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business newsDrilling Moratorium Debate Heats Up
By
Josh Lipton Jun 21, 2010 3:25 pm
Oil companies and the government square off in court.
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According to the AP, several oil-service companies are asking a federal judge to block the Interior Department from enforcing a six-month moratorium on new deepwater drilling projects in the Gulf of Mexico. US District Judge Martin Feldman is hearing arguments in New Orleans on Hornbeck Offshore Services’ (HOS) bid for lifting the moratorium.
Hornbeck, based in Covington, Louisiana, operates offshore supply vessels. Its competitors include Seacor Holdings (CKH) and Tidewater (TDW).
A lawsuit filed by the company, says the AP, claims the government arbitrarily imposed the moratorium and suspended drilling at 33 existing exploratory wells without any proof that the operations posed a threat.
Taking the other side in this showdown in the Big Easy: the administration’s lawyers as well as the Southern Environmental Law Center, which reportedly claims that every deepwater well is now suspect.
“All these companies have given the same assurances this type of disaster will never happen,” said Derb S. Carter, Jr., a lawyer with the group. “And they've had the same inadequate oversight by the [Minerals Management Service].”
President Barack Obama, in a speech last week, spoke directly to the economic challenges caused by the drilling moratorium for those working in the industry. “I know this creates difficulty for the people who work on these rigs, but for the sake of their safety, and for the sake of the entire region, we need to know the facts before we allow deepwater drilling to continue,” the President said.
BP (BP) confirmed it's already shelled out $2 billion on the spill and clean-up costs. CNBC reported over the weekend that BP was working on plans for providing up to $50 billion in financing over the next five years to meet the Gulf oil spill and clean-up costs through cash flow, bond offerings, suspension of its common stock dividend, and asset sales. (Hat tip: D.A. Davidson.)
To assess the macroeconomic impact of Obama’s deepwater moratorium, a team of Raymond James analysts, led by J. Marshall Adkins, recently crunched some numbers to determine what the moratorium means, exactly, for jobs and economic activity in the Gulf Coast region and US oil production.
Each of the 33 deepwater rigs operating in the Gulf of Mexico as the moratorium went into effect, the Raymond James crew says, employed 1,500 workers and generated $1 million a day in economic activity.Based on their working assumption that the drilling ban will last 12 months (until June 2011), the shutdown of 33 rigs, say the analysts, could translate into a GDP loss of $12 billion. The total number of jobs at risk is roughly 49,500, by their count.
These are well-paying jobs, especially for the region, notes Frank Holmes of US Global Investors. The typical support and lower-level workers earn up to $4,000 a month, and specialized positions pay well more than double that amount, he says, citing data from the New York Times. In all, the idled rigs represent at least $165 million in monthly wages.
In addition to job losses and GDP reduction, the deepwater moratorium will, by definition, reduce domestic oil production, say the analysts, who note that deepwater wells (defined by the Minerals Management Service as water depths of 1,000-plus feet) generated 80% of all Gulf of Mexico oil and nearly 25% of all US oil production.
The deepwater US Gulf accounted for roughly 50% of total non-OPEC supply growth last year.
Raymond James says that, without any new deepwater drilling over the next 12 months, deepwater production could decline by nearly 400,000 barrels per day from current levels.
This isn’t a game-changing event, say the analysts, meaning it doesn’t imply that the price of black gold will now jump to $100. But, they argue, it isn’t irrelevant either: Such a decline would more than cancel out the 2011 growth they project for Canada and Brazil -- combined.
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