DRILLING & PRODUCTION

Eldon Ball • Houston

Macondo fall-out continues

Fall-out from the Macondo blowout in the Gulf of Mexico just won’t go away any time soon (see also, Generation of litigation – what to expect from Macondo, page 44).

As we mentioned last month, you can expect a long and twisted tangle of new regulations and restrictions, more inspections, increased reporting requirements, new equipment specifications, and more.

Right on cue, the Senate recently began debating H. R. 3534, the Consolidated Land, Energy, and Aquatic Resources Act of 2010, referred to simply as CLEAR.

As quickly pointed out by Burt Adams, chairman of the National Ocean Industries Association, should this measure become law, the end result will be more dependence on foreign oil and more American jobs lost, not only in the Gulf of Mexico, but throughout the country by industries that supply materials and equipment used in the exploration for and production of energy.

The consequences would reach those who make clothing, boots, drill bits, safety equipment, and supply materials such as steel, Adams said.

“We remain opposed to this bill becoming law,” Adams said. “Fortunately, House members now head home where they will get an earful from those whose jobs and lives will be adversely affected.”

The bill provides for unlimited liability, unsubstantiated standards of financial responsibility, a $2/bbl tax on oil to fund unrelated programs, mandating a technical fix for blowout preventers before knowing the cause of the accident, and the addition of myriad reviews and clearances.

All of these create an overall burden that may drive many independent producers out of the energy market.

“It is truly death by a thousand cuts,” said Adams.

The House Republican Conference added its own analysis:

“The bill would impose a de facto moratorium on offshore oil and gas production by increasing taxes and regulation, allowing the approval process for exploration plans to be extended indefinitely, adding layers of bureaucracy, and imposing unlimited liability caps.”

A little-noted provision of the bill includes a provision requiring all rigs to be US-built, owned, and operated. Currently, rigs are already built to US standards, staffed by US crews, and inspected by US governmental agencies. According to the conference, it’s estimated that this provision would shut down 25% of today’s oil and gas production and make new US offshore projects uneconomic by raising costs 30% to 100%.

New PDC bit technology

Encore Bits LLC, a privately held company providing PDC drill bits for the oil and gas industry, plans to field test its recently awarded patent for leach PDC cutters.

The patented process involves coating the entire PDC cutter with an acid-resistant film and removing the film from portions of the cutter where leaching is preferred. The cutter is then bathed in acid to remove the cobalt-catalyzing material.

“The leaching process was invented to make the drill bit cutters more resistant to wear, but leaching the entire cutter face made it more susceptible to dynamic loading,” explains Jim Shamburger, director of Engineering, Encore Bits.

“The new patented process invented by Encore allows us to only leach the drilling edge of the cutter. This gives the cutter the best of both worlds – a wear-resistant edge where the cutter is doing the work, along with a more impact-resistant cutter face.”

The patent (No. 7,712,553) was issued by the United States Patent and Trademark Office on May 11, 2010. The patent scope includes the United States and PCT (Patent Cooperation Treaty) countries.

After field testing, the technology will be integrated into its existing product lines.

New US offshore permit requirement

The use of categorical exclusions for US offshore exploration and drilling will be restricted pending a review of regulations, according to Secretary of the Interior Ken Salazar and Bureau of Ocean Energy Management, Regulation, and Enforcement Director Michael R. Bromwich.

Bromwich says BOEMRE will issue a notice of its intent in the Federal Register and will include information on the formal process for review and evaluation of categorical exclusions for offshore oil and gas operations.

The US Department of the Interior also plans a new environmental analysis of the Gulf of Mexico to use in future leasing and development decisions.

Limited use of the exclusions will allow BOEMRE to issue new permits for shallow-water activity once operators “provide additional information about potential blowout scenarios and implement additional safety measures for rigs and platforms,” the DoI said. Bromwich also instructed the BOEMRE not to use categorical exclusions to issue new deepwater drilling permits after the current moratorium is lifted.

The categorical exclusions are part of the National Environmental Protection Act and were originally designed to reduce the amount of paperwork and delay associated with NEPA compliance.

BOEMRE issues new shallow-water FAQs

In other regulatory action, BOEMRE has concluded a week of discussions led by Bromwich with Louisiana Lt. Gov. Scott Angelle and the Shallow Water Energy Security Coalition to provide guidance and clarity to shallow-water drilling operators regarding compliance with BOEMRE’s new safety and environmental requirements.

The Frequently Asked Questions (FAQs) provide specific guidance on how to most efficiently meet new requirements regarding “worst case discharge” estimates. These estimates are calculated by the companies and reviewed by BOEMRE to provide information necessary to ensure that the companies’ Oil Spill Response Plans are sufficient to protect coastal and environmental resources, should a spill occur.

BOEMRE’s guidance regarding the safety and environmental NTLs can be found athttp://www.gomr.boemre.gov/homepg/regulate/regs/ntls/ntl_lst.html.

The number and types of permits that have been approved or are pending since the new Notice to Lessees and Operators (NTLs) were issued can be viewed at:http://www.gomr.boemre.gov/homepg/offshore/safety/well_permits.html.

The site is updated every business day.

Five-company merger

The merger of Forum Oilfield Technologies, Triton Group, Subsea Services International, Global Flow Technologies, and Allied Technology has created Forum Energy Technologies.

The Houston-based company will serve the drilling, production, and infrastructure areas of the energy industry through its drilling and subsea division, and the production and infrastructure division.

FET has appointed Cris Gaut as chairman and CEO; Charles Jones as president of the drilling & subsea division; Wendell Brooks as president of the production & infrastructure division; and James Harris as CFO.

SCF Partners, a majority owner of the five merged companies, has committed $100 million of new equity capital to support strategic growth initiatives. A group of eight major banks is providing a new $450 million revolving credit facility, with an additional $150 million accordion feature, to provide growth capital to FET.