Twenty More Gulf Rigs at Risk: 'Mikhail Obama, Tear Down This Wall'

[Editor note: Mr. Mooney’s Collateral Damage: Lost Rigs from Obama Obstructionism appeared last month at MasterResource. His reports originally appear at the Pelican Post, Louisiana news and commentary from the Pelican Institute for Public Policy.]

Up to 20 oil rigs could leave the Gulf of Mexico, in addition to the 11 that have already left, since the Obama Administration imposed a moratorium on deepwater oil and gas drilling in May 2010, a new report from FBR Capital Markets has concluded.

Unless the permitting process is accelerated, FBR analysts anticipate that anywhere from eight to 20 rigs could depart the deep waters within the Gulf. The moratorium was imposed in response to the explosion of British Petroleum’s (BP) Macondo oil well on April 20 of last year. The accident resulted in the death of 11 workers and caused an estimated five million barrels of crude oil to spill into the Gulf.

De Facto Moratorium

Although federal officials announced they were lifting the restrictions last October, a “de-facto moratorium” remains in effect that stifles energy production and undermines large and small businesses in the Gulf region, industry officials have argued.

“I don’t think the people in Washington D.C. who implement these policies have an understanding of how much this has impacted our economy, especially in Louisiana,” Renee Baker, the state director for the National Federation of Independent Business (NFIB), has observed. “We can’t just look at the large businesses to understand what’s happening, there are small businesses that do a lot of services for the rigs and they have been set back.”

Although the Department of Interior (DOI) has been issuing permits with “relatively few political barriers,” according to the report, there are “limited bureaucratic resources” available to meet existing demands.

But Bonner Cohen, a senior fellow with the National Center for Public Policy Research (NCPPR), does see a political agenda at work:

What you are seeing in Louisiana is only a small piece of larger mosaic being put together by the Obama Administration to make affordable energy as inaccessible as possible,” he said. “From the administration’s war on coal to the serious consideration it is giving to imposing a nationwide regulation of hydraulic fracturing, to its shut down of deepwater drilling in the Gulf of Mexico, to its ‘endangerment finding’ from the EPA [Environmental Protection Agency], the administration is practicing its own form of selected industrial sabotage.

The backlog of permits that have been approved, but not activated, must reach a level of 60 as opposed to the 30 that were counted at the end of August to support the active rig count, which now stands at 20, the report says. The current pace permitting pace is down dramatically from where it has been in recent years. Historically, there have been three times as many permits in backlog as there have been deepwater rigs operating in the Gulf, FBR analysts point out.

“Between 2006 and 2010, there were typically three times the number of permits in backlog than there were deepwater rigs working in the GOM (Gulf of Mexico),” the report says. “…Using the August 2011 pace of eight unique well APDs (A Permit to Drill) per month, the best-case scenario would be a rig count of just 14 rigs, less than the 28 marketed rigs in the Gulf. However this assumes sustainable just in-time permitting which, in our opinion, is unlikely. Based on the historical 3X ratio between APD backlog and rig count, a pace of 27 permits per month would be needed to support 28 rigs by the end of the year.”

FBR has also identified “structural headwinds” that include “hiring and funding constraints, potential safety and permitting legislation, pending drilling safety regulation revisions and ongoing environmental litigation,” that will specifically impact the Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE)’s ability to improve upon the current pace of permitting.

Sen. Vitter vs. U.S. Department of Interior

In a letter addressed to DOI Secretary Ken Salazar and BOERME Director Michael Bromwich, Sen. David Vitter (R-La.) expressed his “ongoing concern with the pace of permitting for offshore production in the Gulf of Mexico.”

The latest figures available show there were 19 floating units operating in the Gulf, which up from a low of four in third quarter of 2010, but down from the average of 28 in the period ranging from 2007-2009, Vitter told federal officials in his letter.

A rough estimate would suggest that each rig consumes 3 permits per year in order to stay actively working in the Gulf (28 rigs divided by 84 permits equals 3 permits/rig), Vitter wrote.  “Given that a typical deepwater well takes approximately 120 days to drill, one can also assume that the roughly estimated numbers are fairly accurate.  Accordingly, at Interior’s 2011 pace of permitting what is the anticipated attrition rate of rigs from the GOM?  Over the next two years, what are the anticipated production and employment impacts from the current pace of permitting?

Vitter also inquired the number of times permit requests have been filed. Some operators claim they have filed an average of 3.6 times, with multiple permits surpassing eight times.

The letter then asks federal officials to address the economic fallout attached to diminished rig activity.

“For each rig not operating in the Gulf of Mexico, what is the multiplier effect on the Gulf economy?” Vitter asks:

How are small businesses, including but not limited to helicopter firms, restaurants, welders, carpenters, marinas, and hotels impacted by the loss of each rig?  How is our economy impacted if in 2012 there are 1/3 the drilling rigs working in the Gulf than there were in 2009?

The letter concludes by asking how much money the federal government has awarded to various environmental groups, which have filed suit over a new drilling plan. It reads as follows:

On June 9, 2011 the Natural Resources Defense Council, Defenders of Wildlife, Center for Biological Diversity, Sierra Club, Inc., Gulf Restoration Network, Inc, and Florida Wildlife Federation filed suit challenging BOEMRE’s approval of Shell’s drilling plan.  Can you please provide the total amount in attorneys’ fees that Interior Department has awarded these environmental groups under the Equal Access to Justice Act and Judgment Fund for fiscal years 2008 through 2011?

The oil rigs that have departed the Gulf include the Stena Forth, Ocean Confidence, Ocean Endeavor, Transocean Marinas, Ensco 8503, Ensco DS-4, Noble Clyde Boudreaux, Discoverer Spirit, Transocean Amirante, Noble Paul Romano and Ocean Monarch.

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Kevin Mooney, an investigative reporter with the Pelican Institute for Public Policy, can be reached atkmooney@pelicaninstitute.org and followed on Twitter.