Drilling Moratorium Producing Hostility

Jim Brown
Printer Friendly Version

For the last month the hostility in the gulf ports was directed at BP and their failure to halt the oil leak. Over the last week the hostility has started to be redirected towards the Obama administration.

Chett Chiasson, the executive director of Port Fourchon in Louisiana, had a message for President Obama and any American that applauded the administration's decision to halt deepwater drilling, "You just don't get it."

The Louisiana port handles roughly 90% of the service traffic for the gulf's deepwater wells. A six-month moratorium would cripple the port and surrounding towns. Seventeen companies operating 33 rigs have been told to close up shop for at least six months. This is a death sentence for many workers. With the gulf in shutdown mode there will be up to 50,000 oil field workers looking for a job, any job, in order to pay the bills until drilling resumes.

Thousands of other workers on shore would also be affected by the lack of traffic and the lack of activity needed to support the rigs. This includes waitresses, caterers, drivers, welders, equipment boats, inspectors and even clerks at stores like Wal-Mart. When 50,000 highly paid workers are suddenly laid off for six-months a large number of onshore businesses will feel the pain.

The Louisiana Mid-Continent Oil and Gas Association estimates that for every production job lost offshore there will be four jobs lost onshore. The senators from the coastal states sent Obama a letter asking for a resumption of shallow water drilling in order to save 5,000 jobs and $135 million in revenue. As soon as those deepwater workers start showing up in the unemployment line you can bet they will begin to rethink the moratorium decision and support of that decision.

When President Obama visited the gulf on Friday he was constantly asked by the residents and local business owners to reconsider the deepwater drilling ban. In the Times Picayune of New Orleans there was an editorial addressed to the president critical of his efforts to aid the cleanup but also critical of the moratorium.

The article said, "It is not clear, Mr. President, why it will take six months to determine what went wrong on the Horizon and how to remedy safety deficiencies." (It will take six months because that is the time required to get past the November elections. Politicians can claim they are working on this horrible problem. The six-month moratorium is strictly a political move.)

Louisiana Governor Bobby Jindal sent a letter to Obama and Interior Secretary Ken Salazar saying, "During one of the most challenging economic periods in decades, the last thing we need is to enact public policies that will certainly destroy thousands of existing jobs while preventing the creation of thousands more." Louisiana has taken the brunt of the oil damage but still wants drilling to continue ASAP.

President Obama said on Friday he is sympathetic to the concerns over the moratorium and urged the commission investigating the spill to take less than six months to make recommendations. However, in his finest political voice he admonished them saying, "I am not going to cut corners on it." Clearly another political statement calculated to draw support from the voters who want somebody to pay for the disaster.

President Obama has proposed to create new jobs for anyone laid off because of the oil spill. Those new jobs will be in cleanup, restoration, renovation and recovery. If you lost your $100K a year oil job you can go to work cleaning up beaches for $12 an hour. It sounds good in a speech but the devil is in the details.

With local communities already devastated by the shutdown of the fishing industry the loss of the high dollar oil jobs could be too much to bear. Not only fishing but the tourist industry is also shutting down. Nobody wants to take their vacation to the coast only to find a beach covered in oil. These communities are suffering and taking away the lucrative oil drilling business is going to be a serious blow.

Officials are afraid that the big rigs will move overseas or to South America and not come back. Once a move of that magnitude is undertaken it is a two-year minimum before they can return. This means a moratorium can deplete the gulf of rigs and when the moratorium is lifted there will be a lot fewer rigs drilling in the gulf. This is a problem that could cost jobs for years to come. Diamond Offshore has already said that a rig with a cancelled lease is probably headed for international waters. Those jobs, nearly 1,000 per rig including the onshore support, are gone for 3-5 years.

I fear President Obama is so afraid he BP spill will become his Katrina that he is lashing out against the industry without truly understanding the lasting impact the moratorium will cause. His chief of staff has always said, "never let a crisis go to waste." By appearing to react forcefully president Obama is playing populist politics with the lives of tens of thousands of gulf workers. Add in the 200-300,000 bpd of declining production in 2011 as a result and there are real prices to pay for taking "forceful" action just to garner votes.

Jim Brown

This newsletter is only one of the newsletters produced by OilSlick each day. The investment newsletter is also produced daily and contains the current play recommendations in the energy sector. Stocks, options and futures are featured. If you are not receiving the "Play Newsletter" please visit the subscribe link below to register.

Subscribe to Energy Picks Newsletter