Thursday May 25, 2017

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Oil & Minerals
Three steps back

Obama’s offshore rules a rig too far for oil industry

Editor’s Briefing | New US regulations for oil drillers aim to prevent spills in the Arctic Ocean, but the industry says they effectively price it out of existence
Oil & Minerals
Remember the ‘Kulluk’

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When Washington announced in October that it was cancelling auctions for drilling rights in the Beaufort and Chukchi seas for at least two years, the argument made by Sally Jewell, the interior secretary, was an economic one.

Citing factors like the continued tumble in the price of oil and the announcement by Shell, an Anglo-Dutch firm, the previous month that it was giving up drilling in the Chukchi Sea after spending $7 billion in a seven-year search that turned up dry, she argued that the timing was simply wrong to offer the licences.

“It does not make sense to prepare for lease sales in the Arctic,” Ms Jewell said at the time.

SEE RELATED: In technology we trust

Now that Washington has again turned its attention towards Arctic drilling, this time by issuing, last week, a set of regulations aimed at making it safer to drill, the industry is replying with economic arguments of its own: that the additional $2 billion it will cost firms to live up the rules over the next decade may mean firms give up the Arctic entirely.

“This is an unfortunate turn by this administration and will continue to stifle offshore oil and natural gas production,” said Erik Milito, an official with the American Petroleum Institute, an interest group.

The additional cost of living up to the new rules, Mr Milito reckons, will most likely force firms to explore elsewhere, depriving Americans of both jobs and tax revenue.

As evidence for their argument, opponents point to Shell: in quitting its Arctic activities, it blamed the “challenging and unpredictable federal regulatory environment in offshore Alaska” as the primary reason. Under the new rules issued by Washington last week, things would only get tougher.

SEE RELATED: Editor’s Briefing | Slip sliding away

What the industry has is mostly upset about is that it will now be required to have a stand-by rig be on hand, in the event that a relief well needs to be drilled to take pressure off a well that is gushing out of control. Such a rig costs upwards of $1 million a day to have at the ready, although this could be brought down if explorers operating in the same area were able to split the cost, as as been hte case elsewhere.

However, while heaping on new regulations will add to drillers’ costs, the industry argues it may not provide the safest drilling environment possible. Referring to a 2015 report commissioned by the Energy Department, the API noted that having to live up to a predetermined set of rules “may inhibit the development of new, improved technologies by suppressing the potential opportunity that drives advancement”.

Such arguments are unlikely to get far with an administration that increasingly appears to believe that the safest drilling is no drilling at all.

SEE RELATED: Not so much a reversal as a stall

In January 2015, for example, Washington refused to permit onshore drilling in the Arctic National Wildlife Refuge, a huge tract of federal land in Alaska that is adjacent to active oil fields.

Then, during the October announcement to delay the lease, the administration also said that it was turning down requests by Shell and Statoil, a Norwegian firm, to extend the lives of their existing leases. The reason was that they had satisfactorily explained why they should be given more time, but message may just as well have been that there was no more time to be had.