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Despite the Obama administration’s deepwater moratorium be­ing lifted in October of last year, the resumption of investment in offshore drilling in the Gulf of Mexico (GOM) – and deep-water drilling in particular – remains anemic. This is in part due to the nebulous guidelines, which offshore operators must comply with before being allowed to resume or begin drilling issued by the newly restructured Minerals Management Service, now known as the Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE).

These new, vaguely defined compliance procedures in effect continued a de facto moratorium through March of this year, when Shell’s supplemental deep-water exploration plan was app­roved. However, following the app­ro­v­al of the Shell plan, BOEMRE had only issued a handful of other new permits to mostly large-cap exploration and processing companies whose lawyers and billion-dollar balance sheets allow them to comply with the onerous re­strictions placed upon companies that seek to produce in the GOM.

More recently, pushed by increasing gasoline prices, political pressure and a growing backlog of permit applications, additional clarity regarding drill­ing permits in the GOM is finally occurring, attracting new interest and po­ten­tial investment. Permit approvals are finally on the rise, and drilling and add­­itional investment activity is expected to remain on a somewhat positive up­ward trend. For many operators, the Macondo incident either initiated or amplified the need to look elsewhere for new energy sources in high-risk areas on the African continent and in other developing nations.

While exploration in Africa had been on the rise prior to the Macondo spill, post spill, we have noticed activity continue to escalate in existing energy na­tions such as Nigeria and Angola. At the same time, there also has been a growing number of forays into previously underdeveloped countries such as Gha­na, Cameroon and Equatorial Guin­ea.  Additionally, outside of West Africa, regions such as East and Sub-Saharan Africa have also seen in­creas­ed drilling activity and investment interest. Large and small cap operators have been willing to boost exploration in these often-opaque environments rather than wait out the regulatory un­certainty and increasing compliance costs facing GOM operations.

Success in these regions offers the opportunity for excellent returns, but companies have also discovered that they must continually manage a whole new series of factors not previously en­countered in an area like the carefully regulated and overseen GOM. Comm­only called “aboveground risk,” these are factors such as corruption, bribery, adversary attacks, hidden business con­flicts and agendas, counter-party reputation and political risk that can cause deals to turn upside down since traditional deal teams and risk executives at companies most often focus on a deal’s economics and “below-ground,” technical issues. Post Macondo, companies that have ventured into these murkier international waters to drill have had to proactively manage this risk.

Aboveground Risk

Following the Macondo incident, one of the largest offshore producers in the GOM region began shifting its focus to West Africa. That fall, the company was notified by U.S. authorities that its import permits to operate rigs in Ni­geria and other West African countries might not be renewed because of violations to the Foreign Corrupt Prac­tices Act, which bans bribes to foreign officials. The case, which was eventually settled, could have caused the company to either terminate the pending drill­ing contracts and relocate the rigs or leave the rigs in these countries and risk permanent importation issues.

The impact of the permitting delays and subsequent backlog at BOEMRE on deep-water operators in the GOM that resulted from Macondo cannot be understated. The cumulative effect of the nearly yearlong moratorium, the slow speed at which BOEMRE is issuing new deepwater drilling permits and the agency’s efforts ramped up eff­orts to regulate drilling in shallow Gulf waters has resulted in an estimated 13 percent drop in offshore oil production, according to the Department of Ener­gy, an exodus of drilling rigs from the GOM and renewed investment interest in regions such as West Africa, Southeast Asia and Brazil.

For many offshore majors, which have billions of dollars invested in GOM drilling projects but have been hit hard by the slow permitting pro­cess, venturing into new areas has be­come a necessity. Companies such as Marathon Oil have gone so far as to cancel drilling and rig construction contracts that were impeded by the mor­atorium and subsequent lack of new drilling permits. The Ocean En­deav­or, Transocean Mar­ianas, Noble Clyde Boudreaux and ENSCO 8503 all fled the GOM following the moratorium. BP indicated in late 2010 that it was redirecting a new rig that was originally planned for deep­water gulf drilling to Libya. However, that relocation was canceled due to political unrest. The American Petroleum Institute has stated that more rigs will leave the Gulf if new permitting is not granted more rapidly.

The effect of the moratorium has been equally if not more profound to share prices of smaller companies. With in­vestor concern about the impact stall­ed drilling will have on corporate earnings, some companies have seen shares fall nearly 30 percent through the be­ginning of 2011, only to be recently buoyed by rising oil prices. Pride In­ternational indicated in its most recent quarterly earnings that net income sank to $30.1 million, down from $73 million a year earlier.

While it appears that the de facto mor­atorium is starting to lessen its grip on GOM developers, many offshore producers have already moved on. Comp­anies that remain in the Gulf today now have to choose between following those that have ventured into opaque international environments or nav­igating increased permitting de­lays, regulatory hurdles and costs which appear here to stay.

Fred Enochs, based in Houston, is a partner at Washington, D.C.-based TD International, a strategic advisory firm. He may be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it. .