Deep-Water Drilling Ban Lifted by Salazar
By - Oct 12, 2010 12:34 PM MT
Interior Secretary Ken Salazar. Photographer: Mark Wilson/Getty Images
U.S. Interior Secretary Ken Salazar lifted the Obama administration’s ban on deep-water drilling, citing new safeguards intended to prevent a repeat of BP Plc’s oil spill in the Gulf of Mexico.
“I have decided that it is now appropriate to lift the suspension on deep-water drilling for those operators that are able to clear the higher bar that we have set,” Salazar said today on a conference call with reporters.
President Barack Obama halted oil and natural-gas drilling in waters deeper than 500 feet (152 meters) after BP’s Macondo well off the Louisiana coast blew out April 20, killing 11 workers and setting off the biggest U.S. oil spill. The moratorium was opposed by officials in Gulf Coast states, who said it only added to the economic devastation caused by the spill’s effects on fishing and tourism.
Permits are likely to be issued before the end of the year, Michael Bromwich, director of the Bureau of Ocean Energy, the Interior Department unit that oversees energy production, said today. Some companies will “easily” comply, Salazar said.
“We are open for business,” Salazar said.
The new rules will add $183 million a year to the cost of drilling on the Outer Continental Shelf, the Interior Department said in a notice to be published Oct. 14 in the Federal Register. The rules will add an extra $1.42 million in costs for each new deep-water well that uses a floating rig. Shallow-water wells will cost an extra $90,000.
Transocean Ltd., owner of the Deepwater Horizon, the rig leased by BP that exploded, rose $3.11, or 5 percent, to $65.02 at 2:20 p.m. in New York Stock Exchange composite trading. Noble Corp., the world’s third-largest deep-water oil and natural-gas driller, rose 99 cents, or 2.9 percent, to $34.53.
Re-Inspections Required
Eighteen deep-water rigs in the exploration phase of drilling must be re-inspected before they can resume work, Salazar said. The moratorium covered 36 rigs. The Interior Department has shifted about 20 inspectors to the Gulf of Mexico from other regions to speed the process.
The rules are aimed at tightening workplace safety on offshore rigs and beefing up standards for equipment. Chief executive officers will have to certify that their companies comply with the regulations. Drillers also must provide third- party verification that blowout preventers, devices designed to cut off oil flow in a leak, are properly designed and can stand up to pressure under all conditions. A blowout preventer failed in the BP spill.
Landrieu Unmoved
Senator Mary Landrieu, a Louisiana Democrat and critic of the moratorium, said today she won’t release her hold on Obama’s nomination of Jack Lew to lead the White House budget office. Landrieu had said she would delay Senate confirmation of Lew until the moratorium is lifted.
“Today’s decision is a good start, but it must be accompanied by an action plan to get the entire industry in the Gulf of Mexico back to work,” Landrieu said in a statement.
Today’s move is only one step on the road to restarting the deep-water drilling industry, saidJohn Hofmeister, chief executive officer for Citizens for Affordable Energy and a former executive at Royal Dutch Shell Plc.
“We’re now headed into phase two, which is a period of regulatory uncertainty,” Hofmeister said today in an interview in Houston. “We’re a long way to go yet, and the economic uncertainty in the Gulf Coast is still, I think, a huge issue.”
Added Cost
The rules will add less than 2 percent to the cost of a deep-water well and 1 percent for shallow wells, the Interior Department said. Deep-water wells drilled from floating platforms typically cost about $90 million to $100 million.
“The overwhelming share of the cost imposed by these regulations will fall on companies drilling deep-water wells, which are predominately the larger companies,” the department said. “In fact, 90 percent of the total costs will be imposed on deep-water lessees and operators where small businesses only hold 12 percent of the leases.”
“The really important thing is what does the new permitting process look like,” said Michael McKenna, president of MWR Strategies, an oil-industry consulting firm in Washington. “Until the lawyers and consultants and companies get experience with the permitting process as it actually happens on the ground, things are going to go very slowly.”
Industry groups and officials representing Gulf Coast states have said the drilling ban penalized all companies for BP’s actions. Some environmental groups said the administration was giving in to the industry.
‘Misguided, Reckless’
“The Obama administration’s plan to allow oil companies to resume deep-water drilling in the Gulf of Mexico is misguided and reckless,” Tyson Slocum, director of energy programs for Public Citizen, an advocacy group in Washington, said in a statement. “We still have no way to address a catastrophic blowout in deep water, either by stemming the flow of oil or fixing the broken blowout preventer.”
The moratorium, set to expire Nov. 30, was initially imposed on May 27. A revised ban was put in place July 12 after a U.S. district judge in New Orleans rejected the initial suspension.
To contact the reporters on this story: Roger Runningen in Washington atrrunningen@bloomberg.net; Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net.
To contact the editors responsible for this story: Mark Silva at msilva34@bloomberg.net; Larry Liebert at lliebert@bloomberg.net
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