Drilling advances

	Vol. 232 No. 5
JIM REDDEN, CONTRIBUTING EDITOR

What more will it take to get their attention?

Anyone who has spent appreciable time in what the urbanites would call “the sticks” has probably come across idioms on how to deal with the human condition that likely would draw blank stares on the streets of Lower Manhattan. Here’s one such saying that I’ve been thinking about a lot lately: “Sometimes, to get a mule’s attention, you have to hit it in the head with a two-by-four.”

I don’t recall ever seeing a creature, mule or otherwise, whacked in the noggin with a board, but the message was clear: Sometimes it takes drastic measures to get someone to listen to sound logic.

Perhaps the time is overdue to start swinging a veritable lumber yard through the power corridors of the US. Obviously, continued turbulence in Libya and throughout much of the Middle East, a horrific disaster in Japan that has probably derailed development of one alternative energy source for the foreseeable future, drilling dollars going elsewhere and rising oil prices have failed to get their attention. Of course, federal officials thump their chests and point proudly to the 10 deepwater drilling permits they have issued (as of April 15) to show that they are making progress. However, when the issuance of a new drilling permit in the Gulf of Mexico—of all places—is front-page news, it’s clear that this “progress” amounts to so much braggadocio.

A US Department of Commerce report issued on Sept. 16 predicted that the mandated shutdown in the Gulf would have minimal impact on 2010 and 2011 production levels. But down the road, any dallying on deepwater drilling on the outer continental shelf will surely postpone the future production of some of the OCS’s more than 86 billion bbl of undiscovered and technically recoverable oil and 420 Tcf of recoverable natural gas. And all one has to do is look at the world today to get an idea of how badly those reserves will be needed.

To address the challenges for post-Macondo offshore energy development, Sandeep Khurana, manager of development planning for Noble Energy (one of the operators that the feds have blessed with a Gulf of Mexico deepwater drilling permit), organized a discussion panel to be held at this month’s Offshore Technology Conference in Houston, along with David Holt, president of the advocacy Consumer Energy Alliance. The panel includes a mixed bag group analysts, labor leaders and officials from the budget-challenged coastal states of Louisiana, Virginia, Alaska, Texas and Mississippi, which Khurana and Holt say are continuing to suffer largely as a result of federal ambiguities.

“In particular, the federal government through the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) has not clearly stated what the offshore oil and gas industry is required to do with regard to plans and permits or what the timeline is for decisions on industry permitting submissions,” Khurana and Holt state in a paper prepared in preparation for the OTC panel discussion. “Constant revisions to federal regulations are making compliance and permit review difficult, and the BOEMRE is relaying conflicting information to companies as to what types of activities are allowed and not allowed and under what conditions.”

They continue, “Despite repeated requests by industry to gain a better understanding of federal regulations, the
BOEMRE has done little to provide faster and more effective communication or to collaborate at all with industry. Moreover, the federal government has seemingly made decisions regarding offshore oil and gas development in a vacuum without fully recognizing the economic impacts on individual states and the nation or consulting with policymakers from key energy-producing states who would be impacted the most by any type of drilling ban.”

Some companies, like Chevron, seem to be losing patience with the foot dragging and have elected to earmark a larger percentage of their drilling dollars for countries where rigs seem to be more welcome. In an April 16 interview with the The Wall Street Journal, Chevron CEO John Watson discussed the company’s record $26 billion capital and exploratory budget, saying that a large percentage of the drilling expenditures will go to Australia, West Africa and the Gulf of Thailand. While a portion of that budget definitely will go into the Gulf of Mexico, Watson lamented that there were not more US opportunities.

“Most of the well-developed world—Australia, Western Europe—they develop their resources base, they inventory it, they develop it, and they view it as a good source of jobs and revenue,” he said, whereas the US is a country that for too long has taken “affordable energy for granted.”

Watson said that the decline in new deepwater drilling today means that “if you go out to the middle of the decade, there are already 200,000 to 300,000 barrels a day of oil that aren’t going to be produced that year.” He told the Journal that this lost production will only grow the longer BOEMRE drags its feet issuing new permits, especially considering that the agency is now dealing with backlogged permit applications and not application to drill on new leases.

In late March, with gasoline prices rising, President Barack Obama stepped out of character by announcing a goal for the US to cut one-third of its oil imports by 2025, in part by producing more oil and gas domestically. However, calls to produce more home-grown energy will, again, amount to just so much braggadocio until such rhetoric is backed up by sound energy policies.

Indeed, as any sticks dweller will tell you, “It’s time to fish or cut bait.”