Thursday, May 13, 2010

BP Disaster Strands Billions of Barrels of Crude

By Joe Carroll and David Wethe

May 13 (Bloomberg) -- A regulatory crackdown on offshore oil drilling after the fatal rig explosion in the Gulf of Mexico will delay development of U.S. deposits with billions of barrels of crude and may spawn industry job cuts.

BP Plc, ConocoPhillips, Petroleo Brasileiro SA, Cobalt International Energy Inc. and Plains Exploration & Production Co. are among explorers with projects on hold in the Gulf or coastal California after the April 20 explosion prompted federal and state officials to halt new drilling.

Interior Secretary Ken Salazar suspended all new permits for offshore drilling until at least the end of this month while his agency and the U.S. Coast Guard probe the blast and fire that killed 11 workers, sank a Transocean Ltd. vessel and triggered subsea well leaks that have spewed millions of gallons of oil into the Gulf.

“This oil spill was a disaster for the industry,” said Gianna Bern, president of Brookshire Advisory & Research in Flossmoor, Illinois, and a former BP crude trader. “It will ratchet up public debate on deep-water drilling by a couple of notches and put a lot of projects conceivably on the back burner.”

An estimated 7,500 jobs on offshore drilling rigs in the Gulf of Mexico may be lost if the ban on new well permits continues through July 1, said Lee Hunt, president of the International Association of Drilling Contractors in Houston. Another 7,500 jobs may be lost in support industries such as caterers, pipe yards and communication companies, he said.

‘Significant Layoffs’

There are about 75,000 offshore jobs in the Gulf of Mexico, according to the association.

“I think within two to three weeks, you’re going to see significant layoffs and unemployment in the whole offshore infrastructure industry,” Hunt said. “That’s going to affect upper Texas, the Gulf Coast, all of Louisiana and Mississippi coastal employment.”

BP, based in London, will have to postpone work on its 3 billion-barrel Tiber field in the Gulf as a result of last month’s disaster, according to ConocoPhillips, which owns an 18 percent stake in the prospect. ConocoPhillips, based in Houston, commented on Tiber at its annual shareholders’ meeting yesterday.

BP intended to drill a so-called appraisal well to assess the size of its Tiber discovery, finishing by Aug. 27, according to an exploration plan filed with the Minerals Management Service. Robert Wine, a BP spokesman, said he wasn’t immediately able to comment on the appraisal schedule.

Brazilian Stake

The company’s shares rose for the first time in five days, gaining 4.3 pence to 545.9 pence at 1:54 p.m. in London trading.

Petroleo Brasileiro, Brazil’s state-controlled oil company, owns a 20 percent stake in Tiber. Chief Executive Officer Jose Sergio Gabrielli said last week it was “too early to say” whether the Deepwater Horizon incident will affect the Brazilian company’s Gulf of Mexico operations.

Cobalt, the Houston-based explorer whose largest shareholders are Goldman Sachs Group Inc. and a First Reserve Corp. fund, has two deep-water prospects on hold while it awaits permits, said Chief Executive Officer Joseph H. Bryant.

Cobalt was within 24 hours of receiving a permit to drill its North Platte West well into a prospect holding an estimated 550 million barrels of oil when the Interior Department suspended the process, Bryant said during a May 11 conference call with investors and analysts. The other delayed permit is for a discovery called Ligurian.

Reassigning Rigs

Plains Exploration last week said political backing for the Houston-based company’s plan to drill the T-Ridge prospect off the California coast had evaporated. Governor Arnold Schwarzenegger withdrew support for ocean drilling after the BP spill.

The ban on new drilling permits is having a bigger impact on operators in shallower water along the coast, where wells tend to be quicker to construct, said Hunt of the drilling contractors association.

Hercules Offshore Inc., Rowan Cos. and Seahawk Drilling Inc., all Houston-based drilling contractors with rigs that operate in shallow water, are examples of companies being affected, Hunt said.

Randall Stilley, chief executive officer for Seahawk, said he expects to feel the effects of the suspension over the next 30 days.

‘Serious Situation’

“Right now, we’re all concerned because of the uncertainty surrounding the drilling ban,” Stilley said yesterday in a telephone interview. “It’s a serious situation, not just for the drilling companies, but for the people that have supply boats, and all the ancillary services that supply offshore.”

Harmony Packard, a spokeswoman for Hercules, and Suzanne McLeod, a spokeswoman for Rowan, didn’t return calls seeking comment.

Hunt’s drilling association is lobbying the Interior Department and Congress to exempt shallow-water drillers from the ban.

--With assistance from Edward Klump in Houston. Editors: Tina Davis, Kim Jordan

To contact the reporters on this story: Joe Carroll in Chicago at; David Wethe in Houston at

To contact the editor responsible for this story: Susan Warren at

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