(Bloomberg News)
Oil companies are once again squaring off with government regulators in the Gulf of Mexico. This time, its Exxon Mobil. The giant oil company is fighting to retain leases for the Julia field, what could be the biggest oil discovery in the Gulf ever, or at least since BP’s Thunder Horse field in 1999. The problem: the government claims Exxon’s leases for the field have expired.
The Obama administration has been cracking down on unused offshore leases, which cost the Treasury royalties, the Wall Street Journal reported. Exxon seems to believe getting an extension on the lease was just a formality. “You state your case and you got it. [This] was unexpected,” a spokesman told the Journal.
For the past year, the industry and government regulators have been squabbling over how drilling should proceed in the Gulf. One thing is clear: This isn’t it. Obviously, Exxon should be following the rules on permit extensions, especially in a case where the stakes were so high. As the Journal describes it:
The Texas behemoth faces the sobering prospect that it may have made the largest discovery ever in the Gulf of Mexico only to lose it. Tens of billions of dollars of oil could slip through its hands because it failed to follow federal rules for getting a lease extension while it moved forward with plans to get the oil out of the ground.
The oil company claims drilling a well in deep water takes time to do safely, and that the government’s response creates a regulatory environment that encourages haste over thoroughness. Exxon also claims the government has changed its tactics and that its arguments for not extending the lease have never been applied before. The government says Exxon didn’t submit a specific production plan, which violated the legal requirements for granting a lease extension.
This battle, playing out in federal court in Lake Charles, La., dates to 2008, two years before the Deepwater Horizon disaster, but it illustrates the fundamental disconnect between the industry and the government that’s emerged in the Gulf. The industry acknowledges that last year’s accident changes everything, yet still seems surprised when it does. Recognizing that regulations must change, oil companies still argue, essentially, “We’ve never done it that way before.”
The government, meanwhile, seems so eager to show its a tougher regulator that it looses sight of the big picture. If it takes the leases away from Exxon, it will have to find another company to develop them. That will take even more time and cost even more lost royalty revenue. At the same time, it will only add to the confusion over the new regulatory scheme in the Gulf, potentially creating further delays for other projects as well.
The number one problem right now is confidence in the future for business and consumers to go forward. The Federal Government is the cause of this lack of confidence and here is another example.
In this post-Macondo environment, this is a rather big blunder for XOM. The BOEMRE is in a bind, but it would be political suicide for them to allow an exception at this point. It wouldn’t take that much more time and cost to re-assign the lease, with all the proper environmental and safety due diligence, but they would need to have an “executive order”-probably from Salazar or Obama,to re-bid the lease using a 3rd party review and procurement award team (perhaps from Norway or Australia). Open the bids up to the whole world-including the Chinese, Brazilians, Norwegians as well as XOM and other IOCs (excluding BP). Are we in favor of free markets or not? Is this our “Sputnik moment”, or not? You show us that you can lead, Mr. President.
No, we should not open up the bids to the whole world. This area is our territory and should be under the exclusive development by American companies providing jobs for Americans. This is NOT an area where there is a free market and if we open up the bidding to the whole world it will still NOT be a free market. Can we go bid and drill off the coast of China? Of course not, they won’t allow it. Can we go into Mexico win a bid and drill? No, they won’t allow it. So don’t pretend this is or ever could be a free market. That dog don’t hunt…
“The Texas behemoth”
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Wow. It used to be a New Jersey behemoth as well.
Sure are a lot of these behemoths. The Journal is
such a joke.
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“If it takes the leases away from Exxon, it will have to find another company to develop them.”
And who might that be? Petrobrazil? We can’t even scratch the surface
of what the real story is…how this government hates the very companies
that makes their world run.