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There Will Be Change: Spill Expected to Alter Deepwater Drilling Operations in the Gulf

Now that we’re no longer fixated on what arcane technique BP will use next to end the flow of oil into the gulf, attention is even more focused on the aftermath of the spill. But questions aren’t just raised over the extent of the environmental damage. Many expect the disaster to have a transforming effect on the landscape of the oil industry as a whole. From the KUHF Newslab, Wendy Siegle reports.



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Anger at BP is widespread across the country. Esmeralda Gomez works at the Jones Graduate School of Business at Rice University. She offers a typical sentiment.

“I was devastated. It’s just something that seems very irreversible. Not a whole lot of trust in BP right now.”

The impact of the spill on BP itself is likely to be huge. The company has announced its intention to sell off $30 billion worth of assets over the next 18 months to fund liabilities arising from the disaster. Speculation has centered on whether the more than century-old company will survive the event. But the impact on the industry itself is not likely to be nearly as dramatic. Despite widespread anger at BP, most polls show that continued deepwater drilling is fairly popular among Americans. Still, there will be some changes. Bobby Tudor is the CEO of a Houston-based energy investment firm.

“The cost of doing business in the Gulf of Mexico is gonna go up and go up dramatically.”

Tudor says it’s still too early to tell what the actual increase will be, but he expects the price tag on drilling in the deep end of the Gulf to go up by about 30 percent. He says with greater costs and perhaps greater risks, industry leaders will have to think harder about whether they want to invest in deepwater exploration.

“That is bad news, obviously, for a big chunk of Houston’s economy, because the services industry and the deep water industry…those companies are highly-centered in Houston, Texas. And if the deepwater business really does go away, it will be a hit to those companies and to our economy.

But Tudor doesn’t think the deepwater business is really in jeopardy; he just believes that the added costs and risks could make it economically unfeasible for small independent companies to operate there. So the players will change. He says smaller players may have to stick to shallow water and onshore projects, while the major players dominate deepwater drilling in the Gulf exclusively.

Amy Myers Jaffe is an energy expert at Rice University. She says industry executives are more aware than ever that when one company operates poorly, the consequences can trickle down.

“I think there’s an understanding in the industry that best practices need to be applied across the industry, and that everyone is negatively affected if companies don’t practice best practices.”

To some, this is even more concerning given the number of companies that usually joint venture on the same well. Most of the big oil projects around the world have multiple participants with varying degrees of financial interest, and one operator responsible for managing the process. Bobby Tudor says it’s still speculation on whether the relationships and the decision-making processes between operators and minority interests will change.

“To the degree contractual arrangements made those decisions — shared decisions as opposed to unilateral decisions — that would be a very significant change in the way that the industry does business. It would slow things down; it would make things more difficult, but it would fundamentally give all the participants in a well more of a say on how things got executed.”

For now, the deep waters of the Gulf will continue to be a major source of domestic crude production, but it probably won’t quite be business as usual.

From the KUHF NewsLab, I’m Wendy Siegle.