Feds not deliberately slow-walking Gulf drilling permits, Chevron CEO says *updated*

The government is moving too slowly in approving new deep-water drilling projects, but the pace stems from staffing problems and limited resources, not animosity toward the oil industry, Chevron CEO John Watson said today.

Watson’s comments, delivered at a Washington, D.C. forum on energy-related jobs, were the most outspoken yet by an industry leader in support of the agency that oversees offshore drilling, the Bureau of Ocean Energy Management, Regulation and Enforcement.

The agency and its director, Michael Bromwich, have been accused of intentionally trying to delay offshore oil and gas drilling in the wake of last year’s Gulf oil spill. And many in industry have complained it is taking too long for the feds to vet applications for drilling permits.

“I don’t believe that Director Bromwich and his people are trying to slow-walk permits,” Watson said. “I think they are trying to do their job very well. Whether they have the resources to do it is another matter. Whether there’s political overtones elsewhere, that’s for others to judge.”

Watson stressed that BOEMRE is “working very hard to process the permit applications they have,” but that the agency needs more staff to step up the pace, especially in light of new regulations imposed since the Gulf spill.

“The bar has been raised,” Watson said. “One of the opportunities for the Obama administration is to make sure the BOEM is fully funded, because right now . . . there is pressure on permitting.”

That idea has been reinforced by analysts studying the sector, including FBR Capital Markets, which said in a research note for clients today that BOEMRE “is issuing deep-water Gulf of Mexico permits with relatively few political barriers.” FBR Capital Markets added:

“Rather than being political, the Gulf of Mexico permitting drag is more reflective of the increased work required to issue each permit and the limited bureaucratic resources available. As a result, we continue to expect continued slow recovery of the deep-water permitting rate.”

Bromwich said he was encouraged by Watson’s public remarks, which the ocean energy bureau director said was “fully consistent with what we’ve been hearing behind closed doors from top company executives for months.”

“It’s nice that one of the CEOs has come out and said so publicly,” Bromwich added. “I don’t think it would hurt the others to say the same thing, because I think there’s no agenda to slow things down.”

By contrast, Bromwich said, the agency has been working with industry leaders to clarify requirements of new regulations and make clear what has to be included in drilling applications before they can be considered complete.

“I think we’ve been very responsive to industry . . . especially in the last few months to try to crystallize their questions, to get them answers so the process can work more smoothly,” Bromwich said. “It’s certainly in our interest to get higher quality applications with fewer errors, fewer omissions (and) fewer gaps. It makes the lives of our personnel who review pwermit applications much easier if they get almost fully compliant or fully compliant applications the first time around rather than having to return them because there are blatant gaps in what’s submitted.”

Bromwich said the ocean energy bureau is still getting offshore drilling applications with incomplete — or completely missing — plans for containing runaway deep-sea wells, even though that requirement has been on the books for nearly a year.

He conceded that “there are continuing resource issues and challenges” for BOEMRE.

The Obama administration has asked Congress to give BOEMRE more money to hire permitting staff, with at least some of the funding coming from a new inspection fee levied on industry.

But industry leaders have broadly rejected the idea that they should foot the bill.

Watson stressed today that oil companies already send the government plenty of revenue in the form of royalties, bonus bids and taxes that can be used to fund the agency.

But Bromwich argued that the proposed inspection fee was a sound strategy for raising and steering additional revenue to BOEMRE, especially “in an era of tight budgets.”

“The administration made a judgment which I agree with: better to come from the companies that will be benefiting greatly from the ability to explore offshore resources than from the taxpayer,” Bromwich said. “This is certainly one at least partial solution to the problem, so I’m disappointed at the reaction we’ve heard, and I hope the industry revisits their position on that issue. I think it would be in everyone’s interest for them to do so.”

Chevron on Tuesday announced a major new oil discovery at its Moccasin prospect about 216 miles off the Louisiana coast in the Gulf of Mexico.

“We continue to make big bets in the Gulf of Mexico,” and “we’re excited about the opportunities in the Gulf,” Watson said. “We’re also continuing to drill exploration wells where we have opportunities.”

But Watson added: “the key to getting more oil (discoveries) . . . will be rapid permitting.”

In a wide-ranging Q-and-A-based presentation, Watson also:

  • said the Obama administration and Congress would be better off not “trying to create jobs” and instead fostering an environment that can unleash the private sector. “I would hope there would be a real emphasis on getting the private sector back to work,” Watson added.
  • stressed that doing away with a suite of tax deductions reserved for the oil and gas industry would only discourage domestic investment by the industry. “Our industry pays its fair share, and all we’re asking is to . . . not be treated punitively,” Watson said. If taxes were hiked, “we would invest less. If you impose punitive measures on my industry, we will invest less. It’s simply the way we go through our decision-making process.”
  • insisted that high earnings reports shouldn’t put a target on the oil industry. Asked why Chevron “needs” to keep its existing tax incentives, given recent profits, Watson said: “I wouldn’t say need. It’s about having a stable and predictable tax policy in this country. We pay our fair share . . . I don’t want to be singled out for higher taxes. Success . . . should be rewarded.”
  • said he supported broad tax reform, such as a fundamental, top-to-bottom rewrite and flattening of the tax code in exchange for a lower corporate tax rate. “I don’t know how the oil and gas industry would come out in all that, but I would favor that,” Watson said.