Study Downplays Drilling Ban Losses - Analyst Blog

According to a federal government report released yesterday, the impact of Obama administration's deepwater drilling moratorium in the Gulf of Mexico (GoM) has not been as serious as previously thought.

 

 

As a reminder, on April 20, offshore driller Transocean Inc's (RIG) ultra-deepwater Horizon drilling platform, contracted to British major BP plc (BP), sank following an explosion while operating in the U.S. GoM off the coast of Louisiana. The incident killed 11 workers and spewed more than 200 million gallons of crude in what is touted as the worst oil spill in U.S. history. Subsequently, a six-month moratorium was imposed on offshore drilling in the region at water depths of more than 500 feet.

 

The federal study comprehends that the drilling ban resulted in the temporary loss of 8,000 to 12,000 jobs in the region and a $1.8 billion decline in spending. The inter-agency economic report, presented at a Senate hearing, says that the average number of rig workers fell by about 2,000 during the six-month ban, which is in place till November 30. The additional job losses were from businesses that provide supplies and supports to the drilling industry along the Gulf Coast. Earlier projections by the Department of Interior put the job loss figure at a much higher 23,000, assuming the worst-case scenario that all workers on deepwater rigs would be laid off during the suspension. Oil industry analysts predicted that the drilling pause could affect as many as 50,000 workers.

 

The findings by administration attributed the significantly lower-than-expected impact of the ban to the offshore drilling operators and contractors' decision to retain their skilled employees, as well as use the opportunity to repair rigs. While pointing out that the job losses, even if temporary, were the “regrettable” result of the freeze, the federal officials asserted that most workers are expected to return after the resumption of deepwater drilling in the GoM and many may have found temporary work as recovery and cleanup crews.

 

The report was, however, not well received by critics of the ban, who argued that the six-month ban was having a devastating effect on the region's economy. While the Interior Department – which overseas offshore drilling – defended the freeze by noting that it was needed to ensure safety and tackle the regulatory loopholes exposed by the Deepwater Horizon rig explosion, lawmakers and activists have called the moratorium needlessly broad, adding that small businesses have been the hardest hit. They are pressuring the White House to lift the freeze ahead of its scheduled late-November expiration.