How are new permitting regulations affecting the development of energy in the Gulf of Mexico? During today's OnPoint, Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University, discusses a new report focused on the effect of regulations on offshore activity. He explains why he believes the permitting process is slowing Gulf development.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Dr. Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University. Dr. Weinstein, thanks for coming on the show.
Bernard Weinstein: Well, thanks for inviting me.
Monica Trauzzi: Dr. Weinstein, you've just authored a report focusing on how regulation is impacting energy production in the Gulf of Mexico. How do you believe the regulatory regime, post-Macondo, has affected offshore energy?
Bernard Weinstein: Well, first let me dispel a myth. The Obama administration would have us believe that everything is back to normal in the Gulf because the number of permits being issued is pretty much at a rate that we saw pre-Macondo. But, in fact, we have a series of regulations, new regulations, in addition to a new pre-permit approval process that has lengthened the amount of time it takes to actually get a permit and start drilling. And it's true there are 94 permits approved over the past 15 months, but only about a third of those permits are for what I would call new drilling, new exploration. The other two thirds of those permits are re-approvals of permits that were granted prior to the Macondo incident or they're permits for work overs and other types of repairs on existing wells. So, consequently, because of this long, drawn out process to get approval to actually drill a new well, we're seeing production continue to decline in the Gulf. It has been declining for the last three years. Indeed, production in the Gulf of Mexico today is about 30 percent lower than it would have been if the moratorium had not been imposed.
Monica Trauzzi: All right, so following this year's offshore technology conference, EnergyWire reported that the offshore energy industry is regaining its confidence and optimism and despite the regulatory environment, the rig fleet in the Gulf continues to grow. Would you agree that there are positive stories coming out of the Gulf?
Bernard Weinstein: Oh, absolutely. Things are a lot better today than they were a year ago. My concern is because the new regulatory regime is so opaque and because it takes so long to get a permit to actually start drilling and also because there's not a sizable inventory of approved permits so that drilling companies can line up business in advance, that is slowing down the pace of recovery in terms of Gulf oil output. And that's my major concern. We get 29 percent of our oil from the Gulf of Mexico. We could be getting a lot more if we had a speedier, more transparent regulatory process.
Monica Trauzzi: But wasn't the regulatory environment shifted post-Macondo because of some serious safety concerns? Didn't things need to be looked at and adjusted, and isn't this all a result of that?
Bernard Weinstein: Well, I think part of it is a result of the new safety requirements and, obviously, I'm not opposed to new safety requirements. I don't think the industry is opposed to it. The industry is willing to comply, that's not the problem. The problem is the slow walking of the entire permitting process from step one to actually getting the permit to drill. And that's the process that needs to be speeded up. And I think we're still seeing a process of slow walking occurring at BOEM that is going to stretch out the amount of time it's going to take to get back to pre-Macondo levels of production.
Monica Trauzzi: We had Hercules' Jim Noe on the show earlier this year and he said, I'm going to quote here, "We're seeing demand for drilling services offshore despite the challenge we have with the bureaucratic process of getting permits. We're seeing demand for our services that we haven't seen since pre-Lehman days, pre-global economic crisis. It's been three years since we've had so much demand for our services." So, how did stories like that play into the report that you just wrote?
Bernard Weinstein: OK, well, of course Mr. Noe's organization is a shallow -- they're a group of shallow-water drillers. They were hurt very, very badly as a result of the moratorium. Now, unemployment rates in many of the communities along the Gulf Coast soared 2 1/2 years ago. There, business is coming back. In fact, I understand that some of these companies are having trouble finding qualified people because, you know, during the moratorium and its aftermath, a lot of those folks went elsewhere, went into other lines of business. So look, I'm not going to argue that things aren't better than they were a year ago and they're much better than they were two years ago, but we've got a long way to go before we're back to what I would call an optimal level of production in the Gulf of Mexico.
Monica Trauzzi: I want to get to something you talk about in the report. You say Gulf activity had a direct impact on oil prices in 2008 and I sort of question that a bit because with oil being traded on a global market, how can price fluctuations be attributed to the OCS policies when, at the time, it was reported that they were really being attributed to demand going down and other factors?
Bernard Weinstein: Well, the point that I make in the report is that oil prices are determined not only by current supply and demand, but also by expectations of future supply or expectations of future changes in demand. And the point I was making is that when President Bush announced that he was going to allow the sale of leases offshore, we saw almost an immediate drop in oil prices on the expectation that new supplies would be forthcoming. We didn't see the same thing happen after President Obama lifted the moratorium in the Gulf last year, because, at the same time he lifted the moratorium, he said we're going to have new, stringent regulatory requirements for drilling. So, the market looked at that and said, well, gee, there's a lot of uncertainty here and we did not see a corresponding drop in prices after the lifting of the moratorium in the Gulf.
Monica Trauzzi: OK, we'll end it right there. Thank you for coming on the show.
Bernard Weinstein: Oh, it was my pleasure, any time.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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