U.S. offshore oil & gas potential limited only by regulators

Particularly over the past decade, the offshore oil industry has come to play an increasingly important role in domestic oil production in the U.S. The Energy Information Administration reports that in 2010 U.S. crude oil production amounted to 5.5 million barrels per day. Of that 1.7 million barrels per day, or around 31 percent, came from offshore oil wells and 1.6 million barrels per day, roughly 29 percent, came from the Gulf of Mexico alone.

But, that same year, the catastrophic explosion at the Deepwater Horizon oil well south of Mississippi brought the industry suddenly into the public's attention, in a firmly negative light. While many along the Gulf Coast were well familiar with offshore oil drilling and the importance of the industry to the region, 11 deaths and some estimates reaching as high as 5 million barrels of oil spilled into the Gulf cemented the view that the industry needed substantial reform.

Only days after the incident, Interior Secretary Ken Salazar issued a moratorium on new permits for deepwater offshore oil drilling over strenuous objections from the industry and the impacted region itself. The Gulf Coast's continued support for offshore drilling is unsurprising, given that though the moratorium only applied to 33 applications, those included some of the more profitable projects for the region. A report from Louisiana State University estimated the cost to the region of a moratorium could reach as high as $2.1 billion and more than 8,100 jobs. Across the country, the report expected as many as 12,000 jobs to be lost.

One year after the implementation of the moratorium, a study conducted by Quest Offshore Inc. for the National Ocean Industries Association and the American Petroleum Institute suggested that slowed drilling permit approvals under the Obama administration and the moratorium had contributed to the loss of more than 60,000 jobs through the Gulf region from 2008 to 2011.

An API-commissioned study from Quest Offshore estimated even more dramatic losses, suggesting that as many as 90,000 jobs had been lost in 2011 alone. As many as 11 offshore oil rigs were thought to have left for calmer waters in Brazil, Egypt and Angola, with total costs for the Gulf Coast through 2015 estimated at around $21.4 billion.

However, the moratorium was designed primarily to provide regulators with enough time to design and implement a new oversight scheme, including a permitting process that incorporated more stringent safety standards and more thorough reviews. Some of these rules included requiring specific plans for addressing a blowout, the cause of the Deepwater Horizon disaster, as well as the development of detailed safety and environmental systems.

Perhaps more importantly, the agency overseeing offshore oil drilling itself was dramatically restructured. The Minerals Management Service was renamed the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) and divided into three parts: the Bureau of Ocean Energy Management (BOEM - responsible for developing energy resources), the Office of Natural Resources Revenue (ONRR - responsible for revenue collection) and the Bureau of Safety and Environmental Enforcement (BSEE - responsible for enforcing safety and environmental regulations, including permitting).

These agencies have adopted a substantially stricter approach to oversight of the offshore oil industry, slowing the pace of permit approvals and conducting their first unannounced "spill drill" in September of last year.

While President Barack Obama has continued to draw heat from many environmental groups for reopening the Gulf to drilling activity, industry officials have been quick to point out the current policy could have a chilling effect on one of the most promising sectors of the American economy. A report sponsored by the API from research and consulting firm Wood Mackenzie suggests that the oil and natural gas industries combined could add nearly 670,000 jobs within the next three years and more than 1.4 million jobs by 2030 if the country takes a more active approach to developing its energy resources. That could also mean more than 10.3 million barrels of oil per day and nearly $100 billion in annual revenue.

A study from the American Energy Alliance suggests the numbers for the short-term could be high, but it matches the long-term prospects for the offshore oil industry fairly closely and projects revenue as high as $273 billion.

Last summer, at the height of the debt ceiling conflict, API president and chief executive officer Jack Gerard pointed to the clear, steady growth of the oil industry despite the economic turmoil of the time as an obvious opportunity for investment, referring to President Obama's jobs approach as a "missed opportunity."

A similar report from IHS Global Insight and IHS Cera, suggested that the failure to encourage further development of the offshore oil and gas industry represented a particularly grievous error given the torrid pace of job creation in the sector. The simple expedition of permits would quickly result in the addition of thousands of high-paying jobs to the local economy. The study noted that median approval durations had spiked to more than three times their pre-moratorium level and projected the country could add as many as 230,000 positions in 2012 alone if regulators were allotted the resources necessary to bring down the length of these assessments.

However, the BOEMRE has not been completely inactive in terms of issuing new offshore drilling permits. The first of these under the new standards came at the end of February last year and there had been 10 by early April, a fact that is not accounted for in many of the oil industry's analyses, according to some critics of the reports.

The agency actively attempted to increase the pace of approvals by identifying common mistakes and reasons for rejection to help oil companies better prepare their applications. It also implemented a variety of tools for submitting and tracking the progress of applications, and developed completeness checks for both oil companies and its own agents. All told, the agency had approved 45 new wells of greater than 500-foot depth since October 12, 2010, by early February.

Nevertheless, Representative Bill Flores, a Republican from Texas' 17th district, has proposed a bill that would impose a deadline for all new offshore drilling permits, forcing regulators to increase their pace. At present the bill has been referred to committee, but it would be some time before any such legislation might come into effect, so any new jobs will depend upon regulators ability to increase their pace of approvals.



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