Effects ripple from drilling moratoriam


The BP oil spill, which is having a diminishing effect on the Gulf of Mexico's water, continues to wreak havoc on the offshore oil and gas industry and the businesses that service and supply it. Of the 33 deep-water rigs in the Gulf, 24 have been idled by President Obama's moratorium, which was imposed to beef up safety. Several rigs have left for work in other parts of the world.

Less drilling means less business for hundreds of companies from Texas to Alabama, including shipbuilders, repair shops and those that supply boats to service the rigs.

The moratorium's full impact has yet to be felt. Some companies picked up business because many boats were enlisted to work on the spill. Malin was one of them, getting a 20% bump in business, Marston says. But that work is lessening now that the well has been capped.

Boat company Laborde Marine of Morgan City, La., has eight of its 21 boats enlisted in spill response, says Jimmy Skiles, Laborde executive vice president. "It's been pretty good for us," he says. The unknown is how long the moratorium will go and how intense new safety requirements will be for offshore drilling, which may slow projects, Skiles says. "Everybody feels like the hammer is going to fall. We just don't know when."

Safety systems

The government's first moratorium, issued in May, was struck down in June by U.S. District Judge Martin Feldman. He said it failed to take into account safety records of others in the Gulf besides BP. The Obama administration, saying the industry needed more safeguards to contain spills, countered with a narrower moratorium that still has halted drilling on new deep-water wells.

Several companies have sued to have that lifted, too. Federal regulators have said that the latest moratorium, planned to extend until Nov. 30, may be lifted early if companies can show they have more safety systems in place.

Industry executives are cautious. "It's one thing for them to say, 'We'll lift the moratorium.' It's another thing to say, 'We want drilling to resume,' " says Samuel Giberga, general counsel for Hornbeck Offshore Services, which filed one of the first lawsuits against the moratorium.

Dun & Bradstreet estimates that 16,580 businesses in the five Gulf states could be affected by the moratorium. A vast majority of those would be small businesses, the research firm says.

One of those is NREC Power Systems in Houma, La. In June, the engine-repair company laid off 10 of 80 workers to counter lost business as boat owners, expecting to lose work because of the moratorium, delayed service, says Bryan Chaisson. "The oil field is our bread and butter," Chaisson says. "The spill hurt business from Day 1. The moratorium has made it worse."

Other companies have curtailed expansion plans. John Dane, CEO of Trinity Yachts in New Orleans and Trinity Offshore, which makes supply vessels, won't add 200 workers to its 1,000-member workforce as planned. Since the moratorium, Trinity has lost three orders to build supply boats, each worth about $45 million.

The company that curtailed the orders is Harvey Gulf International Marine in New Orleans. Its 350 Louisiana employees recently took a 10% pay cut to avoid layoffs. The company is looking elsewhere for work. For now, three of its 17 vessels are slated for work in Mexico and Nigeria. Normally, they'd be in the Gulf, says CEO Shane Guidry.

Deep-water rigs employ hundreds and lease out for $250,000 to $500,000 a day. Some companies have opted to move their rigs. Last month, Diamond Offshore Drilling started to move two rigs to Egypt and the Republic of Congo. "We must consider alternatives that allow our deep-water assets to remain employed," CEO Larry Dickerson said.

Transocean, the world's largest offshore drilling contractor, has 14 rigs in the Gulf. Several customers are trying to terminate contracts, and others have gotten lower standby rates. The potential loss to Transocean is $2.1 billion, it said last week .

The bet by industry appears to be that the moratorium will be lifted in November and maybe a little sooner, says Philip Weiss, industry analyst at Argus Research. If not, he says, "We would've seen more rigs exit the Gulf."

While bigger players such as Harvey Marine can move assets to follow rigs, other companies can't.

Harbor Offshore Marine in Galveston, Texas, operates a fleet of five smaller boats that service rigs that operate in shallow waters. Government permits for those wells have also slowed.

Hazy future

In July, Harbor bid on one offshore service job. Normally, it would bid on a dozen, says Magen Ortiz, vice president of the 20-employee, family-owned firm. "I don't know what the future holds," Ortiz says.

Companies like Harbor buy supplies from Galveston's Industrial Material. It supplies goods from gloves to pipe fittings and hard hats to industrial customers, including those in the oil and gas industry. Since early June, revenue from energy-sector clients is off 17%, says Jayson Levy, president of the 44-employee company.

To compensate, Levy has cut employees' work hours. The 52-year-old company survived Hurricane Ike, which devastated parts of Galveston two years ago. Levy is confident it'll survive the moratorium. But the company won't be in the same position to grow as it was, he says.

Since May, only a few permits were issued for new shallow-water wells, says James Noe, senior vice president of Hercules Offshore, the region's largest shallow-water driller. Typically, there'd be 10 to 15 a week, Noe says.

As of the end of July, 26 of the Gulf's 49 shallow-water rigs were idle, Noe says.

Hercules, which employs 2,200, has several hundred employees who don't have work to do. The company doesn't want to lay them off -- which could make them eligible for payments from a $100 million fund BP set up for affected rig workers -- because it doesn't want to lose its experienced workforce, Noe says.

"The moratorium was aimed at Big Oil ... but all of these measures are hurting mostly small companies," Noe says.


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