Two weeks ago, Federal Judge Martin Feldman told the Obama administration to act within 30 days on a number of drilling permits for the deepwater Gulf of Mexico. The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) has now issued the first deepwater Gulf permit since last year’s Macondo well disaster that killed 11 workers and spewed millions of barrels of crude into the Gulf of Mexico. Now the issues becomes how fast will drilling resume.
Noble Energy Inc. (NYSE: NBL) has received a permit to restart drilling at its Santiago prospect. The drilling rig on the project belongs to Ensco plc (NYSE: ESV) and the well is located in 6,500 feet of water. The well had been drilled to more than 13,000 feet below the sea floor before the moratorium was instituted, and is targeted for total drilling depth of 19,000 feet. Noble Energy is a partner in the group of E&P companies that formed a consortium led by Helix Energy Solutions Group, Inc. (NYSE: HLX) to develop improved subsea control and containment capabilities.
The restart signals good news for other drillers, including Noble Corp. (NYSE: NE; not related in any way to Noble Energy), Diamond Offshore Drilling Inc. (NYSE: DO), and Transocean Ltd. (NYSE: RIG), owner of the Deepwater Horizon rig that exploded last April. At the time the moratorium was first initiated, 16 wells operated by 13 different companies were shut-in. These 16 wells will be the first projects to get going again, but the outlook for new wells is more problematic.
BOEMRE has made the requirements stricter for getting a new deepwater Gulf permit. A new project is likely to need a site-specific environmental assessment, which is also required of a continuing project, but may also be required to get a supplemental environmental impact statement, at a much costlier and much lengthier procedure. In its annual survey of US E&P companies, Grant Thornton LLP reports that 68% of senior gas & oil company executives believe an increase in drilling costs by 20% or more due to government regulation would make new E&P projects too expensive to pursue.
As pump prices for gasoline rise in response to political upheaval in Libya (and potentially elsewhere in the oil-rich nations of North Africa and the Middle East), US drivers, who are also voters, will raise a clamor for lower prices and politicians will react. After all, the next election is less than 18 months away.
The New York Times cites the president of Chevron Corp.’s (NYSE: CVX) North American E&P division as calling the Noble Energy permit “a step in the right direction,” but also adding, “It is time for the government to clear the backlog of deepwater drilling permit applications so industry can create the energy, jobs and economic growth our nation needs so badly.”
Notice that Chevron’s executive didn’t say that it’s safe to go back into the deepwater, or that the industry knows what to do to prevent another disastrous blowout. BOEMRE’s chief did note that Noble Energy had met new safety and environmental rules put into place since the Macondo blowout, and that the Helix subsea system Noble Energy will use is capable of meeting government spill-response requirements.
Now that the first permit is out, the pressure on BOEMRE to issue more will only intensify. Industry associations, politicians, and industry players will all be pushing for quicker approval of restarts and faster review and approval of new drilling projects. Everyone who matters assumes that the new regulations will make deepwater drilling safer. The rest of us are left to hope everyone who matters is right.