Drilling Ban On Despite New Rules - Analyst Blog

The federal government unveiled new regulations for offshore drillers and decided to keep its deepwater drilling moratorium in the Gulf of Mexico (GoM) in place for now, according to a release by the Interior Department.

In a bid to ensure safety and tackle the regulatory loopholes exposed by the Deepwater Horizon rig explosion, 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 – that comes into effect immediately – 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 on all phases of activity, starting from well design and construction to operation, maintenance and decommissioning.

The Interior Department – which overseas offshore drilling – stressed that the newly issued technological and safety reforms are an important step toward reshaping the U.S. offshore drilling industry and the resumption of deepwater oil and gas exploration. Despite the new guidelines, the department is holding firm on the moratorium and has vowed to lift it only after being comfortable that risks have been significantly reduced.

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 is in place till November 30) was imposed on offshore drilling in the region at water depths of more than 500 feet.

Energy industry officials, while approving the safety rules, again urged the White House to lift the freeze ahead of its scheduled late-November expiration. They have repeatedly argued that the six-month ban was having a devastating effect on the region’s economy and called the moratorium needlessly broad.

The new government rules will allow offshore oil producers such as BP, ExxonMobil Corp. (XOM), Anadarko Petroleum Corp. (APC), and Royal Dutch Shell Plc (RDS.A) to get a feel of the regulatory backdrop that they will come across. Drillers such as Transocean, Diamond Offshore (DO), Noble Corp (NE) and equipment manufacturers like Cameron International Corp. (CAM) will also have to adhere to the stricter guidelines.