Gulf Coast Businesses Suffer Strain of Offshore Drilling Slowdown

Alison Meyer / March 12, 2012

As gas prices continue to climb, approaching a nationwide average of nearly $4, lawmakers in Washington turned their attention to the drilling slowdown in the Gulf of Mexico.

The House Subcommittee on Energy and Mineral Resources held the oversight hearing Thursday examining how the Obama administration’s policies have put a strain on businesses, causing economic instability and even forcing some employers to leave the area.

“The economic impacts of this permit slow-down or de facto moratorium are diverse and far reaching, affecting individuals and businesses in various industries across the Gulf Coast,” said James Adams, president and CEO of the Offshore Marine Service Association. “Businesses are indeed laying off workers, reducing hours and salaries, and limiting new hires as a result of the permit slow-down.”

A survey released in January from Greater New Orleans Inc. documented the consequences. It included 102 small, medium and large companies involved in Gulf of Mexico exploration and production. Key findings revealed:

• 41 percent of businesses are not making a profit;
• 76 percent have lost cash revenues;
• 27 percent of businesses have lost more than half of their cash reserves;
• 50 percent of businesses have laid off employees as a result of the moratorium;
• 39 percent of businesses have retained workers but reduced salaries and/or hours;
• 46 percent of businesses have moved all or some of their operations away from the Gulf of Mexico;
• 82 percent of business owners have lost personal savings as a result of the permit slowdown;
• And 13 percent of business owners have lost all of their personal savings as a result of the slowdown.

The hearing also examined the budgets for the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE). The two agencies, reorganized in the wake of the 2010 oil spill in the Gulf of Mexico, regulate drilling activity.

Subcommittee Chairman Rep. Doug Lamborn (R-CO) called the hearing to ensure that BOEM and BSEE were efficiently using taxpayer money to carry out their missions.

“When I say BOEM and BSSE must be held accountable,” Lamborn said, “I mean that I want to know what these agencies are doing to use their taxpayer dollars efficiently to tackle these challenges. After all, oil and natural gas are America’s resources. They help us create jobs and they reduce dependency on foreign oil.”

Defenders of BOEM and BSEE countered that oil production is at its highest in eight years.

“We have more oil rigs operating in the U.S. than the rest of the world combined,” said Rep. Rush Holt (D-NJ). “According to industry analysts, by this summer, there will be 30% more floating rigs operating in the Gulf than there were prior to the BP spill.”

Rep. Ed Markey (D-MA) echoed his statement: “My Republican colleagues will tell you that we need more supply to bring down prices, but America’s oil production is at its highest levels in nearly a decade and offshore oil production is higher than it was during each of the last three years of the Bush administration.”

Critics of the drilling slowdown disagreed. They noted the number of deepwater and shallow-water permits have actually decreased under President Obama and that rigs are leaving U.S. waters for other countries.

“With respect to the statement that production is up, the number of rigs and so forth across the U.S., that is quite true, but it’s because it’s in the private sector out of reach of the federal government,” said Rep. John Fleming (R-LA). “If you look at federal lands and offshore it has gone down. We’ve seen a decrease in leasing, a decrease in permits. We’ve seen rigs leaving our shores and going to Brazil and places like that and in some cases we’ve actually subsidized activity into other countries.”

Benjamin Salsbury, senior vice president and senior energy policy analyst at FBR Capital Markets, agreed.

“There are just 25 mobile offshore drilling units or ‘floaters’ and 15 platforms drilling,” he said. “That is 12 percent fewer floaters than were operating before the Macondo spill despite crude oil prices more than 25 percent higher. There continues to be a permitting constraint on deepwater Gulf of Mexico drilling activity.”

Heritage’s Nicolas Loris has echoed these concerns, warning as well that a drop in production in the Gulf of Mexico also means a loss of revenue for the federal government. The U.S. Treasury collects an 18.75 percent royalty rate on offshore oil and gas leases, meaning the government will forfeit millions of dollars in revenue.

“The economic losses wreaked by, first, the drilling moratorium, then the “permitorium” and now the frustratingly slow permitting process have been devastating,” Loris recently wrote. “It has cost the region almost $20 billion in capital and operating expenditures since the April 2010 explosion — and an estimated 90,000 jobs last year alone.”