BP Commission Comments Carry Bad News For Houston Economy

Today’s New York Times article about the BP Deepwater Horizon accident and oil spill carries ominous news for the domestic offshore oil and gas industry and the Houston economy. The mandate for the commission stated that its life would extend for six months after it held its first official meeting. Since it took the Obama administration 24 days from announcing the creation of the commission to appoint all its members, the commission’s work is way behind schedule. The commission does not yet have a staff or funding. As a result, one of the commission’s co-chairmen, William Reilly, predicts their first hearing won’t be held until mid-July and their report will not be ready until sometime in the next year, at least two months longer than the six-month deepwater moratorium’s initially anticipated termination date. Mr. Reilly also said the commission will be unlikely to lift the moratorium until its report is complete.

Mr. Reilly said that “I would be very wary of encouraging more deep-water development until I was confident that the response plans were more realistic. They are not realistic at this time.” With all the things to be examined, the commission has a lot of work to do. But buried in the article was a more ominous issue. Several individuals involved in other governmental investigations in the past raised the issue of a need for the commission to answer the question of whether deepwater drilling should be pursued at all before addressing how it should be conducted.

While we aren’t into conspiracy theories, the timing of the interview and the publishing of the article seem interesting given Monday’s hearing in the Louisiana court case filed by Hornbeck Offshore with support from Bollinger Shipyards and Edison Chouest Offshore against the legality of the moratorium. Diamond Offshore has also filed a lawsuit in Houston. Whether we like it or not, justices read newspapers and this article puts into perspective key questions about offshore drilling, and the risk of deepwater drilling in particular. It also suggests that the moratorium will last longer than anticipated, which could sway the judges, too.

As we read this article, and thought about the recent editorial in The Wall Street Journal about the seven technical experts who signed off on the May report on offshore drilling before the moratorium recommendation was inserted, which they opposed, we have begun to think about a really negative outcome for the offshore oil and gas industry with adverse implications for the Houston economy. We will develop those thoughts in another blog.