O&G Industry Bounces Back from Deepwater Horizon
The oil slick has dispersed and the drilling rigs have returned to the region that provides the United States with valuable energy resources. It has been two years since an explosion occurred on the Deepwater Horizon rig (UDW semisub), resulting in 4.9 million barrels of oil to spill into the Gulf of Mexico (GOM). Lives were lost, the U.S. economy further tanked, and people lost jobs as the nation's oil and gas industry grappled to deal with the onslaught of finger-pointing and ridicule.
While offshore drilling came to a halt, operators turned their focus to other parts of the world or looked to America's onshore resources. However, the Gulf of Mexico was never too far from an operators' mind. Prior to the world's worst oil spill, the Gulf Coast region employed more than 200,000 workers with about 100,000 workers associated to offshore activities. GOM accounts for 30 percent of total U.S. crude oil production, with the deepwater area producing 76 percent of all GOM crude oil production in 2007.
As the industry moves in to deeper water depths (the barrier has moved from 5,300 feet to over 9,500 feet), the increase in deepwater crude oil production has been a major new source of domestic crude oil supply.
At the time of the Macondo well blowout, 33 deepwater drilling rigs were operating in the gulf with roughly 1,400 jobs being performed, according to "A Second Oil Disaster," published by Dow Jones and The Wall Street Journal. Shortly after, a drilling moratorium went into effect, ceasing all drilling activities. Analysts claimed that more than 17,000 jobs and $1.2 billion of economic activity were lost by year-end 2010.
After the year-long drilling moratorium, 2012 seems to be the year for Gulf of Mexico oil drillers. BP and other oil companies are intensifying their exploration and production activities, which are expected to soon surpass the levels attained before the accident.
The reason for the resumption of such drilling is because of the continuing high demand for energy worldwide. BP has five rigs drilling in GOM in early 2012, making it one of the most active drillers there. That is the same number BP operated before the accident, and the company plans to have three more rigs drilling in GOM by year-end.
But the pace of permitting remains slow.
"Drilling activity in both shallow water drilling and deepwater drilling has been both slow to recover as (BOEM) slowly issues new permits," remarked Bernard Weinstein, economist and associate director of SMU's Maguire Energy Institute. "It's my impression that the small to medium firms that focus on shallow water drilling areas are still hurting to a degree, because they have to comply with the same mandates that the big companies and deepwater drillers have to deal with. The difference is the big companies have sizeable cash cushions."
Eric Smith, Associate Director, Tulane University Energy Institute, agreed with Weinstein.
"The drilling permit situation is slowly improving on an absolute number/month basis, although still below the averages prior to the spill," Smith wrote in an email exchange with Rigzone. "However, the elapsed time is still bad with shallow and deepwater permits that are being approved, taking over 100 days/permit versus 40 or less before the spill."
Business group Greater New Orleans Inc. found an average of three permits a month were approved in the November 2011 to January 2012 period, compared with nearly six a month in the year before the spill.
"If we have accommodating public policies that encourage exploration and production, then absolutely those Gulf Coast counties can certainly recover," said Weinstein. "The most recent U.S. geological survey estimates that the North Cuban basin has up to 9 billion barrels of oil and 22 Tcf of gas, and there are other estimates that range from 5 to 22 billion barrels of oil. So, when I hear critics of the industry say that we only have a limited amount, I don't subscribe to that at all. There is no question in my mind that one of the reasons we see a spike [in the price of gas at the pump] so early this year is because there has been a significant drop in Gulf of Mexico production."
There is no question that the oil spill aftermath has been a tough period to work through.
A seven-member commission named by Obama to investigate the Deepwater Horizon incident said in its final report released in January 2012 that the Minerals Management Service (MMS) "became an agency systematically lacking the resources, technical training or experience in petroleum engineering that is absolutely critical to ensuring that offshore drilling is being conducted in a safe and responsible manner."
"For a regulatory agency to fall so short of its essential safety mission is inexcusable," the report continued.
In May 2010, the MMS was renamed the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). Then, in October 2011, the Obama administration split BOEMRE into three separate entities: the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE). The third entity -- The Office of Natural Resources Revenue -- now resides under the jurisdiction of the Department of Interior's Office of Policy, Management and Budget.
The reorganization of BOEMRE was designed to:
- ensure the balanced and responsible development of energy resources on the Outer Continental Shelf
- ensure safe and environmentally responsible exploration and production and enforcing applicable rules and regulations
- ensure a fair return to the taxpayer from offshore royalty and revenue collection and disbursement activities
- remove conflict by clearly dividing responsibilities across the three agencies, providing each group with a clear mission and the necessary resources needed to fulfill their missions.
A Time of Remembrance
The key players of the Macondo spill have had their share of problems, too.
Guy Cantwell, Director of Corporate Communications at Transocean, said in an emailed statement to Rigzone, "the Transocean family will be privately acknowledging the anniversary of the tragic events of two years ago. During this difficult time, we ask everyone to remember the 11 men who were lost and to respect the privacy of their families."
Tara Mullee-Agard, Public Relations Supervisor at Halliburton, stated in an email to Rigzone that since 2010, Halliburton and the Halliburton Foundation have made donations totaling more than $415,000 to nonprofit and educational institutions in the Gulf Coast.
As of December 2011, BP has spent $14 billion on response activities, according to the company's Deepwater Horizon accident website.
While the operator of the Macondo well tries to understand the causes, impacts and implications of the Deepwater Horizon accident, the negative environmental and economic shocks to the region will likely be felt long after major recovery operations are completed.
Industry analysts feel the rebound cannot come soon enough for companies that rely on the drilling business.
A Wood Mackenzie study released on Sept. 7, 2011, found U.S. policies, which encourage the development of new and existing resources, could, by 2030, increase domestic oil and natural gas production by over 10 million barrels of oil equivalent per day (MMboed), support an additional 1.4 million jobs, and raise more than $800 billion of cumulative additional government revenue. The energy consultants also noted that domestic oil production is expected to go from 7.8 MMboed in 2010 to 9 MMboed in 2030. The gains are largely due to increased production from shale oil and deepwater drilling.
The Obama Administration is trying to accommodate the industry. In December 2011, the administration held its first offshore auction since the BP oil spill, granting leases for more than 20 million acres of federal waters. The leases are worth more than $330 million to the federal government with the potential to produce 400 million barrels of oil.
A month later, the Obama Administration announced plans to lease out an additional 38 million acres of the GOM in hopes of increasing domestic oil production. According to the BOEM, the areas to be leased out could hold 1 billion barrels of oil and 4 Tcf of natural gas. The bidding process is slated to begin June 20.
Where Are The Jobs?
With drilling resuming and picking up the pace, many are asking where the jobs are. Wood Mackenzie estimates that 1 million new jobs could be added by 2018 and over 1.4 million by 2030. Furthermore, they found that if the Obama Administration increases leasing and permit rates back to pre-Macondo levels on offshore new access and existing production areas, the company predicts that there will be:
- roughly 400 per million acres of landmen jobs
- 280 per rig of E&A drilling jobs; five per rig of associated drilling jobs
- 2,000 per field of construction jobs
- 200 per field of operations jobs
"While Louisiana was affected the most on a relative basis, Texas actually lost more jobs on an absolute basis," stated Smith. "Other states like New York, California, and Illinois also lost manufacturing jobs. You are likely to hear from fabrication yards that they are hurting for projects because of the production modules that didn't get built, and from individual drilling rig workers who saw their jobs leave with the rigs. Even with additional funds and a 25 percent uptick in their pay grade, they [employers] are having problems finding qualified people."
This statement rings true for most recruiters looking for qualified people to put to work.
Ryan Hanemann, managing partner at Audobon Engineering, said his company has brought people out of retirement and plans to be aggressive with its college recruiting this summer.
"Every time the industry recovers, we wind up in a situation where people are in very, very short supply, and it turns into a feeding frenzy for talent," Hanemann said.
Halliburton stated that they are also looking for talent.
"In April 2011, the company announced its new 200,000 square foot manufacturing facility in Lafayette, La., that will create 150 new, direct jobs," Mullee-Agard said. "Louisiana Economic Development (LED) estimates the 150 new, direct jobs will result in 357 new indirect jobs and will generate approximately $16.3 million in new, state tax revenue and nearly $4.4 million in new, local tax revenue over the next 10 years. The facility is under construction, and hiring is taking place."
The consensus is the industry is searching for experienced people who really do know what they are doing so what happened two years ago will not happen again.
"There is no human activity that is completely risk free -- you have to balance the risks with the rewards," stated Weinstein. "The Macondo incident was very unfortunate, not only in terms of loss of life but in terms of negative short-term environmental impact…but here we are two years later, and we know we must use the best available technology, people and safe guards to prevent another catastrophe."
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