Higher costs, risk lasting legacy of Gulf spill

By David Turner and Emma Farge

LONDON (BestGrowthStock) – The Gulf of Mexico oil spill will push up costs and reduce the number of offshore oil and gas operators in U.S. waters for a long time to come, oil company executives told an industry conference on Tuesday.

More than 4 million barrels of crude oil spewed into the seas off the U.S. Gulf coast after the rupture of BP’s Macondo offshore oil platform in April.

The disaster has led to a moratorium on offshore drilling in U.S. waters and new regulations aimed at permanently reshaping the U.S. offshore oil and gas industry, which industry officials have said will raise costs and could reduce offshore output.

About a third of the world’s oil production now comes from offshore projects and this proportion will increase to about half in 2015, the International Energy Agency says, but that trend has been slowed by the Gulf of Mexico spill.

“A return to drilling in the Gulf of Mexico will not occur until late 2011,” oil and gas banker Michael O’Dwyer of Morgan Stanley said, adding he did not believe offshore activity would be normalized until then, even if the U.S. moratorium was lifted as expected in November.

“Once legislation is passed, pressure on smaller players in the Gulf will inevitably increase. We expect to see a change in the ownership structure in the Gulf with smaller players looking to consolidate and potentially exit,” O’Dwyer said.

Bernard Duroc-Danner, chief executive of Weatherford International Ltd said deepwater oil output across the world would become more expensive, increasing the attractions of onshore energy production including heavy oil and shale gas.


“How many real estate owners can afford to stay in Gulf of Mexico deepwater? The ones that have big balance sheets,” Duroc-Danner told an oil conference. “Do you really think that people who don’t have a very large balance sheet will risk the entire company on human error?”

“It’s likely there will be an ownership shift. A fair amount of properties over a period of time will find themselves on the auction block in the Gulf of Mexico,” he said.

“What will happen to deepwater in general is that it will take more time, it will be more expensive, and will yield, on average, less at a later time,” he said.

David Williams, chief executive of Noble Corp, said 15 to 20 percent of Gulf of Mexico operators, mainly smaller players, might have to leave the region.

Ivan Sandrea, vice-president of international exploration and production strategy at Norwegian state energy company Statoil, said he expected the proportion of oil from offshore production to stay at roughly the same level as previously forecast, but costs would rise.

Deepwater oil production would account for “probably over 30 per cent of worldwide oil growth,” he said.

“We don’t see that the potential for offshore has changed,” Sandrea said. “We do see a higher-cost environment going forward. Taxes, rigs, the lack of equipment will come into play in one form or another.”

“Regulation in the U.S. and other countries will come … more inspection, more certificates, all these kind of things.”

James Pierce, senior executive at insurance broker and risk adviser Marsh Inc said insurance costs would rise.

“It is going to increase the liability burden on those doing business and this will by definition increase costs,” he said.

“One of the unintended consequences of this is that some of the companies presently doing business will take the decision that they can no longer expose their balance sheet.”

(Additional reporting by Tom Bergin and Ikuko Kurahone; writing by Christopher Johnson; editing by Anthony Barker)

Higher costs, risk lasting legacy of Gulf spill