Job Losses Over Drilling Ban Fail to Materialize

Job Losses Over Drilling Ban Fail to Materialize
By JOHN M. BRODER and CLIFFORD KRAUSS
Copyright by Bloomberg News
Published: August 24, 2010
http://www.nytimes.com/2010/08/25/us/25drill.html?th&emc=th


WASHINGTON — When the Obama administration called a halt to virtually all deepwater drilling activity in the Gulf of Mexico after the Deepwater Horizon blowout and fire in April, oil executives, economists and local officials complained that the six-month moratorium would cost thousands of jobs and billions of dollars in lost revenue.

Oil supply firms went to court to have the moratorium overturned, calling it illegal and warning that it would exacerbate the nation’s economic woes, lead to oil shortages and cause an exodus of drilling rigs from the gulf to other fields around the world. Two federal courts agreed.

Yet the worst of those forecasts has failed to materialize, as companies wait to see how long the moratorium will last before making critical decisions on spending cuts and layoffs. Unemployment claims related to the oil industry along the Gulf Coast have been in the hundreds, not the thousands, and while oil production from the gulf is down because of the drilling halt, supplies from the region are expected to rebound in future years. Only 2 of the 33 deepwater rigs operating in the gulf before the BP rig exploded have left for other fields.

While it is too early to gauge the long-term environmental or economic effects of the release of 4.9 million barrels of oil into the gulf, it now appears that the direst predictions about the moratorium will not be borne out. Even the government’s estimate of the impact of the drilling pause — 23,000 lost jobs and $10.2 billion in economic damage — is proving to be too pessimistic.

There are several reasons the suspension has not cut as deeply as anticipated.

Oil companies used the enforced suspension to service and upgrade their drilling equipment, keeping shipyards and service companies busy. Drilling firms have kept most of their workers, knowing that if they let them go it will be hard to field experienced teams when the moratorium is lifted. Oil companies have shifted operations to onshore wells, saving industry jobs.

And the administration has dropped repeated hints that the offshore drilling ban will be eased or removed before it is set to expire on Nov. 30.

Michael R. Bromwich, the director of the Bureau of Ocean Energy Management, Regulation and Enforcement, the agency responsible for policing offshore drilling, said Monday in a letter to the presidential commission investigating the accident that it was possible that the moratorium would be lifted before Nov. 30 for certain types of rigs.

Mr. Bromwich’s boss, Interior Secretary Ken Salazar, said the agency was “ahead of schedule” in drawing up new rules to allow drilling to resume and suggested that the moratorium could be eased as early as next month.

Oil workers idled by the government-imposed drilling suspension are not eligible for BP money intended for people directly affected by the spill, like gulf shrimpers and charter-boat captains. But BP has set aside $100 million to compensate rig hands and support workers who lose their jobs because of the moratorium. The Rig Workers Assistance Fund has not started to make payments.

Oil companies continue to lobby for a lifting of the ban and warn that if it goes on much longer they will move their operations elsewhere. Yet they are hedging their bets by keeping crews and equipment on standby, expecting the pause to end well before the end of the year.

“It’s like a taxi that stops but the meter keeps going,” Ola Morten Aanestad, a vice president for Statoil, the Norwegian company that is a major producer in the gulf, said of its stranded rigs. Statoil has invested in a half-dozen drilling projects that are now frozen by the moratorium, including two in which it is the main operator.

“We are looking at what other alternatives there are elsewhere, but I can’t predict what will come about,” Mr. Aanestad said.

But he added that Statoil had not laid off any gulf workers. “Our base assumption is we will be able to resume our activities and work with our deepwater leases,” he said.

The Noble Corporation, a major offshore driller, had six rigs operating in the gulf before the BP accident and has since acquired a seventh. All are now in limbo, said John Breed, a company spokesman, who added that the company was “looking at opportunities outside the United States.”

But Mr. Breed said the company had not let any rig workers go so far.

“Our goal has been to try to maintain the continuity of our work force, but how long that will go on we don’t know,” he said.

Mr. Breed said a long moratorium would hurt not only the drillers but also the service companies that do the seismic work, the caterers who feed the thousands of rig workers and the sellers of uniforms and safety boots.

The moratorium is likely to have a modest immediate effect on domestic oil production. The Energy Department projects that the moratorium will bring a decline of 120,000 barrels a day in deepwater production in 2011, but domestic daily crude oil production is still expected to increase by 30,000 barrels a day, to 5.46 million barrels.

Eleven deepwater gulf projects operated by major companies like Shell, Chevron and BP that were supposed to begin operating over the next year have been delayed, meaning that 400,000 fewer barrels of oil will be produced in 2015 than originally anticipated, said Leta K. Smith, director of exploration and production trends at IHS-CERA, an energy consulting firm.

But while that would represent about 7 percent of current domestic production, the probable delay in production would be at most six months to a year. “The total reserves that will eventually be produced will be the same,” Ms. Smith said.

Deepwater oil drilling has played an increasingly important role in world energy markets in recent years, and that has not changed after several accidents in the waters of Australia, Britain, Mexico and the United States.

Since 2006, nearly half the total oil and gas reserves added worldwide have been in deepwater areas. Six million barrels of oil a day, or 7 percent of total global production, are now produced in deepwater areas. Global deepwater oil production is expected to double by 2030.

With the world becoming increasingly dependent on deepwater oil supplies, the BP spill has so far had a very limited effect on drilling around the world. Britain has stepped up inspections of offshore rigs. Brazil has announced a safety review that will take a year to complete before it makes any regulatory changes related to its fast-growing offshore drilling industry. Angola has increased inspections.

But there are few signs of any slowdown in drilling. In Norway, which already has strong regulations, the BP accident at first shook the industry. An auction of about 100 offshore lots was initially postponed, but in the end, only six lots in environmentally sensitive areas were kept off limits. In Nigeria and Ghana, some government officials have expressed caution about deepwater drilling, but there have been no significant delays.

“Other countries are not overreacting,” said Robert Johnston, director of energy and natural resources at Eurasia Group, a consulting firm. “The BP crisis has created new concerns about safety and the environment, but at the same time countries like Norway with declining oil production, or countries like Trinidad with declining gas production have a strong incentive to go forward in deep water.”