a Metairie-based division of Hess.
The Interior Department won't release the names of the wells or locations, saying the information is proprietary.
On Friday, people across the offshore industry were trying to get clarification on exactly what the requirements of the shutdown would be and whether it's really for six months.
On Sunday, the Minerals Management Service issued some additional guidance. That bulletin does not say that the drilling hiatus will be limited to six months; it only says that new permits won't be issued for six months.
The notice also raises the possibility that the shutdowns could affect wells that are in production.
"To obtain approval to conduct an activity in support of existing deepwater production, you must submit your request..." the notice reads. Applications must include a detailed, site-specific risk analysis with discussion about how to handle a loss of well control.
Shell Exploration and Production said it wouldn't have anything to say about how its operations would be affected until this week. Chevron said that it is drilling one well now in the Gulf of Mexico and had planned to drill three others this year. The California company, which has offices in Covington, said Friday it is working with the Interior Department and awaiting specific notice on what it is required to do.
Louisiana Economic Development Secretary Stephen Moret has had a team working to assess the moving target of the economic impact of the rig explosion since late April.
So far, it looks like 22 of the 33 rigs that are affected are off the coast of Louisiana, Moret said, and it's possible that some of the remaining 11 could be rigs that were scheduled to start operations in Louisiana waters in the next few months.
Depending on how the rules shake out, Moret has three scenarios for how bad the moratorium could be for Louisiana's economy.
Within a very short time, Moret believes the state will lose 3,000 to 6,000 direct and indirect jobs.
If the suspensions are maintained, it could rise to 10,000 jobs. And if the moratorium persists while oil prices rise, the state could lose 20,000 jobs over the next 12 to 18 months in the form of lost direct and indirect jobs, and missed job creation opportunities because rising petroleum prices stimulate more energy development.
Since it's unclear what's involved with the shut-downs, it's unclear whether companies will keep their rigs afloat in the Gulf with a skeleton crew or move them to Brazil, which is considered one of the world's biggest deepwater drilling opportunities.
The cost of keeping the rigs idle is significant. BP, for example, was renting the Deepwater Horizon semi-submersible rig from Transocean Ltd. for $500,000 a day before it exploded and sank.
"There's definitely a real risk that some of these rigs could be moved outside of the Gulf of Mexico because of the cost of keeping them idle, the regulatory uncertainty and opportunities in other parts of the world, " Moret said.
Others are convinced that rigs will be floated to foreign waters, and if they're moved, it will take two to three years for the equipment to finish up its new contracts elsewhere and come back.
"The drilling equipment and the rigs, if they know that they can't work for the next six months, they'll re-deploy to the rest of the world. It will be a lot longer than the next six months, " said Otto Candies III, secretary/treasurer of the Des Allemands marine transport company Otto Candies LLC, who called the president's announcement "a knee-jerk reaction."
Candies said his company employs 500 and has a supplier list of 100 companies, so the impact at his company would be wide.
Shane Guidry, chairman and chief executive of Harvey Gulf International Marine LLC in New Orleans, said that his company services all of the deepwater drilling operations in the Gulf. But his company also operates around the world, so it will be affected in several ways.
Harvey Gulf won a three-year contract in February to support Shell Oil's exploration and production work in Alaska, but Guidry said that deal will be scuttled by the moratoriums.
Guidry is convinced that companies will tow their rigs to foreign waters.
Because his company does work in places like Mexico, Trinidad and Brazil, and is interested in expanding to Africa, he'll be able to follow the rigs and retain work, but he said it's Louisiana that loses.
If he sends his boats to Brazil or Africa, he'll need to hire local workers there and re-flag his vessels, which means it won't be easy to bring them back to the Gulf of Mexico in a few years if activity cranks up.
"He has no idea what he's done, " Guidry said of the president. "We'll follow them out of the country. We'll re-deploy boats to other regions. It's really sad."
Those servicing the offshore industry say that deepwater drilling is a lot more fragile than one might think.
After oil prices crashed in 1999, deepwater drilling activity in the Gulf of Mexico didn't really get going again until 2004.
Then, with the recession and oil prices crashing in late 2008 and companies' concerns about their ability to raise capital, many drilling plans got put on hold.
With the nation emerging from recession and prices beginning to creep up, companies have only recently begun to initiate new exploration projects. Because drilling in deep water is so expensive, it's very price-sensitive.
Meanwhile, deepwater drilling is the best opportunity in the Gulf of Mexico.
With shallow finds largely tapped out, some 70 percent of the oil in the Gulf of Mexico comes from deepwater or ultra-deep water, meaning depths of 5,000 to 10,000 feet. But planning a new well takes about a year, and with the western Gulf of Mexico lease sale in August being canceled, the moratoriums could deter new operations for years to come.
Actions the Interior Department is taking on offshore drilling
-- Companies must cease drilling all new deepwater wells. Although the term "deepwater" generally means more than 5,000 feet, the directive applies to activities in more than 500 feet of water.
-- Companies that have been approved for an application for a permit to drill, but which have not yet started drilling the well, are prohibited from doing so.
-- MMS will not consider drilling permits for deepwater wells and related activities for six months.
-- Companies must secure the well being drilled "at the next safe opportunity, " and must submit plans to stop operations by Tuesday at 5 p.m. eastern time.
-- The August lease sale for the Gulf of Mexico is canceled. A proposed lease sale off the coast of Virginia is canceled, and proposed exploratory drilling in the Arctic is suspended.
-- Existing deepwater production wells may also be affected. Companies that want to continue existing deepwater production must submit a request to MMS that includes information about the well, safety systems and a "structured risk analysis" about the requested drilling activity. The risk analysis must include discussion about the risks of losing well control specific to that site.
By Rebecca Mowbray, The Times-Picayune
May 30, 2010, 10:16PM
Port Fourchon is the launching point for 90 percent of the deepwater activities in the Gulf of Mexico.
To coastal communities and marine-related industries across southern Louisiana, President Barack Obama's announcement Thursday that work at 33 deepwater drilling operations would be suspended immediately was like sealing the region's economic death from the ongoing oil plume gushing into the Gulf of Mexico.
"It's bad enough that we have an oil spill to deal with and the fishermen can't work. Now they're going to take away the oil industry, and we'll have nothing, " said Chett Chiasson, executive director for the Greater Lafourche Port Commission, which runs Port Fourchon, the launching point for 90 percent of the deepwater activities in the Gulf of Mexico.
If the rigs stop prospecting for oil, then catering companies stop cooking food for rig workers, boats stop bringing them supplies, mechanics stop servicing the supply boats and so on.
Chiasson predicts the hardest-hit communities will lose jobs that won't easily be recovered.
"This industry should not have to suffer because of one company's horrible mistake, " Chiasson said. "This will cause people to lose their jobs. I have no doubt about it."
The president and Interior Secretary Ken Salazar's announcement late last week to halt all deepwater drilling in the Gulf of Mexico "at the first safe stopping point" while the Interior Department figures out what regulatory changes are necessary for offshore oil prospecting seemed designed to reassure the nation that drilling would only proceed in a safe and environmentally sensitive manner.
But to those who work in the offshore industry and in the communities at the epicenter of the spiraling disaster from the April 20 Deepwater Horizon rig explosion and oil leak, it smacked of a lack of understanding of the role that the oil business plays in the Louisiana economy.
In the 2008 presidential election, no coastal parishes except for Orleans supported Obama; last week's offshore drilling announcement only seemed to make his administration even less popular in the oil-affected parishes.
"The president now needs to come down and talk to the offshore industry and reassure us that we're not going to be thrown to the wolves. I think they owe us that, " said Ken Wells, president of the Offshore Marine Service Association. "Our economy around here cannot sustain a collapse of this industry."
Sixteen companies have operations that will be affected by the six-month shutdown, including Shell, Chevron, BP, Marathon, Eni, Petrobras, Hess and LLOG Exploration, a Metairie-based division of Hess.
The Interior Department won't release the names of the wells or locations, saying the information is proprietary.
On Friday, people across the offshore industry were trying to get clarification on exactly what the requirements of the shutdown would be and whether it's really for six months.
On Sunday, the Minerals Management Service issued some additional guidance. That bulletin does not say that the drilling hiatus will be limited to six months; it only says that new permits won't be issued for six months.
The notice also raises the possibility that the shutdowns could affect wells that are in production.
"To obtain approval to conduct an activity in support of existing deepwater production, you must submit your request..." the notice reads. Applications must include a detailed, site-specific risk analysis with discussion about how to handle a loss of well control.
Shell Exploration and Production said it wouldn't have anything to say about how its operations would be affected until this week. Chevron said that it is drilling one well now in the Gulf of Mexico and had planned to drill three others this year. The California company, which has offices in Covington, said Friday it is working with the Interior Department and awaiting specific notice on what it is required to do.
Louisiana Economic Development Secretary Stephen Moret has had a team working to assess the moving target of the economic impact of the rig explosion since late April.
So far, it looks like 22 of the 33 rigs that are affected are off the coast of Louisiana, Moret said, and it's possible that some of the remaining 11 could be rigs that were scheduled to start operations in Louisiana waters in the next few months.
Depending on how the rules shake out, Moret has three scenarios for how bad the moratorium could be for Louisiana's economy.
Within a very short time, Moret believes the state will lose 3,000 to 6,000 direct and indirect jobs.
If the suspensions are maintained, it could rise to 10,000 jobs. And if the moratorium persists while oil prices rise, the state could lose 20,000 jobs over the next 12 to 18 months in the form of lost direct and indirect jobs, and missed job creation opportunities because rising petroleum prices stimulate more energy development.
Since it's unclear what's involved with the shut-downs, it's unclear whether companies will keep their rigs afloat in the Gulf with a skeleton crew or move them to Brazil, which is considered one of the world's biggest deepwater drilling opportunities.
The cost of keeping the rigs idle is significant. BP, for example, was renting the Deepwater Horizon semi-submersible rig from Transocean Ltd. for $500,000 a day before it exploded and sank.
"There's definitely a real risk that some of these rigs could be moved outside of the Gulf of Mexico because of the cost of keeping them idle, the regulatory uncertainty and opportunities in other parts of the world, " Moret said.
Others are convinced that rigs will be floated to foreign waters, and if they're moved, it will take two to three years for the equipment to finish up its new contracts elsewhere and come back.
"The drilling equipment and the rigs, if they know that they can't work for the next six months, they'll re-deploy to the rest of the world. It will be a lot longer than the next six months, " said Otto Candies III, secretary/treasurer of the Des Allemands marine transport company Otto Candies LLC, who called the president's announcement "a knee-jerk reaction."
Candies said his company employs 500 and has a supplier list of 100 companies, so the impact at his company would be wide.
Shane Guidry, chairman and chief executive of Harvey Gulf International Marine LLC in New Orleans, said that his company services all of the deepwater drilling operations in the Gulf. But his company also operates around the world, so it will be affected in several ways.
Harvey Gulf won a three-year contract in February to support Shell Oil's exploration and production work in Alaska, but Guidry said that deal will be scuttled by the moratoriums.
Guidry is convinced that companies will tow their rigs to foreign waters.
Because his company does work in places like Mexico, Trinidad and Brazil, and is interested in expanding to Africa, he'll be able to follow the rigs and retain work, but he said it's Louisiana that loses.
If he sends his boats to Brazil or Africa, he'll need to hire local workers there and re-flag his vessels, which means it won't be easy to bring them back to the Gulf of Mexico in a few years if activity cranks up.
"He has no idea what he's done, " Guidry said of the president. "We'll follow them out of the country. We'll re-deploy boats to other regions. It's really sad."
Those servicing the offshore industry say that deepwater drilling is a lot more fragile than one might think.
After oil prices crashed in 1999, deepwater drilling activity in the Gulf of Mexico didn't really get going again until 2004.
Then, with the recession and oil prices crashing in late 2008 and companies' concerns about their ability to raise capital, many drilling plans got put on hold.
With the nation emerging from recession and prices beginning to creep up, companies have only recently begun to initiate new exploration projects. Because drilling in deep water is so expensive, it's very price-sensitive.
Meanwhile, deepwater drilling is the best opportunity in the Gulf of Mexico.
With shallow finds largely tapped out, some 70 percent of the oil in the Gulf of Mexico comes from deepwater or ultra-deep water, meaning depths of 5,000 to 10,000 feet. But planning a new well takes about a year, and with the western Gulf of Mexico lease sale in August being canceled, the moratoriums could deter new operations for years to come.
Actions the Interior Department is taking on offshore drilling
-- Companies must cease drilling all new deepwater wells. Although the term "deepwater" generally means more than 5,000 feet, the directive applies to activities in more than 500 feet of water.
-- Companies that have been approved for an application for a permit to drill, but which have not yet started drilling the well, are prohibited from doing so.
-- MMS will not consider drilling permits for deepwater wells and related activities for six months.
-- Companies must secure the well being drilled "at the next safe opportunity, " and must submit plans to stop operations by Tuesday at 5 p.m. eastern time.
-- The August lease sale for the Gulf of Mexico is canceled. A proposed lease sale off the coast of Virginia is canceled, and proposed exploratory drilling in the Arctic is suspended.
-- Existing deepwater production wells may also be affected. Companies that want to continue existing deepwater production must submit a request to MMS that includes information about the well, safety systems and a "structured risk analysis" about the requested drilling activity. The risk analysis must include discussion about the risks of losing well control specific to that site.
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