Energy & Entrepreneurs

True End to Drilling Ban? Questions Persist

by Raymond J. Keating

On October 12, the Obama administration finally ended its deepwater drilling moratorium, which was always more about political pandering to the environmental Left, than about true safety issues.

So, the lifting of the moratorium should be a welcome development. However, questions persist about whether a ban - or some kind of drilling slowdown - will be in effect for all practical purposes.

Consider questions raised by key players and in various reports.

API President and CEO Jack Gerard observed: "Without additional resources and a serious commitment by the government to process and approve permits and other requirements expeditiously, the moratorium will give way to a de facto moratorium, which will continue to cripple the already hard-hit Gulf region and cost more than 175,000 American jobs a year... Regulators need to quickly put in place a system that allows companies that show their compliance with new standards to resume operations immediately."

On October 12, The Wall Street Journal editorialized: "[T]he Bureau of Ocean Energy Management continues to sit on drilling permits, and the shallow water industry estimates that 70% of its fleet will soon be idle. From the looks of yesterday's announcement, the same slow-roll may be facing deep water drillers. Interior Secretary Ken Salazar last month issued new deep water regulations in anticipation of ending the ban, and Bureau Director Michael Bromwich is saying it will take four to six weeks for his agency to ensure drillers have complied with those rules and inspected their platforms."

In a news report, the Journal noted: "David Williams, CEO of Noble Corp, a big drilling company, said that drilling times could increase by 20%-25% on normal deepwater wells because of expected changes in regulations. That could lead to a 12% fall in total daily production in the Gulf... Some industry officials expressed concern that the net result would be a continued slowdown in drilling activity. They point to the Interior Department's pace of issuing new permits for shallow-water wells-a dozen since April compared with 10 to 15 a month before the April 20 Deepwater Horizon rig explosion, according to an analysis by Southern Methodist University."

In a statement, Louisiana Governor Bobby Jindal (R) raised similar concerns: ""While this is good news, if there is one thing we have learned from this Administration it is that the devil is always in the details. For example, while there is no official moratorium on shallow water drilling operations, severe bottlenecks in the federal permit review process have resulted in a de facto moratorium for shallow water drilling. Indeed, since the beginning of June, only 12 new permits have been issued for new shallow water wells, compared to the pre-deepwater-moratorium average of 10 to 14 shallow water permits issued a month. We do not want to see the same de facto moratorium on deepwater drilling operations. We will need to see how new regulations on deepwater drilling are implemented to see if permits are issued in a timely manner. Moreover, our oil and gas industry - like any business - needs predictability from government in order to succeed and create more jobs for our people."

And U.S. Senator Mary Landrieu (D-LA) declared: "I applaud the administration for taking a step in the right direction by lifting the deepwater drilling moratorium.  Today's decision is a good start, but it must be accompanied by an action plan to get the entire industry in the Gulf of Mexico back to work.  This means that the administration must continue to accelerate the granting of permits in shallow and deep water, and provide greater certainty about the rules and regulations industry must meet."

As noted in last week's SBE Council Energy & Entrepreneurs analysis, the Obama administration has proven quite skilled at creating regulatory uncertainty and raising regulatory costs. That has been the case in the energy arena to the detriment of the industry; the consumers and small businesses needing affordable, reliable energy; and U.S. competitiveness, economic growth and job creation.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.