Offshore drillers get green light

By Steve Hargreaves, Senior writer


NEW YORK (CNNMoney.com) -- The Obama administration announced new rules on offshore drilling Tuesday, a move that the industry hopes will secure new permits for drilling operations and the thousands of jobs that depend on them.

Since the BP oil spill, the offshore drilling industry has been in a state of limbo.

All new drilling permits were suspended following the April 20 disaster.

Then, on May 27, the administration said drilling permits would resume for wells in shallow water - a depth of 500 feet or less.

But the industry says that despite that claim, the Obama administration hasn't allowed any new drilling.

"To my knowledge, no new permits have been issued," said Jim Noe, an executive at Hercules Offshore, a Texas-based company that's the largest shallow water driller in the Gulf. "There is a lot of confusion in the industry."

Shallow water wells account for just 20% of the Gulf's oil output, but over 50% of its natural gas production and the majority of offshore jobs. The industry estimates up to 40,000 people are either directly or indirectly employed in offshore drilling.

Noe said that typically, about 10 to 15 permits are issued a week industry-wide.

Noe said his company received a permit from the Mineral Management Service to drill a well in 65 feet of water off the coast of Louisiana on June 2, but that it was revoked by the agency the next day.

The revocation letter was widely circulated in the industry, and caused a drop in oil and gas company shares across the board.

On June 3 a spokeswoman for the Interior Department, which oversees the MMS, said in an email that shallow water drilling was not banned, an affirmation backed up by President Obama later that day in an interview with CNN.

But others in the industry have said permits have been held up.

"It's a de facto moratorium," said Larry Wall, spokesman for the Louisiana Mid-Continent Oil and Gas Association. "It seems like it changes everyday."

The Minerals Management Service, the Interior Department and the White House would not say how many new permits to drill in shallow water, if any, have been granted since April 20.

The new rules announced Tuesday largely center around the device that is supposed to shut off a well in case of emergency - the device that failed during the BP accident.

The rules require new inspections and certifications to ensure that those devices - known as blowout preventers - are operating properly.

"Shallow water drilling may continue under the stronger safety requirements that we are implementing today," read the press release announcing the new rules from the Interior Department.

Many people in the Gulf region have been pushing the administration to allow new offshore drilling in shallow water despite the ongoing investigation into the Deepwater Horizon accident, which exploded and sank in 5,000 feet of water.

Proponents of resuming shallow water drilling argue it's much safer than deep water drilling because the geology is known, the pressure is less, and the safety equipment easier to access and test.

"Platforms operating in shallow water present different challenges than deepwater operations," said a group of 10 oil-state senators in a letter last month urging the shallow water ban be lifted. "Shallow water operations produce much-needed domestic energy resources that benefit the entire country."

Even widows of two men killed in the BP accident urged lawmakers to not stop drilling, in House testimony Monday.

But environmentalists and lawmakers from states heavily dependent on tourism, like Florida, have urged the ban on all offshore drilling to continue until a safety review is done and reform of government rules and regulations, including at the much-criticized MMS, has taken place.

All deepwater drilling operations have been halted in the Gulf, and no new permits are expected to be issued for at least six months.

Oil production, which occurs after a well has been drilled, has so-far not been affected in either deep or shallow waters.  To top of page

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