Trend toward deep-water drilling likely to continue
Tuesday, June 22, 2010
Willie Sutton robbed banks because that's where the money is. And oil companies venture into deep waters for exploration because that's where the oil is.
That's why -- even though President Obama has imposed a six-month moratorium on deep-water exploration drilling in the Gulf of Mexico -- the oil and gas industry is going to be back. And it's why in other countries, the deep-water search hasn't stopped.
Within five years, global deep-water production is expected to rise by two-thirds, to 10 million barrels a day, according to Cambridge Energy Research Associates. That's equivalent to the amount of crude oil that the world's largest exporter, Saudi Arabia, produces. And in the United States, improved technology for extracting oil from deep water accounted for about 70 percent of the increase in the U.S. Geological Survey's estimates of recoverable U.S. oil reserves in recent years.
Those big stakes explain why the oil industry is worried about Obama's moratorium, which has idled 33 deep-water drilling rigs in the gulf. Interior Secretary Ken Salazar has described the moratorium as hitting "the pause button," but oil service firms -- and Gulf Coast politicians -- want the government to hit the play button again.
Houston-based Diamond Offshore, which owns the world's second-largest fleet of floating drilling rigs, and Hornbeck Offshore Services of New Orleans have asked federal judges to issue temporary restraining orders that would lift Obama's moratorium without waiting for Interior to come up with new regulations. Diamond said the moratorium amounted to an illegal "taking" from the company. Louisiana Gov. Bobby Jindal (R) filed a brief supporting Hornbeck, complaining that the state government "was completely ignored" in the imposition of the moratorium.
However, environmental groups and much of Obama's Democratic base are wary of lifting the moratorium. Michael Brune, executive director of the Sierra Club, said talking about lifting the moratorium while the well is still leaking is like "talking about how to get more kindling" while your "house is engulfed in flames."
In New Orleans, Judge Martin Feldman said he would rule Tuesday or Wednesday.
Regardless of how Feldman rules, the trend toward deep-water oil exploration is likely to continue, analysts said, especially in the Gulf of Mexico. Shell Oil, for example, has 460 federal leases, 379 of which are in deep water.
"We've run out of everything else and don't have access to reserves elsewhere," said Fadel Gheit, an oil analyst with Oppenheimer. "Why do you think companies go to this very deep water? They'd rather drill onshore. But it's obviously not available, except in Iraq where you can be kidnapped and beheaded. It is always a question of risk and return."
On Monday, a group of scientists who say they thought their views were inaccurately described to justify the deep-water drilling ban met with Salazar to urge him to ease the moratorium.
"We consider deep-water production to be critical for meeting future energy requirements," said Alan Jeffers, media relations manager of Exxon Mobil, which owns the rights to drill on 49 million net acres in deep water, an area larger than the states of Florida, Maryland and New Jersey combined. That accounts for more than two-thirds of the company's exploration acreage, an indication of where the industry thinks the future lies.
Exxon Mobil's acreage is all over the world, but U.S. national security strategists strongly back increased reliance on domestic energy sources. That means going to the Gulf of Mexico, where about 3,600 structures produce 31 percent of U.S. oil output. The deep-water share of that has reached a quarter of gulf output and is growing steadily.