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January 2012 Issue

Making Progress on Putting The Gulf of Mexico Back to Work

By Rep. Pete Olson (R-Texas)
Committee on Energy and Commerce
U.S. House of Representatives

Offshore drilling in the Gulf of Mexico produces 29 percent of the crude oil for the U.S. and 12 percent of its natural gas, according to the Energy Information Administra'tion (EIA). Offshore oil production in the gulf has been seriously impacted by the moratorium implemented after the Macondo blowout. Activity levels are still well below actual drilling levels pre-Macondo and are even worse when compared with the 2011 drilling predictions prior to the blowout. The Obama administration has recently tried to paint a rosy picture of gulf production, but a closer examination tells us otherwise.

Rig Utilization in the Gulf
As of the end of September, there were 21 floating rigs with subsea blowout preventers operating in the gulf. Only 18 of those rigs are now drilling. Prior to the moratorium, there were 33 floating rigs with 29 drilling. Estimates indicated that by the end of 2011, 42 rigs would have been operating in the gulf—only half of the rigs that are in place today. At the rate things are moving, we do not expect a return to premoratorium levels until mid-2012. While this pace seems to be fine for the Obama administration, it doesn't spell relief to those who stake their livelihood on the gulf offshore oil and gas industry, nor is it good economic news for the U.S. in general.

Since the moratorium began, 11 rigs have left the gulf, and three others are sitting idle. Most of the departed rigs have not announced plans to return. That has translated into a loss of 11,500 oil and gas industry jobs and thousands of indirect jobs that support the offshore drilling industry.

ODS-Petrodata's Weekly Rig Count tracks global activity on rigs that are presently under contract and rigs without contracts. According to quarterly data from September, offshore platform drilling rigs under contract in the Gulf of Mexico had a utilization rate of 44 percent, while rigs in Europe and the Mediterranean saw a utilization rate of 97 percent, and the worldwide rate reached 83 percent.

Picking up the Pace with Permits
It should be mentioned that many of the drilling projects being touted by the Obama administration were well underway prior to the spill. It is time to admit that we have lost significant ground. We must get the permitting process back on track.

The slow-rolling of permits will continue to have a sobering effect on economic recovery in the Gulf of Mexico. Aside from job and economic losses, we must also consider supply losses. EIA forecasted in November that crude oil production in the gulf would decline from its 2010 rate of 1.55 million barrels per day by 140,000 barrels per day in 2011 and an additional 40,000 barrels per day in 2012. The loss of production will affect struggling states nationwide that rely heavily on royalty rates and revenue from gulf oil production. Last year, EIA estimated that up to $1.67 billion in government revenue would be lost in gulf alone.

The former BOEMRE, which was reorganized and split into the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) in October, had made multiple excuses for the slow permitting process, but there is no reason operations cannot fully resume. Last February, U.S. District Judge for the Eastern District of Louisiana Martin Feldman ruled that the Department of the Interior regulators acted with 'determined disregard' by lifting and reinstituting a series of policy changes that restricted offshore drilling. He ordered the Obama administration to act on five pending deepwater permits within 30 days.

Instead of ending the de facto moratorium, the administration filed an appeal to a federal court ruling that ordered them to act on stalled deepwater permits. Since then, the Department of the Interior and the then-BOEMRE had issued some additional permits, but they continue to slow-walk permits, keeping the de facto moratorium in place and leaving thousands of Americans out of work.

Unfortunately, BOEMRE's reorganization will not speed up the permitting process in the near term. The bureau's division into two different entities is a sign that continued far-reaching organizational change is on the horizon. Although there is now a team devoted to reviewing and improving the drilling permit review and approval processes, I am not confident that new layers of bureaucracy will solve the problem. BSEE's emphasis on safety and environmental enforcement is welcome, but it cannot interfere with what were BOEMRE's other distinct missions—overseeing offshore resource development and collecting royalties and revenues.

Shifting to Performance-Based Regulation
After the Deepwater Horizon incident, dozens of industry-leading experts testified before Congress, sharing various approaches for regulating safe activity in the offshore sector. Examining global trends, it was clear that regulators have moved toward a greater degree of performance-based regulation over the past 20 to 30 years. Norway, for example, has gradually moved to a system where companies find the solutions to fulfill safety requirements. This takes the burden off the regulator, who no longer needs to develop a prescriptive system, setting specific demands for structures, technical equipment and operations.

Moving Forward
The time has come for the Obama administration to get the Gulf of Mexico back to work. America needs the ability to access its resources to provide a stable and affordable supply of energy. Our nation's heavy reliance on Middle Eastern oil places its national security at risk and ensures unreliable supplies and costs for that oil.

An important component of our nation's economic recovery is for the president to start supporting development of America's vast resources. This will increase supply, lower costs and create thousands of well-paying jobs, providing a stable economy and the energy independence that America critically needs.

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