Editorial: Note to self (US) – Quit shooting at feet

Posted on 08 November 2011

By Matt Ralls, 2011 IADC Chairman

Matt Ralls, 2011 IADC Chairman

Recently, the European financial markets have been looking frighteningly similar to the US financial markets in 2009. Interestingly, this market turbulence comes at a time when most oil service company managers would say that demand remains relatively strong and there are even shortages of certain types of equipment. For most of us in the industry, our biggest concern in 2011 has not been the availability of credit (as it was in 2009) but the availability of skilled workers, since the energy industry is one of the few around the world that is creating jobs.

Given the stubbornly high unemployment rate in the US and the nation’s dependence on oil produced in countries not always friendly toward US interests, one would think that US policy toward our industry would be, if not supportive, at least benign. Instead, the current Administration continues to pursue a course of action that is downright hostile to the industry in many ways. Let’s look at some of these:

Macondo was without doubt a disaster for the industry and the nation – it shouldn’t have happened and must never happen again – but the regulatory response to Macondo was unnecessarily heavy-handed and over-reaching. There was no need for a complete cessation of deepwater activity for many months, followed by a burdensome and glacially slow permitting process such that, a year and a half later, there are still only two-thirds the number of deepwater rigs operating in the Gulf of Mexico as there were before Macondo. To say that deepwater drilling needed to be shut down until new regulations could be issued to ensure safety and environmental protection ignored the industry’s enviable safety and environmental records pre-Macondo compared with virtually any other industry operating in the US.

This is not to say that our industry can’t learn from the Macondo disaster and be better for it, but the model should have been more like the UK response to the Piper Alpha disaster. In that case, the Cullen report oversaw a thorough study of both the root causes of the disaster and general industry practices and only then promulgated new regulations that resulted in important advances in offshore safety without crippling the industry in the meantime.

US tax policy has been another shot at our national foot. The US has one of the highest corporate tax rates in the world, and our tax policy tries to impose that tax rate on US companies wherever they operate in the world. This approach makes US companies less economically competitive than companies incorporated in jurisdictions that have lower rates and a territorial approach, with the result that many US companies have re-domiciled in more tax-friendly countries, with the consequent loss of high-level management jobs over time.

Recently, the US president has been singling out the energy industry as a potential source of higher taxes to help balance the US budget gap. Many in the industry rankle at business expense-related deductions being characterized as loopholes for oil companies, even while substantially similar tax incentives are available to virtually every other industry. It would be grossly unfair to try to fix the nation’s budget problems by singling out one industry. The president’s plan would only discourage investment in one of the few industries in the US that is still creating new jobs.

Even when we’re not shooting at our own collective feet, there are times when US policies keep us from moving our feet out of the way when others are shooting in our direction. Take the case of drilling off the coast of Cuba. This fall, a group of foreign operators will be drilling a deepwater well off the coast of Cuba, less than 100 miles from some of the most beautiful and environmentally sensitive US coastlines. Yet, US policies prohibit the use of US companies’ goods and services in planning and executing that well and could even technically prevent those goods and services from being available to contain a hydrocarbon release were one to occur.

The latest bit of misguided policy is legislation recently proposed by a Representative from Tennessee that would require that all vessels drilling or supporting drilling in the Gulf of Mexico be US-flagged. This change would cause enormous disruption to activities in the Gulf without any significant offsetting benefits. Most rigs working in US waters are overseen by US management teams and crewed by US personnel. They operate under US Coast Guard regulations and inspections. While it seems unlikely that such a job-killing legislative initiative would get the support to go forward, it is a recent and relevant example of how partisan or protectionist initiatives can hurt our industry.

The energy industry supports over 9 million jobs in the US. At a time when so many companies in the US economy struggle to find the demand to justify adding employees, the energy industry faces challenges to find, hire and train people for well-paying jobs with a visible career track. The US should quit playing politics with one of its strongest industries and help us do what we do best – provide good jobs and improve our energy security.

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