Thursday, December 15, 2011

First Oil And Gas Lease Sale Conducted for Gulf of Mexico Drilling Since Deepwater Horizon Explosion

There is strong interest in oil and gas drilling in the Gulf of Mexico. The most recent lease sales shows that to be true.

The U.S. received $337 million in high bids for the first sale of leases for oil production in the Gulf of Mexico since BP Plc (BP/)’s oil spill last year, Interior Secretary Ken Salazar said.

The sale showed “great interest” among energy companies to develop tracts in the western Gulf of Mexico off Texas’s coast, Salazar said today during a New Orleans news conference. ConocoPhillips (COP) submitted the highest bid of $103 million to drill in a tract in a region known as Keathley Canyon.

In all, 20 oil and gas companies submitted 241 bids, worth a total of $712 million, Salazar said.

This lease sale was not a good idea in the minds of some environmental zealots who tried to block it using court action.

In a suit filed in federal court in Washington today, the groups say the federal government has failed to take steps to avoid a repeat of the BP spill, which leaked more than 200 million gallons of crude oil into the Gulf.

The Bureau of Ocean Energy Management, Regulation and Enforcement plans to sell 3,900 blocks off the Texas coast Wednesday in an auction in New Orleans. The sale covers about 20.6 million acres.

The suit was filed by Oceana, Defenders of Wildlife and the Natural Resources Defense Council

Many are still critical and skeptical of the over-reach of regulating the process that the Obama administration provides.

Lori LeBlanc, executive director of Gulf Economic Survival Team, a Thibodaux-based group that has lobbied against what it and many in the oil industry claim are the Obama administration’s excessive regulations since BP’s Macondo well disaster.

LeBlanc said she still has concerns that the federal government’s new, stricter permitting process will drive business away.

“I don’t doubt there is still interest in the Gulf. I think it is a strong domestic resource and will continue to be so. The real question is is this permitting process predictable and sustainable?” she said. “Plan approvals take over 200 days from submitting a plan to getting a permit, and smaller companies need some level of certainty about getting permits if they’re going to sign on to longterm contracts on a rig.”

With the increased regulations and permitting processes in place, the price of doing business in the Gulf of Mexico for oil and gas drilling has increased 10% - 15%. That may not seem like much of a burden at first glance but remember, the drilling process from start to finish is a long and very expensive one. The exploration process is tedious and a gamble in the best of circumstances. Even before the tragic event of the Deepwater Horizon explosion, the oil and gas industry was the most heavily regulated industry in America.

The industry welcomed the lease sale as an indication that job creation would tick up as future planning could be put into place.

Welcoming the move, Jim Noe, executive director of the Shallow Water Energy Security Coalition, said, “Doing so in an effective manner is not just good policy – it also means job creation and greater revenue flowing into the Gulf region and U.S. Treasury. We look forward to getting back to work in the Gulf in 2012 in earnest.”

Skeptics remind us that baby steps are still being taken to get the industry back on track.

Citing the sale on Wednesday as “a good sign for those companies and workers that really want to get back up to full speed drilling for oil and natural gas in the Gulf of Mexico,” Frank Maisano, energy analyst with Bracewell & Giuliani called for more open procedures.

“Unfortunately, it is only a small step, and while the permitting process is improving, it still remains the real roadblock to getting workers back on the job in the Gulf region,” Maisano said

Noe noted that since the 2010 Gulf spill, applications to conduct energy activities “mushroomed from 50 to as much as 3,600 pages,” adding, “the window of time it takes for a plan to move from initial submission to final approval has roughly quadrupled.”

Looking forward from the perspective of industry, Noe said, “We trust …the administration is also vested in the less grandiose short- and medium-term work of processing permits for Gulf energy activity in a consistent and transparent manner.”

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