April 18, 2011 / 5:11 AM / 9 years ago

Analysis - After BP spill, U.S. drill permits slow to a trickle

HOUSTON (Reuters) - Nearly a year after BP Plc’s (BP.L)(BP.N) Gulf of Mexico oil spill spurred a shutdown of new U.S. deepwater oil and gas drilling, offshore regulators have begun to approve a trickle of new permits.

But the 10 new wells that have received permits from the newly created U.S. Bureau of Ocean Energy Management so far this year pale in comparison to the rate of permitting in prior years, according to a Reuters analysis of permits.

The pace of government-issued permits so far in 2011 is about a third the rate for the same period in each of the previous five years, 40 versus an average of 119 in 2006 through 2010.

Oil company executives are more hopeful they can get back to work after months of regulatory and legal delays after the worst offshore oil spill in U.S. history prompted President Barack Obama to ban deepwater drilling from May 27 to October 12 last year. The Gulf of Mexico provides 30 percent of U.S. oil production and 11 percent of natural gas output.

With crude oil prices soaring to over $100 a barrel — and gasoline flirting with $4 a gallon — lawmakers have been pressuring the administration to remove impediments to domestic U.S. energy production.

The permitting halt blocked enough new drilling that in 2011 and 2012, Gulf oil production will fall by 190,000 barrels per day, or about 12.7 percent of its current level, according to data from the U.S. Energy Information Administration, the statistical arm of the Energy Department.

“You need new wells, new production coming online to offset the natural decline,” said Doug Morris, an EIA analyst.

Most new production comes from deepwater projects like BP’s Macondo, which blew out on April 20, 2010, killing 11 workers, sinking the Deepwater Horizon rig and spewing more than 4 million barrels of oil into the ocean.

Industry officials complained that lack of clarity over new rules spurred a “de-facto” moratorium on Gulf drilling that stretched months longer. With new regulations in hand, Gulf of Mexico drillers are getting back to work.

“We could comply with whatever they wanted. We just needed them to say what they wanted,” said John Hollowell, executive vice president of the deepwater Gulf for Shell Oil Company (RDSa.L). “I think the fog has lifted in that regard.”

Stringent new requirements called for the industry to prove it had rapid-response systems that could control a Macondo-like spill. Exxon Mobil Corp (XOM.N) and Helix Energy Solutions Group (HLX.N) organized consortiums to provide such systems.

With that, permit approvals have begun and “continue at a steady pace,” said Melissa Schwartz, spokeswoman for the U.S. Bureau of Ocean Energy Management.


The pace of deepwater permitting probably will be slow in coming months as the government recruits more scientists and engineers to apply more stringent rules, said analyst Kevin Book of Washington-based ClearView Energy Partners.

“It’s not a spigot. It’s going to be a drip valve. They’re going to trickle them out,” Book said.

Independent producer Noble Energy (NBL.N) got the first post-Macondo permit and others have followed, including some of the biggest operators: Shell, Exxon Mobil Corp and Chevron Corp (CVX.N).

Most involve drilling that was interrupted by the ban.

“Obviously the industry would like to see it faster,” Steve Farris, CEO of Apache Corp (APA.N), said of permitting. “But ... you have to be cognizant that everybody doesn’t want to open the floodgates yet and just put a bunch of rigs out there.”

Most permits approved so far simply allow producers to pick up where they left off last year, but a Chevron drilling and production executive said the variety of wells okayed gives producers a sort of blueprint for the future.

“As we get through this string of firsts, the industry will know what to shoot for,” said Gary Luquette, head of Chevron’s North America exploration and production.

More permit applications are on the way, including Petrobras’ (PETR4.SA)(PBR.N) plan to start producing its Cascade-Chinook project in the Gulf. Shell also hopes to drill more wells near its Perdido platform, which started production with one well three weeks before Macondo blew out.

BP, the largest leaseholder in the Gulf of Mexico, has yet to get a permit for new drilling. The company declined comment. Partners said several permit applications are pending.

Editing by Chris Baltimore and David Gregorio

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