Offshore

Shale gas development is dependent on technology development. From drilling and completions technologies to reservoir monitoring to extending well life, there are many areas that would benefit from targeted R&D.

Rick Nicholson of IDC Energy Insights has taken a look at the state of unconventional resource development and has identified five intelligent technologies that he believes merit more attention. The results were posted online about six weeks ago.

They are:
1.    Real-time high-resolution seismic data acquisition
2.    Well lifecycle management
3.    Environmental health and safety (EH&S)
4.    Analytics
5.    Enterprise content management (ECM)

Though some of these technologies would immediately leap to mind, not all of them would be likely to make the “Top 5” list of every company involved in shale gas development. Fortunately, that is a point on which Nicholson and I agree.

For those who are interested in reading about these technologies in more detail, they are available on the IDC Energy Insights site.

And for those interested in adding to the list, Nicholson has requested that you share those ideas with him.

Baby Boomers are retiring from leading positions in companies in the oil and gas industry, and fewer new graduates are interested in careers in energy. This situation has left the oil and gas industry woefully short of workers. In short, it constitutes a human resources crisis.

This situation has existed for a decade in the oil and gas industry, but it is getting progressively more critical because there is overflow into energy related careers such as those that fall into the category of energy efficiency.

The energy efficiency field includes entities and departments within utilities, consulting firms, and non-profit organizations that are dedicated to creating an energy resource through efficiency programs.

A recent survey conducted by the Association of Energy Services Professionals (AESP) found that despite continued high unemployment, the energy efficiency industry is still short of workers. Survey results showed nearly 60% believe there is a lack of talented workers, and 82% believe today’s graduates do not understand the career opportunities present in energy efficiency.

According to an AESP press release, although energy has taken center stage in political debates, the field is not attracting large numbers of new employees.

“Energy efficiency is a rapidly growing segment of the overall energy industry and we believe there is a clear lack of talent that is necessary to fill the positions that are open,” said Meg Matt, president and CEO of AESP. “The public and private sectors are spending record amounts on energy efficiency programs that reduce the pressure on supply; and, as the current workforce in the energy field ages, many will be retiring. In fact, every eight seconds a Baby Boomer turns 65. These dynamics are creating widespread hiring. We anticipate that the number of jobs in this field will double over the next 10 years.”

In the informal survey conducted by AESP, more than half of the respondents reported they are looking for workers.

Given the starting salaries, one would expect more interest. According to AESP, more then 80% of the respondents reported that positions that are open now have salaries that range from $50,000 and $100,000. And positions with compensation of between $100,000 and $150,000 were cited by 28 percent of the respondents.

Jobs fall under the categories of sales, program management, engineering, management, and marketing/communications.

AESP provides professional development programs, a network of energy practitioners, and promotes the transfer of knowledge and experience. One of the organization’s objectives is to help fill these many open positions. If you’re interested in knowing more, click here (www.aesp.org)

Go, Mississippi, you’re on the right track,

Go, Mississippi, and this is a fact,

Go, Mississippi, you’ll never look back,

M-I-S-S-I-S-S-I-P-P-I

Go, Mississippi, keep rolling along,

Go, Mississippi, you cannot go wrong,

Go, Mississippi, we’re singing your song,

M-I-S-S-I-S-S-I-P-P-I

(Go, Mississippi - Words and Music by Houston Davis)

http://www.50states.com/songs/miss.htm

According to a survey conducted in June of this year by the Fraser Institute, Mississippi is ranked as the top place in the world for oil and gas investment.

This official opinion is based on the responses of international petroleum executives and managers in the 2011 Global Petroleum Survey.

According to a press release put out by the institute, Mississippi, which was ranked sixth out of 133 jurisdictions in 2010, vaulted into the No. 1 spot out of 136 jurisdictions included in the survey (http://www.fraserinstitute.org/research-news/display.aspx?id=17762).

In fact, American states dominated the Top Ten spots, with Ohio in the number 2 spot, followed by Kansas (3), Oklahoma (4), Texas (5), West Virginia (6), Alabama (8), and North Dakota (10).

Internationally, The Netherlands-North Sea region took the number 7 spot, with Hungary at number 9. These were the only two regions outside the US to make Top Ten.

Although Canada wasn’t in the top grouping, the province of Saskatchewan (the highest-ranked Canadian jurisdiction) finished at number 11 overall.

Gerry Angevine, Fraser Institute senior economist in the Global Resource Center and survey coordinator, said the US historically has had considerable representation in the international ranking. “By offering clear, stable regulatory and fiscal terms relative to other jurisdictions, many American states have cemented themselves as global favorites for oil and gas investment,” he said.

Not surprisingly, the US Gulf of Mexico experienced one of the largest drops in the rankings, plummeting to 60th place overall after finishing 11th in the 2010 survey, which was conducted before the Deepwater Horizon oil leak.

“The decline isn’t surprising, given the greater difficulty of obtaining drilling permits in the wake of the BP disaster,” Angevine said.

Several other US jurisdictions also earned poor scores for environmental regulations and associated uncertainties. The Pacific offshore was ranked 101st overall, the worst of the 23 American jurisdictions included in this year’s survey, after finishing 103rd last year. California ranked lowest, dropping to 91st from 87th in 2010.

“Survey respondents pointed to California’s complex environmental restrictions and lengthy wait times to attain drilling approvals as highly unattractive,” Angevine said.

Alaska, which respondents ranked as the second-least attractive state this year, dropped to 83rd place from 68th in 2010. Survey respondents remain critical of the state’s fiscal regime, environmental regulations, and land claims issues.

“Jurisdictions with reputations for political instability and corruption, steep royalty fees and tax rates, inadequate infrastructure, price controls, and labor shortages have difficulty attracting investment,” Angevine said. To be appealing, “Petroleum-producing regions must offer investors competitive tax regimes and regulatory certainty.”

Areas of the world that have the most work to do to attract investors include: Venezuela, Ecuador, Bolivia, Iran, Kazakhstan, Uzbekistan, Democratic Republic of Congo (Kinshasa), Iraq, Libya, and Russia.

A number of areas showed remarkable declines in their relative attractiveness for investment this year. These include the Philippines, Canada’s Northwest Territories, Uganda, Brunei, Uruguay, Angola, the Democratic Republic of the Congo (Kinshasa), Cameroon, Equatorial Guinea, and the US Offshore-Alaska.

In Uganda, unexpected changes to the taxation system signaled the government’s lack of commitment to maintaining a stable policy environment. This was a key factor underlying the sharp drop in Uganda’s ranking, which fell to 123rd this year from 94th in 2010.

Also near the bottom of the list, the Democratic Republic of the Congo (Kinshasa) saw its ranking plummet to 130th, down from 106th last year.

“The arbitrary revocation of exploration rights from one company and their transfer to another party likely shattered whatever trust would-be investors may have had in Kinshasa and its ability to administer petroleum industry regulations fairly,” Angevine said.

About the survey

The Global Petroleum Survey is administered each year to petroleum industry executives to help measure and rank the barriers to investment of oil- and gas-producing regions. A total of 502 respondents completed the survey questionnaire this year, providing sufficient data to evaluate 136 jurisdictions. The E&D budgets of participating companies account for more than 60% of the annual spending on petroleum E&P among international oil companies.

The questionnaire sought the opinions of senior executives and managers on a range of issues, including royalties and other forms of petroleum production tax, taxation in general, the cost of regulatory compliance, trade and labor regulations, legal system fairness and transparency, and political stability, among other considerations.

The oil and gas industry is truly global, which means there are opportunities to work nearly anywhere in the world. What is surprising is how some countries stack up.

According to the Hays Oil & Gas Salary Guide, produced in conjunction with the global jobsite Oil & Gas Job Search, Papua New Guinea, Trinidad & Tobago, and Colombia top the list of locations where workers in the industry are seeking their fortunes. According to the survey, over 40% of the world’s oil and gas workforce is currently working outside their country of origin. The attraction, it seems, is the salaries on offer abroad.

Duncan Freer, managing director of Oil and Gas Job Search, explained that many of the countries on the list represent developing markets, “proof that the frontiers of the oil and gas industry continue to be pushed into remote and exotic locations in the pursuit of new resources.” Workers apparently understand that reward does not come without risk. “Despite the risks associated with working in a number of these countries, generous salaries continue to attract skilled workers willing to pursue accelerated earnings.”

So for those of you who are interested in knowing where the highest average salaries can be made for imported oil and gas talent across all disciplines, I’m sharing with you the “Top Ten” based on the 2011 Hays Oil & Gas Survey:

1. Papua New Guinea – US $197k

“The Esso Highland consortium is pumping an estimated $15 billion into the local economy on the PNG LNG project,” said Hays Oil & Gas Managing Director Matthew Underhill. “Despite Port Moresby’s prominent crime rate, an average cash salary approaching $200k per annum is attracting industry talent.”

2. Trinidad and Tobago - $184k

LNG is the money maker here. “While enjoying a laid back Caribbean atmosphere and climate to match,” Underhill said, “imported oil and gas professionals are also attracted by an average salary of $184k.”

3. Colombia - $177k

Known for drug-related violence, Colombia – for most people – is at the top of the list of places to avoid, but according to Underhill, “The country has caught the economic wave flowing through the whole South American region. With significant oil reserves, imported salaries have been driven up to in excess of $177k.”

4. Australia - $144k

Apparently size matters. “The sheer volume of work flowing through the Australian economy, valued at over $200 billion,” is one of Australia’s draws, Underhill said. This coupled with the local skills shortage has driven salaries for imported oil and gas workers up to an average of $144k.

5. Azerbaijan - $141k

Though Azerbaijan doesn’t leap out in the imagination as the most desirable spot for a “destination job,” oil production is forecast to rise in 2011 to 51.5 million tons. As in Australia, there is a skill shortage, Underhill said. “Consequently, over 90% of the oil and gas talent is imported. A $141k salary is more than enough to compensate for hot summers and cold winters.”

6. Vietnam - $140k

Many parts of Southeast Asia are booming. With the relaxing of communist government controls in Vietnam, the country is seeking to take full advantage of its natural resources and investment, Underhill said, with the petroleum sector expected to reach $30 billion by 2025. “The country is very much the rising star in South East Asia with salaries averaging $140k.”

7. Philippines - $135k

The Philippines is probably best known as an exporter of labor, Underhill said, noting that the country lacks senior domestic oil and gas talent. “Whilst oil production is expected to peak around 2013, the gas industry is expected to double production before 2020, surely driving demand up for expats who currently earn around $135k per annum.”

8. South Korea - $130k

“South Korea’s engineering companies are winning more than their fair share of work in the global industry, which is driving employment demand at home,” Underhill said, pointing out that an average of $130k will continue to draw imported labor to the Korean market.

9. Kazakhstan - $129k

Underhill defined Kazakhstan as a country with a vast skill shortage that is a “well-worn path for adventurous foreign workers seeking to maximize their earnings.” Earlier this year, Kazakhstan’s oil and gas production showed a strong year-on-year increase, and experts predict that by 2020, it will increase by up to 36.5%. “This will place pressure on the average salary for imports,” he said, “which currently stands at $129k.”

10. Russia - $127k

The frigid climate is not a deterrent to foreign workers moving to Russia. According to Underhill, the country’s vast gas reserves and huge infrastructure projects are driving expat salaries to $127k. “The country is beginning to develop its gas exports with various pipelines linking Russia’s huge gas reserves to eager markets in Asia and Europe,” he said.

Hays cautions that the salaries quoted are cash components only and do not include pension, bonuses, or other allowances and that they are averages across from operatives to senior executives.

If you want to know where to make big bucks in the oil and gas industry, you can read more at

www.oilandgasjobsearch.com/salary or www.hays.com.au/oilgas/salaries/.

An organization called the Oil Council put out a press release this week that was titled, “Global Oil & Gas Industry Entering Phase of Darwinian Competition.”

I don’t know about you, but that headline got my attention.

According to the press release, this announcement was made at a press briefing in London, where the Oil Council is based.

Participants of the briefing, which was organized by the Oil Council and Willis Global Energy, have concluded, “The oil and gas industry is in a period of Darwinian competition where survival will be determined by those most able to adapt to the rapidly changing landscape.”

So what is the Oil Council, and why should you care about its pronouncements? I asked myself that question, and as a good reporter, I followed up with some investigating.

The Oil Council was founded in 2009 at the bequest of the oil and gas industry in Europe. The industry wanted an independent platform at an international level for business development and thought leadership. The idea was for the group to meet regularly, within different formats and across different locations.

According to Ross Campbell, Oil Council CEO, the concept is similar to that of an industry association “but with a core focus of investment and finance in the oil and gas sector rather than policy, regulation, or technology.”

The remit for the Oil Council is two-fold, Campbell explained. The first objective is to promote thought leadership about the business dynamics of oil and gas (leadership challenges, capital raising, institutional investment flow, M&A and A&D transactions, deal metrics, energy economics, capex plans, and capital deployment) across the wider energy, investment, and finance communities. As if that isn’t challenge enough, the second goal is to provide senior industry executives and leading companies with regular, high-end corporate development opportunities where the focus is on accessing new partners and prospects.

“The Oil Council is accomplishing these goals through e-media, customized business development programs, annual assemblies, and networking functions, each allowing us to tackle key business challenges, champion best practices, develop strategic affiliations, and showcase new investment opportunities.” Campbell said.

The purpose of the recent briefing in London was to engage leading experts from within the Oil Council network directly with the press.

Speaking at the briefing were Oil Council members Dougie Youngson, director, Oil & Gas, Arbuthnot Securities; Gavin Graham, executive vice president, Petrofac Energy Developments; Laurie McFadden, partner and co-head, International Energy and Natural Resources, Freshfields; Mike Karaiskos, director, energy and resources, Deloitte; and Tim Chapman, managing director and head, International Energy, RBC Capital Markets.

One of the major points the Oil Council made at the press event is that although technology is critical for oil and gas companies, of even greater significance might be the way companies adapt their strategies to position themselves for more fierce competition.

According to Youngson, “IOCs have to figure out what’s in their black box that will reward shareholders.”

“That black box isn’t just technology,” Chapman explained, “but also proven management, skilled workforces, and operational expertise that NOCs are keen to secure through partnerships.”

Risk assessment is getting more attention today as well. “Whereas companies used to just ask ‘how do we do this transaction?’ increasingly they want to know ‘how do we manage this risk?’” McFadden said.

The overriding observation, voiced by Graham, is that “In this Darwinian world, it isn’t survival of the strongest but the survival of the most adaptable that will matter.”

Now that’s something to think about.

For those interested, these panels are a regular feature on the Oil Council’s activity calendar. There is at least one per year in New York, Houston, and London, and plans are in place to expand into South America and Africa in the coming months.

In addition, the Oil Council holds three large forums every year. One is held in London on oilfield services and engineering. And there is a forum annually in New York on energy capital and finance, with a similar event run in London.

Click here to visit the Oil Council website and learn more about what it does. (http://oilcouncil.com/)

Overwhelmingly, offshore workers in the oil and gas industry say they are happy with their jobs.

According to a survey conducted by NES Global (a specialist talent management company that provides engineering services and specialist staff support solutions for the oil and gas industry) offshore workers not only like their jobs, they are proud to work in the oil and gas industry.

The survey includes responses from 300 workers in the offshore industry in 39 countries.  The respondents had 20+ years of industry experience with a variety of positions from project managers to process engineers. According to survey results 89% of those who participated said they are proud to work in the industry, and 88% would work in oil and gas even if they weren’t in the offshore industry. A total of 65% said they would recommend the industry to a friend, while 63% said they expect to sign up to another offshore role when their current contract ends.

According to Neil Tregarthen, NES Global CEO, “There is a general misunderstanding among many outside the industry about what working life is really like offshore. We found our workers are satisfied with their lifestyle and working conditions.”

Respondents pointed to the good salary, free time on leave, and time from away nagging spouses as some of the benefits of offshore work. Other pluses included quality of offshore accommodations, food, and entertainment. Many identified camaraderie among offshore co-workers as a plus as well.

With more people around the world desperate to find work, Tregarthen said, “It is important they understand that a career offshore can be hugely rewarding.”

The Oil and Gas Satisfaction survey was commissioned in April 2011. Copies of the report can be obtained by clicking here.

The 21st annual Earth Day will be celebrated on April 22, 2011. With this milestone top of mind, Larry Bell, www.Forbes.com columnist, has shared what he calls the Top 5 Energy Myths.

Since I found them interesting, I thought I would share them with E&P readers.

Myth number 1
Utility-scale concentrating solar power (CSP) systems

I don’t know much about CSP, so I looked it up online. The New and Renewable Energy website explains that CSP plants produce electric power by “converting the sun’s energy into high-temperature heat using various mirror configurations. The heat is then channeled through a conventional generator.” A CSP plant has two parts. One collects solar energy and converts it to heat. The other converts the heat to electricity. According to the website, these systems can be sized for 10 kilowatts or as grid-connected applications up to 100 megawatts.

Though capturing solar energy sounds like a great idea, CSPs actually have some drawbacks in the eyes of the green minded. According to Bell, environmentalists have criticized CSPs for taking up too much desert land and disturbing the delicate desert eco-system.

Myth number 2
Wind Power

The World Energy Research website says wind has been the world`s fastest growing energy source on a percentage basis for the last decade and that the wind energy industry has grown at a 28% annual rate for the past five years.

Meanwhile, “The World Offshore Wind Market Report 2011-2015” produced by analysts at Douglas Westwood predict in the five year period to 2015 more than 11 gigawatts of new capacity will be installed. Offshore wind is forecast to see €38 billion (US $61.9 billion) of capex during this time, with annual capex expected to be in excess of €12 billion ($19.5 billion) by 2015.

According to Bell, the fact that the best sites for wind farms are along mountain ridges and coastal areas as an enormous impediment for environmentalists because these areas also are prized for their scenery. “Turbines also interfere with bird and bat life,” Bell says.

Though Bell doesn’t touch on safety, it is a significant issue. Structural problems with windmills have caused some to self destruct, a subject I discussed in a blog last July called “Windmills Gone Wild.” A look at this video will likely give proponents of wind energy reason to re-evaluate their endorsement!

Myth number 3
Hydropower Dams

Wikipedia says hydropower is the most widely used form of renewable energy. It is particularly desirable because once the hydropower dam is built and in operation, it produces no direct waste and emits considerably less CO2 than other energy sources.

The problem for environmentalists, Bell says, is that hydropower dams “disrupt river ecosystems, kill fish populations, and release large amount of methane.”

Myth number 4
Geothermal Energy

The US Energy Information Administration site for kids explains that geothermal reservoirs generally are deep underground “with no visible clues showing above ground.” According to the website, most active geothermal resources are along major plate boundaries. Not surprisingly, most of the world’s geothermal resources are in the Pacific Rim in an area known as the Ring of Fire.

Chevron, the world’s largest producer of geothermal energy, explains on its website how the process works.
When groundwater seeps below the earth’s surface near a dormant volcano, the water is heated by reservoirs of molten rock, usually at depths of up to 9,800 feet (3,000 m). Wells similar to those used to produce crude oil and natural gas are drilled to recover the water. Once captured, steam and hot water are separated. The steam is cleaned and sent to the power plant. The separated water is returned to the reservoir, helping to regenerate the steam source.

Though geothermal energy is economically feasible, Bell says, “power production sites are very limited and would have a devastating effect on surrounding wilderness areas.”

Myth number 5
Nuclear Power

Bell calls nuclear power, “the only non-greenhouse gas emitting power source that can effectively replace fossil fuels.” The problem with nuclear energy is safety. With the recent events at the nuclear reactors in Japan following the major earthquake and tsunami in Japan on March 11, 2011, there is no need for a tutorial on the dangers of nuclear energy. Structural damage to the reactors has resulted in a potentially catastrophic disaster for Japan.

And as Bell points out, even when a nuclear reactor is running smoothly, there is no safe place to store nuclear waste.

All of this aside, if the prediction that world energy demand could grow by as much as 40% in the next 20 years is accurate, alternative fuels will have to be developed. So if the top five “myths” are out of the running, we have a lot of work to do.

NB
Larry Bell’s blogs are published weekly.
His new book, Climate of Corruption: Politics and Power Behind the Global Warming Hoax, is available online.

The earthquake in Japan last week caused monumental damage, including a death toll that as of March 16 stood at 4,164, with as many as 12,000 unaccounted for.

Headline news has focused on the nuclear emergency that resulted from reactors that were damaged by the tsunami that followed the earthquake and the team that has undertaken the task of stabilizing them.

Japan historically has had a heavy reliance on imported fuel. One of the most significant motivators for the country’s involvement in World War II, in fact, was to annex areas with oil. When Japan was rebuilt following WW II, the country began looking into nuclear energy. Since 1973, nuclear energy has been a national strategic priority in Japan. Seven new nuclear reactors were opened in 2008, making Japan the third largest nuclear power user in the world with 53 nuclear reactors. These nuclear reactors provide 34.5% of Japan’s electricity.

While the story about managing a potential meltdown is indeed dramatic, there is a much more pedestrian issue to be considered. Japan is a developed country that runs on energy for residences, transportation, and industry. With the loss of electricity from the nuclear plants, Japan needs a way to produce electricity, and it needs gasoline to fuel the fleet of vehicles that will provide the necessary logistics to contend with the aftermath of this natural disaster.

In a statement to the media, Shell CFO Simon Henry said the damage done to the country’s nuclear facilities would likely mean higher near-term LNG prices. In a Dow Jones article published Tuesday, March 15, Shell CEO Peter Voser said the company would make provisions to help Japan with its fuel needs.

Other energy companies have done the same.

The Wall Street Journal reported that Chevron had booked a cargo of Indonesian Minas crude to go to Japan. And Reuters published an article on March 16 stating that South Korea’s four oil refiners plan to supply more than 2 MMbbl of oil products sought by Japan to plug an output gap. Korea’s SK Energy committed to buy crude oil to help make up the loss inside Japan of approximately one-third of its 4.5 MMb/d refining capacity resulting from damage to Japanese refineries.

The Rafo Shimpo, Los Angeles Japanese Daily News, said the Japan Ministry of Foreign Affairs reported Monday that the country has received offers of assistance from nearly 100 countries and international organizations.

According to the report, Prime Minister Naoto Kan discussed Japan’s situation in telephone talks with US President Barack Obama, South Korea President Lee Myung-bak, and Australia Prime Minister Julia Gillard.

So far, The Rafo Shimpo reports, 91 countries and regions as well as six international organizations have expressed their intentions to extend assistance.

Many countries, agencies, and organizations have offered aid in some form, including ExxonMobil, which is donating $1 million to the Japanese Red Cross Society and has implemented a worldwide program to match employee, retiree, dealer, and distributor donations to Japanese disaster relief, up to a further $2 million.

But it is energy Japan will need most to get back on its feet. And it is energy companies like Shell, Chevron, and SK Energy that are already in the throes of speeding up that process.

It’s not often that a small out-of-the-way place like Newfoundland and Labrador is held up as an example to the world, but Mark Shrimpton, senior associate, socio-economic service, Stantec Consulting Ltd. told those gathered at the Arctic Technology Conference in Houston the province is a global leader in developing arctic resources.

Though Newfoundland and Labrador is part of Atlantic Canada and is not precisely in the Arctic, the offshore conditions are harsh and include the need for ice management. So from an oil and gas perspective, operations offshore the province qualify as “arctic.”

US Geological Survey studies estimate that the Arctic accounts for about 13% of the undiscovered oil, 30% of the undiscovered natural gas, and 20% of the undiscovered natural gas liquids in the world.

“There is great potential in the North,” Shrimpton said, and for Newfoundland and Labrador, it’s been “a very good news story.”

Before offshore development took place, the province was economically challenged with high unemployment, limited industrialization, and dependence on federal transfers. Offshore development has taken the province from a “have not” to a “have” region of Canada, changing the business community and creating a sustainable industry that has supported other industrial growth that is outside the oil and gas industry.

“St. John’s (Newfoundland’s capital city) is more cosmopolitan as a result of oil and gas activity, which is a plus for the city and the province,” Shrimpton said.

The success in such an unlikely area sets a precedent and provides the industry with some guidelines moving forward. According to Shrimpton, these include:

• Engaging stakeholders early and often
• Educating those who will be affected by development
• Establishing informed aspirations and goals
• Developing a solid regulatory framework
• Conducting industrial benefits planning

Though the challenges of developing the Arctic are daunting, the rewards are considerable. These potential resources are the impetus for many companies that are investing in technologies that will open the harsh arctic regions to development.

From 1971 through 2009, 24.7 Bbbl of oil were produced. In that same time frame, 1,715 bbl were spilled. That equates to a spill rate of approximately 1 bbl for every 14 MMbbl produced.

Robin West, chairman of PFC Energy, shared this statistic at the GE Oil & Gas annual meeting in Florence today to make a point – good news isn’t always entirely good news.

The “good news” of that statistic is that the oil and gas business had a great safety record. The “bad news” of the statistic is that the belief in the industry’s inherent safety made it complacent.

According to West, that complacency was one of the contributing factors that led to the events that resulted in the Macondo blowout on April 20, 2010.

In short, “The industry went from an extraordinary safety record to a catastrophe,” West said.

Now, the oil and gas industry is facing a change in rules and regulations for operations. And some of those changes could be damaging, particularly for independents operating in the Gulf of Mexico.

“Few imagined a worst-case drilling accident could cost more than $50 billion dollars,”

West said, but the playing field has changed. And independent operators may not have the capital to meet new government requirements. To be able to manage some of the financial responsibility levels required, companies will have to have a net worth greater than most of the independents have.

So what if the independents leave the Gulf of Mexico?

The fact is that independents are very important – much more so than many understand, West said. They have a lower threshold for discovery and investment. And because independent operators have taken over a significant number of maturing fields, they have helped to keep production numbers up by extending brownfield life when supermajors divested themselves of these assets as production rates began to decline.

“When a company like Murphy, Devon, or Noble comes into question, you can see this is a real challenge,” West said, explaining that a whole sector of operators could be wiped out. “This is extremely dangerous for development in the Gulf of Mexico.”

What happens in the Gulf of Mexico has global repercussions. West listed several examples of regulatory responses outside the US, including short-term moratoria on permits in Norway and delays on Arctic licensing in Canada and deepwater licensing offshore Mexico. Banned areas were extended offshore Italy, where drilling within five miles of the coast is not permitted. And Norwegian opposition to exploration near Lofoten has grown. Several countries have imposed stricter enforcement and heavier fines, and there have been changes in operating procedures.

The long and the short of things is that the world has changed, and the industry is going to have to find a way to demonstrate its ability to contain a spill. So far, no company has satisfactorily demonstrated this ability, West said. Until this considerable stumbling block is removed, E&P activity in the Gulf of Mexico (and elsewhere) cannot return to normal.

There are a lot of questions that remain to be addressed.

“How can the level of risk be demonstrably reduced?”

“Will large and small players share their expertise, risks, and opportunities?”

“If this sharing does not happen, what will happen to the small players in the Gulf of Mexico?”

And finally, “Will Congress fund the BOEMRE adequately to do its job so that activity can resume in the Gulf of Mexico?”

These are all very critical questions.

The problem for the industry is that for the time being, there are far more questions than answers.