Post-Macondo Regulations Change the O&G Industry

Last year marked a turning point in how business in the energy sector is conducted in the United States. While governmental regulatory authorities and operators scrambled to pick up the pieces, offshore business came to a halt.

The Deepwater Horizon accident caused the Interior Department to re-evaluate deep-water drilling procedures. New regulations were implemented hoping to prevent future oil spill incidents and improve the safety and health of the environment and offshore workers.

"The job of ensuring energy companies is following the law and protecting the safety of their workers and the environment is a big one and should be independent from other missions of the agency," Salazar said in a May 2010 U.S. Department of Interior statement announcing the launch of safety and environmental protection reforms to toughen oversight of offshore oil and gas operations.

With this goal in mind, President Obama split the Minerals Management Service, which oversees oil and gas development, in to two parts. The first part, the Bureau of Safety and Environmental Enforcement (BSEE) will inspect oil rigs and enforce safety, while the other, the Bureau of Ocean Energy Management Regulation and Enforcement (BOEM) will regulate offshore exploration plans.

Drilling Moratorium

A month after Macondo on May 28, 2010, the Obama Administration issued a six-month deepwater oil and gas drilling moratorium on new projects seeking permits to drill for oil. The notice directed lessees and operators to cease drilling and spudding of new deepwater wells.

The Interior Department said the moratorium provided time to implement new safety requirements and allowed an investigation in to the April 20 incident. Lawsuits from oil and gas service companies ensued, drilling rigs moved out of the Gulf, and the administration scrutinized the oil and gas industry as a whole.

"I think we will see companies be wary before they start new projects in the United States," said energy analyst, Phil Flynn. "Worst case, they may look to other countries before they settle on the U.S."

Following the drilling ban, the department implemented stronger offshore drilling regulations. For instance, operators must demonstrate that they are prepared to deal with the potential for a blowout and worst-case discharge per NTL-06; permit applications must meet new standards for well-design, casing and cementing, and be independently certified by a professional engineer; and plans must include a compliance statement and review of subsea blowout containment resources for deepwater drilling.

To meet the department's new standards, oil companies obliged by creating a plan to build and deploy a rapid response system to capture and contain oil in the event of a potential future underwater well blowout. Several industry leaders, Chevron, ConocoPhillips, ExxonMobil and Shell, formed a non-profit organization, the Marine Well Containment Company, to operate and maintain the containment system. This organization and system were created to improve the industry's ability to respond to a complete loss of well control, and help eliminate what occurred in April 2010.

Moving Forward

A year after the largest accidental oil spill in history, the industry is slowly picking up the pieces. Since June 8, 2010, the department green lighted (in a water depth less than or equal to 500 feet) 16 initial exploration plans; and 18 initial exploration plans in a water depth of 500 feet or greater.

On average, the approval process for all drilling plans is taking roughly 131 days, compared to 36 days before the moratorium, to secure approval from BOEM. The approval time has nearly doubled from previous years. Many insiders feel that the new regulations will steer companies to drill for oil elsewhere.

"I think companies have learned from the Macondo mistake, but like everything else, mistakes happen. I think we have learned how to respond in a faster, efficient way, and I believe that we will find that the rewards outweigh the mistakes," Flynn said.

All new deepwater drilling plans require an environmental assessment process which can take on average about 222 days or more to be approved. According to the Greater New Orleans Inc, which has monitored drilling statuses in the GOM since last year's oil spill, "Deep-water permit issuance continues to lag the monthly average observed in the year prior to the oil spill," stated the organization. "Only 5 deep-water permits are being issued per month since September 2011, representing a 0.8-permit — or a 14% — monthly reduction from the average of 5.8 permits per month."

Furthermore, shallow-water permit issuance is rising above the historical average.

"Since September 2011, 8.3 shallow-water permits, on average, were issued. That number represents an increase of 1.2 permits — or 31% — from the monthly average of 7.1 permits per month observed in the year prior to the oil spill," reported Greater New Orleans Inc.

This energy slowdown has greatly impacted the oil and gas industry in the United States. Many feel that the lack of production greatly decreases the nation's ability to remain as a competitor in oil and gas sector.

"We are very blessed to have our shale gas reserves because otherwise I would feel a disaster is brewing," Flynn said.

For instance, in June 2011, U.S. employers added only 18,000 jobs, which contributed to the nation's increase in unemployment to 9.2 percent. This percentage would decrease if the oil and gas industry could produce more jobs per month in 2012. These new jobs also bring much-needed revenue to the federal government, according to a study conducted by IHS Cambridge Energy Research Associates and IHS Global Insight.

Nick Loris, an energy expert at the Heritage Foundation, stated, "allowing access for exploration and creating an efficient regulatory process that allows energy projects to move forward in a timely manner will not only increase revenue through more royalties, leases and rent, but also create jobs and help lower energy prices in the process."

GOM Drilling Resumes

In February 2011, BOEM approved the first new deepwater exploration drilling permit in GOM since the spring of 2010. Noble Energy received the governmental nod on Feb. 28 for its exploration plan to drill a bypass well in its Santiago field following the company's completion of a site-specific environmental assessment. This approval marked the beginning of the deep-water drilling process. Shortly after this approval, BHP Billiton got the OK to drill a well in its Shenzi field in the Green Canyon Block 609. BOEM then granted permission to five other companies in March 2011 to follow suit.

More permit approvals were granted and deepwater drilling resumed.

Listed below is information on new exploration plans pending approval to drill on prospects in water depths greater than 500 feet since February 28, 2011:

LLOG submitted an Initial Exploration Plan proposing to explore Mississippi Canyon Block 387. The operator plans to use a semisub to drill the SOB 2 prospect (Lease OCS-G-22873), which is targeting oil. The water depth of the site is 6,425 feet (1,958 meters) and lies 60 miles (97 kilometers) offshore Louisiana.

LLOG then submitted an Initial Exploration Plan proposing to drill in Mississippi Canyon Blocks 255, 256 and 300. The operator plans to use the Noble Amos Runner semisub to drill the Marmalard prospect (Lease OCS-G-24064, G-22862, G-22868), which is targeting oil. The prospect is situated offshore Alabama.

Apache also submitted an Initial Exploration Plan proposing to explore Atwater Valley Blocks 76 and 120 in a water depth of 7,750 feet (2,362 meters). The operator plans to use a DP semisub to drill the Refugio prospect (Lease OCS-G-33866 and 33867), which is targeting oil. The well lies 80 miles (129 kilometers) offshore Louisiana.

Hess submitted an Initial Exploration Plan proposing to drill in Green Canyon Blocks 25, 68 and 70 in a water depth of 1,282 feet (391 meters). The operator plans to use a semisub to drill the Heron prospect (Lease OCS-G-28040, G33217, G33218), which is targeting oil. The prospect is located 80 miles (129 kilometers) offshore Louisiana.

Marathon submitted an Initial Exploration Plan proposing to drill in Walker Ridge Blocks 578 and 579 in a water depth of 6,957 feet (2,120 meters). The operator plans to use a semisub to drill the Key Largo prospect (Lease OCS-G-33379, G-33380). The prospect is located 190 miles (306 kilometers) offshore Louisiana.

Newfield is proposing to conduct exploratory drilling in Mississippi Canyon Block 524 in a water depth of 7,342 feet (2,238 meters). The operator plans to use a DP semisub to drill the Gator Bait prospect (Lease OCS-G-33161), which is targeting gas. The prospect is located 79 miles (127 kilometers) offshore Louisiana.

Nexen Petroleum submitted an Initial Exploration Plan proposing to drill in Mississippi Canyon Blocks 327, 370, 371 in a water depth of 1,006 feet (307 meters). The operator plans to use a DP semisub to drill the Angel Fire prospect (Lease OCS-G-26305, G-22944, G-22945), which is targeting oil. The prospect is located 99 miles (159 kilometers) offshore Louisiana.

Repsol submitted an Initial Exploration Plan proposing to drill in Keathley Canyon Blocks 642/686 in a water depth of 6,161 feet (1,878 meters). The operator plans to use a DP semisub to drill the Leon prospect (Lease OCS-G-3335, G-33341), which is targeting oil and gas. The prospect is located 220 miles (354 kilometers) offshore Louisiana.

Woodside Energy submitted an Initial Exploration Plan proposing to drill Atwater Valley Block 187 in a water depth of 4,016 feet (1,224 meters). The operator plans to use the Maersk Developer (UDW semisub) to drill the Brisbane prospect (Lease OCS-G-31787), which is targeting oil and gas. The prospect is located 79 miles (127 kilometers) offshore Louisiana.

Approved Plan

Statoil submitted an Initial Exploration Plan proposing to explore Keathley Canyon Block 698 in a water depth of 6,356 feet (1,937 meters). The operator plans to use the Discoverer Americas (UDW drillship) to drill the Bioko prospect (Lease OCS-G-33343), which is targeting oil. Drilling is slated to begin in 1Q12. The prospect is located 208 miles (335 kilometers) offshore Louisiana. 

Lease Sale

In October 2011, the Department of the Interior Secretary Ken Salazar and Bureau of Ocean Energy Management Tommy P. Beaudreau announced plans to host the first oil and natural gas lease sale in the Gulf of Mexico since 2009.

The last held Lease Sale 210, (held on Aug. 19, 2009) included 3,400 un-leased blocks covering about 18 million acres in the Western Gulf of Mexico Planning Area offshore Texas. The sale garnered US $145 million to the federal government. A year later, on May 27, 2010, the Department of the Interior canceled Lease Sale 215 following the Deepwater Horizon incident in order to implement measures to improve the safety of oil and gas development in federal waters.

Prior to approving the continuation of lease sales for the Outer Continental Shelf, the department conducted a rigorous historical analysis of the last 15 years of lease sales in the GOM. This resulted in several changes being made, which will be in effect for the upcoming GOM OCS Oil and Gas Lease Sale 218 in the Western Planning Area, scheduled to take place Dec. 14, 2011.

Lease Sale 218 encompasses all un-leased areas in the western gulf planning area offshore Texas, spanning an area of about 21 million acres. The estimated amount of natural resources projected to be developed as a result of the sale is 222 to 423 Bbbl of oil and 1.49 to 2.65 Tcf of natural gas.

BOEM Chief Environmental Office Alan Thornhill will hear comments from the public concerning the Draft Programmatic Environmental Impact Statement for the Proposed Outer Continental Shelf Oil and Gas Leasing Program for 2012 – 2017. The public hearing will be held at the Marriott Houston Intercontinental Hotel in Houston on Tuesday, Dec. 6. Two sessions will be held: 1 p.m. to 4 p.m. and 6 p.m. to 9 p.m.

$50M Helps Restoration Task Force Shift from Planning to Action

The Environmental Protection Agency's Gulf Coast Ecosystem Restoration Task Force on Monday publicly released a final draft of its strategy to address "immediate environmental devastation, as well as the long-term deterioration that has for decades threatened the health, the environment and the economy of the people who call [the Gulf of Mexico] home.

The release of the task force's blueprint marks the beginning of the implementation phase of the strategy by announcing new initiatives, including $50 million in assistance from the U.S. Department of Agriculture's Natural Resources Conservation Service to help agricultural producers in seven Gulf Coast river basins improve water quality, increase water conservation and enhance wildlife habitat.

“It has all come to this moment – when we move from planning and researching to supporting real, homegrown actions aimed at restoring this vital ecosystem,” said EPA Administrator Lisa Jackson.

Some of the key priorities of the strategy include:

  1. Stopping the Loss of Critical Wetlands, Sand Barriers and Beaches
  2. Reducing the Flow of Excess Nutrients into the Gulf
  3. Enhancing Resiliency among Coastal Communities

Input from states, tribes, federal agencies, local government and thousands of involved citizens and organizations across the region contributed to the development of the plan, which represents a commitment by all parties to continue to work together in an unprecedented collaboration to prepare the Gulf region to transition from response to recovery and address the decades-long decline that the Gulf’s ecosystem has endured.


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