Will the Gulf Ever be the Same?

Anxious oil industry wonders

The Bureau of Safety and Environmental Enforcement approved BP’s plan to drill an exploratory well, Thunder Horse, in more than 6,000 feet of water, 250 miles off Louisiana’s coast.

For most of us, the Gulf of Mexico is a vast unknown, a massive body of water we experience around the edges from this or that beach. But for tens of thousands of people in the offshore oil industry, the Gulf is a workplace. And many say that during the past year, their workplace has been entirely too quiet.

Federal energy regulators will tell you that drilling activity has steadily recovered from the drastic slowdown that followed the explosion of BP’s Macondo well in April 2010. The magnitude of that event prompted regulators to halt the permitting of new wells in deep Gulf waters until more stringent safety measures could be put in place.

But oil and gas industry people complain that, even after permitting finally resumed, the action in the deep waters of the Gulf has been much too slow.

“We had 60 rigs operating out there prior to the disaster, and today’s count is around 34,” says Don Briggs, president of the Louisiana Oil & Gas Association.

With as many as 800 jobs directly generated by each deepwater drilling rig, the employment impact is significant, he says.

Just how important oil and gas jobs of all kinds are to Louisiana is clear in a recent study by another industry group, the Louisiana Mid-Continent Oil and Gas Association. The report released in late October showed that more than 300,000 jobs in the state stem from oil and gas extraction, refining and pipeline operations.

Louisiana is the No. 1 producer of crude oil in the United States; it ranks No. 2 in petroleum refining capacity and No. 3 in natural gas production. According to the report, every job created in these sectors generates four additional jobs that indirectly support the industry, and the three sectors together generate as much as $16 billion in household earnings and $2.5 billion in annual taxes and fees.

In the wake of the BP disaster, which government scientists estimate released nearly 5 million barrels of oil into the Gulf, the Obama administration cracked down on the industry, temporarily halting new deepwater drilling permits and launching an investigation into the cause of the explosion.

While the federal government later resumed its review of new drilling applications, the implementation of more stringent safety and operational standards has slowed the pace of drilling approvals.

During the past year, local economic development agency Greater New Orleans Inc. has monitored the recovery of drilling activity. Based on its latest evaluation of data from the Bureau of Ocean Energy Management, Regulation and Enforcement, the agency said that the federal government has approved only 37 percent of deepwater drilling plans submitted this year. The government is taking an average of 115 days to approve a single application, which is almost double the historical waiting period.

One of the applicants receiving a go-ahead for deep drilling recently is none other than BP.  Not long after federal investigators laid most of the blame for the 2010 oil spill directly on BP, the Bureau of Safety and Environmental Enforcement in October approved the company’s plan to drill an exploratory well in more than 6,000 feet of water, 250 miles off Louisiana’s coast.

The bureau’s director, Michael Bromwich, emphasized that the approval came after a thorough review of the well design and BP’s newly instituted safety measures, including use of advanced blowout-prevention and containment systems.

People in the oil and gas industry say they understand the need for greater caution in exploring for commodities, particularly when drilling in very deep water, but many say the industry is capable of meeting a higher standard of safety while at the same time resuming full offshore activity.

“Every time we get another rig approved, that’s important, but honestly, there hasn’t been a great recovery in the Gulf of Mexico,” says Briggs.

He says this is worrisome not only because of the current impact, but also because of what it may mean for the future of the industry in the Gulf.

The BP well explosion occurred at a time when the Gulf of Mexico was seeing a return of producers who were weary of pursuing reserves in parts of the world where political and social unrest are common.

“More companies were moving back to the Gulf to develop the potential reserves,” he says. But now, some are rethinking their strategy.

Twelve rigs were pulled out of the Gulf during the past year, and another eight that were planned for installation, pre-oil spill, have gone elsewhere, Briggs says.
He adds that one industry group that could be hit hard by the shift is independent oil companies, many of which are privately owned and operate with much less capital than giants like Chevron, Exxon and BP.

Independent producers own more than half of all the drilling leases in the Gulf. With the added costs of what Briggs terms “overzealous” regulation, “the Gulf is going to become a place where just the very big, very rich companies can stay and play,” he says.

One phenomenon that has somewhat buffered the impact of the Gulf slowdown and could help Louisiana weather the continued offshore sluggishness is an uptick in activity onshore. The discovery of huge natural gas deposits in the northern part of the state have lit a fire under onshore drilling applications during the past several years.

Briggs says that some companies whose offshore activity was hampered by the post-spill moratorium shifted their attention to the Haynesville Shale area in north Louisiana. Close to 100 rigs are operating in the area today versus about 20 just a few years ago, he says.
 

What caused the Macondo Well blowout?
An extensive joint investigation by federal offshore energy regulators and the U.S. Coast Guard recently identified the major causes of the April 2010 explosion on BP’s Macondo Well in the Gulf of Mexico.

The investigative panel found that the loss of 11 lives at the Macondo site and the subsequent pollution of the Gulf were the result of:

• poor risk management
• last-minute changes to plans
• failure to observe and respond to critical indicators
• inadequate well control response
• insufficient emergency bridge response training by companies and individuals responsible for drilling the well and for the operation of the Deepwater Horizon rig.


The panel’s report blamed these shortcomings on:

• BP, as the designated operator, was responsible for conducting operations safely with regard to personnel, equipment and the environment.

• Transocean, as owner of the Deepwater Horizon rig, was responsible for conducting safe operations and protecting personnel onboard.

• Halliburton, as a contractor to BP, was responsible for conducting the cement job which should have prevented liquids from flowing up through the wellbore, and had certain responsibilities for monitoring the well.

• Cameron was responsible for the design of the rig’s blowout preventer, which failed.


While the panel found that federal regulations in place at the time of the blowout did not cause the incident, they did recommend certain improvements to cementing procedures and testing; blowout preventer configuration and testing; well integrity testing; and other drilling operations.

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