Few Rigs to Drill Soon after Ban Lifted - Regulator

WASHINGTON (Dow Jones Newswires), Sep. 28, 2010

Drilling in the Gulf of Mexico may resume only slowly once the Obama administration lifts a moratorium on deep water drilling, the top U.S. offshore drilling regulator said Monday, citing the time needed to comply with new regulations.

"Even when the moratorium is lifted you're not going to see drilling going on the next day or even the next week," Bureau of Ocean Energy Management, Regulation and Enforcement Director Michael Bromwich told a presidential panel established to investigate the BP oil spill. "It's going to take some time," he said, with "probably very few" rigs restarting drilling within the first month.

The U.S. Interior Department is planning to issue two new regulations later this week, including one that imposes new technical requirements on drilling oil and gas wells, such as new cementing standards. The regulations have been widely expected by the industry, which had already expressed concern that drilling would be slow to resume because of the need to adapt to new rules.

"Certain equipment, certain wells, certain rigs are going to find it easier to meet those requirements," Doug Suttles, BP's chief operating officer, told the spill commission. He said "the net effect" is "going to be a phased restart."

The Obama administration has said repeatedly that the moratorium was likely to be lifted before the Nov. 30 expiration date, but has said ending the ban depends on drilling safety, the capacity of the industry to respond to spills, and the capacity to contain oil when it does spill. Bromwich has already said the industry has made progress on readiness to contain and respond to spills. The new regulations are designed to meet the third condition of improving drilling safety.

"There are a significant number of additional requirements that industry is going to have to comply with, and many of them to certify that they've complied with," Bromwich told the panel.

The comments came during a day when the co-chairs of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling criticized officials who responded to the BP oil spill for making initial estimates that the broken well was gushing 1,000 to 5,000 barrels of oil a day.

"It was a very significant error," Bob Graham, one of the co-chairs, told reporters. "I think it set a context for public skepticism about future information."

But Graham said no evidence had emerged to suggest that BP had intentionally fudged the numbers in an effort to keep its stock price from falling. At its peak, the oil is estimated to have gushed at a rate of 62,000 barrels a day.

"I have no evidence that there's a correlation," he told reporters.

The issue surfaced when retired Coast Guard Admiral Thad Allen, who led the federal response, said BP had obligations to its shareholders.

"Ultimately there was a fiduciary link between the responsible party and their shareholders, which would bring into question whether or not every decision could, should or would have been made based on what was best for the environment and the response itself," Allen told the panel.

William Reilly, the other co-chairman of the commission, asked whether that was "an implicit conclusion that BP was too slow to lay out funds." But Allen said "any delay in carrying out response activities" was more likely due to "the enormity of this response."

BP had no immediate comment. In the past, the company has said that the estimates of the flow were produced in collaboration with government scientists.

But on Monday, Florida State University oceanographer Ian MacDonald said in prepared testimony that confidential BP documents provided to him by lawmakers showed that BP had made its own estimates on the flow rate based on assumptions about the thickness of oil that were 100 times smaller than required by National Oceanic and Atmospheric Administration guidelines. He questioned why the government apparently relied on BP's "erroneous standards." Reilly dismissed the allegations, saying he accepted officials' statements that it was difficult to distinguish between oil and water early in the spill.

MacDonald, who was among the first to challenge official estimates of oil flow rate, also told the panel that more than half the oil remains in the Gulf and was "durable material," much of which was buried in sediment.

But Terry Hazen, a senior Energy Department scientist, disagreed. "It did not sink all to the bottom--it can't," he told reporters. He was elaborating on remarks made earlier to the panel. Hazen said initial data were being collected and it would be at least a month before the findings come out.

Repeatedly, the panel asked the Coast Guard how the low initial estimates of the rate at which oil was gushing affected the response to the spill. Repeatedly, the panel was told that Coast Guard responders hadn't been influenced by the estimated size of the spill.

"We assumed at the outset this would be a catastrophic event," Allen told the panel.

Captain Edwin Stanton, a U.S. Coast Guard commander, said that "my personal philosophy is, it is like a war and you have to respond with everything you have--overwhelmingly."

But Graham and Reilly said the low estimates probably did affect the handling of the response to the spill.

"I think it did have an impact," Graham said. "The top hat vault that was built was constructed in part on the premise that the oil flow was at the low level."

Reilly said, "I would assume it's common sense that the flow rate will determine how many skimmers you need; how many thousand feet of boom you bring into the area; what you're going to do with respect to dispersants that you order. It's not entirely clear to me how it could be that flow rate did not affect the response."

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