Deep-water drilling lags behind pre-spill levels

A year after the Obama administration lifted a deep-water drilling ban imposed in response the Gulf oil spill, the offshore energy industry is still struggling to rebound, coastal and business leaders said Wednesday.

A parade of executives from companies whose fortunes are tied to offshore drilling told the House Natural Resources Committee it is taking too much time and effort to win the Interior Department’s approval to drill new wells and plug old ones.

Al Reese Jr., the chief financial officer of Houston-based ATP Oil & Gas Corp., said nabbing permits to drill is “unduly difficult, time consuming and, in our view, unnecessarily contentious.”

Chris Auer, a principal with Crevalle Management Services, an Angleton-based reclamation company, said the time it takes to win permits to secure abandoned wells has grown from 42 days before the April 20 Deepwater Horizon explosion to an average of 129 days now.

The government has issued permits for 81 new shallow water wells since new post-spill safety and environmental requirements were imposed in June 2010. Federal officials also have approved drilling of 41 new deep-water wells since February, when the industry first proved it had the equipment and know-how to contain and capture oil from runaway underwater wells — a post-spill requirement for some deep-water exploration.

But that still lags behind the pre-spill pace, said Rep. Doc Hastings, R-Wash., the Natural Resources Committee chairman. He blamed “the Obama administration’s inability or refusal to issue permits in a timely and efficient manner” for “lost jobs and significant economic pain.”

“Some permits indeed are being issued (but) there are facts and data that demonstrate recovery is moving at a pace that continues to hamper job creation and the economy,” Hastings added.

The committee’s leading Democrat said Hastings’ concern was misplaced. Instead of holding a hearing focusing on a short-term deep-water drilling ban, Rep. Ed Markey, D-Mass., said the panel should be studying the long-term environmental effects of the Deepwater Horizon disaster and reports of oil sheens near BP’s failed Macondo well.

“Holding a hearing on the impact of a safety check following an unimaginable oil spill is a little like holding a hearing on wearing a cast after shattering your leg, without looking at the accident that required the cast,” Markey said.

Markey added that the Natural Resources Committee also was overlooking the economic damage to tourism throughout the Gulf Coast caused by the spill itself.

Drilling activity has picked up since the months after the spill, when deep-water exploration was halted entirely and the Interior Department imposed new safety and environmental requirements. For instance, the government issued five new well permits in September and six in August — compared to a 2006-2009 average of 7.1 per month.

Sean Shafer, an analyst with Sugar Land research firm Quest Offshore Resources, said there are “some signs of recovery,” but drilling activity is still below pre-spill levels. It could be mid-2012 before there are at least 35 floating rigs operating in the Gulf — one more than the number working before the spill — and drilling activity may stay at pre-moratorium levels until 2014, Shafer said.

In the meantime, 11 floating rigs have left the Gulf, with seven heading to Africa, three going to South America and one more mobilizing to Vietnam, Shafer said.

A major challenge is the flood of work for officials at the Bureau of Ocean Energy Management, which examines offshore exploration plans, and the Bureau of Safety and Environmental Enforcement, which vets applications to drill individual wells. Administration officials have said permitting reviews may never reach pre-spill speeds and note that oil and gas companies now must comply with new safety and environmental mandates that weren’t in place before the Macondo well blew out. The government also is now conducting environmental reviews of offshore exploration plans that are required under federal law but were routinely waived before the spill.

ATP’s Reese noted that well permit applications that once topped out at 40 pages now are frequently more than 3,000 pages. Much of that new documentation is tied to the requirement that oil and gas companies prove they can contain deep-sea blowouts.

“When you are dealing with 3,600 pages, you automatically have a lot more time constraints,” Reese said.

Auer said BSEE employees do good work, but there just aren’t enough of them. “We’re asking way too much out of way too few,” he said.

The Obama administration has asked Congress to dole tens of millions more to BOEM and BSEE to hire new engineers and permitting staff. But a House-passed spending bill would give the agencies $35 million less than the White House sought, jeopardizing the hiring of 20 new permitting officials, according to BSEE Director Michael Bromwich.

Rep. Louie Gohmert said he doesn’t think the extra money would help. “If (the government) doesn’t want to issue them permits, budgeting them $35 million more doesn’t change that,” he said.

When Markey asked industry witnesses testifying Wednesday if they supported the additional funding and hiring of new engineers, most said no — at least not at a $35 million price tag. That’s hypocritical, Markey charged.

“You want to persecute the agency that’s asking for help and then claim you’re persecuted because they’re not moving more quickly,” he said. “That’s an interesting paradoxical position.”

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