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July 12, 2010

Industry slams new Salazar drilling moratorium

Industry associations aren't ready to see new restrictions on offshore drilling announced today as anything other than a moratorium -- and one that API says "is not necessary for safety and will cost jobs, harm the Gulf region and weaken our nation's energy security."

"If it looks like a moratorium, acts like a moratorium, and the effect is the same as a moratorium, it is a moratorium," says NOIA Chairman Burt Adams.

API's President and CEO Jack Gerard offered this reaction to the new policy:

"It is unnecessary and shortsighted to shut down a major part of the nation's energy lifeline while working to enhance offshore safety. The new moratorium threatens enormous harm to the nation and to the Gulf region. It places the jobs of tens of thousands of workers in serious and immediate jeopardy and promises a substantial reduction in domestic energy production. No certain and expeditious path forward has been established for a resumption of drilling.

"The 33 now idle deepwater drilling rigs in the Gulf have passed thorough government inspections and are ready to be put back to work. The industry has been working extremely hard on all fronts to enhance safety - and will continue to do so. And the government has already imposed significant, additional safety requirements that are supported by the industry. A resumption of drilling would proceed only under the most intense and vigilant oversight.

"Eighty percent of the oil and 45 percent of the natural gas produced in the Gulf come from deepwater areas. The 20 most prolific producing blocks in the Gulf are located in deepwater. Deepwater is indispensable to a strong and secure energy future. The moratorium makes that future uncertain.

"We strongly encourage the department to reconsider its decision and establish a process and timeline for putting our deepwater companies and highly skilled employees in the Gulf region back to work."

The National Ocean Industries Association (NOIA) believes the drilling suspensions announced today "do very little to lessen the confusion and uncertainty surrounding offshore energy exploration in the Gulf of Mexico."

]"The practical effect is that whether you call this a suspension or a moratorium, there is not a clear path for deepwater exploration companies to follow, and until such a path exists, exploration is at a standstill and more jobs will be lost"

Now termed "suspensions" by the Department, the moratorium does not prohibit drilling specifically by water depth, notes NOIA, but rather prohibits drilling operations that use subsea blowout preventers (BOP) or surface BOPs on floating facilities until November 30, 2010. The suspensions do not apply to anchored facilities using surface BOPs. Such facilities are generally used in shallow water, which, says NOIA, "makes the new suspension glaringly similar, if not even more restrictive than the original moratorium. It is not immediately clear how many facilities will be impacted."

The new moratorium also leaves the door slightly ajar to the possibility of earlier removal of restrictions if industry provides assurance acceptable to the Secretary that adequate containment and response capabilities are in place. The problem for industry is that it is unclear what exactly it will take to convince the Administration that such capability exists.

In fact, NOIA, the American Petroleum Institute, the International Association of Drilling Contractors, the Independent Petroleum Association of America and the United States Oil and Gas Association and industry have joined together and convened task forces to address these very issues on containment and spill response. At this time, the Department of the Interior has not indicated how it will work with these task forces to assure that all information useful to them will be made available. NOIA and its members stand ready to provide assistance and suggestions outside the courtroom to find a safe and sensible solution. We welcome the opportunity to provide constructive input to the Department during their upcoming meetings with industry.

"The practical effect is that whether you call this a suspension or a moratorium, there is not a clear path for deepwater exploration companies to follow, and until such a path exists, exploration is at a standstill and more jobs will be lost," said NOIA Chairman Burt Adams. "If it looks like a moratorium, acts like a moratorium, and the effect is the same as a moratorium, it is a moratorium."

Today's announcement also fails to mention the legally challenged moratorium currently under appeal. "At least for the sake of some clarity, the Administration should only have one moratorium in play at a time," said Adams. "It's the classic shell game. The Administration keeps moving the shells around, only to reveal a new moratorium under the shell that is picked. However, in this case, there appears to be a moratorium under every shell."

The bottom line is that as long as there are lengthy delays and confusion a de facto moratorium exists and jobs continue to erode in the Gulf of Mexico, which is already reeling from the other economic effects of the spill.

Meanwhile, members of NOIA and the oil and gas industry as a whole have been working tirelessly to assist in the containment and clean up of the oil since April 20. In addition, the industry has done a top to bottom review of safety procedures to guard against a similar accident now and in the future. As part of this top to bottom review, industry has voluntarily suggested additional safety checks and backups to regain the public's confidence in offshore exploration.

NOIA says "there was another path, a path for the Administration to constructively sit down with the oil and gas industry, not under the shadow of either a suspension or moratorium, and reach a sensible agreement that would allow exploration to proceed in the safest possible manner. However, it appears that the desire to reach an amicable solution is not as appealing to the Department as the urge to install another political moratorium, which may invite continued legal challenges, and continue to appeal the existing moratorium."

Though the moratoriun/suspension is supposedly targeting deepwater activity, shallow water drillers also say they are being seriously impacted. See their remarks HERE


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