Regulatory uncertainty stifles permit applications; Gulf drilling still minimal
F. Jay Schempf
Contributing Editor
Exploration drilling in the Gulf of Mexico is still locked up in a whole world of doubt and uncertainty in the aftermath of the fatal Macondo well blowout and oil spill.
A fledgling federal administrative body – the Bureau of Ocean Energy Management, Regulation and Management (BOEMRE) – is issuing new mandates governing both deep and shallow-water drilling in the Gulf, some cast not simply as rules and regulations, but rather, in the form of an ultimatum, with the “or else” heavily implied.
What’s more, a six-month moratorium on exploration drilling in the Gulf imposed – then lifted a month early – by the Obama Administration’s latest Interior Secretary has resulted in continued administrative delays in the granting of permits for both deep and shallow water drilling in federal waters, creating what some industry leaders call a “de facto” moratorium.
A whole passel of federal, regional, and local investigations into the causes of the Macondo incident are under way, some aimed at helping to avoid recurrences of future large-scale offshore blowout-spills. Others, however, have been engaged in searching for the “culprits” on whom to pin Macondo, with civil and even criminal charges being the possible outcome.
Meanwhile, the cleanup of spilled oil, a considerable amount of which reached the Gulf Coast shoreline, has been handled with remarkable dispatch, considering that the Macondo well unleashed an estimated 60,000 bbls of crude oil into the Gulf each day for nearly four months. And while some areas around Louisiana’s Mississippi River delta area remain significantly oiled, the crackdown on incursion by hydrocarbon slicks and tar balls onto beaches in Mississippi, Alabama, and northwestern Florida has been tackled effectively, given the combined oil removal resources brought to bear on a “cost is no object” basis by federal and state governments and by BP plc, operator of the Macondo well.
So much with so little
For Gulf of Mexico operators engaged in deepwater drilling and production, creation of the BOEMRE has resulted in a serious overall setback to development of oil and natural gas reserves deemed necessary for U.S. fossil energy supplies, particularly as a hedge against ever-climbing imports from some areas of the world considered politically indefinite. While the industry has accepted the new federal supervisory body as the law of the land, operators lament the fact – as does BOEMRE itself – that it lacks the funding and staffing necessary for the kind of extreme oversight it plans to exert.
Interior Secretary Ken Salazar and BOEMRE director Michael Bromwich agree that the body’s chief goal is to level “the most aggressive and comprehensive reforms of offshore oil and gas regulation and oversight in U.S. history.” However, congressional funding of BOEMRE and its sister agencies – the newly created Office of Natural Resources Revenue (ONRR) and a future organization that will control offshore leasing – currently is inadequate and their staffs of engineers and inspectors woefully undermanned.
While the Obama Administration recently submitted a FY 2011 budget amendment requesting a $100 million increase in funding for BOEMRE, Bromwich himself expressed uncertainty over whether receiving the additional money would be possible during Congress’ upcoming lame duck session, during which the new Republican-dominated House of Representatives has vowed to cut government spending dramatically.
Nevertheless, BOEMRE has gone ahead to issue a number of new rules and regulations aimed at bringing the offshore industry under tighter controls. Included among them are:
- The Drilling Safety Rule, which prescribes tighter cementing and casing practices and the use of drilling fluids for maintaining well bore integrity. It also stiffens oversight of BOPs and their components, including shear and pipe rams. Operators also must secure independent reviews of well designs, construction and flow intervention processes.
- The Workplace Safety Rule, which requires operators to have a comprehensive Safety and Environmental Management System (SEMS) in order to reduce human and organizational errors as root causes of work-related accidents and offshore spills. It makes the previously voluntary API Recommended Practice 75 mandatory to identify, address, and manage safety hazards and environmental impacts in operators’ operations.
Subsequently, BOEMRE on Nov. 8 issued a “Notice to Lessees” that – effective immediately – asserts that each operator seeking to drill deepwater wells must submit a statement signed by an authorized company official that affirms that the company has complied with all regulations, including the Drilling Safety Rule.
The notice applies to operators conducting operations using either subsea or surface BOPs on floating facilities.
It also confirms that BOEMRE will be evaluating whether each operator has submitted adequate information to demonstrate that it has access to, and can deploy, subsea blowout containment resources that would be significant enough to promptly respond to a deepwater blowout or other loss of well control.
Permitting still slow
Though the official moratorium on deepwater drilling was lifted in early October, little change in the velocity of drilling permit approvals has resulted. In fact, as of mid-November no single drilling permit was issued that would have allowed resumption of any previously suspended deepwater drilling.
At press time, BOEMRE had approved only two permits for deepwater drilling (500 ft/152 m water depths or more) of any kind. One permit was granted to BHP Billiton Petroleum Inc. for a water injection well in the Shenzi field in some 4,300 ft (1,310 m) of water in the Green Canyon area about 100 miles (160 km) off Grand Isle, Louisiana. The other was awarded to Stone Energy for a side track from a fixed platform about 20 miles (32 km) south of the mouth of the Mississippi River, a well type that had not been included in the moratorium anyway.
In shallow water (less than 500 ft in water depth), permits for 20 new wells had been submitted since June 8, and as of Nov. 2, 13 of those had been approved.
These totals compare to the granting of an average of 5.8 deepwater drilling permits per month in the year prior to the Macondo incident in late April, and 3.8 fewer shallow-water permits per month during the same period.
For fairness’ sake, however, the industry apparently had filed for only one new deepwater drilling permit during the period Oct. 12-Nov. 12. Industry observers say operators continue to struggle with new permitting processes imposed since June.
The steep slowdown in new well permit applications stems in part from an as yet not formally mandated BOEMRE demand that all proposed exploration plans meet new requirements to show the operator is prepared to deal with a potential blowout in the offshore area into which they drill, the resulting potential “worst-case” discharge scenario, and the operator’s ability to respond to such a discharge.
In an earlier effort to forestall what could become mandatory, four major companies operating in the deepwater Gulf (Exxon Mobil, Shell, Chevron, and Conoco-Phillips) joined last July to spend $1 billion to develop and build a containment system to handle such oil spills. However, such a system probably won’t be in place for at least a year.
Seeking out the ‘sinners’
Once it was determined that the Macondo explosion and oil spill had resulted in what came to be known as “the greatest environmental disaster in U.S. history,” investigations were called for on multiple fronts, ranging from hearings by a panel of experts hand-picked by President Obama to delve into possible causes, to a joint investigation by the Homeland Security and Interior departments of physical evidence remaining after the destruction of theDeepwater Horizon semisubmersible and the damage sustained by its sea bottom-mounted BOP and drilling riser.
Additional inquiries into the blowout and spill were ordered by other departments in the Executive branch, by various congressional committees and subcommittees, as well as by government groups within each of the affected states.
But the presidential panel (the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling) and the Homeland Security-Interior investigation (the Joint Investigation Team, or JIT) have become the leading inquiries into the causes of the Macondo incident.
On one hand, the presidential commission has conducted meaningful hearings with the full cooperation of the operator (BP), the drilling contractor (Transocean) and the service provider (Halliburton) involved just prior to the blowout-explosion aboard theDeepwater Horizon, along with testimony by other parties of interest. The commission, co-chaired by former U.S. Senator Bob Graham and one-time EPA Administrator William Reilly, includes five other members, all chosen under an executive order by the President. In the course of its work, the commission has held public meetings, produced staff working papers, held meetings with stakeholders, interviewed key players, and analyzed the evidence related to the spill and its aftermath.
At its most recent hearing, held Nov. 8-9 in Washington D.C., in which the commission aired its first public presentation on the causes of the April 20 fatal rig explosion and subsequent oil spill, the commission’s chief counsel, Fred Bartlit, countered charges made elsewhere that BP engineers might have taken shortcuts in well and cement tests based on time-is-money exigencies. He announced that to that point in time in their search for causes, commission investigators had not seen “a single instance” in which “a human being made a conscious decision to favor dollars over safety.” However, Bartlit later said the commission was still investigating and could still draw inferences about whether time- and money-saving measures had increased risks on the drilling unit prior to the blowout.
Co-chair Reilly noted that information and testimony collected thus far indicated that a “suite of bad decisions” revealed “a culture of complacency” within BP as well as with its main contractors, adding that the deepwater drilling disaster was the result of systemic problems rather than isolated ones.
With still more digging in the offing, including additional hearings, before coming up with final findings and recommendations next year, co-chair Graham said the panel, which is unable to compel testimony, plans to make a final request to Congress for the power to subpoena witnesses, should that be necessary.
He said the commission is trying to get that authority so that in the end, it can assure the American people that it will produce “the best, most complete, objective report about what happened and what we should do about it.”
The JIT, on the other hand, does have subpoena power, and is using it when necessary in its attempt to pinpoint both the causes of the blowout and spill and perhaps even the people who may have been involved in causing them to occur.
With another hearing slated for early December in Houston, the JIT continues with its forensic testing at a secure location in Michoud, Louisiana, of theDeepwater Horizon’s BOP and Lower Marine Riser Package (LMRP). The testing is being supervised by DNV Columbus Inc., a subsidiary of Det Norske Veritas. A final report is due in March 2011.
Cleanup effective
Overall, spill cleanup operations on shore, which got under way only a couple of days after the blowout, have been deemed effective in that they both headed off potential oiling of white sand beaches along the coasts of Mississippi, Alabama, and northwestern Florida, and have been successful in removing oil, tar mats and tar balls that have landed on those beaches.
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