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Drilling Ban May End Sooner Than Six-Month Plan, Interior's Salazar Says

The Obama administration’s six-month shutdown of 33 rigs to overhaul offshore drilling regulations might end sooner than planned, Interior Secretary Ken Salazar told a Senate committee today.

The U.S. is conducting a “thorough environmental analysis and scientific study” of offshore drilling after BP Plc’s Gulf of Mexico well blew out, causing the worst U.S. oil spill, Salazar told the Senate Energy and Natural Resources Committee. President Barack Obama ordered a six-month halt on drilling in waters 500 feet and deeper while a commission investigates.

The pause has come under fire from lawmakers in coastal states who say thousands of jobs will be lost and oil industry executives suggesting the U.S. will become more dependent on foreign oil. Senator Mary Landrieu, a Democrat from Louisiana, said 330,000 jobs may be at risk in her state.

“We have a six-month moratoria in place based on the requirements of the commission,” Salazar told reporters after the hearing. “If the commission were to report earlier, that might change. It’s a situation that will we assess as we move forward and will adjust accordingly.”

An April 20 explosion aboard the Deepwater Horizon drilling rig leased by BP unleashed oil that is washing ashore from Louisiana to Florida. New wells in 500 feet of water or deeper have been shut while safety and environmental rules are developed. Wells producing oil and natural gas may continue provided they verify compliance with safety regulations.

Third-Party Verification

Oil and gas companies drilling in the Gulf’s shallow waters yesterday were told they must get an independent third party to verify that devices to stop spills work.

“Significant additional” safety requirements will be imposed, particularly for blowout preventers, Salazar said. “Our reorganization is not cosmetic.”

Salazar said the moratorium is “the pause button, it’s not the stop button,” and companies working in the Gulf of Mexico, which accounts for 30 percent of U.S. oil-and-gas production, have continued to pump oil since the explosion.

“Production continues in the Gulf of Mexico,” Salazar said. “There has been very little interruption because of the Deepwater Horizon in production.”

The U.S. yesterday slashed its oil-production forecast from federal leases in the Gulf by 6.1 percent for this year, citing the moratorium. Output will be about 26,000 barrels a day less, on average, than forecast in the fourth quarter, based on preliminary estimates, the Energy Department said today in its Short-Term Energy Outlook.

Jobs At Risk

Louisiana Governor Bobby Jindal last week said the moratorium will cost as many as 20,000 jobs in his state in the next 12 months to 18 months during “one of the most challenging economic periods in decades,” according to a letter to Obama. Each drilling platform idled by the ban puts 1,400 jobs at risk, according to the National Ocean Industries Association, a Washington-based group for drillers and companies that support oil production.

At today’s hearing, Landrieu raised the estimate to 330,000 jobs.

“This could be devastating to our state and the Gulf coast,” Landrieu said.

Mississippi Governor Haley Barbour said the drilling ban will increase U.S. dependence on foreign oil. Barbour on June 6 endorsed Jindal’s call to resume offshore drilling in the Gulf.

“The jobs are a concern to us,” Salazar said. “But we want to make sure that as outer continental shelf development takes place, it’s done in a safe way.”

MMS Overhaul

Since the explosion, two officials at the Minerals Management Service, the Interior Department unit that oversees energy production on federal lands and waters, have resigned. Salazar said the agency is being revamped to avoid “perceived and real conflicts of interest.” The MMS is charged with promoting oil and gas production, collecting royalty fees that have reached $13 billion annually, and enforcing safety regulations.

Salazar has also asked Congress for legislation creating a new agency to replace the MMS, which was created in 1982 through an order by former Interior Secretary James Watt. The law would let Congress develop safety regulations for offshore drilling much as it does for nuclear reactors, said Kevin Book, a managing director at ClearView Energy Partners LLC, a Washington-based policy analysis firm.

“It’s not small,” Book said. “If it is actually as strict as the Nuclear Regulatory Commission, then the pace of drilling will slow markedly.”

To contact the reporter on this story: Jim Efstathiou Jr. in Washington at jefstathiou@bloomberg.net

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