“Moratorium” is a Four Letter Word
While ten letters in all, “moratorium” might as well be the foulest four-letter word in the Gulf of Mexico oil patch right now.
On May 27, the Obama Administration ordered a halt to drilling in water depths more than 500 feet, effectively cancelling 33 drilling projects and reversing a tide of industry optimism in the region. Bill Foret, president of Golden Meadow, La.-based Abdon Callais Offshore LLC, said the company could have placed 50 OSVs to work on April 19 — a day before BP (BP)’s Deepwater Horizon explosion, which killed 11 crew members and set off a gusher of crude 5,000 feet below the Gulf’s surface for more than 80 days.
“The OSV market was showing signs of improving,” Foret said. “And OSVs of all sizes were in high demand.”
Kurt Crosby, CEO of Crosby Tugs Inc., based in Golden Meadow, La., agreed.
“Things were looking good before this incident,” Crosby said. “Obama had approved drilling in the Eastern Gulf, off the East Coast and Alaska. Things were looking really positive. Now, it’s just uneasy and unsure. We don’t know what will happen next.”
More than 100 days after the explosion, BP has capped the well and hopes to kill it for good. However, what many industry watchers call an overarching political stunt by the Obama Administration threatens an entire industry. According to a study done by Louisiana State University for the American Energy Alliance, the current drilling ban could cost more than $2.1 billion in economic activity and more than 8,000 jobs along the Gulf Coast. Nationally, the moratorium could cost $2.7 billion and 12,000 jobs, the study found.
The “deepwater” ban affected shallow drilling, as well. Deepwater is generally considered depths of 1,000 feet or more, but all drilling permits, even those for shallow waters where blow-out preventers lie above the surface of the water, are falling under more scrutiny and exploration companies are tentative to invest until more is known regarding new federal policies.
“In the last five weeks, there’s been only one shelf drilling permit issued [along the Gulf Coast],” Foret said on July 28. “Drilling rigs are starting to leave the Gulf and there will be an excess of equipment in less than 30 days. If we can’t find any jobs, we’ll be forced to cold stack equipment and consider laying employees off.”
Industry leaders contend the Obama administration has set no clear specifics for the moratorium so drilling and offshore service firms have no way to formulate a business plan to cope with it.
“The long-term situation is this creates political uncertainties, which raises doubt among investors,” said Otto Candies III, secretary-treasurer of Des Allemands, La.-based Otto Candies LLC, a marine transportation and towing company. “When the big rigs move out, they take the other equipment that supports it with them and it creates a trickle down affect.”
Industry groups estimate that for every mariner working on-board a vessel, there are nine shore-side jobs it supports. Beyond the vessel crew, the negative consequences of the moratorium impacts everyone from service technicians working on diesel engines and air conditioning units to the grocery clerks filling the vessel’s galley and typical jobs in the community that provide ordinary services to those employed in the oilfield.
While Administration officials have tentatively set a Nov. 30 date for the moratorium to end, others contend the industry will nose dive way before that.
“If a decision [to lift the moratorium] is not made by Labor Day, thousands of American jobs will be lost overseas and not far behind that will be $4 and $5 gasoline,” Foret said. “Industry-wide that will mean tens of thousands of employees and their families will be affected — people who can’t pay their mortgages, shop in stores, buy cars, etc.”
The immediate impact of the BP disaster was not fully felt by the OSV industry, as many vessels joined BP contracts for response and recovery operations. However, those contracts could be coming to an end soon.
“Everyone is glad the well is capped, but now these vessels are expected to be let off BP contracts and the moratorium will be felt full force,” said Ken Wells, president of the Offshore Marine Service Association (OMSA).
Since its inception, the ban has been ensnarled in legal challenges and has twice been rejected by federal courts.
“But the feds have dug in their heels and it appears they will do whatever it takes not to comply with the federal judges’ decision to lift it,” Wells said. “So far, companies have bent over backwards to avoid cutting crews loose.”
However, a recent OMSA survey of its members found between 70 and 80 vessels have been cold-stacked as a result of the moratorium, although Wells said he did not know how many of those vessels picked up BP contracts. Wells said the real impact of the moratorium is currently being felt in the new vessel construction sector.
“There are several cases where companies have delayed or cancelled new vessel orders,” Wells said. “And there’s no discussion of new vessels.”
For 13 years Abdon Callais Offshore (ACO) has been in the midst of an aggressive new build program, building more than 50 new vessels.
“ACO has two new OSV’s which will be delivered in August 2010 by Master Boat Builders in Bayou La Batre, Ala.” Foret said. “We were prepared to invest an additional $125 to $150 million in the next few years on building additional vessels, but we’ve cancelled our plans. We wanted to invest in our company and our people but the uncertainty and the current administration’s detrimental views on the oil and gas industry doesn’t support this additional investment.”
Crosby said he had no previous new-construction program, “but I definitely would not go that route at this point,” he said.
Many Gulf Coast firms could not comment on their affects from the moratorium, due to ongoing litigation filed against BP or the federal government. Rob Vosbein, general counsel for New Orleans-based Harvey Gulf International Marine LLC, said there are a plethora of legal questions still to be answered.
“Harvey Gulf is pretty active in the fight, but everything happens very fast,” he said. “There are many questions, ‘Do you file a separate lawsuit? Do you join with other companies?’ We still have to see what the ramifications are. It’s a very, very dynamic situation.”
Harvey Gulf has 15 OSVs ranging from 240s to 280s and three 295-foot OSVs under construction.
“We have seen a tremendous fluctuation in our vessel schedules,” Vosbein said. “An Alaska project was tabled and we had to find alternative charters for two other vessels. Another was hired by BP to work response. We’re keeping vessels working despite the moratorium, but it is a huge concern due to the short-tem nature of the work.”
Vosbein said the drilling ban could have the exact opposite effect on safety the Administration is seeking.
“It could actually create a brain drain,” he said. “The question is will expertise move overseas? Or, will they stay here and wait or just simply move on to another industry? This could result in an impaired labor pool at all levels from trained mariners and technicians to engineers on up to executives leaving the industry.”
And, if the ban goes the full six months, there’s no flipping on a switch and everything goes back to normal overnight, he said.
“Just because the ban is over doesn’t mean permits will automatically be issued the next day,” Vosbein said. “I don’t think this is a move by the government where truthfully on Nov. 30 you’ll see [drilling] permits being issued. I hope we’re wrong.”
For now, industry leaders and workers are doing all they can to get the word out regarding the affects of the moratorium on the region and the nation. In July, 15,000 people rallied at the Cajundome in Lafayette, La., to draw national attention to their plight. The Louisiana Association of Business and Industry is leading a coalition of chambers of commerce, industry trade groups and civic groups called Gulf Citizens United, which will engage the issue through federal lobbying efforts. The American Energy Alliance also unveiled its own campaign called “Save U.S. Energy Jobs.”
While political activism aims to sway the Administration’s thus far firm stance, those on the front line are just trying to preserve what they can.
“We’re trying to get the word out about what the impacts will be as best we can and continue to keep working. That’s all we can do,” Candies said. “We’ve got 500 employees that depend on us for their livelihood and we take that seriously. We have had no layoffs so far… that’s always a last resort for us.”
Crosby said it’s a waiting game.
“Everyone is really watching to see how it will pan out,” he said. “We hope they get it done sooner rather than later so our industry can get back to work.”
Foret said ACO has not had any layoffs due to the moratorium.
“However, when Obama took office, the uncertainty within this industry forced us to cold stack 16 OSVs or 31 percent of our existing fleet and in turn we had to lay off 160 people. That’s 160 families that were immediately affected just by Obama being elected. If this [moratorium] remains in place, then will it be 200, 400 or more families affected? I don’t know. That’s our concern.”
Wells said the industry and the entire Gulf Coast business community will continue to aggressively fight the ban.
“It’s going to be a fight, but so far you don’t get the feeling anyone is shying away from that fight,” Wells said. “My sense is the people in south Louisiana and along the Gulf Coast are coming together the way they did after [Hurricane] Katrina and they are ready to face this for the long haul.”
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