Pace of permitting for deepwater Gulf drilling leveling off, experts say

05 01, 2013 by The Times-Picayune

The pace of permitting for new oil wells in the deepwater Gulf of Mexico is off to a much slower start than a year ago, but industry analysts and other experts say there's no reason to hit the panic button yet.

As of Monday, federal regulators had issued 15 permits so far this year for new wells in waters deeper than 500 feet, according to the U.S. Bureau of Safety and Environmental Enforcement, which regulates offshore drilling. Shell Offshore Inc. led with approved permits for four new wells.

The year's early results are down by nearly two-thirds compared to the 42 permits approved during the same period in 2012. That year, the agency approved a record 112 new wells.

But those who follow the oil and gas industry say the current pace is meeting industry demand about 31 months after the White House lifted a moratorium on deepwater drilling in the wake of the BP oil spill.

"It looks like more of a leveling-out," said Randall Luthi, president of the National Ocean Industries Association, a trade association representing the offshore energy industry. "A year ago, there was pent-up demand, and there were some projects that were sitting on the burner that they were finally able to move forward with."

Lauren Payne, an analyst at Wood Mackenzie Ltd., a Houston energy consulting firm, said Tuesday that the lower numbers were "more of a function of a high regularization in the region rather than a regulatory slowdown."

The firm estimates that more than $20 billion will be spent drilling development wells for deepwater projects through 2015.

Payne said last year's figures reflected an industry that was "ramping up and getting back to a high level of activity." Now, she said, oil companies "generally have the permits that they need to do the work that they're planning to do this year."

"I think we've gotten to a point now where the rigs that are here are working, and everyone's waiting on their new builds to begin to come into the region," Payne said.

As many as 38 rigs are currently operating in the deepwater Gulf, she said, and another eight rigs that are under construction could enter the market before the end of the year.

As energy companies continue to work the region, oil production from federal leases in the Gulf hit nearly 1.4 million barrels per day in February, according to the U.S. Energy Information Administration. That's up from 1.3 million barrels the year before.

Oil and gas exploration companies can only do as much work as there are rigs available. Payne predicts that federal regulators could see "a little bit of a pickup of activity in the second half of the year, as new rigs are coming, to wrap up current wells and move onto the next project."

"It's a very healthy pace, and we're excited about the rest of the year, in terms of the exploration wells that are being drilled and the projects that are moving forward to production," she said.

Michael Hecht, president of the economic development agency Greater New Orleans Inc., said complaints about the pace of federal permitting, once a hobby horse of many Gulf politicians and oil industry executives, have died down.

"We're taking that as one indication that in general, the rate of permitting has been adequate," Hecht said. He believes that last year's numbers for the first quarter are a bit inflated because 22 new wells were approved in February 2012, an unusually high number.

Andy Radford, a senior policy analyst with the American Petroleum Institute, agreed. He said the new permits "rarely get over 10 or 11, which may have skewed the numbers a bit."

As companies work to balance their permit count with available equipment, Radford broke down the strategy quite simply.

"The key for companies is that you don't want the rigs to idle out there because they're still paying the day rates whether they're drilling or not," Radford said.