Gulf oil spill aftermath: 'Drill, baby, drill' era may be gone forever

The Gulf oil spill was capped a year ago Friday, but offshore drilling is still far off its pre-spill pace. With a new regulatory agency putting a greater emphasis on safety, the industry might have to adjust to a new normal.

One year after the Gulf oil spill was first contained, the offshore oil industry is struggling to adjust to a new normal that could affect the Gulf Coast for years to come.

With federal government watchdogs policing offshore oil operations more diligently, the pace of oil exploration and drilling has dropped as the permit process slows.

The result is that the deepwater drilling moratorium – lifted last October – is essentially still in effect, say frustrated oil industry officials. The only companies seeing robust growth are those dealing with safety.

Over time, as the federal government streamlines its new safety protocols, the pace of approvals could quicken, allowing companies to find and produce more oil, experts say. But the heady days of the prespill regime, when offshore oil projects were often approved with rubber-stamp speed, could be gone forever, meaning the industry and the Gulf Coast economy will need to find a new balance point, they add.

"It's inevitable that any review that is going to be real is definitely going to slow down the process," says Albert Lin, who teaches environmental law at the University of California, Davis. "These are complicated operations, and I don't think they were looked at adequately before."

The Gulf oil spill, which began with the explosion of the Deepwater Horizon oil rig on April 20, 2010, ended with the cementing of the Macondo well on Sept. 18. On July 15, however, BP fit a cap over the leaking wellhead. Before that point, 4.9 million barrels (205 million gallons) of oil had vented into the Gulf of Mexico.

In the aftermath of the accident, the federal government undertook "the most aggressive and comprehensive reform of offshore oil and gas regulation and oversight in US history," said Michael Bromwich, director of the Interior Department's Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE).

The centerpiece of those reforms was abolishing the federal agency that previously oversaw offshore drilling and replacing it with a new one, BOEMRE. And to those in the oil industry, BOEMRE's regulations – seen as too cumbersome and lined with uncertainty – are the problem.

"I really don't think [the moratorium's] been lifted," says Patrick Harington, a sales manager at Rio Fuel and Supply, which operates a fuel dock on the Atchafalaya River.

Mr. Harington says profits for his company are down about 40 percent since the moratorium was issued. "When [BOEMRE] put down the new rules and wants the environmental impact surveys, rig companies are going to look at it and say, 'Is it worth it profit-wise or should we move to another area?' "

Offshore drilling data explain the blow to Harington's bottom line.

• Deepwater oil production increased about 1 percent in 2010 from the previous year. In 2009, the annual increase was 46 percent, according to BOEMRE. Moreover, the oil industry says production expectations are dimmed for this year, too, because of delays related to new regulations.
  
• Currently, there are 27 deep-water projects in the Gulf at varying stages, from exploration to production. In April 2010, there were 52, according to Louisiana Department of Natural Resources data.
  
• BOEMRE has so far approved 10 of the 28 permit applications for new deepwater drilling, and only one company, BHP Billiton Petroleum of Melbourne, Australia, has actually started production.

But Billiton's experience could offer lessons for the industry. Billiton has stressed its willingness to work with BOEMRE to meet the agency's new safety guidelines quickly. Billiton "has worked very hard over the past several months with regulators to have the ability to resume drilling operations," said chief executive J. Michael Yeager in a statement.

The new focus on safety can also lead to new business opportunities. The companies doing well are those involved in preparing vessels for safety inspections. "They still have to do their five-year inspections, and we still get the work," says Scott Leonard, owner of Coastal Tank Cleaning.

To some industry analysts, the deeper problem is the decline in permits for exploration. "If you don't have discoveries now, you won't have production later," says Andy Radford, a senior policy adviser for the American Petroleum Institute (API), an oil industry trade group in Washington.

Since the lifting of the moratorium, 27 of the 44 revised plans to explore and develop new sites have been approved by BOEMRE. That includes one significant "victory," according to Louisiana state officials. ExxonMobil in June announced finding about 700 million barrels of oil southwest of New Orleans in about 7,000 feet of water – the largest Gulf discovery in a decade.

The find "proves the timely issuance of drilling permits is critical to America's energy future," said Lori LeBlanc, executive director of the Gulf Economic Survival Team, a Louisiana state task force.

The primary roadblock in the permitting process is the way permits are scrutinized, says API's Mr. Radford. He says most permits get kicked back an average of five times, instead of receiving a single comprehensive review that might create a more reliable schedule.

He warns that the continual back-and-forth will grind down the rate of production in the Gulf. Some $59.6 billion in total investment spending by Gulf operators is at risk if development delays last a year, API data say.

That bottleneck could be alleviated with the addition of BOEMRE administrators and the streamlining of the application and inspection processes, says Mr. Lin of UC Davis.

But that might not satisfy the oil industry. BOEMRE "is doing the best they can with the resources they have, but unfortunately that doesn't mean we're going to be any time soon, or ever, at a pre-Macondo rate of permitting," says Michael Olsen, a former Interior Department official.

The outlook is the same on the Gulf. "They're building boats but not as much as when it was 'drill, baby, drill,' " says Mr. Leonard. "It's too little, too late."