From 1971 through 2009, 24.7 Bbbl of oil were produced. In that same time frame, 1,715 bbl were spilled. That equates to a spill rate of approximately 1 bbl for every 14 MMbbl produced.
Robin West, chairman of PFC Energy, shared this statistic at the GE Oil & Gas annual meeting in Florence today to make a point – good news isn’t always entirely good news.
The “good news” of that statistic is that the oil and gas business had a great safety record. The “bad news” of the statistic is that the belief in the industry’s inherent safety made it complacent.
According to West, that complacency was one of the contributing factors that led to the events that resulted in the Macondo blowout on April 20, 2010.
In short, “The industry went from an extraordinary safety record to a catastrophe,” West said.
Now, the oil and gas industry is facing a change in rules and regulations for operations. And some of those changes could be damaging, particularly for independents operating in the Gulf of Mexico.
“Few imagined a worst-case drilling accident could cost more than $50 billion dollars,”
West said, but the playing field has changed. And independent operators may not have the capital to meet new government requirements. To be able to manage some of the financial responsibility levels required, companies will have to have a net worth greater than most of the independents have.
So what if the independents leave the Gulf of Mexico?
The fact is that independents are very important – much more so than many understand, West said. They have a lower threshold for discovery and investment. And because independent operators have taken over a significant number of maturing fields, they have helped to keep production numbers up by extending brownfield life when supermajors divested themselves of these assets as production rates began to decline.
“When a company like Murphy, Devon, or Noble comes into question, you can see this is a real challenge,” West said, explaining that a whole sector of operators could be wiped out. “This is extremely dangerous for development in the Gulf of Mexico.”
What happens in the Gulf of Mexico has global repercussions. West listed several examples of regulatory responses outside the US, including short-term moratoria on permits in Norway and delays on Arctic licensing in Canada and deepwater licensing offshore Mexico. Banned areas were extended offshore Italy, where drilling within five miles of the coast is not permitted. And Norwegian opposition to exploration near Lofoten has grown. Several countries have imposed stricter enforcement and heavier fines, and there have been changes in operating procedures.
The long and the short of things is that the world has changed, and the industry is going to have to find a way to demonstrate its ability to contain a spill. So far, no company has satisfactorily demonstrated this ability, West said. Until this considerable stumbling block is removed, E&P activity in the Gulf of Mexico (and elsewhere) cannot return to normal.
There are a lot of questions that remain to be addressed.
“How can the level of risk be demonstrably reduced?”
“Will large and small players share their expertise, risks, and opportunities?”
“If this sharing does not happen, what will happen to the small players in the Gulf of Mexico?”
And finally, “Will Congress fund the BOEMRE adequately to do its job so that activity can resume in the Gulf of Mexico?”
These are all very critical questions.
The problem for the industry is that for the time being, there are far more questions than answers.
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