A preventable bankruptcy in the Gulf of Mexico
By Randy Stilley,
Last month, Seahawk Drilling declared Chapter 11 bankruptcy and announced the sale of its assets to shallow-water driller Hercules Offshore. This devastating decision was the culmination of a long period in which we found our customers unable to secure permits for work in the Gulf of Mexico despite the fact that both our industry and our company have excellent safety records. In the 11 months after the Deepwater Horizon accident, it became clear that Seahawk’s greatest rival was no longer our industry competitors but the U.S. government.
The government’s drastic slowdown in the issuance of permits for shallow-water drilling operations — in which companies work in familiar geological formations, typically in less than 500 feet of water, mostly seeking to produce natural gas — has all but crippled the industry. The survivors (for now) like Hercules are staying afloat largely thanks to revenue from operations outside U.S. waters. Put another way, a once-proud industry born in the gulf during the Truman administration can no longer survive on operations in its own back yard.
The state of the industry is hardest on those who live along the Gulf Coast and chose to dedicate their careers to developing America’s energy resources. Seahawk’s bankruptcy risks the jobs of more than 500 loyal employees, a number already diminished 50 percent from pre-spill levels because of attempts to save the company by cutting payrolls since last April. Our workers had stuck with us through the recent recession and downturn in commodity prices and during the freeze on all Gulf operations that the government imposed after the Macondo blowout. They held on, hoping that if and when the moratorium on shallow-water operations was rescinded, everyone would get back to work.
Yet since the moratorium on shallow-water operations was lifted, the government has acted, and continues to act, as if it were still in place.
Our government cannot claim in good conscience to hold up shallow-water permits out of an abundance of caution. The shallow-water industry relies on proven and straightforward methods honed over decades of use. Our record speaks for itself: In the past 15 years, 11,070 shallow-water wells have been drilled in the Gulf of Mexico, with a grand total of 15 barrels of oil spilled as a result of well-control incidents.
Those numbers no longer seem to matter. The only numbers that count today are the following: As of this writing, a mere 37 permits for new shallow-water wells have been issued since April — an average of just three per month. Before April 2010, an average of 7.1 permits were approved each month during the year before the incident. The historical numbers are much larger even in the aftermath of the financial crisis.
The fundamental problem our companies face is that regulators at the Bureau of Ocean Energy Management, Regulation and Enforcement insist on painting the entire offshore industry with a broad brush, ignoring key distinctions between deep- and shallow-water drilling in their new requirements and standards.
Director Michael Bromwich has expended significant effort reorganizing his agency, but it has come at the cost of fulfilling the agency’s statutory mandate to develop U.S. offshore resources. Continuing along this route will only drive more companies out of business, or at least out of business in the United States — an outcome we naively believed our government would make a concerted effort to avoid.
Let’s hope that the unfortunate — and avoidable — fate of Seahawk at the very least offers an important lesson to regulators: It is entirely possible to change the approach to permitting operations in the Gulf. The Bureau of Ocean Energy Management, Regulation and Enforcement needs only to begin applying graduated risk analysis based on a tiered evaluation of permits to achieve the safest and most efficient continuation of energy production in the Gulf. A tiered approach would allow the bureau to direct its limited resources toward higher-risk drilling while maintaining an elevated standard of safety for all permits.
It might even avoid more unnecessary job losses in the already beleaguered Gulf region.
The day after the November midterm elections, President Obama expressed significant interest in expanded natural gas drilling. “We’ve got . . . terrific natural gas resources in this country. Are we doing everything we can to develop those?” he asked. The fate of Seahawk Drilling makes clear that the answer is a tragic, resounding no.
The writer is president and chief executive of Seahawk Drilling, which owned and operated 20 jackup rigs in the Gulf of Mexico.