Analysis: Moratorium Leads to Anemic Shallow Water Permitting

The approval process for "Applications for Permits to Drills" (APDs) has ground to a halt following the six-month imposed drilling moratorium put in place on May 30, 2010. We note that while two Notices to Lessees and Operators (NTLs) from the Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE, was formerly the MMS) for new safety requirements along with guidelines for additional information on drilling plans were issued on June 8, 2010 and June 18, 2010, approvals for drilling plans in waters less than 500' have yet to take hold. Just one APD that was submitted since May 30, 2010 has been approved (to Apache on July 7, 2010) in what can only be described as federal feet dragging.

Typically, APDs are a leading indicator for jackup utilization. For example, after issued APDs fell 50% in 2008/09, GOM jackup utilization subsequently dropped 50%. Obviously, the current slowdown in permit approvals (zero for nearly six weeks versus an average of 32 per month YTD through May) will impact utilization. There are currently 28 jackups in the Gulf of Mexico operating in either drilling or workover status. We would not be surprised if that number fell below 20 before year end due to the gap in permit approvals. We have summarized the deterioration of activities for both jackups and deepwater rigs since the beginning of the oil spill below:

    Jackup Rigs
  • The number of rigs actively drilling has dropped from 27 to 18 over the past month. This coincides with ten jackup rigs rolling off contract in June.
  • Six of rig rolls were ready stacked and another two are currently waiting on location.
  • Arena, Apache, and Chevron have invoked force majeure provisions due to the slower permitting process in place in the wake of the oil spill. Both Chevron and Apache rescinded their requests once permits were granted; putting the Hercules 120 and Cecil Provine rigs back to work, respectively.
  • The bottleneck in the permitting process is impacting utilization, which has dropped nearly 8 percentage points from approximately 78% to 70% over the past month. As it will take a few months before order is restored to the permitting process, we anticipate that jackup utilization will trough near the end of 2010 and then recover during the ensuing months of 2011 (see graph above).


    Deepwater Rigs
  • By June 4th, operators had invoked force majeure (FM) provisions for three rigs (two semisubs and one drillship); now the number of deepwater rigs impacted by force majeure provisions is seven (five semisubs and two drillships).
  • Amount of backlog erased from subsequent years (due to force majeure decisions) has grown from 5 years initially to nearly 12 years.
  • Utilization has dropped from approximately 89% (76% including FM) to 83% (59% including FM)

Although the APD permitting picture reflects the current posture of the administration, other types of permit approvals are already starting to rebound. Approvals related to "Revisions for New Wells" and "Revisions For Sidetracked Wells" both appear to be picking up steam.  Proponents of continued further development of the Gulf of Mexico can point to many factors that collectively are quite compelling.  Please see our article Looking Ahead to GOM Snap Back for more details.


Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.


Our Privacy Pledge

From the Career Center
Jobs that may interest you
United States Williston: Performance Development Coordinator
Expertise: Operations Management
Location: Williston, ND
United States Houston: Sr Advising Engineer - Tech Development
Expertise: Business Development|IT - Software Development
Location: Houston, TX
Business Development Manager
Expertise: Business Development|Construction Manager|Marketing
Location: Salt Lake City, UT
search for more jobs

Brent Crude Oil : $50.97/BBL 1.53%
Light Crude Oil : $48.75/BBL 1.79%
Natural Gas : $2.92/MMBtu 0.68%
Updated in last 24 hours