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Gulf oil spill aftermath: 'Drill, baby, drill' era may be gone forever

The Gulf oil spill was capped a year ago Friday, but offshore drilling is still far off its pre-spill pace. With a new regulatory agency putting a greater emphasis on safety, the industry might have to adjust to a new normal.

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Offshore drilling data explain the blow to Harington's bottom line.

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  • Deepwater oil production increased about 1 percent in 2010 from the previous year. In 2009, the annual increase was 46 percent, according to BOEMRE. Moreover, the oil industry says production expectations are dimmed for this year, too, because of delays related to new regulations.
  • Currently, there are 27 deep-water projects in the Gulf at varying stages, from exploration to production. In April 2010, there were 52, according to Louisiana Department of Natural Resources data.
  • BOEMRE has so far approved 10 of the 28 permit applications for new deepwater drilling, and only one company, BHP Billiton Petroleum of Melbourne, Australia, has actually started production.

But Billiton's experience could offer lessons for the industry. Billiton has stressed its willingness to work with BOEMRE to meet the agency's new safety guidelines quickly. Billiton "has worked very hard over the past several months with regulators to have the ability to resume drilling operations," said chief executive J. Michael Yeager in a statement.

The new focus on safety can also lead to new business opportunities. The companies doing well are those involved in preparing vessels for safety inspections. "They still have to do their five-year inspections, and we still get the work," says Scott Leonard, owner of Coastal Tank Cleaning.

To some industry analysts, the deeper problem is the decline in permits for exploration. "If you don't have discoveries now, you won't have production later," says Andy Radford, a senior policy adviser for the American Petroleum Institute (API), an oil industry trade group in Washington.

Since the lifting of the moratorium, 27 of the 44 revised plans to explore and develop new sites have been approved by BOEMRE. That includes one significant "victory," according to Louisiana state officials. ExxonMobil in June announced finding about 700 million barrels of oil southwest of New Orleans in about 7,000 feet of water – the largest Gulf discovery in a decade.

The find "proves the timely issuance of drilling permits is critical to America's energy future," said Lori LeBlanc, executive director of the Gulf Economic Survival Team, a Louisiana state task force.

The primary roadblock in the permitting process is the way permits are scrutinized, says API's Mr. Radford. He says most permits get kicked back an average of five times, instead of receiving a single comprehensive review that might create a more reliable schedule.

He warns that the continual back-and-forth will grind down the rate of production in the Gulf. Some $59.6 billion in total investment spending by Gulf operators is at risk if development delays last a year, API data say.

That bottleneck could be alleviated with the addition of BOEMRE administrators and the streamlining of the application and inspection processes, says Mr. Lin of UC Davis.

But that might not satisfy the oil industry. BOEMRE "is doing the best they can with the resources they have, but unfortunately that doesn't mean we're going to be any time soon, or ever, at a pre-Macondo rate of permitting," says Michael Olsen, a former Interior Department official.

The outlook is the same on the Gulf. "They're building boats but not as much as when it was 'drill, baby, drill,' " says Mr. Leonard. "It's too little, too late."

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