Tuesday, June 8, 2010

Drilling Moratorium - An Economic Nightmare

The Louisiana Mid-Continent Oil and Gas Association has prepared a summary of the impact of the 6 month drilling moratorium to the State of Louisiana. I have condensed their summary here.

Since the announcement by the MMS, the GOM rig count has decreased to 23 rigs from 46 last week.

Roughly 33% of nation’s domestically produced oil and 10% of the nation's natural gas comes from the Gulf of Mexico. In addition, 80% of the Gulf’s oil, and 45% of its natural gas comes from operations in more than 1000 feet of water – the deepwater (2009 data).

Note that the moratorium applies to all wells in water depths greater than 500'. Therefore, it will apply to wells that are not typically considered to be deep water wells.

The moratorium means roughly 33 floating drilling rigs – typically leased for hundreds of thousands of dollars per day – will be idled for six months or longer. In all probability, these rigs will find work outside of the US and will not be available for domestic drilling at the end of the moratorium.

Each drilling rig employs 180 to 280 people working in rotating shifts. In addition, each drilling job supports 4 other jobs. Therefore, 800 to 1400 jobs per idle rig are at risk. That's a loss of 25,400 to 46,200 jobs!

Wages for those jobs average $1,804/weekly. The potential for lost wages is huge, over $5 to $10 million for 1 month – per rig! Wages lost could be over $165 to $330 million/month for all 33 rigs.

The number of wells and oil companies impacted are:

Shell (7)
Chevron (4)
Anadarko (3)
Marathon (2)
Noble Energy (2)
Eni US Operating Co. (2)
ATP Oil & Gas (2)
Statoil (2)
ExxonMobil (1)
Petrobras America (1)
BHP (1)
BP (1)
Kerr McGee (1)
Murphy (1)
LLOG (1)
Newfield (1)
Hess (1)

The number of successful wells drilled is the leading indicator of economic demand for the offshore industry. A successful well will trigger the start of engineering studies to determine the best type of structure for development of the field. This will lead to fabrication and installation of the massive structures required to produce oil and gas in deep water. These are high technology, high skills and high paying jobs. The drilling moratorium will drive a stake into the heart of the domestic offshore industry.

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