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Oil Firms, Rig Owners Navigate Drilling Moratorium

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Oil Firms, Rig Owners Navigate Drilling Moratorium

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Oil Firms, Rig Owners Navigate Drilling Moratorium

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From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.


And I'm Michele Norris.

Storms in the Gulf of Mexico are forcing BP to temporarily halt drilling a relief well. The well is the final step in what has been a four-month effort to stop oil from gushing into the Gulf.

In the meantime, the debate over drilling policy continues. Tomorrow, a federal judge in New Orleans is scheduled to hear arguments over whether the government's temporary ban on deepwater drilling in the Gulf is legal. The six-month moratorium has cast uncertainty over the Gulf oil industry.

NPR's Tamara Keith reports on what the ban means for the businesses that operate drilling rigs and for the people who work on them.

TAMARA KEITH: Deepwater drilling rigs are huge, expensive vessels. We're talking up to 1,000 feet long with price tags in the several hundred million dollar range. And every day, they cost hundreds of thousands of dollars to operate.

Mr. ROB MACKENZIE (Oil Industry Analyst, FBR Capital Markets): Yeah, we're talking big dollar signs here.

KEITH: Rob MacKenzie is an oil industry analyst for FBR Capital Markets. The rigs are owned by companies like Transocean and Diamond Offshore, who then lease them to oil companies like BP or Chevron. These are long-term contracts that guarantee the rig owners will get paid, say, 400 or $500,000 a day, no matter what.

About 30 rigs are sitting idle now because of the moratorium on deepwater drilling. But the rig owners and their oil company partners are anything but idle. MacKenzie says they're scrambling, negotiating, trying to figure out what to do with these very expensive rigs.

Mr. MACKENZIE: On one hand, you're looking at having no work in the U.S. Gulf of Mexico. On the other hand, you stand to make some money by moving it elsewhere.

KEITH: Some oil companies have renegotiated their contracts to lower rates. Others are looking to move the rigs to other parts of the world. So far, just two rigs have actually left. They're headed for drilling sites off of Egypt and the Democratic Republic of Congo. Eric Smith is associate director of the Tulane Energy Institute.

Mr. ERIC SMITH (Associate Director, Tulane Energy Institute): You already have leases waiting on rigs in West Africa and Brazil and places like that. So you can sit there and say, well, speed this one up and slow that one down and move the rig and keep working.

KEITH: In a way, these massive rigs are like commodities in a pretty small global market. There are fewer than 300 of them around the world. Ken Arnold is a consultant to the oil and gas industry.

Mr. KEN ARNOLD (Oil and Gas Industry Consultant): There's a constant flux in the market depending on the supply and demand of rigs. What we've done is we've all of a sudden dumped a whole bunch of rigs on the market who are available at the right price.

KEITH: According to the firm ODS-Petrodata, day rates on new rig contracts are down since the Gulf oil spill. The market was getting soft even before the spill but Arnold says now it's definitely a buyer's market. Rob MacKenzie, the oil industry analyst, says that hurts the rig owners.

Mr. MACKENZIE: This moratorium is going to, you know, harm the profitability of all of the deepwater drilling contractors around the world.

KEITH: Because of the lower day rates. But he says there's a human cost, too.

Mr. MACKENZIE: Perhaps one of the more tragic effects is the impact on jobs of rig workers in the U.S. As these rigs leave for other markets, some or most of the jobs don't go with them.

KEITH: What's uncertain at this point is whether those two rigs that have left the Gulf are the start of an exodus or just part of the routine movements of an industry that goes where the work is.

Tamara Keith, NPR News, Washington.

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