By Jennifer A. Dlouhy, Houston Chronicle
WASHINGTON — The government’s plan to conduct a new environmental study of the Gulf of Mexico jeopardizes three upcoming auctions of offshore drilling leases and risks further damage to the region’s economy, an oil industry official warned Monday.
The environmental analysis — formally announced last week — could take six months to a year, delaying lease sales that have been planned for March and August next year, said Erik Milito, upstream director for the American Petroleum Institute. A third sale planned for early 2012 also is in doubt.
Some industry lobbyists and financial analysts have already predicted that the government will cancel the March sale.
If both 2011 sales are postponed or canceled, it will be the first year since 1965 that the government has not sold new offshore drilling leases, Milito said..
Combined with a slowdown in permitting new offshore drilling projects in the wake of the Deepwater Horizon disaster, the potential delays threaten domestic energy development and risk more than 100,000 jobs directly and indirectly connected to the industry, Milito said.
“A weak economy and the growing cost of new development already make new development a challenge,” Milito said in a conference call. “Long delays in leasing just increase the difficulty in getting that job done.”
Future production also is at risk, Milito said, because companies invest in new leases to replace expiring ones.
“Production from many wells is declining,” Milito said. “If we can’t develop new prospects at a regular pace, added new production won’t be enough to replace lost output from older wells.”
Oil and gas industry leaders have raised similar concerns in the past, saying that proposed regulations and plans to get rid of some tax incentives threatened jobs and domestic energy production.
In this case, Milito emphasized that the industry supports a new environmental analysis and believes it is prudent in light of the massive oil spill earlier this year.
But, Milito added, the American Petroleum Institute will be urging in formal comments and testimony that the study be done swiftly.
Melissa Schwartz, a spokeswoman for the Bureau of Ocean Energy Management, Regulation and Enforcement that oversees offshore drilling, said the government has “made no announcements” about the future of the three planned lease sales.
Aftermath of spill
The government canceled a western Gulf of Mexico lease sale that had been scheduled for August of this year because of the deadly April blowout at BP’s Macondo well that destroyed the Deepwater Horizon drilling rig and triggered the spill.
The study is designed to assess the potential impact of future drilling in the Gulf because of environmental changes caused by the spill.
A similar assessment — and a year-long timeout in lease sales — took place after Hurricane Katrina ravaged the Gulf Coast in August 2005, although there were lease sales earlier that year and in late 2006.
Any lengthy delay this time around could be compounded by the Obama administration’s six-month moratorium on drilling new deep-water wells. Although the ban was lifted in October, the ocean energy bureau has not yet approved any new deep-water drilling projects, which must comply with new safety requirements.
Analysts at the investment bank FBR Capital Markets predict that delayed or canceled lease sales could mean lost business for marine seismic companies.
Oil companies typically hire the firms before sales to do geological surveys of areas for possible leasing to plan their bids and investment strategy. And some firms including Schlumberger and Petroleum Geo-Services often do surveys in advance and sell the data to operators.
“If lease sales are canceled, marine seismic companies could lose revenue from multi-client sales in the Gulf of Mexico,” FBR Capital Markets analysts said.
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