Rigs in limbo

NOLA:

Diamond Offshore Drilling's Ocean Confidence, a semi-submersible deepwater rig, is slowly making its two-month 7,000-mile voyage to the waters of the Congo. Meanwhile, Diamond's Ocean Endeavor, still in the Gulf of Mexico, is being readied for its tow to the Egyptian Mediterranean.

Together, the departures have come to symbolize the potentially devastating impact to the oil industry from the Obama administration's six-month moratorium on deepwater drilling in the Gulf.
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"We're clearly seeing the rigs start to leave," Rep. Steve Scalise, R-Jefferson, said Wednesday at a news conference in front of the Capitol marking 100 days since the blowout of the Deepwater Horizon well led the administration to call a pause on drilling that Gulf Coast lawmakers say could prove more economically devastating to the region's economy than the Gulf of Mexico oil spill itself.

But Thomas Marsh, vice president of Houston-based ODS-Petrodata, which provides intelligence to the offshore industry, notes that two rigs do not an exodus make. Rigs move all the time, he said. Diamond's Ocean Confidence, which is heading to the Congo to do a job for Murphy Oil Corp., is due to return to the Gulf to drill for Murphy in February.

"Rigs will go where the work is, it's as simple as that," Diamond spokesman Les Van Dyke said. "This is a supply-and-demand business. If there is work here, rigs will come here, and just because we take one somewhere doesn't mean we wouldn't come back if conditions were attractive."

Others may ultimately follow Diamond's lead and send rigs from the Gulf to the far corners of the globe, said Marsh, especially if the administration's suspension of deepwater drilling extends beyond the end of November. But it is simply too soon to know.

"A lot of decisions have just not been made yet," Marsh said Friday.

This is the summer of uncertainty in the Gulf of Mexico, not just for the workers on those rigs but for the thousands of support-services and onshore jobs that depend on the industry.

According to the Interior Department, there were nine deepwater drillers still operating in the Gulf this week, down from more than 30 at the time of the disaster. That includes the two Transocean rigs drilling relief wells at the site of BP's Macondo well, whose blowout sunk Transocean's Deepwater Horizon, as well six wells that have been permitted to work to completion, and one workover operation.

As rigs have gone idle, the contractors have been hit by a blizzard of force majeure notices from the oil companies invoking clauses in their contracts that give them an out if work is delayed by an unforeseen event. This appears to be a novel application of force majeure, which is more typically invoked in the case of a natural disaster, and the contractors are resisting, leading to ongoing discussions as the parties try to hammer out deals or agree to standby day rates far lower than the usual average of $400,000 a day.

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Meanwhile, shallow-water drillers in the Gulf have not been subject to an official moratorium, but they must meet new safety requirements imposed by the Bureau of Ocean Energy Management, the Interior Department agency that succeeded the Minerals Management Service, which was roundly criticized for being too cozy with the industry it was supposed to oversee.

But, with only two new permits for shallow-water drilling issued since the disaster, the industry is chafing under what it considers a de facto moratorium on all new drilling,

According to Jim Noe, senior vice president and general counsel of Hercules Offshore, who has been the leader of a coalition of shallow-water drillers, there were seven idle shallow-water rigs in early May and 26 today. As jobs finish, that number, he said, will rise to 33 by the end of August, and 44 idle rigs by the end of September.

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This administration has done more to create unemployment than any in recent memory. They are looking to put many oil and gas workers out on the street while they pursue inefficient magic energy dreams.