Oil Industry Leaders Try to Avoid Regulatory Fallout From BP's Gulf Oil Spill

Email
    Text size
The leaders of the three largest U.S. oil companies will testify before Congress today (Tuesday) about the Gulf oil spill's effect on U.S. energy policy, hoping to convince legislators to be cautious about introducing new regulations on the industry.

Chief Executive Officers Rex Tillerson of Exxon Mobile Corp. (NYSE: XOM), John Watson of Chevron Corp. (NYSE: CVX) and James Mulva of ConocoPhillips (NYSE: COP), are scheduled to appear before a House Energy and Commerce Committee panel examining offshore drilling safety and energy policies.

The review comes after a blowout at BP PLC's (NYSE ADR: BP) Deepwater Horizon drilling platform in the Gulf of Mexico caused a massive oil spill.

The executives will press lawmakers to delay making any changes to offshore drilling rules that could discourage exploration in U.S. territorial waters without making meaningful contributions to safety, Gianna Bern, president of Brookshire Advisory & Research Inc., which advises oil companies on strategy and risk management, told Bloomberg News.

Drilling on more than 30 deep-water rigs off the coasts of Louisiana and Texas has been ordered to stop for at least six months while federal officials conduct a review of offshore safety practices. The Gulf accounts for 30% of U.S. oil production, according to the Energy Information Administration (EIA).

The hearing presents the U.S. oil CEOs with an opportunity to distance their companies from BP. BP has lost 43% of its market value since the disaster and has been heavily criticized by President Barack Obama for failing to cap the leaking well. The company's shares yesterday plunged another 9.7% to close at $30.67 a share.

"A crucifixion of the whole oil industry for the sins of BP in the form of a ban on deep-water drilling isn't a good idea because look at all the people it's going to put out of work," Anthony Sabino, who teaches oil and natural-gas law at St. John's University in New York, told Bloomberg. "Exxon and ConocoPhillips will stress their own safety records to make that case."

Chevron chairman and CEO John Watson told The Wall Street Journal he accepts the need for tighter drilling regulations in the wake of the spill, which he called a "humbling experience for the industry." However, he also said the six-month moratorium on deep-water drilling imposed by the Obama administration is unnecessary.

Even before the current disaster, Chevron had in place policies and procedures that might have avoided the blowout that caused the spill, Watson said.

"This incident was preventable," he told The Journal.

Watson also noted that industry's overall safety record is strong and that both industry and government panels have drawn up new safety recommendations in light of the spill.

"We favor rapid adoption of those recommendations," Watson said.

However, environmental groups oppose a quick return to drilling, saying the spill has closed as much as 37% of the Gulf of Mexico to fishing, killed countless wildlife and polluted 140 miles of shoreline from Louisiana to Florida.

David Goldston, director of government affairs for the Natural Resources Defense Council, said drilling shouldn't resume until a presidential commission appointed to investigate the disaster finishes its work.

"We don't really understand a lot about what happened here," Goldston told The Journal. "We don't really understand how endemic the problems are, and that all needs to be sorted out before drilling is resumed."

Lawmakers may ask the executives from Exxon, Chevron, ConocoPhillips and Royal Dutch Shell PLC (NYSE ADR: RDS.A) to describe safety measures they have used offshore to avoid the sort of disaster BP faced, Brookshire Advisory & Research Inc.'s Bern, a former BP crude trader, told Bloomberg.

In 2007, Exxon abandoned a deepwater exploration project in the Gulf called Blackbeard rather than risk a blowout. The company mothballed the project, which was designed to drill more than six miles beneath the sea floor, after repeated pressure surges indicated the well was unstable, Bloomberg reported. And BP engineers notified federal regulators at the Minerals Management Service that they were having difficulty controlling the well drilled by the Deepwater Horizon six weeks before the disaster, according to e-mails released by the Energy and Commerce Committee.

"I don't think this would have happened on Exxon's watch," Tom Bower, author of "The Squeeze: Oil, Money and Greed in the 21st Century," said in a June 11 interviewwith Bloomberg. "They'd be much more careful and much more conscious of the need to supervise subcontractors."

About 80% of the oil and 45% of the natural gas in the Gulf comes from deepwater exploration according to the American Petroleum Institute. Delays in new drilling projects would lead to another 20% reduction in deepwater production by 2015 according to API.

Analysts warn that less production in the Gulf would eventually deplete domestic reserves and possibly lead to higher prices for energy in the future.

"These executives need to explain to the politicians that if you permanently shut us down in the deep water it's going to wreak havoc with energy production and put the United States even more at the mercy of foreign oil producers," told Bloomberg.

Oil sector expert Dr. Kent Moors told Money Morning on June 3 that the oil spill is bound to result in more regulation. The spill "is going to summon the heavy hand of government in a way that will cost American consumers dearly while also keeping regular U.S. investors from reaping green."

New regulations which hamper drilling will mean "energy-sector profits will be much tougher to come by, both for companies, and for investors," said Moors, a well-connected international-energy-industry consultant who is also the editor of the Oil and Energy Investor advisory service.

News & Related Story Links: