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January 2012 Issue

Improving Offshore Safety And Providing Jobs for America

By Randall Luthi
National Ocean Industries Association

You don't have to live and work in Washington, D.C., to be acutely aware that the 2012 presidential election is off and running. Jobs and energy are among the top issues on the campaign trail. The offshore energy industry is part of that discussion, as it provides both jobs and energy vital to America and can provide more of each if allowed to do so by the government.

Industry Jobs and Economic Stimulus
In 2011, the National Ocean Industries Association (NOIA) co-commissioned a study of the nationwide economic and jobs impact from the offshore oil and gas industry in the Gulf of Mexico. The study, conducted by Quest Offshore Resources Inc., confirmed what we in the industry already know but many outside the gulf region fail to appreciate—that the offshore industry is a huge contributor to our national economy.

According to this study, the offshore industry in the Gulf of Mexico spent more than $26 billion in 2010, supporting more than 240,000 American jobs not just in the gulf but throughout the nation. These jobs run the gamut, from operations and manufacturing to essential support services and transportation. What's more is that more than 95 percent of gulf offshore industry spending stays in the U.S. This is truly a homegrown industry that supports the U.S.

By all accounts, 2010 was a tough year. Our industry was hammered by the aftereffects of a poor economy, the Macondo spill, the moratorium and a much slower pace of permitting. In 2008, a much better year, operational and capital investment spending was more than $30 billion, contributing to more than 300,000 American jobs across the country. The Quest study estimates that the industry's operational spending could surpass $44 billion by 2013 and support nearly 430,000 U.S. jobs.

Think of it—190,000 new jobs by 2013 without any new government spending. But that is dependent upon permitting levels being restored to previous levels, and the backlog of exploration and development projects moving forward at a brisker pace.

Permitting Pace
In a time of record-high unemployment and monumental state and federal deficits, the economic benefits of new gulf drilling permits cannot be ignored. While BOEM has been issuing permits, they are not coming at a pace that is prompting a swift enough recovery for our industry in the gulf.

In October, a year after the post-spill moratorium was officially lifted, the regional economic development agency Greater New Orleans Inc. issued an updated and enhanced Gulf Permit Index (GPI+) that tracks and reports information on exploration plans and permits. While much of the debate about the state of new drilling activity has focused on the issuance of permits, the new GPI+ data illustrate a more complete picture of where the slowdown has occurred.

At present, the average approval time for a plan is 118 days, compared to the five-year average of 61 days from 2006 to 2010. And when the plan is preceded by the newly required environmental assessment, average approval time stretches to 227 days. The index also shows that the rates of issuance for new deep- and shallow-water well permits continue to lag behind historic averages.

In addition to providing jobs and stimulating the national economy, exploration and production on the OCS generates revenue for the cash-strapped federal government. In 2008, the offshore oil and gas industry paid $17.9 billion in royalties, rents and bonus bids. With no lease sale held in more than a year and the slower economy, that number declined to $5.2 billion in 2010 and will likely decline further for 2011.

Domestic Energy Security
In a 2006 assessment of undiscovered technically recoverable oil and gas in the OCS, BOEM (then the MMS) estimated there was an average of 86 billion barrels of oil in the Gulf of Mexico and an average of 420 trillion cubic feet of natural gas reserves in federal waters off U.S. coastlines. Those estimates are likely conservative because most of the OCS has been off-limits to exploration for nearly three decades, which has dissuaded the gathering of modern-day seismic data. For example, the Gulf of Mexico has yielded at least five times more oil and gas than 1980s seismic data estimated it held.

Obama's 'No New Access' Position
Unfortunately, our nation's poor policy decisions have confined almost all exploration and development to a portion of the Gulf of Mexico. The administration has backtracked from where they were in early 2010 on expanded access to new areas of the OCS. This 'no new access' position has been extended under the proposed OCS oil and gas leasing program for 2012 to 2017.

The most disturbing aspect of this is the omission of a previously included 2.9-million-acre lease sale area at least 50 miles offshore Virginia, despite clear support from the commonwealth favoring offshore resource development. The federal government estimates this area may contain 130 million barrels of oil and 1.14 trillion cubic feet of natural gas. According to a study by energy advocacy organization Southeast Energy Alliance, offshore energy development in Virginia could create nearly 2,000 jobs in the commonwealth and produce more than a half-billion barrels of oil and 2.5 trillion cubic feet of natural gas.

Virginia's general assembly passed bipartisan legislation making the official policy of the commonwealth to strongly support offshore energy production. While there has been a history of deference to states that do not want development off their shores, this represents the first time in the history of American offshore development in which a state has specifically and repeatedly requested to be included in the federal plan and has been denied.

In October, during the second annual Governor's Conference on Energy, Virginia Gov. Bob McDonnell repeated his appeal to the Obama administration that it end the moratorium on Virginia offshore development enacted after the gulf oil spill.

Safety Improvements in the Industry
In the wake of the Deepwater Horizon spill, our industry has reviewed, revamped and instituted changes to prevent a Macondo-like well accident from occurring again. While this type of activity will never be without risk, the safety and review measures now in place and those being developed, such as the industry-established Center for Offshore Safety, have greatly assisted in identifying and minimizing risk in offshore drilling and production.

Using lessons learned from the gulf spill, the industry developed new containment technologies, including the Houston, Texas-based Marine Well Containment Co. (MWCC) interim and expanded containment systems, and Helix Energy Solutions Group Inc.'s (Houston) Helix Fast Response System. As a condition of winning new permits to drill in the deepwater Gulf of Mexico, the federal government requires companies to prove they have access to spill-containment equipment built to withstand worst-case blowout scenarios. MWCC and Helix offer drilling companies access to just such equipment.

Propelling the Industry Forward
America needs a reliable, secure and reasonably priced supply of energy. Many agree the time is now for the nation to promote an 'all-of-the-above' energy policy.

But we won't get there by simply waiting for new forms of energy to become economic or by waiting for delivery of oil and gas from other countries in the Middle East or Brazil, Venezuela and possibly even Cuba.

Our reliable domestic offshore oil and gas industry must serve as the base for an all-of-the-above energy policy. To get there we must continue to promote an increased pace of permitting as well as the value of opening up new areas for exploration and getting the offshore program in Alaska moving once again.

We must continue to tell our story with pride. It is a story of an industry that provides American energy, American jobs, American energy security, and safe and environmentally conscious offshore operations—all of which are vitally important to our way of life.

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