US Interior Department slows down permits for shallow drilling

Fewer licenses have been issued for shallow water oil drilling in the U.S. in the aftermath of the Gulf of Mexico oil spill, though the government slapped a moratorium only on deep water drilling.

Oil and gas firms operating in shallow waters are also being impacted by the regulatory and legislative response to the oil spill, even though the catastrophe occurred while BP was drilling a deepwater well, says a report by the International Oil Daily.

The US Interior Department is processing and issuing new drilling permits for shallow water oil and gas exploration projects at a far slower pace than it has in the past, says the report which quotes officials of an offshore drilling contractor.

The newly established Bureau of Ocean Energy Management has issued just under two dozen permits in the months following the accident, the report said, quoting John Rynd, chief executive of drilling contractor Hercules Offshore.

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As many as 87 permits had been issued between January and April this year. “We currently have 48 marketed rigs in the Gulf of Mexico and there’s 14 idle,” Rynd said, adding that Hercules may soon have to make a “tough decision” to lay off workers.

The department has adopted various measures to boost safety of wells. For example, it has tripled the length of environmental reviews required for individual drilling projects to 90 days, from 30 days in the recent past. The US Interior Department also said it plans to issue fewer “categorical exclusions” — waivers intended to prevent duplicative environmental reviews for companies seeking offshore drilling permits, according to the report.

Although this measure will create more paperwork for companies, some industry observers are hopeful that it could, ironically, make the department feel more comfortable about issuing permits.

The Interior Department’s current moratorium on deepwater drilling is also affecting some shallow-water operators because it has suspended the work of “floating” rigs — which are typically used in deepwater areas but are also employed in some shallow locations.

The report says reforms of offshore regulations are also under discussion in the US Congress, where the House of Representatives has already passed a bill that would abolish a $75 million cap on claims for economic damages caused by oil spills and impose new fees on offshore operators.

Although shallow-water operations are considered safer and less risky than deepwater exploration and production, introduction of unlimited liability could make it difficult for some smaller firms to obtain the insurance coverage they would need to continue operating in the Gulf of Mexico, it points out.