Analysis: U.S. offshore drillers still reeling from spill

HOUSTON Thu Mar 10, 2011 11:32am EST

Fire boat response crews battle the blazing remnants of the off shore oil rig Deepwater Horizon, off Louisiana, in this handout photograph taken on April 21, 2010 and obtained on April 22. REUTERS/U.S. Coast Guard/Handout

Fire boat response crews battle the blazing remnants of the off shore oil rig Deepwater Horizon, off Louisiana, in this handout photograph taken on April 21, 2010 and obtained on April 22.

Credit: Reuters/U.S. Coast Guard/Handout

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HOUSTON (Reuters) - Oil drilling in the deepwater Gulf of Mexico is still stuck in neutral even after U.S. regulators last month issued the first new drilling permit since the deadly 2010 Macondo well blowout.

Nearly a year after BP Plc's mile-deep Macondo well ruptured in April 2010, triggering an explosion aboard the Deepwater Horizon drilling rig that killed 11 people, executives at the high-profile CERAWeek energy conference in Houston marked few reasons for optimism about a recovery of drilling in the Gulf.

"The deepwater drilling moratorium has been lifted in name only," said John Hess, chief executive of Hess Corp, referring to U.S. regulators' move on February 28 to approve a permit for Noble Energy Inc to drill about 70 miles off the Louisiana coast.

The Obama Administration imposed a temporary ban on drilling at depths greater than 500 feet shortly after the BP disaster. The moratorium was officially lifted last October, but Noble has received the only deepwater permit since then.

Noble Chief Executive Charles Davidson said at the conference that regulators need to approve permits for more wells, new ones as well as ongoing drilling projects like the Noble well that was interrupted by last year's ban.

"One permit does not make a deepwater industry," Davidson said. "We have to do more than just these few wells that were drilling before the moratorium."

At CERAWeek, BP's chief executive made his first post-Macondo conference appearance to issue an apology to his industry colleagues and a warning that such disasters are not a one-in-a-million occurrence.

"One company's calamity quickly becomes every company's concern," Dudley said.

Big offshore producers like Royal Dutch Shell, Chevron Corp and Anadarko Petroleum Corp need no such reminders, as deepwater drilling remains largely idle.

The Gulf of Mexico is key factor in U.S. energy supply, providing about 30 percent of U.S. domestic oil production and 13 percent of its natural gas production.

Nexen Inc's CEO Marvin Romanow, who hopes to see permits issued for its Appomattox project in second quarter for appraisal drilling, said he is confidant of new permits since Noble's well was approved.

"It's clear they're committed to doing their work, doing everything they need to do, and moving to granting licenses to drill," Romanow said.

"We've been in the deep water of the Gulf of Mexico for 10 years. It's not a short-term game," he said.

Offshore industry frustration over drilling delays is mounting, said Gary Adams, U.S. oil and gas leader at consultancy Deloitte.

"The term I heard was that the Gulf of Mexico was on life support," Adams said.

The government's issuance of Noble's permit is an interesting sign but "it's still not being seen in the industry as the floodgates being opened," he said.

NEW SAFETY REQUIREMENTS

The U.S. Bureau of Ocean Energy Management now requires companies to have quick access to rapid-response systems that can stop or contain deepwater oil spills to prevent a repeat of Macondo.

The industry responded with two efforts.

Exxon Mobil led the formation of the Marine Well Containment Company, its $1 billion partnership with Chevron, Shell and ConocoPhillips that resembles the system BP used to cap the Macondo well after a series of failures.

Helix Energy Solutions Group also led the development of another deepwater cap and containment system that features its two rigs that BP used to capture and burn off leaking oil.

William Reilly, co-chairman of a White House panel that determined that cost-cutting decisions by BP and its partners contributed to the spill, said the industry's response has been "remarkable and encouraging."

But Reilly said that safety initiatives need to be as dynamic and ready for change as technology to extract hard-to-find oil and gas, he said.

"We cannot say all is well now and that the rigs -- at least one rig -- is getting back to work," Reilly said.

(Additional reporting by Bruce Nichols; Editing by Marguerita Choy)

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