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07/14/2011

A Year Later, Deepwater Drilling Remains Depressed in the Gulf

(NAHAD HoseCONECTIONS - May 2011)

A year after the Deepwater Horizon explosion and oil spill, the oil and gas industry appears more shaken and recovery from the wider economic impacts more uncertain, according to some experts. Reports show the oil spill had devastating ripple effects on the Gulf States' food and tourism industry and many lost their jobs. Consumer spending and sales taxes likewise decreased.

But the more significant ongoing economic impact of the spill has been the moratorium on deepwater drilling and slow recovery of the oil and gas market, according to Greater New Orleans, Inc., a regional economic development agency. Since the end of the six-month moratorium on new and existing deepwater drilling in October, only a trickle of new permits have been approved, according to the agency. Most deepwater oil drilling is on a holding pattern as environmental regulations are slowing the approval process required for new wells.

"It could be that we never get back to the level we were seeing, which was actually during a recovery period itself," says Eric Smith, associate director of the Tulane Energy Institute, a part of Tulane University in New Orleans, LA. "It will be a double-dip moratorium, if you will."

Ten deepwater permits have been issued since the oil spill, eight of which were already in the process of approval at the time, Smith says. Since February 2011, an average of 1.3 permits were issued each month, which amounts to a 78 percent monthly reduction from the historical monthly average of 5.8 permits per month, according to GNO Inc.

Each exploration plan must meet a site-specific Environmental Assessment (SEA) before approval.

Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), said in a press release: "Permit applications that satisfy our more rigorous safety and environmental standards and that demonstrate the necessary containment capabilities will be approved; those that do not will be rejected. That has been our approach and will continue to be our approach."

Shallow-water permits have also taken a dive - although not as much as deepwater - by 15 percent, according to the GNO, Inc.'s Gulf Permit Index report in April. A total of 6 shallow-water permits were issued in the last three months.

Other factors are contributing to the slow approval of permits including a greater desire to drill onshore, which is more cost-effective for businesses, Smith says. In addition, he says BOEMRE would benefit from additional congressional funding to help hire qualified employees to process permits.

The moratorium and slow recovery has been a blow to the Gulf States and especially Louisiana, where 88 percent of the United States' offshore drilling rigs are near, according to a GNO three-part study titled "A Study of the Economic Impact of the Deepwater Horizon Oil Spill." Louisiana's businesses and workforce took the brunt of the effects.

 "The Deepwater Horizon Oil Spill was disastrous for our region, initially impacting our fisheries and then expanding to impact oil service companies and other small businesses, many family-owned and -operated," says Robin Barnes, executive vice president of GNO, Inc., in a press release. "This study intends to communicate the diverse and far-reaching effects of the moratoria on our region."

Impacts were far-reaching. The incident hurt businesses directly and indirectly related, such as equipment suppliers. The study cited R&D Enterprises as one such example. The company, which provides equipment to drilling rigs, had no revenue in January and reported it could barely retain its employees.

"We have absolutely no work and no revenue; however, our costs have not changed," said Leslie Bertucci, owner of R&D Enterprises, in a press release. "We still have all our employees, because we really don't want to lay anyone off."

Some reports say that 20 percent of oil rig jobs were lost temporarily, and up to 12,000 jobs were lost in the Gulf, although others say the resulting oil cleanup and demand for repair has caused a slight increase in coastal business.

The study shows that many companies were able to restructure their business plans and utilize savings in order to retain employees. However, regional businesses will eventually be forced to begin significant layoffs unless BOEMRE issues more permits and drilling becomes consistent, according to GNO.

Smith does not see any change in the slow recovery period for offshore drilling until 2012 when there's a presidential election. His advice is for companies to focus on selling to companies elsewhere.

 "If they have hose equipment that works with the (oil) developments onshore, that would be a place to spend some effort," Smith says. And the rest of the world, including West Africa, Brazil and southeast Asia, did not shut down deepwater drilling, he says, providing additional opportunities for growth.


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