BP in talks with Interior Department to resume Gulf of Mexico deep-water drilling

BP is in talks with the Interior Department about permits that would allow it to resume deep-water drilling in the Gulf of Mexico, according to two sources familiar with the discussions. The company hopes that it can restart several projects sometime this summer.

The discussions come just before the anniversary of the April 20 blowout on the Deep­water Horizon rig that BP leased for an exploration well called Macondo. The blowout killed 11 workers, set the rig on fire and triggereda huge oil spill that gushed for 87 days.

BP hopes to ultimately obtain permission to begin drilling about 10 wells to boost output in fields that are already producing oil; none of them would be an exploration well, one of the sources said. No work would be done in the near future on the field discovered by the Macondo well.

Discussions with Interior’s Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) about other BP wells are still underway, focusing on BP’s safety program. Melissa Schwartz, a spokeswoman for the agency, said that BOEMRE Director Michael R. Bromwich meets regularly with companies to discuss their operations and that “BP is no different.”

BP investments in gulf

It was inevitable that BP would, at some point, seek to resume drilling in the Gulf of Mexico, because of the huge investment it has made in deep-water production and prospects there.

With eight deep-water projects, BP is the largest oil producer in the gulf, pulling up 400,000 barrels a day. But many of its platforms require additional “development” drilling to reach their planned capacities.

BP is also the largest leaseholder in the deep waters of the gulf, with more than 650 lease blocks in waters greater than 1,250 feet, athe company’s Web site says.

A resumption of development drilling would help BP, which had extensive plans to boost output in the gulf before last year’s blowout.

Fadel Gheit, oil analyst at Oppenheimer and Sons, said that before the spill, “BP was the Gulf of Mexico,” with the largest reserves, production and leases. “Many people said BP would be put in the penalty box. I’m not so sure,” Gheit said, citing the need for more jobs and production. He also said recent revelations from federal investigations about the failed Macondo blowout preventer blurred the issue of BP’s errors.

The company’s stock is down substantially from before the accident, despite a sharp increase in global oil prices.

For the Obama administration, the request for permits creates an awkward situation. BP still has many foes, but the administration wants to avoid a drop in gulf production after a nearly year-long freeze in deep-water drilling, and the only way to do that is by giving permits to oil giants such as BP. The Gulf of Mexico accounts for 29 percent of U.S. domestic crude oil production, according to the Energy Information Administration.

A presidential moratorium was lifted in the fall, but the Interior agency has asked companies for new information about safety.

Frequently criticized by the oil industry and GOP leaders for delays in permits, President Obama has vigorously defended his administration’s caution in the wake of the massive spill. BOEMRE has recently issued seven deep-water permits, and BP holds a minority stake in one, which will be operated by Noble Energy.

On Friday, Energy Secretary Steven Chu said at a breakfast briefing for reporters that “every time the government issues” a permit, “it needs to know whether companies have the means, should you lose control of the well, do you have the means of containing it? This is being demonstrated, and that’s why you see an increase in the number of licenses being issued.”

BP is part of a consortium of major oil companies operating in the gulf that acquired the equipment BP used in the summer to contain and fix the blowout, plus additional new equipment to bolster response capabilities.

They are stored onshore with people specially trained for such emergencies.

‘It’s still too soon’

But critics of BP and the industry say little has been done to make sure that a blowout does not happen in the first place.

A recent federal investigation into the blowout preventer on the Macondo well concluded that the device failed to cut through the pipe and seal the well because of high pressures and movement of the pipe, conditions that many experts said should be expected in such circumstances.

Athan Manuel, an offshore-drilling expert at the Sierra Club, said, “We don’t think that BP has shown it’s changed its corporate culture to earn the right to return to the Gulf of Mexico. . . . It’s still too soon for them to go back and operate in that area.”

The Financial Times said Sunday that the London-based oil giant had already struck a deal with U.S. regulators under which it would be allowed to drill 10 wells that were underway when the accident took place last year.

But Schwartz, the BOEMRE spokeswoman, said that “there is no such deal,” and another person familiar with the talks said discussions have not concluded.

No permits have been issued yet.

BP, like other oil companies, still has leases on some rigs standing by in the expectation that they will be allowed to drill again.

It is likely that BP will hire many of the same service companies that worked on the Macondo well, despite the finger-pointing the companies have done over who is to blame for last year’s blowout.

Transocean, which owned and operated Deepwater Horizon, owns the world’s largest fleet of deep-water drilling rigs. Halliburton is also a dominant firm in the well cementing business.

Steven Mufson covers energy and other financial news.
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