The federal government has decided to lift its deepwater drilling moratorium in the Gulf of Mexico (“GoM”), weeks ahead of its scheduled late-November expiration. The Interior Department, which oversees offshore drilling, stressed that the newly issued technological and safety reforms for offshore drillers – that is expected to cut the risk of another disastrous blowout and oil spill – was the main reason for the early termination of the freeze.
As a reminder, on April 20, offshore driller Transocean Inc’s (RIG) ultra-deepwater Horizon drilling platform, contracted to British major BP plc (BP), sank following an explosion while operating in the U.S. GoM off the coast of Louisiana. The incident killed 11 workers and spewed more than 200 million gallons of crude in what is touted as the worst oil spill in U.S. history. Subsequently, a six-month moratorium (which was supposed to be in place till November 30) was imposed on offshore drilling in the region at water depths of more than 500 feet.
Late last month, the Obama administration laid down stringent standards for equipment and technology used in offshore drilling, which includes cementing, blowout preventers and well design for offshore oil and gas projects. The new rules will require companies to get independent certification of the safety of their rig operations. Additionally, the firms will have to have plans in place for recognizing potential hazards to help prevent human errors in all phases of activity, starting from well design and construction to operation, maintenance and decommissioning.
This end of the deepwater drilling ban comes as welcome news for energy industry officials, who had repeatedly urged the White House to lift the freeze ahead of its planned cessation. They argued that the six-month ban was having a devastating effect on the region’s economy and called the moratorium needlessly broad.
However, despite reopening of the deepwater Gulf waters, it could be weeks or months before exploration resumes, as participants will have to first comply with the just-imposed safety rules and then get approval from federal regulators for new deepwater wells.
Nevertheless, the news comes as a relief for offshore drillers such as Transocean, Diamond Offshore (DO), Noble Corp (NE) and Ensco plc (ESV), which saw their revenue and profitability slide on the back of the potential fallout of the GoM incident.