Long-term Gulf of Mexico deepwater development could be seriously jeopardized if the US Department of the Interior increases the time spent reviewing and approving drilling permit applications, a Wood Mackenzie study commissioned by the American Petroleum Institute concluded. Nearly one third of domestic deepwater production could become uneconomic, resulting in less energy production, less investment, and less revenue to government, it warned.
“The potential harm is alarming,” said Kyle Isakower, API’s vice-president of economic and regulatory policy. “We are talking about a transformation of the future relevance of deepwater gulf development to US domestic energy production—and a major threat to gulf region jobs and to the nation’s energy security.” He said based on the development impacts outlined by WoodMac, API believes that as many as 125,000 jobs could be lost in 2015.Yup.
Interestingly, this study did not include the current "permitorium" situation.
The study found, among other things, the delay in issuing permits would:
- A field start-up would be delayed by one (1) year
- Delay drilling time by 10 percent
- A 2-year delay with a 20 percent drilling time delay
that postpone a field’s startup by 1 year and delay drilling times by 10% and by 2 years with a 20% drilling time delay, compared with a base case with no delays for 25 identified, but undeveloped, deepwater gulf targets.
Expected development scenarios and full-field development economics were calculated using WoodMac’s global economic model to determine what impacts potential delays would have on financial returns in the gulf. Production, investment, and government revenue at risk due to permit delays were calculated using assumed financial hurdles of 15% nominal internal rate of return (IRR) and 8% nominal IRR for the deeper Lower Tertiary targets.
The study assumed no cost increases due to permit delays, but expected 1-2 years of total logistical delays for field
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