No easy task: Getting there from here

March 1, 2011
To lend a different take to the theme song for the 1977 Burt Reynolds film, “Smokey and the Bandit,” it appears that, when it comes to the fortunes of the U.S. deepwater E&P industry that supports much of its activity, Port Fourchon, Louisiana, has a short way to go, but it is taking a long time to get there.
Port Fourchon tolerates drilling shortfall with confidence, concern for tenants

Jay Schempf
Contributing Editor

To lend a different take to the theme song for the 1977 Burt Reynolds film, “Smokey and the Bandit,” it appears that, when it comes to the fortunes of the U.S. deepwater E&P industry that supports much of its activity, Port Fourchon, Louisiana, has a short way to go, but it is taking a long time to get there.

In fact, it would not take a huge increase in deepwater drilling progress to bring the port’s commercial activity back to previous high levels, but the specter of last year’s Macondo oil spill, the largest in U.S. history, combined with numerous federal bureaucratic bottlenecks, are turning the trip back to prosperity a lengthy one.

The slowdown in GoM offshore activity is evident from this recent aerial photo showing vessels stacked at Port Fourchon, awaiting new work contracts.

For nearly a year, due to the Macondo well explosion and oil spill, a total shutdown of Gulf of Mexico exploration drilling has obliged Port Fourchon, the offshore industry’s southernmost logistics hub, to join with its service and supply company tenants and landowners in “treading water” while awaiting a return to something like pre-Macondo activity levels. Other ports in Louisiana and along the Gulf Coast that supply and service the industry are in similar straits.

A muddled drilling permit situation that stems from the blowout but has become even more perplexing in the hands of a brand-new federal government regulatory agency, now strains the domestic offshore industry’s wherewithal. Producing companies are forced to re-assess their GoM exploration plans, and that directly affects the fortunes of those companies who supply and service Gulf exploration and production activity, particularly those with fully equipped and staffed service points at bases like Port Fourchon.

Ironically, the very incident that caused the drilling shutdown generated some commercial activity for Port Fourchon and its participating companies’ facilities and equipment. With the logistical advantage of quick access to the central Gulf from a substantial, state-of-the-art shore base, Port Fourchon was ideal to marshal the vessels, hardware, and supplies necessary to combat the blowout at the Macondo well site, including support of relief well drilling. It also served as a major step-off point for the massive industry/government oil spill containment and dispersant program that spanned the Gulf Coast from Texas to Florida.

In any case, a nearly six-month official moratorium on deepwater drilling called for in May by the U.S. Interior Dept., though technically lifted the following October, continued unofficially into 2011 and today is what the industry is calling a de facto moratorium, or “permit-orium.”

Despite oft-made assurances that it is not “slow walking” through the process of granting new drilling permits, the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE), the fledgling regulatory agency that has replaced the Minerals Management Service (MMS) as the industry regulator in federal waters, is engaged in what its Director Michael Bromwich calls “the most aggressive and comprehensive reforms of offshore oil and gas regulation and oversight in U.S. history.” And while Bromwich admits the industry’s post-Macondo success in complying with new rules in the areas of drilling safety, subsea containment, and spill response was key to Interior Sec. Ken Salazar’s lifting of the official moratorium, “we will not cut corners in the permit review process and permits will be approved only when we are satisfied that all applicable regulatory requirements are met.”

Add the fact that BOEMRE is severely understaffed and under-funded, and the permitting curtailment issue appears to have taken on a life of its own. President Barack Obama’s recently announced fiscal 2012 budget includes a $358.4 million request to fund BOEMRE – a $119.3 million, or 50%, increase above the figure enacted by Congress in fiscal 2011 – but there is some doubt whether the new Republican majority in the House of Representatives will green-light such a figure, given House members’ vow to cut all new federal spending, starting this year. The diagnosis: still potentially more permitting delay.

But while the shutdown in the Gulf and the slowdown of offshore service and supply are serious threats to the future of U.S. exploration, drilling, and production, Port Fourchon continues in its role as the foremost Gulf Coast center not only for oil and gas, but also for commercial fishing, seafood, shipping, tourism, and recreation.

The Greater Lafourche Port Commission, which directs both the activities of the sea port as well as those of the nearby South Lafourche Leonard Miller Jr. Airport, is handling the current adversity with aplomb, and where possible, has responded to the needs of its tenant base. That includes reducing basic rental rates by as much as 30% for a six-month period, as well as freezing 5% annual escalation clauses on leases for a full year, among other concessions designed by commissioners to help reduce tenants’ overhead costs.

Nonetheless, the commission continues with its wide-ranging expansion plans to double the port’s size from 600 developed acres to some 1,300 acres when completed. The airport, too, is under aggressive expansion, sporting a new 6,500-ft runway and full parallel taxiway to accommodate large jet aircraft with wheel loads of up to 75,000 pounds, and more improvements are on the way.

Port Fourchon has taken some hits since this time last year, and it has the stacked deepwater service vessels and half-empty storage yards to prove it. But as Chett Chiasson, port commission executive director, says, “When it all comes back, it will come back strong.”

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