By Prianka Sharma, Assistant Chief Counsel
On March 20, Assistant Chief Counsels Bruce Lundegren and Prianka Sharma, and Regulatory Economist Michael McManus visited Galveston, Texas to learn about the offshore oil industry. Lundegren, McManus and Sharma began their visit at the Ocean Star Offshore Energy museum, a small, non-profit museum dedicated to the offshore oil industry. The museum is situated on a decommissioned oil rig. Advocacy staff learned about the history of the offshore industry, and about the first drills that were used in missions. They also learned about the history of regulations.
After their visit to the museum, Advocacy staff met with Leonard Hale, President of Gulf Copper, a small business that provides direct services to offshore oil rigs, and Jamie Vazquez, a member of the Board of Directors of the National Offshore Industries Association, a trade association comprised of both small and large businesses in the offshore oil industry. Hale arranged for Advocacy staff to tour a semi-submersible offshore rig owned by a large company with whom he contracts. While touring the rig, he showed Advocacy staff various parts that his company produces for rigs including welded specialized metal products. In addition, he noted that his company often provides specialized skilled labor such as electricians, who assist in preparing rigs to be taken offshore.
Vazquez and Hale mentioned that while Deepwater drillers are large corporations, they are serviced by small businesses such as Gulf Copper. These smaller entities therefore are directly impacted by the volatility of the market, and especially the price of oil. When larger companies stop drilling due to a dip in demand, this has a direct effect on small businesses such as Hale’s business, such as a reduction in work for his employees who often leave to seek other jobs. Vazquez and Hale both mentioned that BOEM’s 5 year OCS Leasing Plan, which would open up more areas in the gulf for exploration and potential drilling, would have a direct positive impact on businesses such as his. The Leasing Plan would create new job opportunities as larger corporations engage in exploratory activities and identify potential drill sites. It may also create the potential for smaller oil drilling companies to explore new sites to drill as larger corporations pass them over.
Vazquez noted that there were folks in opposition to the plan because they had concerns about fishing and other coastal activities such as recreation and tourism. She noted that in regards to fishing, various plants often grow on the rigs that are submerged in the water which cause an influx in fish populations around those areas and make it easier for fishermen to catch a high volume in a short amount of time. She mentioned the need to work together to create a symbiotic relationship whereby fisherman and oil industry employees have an understanding of how to work together.
One other regulation that Vazquez mentioned is especially problematic is BOEM’s financial assurances policy. In 2016, BOEM finalized a rule that clarifies implementation of the Federal Oil and Gas Royalty Simplification and Fairness Act but did not address the issue of bonding, which BOEM said would be the subject of a separate proposed rulemaking. Vazquez stated that the bonding requirements were forcing companies to fully fund and bond their own projects. She said this was a deterrent to many offshore companies as finding financial intuitions to back them was difficult if not impossible. This in turn affects small entities who service them.
Advocacy staff was impressed with the offshore operation, and how much power is necessary to even prepare a rig to be fully functional, let alone operate it. The visit was comprehensive, educational and eye-opening, and staff left with a better understanding of the technical process, history, and how small entities play a major role in an industry that is assumed to be dominated by large corporations.
Advocacy was in San Antonio and Houston, Texas for Regional Regulatory Reform Roundtable and NAFTA Modernization Outreach Meetings on March 19-20.
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Prianka Sharma is an Assistant Chief Counsel for Advocacy whose portfolio includes natural resources, agriculture, and energy. Sharma can be reached at Prianka.sharma@sba.gov.
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