Uncertainty A Game-Changer For Gulf Oil & Gas

On Aug. 4, BP announced the MC252 well appears to be in a static condition and has reached a significant milestone. For 106 days the BP Macondo well pumped millions of barrels of oil into the Gulf of Mexico causing what is soon to be dubbed as the greatest ecological manmade disaster ever.

Much to the surprise of many, the ecological impact may not be as great as predicted. Conditions improve everyday with new shoots of marsh grass and mangrove trees sprouting up in areas that were drenched in oil just a matter weeks ago. According to Cain Burdeau and Jeffrey Collins of The Associated Press, “More than a dozen scientists interviewed by The Associated Press say the marshes here and across the Louisiana coast are healing themselves, giving them hope that delicate wetlands might weather the worst offshore spill in U.S. history better than they had feared.”

Many have underestimated the resiliency of the warm waters of the Gulf of Mexico and the coastal marshes of Louisiana’s wetlands. Soon all will be well with the environment, but what will most likely change will be Louisiana’s offshore oil and gas industry.

It is our hope that in the next 60 days the Administration will lift the moratorium in the deepwater and offshore rigs that were once idle will go back to work. At this time, not one of the rigs has actually laid off their crews. Instead, companies have used the down time to do needed maintenance work while having the luxury of being under contract with other oil companies. Of course, lifting the moratorium in the coming 60 days would be the best of all worlds.

Unlike any of the sectors of the domestic oil and gas industry, the deepwater Gulf of Mexico accounts for the highest ratio of ancillary jobs per each rig worker. According to recent estimates by Raymond James published in U.S. Research, “There are eight onshore ’support people’ per ‘rig Hand’ and a total of 1,500 workers whose paycheck directly depends on that rigs operations.” Similarly, the National Ocean Industries Association (NOIA) estimates there are 1,400 support people per rig hand. In the event of a long-term moratorium, Morgan Stanley predicted that nearly 50,000 jobs would be at risk in the deepwater Gulf of Mexico.

When discussing the offshore oil and gas industry it’s important to keep in mind that there are two offshore industries, shallow water and deep water. Both are similar in ways but distinctly different in others. The defining difference is by water depth, 500 feet or deeper is deep water and depths less than 500 feet are shallow water.

The only certainty of lifting the moratorium is the uncertainty of the conditions and compliance rules that industry will soon face.

As well, it is the uncertainty in regulations that has allowed only four permits to be granted in the past three months in the shallow water Gulf of Mexico. In the months of February, March and April, only 56 permits were granted. Though a moratorium does not exist in the shallow water, for the most part it is shut down as well.

In the end, uncertainty will be the game changer for the Gulf of Mexico oil and gas industry. No industry will invest billions of dollars without a high degree of certainty in their respective market.

Don Briggs is President of the Louisiana Oil & Gas Association.



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