State of the Gulf

A new report from Southern Methodist University summarizes the impacts of the federal regulatory changes after the Macondo blowout. Here is a summary:

• Total active rig counts in the Gulf are far short of pre-moratorium numbers. In May 2010, there was an average of 27 “active” rigs in the Gulf – those engaged in drilling activities as opposed to maintenance, completions, and workovers. As of May 1, 2012, there were only 18 total active rigs in the Gulf.

• Production in the Gulf is down by 30 percent over projections. According to the Energy Information Administration (EIA), Gulf production fell from 1.55 million barrels per day in 2010 to 1.32 mb/d in 2011. This year, EIA estimates Gulf output will fall further to 1.23 mb/d. But two years ago, before the moratorium, EIA predicted that production would reach 1.76 mb/d this year.

• Federal revenues from Gulf activity have dwindled: Under the Obama administration, offshore lease sales have gradually declined each year, depriving the U.S. Treasury of a sorely needed source of revenue. During 2008, $9.4 billion was generated in new offshore lease bids. That dropped to $1.1 billion during the recessionary year of 2009, $979 million in 2010, then a paltry $36 million in 2011 as only one lease sale was held during the entire year.

• Deemed ‘submitted’ period expanded: When an operator submits a plan, regulators first determine whether it meets the initial criteria to be ready for review, or deemed “submitted”. No one officially tracks this phase. The SMU report reveals that the average number of days to obtain approval for a plan from original submission to final approval has risen from 50 days pre-Macondo to 207 days – attributable to the fact that the average number of days from original submission to deemed “submitted” has ballooned to 160 days since Macondo.

• Permit approval claims overblown: Since early 2012, the administration has touted the number of permit approvals issued for unique wells in the deep waters of the Gulf – claiming in early March 2012 to have approved permits for 94 unique wells. Yet only 32 of those 94 permits covered unique new wells specifically permitted to reach hydrocarbons. The rest applied either to pre-moratorium wells in need of revised plans, or permits that allow shallow batch set depths, which need additional permits to reach total depth for hydrocarbons.

• Just in time permitting breeds uncertainty: Current drilling permit approvals are being issued on a “just-in-time” basis, sharply hindering a company’s ability to plan for the next job. A back-log of at least three approved drilling permits is sought for each active rig in order to secure the long-term contracts that the industry utilizes. With 18 active deep-water rigs, the inventory of approved permits should be at least 54. As of March!31, there were only 6 – leading companies to question where their rigs will be going next.