GOM Permit Ban Halts Drilling Recovery

The U.S. Department of the Interior has temporarily suspended plans to issue new federal drilling permits for the Gulf of Mexico until the agency completes a 30-day review of safety processes on board drilling rigs.

The decision is one of several initiatives the agency is taking in response to the April 20 explosion on board the Transocean rig Deepwater Horizon, which killed eleven workers, sank the rig and has released an estimated 5,000 b/d of oil into the Gulf since the explosion.

The "no new permits" drilling ban for the Gulf will temporarily halt growth seen this year in the number of permits versus the same period in 2009 as oil and gas operators begin spending again on exploration and development drilling. The long-term ramifications of the change to a 90-day deadline could potentially slow down the number of permits being filed and approved in the long-term outlook.

The Obama administration, in oil spill response legislation it is submitting to Congress, has proposed to replace the 30-day congressionally mandated deadline in which the U.S. Minerals Management Service (MMS) must act on drilling plans with a 90-day timeline. This new timeline can be extended as needed to allow MMS to complete additional environmental analysis on any given exploration plan.

Between Jan. 1 and April 30 of this year, operators had filed 140 applications for federal drilling permits. This level has surpassed the 111 permits issued for the same period in 2009, but falls short of the 173 permits filed between Jan. 1 and April 30, 2008 and 234 permits filed between Jan. 1 and April 30, 2007, according to data compiled from Rigzone's GOMExplorer.

GOM Drilling Permits Filed (Jan-Apr)

The number of drilling permits filed for Gulf activity each year has declined due to a number of factors, including operators focusing drilling efforts on other global regions, the impact of Hurricane Ivan in 2004, Hurricanes Katrina and Rita in 2005 and, in 2008-09, the tightening of global credit markets and lower commodity prices that prompted operators to cut exploration spending. The overall number of permits filed for drilling in the Gulf has slid from 647 permits for full year 2007 to 490 permits during 2008 to 287 permits in 2009.

However, the average level of permit filing activity appeared to be rebounding from last year. On average, 35 permits were filed over the January through April timeframe, up from the average number of permits filed in January-April 2009 of around 28 but still down from the average of 43 seen in the first four months of 2008. Prior to the "no new permits" decision, eight federal permits were filed for drilling in the Gulf during May. For the May-July time period this year, an estimated monthly average of around 37 permits would be impacted by the ban.

The long-term impact of proposed changes to the permit approval process remains unknown at this time. While changes may slow down the time for drilling permit approval, operators' interest in the Gulf, particularly the untapped potential of its deepwater oil and gas reserves, will not likely be deterred.

Operators in recent years have focused their drilling efforts on the untapped potential of the oil and gas reserves in the deeper waters of the Gulf. Companies have been pursuing exploration and production projects in the Gulf's midwater region, which consists of water depths between 500 feet and 4,000 feet, deepwater projects in 4,000 feet to 7,000 feet of water, and ultra-deepwater projects in over 7,000 feet of water.

As a result, high-profile projects such as Atlantis, Thunder Horse and Mars have become reality. This trend will continue as existing oil and gas reserves are depleted and a large proportion of remaining global reserves can only be accessed in the world's deepwater regions.