Drilling industry fears ‘ripple effect’ from BP suspension

The Obama administration decision to block BP from new government contracts and offshore energy leases could ripple across the Gulf of Mexico, hurting drilling contractors throughout the region, industry groups charged Friday.

In a joint statement, the National Ocean Industries Association and the International Association of Drilling Contractors said the Environmental Protection Agency’s action could have “far reaching impacts.”

“We are hopeful that the offshore industry, the Gulf region and the federal government can benefit from BP’s participation in the upcoming central Gulf sale and future offshore lease sales,” the two groups said.

BP is among the largest oil and gas leaseholders in the Gulf of Mexico.

While the suspension is in place, the government will not award the company any new offshore drilling leases, although BP will be able to continue drilling and production at existing operations. For instance, federal regulators will continue processing BP’s applications for permits to drill and do other work offshore.

Although BP did not submit bids in an auction Wednesday of western Gulf of Mexico leases, if the suspension continues through next March, it could prevent the firm from submitting offers in the more attractive central Gulf lease sale scheduled then.

“Banning BP from bidding in future offshore lease sales could have a hugely negative ripple effect on drilling contractors and the rest of the offshore industry as well as the Gulf region and even the federal government,” NOIA and IADC said. “BP is the largest operator in the Gulf of Mexico, and its investments in the region create business
opportunities for many other companies, create and sustain good jobs in the region, and generate much needed government revenue.”

Several financial analysts have argued that drilling contractors and other oilfield suppliers won’t feel the heat from BP’s suspension, largely because it will apply only to new leases, and it could be lifted before next year’s central Gulf sale.

“There seems to be a relatively clear pathway (out of the suspension) that is not horrifically disruptive to BP or to other entities in the Gulf,” said Benjamin Salisbury, an analyst with FBR Capital Markets. “There’s not a readthru to drilling activity; there’s not a readthru to lease sales.”

The EPA moved to suspend BP for the April 20, 2010 blowout of its Macondo well in the Gulf of Mexico, which triggered an explosion killing 11 workers and the nation’s worst oil spill. Earlier this month, the company agreed to pay $4.5 billion to settle manslaughter, obstruction and other charges connected with the disaster, though a judge has not yet approved the deal.