Oil Companies Hurt by Delays After Gulf Drilling Ban is Lifted

Posted in BP British Petroleum,Chevron,Deepwater Horizon,Environment,Government,Gulf Coast,Royal Dutch Shell,World Maritime News on January 3, 2011

The Gulf oil spill ban, which was lifted several months ago by the Obama administration, continues to hurt big oil companies such as Chevron Corp. and Royal Dutch Shell PLC. These companies have billions of dollars tied up in Gulf projects that are on hold and are paying hundreds of thousands of dollars a day for rigs that aren’t allowed to drill. Smaller operators such as ATP Oil & Gas Corp., which have less flexibility to focus on projects in other regions, have been even harder hit.

The Obama administration says it is simply trying to enforce new safety rules adopted in the wake of the April 20 explosion of the Deepwater Horizon drilling rig, which killed 11 workers on April 20, 2010 and set off the worst offshore oil spill in U.S. history. Environmental groups say the administration is right to take its time because the Gulf disaster exposed the risks of offshore drilling.

The Wall Street Journal reports:

The impact of the delays goes beyond the oil industry. The Gulf coast economy has been hit hard by the slowdown in drilling activity, especially because the oil spill also hurt the region’s fishing and tourism industries. The Obama administration in September estimated that 8,000 to 12,000 workers could lose their jobs temporarily as a result of the moratorium; some independent estimates have been much higher.

The lengthy delays in reviewing new permits have caught the industry off guard. When the Obama administration lifted its ban on deep-water drilling on Oct. 12, many experts had expected a few permits to be issued before the end of 2010, followed by a gradual ramp-up of activity this year.

Among the new rules: Companies must hire outside engineers to certify key well-safety equipment and subject the gear to more rigorous tests. They require more worker training, more documentation and detailed plans of how they would respond to a worst-case well blowout.

But with no deep-water permits yet issued and companies still struggling to comply with new, tougher safety rules, experts say it could be 2012 before drilling approaches pre-disaster levels. Even when it does, projects that were once approved in weeks will likely take months to get past increased regulatory scrutiny.

“There was a sense that we would start to see deep-water permits approved by year end,” said Arun Jayaram, an energy analyst with Credit Suisse in New York. Mr. Jayaram said he now doesn’t expect much deep-water drilling at all this year.

Published by maritime lawyer Gordon & Elias, LLP