Comments: Drilling Slowdown

Abstract

Editor's column Nearly a year after the Macondo blowout in the US Gulf of Mexico, activity in one of the world’s great hydrocarbon basins is sparse and the future appears uncertain. Although the drilling moratorium was lifted by the federal government several months ago, approval of deepwater drilling permits has been slow in coming and the regulatory environment is unclear. Drilling contractors are certainly suffering. Seahawk Drilling, one of the largest operators of shallow-water rigs in the Gulf of Mexico, announced last month that it would file for bankruptcy and sell its assets to a competitor. The company blamed the US government for regulations that had stifled drilling activity. Seahawk was “forced to seek strategic alternatives only after an unprecedented decline in the issuance of offshore drilling permits following the Macondo blowout,” Seahawk CEO Randy Stilley said in a statement announcing the bankruptcy. “The decision by regulators to arbitrarily construct unnecessary barriers to obtaining permits they had traditionally authorized has had an adverse impact not only on Seahawk, but on the sector as a whole.” Seahawk’s assets will be acquired by Hercules Offshore in a cash and stock deal worth about USD 100 million. The deal was the second major consolidation among US rig contractors in a week, following Ensco’s acquisition of Pride International. US Interior Secretary Kenneth Salazar in May imposed a moratorium on drilling in the Gulf and lifted it in October. Drilling in shallow water of 500 feet or less was not subject to the moratorium but the issuance of new drill permits was greatly slowed. At a Baker Institute gathering last month in Houston, industry representatives, scientists, consultants, and government officials discussed the future of the Gulf post-Macondo. That future will depend on how US drilling policy and safety standards evolve, the panelists agreed. In 2010, the US Gulf of Mexico produced 1.7 million b/d of oil and 6 bcf/d of natural gas, just under a quarter of total US oil output and 10% of total gas production, said J. Robinson West, chairman and chief executive officer of PFC Energy, one of the speakers at the event. “If oil and gas drilling are able to continue without constraint in the Gulf, it is the young fields in ultradeep water that will make the greatest contribution to US domestic oil production and energy security,” West said. By 2020, more than half of the Gulf’s production is projected to come from ultradeep waters. Several industry executives thought that the industry and federal regulators would soon be to a point where the issuance of deepwater drilling permits could resume. Michael Bromwich, director of the federal agency overseeing drilling activity, said he expects permits for deepwater projects to begin soon, at least before the end of the second quarter. Meanwhile, rigs from the Gulf are leaving for other basins around the world such as Brazil and west Africa. “The deepwater industry is global and will take its capital, equipment, and jobs to other basins if it cannot operate in the US,” West said.