New offshore drilling limited: Obama orders rigs to stop work on about 30 exploratory wells

5/27/2010

By Jennifer A. Dlouhy, Houston Chronicle

May 28--WASHINGTON -- Describing the massive oil spill in the Gulf of Mexico as a wake-up call, President Barack Obama on Thursday banned new drilling in deep coastal waters and ordered floating rigs to stop work on some 30 exploratory wells.

He also blocked planned drilling in Arctic waters this summer and canceled long-planned sales of leases in the western Gulf of Mexico and a tract 50 miles off Virginia's coast. At the same time, Obama lifted a ban on new drilling in shallow waters, where generally less than 500 feet separate the seabed and surface.

"I continue to believe that domestic oil production is important, but I also believe that we can't do this stuff if we don't have confidence that we can prevent crises like this from happening again," the president said during a White House news conference. "It's going to take some time for the experts to make those determinations."

Obama said the delays would let an independent commission review what went wrong with the Deepwater Horizon rig. The pause also will give federal regulators a chance to implement new safeguards, including stiffened well control practices, the recertification of critical safety devices known as blowout preventers, and expanded training programs for rig workers.

Interior Secretary Ken Salazar advanced the new restrictions after a 30-day review of industry practices.

"We essentially will not allow any more deep-water drilling until we can ensure we are doing it in the safest way possible," Salazar said. "And we believe we can do it safer."

Producing wells exempt

The administration's ban on approving new deep-water drilling permits for at least six months and the suspension of deepwater exploration do not affect the 4,515 shallow-water and the 591 deepwater Gulf wells now producing oil and gas. But industry leaders and advocates warned that lengthy drilling delays could lead to job losses and price hikes for gasoline.

Sen. John Cornyn, R-Texas, warned that "further hindering domestic energy production will lead directly to job losses, lost revenue and higher fuel prices for all Americans." And Jack Gerard, president of the American Petroleum Institute, said an "extended moratorium on safely producing our oil and natural gas resources from the Gulf of Mexico would create a moratorium on economic growth and job creation."

Roughly a third of the nation's domestically produced oil comes from the Gulf, and much of that -- about 70 percent in 2007 -- is from operations in more than 1,000 feet of water.

Salazar said exploratory wells being drilled would be directed to stop operations as soon as it is safely possible.

The suspension will mean roughly 30 floating drilling rigs -- typically leased for hundreds of thousands of dollars a day -- will be idled indefinitely.

The suspensions will affect energy company contracts with drilling suppliers and other vessels involved in the operations.

Environmentalists cheered Obama's decision as an essential timeout.

"The current system for regulating offshore oil activities is broken," said Rep. Lois Capps, D-Calif., whose district was witness to the 1969 oil spill off the Santa Barbara coast. "To prevent disasters like this from ever happening again, it is imperative that we take stock of where we are before moving forward with any new drilling activities."

Sen. Dianne Feinstein, D-Calif., said the White House was taking crucial steps but that the administration and Congress must do more to clean up the embattled Minerals Management Service that oversees offshore drilling. On Thursday, Elizabeth Birnbaum left her post at the helm of the MMS, becoming the second apparent casualty at the agency since the Deepwater Horizon disaster.

Obama's decision to allow new permits for shallow- water drilling was cheered by drilling contractors, who warned that oil field workers could lose their jobs if the ban continued.

But the White Houses decision to delay drilling in the Beaufort and Chukchi seas near Alaska at least until 2011 is a blow to Shell Oil Co. and could also affect Conoco­Phillips, the area's two biggest leaseholders.

ConocoPhillips had not planned to drill until 2012, but Shell had already cleared major regulatory hurdles and was moving equipment to the region to begin work on exploratory wells there this summer. Shell paid $2.5 billion for Chukchi and Beaufort sea leases in 2005 and 2006.

Exploratory wells halted

In a statement, Shell said it remained "confident in our drilling expertise, which is built upon a foundation of redundant safety systems and company global standards."

The oil giant noted that its drilling plans in Alaska "have undergone an unprecedented level of review, including scrutiny from the courts, regulators and stakeholders."

Shell also will take a hit from the administration's decision to suspend exploratory deepwater drilling; the company has five exploratory wells that will be halted.

Others that will be forced to cease operations include Anadarko Petroleum Corp., Marathon Oil Corp. and BP.

jennifer.dlouhy@chron.com

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