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The cost attached to tightened rig operation regulations cemented last month regarding Outer Continental Shelf drilling may cause small business operators and lessors to pull out of the Gulf of Mexico’s deep waters.

The Bureau of Safety and Environmental Enforcement revealed this in its 47-page analysis of its final rule in the aftermath of the 2010 Macondo prospect blowout, which claimed 11 lives and spilled 4.9 million barrels of crude into the gulf.

Small businesses, which have about a 12 percent interest in deep-water leases, will combine to pay an estimated $12.7 million per year related to the new deep-water costs, the agency estimated.

Don Briggs, president of the Louisiana Oil and Gas Association, which includes member companies involved with all aspects of offshore energy production, said he’s not sure what impact the new rule will have on small businesses.

“I don’t think the small business owner knows yet what kind of impact it’s going to have on them,” Briggs said. “I’m not sure everybody really knows what that looks like yet.

“The deep-water operators, they have a better ability to withstand the increased costs,” he continued. “The smaller operators in the shallow water, additional costs make it very difficult, but some of them will (leave) and some of them won’t and some of them will gradually get out, I’m sure.”

The rule establishes new training, casing, cementing and blowout preventer requirements. It also requires more testing, documentation and third-party verification of emergency equipment.

“This rule makes final important standards that were put in place shortly after the Deepwater Horizon oil spill and is based on input from stakeholders and recommendations from the numerous investigations related to that tragedy,” BSEE Director Jim Watson said.

Although small businesses will likely feel the impact, BSEE said the cost increases wouldn’t be debilitating to the industry. Costs associated with the final rule are about $52 million less than those associated with the interim final rule, BSEE said.

The standards will add $850,000 and $230,000 in cost to deep-water wells drilled with mobile offshore drilling units and platform rigs, respectively, BSEE estimated. Shallow-water operations’ cost will be hiked roughly $130,000 per well.

“While not an insignificant amount, we note this extra recurring cost is around 1 percent for most deep and shallow water wells,” the report reads.

In total, the industry will pay about $131 million in additional costs each year. The agency estimated that $23.9 million, or 18 percent, will fall on small companies – $12.7 million in deep water and $11.2 million in shallow water.

Small companies – classified as those with 500 or fewer employees – own a 12 percent interest in deep-water leases and 47 percent interest in shallow-water leases, the agency said.

“It would not be responsible for a regulator to compromise the safety of offshore personnel and the environment for any entity, including small businesses,” the document says.

Six months after the BP Deepwater Horizon explosion, the Bureau of Ocean Energy Management, Regulation and Enforcement issued its “interim final rule,” effective immediately and accompanied by a 60-day comment period. In August, almost a year after BOEMRE was split into two organizations, BSEE finalized the new regulations.

“It’s about what we expected,” Briggs said of the new rule. “We understand a lot of the things. Industry has been working on them, but it’s still going to be very expensive.”

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Associations that represent recreational fishermen, divers and conservationists are beginning to make noise again over the federal government’s so-called idle iron policy.

Opponents argue the policy would not only remove and plug 4,150 inactive wells and platforms in the Gulf of Mexico, but it would also destroy an underwater forest of living coral that supports a wide range of species.

Just a few months after the 2010 BP oil spill, the U.S. Interior Department issued the policy notifying “offshore operators of their legal responsibility to decommission and dismantle their facilities when production is completed.”

The policy stipulates that all wells, pipelines and platforms that are not servicing or supporting exploration must be unplugged, decommissioned, dismantled and relocated.

A major deadline for the first big wave of decommissions is coming in 2013, and the federal government is holding firm in its decision to regard aging energy structures as a form of risk, especially during hurricane season.

Earlier this week, the Louisiana chapter of the Coastal Conservation Association lobbied its members to write their elected representatives on Capitol Hill to ask them to support a temporary moratorium on the program.

“A typical four-legged platform becomes the equivalent of two to three acres of vibrant habitat in the Gulf and home to populations of fish, coral, shellfish, turtles and sea mammals,” according to the association’s appeal.

Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, said the idle iron policy has added to the cost of doing business in the Gulf, and the related regulations are not well defined.

“I’m not sure where this policy came from,” John said. “We support further study, certainly, rather than a blanket decision to get rid of everything. There are a number of structures out there that are still somewhat active and somewhat producing that would technically fall under the definition of idle iron.”

Oil interests and conservationists said there is a solution in the Rigs to Reefs Habitat Protection Act, which is legislation that has been filed by Sen. David Vitter of Metairie and Rep. Steven Palazzo of Biloxi, Miss., both Republicans.

The bill wouldn’t allow any structures to be removed until there are assessments conducted to determine if there are coral populations and supported species in the area of the targeted rigs and platforms.

Both recreational and commercial fishing values would be part of the equation.

“I’ve fished these rigs before,” John said. “It’s just amazing to see the life they can support.”

Vitter said the legislation is still pending action on the committee level but added supporters are also looking at other bills where the rigs to reefs concept could possibly be attached as an amendment.

“Some of the highest quality marine resources are found around offshore rigs, and I’m hopeful we can build consensus for slowing their removal,” Vitter said. “There’s a broad overlap of support between industry and conservation that these rigs and infrastructure shouldn’t be fully decommissioned, and we’re looking to find a clear path to halt the Department of Interior’s pursuit of doing so this year.”

Gifford Briggs, vice president of the Louisiana Oil and Gas Association, said the issue simply needs a little balance.

He said there are certainly rigs and platforms that should be decommissioned for safety reasons, but the Interior Department has cast such a wide net that the issue has become confused.

“I believe both industry and conservationists appreciate the efforts of Sen. Vitter on this,” Briggs said. “Some of the infrastructure should be removed, but critical marine habitats should be protected as well.” CCA contends the rigs in the Gulf of Mexico make up the “largest man-made artificial reef in the world, providing habitat to dozens of species of fish and marine life, many of which are structure-dependent.”

The organization is backing the Palazzo-Vitter bill because it would halt decommissions until it can be determined that removing the rigs and platforms would not be harmful to the reef ecosystem.

The proposed legislation would likewise exempt companies from the idle iron requirements as long as the owner commits to converting the platform into an artificial reef either by initiating discussions with applicable state governments regarding potential sites for the artificial reef or by taking steps to provide for “reefing in place.”

For reefing in place, a do-it-yourself process, the legislation outlines several steps that must be taken, including removal of the top decks, maintaining an anode system and navigation aids and paying into a reef maintenance fund that would be created by the proposed act.

The fund would essentially be used to maintain the artificial reefs established under the proposed act.

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