“We were out of business and then we were in business, and then we were again out of business in 24 hours,” said Tim Duncan, senior vice president of Phoenix Exploration, a small firm operating in the shallow water of the US Gulf of Mexico (GoM). Duncan made this public statement in an interview with CNBC broadcasting from Hart Energy’s “Energy Capital Week” on Tuesday, June 15, 2010, in response to a question about President Obama’s recent announcement that deepwater operations in the US GoM would be halted for six months while a full investigation of the Deepwater Horizon blowout is conducted.

International Association of Drilling Contractors (IADC) president, Dr. Lee Hunt, shared his opinions about the moratorium with me at the IADC meeting in Budapest the week of June 14. “There was an expectation among many contractors after President Obama’s speech that the MMS (Minerals Management Service) would begin processing the current backlog of applications for shallow-water permits.” This expectation was seemingly confirmed when the MMS issued two shallow-water permits the next day – but both permits were rescinded within 24 hours. Then came the announcement from the MMS that all permits would have to be resubmitted under its new notice to lessees (Safety NTL), which was issued on June 8, 2010.

The Department of the Interior’s (DOI’s) Safety NTL basically reiterates many of the same requirements that existed for shallow-water operators prior to the Deepwater Horizon incident. The “new” implications primarily refer to the addition of multiple third-party certifications including certifications performed by the well operator’s CEO.

Among the systems that now require third-party certification are casing and cementing design (with at least two barriers). Independent third-party certification also will apply to several processes that traditionally have been performed in house, including inspection of the blowout preventer (BOP) that includes affirming its functionality and its compatibility with well/borehole designs as well as testing of blind shear rams to ensure they are capable of shearing drillpipe. Other qualifications, such as CEO certifications for compliance with regulations, rig equipment testing, personnel training, and HSE are new. The Safety NTL also calls for the submission of maintenance records to document that BOPs have been maintained to industry standards. This documentation is already kept on hand by operators.

For most operators in the shallow-water GoM, these requirements are not difficult to meet. The recent confusion with the new requirements stems from the fact that MMS has not yet defined which types of engineering and inspection/verification firms will be qualified as independent third parties.

President and CEO of Seahawk Drilling Randall Stilley’s opinion sums up the situation for all shallow-water drillers. “We hope to have some clarification from MMS on this question in the near future.”

From appearances, the situation might well become murkier before things are clarified. In a press release issued by the DOI, Bob Abbey, director of the Bureau of Land Management Service, said, “In the coming days, the Department of the Interior will also be issuing expanded requirements for exploration plans and development plans on the Outer Continental Shelf.”

To date, the impact of these potential “expanded requirements” are unknown. The vague tone of “in the coming days” is problematic for operators and drilling companies that are desperate to get back to work.

“There is a possibility that these additional requirements could add further delays to the permitting process, effectively prolonging an ‘unofficial’ moratorium on shallow-water drilling operations,” Stilley said. “We’re hopeful that MMS will continue to work with shallow-water operators and the drilling industry to begin issuing new shallow-water permits in the near future without additional delay.”

According to Dr. Hunt, “July 15th will be a crucial day for the US mat jackup fleet. If no new permits are issued by this date, the shallow-water sector of the Gulf of Mexico will have been without activity for six weeks. This will ultimately lead to stacking 50% of the fleet and could cause critical enterprise failure followed by layoffs, additional rig stacking, and the loss of capitalization for many of the regions smaller operators. Our main goal at this point is to get the rigs back to work.”

The unfortunate thing is that it is not the new safety requirements that are the obstacle for shallow-water operating companies. The real problem is overcoming the ambiguous nature of the new directives, a hurdle that will have to be cleared before shallow-water operations can get back on track.

“When rules change on a day-to-day basis, it is a bit stressful for firms like ours,” Duncan said.