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Oil execs: Drilling ban will hurt for years

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- Drilling activity in the Gulf of Mexico will remain light in the years ahead, despite the fact that the ban on drilling there has been lifted, according to a survey of oil executives released Tuesday.

Nearly 70% of industry executives expect drilling activity in the Gulf to remain below 2009 levels until at least 2012, according to a survey by BDO, a Chicago-based accounting and consulting firm. Some say it will never return to 2009 levels.

"One message came through loud and clear in this year's survey -- that legislative changes represent the biggest threat to growth in the oil and gas industry," said Charles Dewhurst, who heads BDO's natural resources group.

The U.S. imposed a moratorium on new drilling activity shortly after the BP disaster in April. But since the ban was fully lifted in October, very few new permits for drilling in the region have been issued.

Just 16 permits for new wells have been issued since the ban on shallow water drilling was lifted in June and the deepwater ban was lifted in October, according to the Interior Department. In 2009, a total of 171 permits were issued.

The government says the drop in permits is not entirely its fault.

A spokeswoman for the Bureau of Ocean Energy Management, Regulation and Enforcement said the agency has only received two requests for deepwater wells since the ban was lifted. She said the agency has approved the vast majority of the requests it has received to drill in shallow water since June.

The Interior Department said in October that deepwater drilling could resume, provided companies meet existing safety requirements and new standards for blowout containment.

But the industry argues that the new rules are unclear, and that new or modified regulations are likely in the works.

Daniel Kish, a policy specialist at the American Energy Alliance, said oil and gas companies are holding off on requesting new drilling permits until the government finalizes the regulations that apply to deep water drilling.

"The problem is that no one knows what the changes will be," he said. Requesting a new permit "is a difficult thing to justify economically if you think the regulations are going to change."

The moratorium did not affect current oil production in the deepwater Gulf of Mexico, which comes from wells that have already been drilled.

Currently, about a quarter of the nation's five-million-barrel-a-day crude output comes from the deepwater Gulf, according to the government's Energy Information Administration.

But future output could fall if new wells aren't drilled. EIA predicts U.S. output will drop by about 170,000 barrels a day in 2011 thanks to the ban.

The survey also reflected the industry's concern about the Obama administration's proposal to eliminate tax breaks for oil and gas companies. The president has suggested that closing "tax loopholes" for the industry could help fund economic stimulus efforts.

The industry executives believe the tax changes will cause increased dependence on foreign oil and natural gas, and send investment dollars and jobs overseas.

Meanwhile, nearly 40% of oil and gas companies are expecting wind power to be the biggest source of renewable energy in the next five years, the survey found. Geothermal, solar and biofuels are also areas of interest. To top of page

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