Stricter offshore drilling rules upset industry; ‘bad news for Louisiana,’ Sen. David Vitter says _lowres

A more certain market buoyed by higher oil prices and more demand is key to increasing drilling activity in the Gulf of Mexico.


The “energy revolution” that President-elect Donald Trump has been promising isn’t likely to lift Louisiana’s oil and gas industry out of the doldrums on its own. Experts say only a recovery in energy prices can restore the thousands of jobs shed over the past few years.

But business leaders here, as well as the politicians who stood by Trump through his stunning victory last month, are optimistic about the assist they expect from a president who spoke in overwhelmingly friendly terms about the fossil fuels industry during the campaign.

Energy producers are coming off a period not just of declining prices but also of dozens of new restrictions imposed by the Obama administration, many of them put in place after the 2010 BP oil spill in the Gulf of Mexico.

The same promises from Trump that have environmental and safety advocates alarmed are music to the ears of industry boosters.

“Clearly some of the anti-fossil fuel attitude of the Obama administration is going to be reversed, in many ways to the benefit of Louisiana's economy," said U.S. House Majority Whip Steve Scalise, R-Jefferson.

Trump has, of course, promised a friendlier climate for business in general. He has said he will eliminate two regulations for every new one issued and will slash the corporate tax rate from 35 percent to perhaps 15 percent.

But his promises for the energy industry have been particularly expansive.

He chose a leader for the Environmental Protection Agency, Scott Pruitt, who has insisted that the debate over global warming is still an open question, and who has sued the Obama Administration to try to block enforcement of new climate rules.

At an industry conference in Pittsburgh in September, Trump said the country is sitting on a “treasure trove of untapped energy” and that clearing away regulatory hurdles in the way of exploiting that energy would mean “more jobs, more revenues, more wealth, higher wages, and lower energy prices.”

That may be overstating the case for the possible benefits of deregulation. Experts say that what Louisiana oil and gas companies actually need is an increase in energy prices. And that depends on broad economic and industry factors outside of government control — everything from the pace of overall economic growth to production decisions made by countries like Saudi Arabia, Russia and Iran.

“Prices are really what's going to motivate energy development,” said David Dismukes, director of the LSU Center for Energy Studies, who believes that oil needs to get back into the $55-to-$60 per barrel range for drilling to pick up in the Gulf of Mexico. After dropping below $35 early this year, crude oil prices are only recently edging toward that target.

On Friday, Brent crude, the international benchmark followed by many refineries, gained $1.19 to close at $55.21 a barrel in London.

“Policies help at the margin, but right now, prices and the market, they're not very supportive of new development activity,” Dismukes said.

Still, producers in Louisiana will be happy to accept the smaller costs of a lighter regulatory burden.

Trump has said he will accelerate the permitting process for oil and gas exploration on federal lands, and he could scrap the ban on new drilling in U.S. Arctic waters. Both of those moves could provide opportunities for Louisiana-based oilfield service companies, though experts say it would be years before the benefits were seen here.

Some of the red tape that producers would like cut back is more specific to Louisiana. In April, the White House announced a final set of rules to improve offshore safety and add more oversight of the drilling equipment used to seal a well in an emergency. The regulations also addressed aspects of drilling operations and real-time monitoring between offshore operators and technical experts.

All of that comes at a cost. A study released this year by Wood Mackenzie, a business research firm, predicted annual exploratory drilling would be cut by as much as 55 percent, although that estimate envisioned a scenario in which oil was at $80 a barrel.

For Louisiana's smaller, independent oil and gas producers, federal relief could come from the scaling back of bonding requirements — i.e., the amount of money those companies must put up initially to ensure they will be able to pay the cost of removing decommissioned equipment from federal waters.

Right now, many energy companies are required to tie up hundreds of millions of dollars to ensure that taxpayers aren't left on the hook to remove offshore production equipment in case a company goes bust.

Industry officials say the new regulations threaten smaller oil and gas producers — a mainstay of Louisiana's energy sector — because many don't have the deep pockets to comply.

"Especially with the limited capacity that already exists in the bonding markets, that additional cost would put them out of business," said Gifford Briggs, acting president of the Louisiana Oil and Gas Association.

Todd Hornbeck, the head of Covington-based Hornbeck Offshore Services, is fairly representative of the attitude among independent oil and gas companies in the state.

Hornbeck accuses regulators of seizing on the BP spill in order to advance a broader agenda that has more to do with shifting the U.S. away from fossil fuels than it does with improving safety. He sued the Obama Administration over the deepwater drilling moratorium that was put in place in the spill’s aftermath.

The new rules for his industry came at a time when his business was already under pressure. It has been losing money this year. On average, more than two-thirds of his offshore services vessels sat idle during the third quarter of 2016.

“We don’t oppose regulation, because it raises the bar for everyone,” he said. “But we do worry about regulations that appear to be more of a paperwork exercise or simply impose cost and complexity without broadening the safety envelope.”

But while the talk about rolling back regulations is encouraging to industry executives, some scientists and environmentalists warn that there could be repercussions, including the possibility of another catastrophe like the 2010 oil spill.

"We could run the risk of not learning any lessons from that disaster, in terms of the proper role of regulatory oversight and working in concert with good practices within the industry," said Donald Boesch, president of the University of Maryland's Center for Environmental Science, who was on the presidential oil spill commission and had a hand in shaping the post-BP spill safety reforms.

Follow Richard Thompson on Twitter, @rthompsonMSY.