First deep-water oil drilling permit since Gulf oil spill plays it safe

The Obama administration lifted its post-Gulf oil spill moratorium on oil drilling in deep water Oct. 12, but it didn't issue its first new permit until Monday. Some experts think rising oil prices forced the administration's hand.

The Obama administration approved the first permit for deep-water drilling in nine months, a move that some interpret as a reaction to the instability in North Africa and the greater Middle East and its combined effect on foreign oil prices.

The permit is the first issued since the April 20 explosion of the Deepwater Horizon oil rig that killed 11 people and released 4.9 million barrels (205 million gallons) of oil into the Gulf of Mexico.

In May the Obama administration issued a moratorium on all new permits to drill in waters greater than 500 feet, a controversial measure that lasted until Oct. 12, when the administration announced a new set of drilling standards it said was designed to safeguard against future blowouts and, should one occur, ensure companies had the capability to launch a successful recovery effort.

The new permit announced Monday has been seen as an attempt by the Obama administration to play it safe. The permit is not for a new well but for one which has already been started. Going forward, the test will be if more permits follow and include any new wells, experts say.

Other permits could be “approved in coming weeks and months,” said Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). But critics note that he has made similar promises before: At the time the moratorium was lifted, Mr. Bromwich said the first new permits would be issued by the end of the year.

Who got the permit and why

Noble Energy, Inc. received the permit Monday. The company, located in Houston, sought the permit to continue drilling a well it abandoned in June following the moratorium. The well project is located about 70 miles southeast of Venice, La., near the Deepwater Horizon disaster site, and is below 6,500 feet of water.

Drilling will resume this month and is expected to reach a total depth of 19,000 feet by May, the company said. By comparison, the Macondo well drilled by the Deepwater Horizon had a water depth of 5,000 feet at the time of the explosion.

The fact that the well is an existing well is significant. The geology of the well makes risk assessment easier to mitigate.

Moreover, BOEMRE highlighted the robustness of the capping stack on the well. It is meant to cap a well up to 10,000 pounds per square inch of pressure in as many as 5,600 feet of water in case of a blowout. But BOEMRE said augmented technology will make the capping stack operable in waters much greater than that, and that the stack “meets the requirements that are specific to the characteristics of the proposed well.”

Among BOEMRE’s new safety measures are requirements that operators must have their blowout preventer inspected and its design reviewed by an independent third party, they must present a report showing how they would prevent or reduce a blowout at the wellhead, and they must get all their casing designs and cementing procedures certified by a professional engineer.

Mixed industry reaction

Reaction from the oil and gas industry to the news was mixed. The permit is “welcome news” but administration’s permitting process remains sluggish, says Jack Gerrard, president of the American Petroleum Institute in Washington. It has contributed to “tightening the screws on domestic oil and natural gas production during a time of increased demand and global uncertainty,” he said.

A more measured response came from the National Ocean Industries Association in Washington. As long as BOEMRE did not mean the permit as a “token,” the agency sent “a calming signal to operators, producers and service companies that the long drought is just about over,” said president Randall Luthi in a statement.

However, long-time moratorium critic US Sen. David Vitter (R) of Louisiana said he would continue to place a hold on the Department of Interior’s nominee to lead the Fish and Wildlife Service until 15 additional deep water drilling permits were issued. “We have a lot further to go. We need to put a lot more Louisianans back to work,” Senator Vitter said in a video statement released on his website Monday.

A Libya link?

Bromwich insisted the decision to issue this week was not a political one. But the timing of the permit is under question due to recent unrest in Libya and the Middle East that is threatening foreign oil prices and is blamed for rising gas prices at local pumps.

The political unrest in Libya “forced the [US] government’s hand” to get deep water drilling up and running in the Gulf as soon as possible, says Joseph Mason, an economist at Louisiana State University in Baton Rouge, La.

“We took a permanent vacation from drilling and development for a better part of the year,” Professor Mason said. What will generate further pressure on the administration to speed up permitting will be when local gas prices hit $4 a gallon by the summer – a situation he says will become “the new normal.”