Sheila McNulty Industry to press for deepwater drilling in Gulf of Mexico

When Michael Bromwich, head of permitting for the Gulf of Mexico (pictured), comes to Texas oil country on Friday, the message the industry hopes to deliver is that deepwater drilling will continue – with or without the US.

Last year Chevron, a lead investor in the Gulf, said it acquired acreage in nine major deepwater areas. This year it will drill in deepwater off China, Australia, West Africa, the UK, Brazil, and, if permitted, the Gulf. Bobby Ryan, Chevron’s vice president for Global Exploration, explains:

Deepwater is a major component of our exploration program. The only place we are not drilling is the Gulf of Mexico.

Indeed, he says that every day he gets a drilling report from the Gulf. The email reports no exploration wells are being drilled and no development wells are being drilled. He deletes it:

I never thought I’d reach a point in my career when I’d see that for the Gulf of Mexico.

The Bureau of Ocean Energy Management, Regulation and Enforcement has not issued one permit for deepwater exploration drilling since BP’s Macondo disaster last April. Environmentalists conclude this is as it should be, given that there is no way the industry can guarantee there will never be another such accident. But the industry notes no other sector is held to this standard – aeroplanes, for example, continue to fly despite major crashes over the years.

Mr Bromwich, as bureau director, will address the issue in a keynote address to industry at a conference hosted by the James A Baker III Institute for Public Policy. The conference will be widely attended by the oil industry, with BP, Chevron, Noble Energy and Pride International, among those speaking.

Leta Smith, director at IHS Cera, the consultancy, said on average 1bn barrels of oil has been found in the deepwater Gulf annually for the past several years. She anticipated that trend would have continued, at least in the near term, without drilling restrictions, given “there is still a lot of prospectivity out there.”

In 2010, she noted, the volume of hydrocarbons found in deepwater globally was more than that found in shallow waters and onshore combined.

PFC Energy, the consultancy, forecast $282bn in capital expenditure would be spent in the gulf from 2011 to 2020 if drilling is permitted.  Robin West, chairman of PFC Energy, the consultancy that is co-hosting the conference, says:

Industry capital will flow in the deepwater outside the US if it can’t invest here. The cost would be huge in both jobs and energy security.

Dallas Droppo, partner at Blake, Cassels & Graydon, the energy-focused law firm, said investors realise there is a lot of oil yet to be discovered in deep and ultra-deep water and investors remain bullish on deepwater operators and drillers despite Macondo.  That interest was underscored this week by UK driller Ensco’s $7.1bn acquisition of Pride International, a specialist in deepwater projects.

Amy Myers Jaffe, energy expert at the Baker Institute, adds:

There were some dire predictions in the last year or so about the oil drilling services industry. But what we see is tremendous interest from the global invesment community. In light of the turmoil in the Middle East, deepwater production from around the world is going to be incredibly important. The industry is going to gear up for that with or without the US.

In 2014, PFC forecasts about 30 per cent of the majors’ new source production will come from the deepwater – an area they have specialized in because of resource nationalism contraints over onshore supplies. It will be interesting to see from whose waters this production originates.