He Who Makes The Rules…

In any game of life, the players need to know the rules.  Children are taught to play fair, but play by the rules.  Students are given strict guidelines, and their behavior is measured by their compliance.  Businesspeople are given laws, regulations, and standards which dictate how their businesses are to operate in a civil society.

Unfortunately, the current regulatory schemes coming down from Washington bureaucrats leave players in limbo, and the most disconcerting for Louisiana and Gulf Coast employers and employees are those rules and regulations from the Department of the Interior dealing with drilling for oil and gas in the Gulf of Mexico.

Following the Deepwater Horizon explosion and oil spill, the Obama administration imposed a six-month moratorium on deepwater drilling in the Gulf of Mexico, causing not only the drilling companies, but also their employees, suppliers and vendors a great deal of concern about their futures.  While the moratorium was supposedly for deepwater drilling only, it was followed by numerous notices to lessees and operators in the entire Gulf, including those companies doing their business in the shallow waters.

Predictability went out the window with these new rules, particularly those which could not be understood by the players, nor could be explained by the regulators.  To the credit of Louisiana’s leadership, a serious effort was made to link companies with personnel within the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), so companies could ask questions and get answers about the newly imposed rules.  To the discredit of BOEMRE, its personnel didn’t understand the rules and could not give guidance.

While BOEMRE says it is now issuing permits, there were only 22 permits issued in the shallow waters between June and December 17 and no permits have been issued yet in the deepwater that were subject to the moratorium.  What makes matters worse is that, before permits can even be applied for, exploration and development plans must be approved.  That’s the new rub.  Industry can’t even get those plans approved!

On December 10, the BOEMRE issued a document which was intended to summarize and clarify the regulations and guidance the bureau had previously issued, stating that it constituted no new or additional regulatory requirements.  This “guidance document” may well help explain some of the rules for the permits, but it wasn’t designed to address the problem of getting plans approved so that permit applications could be filed.

So the game continues, a game of regulatory fiat where one set of players is disadvantaged so seriously that part of the team is picking up its marbles and going home.  Oil and gas investors are moving their financial investments to more predictable ventures.  Rig owners are slowly moving their rigs out of the Gulf.  And, ever so slowly, employees are getting pink slips.

The Department of the Interior isn’t the only federal department that is using regulation to impose its will on the business community.  Howls are also coming in response to a host of new rules coming from the Environmental Protection Agency (EPA).  Those EPA rules could well shut down most of the drilling in northwest Louisiana’s Haynesville shale, again to the detriment of Louisiana companies and employees.

While Louisiana has been able to weather much of this employment downturn, the future is much like the pealing of an onion—one layer at a time.  Slowly, gradually, the toll will be realized in big numbers of job losses, company closures, and higher prices for oil and gas.  Louisiana will then be the big loser, as will the rest of the nation that is dependent on oil and gas coming from the Gulf of Mexico.

(Ginger Sawyer, Vice President and Director of LABI’s Energy Council, contributed to this column.)



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