Drilling permits being reviewed, says Bromwich

BOEMRE Director Michael R. Bromwich says agency’s work “is far from complete.”

Progress in returning Gulf of Mexico deepwater drilling and production activity to something like pre-Macondo levels is getting nowhere…slowly.

Not only that, despite the industry’s efforts to meet the demands made by units of the Executive branch – chiefly the Interior Dept. and its offshore deputy, BOEMRE – it appears as though producers and their contractor/subcontractors face a much longer wait to get back to work than anticipated, even though the much-maligned moratorium on drilling in both the deepwater (and shallow-water) Gulf was “lifted” more than two months ago.

As to the limbo-like nature of the outlook for Gulf deepwater drilling and its lack of well permitting that some now are calling a “permit-orium,” the industry appears to be doing its best to comply with a more stringent BOEMRE-ordered safety and environmental regime and new equipment inspection and accountability rules.

But the facts speak for themselves:

• Admittedly, according to Director Michael R. Bromwich, BOEMRE has been severely understaffed and under-funded, and is competing with the industry itself in hiring competent geophysicists, geologists, engineers, and inspectors, without whom the bureau’s handling of already severely curtailed permitting could be delayed even more.
• A presidential panel is pledged to recommend steps that will constitute a “major transformation” of the offshore industry’s approach to both personal and environmental safety that involves both equipment and personnel. These and other such recommendations are scheduled to be handed to President Obama on Jan. 12, 2011.
• A joint investigation by the Interior and Homeland Security departments, though still ongoing, is scheduled to identify the guilty parties involved in causing the fatal Macondo explosion and the subsequent major oil spill. Its findings – and perhaps even recommendations for Justice Dept. civil or even criminal indictments – are due to be handed down in late March 2011.
• A new Republican-dominated House of Representatives is bent on cutting new federal spending, beginning when the 112th Congress convenes in January 2011. This could leave the probability of a significant increase by Congress of Interior’s (and therefore BOEMRE’s) annual budget in some doubt.
• The Obama administration has rescinded its earlier decision to expand offshore exploration into the eastern Gulf and along the Atlantic coast, citing shortfalls in federal regulation. This extends that Presidential moratorium for at least the next seven years.
• Drilling company management – who have remained patient through the all-Gulf moratorium, keeping most of their deepwater rigs in place – may soon be forced to move them to other parts of the world where more timely and regular work is available.

These conditions alone could lend a decidedly negative tang to the future of Western and Central Gulf deepwater exploratory and development drilling for months to come.

Reforms call for people, money

This past May, BOEMRE (Bureau of Ocean Management Regulation and Enforcement) was quickly organized under Executive Order to succeed the former Minerals Management Service (MMS) as the federal body charged with oversight of leasing, revenue collection, and drilling and production regulation in federally controlled waters. The revamp was necessitated by what President Obama deemed a “too cozy” relationship among MMS regulators and the offshore industry.

As expected, however, as with any “new” governmental organization, BOEMRE and its sub-agencies suffer from expansion bottlenecks in performing their various mandates. Interior Secretary Ken Salazar has asked Congress to help enlarge the BOEMRE’s professional staff and acquire updated equipment with a $100-million budget increase for fiscal 2011. However, the probability of actual receipt of such funding is somewhat moot currently, given the desire for a spending cap among the Republican majority in the House, where all appropriations bills originate.

It doesn’t help either that even other Interior Dept. offices have looked askance at BOEMRE’s stated goal of becoming a more thorough regulator of petroleum industry operations in federal waters.

An 88-page report, ordered by Salazar in May and delivered earlier this month by Interior’s acting Inspector General Mary Kendall, lists a number of “regulatory, organizational, and managerial weaknesses” inherited by BOEMRE from MMS, including the agency’s having too few inspectors to perform oversight of the offshore industry, particularly for the thousands of production facilities currently in the Gulf.

What’s more, the report charged that BOEMRE’s manpower, particularly in the Gulf region, is inadequate for handling what could be a major increase in post-moratorium applications by the industry for drilling permits in the next few months. The high-intensity work load associated with an eventual major influx of permit applications, along with pressure coming from operators for shortened review periods, the report continues, could result in more delays in processing times – and even employee burnout – from efforts to meet such increasing demands.

Obviously taken aback by the finger pointing from his own ranks, director Bromwich quickly issued a response letter to Salazar, calling the Kendall report “dated and incomplete,” and failing to take BOEMRE’s ongoing reforms and improvements (increased hiring in anticipation of the requested $100 million Interior Dept. budget appropriation) into account.

Not surprisingly, offshore operators are largely in favor of Congress allocating more funds for BOEMRE, et al., as well, since that could hasten environmental reviews, drilling permits, and inspection of Gulf deepwater drilling and production activities.

But the industry’s concern also lies in the prospect that when the reports come down from the various Macondo-based investigations during the next couple of months, some or all of the recommended reforms could be sanctioned by Executive Order from the President, without benefit of direct congressional involvement.

Bromwich clears the air

In any case, the sharp end of Interior’s goal to bring “the most aggressive and comprehensive reform of offshore oil and gas regulation and oversight in U.S. history” is BOEMRE and its director, Bromwich.

While the agency already has launched a number of emergency regulatory changes in response to lessons learned from the Macondo spill, Bromwich has left little doubt that more reforms are planned.

Meanwhile, as keynote speaker at a Dec. 8 offshore oil and gas law conference in New Orleans, Bromwich addressed the significant slowdown in the granting of deepwater drilling permits by BOEMRE, which some industry officials and even lawmakers have called a “de facto” moratorium.

Not so, says he, noting that the industry’s post-Macondo success in compliance with new rules in the areas of drilling safety, subsea containment, and spill response was central to Interior Secretary Salazar’s lifting of the moratorium in October, two months early. He mentioned the industry’s development of a number of containment mechanisms intended specifically for deepwater, including the launching in July of the Marine Well Containment Corp. by four major companies and subsequently joined by BP, operator of the Macondo well. He also noted the recent announcement by Helix Energy Solutions Group Inc. of a commercial rapid response containment system (available via a retainer-like financial structure) also to be installed in the Gulf area (see accompanying story).

Since the moratorium was lifted, said Bromwich, BOEMRE has worked diligently to review applications for deepwater permits and ensure that they comply with the new regulations. However, he added, the agency still faces a severe shortage of resources, but has temporarily re-assigned personnel from other regions to help in permit reviews.

“We are not slow-walking them in any way or for any reason,” said Bromwich, who then added: “I want to be clear. We will not cut corners in the permit review process and permits will be approved only when we are satisfied that all applicable regulatory requirements are met.”

Referring to the new regulations, Notices to Lessees (NTLs) and how his agency will apply National Environmental Protection Act (NEPA) requirements for deepwater drilling, Bromwich said BOEMRE is preparing a “guidance document” intended to describe the way forward. This document, he said, will resolve many of the questions being posed by operators. He did not say when this document will be made available, however.

No big rule changes ahead

As for additional reforms, Bromwich said BOEMRE’s work “is far from complete,” and added that in the near future, the agency will implement further safety measures. These will include establishing additional requirements for BOPs and ROVs. The agency will also consider additional workplace safety reforms, including requirements for independent third-party verification of operators’ Standard Emergency Management Systems (SEMS) programs.

But he also noted that the anxiety currently being expressed by companies, trade associations, and members of Congress over whether BOEMRE will soon change the drilling permitting rules significantly should be allayed. “This is not the case,” he said. “Barring significant, unanticipated revelations from the ongoing investigations into the root causes of theDeepwater Horizon incident, I do not anticipate any further emergency rulemakings.”

At the same time, he said, BOEMRE will continue to analyze information that becomes available, including the findings and recommendations of the various ongoing investigations into what caused the Macondo spill, and “will implement reforms necessary to make offshore oil and gas production safer, smarter and with stronger protections for workers and the environment.”

Oil capture/containment systems to abound in GoM region

The US Gulf of Mexico offshore industry staging area soon may be well-stocked with rapid-response oil spill capture and containment equipment that, if combined, could capture and/or burn as much as 200,000 b/d of crude oil and liquids escaping from compromised wells drilled in up to 10,000 ft of water.

In early December, Helix Energy Solutions Group Inc., Houston, announced it was putting the final touches on a deepwater containment system – as yet unnamed – using its own deepwater production and construction vessels, two of which played key roles in the Macondo oil spill response, along with subsea and surface equipment that Helix considered most useful in that effort.

The Helix system, to be offered commercially to Gulf operators, could be used exclusively or to supplement that of the Marine Well Containment Co. Inc. (MWCC), the $1-billion non-profit system announced in July by ExxonMobil, Chevron, ConocoPhillips, and Shell. Helix says their system is available immediately, while MWCC says their complete system will be ready to go in about 12 months.

The MWCC system is being financed by its four founders, along with BP Americas, which donated its own equipment used in capturing Macondo oil. MWCC is asking other Gulf operators to participate in the organization in various ways. The Helix operation will be offered to all operators – including both large and smaller independent producers – under a retainer-like structure.

The company says it is lining up companies to enlist in the system, but would not name any while negotiations continue.

The Helix capture/containment system is based on a subsea shutoff device (SSOD) placed atop sea-floor BOP or production equipment. Combining the SSOD with an Intervention Riser System (IRS) then allows well flow to be channeled to production and storage vessels at the surface.

Installation of the SSOD and IRS would be handled by the company’s Q4000 DP-3 multipurpose floating intervention/production platform, along with its Express deepwater construction ship, with produced fluids separated and stored aboard the Helix Producer 1 DP-2 floating production vessel, supplemented by FPSO vessels serving shuttle tankers or production facilities tied into pipelines to shore. All three Helix vessels played key roles in the Macondo spill response.

Helix says its vessels and equipment array can handle up to 55,000 b/d of oil, 70,000 b/d of liquids and 95 MMcf/d of natural gas in water depths to 8,000 ft. Natural gas production would be separated and then flared. The company did not place a monetary value of its system.

System similarities

With Technip as its chosen front-end engineering and design contractor, Marine Well Containment plans to deploy a newly designed and fabricated hydraulic/electrical-controlled subsea containment assembly onto a compromised well for a permanent connection and seal equipped with a suite of valve adaptors and connectors to interact with BOP, wellhead, lower marine riser package, and casing string interfaces.

Oil would be captured by the containment assembly and flow through a manifold and then into flexible pipe to one or more free-standing flexible risers configured to connect with capture/storage vessels. All production equipment will be fitted with hydrate inhibition systems.

At the surface, the MWCC system’s capture vessels will be either FPSO-type ships or conventional tankers equipped with modular process equipment. Either would offload into shuttle tankers or connect to pipeline transportation platforms.

All containment vessels will be equipped to quick-disconnect from riser assemblies and umbilicals in case of weather interference with operations.