The Future for Deepwater Drilling

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Oil & Gas IQ

Deepwater and ultra-deepwater reserves are now being seen by many as some of the most promising frontiers for the American oil and gas industry.

A recent survey, conducted by investment bank Barclays Capital, found the upstream oil and gas industry is planning some serious investment in 2011, with a large amount being used to fund deepwater projects.

Some 35 new deepwater drilling rigs are expected to be put into action over the next 12 months, compared with 25 in 2010, with Chevron and Petrobas among those looking to invest in their deepwater operations, the Wall Street Journal reported.

However, following the blow-out of BP's well in the Gulf of Mexico in April 2010, those operating in United States waters are likely to face more security and increasing regulation.

Drilling Restrictions

Following the oil spill, the United States government placed a moratorium on all deepwater drilling, which was overturned. A second moratorium was put in place in June, which was lifted in October, providing players were willing to abide by tougher safety regulations.

Announcing the lifting of restrictions, interior secretary Ken Salazar said, "The oil and gas industry will be operating under tighter rules, stronger oversight and in a regulatory environment that will remain dynamic as we continue to build on the reforms we have already implemented."


The move to lift the ban was inevitably welcomed by the American Petroleum Institute, although the industry body did express concern surrounding what it termed a "de facto moratorium", whereby there was a delay in applications being approved to meet the new safety standards.

However, just two months after the moratorium was lifted, which some claimed was specifically timed to coincide with the mid-term elections, the United States government announced an effective ban on deepwater drilling in some promising regions.

Salazar said the eastern Gulf of Mexico region, which remains under a restriction, and the mid- and south-Atlantic planning areas will not be available for development until the year 2017, while a more stringent regulatory regime is drawn up.

Shell's plans for a development in the Arctic will be allowed to go ahead, however the plans are likely to be delayed by as much as a year, as it will be required to submit a new environmental impact assessment, the Boston Globe reported.

Future Developments

Upon announcing the restrictions in the Gulf of Mexico and the Atlantic, secretary of the interior Ken Salazar said, "As a result of the Deepwater Horizon oil spill, we learned a number of lessons, most importantly that we need to proceed with caution and focus on creating a more stringent regulatory regime."

However, there are those who believe the uncertainty of such changes will have a profound impact on the industry, even though the moratorium has been lifted.

In an earnings conference call, Louis A Raspino, president and chief executive officers of Pride Energy, said, "The continuing unclear regulatory environment will likely delay any chance of returning to normal in the US for quite some time."

He also said the effects of this are likely to be felt far beyond the waters of the United States. "We expect that much of the regulatory fall-off from this tragedy in US will make its way to other parts of the world by either government action or as operators and contractors ensure that best practices are utilised in all of their global activities."

Perhaps some positive news for those looking to enhance their deepwater operations in the country is the appointment of Douglas Lamborn, a critic of the drilling moratorium, as the head of the House Subcommittee on Energy and Mineral Resources.

Mr Lamborn said in June 2010, "Just as you wouldn't shut down the airline industry while a single plane crash is investigated, you don't shut down the offshore drilling industry at this time."

Despite the short term setbacks, many believe deepwater development will play a larger role in the oil and gas industry as other resources dwindle.