Commentary: Offshore well control rule will hurt, not help, offshore energy development
By: Barry Russell, President/CEO of IPAA
The oil and natural gas industry has spent the last five years following the Deepwater Horizon incident working with government and regulatory officials to improve the safety of operations offshore. From enhancing safety standards to developing and implementing state of the art technology, oil and natural gas companies are constantly investing to make their operations as safe, environmentally secure, and productive as possible. Unfortunately, a new proposed federal rule from the Bureau of Safety and Environmental Enforcement (BSEE) could curtail this innovation while threatening American jobs and adding new costs to America’s independent oil and natural gas producers.
In April 2015, BSEE proposed new regulations for offshore oil and natural gas development with a desire to enhance the safety of offshore operations – a paramount goal amongst industry, regulators, and the public alike. Unfortunately, the bureau’s proposed well control rule fails to account for a key constituent: the companies behind this critical energy production. The proposed well control rule threatens to impose new and unattainable costs on industry – an industry already under stress from the current low commodity price environment – while potentially reducing safety offshore.
For starters, the proposed rule contains restrictive and obstructive safety requirements, limiting room for performance-based standards and fit-for-purpose designs that enable producers to adapt to the unique operational needs of each well location. While the intent of these measures is to provide standard best practice technologies, they instead limit the ability of operators to adjust and enhance their safety procedures. The oil and natural gas industry is, at its core, an innovator; without the ability to adapt and implement new technologies, companies will be placing both their production capacity and safety at risk.
Secondly, the proposed rule fails to account for the additional – and in some cases prohibitive – costs it will put on independent energy producers. In fact, according to an independent analysis of the costs of the rule performed by Blade Energy Partners and Quest Offshore, this rule would result in roughly 26 percent fewer wells drilled per year, leading to a reduction of capital investment in the Gulf of 10 percent per year and the loss of 50,000 jobs by as soon as 2027. The U.S. government would also face a financial loss of $27 billion to the U.S. GDP and a $10 billion reduction in government revenue over 10 years.
Oil and natural gas development is a capital intensive industry. Each offshore well takes millions of dollars in investment, planning, regulatory approvals, and oversight. Without the appropriate regulatory structure in place, companies will not only be unable to afford to produce the energy we all rely upon, but the safety and productivity of these operations will be at risk. BSEE has yet to fully account for these unintended consequences.
Independent oil and natural gas producers are uniquely threatened by this rule. These companies and small businesses at the heart of the U.S. energy economy hold 81 percent of the producing leases in the Gulf of Mexico, responsibly producing about 30 percent of U.S. offshore oil and natural gas while providing over 200,000 jobs and $10 billion in revenue through royalties and other payments each and every year. Yet this proposed rule will put many of these economic benefits at risk.
Make no mistake, safety is the number one priority of the oil and natural gas industry, but safety must be matched with appropriate regulations that meet the need of the environment, the public, and the industry itself – not just a politically-motivated rule that looks good on paper. The costs are adding up. As companies brave lower commodity prices, this industry continues to face new regulatory obstacles, imposing new costs at a time when independent producers simply cannot afford it.
Offshore drilling safety depends on effective risk management. It is in the best interest of all parties – industry, government, and the public – to ensure safe and secure energy operations offshore. That is undisputable. Yet the proposed well control rule from BSEE fails to provide the regulatory certainty that independent oil and natural gas operators need to continue their work of developing affordable, American energy for consumers. From fewer jobs supported by development, to lower safety levels through overly uniform requirements, this rule is the wrong choice for a safer oil and natural gas industry.
Barry Russell is the president and CEO of the Independent Petroleum Association of America.