The Emerging Cost of US Oil Drilling Regulations

Back in June, I wrote this post discussing the potential effects of extreme US regulatory policies regarding oil exploration. I noted,

"But what about that liability clause? If a lessee encounters some situation, whether accidental or by poor management, that creates a disaster on the scale of BP's Gulf rig gusher, do we seriously expect to hold that company totally responsible for every penny of expense related to the problem?

The US does not exist in a vacuum. There are deposits of virtually all of our natural resources located in other countries, on other continents. Many other countries offer far less onerous regulatory environments than those which currently exist in the US.

As tempting as it would be for the US to insist on carte blanche, unlimited liability assumption by its natural resource lessees, competitive realities could easily cause such a policy to result in no lessees whatsoever."

As I am finishing reading back issues of the Wall Street Journal from earlier this month, I noticed an August 7-8 editorial entitled The World Drills On.

Sure enough, other countries are acting fast to grab deep-water drilling rigs once operating in the US Gulf Coast region. Among the countries aggressively leasing drilling rights and seeking rigs are New Zealand, Brazil, Australia, Canada and Norway.

The editorial notes that many of the prospective wells will be in water far deeper than the BP Macondo well.

As a retired senior oil executive noted when I sent him the prior linked post, oil exploration is an internationally competitive arena. When one country raises its regulatory and/or environmental standards to unrealistic or uncompetitive levels, other countries will move in to explore and replace that production capacity.

How does sending deep-water drilling rigs overseas, for years, help US self-sufficiency in oil production and the retention of associated jobs?

In June, I wrote with a sense of the hypothetical. The Journal editorial earlier this month indicates my concerns are no longer hypothetical. US oil exploration and production activity is going to be curtailed by the availability of rigs for some time, thanks to an ill-conceived ban on off-shore, deep-water drilling. GDP growth, jobs and even government tax revenue will now all be negatively affected for years to come by this self-inflicted damage to the US economy.