Are offshore failures preferable to new permits?

The offshore energy industry has been awash in conspiracy theories for the past year, many of which go something like this: the Obama administration is trying to destroy the oil business by withholding drilling permits in the Gulf of Mexico.

There’s one area, though, where the administration seems to be giving its support: antitrust clearance for mergers.

“The Obama administration recognizes the hardship that’s been imposed on Gulf businesses,” Tom Fina, an attorney with Baker Botts in Washington, D.C., who specializes in antitrust issues, told me yesterday. “There’s a recognition by the administration that the failing firm defense applies here.”

The failing firm defense is a consideration in antitrust approval that basically justifies a merger if a firm has exhausted all other avenues and will fail without a merger, even if the acquiring company will dominate the market.

So far, there’s only been reports of one such case in the Gulf since the drilling moratorium was enacted last summer: Seahawk Drilling. As I wrote a few months ago, Seahawk had other factors that contributed to its demise. Fina, though, represented the buyer, Hercules Offshore, and said the Justice Department took a very narrow view of the market for shallow-water rigs in considering the antitrust implications.

That narrow view allowed the merger to clear antitrust hurdles. Fina believes the Justice Department’s stance offers some relief to smaller businesses struggling with the effects of the moratorium.

“To the extent that you have Gulf-centric businesses that are either suffering or are basically facing bankruptcy, they may be able to sell themselves to strategic buyers,” he said.

It is, of course, a bitter irony that the government would be so cooperative in aiding failing companies when it has been so inflexible on permitting issues. Mergers among smaller players in the Gulf will result in fewer companies operating there, creating a oligopoly of larger energy firms.

“It’s just had an enormous effect in changing the playing field in ways we still don’t entirely know,” Fina said of the moratorium.

24 Comments

  1. dcsports

    “The offshore energy industry has been awash in conspiracy theories for the past year, many of which go something like this: the Obama administration is trying to destroy the oil business by withholding drilling permits in the Gulf of Mexico.”

    That’s not a conspiracy theory. Until recently, virtually all permits have been in limbo. We have rigs grouped together in mini-cities in the gulf, waiting for work. Some of our best rigs have been moved to other countries. As a reporter, Steffy should know this.

    #1
  2. James Maxwell

    When Obama was running for office he made the statement the he would
    destroy the power producers. His blocade of drilling permits is proving
    he was serious about this and due to his regeim policies our fuel prices
    are rising daily at an unheard of rate. His clear lack of policy have
    allowed the Foreign Oil producing nations to pander to the speculators.
    There is no shortage of Oil available on the world market. True the new
    developing nations are increasing the demand for Crude, but we have the
    reserves available. With the Obama regeim and the Greenies blocking the
    drilling in the US we are on the short end of the stick at this time and
    Obama is making good on his promises to raise the cost of Oil, Coal, Natural Gas and Nuclear power production. The attempt to force us to
    drive Electric vehicle and promote Windmills, Bio Fuel development is
    costing the American Tax payers.

    #2
  3. Veritas

    Mr. Maxwell, please provide a link to this comment you attribute to Obama.

    #3
  4. Rocknocker

    To answer the headline question – YES.

    The obama administration has had year to take care of its end of responsibility and has FAILED MISERABLY. However, that, as Maxwell has written, was part of obama’s plan o destroy the American system and its economy as we have known it.

    #4
  5. pdh42

    It would seem that not only is Nobama and company doing a good job in destroying the energy industry and the many jobs that they bring, they are doing their best in destroying the supporting cast…. What is truly amazing though is that the LSMedia is applauding these assine moves of the loony left…. Are there NO true investigative news orgs left in this country or are most if not all just nothing but government mouth pieces????

    #5
  6. richard

    That is odd. Because there are more wells drilling in the US than ever before and production is at an all time high. Over 4,000 drilling permits were issued in 2010, however only about 1,000 are being worked. Not all oil is offshore.

    #6
  7. Indianpaintbrush

    So one approved merger makes for a cooperative, supportive government? I think not.

    #7
  8. Bob

    If you can’t see that there is a very real and direct attack on companies engaged in the oil business by this administration then your political bias is clouding your judgement and you shouldn’t be writing this column.

    #8
  9. Trail Trash

    @Veritas..From Campaign Ad: “I’m Barack Obama. I don’t take money from oil companies or Washington lobbyists, and I won’t let them block change anymore. They’ll pay a penalty on windfall profits. We’ll invest in alternative energy, create jobs and free ourselves from foreign oil.”

    #9
  10. m9777

    Gasoline prices would instantly fall if the EPA would drop, even temporarily, their 25 blended gasoline regional requirements. Give us a single blend and stop this insanity!

    #10
  11. Trail Trash

    However from a Politico article: “During his time in the Senate and while running for president, Obama received a total of $77,051 from the oil giant and is the top recipient of BP PAC and individual money over the past 20 years, according to financial disclosure records.”

    #11
  12. m9777

    dear Veritas, Obama spoke specifically of the coal industry for sure!

    #12
  13. A guy

    Veritas, I believe it was part of his “necessarily skyrocket” speech.

    To the author, the conspiracy “theory” ceases to be such when federal judge has held the administration in contempt of court for its reinstatement of the drilling ban after it was overturned, and then refusing to issue permits, creating a de-facto ban. There really isn’t a conspiracy either since it has been quite in the open and quite official.

    Refusal to allow any new offshore drilling isn’t a conspiracy. It isn’t a theory. It is official administration policy.

    #13
  14. meetwoodflac

    Steffy is trolling for dollars. The headline has next to nothing to do with the article, but many of us did open the link and read it. Mission accomplished Steffy. What do you or chron.com or fuelfix receive per hit?
    this kind of journalism is akin to the Enquirer and others when the front page proclaims “OJ beaten to a bloody pulp in prison!” and the story on page 3 details how OJ was playing pinochle with the guards and they whipped him soundly.

    #14
  15. A guy

    Richard. The existing wells are producing. The vast majority of the “unworked” leases that you mention have been either found to be non-productive with no extractable oil, or they have been capped since no more oil can be extracted until technology improves (These may be opened again in about ten years. Drilling technological progress is quite rapid).

    The remaining ones are mostly caught up in environmental permitting or lawsuits, 95%+ of which are NIMBY (not in my backyard), BANANA (Build absolutely nothing anywhere near anyone), or otherwise frivolous.

    #15
  16. 76acres

    Another thing … It’s easier for the statists like Obama to control/compromise a few big players than a bunch of independents. Look at GE and the biggest Wall Street firms. In fact, I suspect the statists hate the very word “independent.”

    #16
  17. richard

    Platts Oilgram News is projecting Haliburton’s quarterly dividend almost double what it was at the same time last year. Schlumberger’s increase will be about 25%. Furthermore, land drillers project a doubling of profits and have increased their rig count by 30%. These are facts, not conspiracy theories. Offshore drilling is being scrutinized by every country in the world, as you would expect for an industry that has the potential to cause death and devastation on a massive scale with just one accident.

    #17
  18. Helen

    Painting the whole industry for one bad apple is stupid at best. BP is the culprit, not the industry. Fix THEM and let go. How many years have the others been drilling in the Gulf of Mexico without such a major problem? It has been proven what the problems were, and they were BP’s problems. You are way off base here, Steffy.

    #18
  19. Bob

    Richard – really? “Scrutinized”. really? How dishonest can you possibly be? You can throw out stats regarding previously approved leases and outside market factors that increased profits but you are completely ignoring the elephant in the room. Obama appointed environmental activists with absolutely ZERO industry experience in almost every position related to regulating the oil/energy industry. They are systematically attempting to destroy the industry that is the backbone of the American economy. It makes absolutely no sense.

    #19
  20. Observer

    “Are offshore failures preferable to new permits?”

    Who writes these headlines for Mr. Steffy’s pearls of wisdom? Geez they seem to be coming more and more frequently and seem to be less and less germane to the content of his offerings.

    If Obama is now said to be kind in taking a benevolent view toward mergers one only can wonder how his (and Clinton’s and Bush’s) policies ought to be described.

    In other words, American anti-trust watch dogs have been neutered for at least the last twenty years or so. After all, big does not necessarily equal bad we are taught, must think globally these days and size is necesary to compete we are taught, and just think of all the synergies (read reductions in head count) that can be made by mergers and so how much more competitive the acquiring firm will be we are taught, and who cares if firms are reincorporating in Switzerland etc. and escape U.S. taxation on foreign earnings since it is necessary to be on the same footing as their competitors, we are taught.

    P.S. If the Obama hearts are now bleeding for the offshore firms (but never for the energy companies) wait until they take a look at the devastation their policies have wrought with respect to the array of land based support companies.

    Maybe Obama’s policy of alternative energy first coupled with eventual destruction of the oil and gas sector will ultimately be proven correct, but odds are never, in the remaining lives of citizens forced to witness this unholy disaster now.

    P.S. Forget the showing of Obama’s Passport and the fact that he was sired by a Mau Mau terrorist, let’s please have a list in sufficient detail to inform the American people where the Stimulus money was spent and what are the continuing results today. Compare and contrast with the total added national debt burden used to finance these great works would also be useful.

    #20
  21. RunningBear

    I believe that BHO has never had the best interest of our society or our country at heart, thus I did not, nor ever will vote to support him. The oil industry has long trusted the design of the BOP as “fail safe” and Deepwater Horizon proved that “fail safe” idea, wrong. The BOP must be “fail safe” to prevent the type of catastrophe BP caused with poor supervision and management. An industry redesign of this protection device must be approved and adopted before further development of deepwater drilling. We do not have this, at this time. Why are we asking to drill wells without adequate safety protection? God Bless Texas.

    #21
  22. richard

    A Guy, 75% of the licensed issued in 2009 are in some stage of development. Fit that into your preconceived ideas. Your knee jerk reaction missed the fact that this administration issued over 4,000 licenses to an industry it is supposedly trying to destroy.

    #22
  23. richard

    Bob, are you accusing me of being dishonest? How rude. I can only imagine your insults cover the fact that you know nothing of the industry. For instance, do you even know what Platts Oilgram News is? You should educate yourself, starting with the multinationals meeting in Washington on April 14 concerning changes in regulatory schemes focusing on deepwater blowouts.

    #23
  24. Energy Moron

    Steffy:

    Look at the article “MWCC’s capping stack is ready for prime time”. There are those of us in Deepwater who don’t see a conspiracy but rather we know that we need to have a plan in case something bad does happen.

    The industry had a plan pre-Macondo (as required by law back then, PRE-Macondo) and since we cannot rehearse these things we discovered there were unforseen problems with skimmers.

    There is no change post-Macondo… we still have to have a backup that works.

    This time, having had to deal with the situation, the plan will work.

    Now, if permits are held up by the government with a suitable backup in place THAT IS WRONG. If this is the case please educate me.

    #24