Government & Politics
 

"Devastation" from moratorium was as real as the Rapture, but it got far less buzz

At the Gulf Coast Leadership Summit held in New Orleans on April 19, local businesswoman Leslie Bertucci stood at an audience microphone and passionately explained her story to former Oil Spill Commission Co-Chairman Bob Graham, who listened from the conference room stage. She told him that she was the owner of R&D Enterprises, and that she was there “representing all small businesses” throughout the region. Bertucci then decried last year’s oil drilling moratorium and the slow issuance of drilling permits thereafter, saying it had “devastated” her company and many others.

I noted her use of “devastated,” because she paused slightly before saying it, and because it’s the default description used by seemingly everyone who complains about the current “de facto moratorium.” Actually, new drilling permits are being issued, so “de facto moratorium” is de facto incorrect.

Its use is now more political than descriptive, conveying Big Oil’s frustration with the government’s new drilling-permit processes, a year after the worst offshore oil disaster in American history.

The rest of Bertucci’s presentation rang true, though, as she spoke vividly about how her oil-services company is mired in a vicious Catch-22. Revenues at R&D are way down, as the modular storage equipment they lease to rigs is standing idle. Bertucci never dreamed the drilling slowdown would continue for so long, so she applied for financial assistance from the Gulf Coast Claims Facility. She was told her company didn’t meet the criteria. Suing BP was another option, but Bertucci admitted that a legal fight might take decades to wage.

She applied for relief from the Gulf Coast Restoration and Protection Foundation, a $100 million charity funded by BP for workers “affected by the 2010 federal moratorium,” but officials there told her incorporated businesses weren’t eligible for grants. Bertucci’s employees could qualify for hardship grants, but only if she fired them first. She told Graham that she didn’t want to do that. She just wanted everyone to get back to work.

When Graham advised Bertucci to consult a lawyer, the audience  stirred uncomfortably. Bertucci said she already tried that. Then Graham, a seasoned former U.S. senator, got back on track in a political sense,  saying that part of the purpose of the summit was to hear such stories. He said “another chapter in the claims process” should exist for people like her. At that, the conference room erupted into applause.

After the summit, I looked up Bertucci’s name to see if her story had been covered elsewhere. Indeed it had. That same day, the Heritage Foundation uploaded a video interview of Bertucci discussing the effects of the moratorium. In the interview, she used the old “grounded airplanes” analogy to argue against the Obama administration’s “irresponsible” policies.  The video got widely disseminated throughout the conservative blogosphere. The Times-Picayune mentioned Bertucci in a story and then later in an editorial, even after having publishing a profile on her in September.
It’s safe to say that Bertucci has become the new face of the moratorium’s “devastation.” And that’s a good thing because, frankly, the previous poster children for the moratorium were not very convincing.

Take Seahawk Drilling, for instance. For months, this Houston-based company was cited by national pundits and politicians as concrete evidence that the moratorium was costing real jobs. Big Oil apologists such as Louisiana Sens. Mary Landrieu, a Democarat, and David Vitter, a Republican, waved the Seahawk example like a bloody shirt. Vitter went so far as to say that President Barack Obama’s administration was “solely responsible” for the company’s bankruptcy, and he held up administration nominations in protest. While Seahawk did in fact blame its bankruptcy on the moratorium, Houston Chronicle business columnist Loren Steffy notes that the full story isn’t so simple.

Seahawk’s problems… may have less to do with the moratorium than with its own history.

The company was spun off from Pride International in 2009, and it has never turned a profit. The company’s shares have declined steadily for most of its short existence, falling from $35.13 in September 2009 to $4.86 on [February 15].

The average of its rigs at the end of 2009 was a creaky 29 years, according to regulatory filings. Since the spinoff, demand for jack-up rigs like Seahawk’s has faced its steepest decline in three decades. Between August 2009 and March 2010 — a month before the Macondo disaster in the Gulf of Mexico –  an average of only five to seven of its 20 rigs were active, the company said in its bankruptcy filing.

Seahawk also relied heavily on a single customer, Petroleos de Mexicanos, the Mexican state-owned oil company, which accounted for almost three-fourths of Seahawk’s sales in 2009.

Then Pemex curtailed spending because of the peso’s declining value. It didn’t renew its contracts with Seahawk, contributing to a 62 percent revenue decline for the six months that ended last March –  a month before the Macondo blowout.

To make matters worse, Seahawk inherited more than $100 million in disputed Mexican tax liabilities from Pride dating to 2001 that continue to hang over the company.

Nice to see Landrieu and Vitter going to the mat to defend a profitless, debt-ridden Houston-based business that did most of its work for Mexico’s state-owned oil company. Again, for several months this year, Seahawk was the premier example of the moratorium’s “devastation” of the Gulf Coast.

A recent Times-Picayune editiorial pointed to Hornbeck Offshore Services as another victim.

Hornbeck Offshore Services, the Covington-based operator of offshore supply vessels, this month posted its first quarterly loss in more than six years. Hornbeck said it had enough oil-cleanup work to keep its vessels and employees busy for several months after the spill, as did many other oil-related suppliers and workers. But the cleanup work has dried up, and Hornbeck said it’s been hit by the slowdown in drilling permits from the administration. The company’s first-quarter revenues fell 16 percent compared to a year ago.

To be sure, it’s unwelcome news when a local company’s year-over-year revenues take a 16 percent haircut. But is this really such a horrifying example of the moratorium’s local economic “devastation?”

Let’s review what’s been said about moratorium job losses over the past year.

A video from the Offshore Marine Service Association compared the de facto moratorium to a “death sentence” and baldly claimed that it “has devastated tens of thousands of workers and their families.” In October, U.S. Rep. Steve Scalise, R-Jefferson, cited estimates as fact when he claimed that the moratorium had already cost Louisiana 12,000 jobs, with thousands more in jeopardy. Even U.S. House Speaker John Boehner, R-Ohio, weighed in and said that over 8,000 jobs would be lost in the Gulf Coast. For some reason Boehner cited the Texas Railroad Commissioner as his source, who was relying on data compiled by LSU Finance professor Joseph Mason. Mason recently testified before Congress about the moratorium and raised his estimate of 8,000 jobs lost up to 13,000 jobs lost, though this was a downward revision from his earlier forecast that nearly 20,000 jobs would be destroyed. Even local economic development agency GNO Inc. initially estimated that the region would suffer between 12,000 to 22,000 jobs lost.
Absolutely no direct evidence exists to support any of these earlier claims and forecasts.

As the Wall Street Journal reported last month, “there is little sign of the economic devastation feared by everyone,” after the spill and moratorium. The story quoted the president of the Louisiana Oil and Gas Association, who admitted, “We gave all these doom and gloom figures and there’s no blood in the water.”

The numbers back this up. Of the $100 million donated to a charitable fund for unemployed rig workers – which Big Oil apologists initially deemed totally insufficient –  only $5 million has been distributed. Thousands were expected to apply for the first round of grants, but only 300 did. The money paid out so far is  less than the $6 million in fees paid to the administrators of the fund

Critics countered that the real job losses had occurred in oil-support services industries, which, unlike the drilling companies, didn’t have the deep pockets to remain solvent during the slowdown. These were all the “Mom and Pop” businesses that were eligible to apply for the second round of grants. After their application window came and passed, The Times-Picayune’s  David Hammer wrote a story about the results. It’s headlined “BP oil rig worker aid fund draws little interest”:

Barely more than 1,100 people applied… to take advantage of BP grants intended for an estimated 27,000 people who worked in support of deepwater oil and gas rigs when the federal government imposed its drilling moratorium last year in the wake of the Gulf oil spill.

Even if all 1,121 applications… are approved, and even if all get the maximum hardship grant of $30,000 from the fund administrator, the Baton Rouge Area Foundation, there would still be about $55 million left in the fund.

That should be shockingly good news, right? The forecasted moratorium job loss devastation – so overhyped for so long – never really occurred! But I don’t hear much celebrating; only silence, or a few faint grumblings about how the worst is yet to come. But it’s over a year after the oil disaster began, and it’s absurd to think that there are thousands of unemployed oil rig and service workers out there unaware of a $100 million fund set up specifically to help them. And it’s preposterous to believe that unemployed breadwinners aren’t applying for upwards of $30,000 in grants. So, judging by this evidence, it seems that only a small fraction of the feared moratorium layoffs occurred. All the earlier forecasts of economic devastation and the “death of an industry” –  never happened.

I think “hoax” is too strong, but I wouldn’t rule out some bad faith among those who most persistently fomented the unjustified hysteria about the moratorium over the past year. If those who complained the loudest about the moratorium last summer truly believed the dire forecasts they were making, then this story would have greater resonance now. There would be visible signs of relief. After all, we averted a fake apocalypse last Saturday, and everyone was talking about it. Yet, none of the apocalyptic moratorium predictions has come to pass, and no one even blinks.

Here’s a thought about what really went down: during and after the Macondo disaster, Big Oil was concerned about the prospect of lost profits, so they crafted their complaints in terms of hyped job-loss scenarios which funneled through their political supplicants (and sympathetic think tanks) into the media, on endless loop. These dire scenarios alarmed a lot of people, including employees and their families, yet all the while the companies knew they would cut profits before they would  lay off  their skilled workers. Most everyone bought into this “cult of moratorium devastation,” and now they are a bit embarrassed that the predicted job loss “rapture” never occurred.

It’s a thought, anyway.

That said, my view all along has been that the moratorium was an overreaction. I never understood why rigs couldn’t be allowed to drill but not touch hydrocarbon reservoirs until new safety upgrades had been approved. Also, the moratorium needn’t have included TLP- and Spar-based platforms, which don’t even use subsea blowout preventers.

That said, the Obama administration’s decision to err on the side of extreme caution after an unprecedented oil disaster wasn’t crazy or irresponsible. It’s not like “near misses” haven’t occurred with frightening frequency since the spill. We just don’t hear about them. For example, an engineer recently sent me this story, involving a rig chain supplier who used little more than chewing gum and duct tape to patch a crucial chain link in order to skirt a safety inspection. The engineer wrote:

This is a HUGE deal.  The (“non-US”) chain supplier had a bad weld.  Instead of grinding it down, completely redoing the weld from scratch, and re-heat-treating the metal, they deposited just enough metal to make it pass inspection (knowing full well the added metal had 0 adhesion to the base metal) and passed it off like good chain.  A chain fails at its weakest link…

This could have been MUCH, MUCH worse.

Indeed.

Even though we know how high the stakes are, unless something goes wrong in a big way, we don’t hear about it. Yet for over a year we’ve gotten a steady dose of Big Oil apologists screaming about the moratorium’s “devastation” and assuring us that safety is Priority One for every company, except the pre-Macondo BP. It’s an unbalanced way to view the situation, since the “flip side” to the moratorium critics’ argument is (in my view) far more unreasonable than the moratorium they argue against. As Loren Steffy explained back in August:

If the American Petroleum Institute made cars, the accelerator and the brake would be one pedal.

[The API argues that] even though we don’t know what caused the disaster, we should drill on, press technology that may or may not be to blame to its limits, and worry about regulations later.

It’s as if the mouthpiece of Big Oil is saying that the Macondo blowout has no bearing on any future drilling, that it was a one-off in an otherwise impeccable track record and therefore should be discounted. What are the chances it would happen again?

 

But even before the investigation into the cause is complete, we know one thing. The industry was unprepared for a disaster of this magnitude. Its response plans were idle fiction. Its technical capabilities in responding to the blowout were woefully inadequate. And the solution took far too long.

 

While the industry can denounce the loss of jobs from the moratorium, we can’t ignore the livelihoods lost to the consequences of the accident, either.

This gets to the root of the basic argument we’ve been having over the past year. After a tremendous disaster, instead of Big Oil saying, “This spill is unacceptable and we will ensure this never happens again before we drill another well,” they opted to craft scary talking points to support their view that, “This spill probably won’t happen again, and drilling must immediately continue or else the good people of the Gulf Coast will endure economic devastation.”

Louisiana’s leaders – who supposedly represent the people most directly impacted by the spill – decided to embrace the latter argument. In July, they joined hands with Big Oil and helped pack  15,000 people into the Cajundome to rally for… “Economic Survival.” Survival! During the height of last year’s oil disaster, Gov. Bobby Jindal and Lt. Gov. Scott Angelle made time to create a survival team to oppose the moratorium. Petitions were circulated, dire job loss estimates were bandied about… and they were able to convince a lot of Louisianans that the moratorium menace was worse than the ongoing Macondo oil gusher.

And now, a year after the moratorium began, and as the so-called “de facto moratorium” continues, the $100 million fund specifically set aside exclusively for victims of the moratorium “devastation” has received a paltry 1,500 applications. They don’t even know yet what they’re going to do with the remaining $55 million. My suggestion: Send the money to another fund that can legally reimburse struggling business-owners such as Bertucci.
Drilling leases now are being extended and new drilling approvals are being made –  just not at pre-oil spill levels (which Vitter seems to think is some divinely decreed industrial entitlement). Louisiana’s mining sector, which includes oil exploration, saw year-over-year job increases since April 2010. Unemployment in the Houma area, which should be ground zero for “de facto” moratorium job losses, decreased last month from 5.8 percent to 5.4 percent, far below the national and state averages.

However, some still want to argue that the moratorium is responsible for mass unemployment in Louisiana. Scott McKay at The Hayride, and Fergus Hodgson at The Pelican Institute maintain that the “devastating” (you’ll find that word in both those links) moratorium is driving job losses in this state. They both employ the post hoc logical fallacy, wrongly attributing causation to statistical correlation. For example, Hodgson wrote in this post:

On the anniversary of the spill, last week, outlets such as the Wall Street Journal downplayed the economic impact. Apparently, 13 percent more unemployed Louisianians than this time last year, against the national trend, wasn’t enough evidence.

No, it’s certainly not enough evidence! Actually it’s fairly typical for Louisiana to buck national economic trends, during good and bad times. Hodgson must explain how the moratorium can be blamed for overall unemployment increases, while Louisiana’s mining and oil sector gained jobs over the past year.

Then there’s this priceless observation from McKay:

If there is another major economic driver which has moved the state’s economy south other than the federal government’s shutdown of the state’s leading industry in the last 12 months, we’re not aware of it and we probably would be since we tend to watch this stuff pretty closely.

Hmm. I seem to recall an oil spill that might’ve affected some Gulf Coast fishing and tourism jobs over the past year. Also, the latent effects of The Great Recession that Louisiana largely avoided due to artificially high post-Katrina construction and federal funding might be now expressing themselves more fully –  that’s a possibility. (The biggest net job losses from April 2010 to April 2011 were in the construction sector.) McKay doesn’t explain how the “permitorium” can drive statewide unemployment while thousands of jobless workers are not even bothering to apply for a hardship grant from a $100 million fund.

Given all the rhetoric and fear-mongering that we heard over the past year, the moratorium’s lack of impact should be the real story right now. It’s an extraordinarily good thing that the “devastation” so many originally feared never occurred. Our region averted the apocalyptic job loss predictions of our political leaders and Big Oil apologists. Yay! Right?

This is not to minimize the financial pain that some, like Bertucci, are enduring. But, while I hope Graham’s suggestion comes to pass, and the available monies can be routed to help her company, she’s incorrect to say that she speaks for all Gulf Coast small businesses when she talks about the “devastation” of the moratorium. Her situation, thankfully, is an exception, not the rule.

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  • jeffrey

    This made me chuckle a bit. “Actually it’s fairly typical for Louisiana to buck national economic trends…”

    Also, Scott Angelle was recently presented with the Louisiana Mid-Continent Oil and Gas Association’s “Blue Heron environmental award” which sounds really nice but why not an “economic survival” award?