Business of Politics

Gulf energy industry still in transition

by Jeremy Alford

Wednesday, July 27, 2011
By Jeremy Alford

Insiders fear the new cost of doing business is squeezing out smaller independents.

Wednesday, July 27, 2011
By Jeremy Alford

Insiders fear the new cost of doing business is squeezing out smaller independents.

Although the federal government has been issuing deepwater drilling permits since February, resulting in a few headline-grabbing discoveries, many investors remain skeptical of energy plays in the Gulf of Mexico.

To explain why, industry trade groups point to the Gulf's rig counts from the past two years right up to the most current figures.

There were 61 rigs in operation in the Gulf of Mexico on April 1, 2010. BP's Macondo Well exploded 19 days later, claiming 11 lives who were working on the supporting Deepwater Horizon rig.

When President Barack Obama's administration acted quickly to issue a moratorium on deepwater permitting, the Gulf's rig count dropped to 16, a record low.

It would be 314 days until the federal government issued another deepwater permit, which happened in February.

As of mid-July, there were 33 rigs in the Gulf, roughly half of the tally that was recorded two years ago by the Baker Hughes Rotary Rig Count. The numbers game grows darker when looked upon from the vantage point of a decade ago. In 2001, there were 148 rigs operating in the Gulf of Mexico.

Don Briggs, president of the Louisiana Oil and Gas Association, says there's little to cheer in those statistics.

"Yeah, we've added some permits and we've got some rigs going to work," Briggs says. "But by no means is there any certainty there so companies can feel confident that they're going to have a good environment to work in."

Among the reasons investments are down, aside from a lack of permits, is the current regulatory environment, he adds.

Obama's administration created a new agency - the Bureau of Ocean Energy Management, Regulation and Enforcement - to oversee what amounts to an overhaul of how companies are allowed to operate in the Gulf.

This includes new safety regulations that must be met during the permitting process, which in turn means more start-up dollars than ever. As a result, Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, says smaller, independent companies are getting squeezed out.

Only the majors - ExxonMobil, BP, Shell and the like - have the cash to make it happen, according to John.

"What a lot of these regulations have done was really narrow the scope of who can operate out in the Gulf," John says, "who has the resources and the expertise to be able to go through and get through all of the regulatory hurdles today to get a permit."

That could also change the future corporate landscape of the Gulf.

"You're just going to have a very small handful of players that have the financial resources," John says.

The situation has even altered the energy lexicon.

While the moratorium on deepwater drilling ended months ago, shallow water permits - seemingly unrelated to last year's spill - are down by 15 percent.

Among critics of the Obama administration, this has given birth to the term "permitorium," which is still thrown around by industry trade groups and others.


A local congressman has ushered a provision through the U.S. House that takes President Obama to task over the way certain appointments are made.

Rep. Jeff Landry, R-New Iberia, has become a vocal critic on Capitol Hill in recent weeks on the use of recess appointments.

Since Congress is away during recesses, such appointments allow presidents to avoid Senate confirmation hearings. It's a tactic that has been used by GOP and Democratic presidents alike.

Landry, however, says the practice needs to stop, which is why he authored an amendment for the 2012 energy and water budget bill.

His amendment prevents recess appointees to the Department of Energy, Army Corps of Engineers and Bureau of Land Management from getting paid.

The House voted 227-193 in favor of Landry's defunding proposal, which is now contained in H.R. 2354.

In corralling votes for his amendment, Landry says he cited the intentions of the "founding fathers," specifically that recess appointments should be made only for the continuity of government during Senate recesses.

"Unfortunately, the Obama administration has established a track record of waiting until Senate recesses to appoint individuals that cannot be confirmed by the Senate," Landry notes.

He says Congress has taken steps to address the situation in the past, like during the Civil War, when lawmakers added a rider to an appropriations bill that's similar to the amendment Landry drafted.

The rider went into effect in 1864 and was meant to thwart President Abraham Lincoln. The provision remained in effect until 1940.

Landry has his own history with the issue as well.

In June, he led a coalition of 77 freshmen in drafting a letter to the House leadership requesting that "all appropriate measures be taken to prevent any recess appointment by the president for the remainder of the 112th Congress."

As a result, Landry served as pro forma speaker of the House earlier this month in an order to keep Congress in session.

"The abuse of the recess appointment process not only endangers the rights of our constituents, but also degrades the American public's perception and confidence in our government," Landry says.

He was selected for the task by House Speaker John A. Boehner, an Ohio Republican, and chiefly oversaw housekeeping and routine matters for the lower chamber.

Landry originally found fault with the president's last recess appointment, Craig Becker of the National Labor Relations Board, who was initially rejected by the Senate. Landry accused Becker of being overly pro-union.

It was widely anticipated that Obama would use another recess appointment to name Elizabeth Warren the head of the new Consumer Financial Protection Bureau. The bureau now has the authority to regulate the consumer practices of banks.

While 89 lawmakers urged Obama to move ahead with Warren's appointment - Landry was among opponents - the president announced July 17 that he would instead nominate former Ohio Attorney General Richard Cordray.

The Associated Press reported that the "White House deflected questions about whether Obama chose Cordray to lead the bureau to avoid a protracted fight for Warren."

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