Oil, Gas Drillers Raise Voice as Debate over Ban Intensifies

GULF OF MEXICO (Dow Jones Newswires), July 8, 2010

Crew members of the Danny Adkins, a drilling rig owned by Noble Corp., watched new paint dry as they waited for the resolution of the Gulf's biggest drama: whether the temporary ban on offshore drilling imposed by the Obama administration will stick.

The seven-story-tall rig was moved to this spot, 220 miles south of Houston, to drill a deepwater well for Shell in late May, a few days before the Interior Department decreed a six-month moratorium on Gulf of Mexico drilling in the wake of the Deepwater Horizon oil spill.

Even though a federal court struck down the moratorium, Shell, like other Gulf producers, isn't letting the rig return to work while an appeal is pending. For Shell and Noble executives, it's unclear how easy it will be to obtain a federal permit to drill, even if the ban is permanently overturned. In the meantime, the Anglo-Dutch oil major is still paying the rig owner an undisclosed amount. Typically, a rig like the Danny Adkins would fetch between $400,000 to $600,000 a day but Shell agreed to pay Noble a "reduced suspension rate" while extending the length of the contract.

Meanwhile, the Noble crew has been engaging in busy work, such as repainting the brand-new half-billion-dollar vessel. But there's only so much maintenance work they can do. The workers' frustration underscores a similar malaise among energy company executives and Gulf Coast officials at what they perceive is an arbitrary disruption of the region's main economic engine.

"We need to go to work," rig manager Jessie Jordan told U.S. Sen. John Cornyn, (R-Texas), Rep. Pete Olson (R, Texas) and a few reporters visiting the rig Tuesday. The company and politicians took part in the trip in an effort to promote the safety of deepwater drilling and its positive impact on the economy of coastal states.

"For 20 years, you guys have been doing things right," Olson told the rig workers.

As the legal battle over the moratorium reaches a critical point--the U.S. Fifth Circuit Court of Appeals will hear the case on Thursday--the offshore drilling industry and its political backers are ratcheting up their criticism. At stake, they say, are 150,000 jobs and the economic lifeline of a region that has weathered the recession better than the rest of the country.

Contractors fear the tighter regulation will squeeze them out of the Gulf, and some of the rigs that end up in Brazil, West Africa or other offshore areas, may never come back.

"Just about every rig sitting in the Gulf right now is trying to find a way to get out of the Gulf," said Louis Raspino, chief executive of drilling contractor Pride International Inc. (PDE). "In a very, very short period of time we're going to see this industry implode," he said Wednesday at a gathering of the International Association of Drilling Contractors in Houston.

Backers of the moratorium say it will help authorities make sure drilling is safe before it can continue, reducing the possibility of another massive oil spill such as the one unleashed by the explosion and sinking in April of the Deepwater Horizon drilling rig. The blast killed 11 people, and the spill, which continues to spew crude into the Gulf, has become one of the worst offshore leaks in U.S. history.

The incident has incensed opponents of expanded offshore drilling in areas such as Florida and California, and has prompted Rep. Ed Markey (D-Mass) to say that investment in deepwater drilling has far surpassed the industry's ability to deal with unintended consequences.

At the IADC meeting, drillers took a belligerent stance against the moratorium. The group's director, Lee Hunt, compared the measure to Venezuelan President Hugo Chavez's recent move to nationalize privately owned drilling rigs. In Venezuela, the rigs were "nationalized by fiat. We have 33 rigs that have been neutralized by fiat," he said.

A presentation slide called U.S. Judge Martin Feldman, who overturned the moratorium, a "hero." Olsen, a speaker at the meeting, was also hailed as a hero. He called the moratorium was "the wrong decision."

At the drilling rig, which was hired to drill at a depth of 9,000 feet below sea level, Noble crew members said they have the right safety procedures in place and the rig has been thoroughly inspected by the Bureau of Ocean Energy Management, Regulation and Enforcement, the agency formerly known as the Minerals Management Service. President Barack Obama ordered the reorganization of the agency after the Deepwater Horizon disaster amid accusations of lax oversight.

Copyright (c) 2010 Dow Jones & Company, Inc.


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