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Shallow-Drilling 'Ban' Costs Hercules $150,000 a Day: CEO

Only one permit for shallow offshore drilling has been issued since June 18, effectively leading to an "unofficial mortatorium," Hercules OffshoreCEO John Rynd said on CNBC Monday morning.

As a result, Hercules has about 250 employees idle on idle rigs, which is costing the Houston company $150,000 a day, Rynd said.

Hercules, which provides shallow-water drilling and marine services to the global oil and natural gas exploration and production industry, hasn't laid off any employees, but if the situation doesn't change by September, layoffs may be inevitable for the "survivability of the whole corporation," he said.

Shallow-water drilling mostly involves natural gas production, Rynd said. It isn't banned by the government, but the Bureau of Ocean Energy Management, Regulation and Enforcement, the former Minerals Management Service, is undergoing a reorganization in the wake of the BP oil spill and has been slow to issue permits, even after new safety regulations were issued for shallow-water drilling, he said.

From January to April 2010, MMS issued 87 permits; since May, that figure dropped to 18, he said.

"We currently have 48 marketed rigs in the Gulf of Mexico and there’s 14 idle," Rynd said. "By this September, you can have 70 percent of the Gulf of Mexico shallow-water jack-up fleet idle due to no permits."

If that happens, Hercules will make the "tough decision" on layoffs. One reason Hercules wants to avoid layoffs is there's no guarantee former employees would be available to come back if permits are issued again.

"Then when the operations do start back, you’re starting back with less experienced crews, more intense training, and it can really impact your efficiency and the safety," Rynd said.

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