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The cost attached to tightened rig operation regulations cemented last month regarding Outer Continental Shelf drilling may cause small business operators and lessors to pull out of the Gulf of Mexico’s deep waters.
The Bureau of Safety and Environmental Enforcement revealed this in its 47-page analysis of its final rule in the aftermath of the 2010 Macondo prospect blowout, which claimed 11 lives and spilled 4.9 million barrels of crude into the gulf.
Small businesses, which have about a 12 percent interest in deep-water leases, will combine to pay an estimated $12.7 million per year related to the new deep-water costs, the agency estimated.
Don Briggs, president of the Louisiana Oil and Gas Association, which includes member companies involved with all aspects of offshore energy production, said he’s not sure what impact the new rule will have on small businesses.
“I don’t think the small business owner knows yet what kind of impact it’s going to have on them,” Briggs said. “I’m not sure everybody really knows what that looks like yet.
“The deep-water operators, they have a better ability to withstand the increased costs,” he continued. “The smaller operators in the shallow water, additional costs make it very difficult, but some of them will (leave) and some of them won’t and some of them will gradually get out, I’m sure.”
The rule establishes new training, casing, cementing and blowout preventer requirements. It also requires more testing, documentation and third-party verification of emergency equipment.
“This rule makes final important standards that were put in place shortly after the Deepwater Horizon oil spill and is based on input from stakeholders and recommendations from the numerous investigations related to that tragedy,” BSEE Director Jim Watson said.
Although small businesses will likely feel the impact, BSEE said the cost increases wouldn’t be debilitating to the industry. Costs associated with the final rule are about $52 million less than those associated with the interim final rule, BSEE said.
The standards will add $850,000 and $230,000 in cost to deep-water wells drilled with mobile offshore drilling units and platform rigs, respectively, BSEE estimated. Shallow-water operations’ cost will be hiked roughly $130,000 per well.
“While not an insignificant amount, we note this extra recurring cost is around 1 percent for most deep and shallow water wells,” the report reads.
In total, the industry will pay about $131 million in additional costs each year. The agency estimated that $23.9 million, or 18 percent, will fall on small companies – $12.7 million in deep water and $11.2 million in shallow water.
Small companies – classified as those with 500 or fewer employees – own a 12 percent interest in deep-water leases and 47 percent interest in shallow-water leases, the agency said.
“It would not be responsible for a regulator to compromise the safety of offshore personnel and the environment for any entity, including small businesses,” the document says.
Six months after the BP Deepwater Horizon explosion, the Bureau of Ocean Energy Management, Regulation and Enforcement issued its “interim final rule,” effective immediately and accompanied by a 60-day comment period. In August, almost a year after BOEMRE was split into two organizations, BSEE finalized the new regulations.
“It’s about what we expected,” Briggs said of the new rule. “We understand a lot of the things. Industry has been working on them, but it’s still going to be very expensive.”
The federal government’s “final rule” handed down in the wake of the Macondo prospect blowout will add $12.7 million per year to small businesses’ costs in the deep-water Gulf of Mexico, according to the Bureau of Safety and Environmental Enforcement. Small businesses in the shallow Gulf will pay an additional $11.2 million.
