Federal rule could cripple Gulf energy production, jobs

From Baton Rouge to Port Fourchon, government leaders and business owners are grappling with the impacts low oil prices are having on our economy and on Louisiana workers and their families. Just as our state is deliberating tough, long-term decisions about budget priorities and government services, the news comes that Louisiana could also be in for an even greater economic hit in the years ahead thanks to the federal government.
According to a study conducted by international research firm Wood Mackenzie for the Louisiana-based Gulf Economic Survival Team (GEST), the extreme cost of implementing a proposed new federal rule governing oil and gas operations in the Gulf of Mexico could force operators out of the Gulf and cause catastrophic economic consequences for Louisiana and the nation.

In April 2015, the Bureau of Safety and Environmental Enforcement (BSEE) proposed the sweeping Well Control Rule, a set of complex and highly technical regulations that impose expansive new requirements on offshore oil and gas drilling.
The new requirements included in the proposed rule call for far-reaching changes to the way oil and gas operators are governed and would increase their operational costs so much that drilling in the Gulf would no longer be economically feasible. If the operators leave, our domestic energy production and U.S. energy supply will drop substantially, national economic activity will fall, government revenue from offshore production will be slashed and massive unemployment will result.

Put simply, the rule would effectively result in a moratorium on Gulf oil and gas development, and we would all suffer the consequences, with an estimated 35,000 jobs at risk in Louisiana alone over the next 15 years if the Well Control Rule takes effect. This would be a harsh blow to Gulf energy-producing states like our own that are also suffering from the economic impacts of low crude oil prices.
The study released by GEST in February noted the Well Control Rule, as drafted by the federal government, would decrease exploration drilling by up to 55 percent, or 10 wells annually; reduce Gulf production by as much as 35 percent by 2030; result in 105,000-190,000 jobs at risk by 2030, including jobs outside of the energy sector, with 80 percent of this job loss in Louisiana and Texas; reduce industry investment by up to $11 billion annually; reduce government tax revenues by up to $5 billion annually through 2030; reduce GDP by a cumulative total of $260 billion-$390 billion by 2030; and reduce lease sale revenues by as much as 40 percent through 2025.

LMOGA is committed to safety and environmental protection, and our organization agrees with BSEE’s intent to develop a rule that enhances both. However, several provisions in the Well Control Rule are not consistent with this goal. Some provisions, in fact, inadvertently increase risk to worker safety due to a one-size-fits-all prescriptive approach that does not recognize the variability of operations and engineering specific to each well. Technical constraints of the proposed rule will result in numerous wells no longer being drilled in the Gulf and will ultimately drive business out of the Gulf. This is no way to improve safety.

For the past year, LMOGA has been actively involved in asking for changes to the proposed rule that would truly improve safety and limit economic impacts. We have submitted comments for BSEE consideration and written to the administration requesting reconsideration of the rule. Louisiana residents, businesses and elected leaders are speaking out too, letting federal decision makers know our communities cannot withstand the harsh economic consequences of the rule with no proven safety benefit.
It is important we conduct further study of the finer points and practical effects of this new Well Control Rule before forcing it on companies engaged in operations in the Gulf. LMOGA and our member companies ask you to join with us and urge the administration to address the rule’s far-reaching economic impact and the serious concerns of our local communities before sanctioning this new federal regulation. As many as 190,000 American jobs and our nation’s energy security are at stake.