Greater New Orleans, Inc.,
outline of the effect of last year’s drilling permit moratorium
In his January State of the Union address, President Barack Obama told Americans that his administration is going “all out” to beef up domestic energy production. Obama also announced his commitment to justice in making BP accountable for the April 20, 2010 Deepwater Horizon rig explosion and months-long oil gusher into the Gulf of Mexico.
The administration’s moratorium on deepwater drilling, which went in place in the days following the explosion, ended in October 2010. During those six months, the government approved no new permits. Now the Bureau of Ocean Energy Management (BOEM), the agency responsible for issuing drilling permits, isn’t doing it fast enough, according to coastal officials. Last year, U.S. Rep. Jeff Landry and U.S. Sen. David Vitter made their outrage public and engaged in a political parlay with Michael Bromwich (then director of the Bureau of Ocean Energy Management, Regulation and Enforcement [BOEMRE]) to demand swifter permit approvals. (In October 2011, BOEMRE split into BOEM and the Bureau of Safety and Environmental Enforcement.)
Of course with those permits come jobs — not just for the contract-holding oil companies and rig workers, but for suppliers, dock workers, engineers, caterers and dozens other peripheral and “indirect” employees and businesses. While larger companies can take their drilling operations elsewhere to more profitable, less volatile oil markets, Greater New Orleans Inc. (GNO Inc.) argues many small and mid-sized businesses that can’t do that are getting the shaft . More than 1,777 small businesses in the oil and gas industries stand to make $4 billion in annual revenue and potentially employ more than 9,000 employees, according to GNO Inc., which released a report Jan. 30 outlining what it calls the “hidden victims” of the moratorium.
GNO Inc. is southeast Louisiana’s regional economic development group, and its three previous reports — examining the BP disaster’s effect on fisheries, local economy and Louisiana’s “brand,” respectively — were funded through a U.S. Department of Commerce grant. Whereas those reports studied the effects from the BP disaster, the group’s latest self-financed report looks at what it says are the lingering effects of a federal policy: the drilling moratorium.
Though the moratorium ended in late 2010, officials routinely call the business dropoff a “permatorium.” Post-moratorium, federal agencies approve an average of two deepwater drilling permits a month — compared to the average of seven approved permits per month before the disaster, which GNO Inc. tallied in its Gulf Permit Index. (In 2009, an average of 5.8 deepwater permits and 7.1 shallow water drilling permits were approved each month.) Approval time also decreased, from an average 60-day waiting period to, in 2011, more than 100 days. BOEM refuses to speed its processing without a firm commitment from the oil industry on drilling safety. This June, a Gulf oil lease sale will open 38 million acres of Gulf waters to resume drilling.
The report (“The Impact of Decreased and Delayed Drilling Permit Approvals on Gulf of Mexico Businesses”) isn’t based on a scientific model — instead it gathers data from 102 Louisiana-based companies that completed a 17-question online survey created by GNO Inc.
“Our hypothesis was there might be … essentially ‘hidden victims,'” says Michael Hecht, president and CEO of GNO Inc. “It was more severe than we even expected. We thought there’d be some impact from the ongoing slowdown. We didn’t expect to see these types of … drops.”
Marine services and ship owners and operators each accounted for 29 percent of the surveyed businesses. More than 40 percent that responded said they’re not making a profit, of which 76 percent say they’ve lost cash reserves. Half of respondents reported laying off employees, and 82 percent say they’ve lost personal savings — of which 13 percent say they have lost all their personal savings. To stay afloat without any new work in the Gulf, these businesses are dipping into savings accounts, cutting workers’ benefits or moving out of the Gulf entirely. Hecht says companies are reluctant to lay off employees, fearing a swifter recovery or a diminished talent pool could mean a death blow.
GNO Inc. notes, however, “businesses that were negatively affected by the moratoria (were) more likely to participate than those that experienced no effect or positive effects.”
Businesses feeling positive effects did respond: four businesses reported more than 50 percent increases in their cash reserves, while 13 total reported an increase — more than 10 percent of respondents.
“In any type of crisis situation, there are going to be some companies that are strategically and or financially positioned to actually take advantage and benefit from the situation,” Hecht says. “For a minority of companies on the Gulf, that’s undoubtedly the case.
“The real issue here to me is not that you have some companies winning and some companies losing, but those winners and losers are not driven by natural market forces but by a policy. … That’s not efficient, and it certainly shouldn’t be the role of government to pick winners and losers.”
That will be the group’s battle cry as it takes its findings from the report on the road. GNO Inc. plans to use the report to lobby for legislation that speeds approval rates in the name of energy independence and energy security. GNO Inc. will meet with BSEE director James Watson and members of Congress as it expands its survey program to partnering organizations in Houston and Mobile, Ala.
Jefferson Parish President John Young and Plaquemines Parish President Billy Nungesser also have leaned on the study to criticize the Obama administration’s slow approval process — Nungesser also is a member of GNO Inc., along with John Hollowell, executive vice president of Deep Water Shell Oil Energy Resources Company; and New Orleans maritime attorney and oil spill litigator Walter Leger Jr., among others.
Energy independence and energy security are causes Louisiana politicians of all stripes dare not dispute, especially when the state is poised to receive billions from oil and gas industries in the coming years as businesses come back online from the effects of the post-moratorium market. On Feb. 1, The Times-Picayune published an editorial demanding the Obama administration open more of the Gulf of Mexico to exploration and production, and another, citing the GNO Inc. report, calling for the administration to produce a faster, more efficient process for approving drilling permits. (“The slow permitting process is asphyxiating many of these firms and stunting Louisiana’s recovery,” it claimed.)
Though the GNO Inc. report doesn’t make any policy recommendations in its conclusion, Hecht says they’re “fairly obvious.”
“This is really about education,” he says. “We hope our role is first and foremost to bring objective, reliable analysis to light so policymakers, politicians, the media, and the public can process the information and act in a more informed way.”
Dan Favre, communications director for the Gulf Restoration Network, hesitates to support another gold rush to deepwater drilling. “Rushing back to business as usual in the Gulf before proper safeguards are put in place to prevent another disaster like BP’s in the future … would be a huge disservice to the victims of the disaster,” he says.
Hecht argues that the oil and gas industry has made significant safety and cleanup improvements. “The country needs to weigh the risks and benefits of producing our own energy versus relying on regimes in an increasingly unstable Middle East for that energy. … Energy exploration is never going to be entirely risk-free.”
Favre points to nonprofit assistance groups and programs like the Rig Worker Assistance Fund, initially designed to support rig workers and later expanded to peripheral business employees, like those reflected in the GNO Inc. report. The assistance fund received too few applications, and funds were not made available to businesses.
“When you have a policy and a bureaucracy driving this phenomenon, it seems the best answer is to modify the policy and improve the bureaucracy, rather than put in some compensation mechanism,” Hecht says. “In theory, you could help address this by coming up with some type of fund to help compensate for revenue decline. But the much simpler and effective answer is to allow these companies to get back to work under normal conditions.”