Let’s Just Buy All Our Oil From OPEC And Draw Unemployment Checks

Our buddy Steve Maley, posting at Redstate.com, beat us to the punch in discussing what might well be the most anti-American bit of policy in the history of the country.

Self-described, in fact.

What are we talking about? The Interim Final Rule put out by the Bureau of Ocean Energy Management on offshore drilling – for both deep and shallow water – two weeks ago, which takes effect after a two-month notice-and-comment period that ends on Dec. 14. In the 32 pages of regulatory gobbledygook the Rule contains are passages which amount to a gigantic government middle finger to the oil and gas industry.

Take this, for example:

The ownership share of deepwater leases for small entities is estimated to only be 12 percent. While a larger percentage of the oil service industry supporting the deepwater operators are small businesses, the lessees that hire and direct these support businesses will bear the burden of this rule. Small companies hold 55 percent of shallow water leases but a smaller portion of the costs of these regulations will affect drilling operations in shallow water.

This rule will affect every new well on the OCS. Tighter regulatory standards for drilling operations and the increased cost of meeting these requirements as a result of regulations for extra tests and well standards will now be required. We estimate that this rulemaking will impose a recurring cost of $183 million each year for drilling OCS wells. Every operator and drilling contractor both large and small must meet the same criteria for drilling operations regardless of company size.

However, the overwhelming share of the cost imposed by these regulations will fall on companies drilling deepwater wells, which are predominately the larger companies. In fact, 90 percent of the total costs will be imposed on deepwater lessees and operators where small businesses only hold 12 percent of the leases. Less than 10 percent of the  total costs will apply to shallow water leases where a 55 percent lease ownership share is held by small companies. Furthermore, these compliance costs only impact drilling operations. Drilling costs are only a share of the total costs incurred by a company operating on the OCS.

Nonetheless, small companies as both lease-holders, and contractors serving lease-holders, will bear meaningful costs under these regulations. Of the annual $183 million in annual cost imposed by the rule, we estimate that the $20 million will apply to small businesses in deepwater and $9 million in shallow water. In total we estimate that $29 million or 15.8 percent of these regulations’ cost will be borne by small businesses.

Fiscal year 2009 aggregate annual Gulf of Mexico OCS oil and gas revenues were $31.3 billion. Using the same percentages of leases held as a proxy for production value in deep and shallow water, we estimate that 74 percent ($23.3 billion) of the OCS revenues are ultimately received by large companies and 26 percent ($8.1 billion) by small companies. As a share of fiscal year 2009 revenues this interim final rule would cost approximately 0.67 percent of OCS revenue for large companies and only 0.36 ($0.029/$8.1) percent for small companies.

Even though this rule may not have a significant economic impact on small businesses, alternatives to ease impacts on small business were considered. One alternative is to exempt small businesses from the requirements of this interim final rule. A second alternative is to delay the implementation timelines to comply with the regulation. Both of these alternatives are being rejected by BOEMRE for this interim final rule because of the overriding need to reduce the chance of a catastrophic blowout event. We do not believe it is responsible for a regulator to compromise the safety of offshore personnel and the environment for any entity including small businesses. Offshore drilling is highly technical and can be hazardous, any delay may increase the interim risk of OCS drilling operations.

Nobody is denying that there are dangers associated with offshore drilling. But in all the time wells have been drilled on the outer continental shelf, we’ve had one major accident with a spill. One. And despite a largely mismanaged and politicized response to that spill on the part of the incompetents in charge of the Executive Branch, it turns out that the Deepwater Horizon accident did not destroy the ecology of the Gulf, it did not eliminate the availability of the seafood industry (there has been damage, without question, and BP’s refusal to help mitigate that damage is shameful, but we’re only months out from the spill and much of the industry is already back to work) and the oil has already largely disappeared everywhere but the bottom of the Mississippi Canyon area where the spill occurred.

In the face of these circumstances, which the administration touts as proof they actually handled the spill well, comes the imposition of a draconian new regulatory regime that by Interior’s own numbers will cost some $183 million per year to Gulf drillers. Setting aside the question whether those figures can be at all trusted – there are those who say the actual impact of the new regulations will be triple what the administration alleges, and based on its numbers on economic impacts of the moratorium the critics seem to have more credibility than Interior does – you simply can’t impose $183 million in additional costs to the offshore oil and gas sector without hemorraghing jobs as a result. At $60,000 per year $183 million comes to over 3,000 jobs. But since the administration crassly boasted that the moratorium “only” put 8,000-12,000 people out of work, 3,000 people permanently out of a job because of the regulations apparently isn’t worth a second thought. And if some smaller producers are destroyed as a result of the new rules, BOEM has expressly decided not to give a damn – “because of the overriding need to reduce the chance of a catastrophic blowout event. We do not believe it is responsible for a regulator to compromise the safety of offshore personnel and the environment for any entity including small businesses.”

Again, there was one such “catastrophic” event, and it wasn’t a shallow-water operator or an independent. It was BP, in deep water. But because something rarer than lightning hitting out of a clear sky MIGHT happen, 3,000 jobs are being sacrificed.

Wells are going to be sacrificed as well. Interior estimates – again, its numbers should be taken with a grain of salt based on past performance – that on average it will cost an additional $1.42 million to drill a deepwater well with mobile offshore drilling unit, $170,000 to drill a deepwater well with a platform rig and $90,000 for a shallow-water rig. At $80 per barrel, to meet the additional cost burden that means you’ll need an additional 18,000 barrels of production per well a MODU gets in deep water, an additional 2,100 barrels for a platform rig in deep water and 1,100 in shallow water. Those might not seem like huge numbers – but given that these are upfront costs and you’re not assured of a strike when you drill an exploratory well in the first place, they could well make the difference between choosing to drill and not choosing to drill.

Not choosing to drill means no jobs for roustabouts, boat pilots, industrial pipe manufacturers, machinists, caterers and lots of other people. There go your 3,000 jobs. Minimum.

But if you’re not involved or affected by the oil industry, don’t worry, because Interior says that all this…

Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. The impact on domestic deepwater hydrocarbon production as a result of these regulations is expected to be negative, but the size of the impact is not expected to materially impact the world oil markets. The deepwater GOM is an oil province and the domestic crude oil prices are set by the world oil markets.

Currently there is sufficient spare capacity in OPEC to offset a decrease in GOM deepwater production that could occur as a result of this rule. Therefore, the increase in the price of hydrocarbon products to consumers from the increased cost to drill and operate on the OCS is expected to be minimal.

However, more of the oil for domestic consumption may be purchased from overseas markets because the cost of OCS oil and gas production will rise relative to other sources of supply. This shift would contribute negatively to our balance of trade.

Whoops! Who put in that last part?

Steve picks up on this startling admission, by making a few pretty darn good observations…

  • They assume the United States will only be affected only as to the world price of crude oil, not availability and security of supply.
  • To the Administration, it’s OK if we lose domestic production capacity, because OPEC has plenty of oil. [Are you freaking kidding me??!!]
  • “Currently there is sufficient spare capacity in OPEC” only because we are in a monumental, persistent worldwide recession and demand is low. Last time we had a vibrant economy, oil was $140 per barrel. Oil has doubled from $40 to $80 per barrel during Obama’s term, and the economy has been in the toilet the entire time. This is a big, red warning flag and should be of grave concern to anyone who plans to come out of recession some day. Expensive energy could keep it from happening.
  • Energy planning time frames are 10 to 30 years. “Currently” there is excess supply overhanging the market. What about six months from now? What about six years from now?
  • And what about small businesses? The rule goes on to say that they’ll be OK because they will just leave the Gulf for onshore, or better yet, overseas. Just like that, huh? It shows just how foolish and unconnected are the idiots who write this stuff.
  • Boiling this down, Interior has basically determined to kill the offshore oil and gas industry. The new regulatory orgy the Rule ushers in won’t just give a few producers a haircut; government action is always worse than intended as to its effects and the signal sent by the administration will drive the industry out over time. At a time of high unemployment, recession and a trade balance worse than at any time in American history they’re ceding oil production to OPEC – a cartel dominated by civilizational enemies of the United States which crippled our economy in the 1970’s with an oil embargo and contributed in large part to shaking us into the current recession with 2007 price spikes into the $140 per barrel range as Steve notes.

    Virtually everyone in the couny recognizes that domestic energy production is absolutely essential to this nation’s economic future. Without a vibrant energy sector our national security is at risk; one main reason the Nazis and Japanese were ultimately defeated in World War II, for example, was that both found themselves unable to maintain fuel supplies for their tanks, planes and ships. There are some nine million Americans employed in the oil and gas sector and related industries.

    It’s not a surprise that Louisiana’s interim Lt. Governor Scott Angelle switched from the Democrat Party to the GOP this week. It’s almost impossible for anyone who understands the importance of domestic energy production to maintain an association with this administration or the party it currently dominates. The Rule promulgated by Interior this month gives notice that the most important and vital industry our country has is no longer welcome to grow.

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