Sun | Aug 20, 2017

Drillers: Oil well rules dire for business; others disagree

Published:Sunday | March 6, 2016 | 3:00 AM
In this September 30, 2015, file photo, oil pumps work in the desert oil fields of Sakhir, Bahrain. (AP Photo/Hasan Jamali, File)

An industry-funded study warns of dire consequences if pending rules to prevent another catastrophic oil spill in the Gulf of Mexico go into effect, but critics questioned that claim.

The dire economic analysis was done by Wood Mackenzie, a business research firm, and commissioned by the Gulf Economic Survival Team, a Louisiana-based industry group. The study was released Monday.

Drilling companies and their supporters in Congress have blasted the safe-drilling regulations, known as the "well control rules." They're an outgrowth of BP's catastrophic oil spill in 2010, which spewed millions of gallons of oil into the Gulf. Supporters say the rules are vital in making the industry safe.

According to Wood Mackenzie, the regulations could raise drilling costs by 20 per cent or more. In worst-case scenarios, the analysis said exploration could drop by as much as 55 per cent; less drilling could translate to US$70 billion in lost state and federal tax revenues by 2030 and up to 190,000 lost jobs.

Critics called this forecast unrealistic. Regulators have estimated the safety measures won't be a major burden and would save money by preventing costly oil spills and saving lives.

Elizabeth Birnbaum, who directed the Minerals Management Service when BP's Macondo well blew out, said the new rules shouldn't be delayed.

"It's been six years since the biggest pollution event in the United States, which was the loss of control at the Macondo well, and we still don't have new rules to set the standards on how to manage well control," she said. "It's a matter of good luck, not good management, that we haven't had a major blowout since then."

The regulations cover a range of issues, from improving the devices that shut down wells in blowouts the so-called "blowout preventers," which in the case of the BP spill failed catastrophically to new well construction standards. Also rules call for "real-time monitoring" when a well is dug, requiring companies to keep track from onshore control centres.

Drillers have said the rules would force them to buy expensive new equipment, make it harder and sometimes impossible to drill wells and cause costly delays. They also say the rules don't allow enough flexibility and are overkill since drillers have taken safety steps since the BP spill.

Last year, a study commissioned by the American Petroleum Institute estimated the regulations would cost the industry US$31.8 billion over 10 years. A government estimate put the cost of compliance much lower, at about US$881 million over 10 years.

Sceptics questioned the industry's new analysis.

"I see virtually no evidence to support their conclusions," said Michael Bromwich, who was appointed by President Obama to lead efforts to reform deepwater drilling after the BP spill. "There may be such evidence but they chose not to put it into their report."

But Ed Hirs, an energy economist at the University of Houston, called the study valid. "It will increase cost, that's pretty easy," Hirs said. "Over time, this will add up to billions of dollars of lost GDP, billions of dollars of lost taxes."

Still, Hirs said the new rules would be far less damaging than low oil prices. Wood Mackenzie based its calculations on oil costing US$80 a barrel. Oil is currently trading for about US$36 a barrel.

Lori LeBlanc, the head of the Gulf Economic Survival Team, said the government "grossly underestimated" costs. She said the industry wants regulators start over and draft new rules.

Draft regulations were issued last April and are under review by the White House's Office of Management and Budget.

Greg Julian, a spokesman for the federal agency over drilling, the Bureau of Safety and Environmental Enforcement, questioned the Wood Mackenzie analysis because it was based on the draft rules. Since then, he said changes have been made, in part due to industry concerns. He declined to offer more details.