Obama: Stop Crying Over Undrilled Oil

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(Obama offshore drilling moratorium story updated for Total, Noble, Exxon Mobil comments)

NEW YORK (TheStreet) -- President Obama had something to say this week to the oil and gas industry lobby groups that have cried foul for months over the Obama administration's offshore drilling moratorium: Quit crying.

The White House released on Thursday a review of the impact of the offshore drilling ban that suggests the huge job losses in the Gulf region that were feared did not materialize, nor did the massive economic damage that some predicted. On the same day, top management from many of the major oil and gas companies were speaking at a Barclays Capital conference and presenting a less benign view of the Obama administrations actions to control drilling in the Gulf of Mexico.

President Barack Obama's moratorium on deep-water drilling -- implemented after the BP oil spill -- is costing no more than 8,000 to 12,000 jobs, as offshore rig operators have retained skilled workers during the suspension, according to the Obama administration report.

The White House report states that the average number of rig workers fell by about 2,000 and spending by drillers declined by $1.8 billion since the drilling ban began in May.

There have been many predictions of job losses in the tens of thousands, and even the Obama administration had predicted that the drilling ban would lead to 23,247 lost jobs. It turns out, according to the Obama administration analysis, that even with drilling at a halt, rig workers were not laid off by major drilling operators.

This isn't to say that the major drillers have not been significantly impacted by the drilling ban. Just this week, the latest batch of fleet reports from the major offshore drillers showed more rigs moving out of the Gulf of Mexico. Updated fleet reports from Transocean and Diamond Offshore both showed rigs being moved to international locations due to the drilling ban in the Gulf of Mexico.

In addition, the battle between oil and gas exploration companies and offshore drillers over contract termination due to the drilling ban persists. Diamond Offshore noted in its fleet status update that it is currently embroiled in a fight with Anadarko Petroleum over cancellation of a contract by Anadarko invoking the force majeure clause.

The financial impact to some stocks dependent on drilling activity for contract work may not be as severe as originally predicted, either. Halliburton management told analysts and investors at the Barclays Capital energy conference on Thursday morning that the earnings impact from the Gulf of Mexico oil spill would be at the low-end of its previously provided guidance of a 5 cent- to 8 cent-per-share earnings hit in third and fourth quarter of this year, according to Briefing.com.

Indeed, it raises the question, Will Gulf of Mexico drilling operations get back to normal sooner or later? Take our poll below to see what TheStreet thinks. 

The number of Transocean deepwater rigs that have left the Gulf of Mexico reached four this week. Transocean currently has 11 deepwater rigs in the Gulf, even though 30 are under contract for Gulf of Mexico contracts. Transocean's shallow-water rigs were also suffering from a job lull, the latest fleet report revealed. In fact, recent evidence has suggested the drilling ban and stricter regulations from the federal government have hit the shallow water oil exploration market also, even though it is technically covered by the drilling ban.

The White House report was released ahead of a hearing of the Senate Small Business and Entrepreneurship committee scheduled for Thursday, and headed by Senator Mary Landrieu of Louisiana, who had been among those leading the rhetorical high ground against the drilling ban when it was first enacted.

"There is no evidence of declining employment after the moratorium was announced," the White House report states.

The new report projects up to 12,000 temporary job losses in the region, almost half the original prediction from the government, and that the jobs will not be permanently lost, but resume after the end of the drilling ban.

"Contrary to the worst-case assumptions in prior studies, many deepwater drilling operators and contractors have kept most of their employees on payroll.... Earlier studies assumed that these employees would have been let go," the report states.

The issues for oil and gas companies in the Gulf of Mexico in the post-BP oil spill era are much more significant than just a tally of actual jobs lost versus predicted job losses.

The White House can make the claim that the oil industry's rhetoric in the wake of the drilling ban was hyperbolic in the case of jobs, but activity in shallow water drilling hasn't returned to normal, due to new permitting requirement, and shallow water was not even part of the drilling ban. The drilling ban is to be lifted in November, but energy companies say the impact will be felt for years to come.

Readers of TheStreet were none too happy about the attempt by the White House to reduce the drilling ban debate to a jobs lost tally.

One reader wrote, "The reason that job losses have not been as big, is that drilling companies are holding on to their employees because they cannot afford to lay them off and risking losing them after they spend so much time training them. But make no mistake, these companies are suffering major losses holding on to employees without any new drilling permits being awarded. How long can these companies afford to do this? Pretty soon, they will have to take their rigs to other parts of the world."


One reason that oil companies in the Gulf have not moved quicker to abandon Gulf operations, as noted in a Reuters piece, is because generous tax incentives would be forfeited.

Another reader commented to TheStreet, "the minimization of 12000 jobs lost is somehat misleading. Yes the drilling companies have kept most of their people on but the knock on affect of not drilling is affecting a far greater number than 12000. The true figure would easily be triple that. Every rig that leaves the GOM does not take its mostly American crews with it, every rig leaving or not working does not employ the hundreds of contractors who help support the operations. Those lost wages cannot support the communities they come from."

Halliburton's comments at Thursday's Barclays Capital CEO Energy-Power conference about the earnings impact quantified the immediate hit from the new era of drilling in the Gulf of Mexico. Yet at a larger level, the new regulatory regime could create significant delays for operators in the Gulf.

Noble Energy management said at the conference that its exploration program in the Gulf of Mexico won't resume until later in 2011 due to new permitting requirements, according to a report on Reuters. Also speaking to Reuters, the CEO of Seadrill said that recovery in the Gulf was "years away." The Seadrill CEO predicted a two years delay until things are back to normal in Gulf of Mexico drilling operations.

In an interview with the Wall Street Journal Total CEO Christophe de Margerie said oil companies are facing 20% higher costs in drilling in the Gulf of Mexico due to expected permitting delays.

The view wasn't all "Gulf half empty" from major oil executives, though, with Exxon Mobil and Anadarko Petroleum management saying that their companies were ready to get back to work in the Gulf the moment the drilling ban is lifted.

The court wrangling over the Obama drilling ban isn't going away either. Interior Secretary Kenneth Salazar was ordered by a court this week to hand over documents to oil companies that have challenged the ban, after a court agreed that the government issued the second drilling ban - after a court had overturned the first ban - without considering new evidence.

U.S. Magistrate Judge Joseph C. Wilkinson Jr. ordered Salazar to turn over the 8,000 pages of documents after reviewing a complaint made by Ensco and other oil companies.

The latest claims from the White House about the limited impact of the drilling ban come just as BP's relief well has intercepted the Macondo well. Within days, the Macondo well should be sealed for good. Yet the counter arguments in court and at industry conferences about the impact on Gulf of Mexico drilling to be felt for years to come isn't an issue soon to be sealed.

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