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Economic Damage of Drilling Ban May Dwarf Oil Spill

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July 12 (Bloomberg) -- The economic damage from the BP Plc spill in the Gulf of Mexico will be dwarfed by the Obama administration’s moratorium on deep-water drilling, the chief executive officer of a New Orleans business group said.

The six-month drilling ban, which the U.S. Interior Department revised today following lawsuits from local businesses, may affect as many as 24,000 jobs in Louisiana, Michael Hecht, president and CEO of economic-development group Greater New Orleans Inc., told a presidential commission today.

“Rigs were starting to leave” to drill in other nations, Hecht told reporters after testifying to the commission created by President Barack Obama last month. “The economic impact from the oil spill itself, however broad and long-lasting, will likely be dwarfed by the impact from the moratorium.”

Diamond Offshore Drilling Inc., the largest U.S. deep-water oil driller, plans to move two rigs from the Gulf because of the moratorium and regulatory uncertainty, President and CEO Larry Dickerson told the commission. The CEO of Oceaneering International Inc., a service provider for offshore drillers, told the commission that more companies may follow.

“The longer the moratorium and the regulatory uncertainty, the more rigs will leave,” T. Jay Collins said. “As rigs leave the Gulf of Mexico, the Oceaneering jobs will follow.”

New Moratorium

The U.S. temporarily halted drilling in May to give the commission time to study improvements in the safety of offshore operations following the April 20 explosion on the Deepwater Horizon drilling rig that triggered the largest oil spill in U.S. history. The administration revised the order to comply with a preliminary injunction that lifted the ban after more than a dozen offshore service and supply companies sued.

The main changes to the ban announced by Interior Secretary Kenneth Salazar today focus on “drilling configurations and technologies” rather than on water depths. The new moratorium, which lasts until Nov. 30, applies to most deep-water drilling operations, including those that use subsea blowout preventers, the Interior Department said in a statement.

The government said some companies may be able to resume drilling sooner if they meet certain safety standards.

“Whether you call it a moratorium, a suspension, a pause, the result will still be substantial loss of jobs,” Senator Mary Landrieu, a Louisiana Democrat, told the commission. “Even the revised moratorium will force thousands of hardworking Louisianians and others in the Gulf Coast to the unemployment line.”

The New Normal

Landrieu told the panel that idling the 33 drilling rigs in the Gulf could affect as many as 46,000 workers.

The moratorium may reduce local payrolls by almost $2 billion and cause “almost unfathomable” damage to state and local government finances, Landrieu said in a friend-of-the-court brief to the lawsuits on July 2. In Louisiana 320,000 direct and indirect jobs depend on drilling, as do engineers in Houston, according to the filing.

Diamond Offshore, based in Houston, had 10 rigs operating in the Gulf of Mexico at the time of the rig explosion, Dickerson said.

“It is not possible to retain our assets idled with an uncertain return to work,” Dickerson told the commission. While new regulations are necessary, oil companies should be allowed to drill in the interim to protect a “high-tech, high-wage” U.S. industry, he said.

“We understand we cannot just return to normal,” Dickerson told the committee.

Worse Than Katrina

The Interior Department made its announcement as the National Commission on the BP Deepwater Horizon Spill and Offshore Drilling held its first hearing in New Orleans. Created to investigate the spill and make recommendations on offshore drilling regulations, the commission spent the day hearing testimony on the economic impacts of the spill.

“This will exceed the Katrina or the other hurricanes we have had in the past decade,” Bob Graham, co-chairman of the oil-spill commission, said in an interview today regarding the economic effects of the oil spill. “It will be much longer lasting. A hurricane comes in 24 hours. It is gone.”

“We do not know how long this will go on,” Graham said.

One of the biggest questions for the commission is whether the Deepwater Horizon drilling rig is an “outlier,” Graham, a former senator from Florida, told reporters before the hearing.

“Was it an oil rig that was outside the normal standard of safety or was it representative of other rigs?” Graham asked.

The commission is also looking into whether federal agency oversight is sufficient. The review will include this year’s reorganization of the Minerals Management Service, the industry’s principal regulator.

‘Staggering’ Losses

The damaged Macondo well has been gushing as much as 60,000 barrels of oil a day, according to government scientists, after the initial explosion killed 11 workers and sank a $365 million Transocean Ltd. rig being leased by BP. London-based BP had spent about $3.1 billion on containment efforts, cleanup and legal claims as of July 6, according to company data.

Sal Sunseri, owner of the P&J Oyster Co. of New Orleans, said the spill will have a lasting impact on his industry, which he called a “critical component” of local culture.

“The oyster doesn’t move around much” and can’t avoid the oil like fish can, he said. “I don’t see a future in the oyster business as it once was,” he said.

For Florida, negative perceptions are causing more damage than the actual oil, said Keith Overton, chairman of the Florida Restaurant and Lodging Association in Tallahassee and vice president of TradeWinds Island Resorts in St. Pete Beach.

Overton said call volume of potential visitors has fallen 25 percent, even though no oil has showed up on beaches in the Tampa Bay area. Lost revenue from the spill will be “staggering,” he said.

To contact the reporter on this story: Jim Snyder in New Orleans at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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