First rig sails away over drilling ban

Lawmakers and experts fear loss is only the start of offshore exodus By JENNIFER A. DLOUHY WASHINGTON BUREAU July 9, 2010, 8:28PM


WASHINGTON — Diamond Offshore announced Friday that its Ocean Endeavor drilling rig will leave the Gulf of Mexico and move to Egyptian waters immediately — making it the first to abandon the United States in the wake of the BP oil spill and a ban on deep-water drilling. And the Ocean Endeavor's exodus probably won't be the last, according to oil industry officials and Gulf Coast leaders who warn that other companies eager to find work for the now-idled rigs are considering moving them outside the U.S.

Devon Energy Corp. had been leasing the Endeavor to drill in the same region of the Gulf as BP's leaking Macondo well, which has been gushing crude since a lethal blowout April 20. But Diamond announced Friday it will lease the rig through June 30, 2011, to Cairo-based Burullus Gas Co., which plans to send the Endeavor to Egyptian waters immediately.

Devon is one of three companies that has cited the deep-water drilling ban in trying to ease out of contracts to lease Diamond rigs. Diamond, a drilling company, said it expects to make about $100 million from the deal, including a $31 million early termination fee it recovered from Devon. Larry Dickerson, CEO of Houston-based Diamond, signaled that other of his company's rigs could be relocated, too.

"As a result of the uncertainties surrounding the offshore drilling moratorium, we are actively seeking international opportunities to keep our rigs fully employed," Dickerson said. "We greatly regret the loss of U.S. jobs that will result from this rig relocation."

It was unclear how many U.S. jobs could leave with the Ocean Endeavor, but typically more than 100 workers are on the rig at any given time, doing everything from drilling to cooking meals. Onshore, a network of businesses supplies the rigs with groceries, equipment, uniforms and drilling materials.

"It's not unusual for an energy service company to have 1,000 vendors that they buy from or purchase services from," noted Rep. Kevin Brady, R-The Woodlands. As a result, Brady said, the economic damage from the moratorium stretches far and wide. Fearing for investment Brady and other oil-patch lawmakers have been pressing President Barack Obama to end the six-month moratorium he imposed on 33 deep-water projects May 27 after the explosion of the Deepwater Horizon rig that was drilling a well for BP.

Obama said the ban was needed to allow time for new safety standards to be implemented and a commission to investigate the cause of the April 20 blowout at BP's Macondo well. Although the administration on Thursday lost its second bid to keep the ban in place while it appeals a federal court's decision to strike down the moratorium, federal regulators plan to try again with a revised version soon.

Dan Pickering, a financial analyst with Tudor, Pickering Holt & Co. Securities, said the legal uncertainties surrounding the ban - and the administration's plan to issue a new, revised moratorium - ensure that no companies will resume deep-water drilling in U.S. waters anytime soon.

"Are you really going to spend $5 million … getting ready to drill a well that someone would then probably block you from drilling?" Pickering said.

Lawmakers complain Pickering added that prospects are high that a dozen rigs ultimately could leave the Gulf of Mexico because of the ban. Brady said the rig owners are searching for revenue - even if it means relocating to get it.

"There are two types of rigs in the deep-water Gulf today: those that are leaving the country and those that want to, because with this moratorium hanging over their heads, they simply can't go back to work," Brady said. "I'm afraid this is the first of many rigs and many American jobs to leave the Gulf."

Once the rigs relocate, it could be a minimum of five to 10 years before they return, predicted Rep. Pete Olson, R-Sugar Land. "We cannot afford to lose these jobs or the energy they provide," Olson said.
"President Obama should allow this moratorium to remain lifted and let Americans get back to work."

During trading Friday, Diamond Offshore stock fell 86 cents - or 1.32 percent - to close at $64.40. It has fallen 29 percent from its closing price of $91.20 on April 20, the day the Deepwater Horizon exploded.

It looks like President Obama is making this environmental and economic disaster even worse with his ban by effectively forcing oil companies to stop doing business in The US, and taking jobs from Americans.

The ban is, if i remember reading correctly, is only on new wells being drilled. A federal judge in Louisiana has already struck down the ban and refused to keep it in effect while the gov't appeals his decision. And during a hearing the other day before the 5th U.S. Circuit Court of Appeals, a panel of three judges rejected the government’s request to let the ban stand while the appeal is argued. These companies are likely to leave the area, taking jobs, investment and tax dollars with them. They likely won’t return immediately when the drilling ban is eventually lifted, if at all.