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20 More Oil Rigs Could Leave the Gulf Unless Permitting Is Increased

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Vitter addresses impact on small business, costs of environmental lawsuit in letter to feds

Up to 20 oil rigs could leave the Gulf of Mexico, in addition to the 11 that have already left, since the Obama Administration imposed a moratorium on deepwater oil and gas drilling in May 2010, a new report from FBR Capital Markets has concluded.

Unless the permitting process is accelerated, FBR analysts anticipate that anywhere from eight to 20 rigs could depart the deep waters within the Gulf. The moratorium was imposed in response to the explosion of British Petroleum’s (BP) Macondo oil well on April 20 of last year. The accident resulted in the death of 11 workers and caused an estimated five million barrels of crude oil to spill into the Gulf.

Although federal officials announced they were lifting the restrictions last October, a “de-facto moratorium” remains in effect that stifles energy production and undermines large and small businesses in the Gulf region, industry officials have argued.

“I don’t think the people in Washington D.C. who implement these policies have an understanding of how much this has impacted our economy, especially in Louisiana,” Renee Baker, the state director for the National Federation of Independent Business (NFIB), has observed. “We can’t just look at the large businesses to understand what’s happening, there are small businesses that do a lot of services for the rigs and they have been set back.”

Although the Department of Interior (DOI) has been issuing permits with “relatively few political barriers,” according to the report, there are “limited bureaucratic resources” available to meet existing demands.

But Bonner Cohen, a senior fellow with the National Center for Public Policy Research (NCPPR), does see a political agenda at work.

“What you are seeing in Louisiana is only a small piece of larger mosaic being put together by the Obama Administration to make affordable energy as inaccessible as possible,” he said. “From the administration’s war on coal to the serious consideration it is giving to imposing a nationwide regulation of hydraulic fracturing, to its shut down of deepwater drilling in the Gulf of Mexico, to its ‘endangerment finding’ from the EPA [Environmental Protection Agency], the administration is practicing its own form of selected industrial sabotage.”
The backlog of permits that have been approved, but not activated, must reach a level of 60 as opposed to the 30 that were counted at the end of August to support the active rig count, which now stands at 20, the report says. The current pace permitting pace is down dramatically from where it has been in recent years. Historically, there have been three times the number of permits in backlog than there have been deepwater rigs operating in the Gulf, FBR analysts point out.

“Between 2006 and 2010, there were typically three times the number of permits in backlog than there were deepwater rigs working in the GOM (Gulf of Mexico),” the report says. “…Using the August 2011 pace of eight unique well APDs (A Permit to Drill) per month, the best-case scenario would be a rig count of just 14 rigs, less than the 28 marketed rigs in the Gulf. However this assumes sustainable just in-time permitting which, in our opinion, is unlikely. Based on the historical 3X ratio between APD backlog and rig count, a pace of 27 permits per month would be needed to support 28 rigs by the end of the year.”

FBR has also identified “structural headwinds” that include “hiring and funding constraints, potential safety and permitting legislation, pending drilling safety regulation revisions and ongoing environmental litigation,” that will specifically impact the Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE)’s ability to improve upon the current pace of permitting.

In a letter addressed to DOI Secretary Ken Salazar and BOERME Director Michael Bromwich, Sen. David Vitter (R-La.) expressed his “ongoing concern with the pace of permitting for offshore production in the Gulf of Mexico.”

The latest figures available show there were 19 floating units operating in the Gulf, which up from a low of four in third quarter of 2010, but down from the average of 28 in the period ranging from 2007-2009, Vitter told federal officials in his letter.

“A rough estimate would suggest that each rig consumes 3 permits per year in order to stay actively working in the Gulf (28 rigs divided by 84 permits equals 3 permits/rig), Vitter wrote.  “Given that a typical deepwater well takes approximately 120 days to drill, one can also assume that the roughly estimated numbers are fairly accurate.  Accordingly, at Interior’s 2011 pace of permitting what is the anticipated attrition rate of rigs from the GOM?  Over the next two years, what are the anticipated production and employment impacts from the current pace of permitting? ”

Vitter also inquired the number of times permit requests have been filed. Some operators claim they have filed an average of 3.6 times, with multiple permits surpassing eight times.

The letter then asks federal officials to address the economic fallout attached to diminished rig activity.

“For each rig not operating in the Gulf of Mexico, what is the multiplier effect on the Gulf economy?”
Vitter asks.  “How are small businesses, including but not limited to helicopter firms, restaurants, welders, carpenters, marinas, and hotels impacted by the loss of each rig?  How is our economy impacted if in 2012 there are 1/3 the drilling rigs working in the Gulf than there were in 2009?”

The letter concludes by asking how much money the federal government has awarded to various environmental groups, which have filed suit over a new drilling plan. It reads as follows:

“On June 9, 2011 the Natural Resources Defense Council, Defenders of Wildlife, Center for Biological Diversity, Sierra Club, Inc., Gulf Restoration Network, Inc, and Florida Wildlife Federation filed suit challenging BOEMRE’s approval of Shell’s drilling plan.  Can you please provide the total amount in attorneys’ fees that Interior Department has awarded these environmental groups under the Equal Access to Justice Act and Judgment Fund for fiscal years 2008 through 2011?

The oil rigs that have departed the Gulf include the Stena Forth, Ocean Confidence, Ocean Endeavor, Transocean Marinas, Ensco 8503, Ensco DS-4, Noble Clyde Boudreaux, Discoverer Spirit, Transocean Amirante, Noble Paul Romano and Ocean Monarch.

Kevin Mooney is an investigative reporter with the Pelican Institute for Public Policy. He can be reached at and followed on Twitter.

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  • John Fontenot

    You said; “I don’t think the people in Washington D.C. who implement these policies have an understanding of how much this has impacted our economy, especially in Louisiana,” Renee Baker, the state director for the National Federation of Independent Business (NFIB), has observed. “We can’t just look at the large businesses to understand what’s happening, there are small businesses that do a lot of services for the rigs and they have been set back.”)
    They have been told but just don’t want drilling anywhere in the US no matter how many jobs it kills. They are willing to import and add to the deficit rather than lose some of their radical green votes. We may have to just wait for 2012.

  • Paul Burke

    Fantastic news – lets use the dirty energy sectors own language and talk about “affordable” energy and “multiplier” effects.

    When it comes to pollution and its across the board devastation the region, contractors, builders, local fisherman, car dealerships, airlines, deep sea fishing industry, furniture, retail, retirement community, restaurants and motels would be better served by a healthy environment and robust tourism trade versus a few more helicopter pilots. 

    Sorry dirty energy sector – I know you are going to drag your heels, kicking and screaming into the 21st century but the byproduct of your last century technology and the “multiplier effects” of pollution, and cancer have ramifications across the board including hyper inflating health care costs.  And in order of magnitude wash away the economic benefits of 11 workers per rig, and 2 helicopter pilots.  Seriously the spin is overwhelming.  You need to see the handwriting on the wall and stop dragging your heels and get in front of the trend.  Just because you are making money for a few people hand over fist doesn’t mean whats good for your old deregulated business model is good for the entire region or country.  The iron clad monopoly of cars being only powered by oil is slowly but surely coming to an end as well as the death grip of nuclear, coal and oil for generating electricity. 

    Cheaper?  Cheaper for who?  The overall aggregate cost of healthcare and the drain on our economy?:  The overall aggregate cost of cleaning up your Superfund sites?  The overall aggregate cost of storing your nuclear waste?  The overall aggregate cost of your yearly tax payer funded subsidies?  The status quo maintained is cheaper for who again do tell?  Certainly not the tax payers.

    To use the dirty energy sectors own language “claiming the the administration is practicing its own form of selected industrial sabotage” is also called “governing”.  That’s what governments are supposed to do.  Unregulated capitalism destroys all the natural resources in its paths, whether its mountains, forests or oceans for a quick buck and passes the damage they cause right back to the tax payer the way the system is set up now.  Well done but the cost is finally too high and your days are numbered.  Not because the dirty energy sector or individual businesses are inherently evil but because they are short sighted, and grossly, narrowly, hyper focused on their own interest and bottom line to the exclusion of all else. 

    They don’t see the macro economy as an integrated system and thus overfish, blow mountains to bits, pollute the water, air, and food and claim its not their responsibility – we are only responsible to our share holders and profit margins – great way to run a business if you can get away with it – lousy way to “govern” a country.  So while you complain you are not getting your own way anymore and the permit approval is up but not at the old levels – you revel for the umpteenth time you are only concerned about yourself.  You don’t give a rats ass about helicopter pilots or your oil rig workers or no one would have died.

    So guess what genius – your market sector is only one part of the overall economy – you are not going to get special treatment, and your tax subsidies are going to be taken away from you and hopefully directed to the more macro affordable, clean energy market. 

    When you don’t count the pollution and destruction of your business practices in your bottom line – you are cooking the books.  Dirty energy is not cheaper when you add in the resource wars going on in foreign countries, the death of our soldiers, the costs of the wars, the cost of the destruction of the oceans and the death of your employees. 

    Coal, nuclear and oil are only cheaper when we look the other way and tell apalachia tough sorry for the contaminated water and cancer, sorry about the dead miners, gulf coast sorry for the gusher – and the end of the billion dollar fishing and tourism industry and oopps sorry Japan for the meltdown and catastrophic loss and devastation.

    There’s no free lunch.  We do not operate our separate industries in a vacuum and yes you are responsible for your actions, decisions, and down stream pollution and its affect on our health, quality of life and the impact on the other market sectors.  And yes governments job is to govern the country to the best benefit for ALL, insure a level playing field, and to police those who won’t hold themselves responsible or accountable for the destruction and danger of their business models – including the pharmaceutical industry, the pesticide industry, the tobacco industry, the agriculture industry and the defense industry as well as the coal, oil and nuclear industry.

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  • Scott Cavitt

    The United States is home to the largest passenger vehicle market of any country in the world.[1] [source: Wikipedia] Overall, there were an estimated 254.4 million registered passenger vehicles in the United States according to a 2007 DOT study. Virtually 100% of these vehicles depend upon gasoline or diesel fuel in order to run. “Getting in front of the trend” for a rational thinker would involve finding the most efficient and economically beneficial source for this fuel.  Face it: No significant percentage of 254 Million vehicles are going to be “converted” to run on anything else, anytime soon. Any thoughts to the contrary are simply wishful thinking. Realistically, we must continue to develop our own domestic energy sources while encouraging the development of “green” alternatives until they become economically viable.

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  • Anonymous

    God help the United States should the Republican Party win the upcoming presidential election. 
    Anyone who cannot glimpse the agenda in this plea for quick approval for more rigs is blinded by money and by the disingenuous arguments of guys like our governator, Jindal.  Under the call from fear about “debts,” the Republicans are trying to slip this kind of immoral business trash to the country once again.  It will be a real pitty should that party gain entrance to the White House in a year or so.  We’ll all be, not in deep Gulf, but in deep doo doo.
    Hugh Buckingham

    • Darrell

      Bobby Jindal is getting things done in Louisaina, he is stepping it up a nothc trying to get industry back into the state. Including a deal with steel plant that got shot down.
      I guess you don’t care that all the oil we are using now is coming from outside sources, causing our money to go overseas instead of keeping it home in the US.
      You also don’t give a damn about all the folks that are out of jobs due to the extreme cutback in work in the Gulf Of Mexico.
      But that’s exactly what I would expect from a cry baby liberal with his head up his keester.
      Where do you think plastics, pharmaceuticals, and many other items come from? Unicorn poop.
      The time of the Hydrogen car is here, that’s a fact.
      But shutting down an entire industry that provides the very raw materials neccessary to produce such break throughs is short sighted and uninformed and moronic.
      Grow up! Get your head out of Gores and  Obozos backside before we are sold off to the lowest bidder and become a third world nation of consumers.
      Darrrell Noorda 

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  • ThomasL

    God help the USA if the Dems win in 2012. The A$$holes must go. Obama is a petulant little dictator born of community organizing and left wing radical ideology. Had the press and the talking heads done their job and vetted this little tyrant, he would be back picking up garbage in Chicago.

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