By Starr Spencer in Houston

June 28 - For the first time since the US government-imposed moratorium on drilling in the Gulf of Mexico started last month, an E&P company June 25 invoked force majeure on a shallow-water rig contract. Meanwhile, oilfield service providers are citing a lack of clarity over new government regulations.

Contract driller Rowan Companies said in its latest fleet status report it had received force majeure notice for the Rowan Cecil Provine jackup rig from big independent Apache Corporation.

Apache, which specializes in exploiting mature properties on the US Gulf's aging Continental Shelf, had leased the rig for a dayrate in the low $60,000s until July. It was targeted for use on further development work at the independent's large Grand Isle block 40 development in 92 feet of water.

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"The rig is under contract at the indicated day rate but is waiting on a permit," Rowan said in its fleet report.

Rowan added that Apache declared force majeure June 22 and that the driller is "evaluating its response to this notice."

Drillers have said a three-week moratorium imposed by the US Interior Department on new permits and wells in the US Gulf in both shallow and deep waters resulted in a permitting backlog that has persisted even though the shallow-water part of the moratorium was lifted in late May. Several force majeure declarations have been made on deepwater rig contracts, and drillers have said they do not recognize a government moratorium as a force majeure event.

The deepwater moratorium was extended for six months but US Department of Interior Secretary Ken Salazar has pledged to revise it (ON 6/24). But even without a moratorium, permitting for shallow-water wells has been beset by delays, say industry sources.

Apache, which has leased the Cecil Provine all this year, confirmed it had declared force majeure, but a spokesman declined further comment.

The Cecil Provine can work in maximum water depths of 300 feet but can drill to total depths of 30,000 feet.

Rowan said seven of its US Gulf jackup rigs are currently "impacted" by recent requirements by offshore oversight agency Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM), formerly known as the US Minerals Management Service.

Two Rowan rigs are stacked, while two more are contracted but so far do not have permitted work beyond their current operations, Rowan said in a June 24 US securities filing. Three more "are under contract but are waiting on permits," said the driller in its filing.

Grand Isle 40 is a showcase field, one of the larger assets Apache acquired in its $1.3 billion purchase of Shelf properties from BP in 2006 (ON 4/20/06). The independent plans to drill a development well there.

While Apache has kept mum on its reasons for invoking force majeure on a rig whose contract expires shortly, observers believed the company knew its drilling permit may be further delayed and did not want to continue paying for a rig it was not using.

"I think Apache's action to declare force majeure is a demonstration of the growing frustration that operators, as well as drilling contractors, are feeling at the current state of affairs," Weeden & Company analyist Geoff Kieburtz said. Kieburtz was referring to new regulations handed down by the BOEM, including requirements for third-party verification of blowout preventers on rigs, and other safety regulations. Companies also have to show proof that well casing designs and cementing procedures are certified by a professional engineer.

Given these requirements, "my initial impression is (Apache) is trying to send a message," said Kieburtz. "The confusion and uncertainty that have been brought about by the changing rules has effectively shut down operations in the shallow water as the explicit moratorium has shut down operations in the deepwater."

Randy Stilley, CEO of Seahawk Drilling, said in a telephone interview June 25 that industry is "gradually working through the confusion" of new BOEM regulations. He said these regulations were initially issued "without any clarifications" and left operators and drillers with many questions on how to implement them.

Stilley said BOEM's requirement that equipment be certified and verified by third parties "really has slowed things down."

"We've had to get a third-party inspector out on every rig, and also had to go through and demonstrate our blowout preventers would cut any pipe we might be using on any well," he said.

"We had to physically demonstrate this while they were on site, for any anticipated pressure we might have, and (demonstrate the BOP) would hold to that pressure," he added.

Stilley said he understood these verifications will be required for every well, but hopes industry will be able to get into a routine that will speed up the process. The CEO also said he believes the first shallow-water permit was issued by BOEM on June 25 since the shallow-water moratorium took effect in early May, and would return one of his company's idled rigs to work. That permit, to Bandon Oil and Gas, could not immediately be confirmed by BOEM.

Even so, Stilley said the rig assigned to that well, Seahawk 2004, a jackup that can work in 200 feet of water, could start work "immediately," following permit issuance. But the driller would need to fully crew the rig, which has been partially crewed while awaiting the permit, he said. The Seahawk 2004 would earn $36,000/d.

The Bandon permit "has been pending for over two months," said Stilley. "Normally permits take about a week" to issue, once the exploration and development plan have been approved. He claimed there were over 40 shallow-water permits pending before BOEM since the three-week moratorium went into effect May 6. BOEM did not immediately respond to inquiries from Platts on this.

Stilley said Seahawk has three rigs that are currently idle and awaiting permit issuance. "If we don't get permits issued in the next two to three weeks, we'll have another two or three rigs go idle," he said.