US Saw Drill Ban Killing Many Jobs

(Dow Jones Newswires), Aug. 23, 2010

Senior Obama administration officials concluded the federal moratorium on deepwater oil and gas drilling would cost roughly 23,000 jobs and freeze up to $10.2 billion in oil-industry investment, according to previously undisclosed documents detailing their internal debates.

Critics of the moratorium, including Gulf Coast political figures and oil-industry leaders, have said it is crippling the region's economy, and some have called on the administration to make public its economic analysis. A federal judge who in June threw out an earlier six-month moratorium faulted the administration for playing down the economic effects.

After his action, the documents show, administration officials considered alternatives but chose to impose a new drilling moratorium after concluding the industry lacked viable strategies for containing another major spill. Officials also expressed doubts internally about the reliability of the equipment the industry uses to prevent blowouts.

The administration hadn't previously disclosed its estimates of the economic effect of the controversial halt, ordered after the April explosion at a Gulf of Mexico well. The documents doing so were filed in a New Orleans federal court by the Justice Department earlier this week as part of the latest round of litigation over the moratorium.

Spanning more than 27,000 pages, they provide an unusually detailed look at deliberations about how to respond to the legal and political opposition to the moratorium. Among the disclosures:

  • The new top regulator or offshore oil exploration, Michael Bromwich, told Interior Secretary Ken Salazar that continuing the moratorium "will have a significant economic impact on direct and indirect employment in the oil and gas industry, as well as other secondary economic consequences." The July 10 memo cited an analysis by Mr. Bromwich's agency that said a six-month halt would result in "lost direct employment" affecting approximately 9,450 workers and "lost jobs from indirect and induced effects" affecting about 13,797 more. The analysis assumed that direct employment on rigs affected by the moratorium would "resume normally once the rigs resume operations."
  • A top science adviser at Interior worried in late June that BP PLC, the primary owner of the well that blew out, had an "unrealistically optimistic" corporate culture. After working with BP in Houston on spill response, Marcia McNutt, director of the U.S. Geological Survey, told Mr. Bromwich that BP officials "seem to hope for the best and plan for the best."
  • William Hauser, chief of the regulations and standards branch of what was then called the Minerals Management Service, outlined the risks of various drilling activities in an email to colleagues and said: "The more I write this stuff the more I believe we can/should/could regulate/stop activities through a prudent management process versus a moratoria scheme. I guess the moratoria approach is necessary because the MMS cannot be trusted to regulate." He couldn't be reached for comment Friday. A spokesman for BP said it wasn't familiar with what Ms. McNutt said in her memo but said that "BP is committed to the highest engineering, operating and safety standards" and "continuously improving our operations and learning from this tragic accident."

Ms. McNutt didn't respond to requests for comment. A spokesman for Interior declined to comment on the documents. An American Petroleum Institute spokesman said they show "the government itself understood there would be significant impacts felt throughout the region."

The administration has said in court filings that the economic effect of suspended drilling wasn't as severe as the industry asserted. In a filing with federal court in the Eastern District of Louisiana on June 23, the day after a judge overturned the initial six-month moratorium, Justice Department attorneys said it affected 33 deepwater wells, "less than 1% of the existing structures in the Gulf dedicated to oil exploration and production."

Although some have predicted the halt would cause a mass flight of drilling rigs to other parts of the world, so far, 31 of the 33 deepwater rigs that were operating in the Gulf when the Deepwater Horizon exploded remain.

Some industry experts now say an exodus is unlikely because companies have few other promising reservoirs where they can immediately transfer rigs.

In his July 10 memo, Mr. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, which replaced the Minerals Management Service, said "some form of a temporary pause in drilling would be reasonable and appropriate," to allow time for improvements in workplace and drilling safety, blowout-containment capability and the capacity to respond to a deepwater spill.

He outlined options for Secretary Salazar to consider, including: allowing drilling to resume; issuing a new order to suspend drilling until Nov. 30; or prohibiting certain deepwater drilling while allowing companies "an early exit from the moratorium based on the achievement of specified requirements" on workplace and drilling safety, blowout containment and spill response.

Two days later, July 12, Mr. Salazar issued a new order banning most new deepwater drilling activities until Nov. 30, replacing the May 28 order struck down by federal Judge Martin Feldman in June. To address some of Judge Feldman's problems with the May order, Mr. Salazar cited new evidence regarding safety concerns, shortcomings in industry equipment to control blowouts, and spill-response capabilities strained by the BP spill.

In recent weeks, opponents of the drilling ban in Congress have urged the chairman of the president's Council of Economic Advisers, Christina Romer, to disclose an economic analysis of the impacts of the moratorium. Ms. Romer, who is leaving her administration job in two weeks, couldn't immediately be reached for comment.

Sen. David Vitter (R., La.,), a critic of the moratorium, said the actions "were not balanced and thought out to begin with."

Mr. Bromwich has said the administration hopes to be able to end the moratorium before Nov. 30. He said his recommendation would depend on what he learned from experts in a series of public hearings over the next few weeks.

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


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