AAPG Adds Voice to Moratorium Conversation

American Association of Petroleum Geologists (AAPG)

As oil spilled from the Macondo well into the Gulf of Mexico in the days following the Deepwater Horizon drill rig explosion, the White House scrambled to respond. President Obama ordered the Department of the Interior to conduct a safety review of offshore operations and report back within 30 days. In the interim, Interior Secretary Ken Salazar announced the department would not issue new deepwater drilling permits.

The 30-day review, delivered May 27, recommended specific measures to increase safety and enhance oversight of offshore operations. These measures were codified and communicated to industry through two “Notices to Lessees and Operators” (NTL No. 2010-N05 and -N06).

The president simultaneously extended the suspension on deepwater drilling – defined as wells in more than 500 feet of water – until Nov. 30, while the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling investigated.

The move drew criticism from both industry and political leaders.

Hornbeck Offshore Services, which supports deepwater and ultra-deepwater drilling and operations, filed suit against Salazar, alleging “the federal government’s imposition of a general moratorium on deepwater drilling for oil in the Gulf of Mexico was imposed contrary to law.”

“[T]he Court is unable to divine or fathom a relationship between the findings [of the 30-day review] and the immense scope of the moratorium,” wrote Judge Martin Feldman of the U.S. District Court Eastern District of Louisiana in his ruling. The moratorium was not in the public interest, the judge concluded, and granted a preliminary injunction against it.

Many Gulf Coast leaders agreed.

“During one of the most challenging economic periods in decades, the last thing we need is to enact public policies that will certainly destroy thousands of existing jobs while preventing the creation of thousands more,” wrote Louisiana Gov. Bobby Jindal (R) in a letter to President Obama and Secretary Salazar. He urged enforcement of existing regulations and emphasis on safe operations.

Sen. Mary Landrieu (D-Louisiana) acknowledged there is no risk-free energy production, but called on the administration to implement new drilling practices, such as those suggested in the 30-day review report, rather than issue a blanket moratorium.

“I believe that we can demonstrably improve the safety of deepwater drilling without shutting down the Gulf Coast economy for more than six months,” Landrieu said.

In response to the barrage of criticism, both the White House and the Interior Department indicated willingness to consider an earlier lifting of the drilling suspension.

“I remain open to modifying the new deepwater drilling suspensions based on new information,” said Secretary Salazar, “but industry must raise the bar on its practices and answer fundamental questions about deepwater safety, blowout prevention and containment and oil spill response.”

The administration issued a revised moratorium in July, after Judge Feldman’s ruling, focusing on the technical specifications of the drilling operation rather than water depth. And as part of this process, Secretary Salazar instructed Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, to conduct fact-finding meetings across the country on offshore safety and best practice.

Independently, the National Commission is also reviewing the use of moratoria. It asked the Bipartisan Policy Center (BPC), a Washington, D.C., think tank, to assist with the assessment.

BPC in turn invited a diverse group of stakeholders to respond to a questionnaire on aspects of offshore exploration, production and safety practices.

AAPG President David Rensink responded on behalf of the Association, providing geological context, discussing how oil and natural gas operators manage risk and uncertainty, and offering AAPG’s view on the use of moratoria.

“An offshore drilling moratorium is a blunt policy tool that is more destructive than beneficial,” Rensink wrote. “Its high cost has been evident this year, as the moratorium imposed in May exacerbated the already substantial economic harm experienced along the Gulf Coast from this tragic event. Consequently, AAPG believes that future federal plans for spill response preparedness should not include the use of moratoria.”

In its report to the National Commission, BPC stated the moratorium gave government and industry opportunity to review and enhance operational and safety practices. The changes initiated after the 30-day review, together with on-going improvements, should be fully implemented and enforced. If done, this “new regime will provide an adequate margin of safety to responsibly allow the resumption of deep water drilling in the Gulf of Mexico,” the report concluded.

As I write this in early September, it is unclear whether the administration will lift the drilling suspension before Nov. 30. But if the moratorium ended tomorrow, what effect would that have?

Would business resume as if nothing happened?

Former Shell President John Hofmeister appeared on Bloomberg Television on Aug. 30 warning that it could be 1-1/2 to 2 years before a new deepwater well is drilled. He fears that early permits will be challenged in court, leaving the judiciary to decide whether drilling will proceed. And the impact of new regulations could have a chilling effect on offshore E&P activity, resulting in decreased Gulf oil production.

Lifting the moratorium is necessary, but only the first step. There are many policy decisions, from permitting and environmental regulations to taxes, needed to ensure robust domestic oil and natural gas production in the Gulf of Mexico.

These decisions ultimately require public acceptance. According to Rasmussen, public support for offshore drilling ranged from 56 percent to 64 percent this summer, with 53 percent of voters supporting deepwater drilling.

That’s good. Our collective challenge is to educate the public and policy makers about what good policy decisions are.

It’s a discussion we need to have.

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