Oil and gas companies Friday began shutting down 33
oil-exploration rigs operating in deep water in the Gulf of Mexico in
response to government demands while bristling at the prospect of the
six-month drilling ban.
The ban won't hurt domestic oil and
gas production in the short-term, analysts said, but it provoked an
outcry among energy companies and suppliers that operated in the
region and raised the spectre of long-term production declines.
Offshore production in the Gulf of Mexico accounts for about
one quarter of U.S. oil and gas production.
The drilling
moratorium threatens new hardships for the hundreds oil-service
companies, already hurt by the recession, that supply the
steel-tubing, engineering services, drilling crews and marine supply
boats critical to offshore exploration.
This week, shares of
service firms Baker Hughes Inc. and Schlumberger Ltd. declined 8.8%
and 7.2%, respectively, while contract-driller Noble Corp. fell 10%.
Deutsche Bank energy economist Adam Sieminski said Friday the
drilling pause ordered by President Barack Obama will cut oil
production next year by 160,000 barrels a day, or about 8% of Gulf
production.
Exxon Mobil Corp., Chevron Corp., Royal Dutch
Shell PLC, Marathon Oil Corp., Statoil ASA, Eni Spa and Anadarko
Petroleum Corp. were conducting exploratory drilling in the area
where the halt was ordered, the Minerals and Mining Service said.
Mr. Obama on Thursday ordered rigs operating in the deepwater
Gulf to stop drilling and banned further exploration in the Gulf for
six months. The measures are believed to be the first step toward an
overhaul of offshore drilling laws.
Among oil producers,
Chevron is one of the most exposed to the drilling ban. It warned an
offshore-drilling moratorium extension will have a "lasting"
negative impact in the U.S. economy and the nation's efforts to
enhance energy security.
Chevron has staked much of its
production growth on exploration in the region. "We believe
responsible drilling should be allowed to continue," said
spokesman Mickey Driver.
The drilling halt, which includes
offshore Alaska and Virginia, underscores the long-lasting impact the
Deepwater Horizon explosion, now the worst oil spill in U.S. history,
could have for the global oil industry. Major oil companies consider
the deep waters of the Gulf of Mexico a prime area for growth. It
stands as one of the last oil-rich areas still open to investment,
near existing infrastructure and subject to a stable tax regime.
In
2007, production in waters greater than 500-feet deep provided 70% of
the oil and 36% of the natural gas from Gulf of Mexico. The 20
most-prolific producing areas in the Gulf are located in such waters,
according to the American Petroleum Institute, an industry group.
Energy consultancy Wood Mackenzie said the development of
several oil discoveries in the area could be jeopardized by delays
and substantial cost increases resulting from potentially stricter
safety regulations. The delays and higher costs could defer as much
as 19%, or 350,000 barrels of oil equivalent a day, of projected
deepwater Gulf production in 2015 and 2016, it said.
The
consultancy also estimates that a 10% increase in overall capital
expenditure would put several discoveries close to, or below, the
profitability rates required to proceed with a project, according to
the report.
Officials from states where energy is a large
part of the economy joined with trade groups in warning of the
consequences of an indefinite drilling suspension.
Senator
John Cornyn (R., Texas) said, "Further hindering domestic energy
production will lead directly to job losses, lost revenue and higher
fuel prices for all Americans."