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BP Commission Hearings Will Set Tone For Offshore Industry’s Future

The Federal Register recently contained a notice that the first meeting of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling will hold its first meeting in New Orleans next Monday and Tuesday, July 12 and 13.  The meeting will hear from invited speakers and provide about three hours of time for the public to comment with the focus of the meeting being on the economic impact of the oil spill.  Eventually the National Commission will delve into the question of how the Deepwater Horizon accident occurred, which will involve assessing the risk presented by the well BP was drilling and its approach to abandoning (shutting in) the well.  Presumably, the insight to the accident’s cause will enable the National Commission to comment on the need for continuing the current deepwater drilling moratorium that is being litigated and which may be replaced by a replacement moratorium that will not be quite as restrictive.  An outcome of the National Commission’s recommendations will be proposed changes to regulations governing well permitting, design, drilling and completion activities.  The key problem for the offshore energy industry is the uncertainty about how long it will take for the National Commission to reach any conclusions and recommendations.

 

What we do know is a critical issue in the investigation of the accident will be the removal and examination of the Cameron International blowout preventer (BOP) that failed to shut in the well.  Until BP’s Macondo well is plugged and the oil flow stopped, removing the BOP cannot happen.  Then there will be time needed for an examination of the device to try to assess exactly what happened as the well was blowing out.  How long might that take?  Given the litigation already underway over the blowout, the sinking of the Deepwater Horizon rig resulting in 11 deaths and the oil spill economic damage, one has to assume the examination process will take a longer than normal time.  Lawyers will have a lot to say about the timing of the process. 

 

With prospects that the deepwater drilling moratorium, in one form or another, will remain in place until at least the end of 2010, oil and oilfield service companies will have to make business judgments about shifting spending and capital assets from the Gulf of Mexico.  Will all the offshore rigs in the Gulf move abroad?  How much of current Gulf spending will be shifted to onshore oil and gas prospects?  Will all the spending either go abroad or remain unspent?  The answers to these questions will have large impact on the future course of the domestic energy business, energy company employment and the profitability of domestic energy companies.  All of these trends will have a bearing on Houston’s jobs outlook and the future of the local economy.  A significant impact may be felt in the Houston area housing market.

 

We recently saw a forecast calling for Houston housing prices to fall by 4.5% in 2010 after holding firm in 2009.  As pointed out by a Houston Chronicle news story in April, the local housing market had fallen by 2% in 2008, the first decline in 14 years.  Now, however, it looks like the economic recession is beginning to have a greater impact on Houston’s economy and if the offshore energy industry shrinks dramatically as could be the outcome from the National Commission investigation, our economy could be in worse shape than currently anticipated.  For those of us who lived through the 1980s oil industry depression, shrinking the Gulf’s offshore energy business is not likely to have as negative an impact on Houston’s economy, but it won’t help and will inflict pain and suffering on many families.