Final Report on Economic Impacts of Well Control Rule
The Gulf Economic Survival Team (GEST) today released its final report on the economic impact of the Department of Interior’s proposed Well Control Rule.
Authored by global economic consulting firm Wood Mackenzie, the report confirms preliminary findings released in January that indicating that the rule would lead to staggering costs for the offshore energy industry, including job losses, production declines, decreases in federal and state revenue and heightened safety risks to offshore personnel.
The Interior Department sent the rule to the White House’s Office of Management and Budget for final review earlier this month, typically the last step before the rule is finalized. GEST representatives meet with OMB staff today to discuss the rule’s technical shortcomings and needlessly high costs. The draft rule was originally submitted to OMB last spring, but its many flaws led OMB to send it back to the Interior Department for further work, leading to the current version.
“The Department claims that much of what needed to be fixed from the rule’s flawed first draft has been addressed,” said GEST Executive Director Lori LeBlanc. “Yet given how far off-the-mark that draft was, the sheer complexity of the issues at hand, and the lack of consultation with industry experts during the rewriting period, we strongly believe that more work must be done before this rule is finalized. As it stands, it’s just not ready for prime time.”
According to the Wood Mackenzie report, implementation of the draft rule would:
• Decrease exploration drilling by up to 55% or 10 wells annually
• Reduce Gulf of Mexico production by as much as 35% by year 2030
• Result in 105,000—190,000 jobs at risk by 2030; this may include jobs beyond the energy sector
• 80% of these jobs could be in Louisiana and Texas
“Over the past several years, the industry has worked in close coordination with Interior Department personnel to enhance the safety of offshore operations,” continued LeBlanc. “Unfortunately, the Well Control Rule ignores much of that joint progress, opting instead for a slew of highly prescriptive technical mandates that experts believe are unlikely to work in practice in the offshore.
“Ultimately, the rule’s many technical flaws could jeopardize the safety of offshore operations and lead to stranded assets in the Gulf of Mexico as companies abandon ongoing projects and future prospects in order to comply,” concluded LeBlanc. “The impact on Gulf communities already stung from the industry downturn could be devastating.”
The Wood Mackenzie study is based on a scenario analysis built upon specific assumptions around pricing, costs, and field developments. It utilizes an $80 oil assumption, comparable to the price assumptions used by BSEE in developing the rule. The forecasting period is depicted to 2030 with period to 2025 separated out to differentiate between 10- and 15-year impacts.