Suspending drilling is non-solution that will only beget more problems

Posted on 14 July 2010

By Linda Hsieh, managing editor

Just a few weeks ago, as I was watching TV and flipping the channel back and forth between CNN’s endless coverage of the BP oil spill and the MTV Movie Awards, I thought to myself: If the whole Macondo saga playing out in the Gulf were a Hollywood film, then the offshore drilling industry would be a shoo-in for this year’s Best Villain Award. (If you’re not familiar with the MTV Movie Awards, the show gives out “Popcorn” statues in irreverent categories such as Best Fight, Best Villain and Best Something-I-Can’t-Print-Here.)

Much of the mainstream media has certainly been happy to go along with the “Offshore Drilling Is Evil” playbook – no big surprise; they’ve been portraying Big Oil as villainous for years. But the frustrating thing about this sensationalized approach to news reporting is that it tends to overshadow key issues that deserve more public exposure and discussion.

To the overwhelming majority of the American public, “offshore drilling” is so far removed from their daily lives that they hardly make the mental connection between drilling and the gasoline they buy at the pump. Stop all deepwater drilling in the Gulf of Mexico? Sure, seems reasonable considering the proportions of the Macondo blowout and spill.

But is the general public getting the full picture and understanding the impact that a six-month blanket drilling moratorium would have on the US economy? I’m not so sure.

IMPACT ON PRODUCTION

Here are some facts from a report released by research and consulting firm Wood Mackenzie, which assumes that deepwater drilling in the Gulf of Mexico is banned for six months:

• 2010 GOM deepwater production will be 46,000 boe/day lower. Twenty of the 33 suspended deepwater wells were development wells.

• In 2011, approximately 193,000 boe/day of production from the deepwater GOM could be deferred. Of that total, 93,000 boe/day would be directly attributable to the six-month halt in drilling; the remaining 100,000 boe/day would be attributable to potential delays in new projects.

• By 2015, 340,000 boe/day, or 17%, of deepwater GOM production could be deferred, due to a combination of the moratorium, stricter drilling regulations and longer permitting time frames.

• A 20% increase in capital and operating costs for deepwater operators – higher insurance costs and higher costs to comply with safety regulations – would erode more than $11 billion in value from existing deepwater GOM projects and would reduce federal tax revenues from those fields by more than $5.4 billion. This level of cost increases could marginalize at least seven current discoveries, which would put an additional $7.6 billion in future government revenues at risk.

• It is unlikely that drilling will quickly return to normal even after the six months are up. Rigs could be moved out of the region due to lack of work, and bringing them back would take time. If new safety regulations require retrofitting or equipment replacement, that could also slow the restoration of drilling.

GULF COAST COMMUNITIES

Talking with an IADC colleague about a town hall meeting he attended in Louisiana recently, he described the overwhelming sense of concern that local residents expressed about the drilling moratorium. For Gulf Coast residents, offshore drilling is the real deal – they recognize its importance, and they know that a six-month drilling ban could end up taking away their jobs and livelihoods.

Offshore drilling is not a villain, and a blanket suspension of all deepwater drilling in the GOM is not a competent solution; it is a non-solution that will only beget more problems.

Linda Hsieh can be reached at linda.hsieh@iadc.org.

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