Industry execs say rig availability limits offshore drilling expansion

Oil industry executives said Wednesday morning that 15 years of financial famine have so depleted the oil service infrastructure that it may not be able to drill additional offshore leases. They spoke at an Independent Petroleum Association of America on the role of the Gulf of Mexico in the national energy policy.


HOUSTON, May 23 -- A panel of oil industry executives said Wednesday morning that 15 years of financial famine have so depleted the oil service infrastructure that it may not be able to drill additional offshore leases.

Joe Blandford, president and CEO of Atlantia Offshore Ltd., Houston, said more than 5,000 offshore oil and gas exploration leases in the US Gulf of Mexico will expire by 2009, and many of those are expensive deepwater leases which operators are pushing to drill with a limited number of rigs.

He spoke at a forum sponsored by the Independent Petroleum Association of America on the role of the Gulf of Mexico in the national energy policy proposed by the Bush administration last week.

.Blandford said that in the gulf, the average rig can drill a maximum of 6 wells/year in deep water or 8 wells/year in shallow water. He said an average of 37.5 rigs were active in the deepwater gulf last year, drilling 225 wells.

IPAA and other industry groups are urging the federal government to remove moratoriums blocking leasing off the West and East coasts. Opponents of drilling have said industry does not have the rigs to drill the additional acreage, if it were available.

"They could be right," Blandford said.

Matthew Simmons, president of Simmons & Co. International Inc., Houston, noted that the steep increase in drilling activity in recent years has not added significantly to North American natural gas production.

Looking at steep production decline curves, especially in the Gulf of Mexico, Simmons said the industry may be hard pressed to maintain the current production levels, much less increase output by even 10%.

The National Petroleum Council has estimated that US gas consumption could grow from 22 tcf in 2000 to 29 tcf by 2010.

Simmons said high commodity prices for oil and gas no longer ensure that producers will respond with higher output because smaller reserves are being found and developed.

"Price is now just a one-way street," Simmons said. "If the price drops, it hurts drilling." But he said price rises no longer guarantees a ramp up in drilling activity because of limited infrastructure and resources.

Bob Boswell, president and CEO of Forest Oil Corp., Lafayette, La., and current chairman of IPAA's offshore committee, expressed hope the Bush administration would be able to reduce the regulatory burden on the offshore oil and gas industry.

He said just to drill one offshore well now requires a producer to comply with 90 different regulations and obtain 15 permits.

Because of moratoriums on offshore leasing, he said, less than 6% of total federal onshore and offshore acreage is available for leasing. He added that several promising offshore areas are under moratoriums.

As for environmental regulations, Boswell said, "We all recognize the importance of a clean environment. But there is a cost. We must keep that in mind as we try to reach our energy goals."

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