US offshore drilling rules 'to cost oil firms $34b'

CHICAGO • The world's top oil explorers are fighting a United States plan to tighten offshore drilling rules, which Exxon Mobil says will cost US$25 billion (S$34 billion) over 10 years and render many offshore discoveries worthless.

The administration is expected to issue the sweeping new regulations, said a person familiar with the decision, as part of efforts to reduce the number of well blowouts following the explosion aboard the Deepwater Horizon rig in 2010.

The government says the rules will cost less than US$1 billion.

The changes would come amid the worst oil slump in a generation. ConocoPhillips and Chevron have already abandoned some Gulf prospects because they would not be profitable at current prices.

If the proposals are enacted, exploration outlays in the Gulf will tumble by 70 per cent over the next two decades, wiping out as many as 190,000 jobs, according to consulting firm Wood Mackenzie.

"The Gulf of Mexico is already in a deep downturn because of lower oil prices," said analyst Robin Shoemaker at KeyBanc Capital Markets. "Oil firms and the service providers are trying to come up with ways to cut costs, so the idea that they can absorb any additional expenses - they're not in that ballpark at all."

The regulations, first proposed last year, have been in the final stage of review by the White House Office of Management and Budget.

The proposals restrict the fluids pumped into wells, require redundant safety devices and stipulate continuous monitoring from shore. The government says the rules are needed because well blowouts have continued to occur at about the same rate seen before the 2010 explosion, which killed 11 people and created a massive oil spill. 

Environmental groups say the new rules do not go far enough to safeguard marine life or the people who depend on it for their livelihoods. Friends of the Earth has called on the government to halt all auctions of offshore drilling leases.

"There's no such thing as safe offshore drilling," said Ms Marissa Knodel, a climate campaigner for the Washington-based group. "Tougher rules aren't going to mitigate the human and environmental costs of allowing more drilling to occur."

At a closed-door meeting last month, BP - the largest driller in the US - said the government had underestimated the time and complexity involved in implementing the rules, ignored the reduced production and stranded reserves that would result, and added unneeded operations that could boost risks rather than decrease them.

The comments came in slides that Exxon presented at the meeting, and were posted on a government website.

The Deepwater Horizon disaster looms large over federal attempts to tighten requirements. The blowout sank a US$365 million drillship, paralysed the Gulf region for months, and cost BP more than US$40 billion in penalties, compensation and restoration costs.

Exxon, in the closed-door meeting with White House and Interior Department officials on March 7, argued the rules would increase the danger of a blowout by wresting decision-making from on-site engineers with decades of experience. 

Other explorers, rig operators and equipment makers who sought and conducted closed-door meetings included Chevron, Royal Dutch Shell and GE Oil & Gas, according to data.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 15, 2016, with the headline 'US offshore drilling rules 'to cost oil firms $34b''. Print Edition | Subscribe