Activity review of US regulatory, legislative issues

Another function of NOIA is to acquaint the national press with drilling operations offshore. Here, members of the media receive a briefing from NOIA and BP Exploration on board BP's Pomano Platform. Providing members of the press with an explanation of the events of the industry and NOIA is former NOIA chairman, Matthew Simmons of Simmons & Company International.

May 1st, 1997
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One of NOIA's major undertakings in 1997 was the making of the film of the US offshore petroleum industry's 50th anniversary. Here, Alden J. Laborde, center is shown being interviewed about his experiences in first drilling offshore in the late 1940s.


Another function of NOIA is to acquaint the national press with drilling operations offshore. Here, members of the media receive a briefing from NOIA and BP Exploration on board BP's Pomano Platform.


Deep Water Royalty Relief Act - implementation and application

Since the NOIA-supported Deep Water Royalty Relief Act was signed into law by President Clinton on Nov. 28, 1995, the National Ocean Industries Association has provided numerous comments to the US Minerals Management Service (MMS) on the agency's plans for implementation of the legislation and worked along side the agency in several workshops to facilitate industry participation and input.

Background

On March 25, 1996, MMS issued an interim rule which specified the royalty suspension terms under which the MMS would make deepwater tracts available in the Central and Western Gulf lease sales. The statute requires all subsequent sales (for five years) to include deepwater royalty relief provisions.

In late May, MMS issued its interim final rule on royalty relief for producing leases and certain existing leases in deep water. This rule addressed leases in existence prior to November 28, 1995, the date the legislation was signed into law.

The interim rule, effective July 1, 1996, requires a level of inputs and analysis that industry believes is excessive and unnecessary. NOIA commented that the complexity of the rule may discourage relief applications and frustrate the underlying purpose of the Deep Water Royalty Relief Act.

MMS also released an extensive set of guidelines to assist leaseholders in preparing complete applications for royalty relief on deepwater leases. The guidelines spell out the data that will need to be included in the application and also the standards that MMS will apply to determine if royalty relief is to be granted, and if so, how much.

On January 24, 1997, MMS issued a call for comments on whether and how MMS should implement its new authority under the Deep Water Royalty Relief Act to grant royalty relief on non-producing leases in any water depth.

Result

NOIA has responded to this call for comments. Result. NOIA has been involved in an industry-MMS working group that has focused on the MMS interim rule concerning relief for existing leases. Among the issues discussed have been the unnecessarily complex nature of the rule, the timing of royalty relief application filings, and the definition and designation of "fields."

Three industry working groups were formed to work with MMS in search of mutually agreeable approaches in three specific areas:

  • The need for a simple preliminary screening mechanism.

  • The appropriate time for filing a royalty relief application.

  • The complexity of the application process and economic analysis.

    NOIA proposed an early screening mechanism to provide expedited approval of royalty relief in instances where reserve size and water depth make it clear that the lease qualifies under the language of the act. Industry also proposed a two-stage application process that would provide applicants with a strong early indication that relief would be approved while assuring MMS that prior to first production it would have all of the data needed to defend its decision to grant relief. NOIA will continue to provide input.

    Realizing the Benefits of Deep Water Royalty Relief

    The Central Gulf Lease Sale 166 held on March 5, generated over $824 million in high bids, a record amount on a record number of blocks. The remarkable results of the lease sale confirm that the enactment of the royalty relief act was a major step in the development of an energy policy that is effective and should bring significant returns to this country in the form of revenue, jobs and increased domestic production of energy resources. NOIA distribute, information on the sale results and the benefits of OCS energy development to members of Congress, congressional committee staff and to the administration.

    OCS moratoria - an uphill climb

    Since 1982, Congress has adopted a series of increasingly restrictive measures that have had the effect of denying the nation and the petroleum industry access to much of the potentially vast hydrocarbon resources of the Outer Continental Shelf.

    NOIA was quick to respond when lawmakers in the House requested that President Clinton issue an Executive Order to make permanent the current OCS moratoria. NOIA drafted a letter on behalf of seven energy trade associations voicing "strong opposition" to the congressional request. NOIA argued that the nation "should not put its economy and standard of living at risk by refraining from even considering exploration in those areas here at home that show significant resource potential."

    NOIA also stated that an Executive Order would stand in direct conflict with provisions of the Outer Continental Shelf Lands Act which require the five year plan to be based upon an equitable sharing of developmental benefits and environmental risks among the various regions of the country and the relative needs of regional and national energy markets.

    Working with the Congressional Oil and Gas Forum, NOIA helped circulate a forum response to the president calling an Executive Order the wrong choice for the nation. The forum letter was signed by 31 House and Senate members.

    Amendments to the CZMA eliminate delays in OCS permit decisions

    NOIA, working in coordination with other energy trades, was successful in obtaining amendments to the Coastal Zone Management Act (CZMA) that address the delays in the consistency appeals process. The changes in the statutory requirements will provide some incentive for an expedited appeals process and remove the delays often associated with OCS permit decisions. In 1997, NOIA will monitor the implementation of these provisions by the administration.

    Background

    Last year, President Clinton signed into law legislation reauthorizing the CZMA through fiscal year 1999. Among its provision, the law limits the amount of time the Secretary of Commerce has to render a decision on a consistency appeal. This provision received wide support by other energy trade groups as well, as the CZMA appeals process has been used by coastal states to object to a delay in the issuance of OCS permits and licenses.

    The National Oceanic and Atmospheric Administration (NOAA) is currently in the pre-rule stages of revising its CZMA consistency provisions. A first draft of a CZMA review document has been circulated to a multi-agency workgroup for comment.

    In its current form, the draft is very broad in scope, allows states to review unlisted activities, and could lead to regulating the same activity twice. The draft also includes "conditional concurrences" which would allow states to stipulate additional requirement that must be met in order for an activity to be deemed consistent with a coastal zone management plan.

    Of particular concern is the fact that the draft does not address the provisions passed by Congress last year concerning time limits for consistency appeals. Several elements of the draft seem to go far beyond NOAA's statutory authority under CZMA. In addition, NOAA continues to push for consistency review over the MMS Five year OCS leasing and development plan.

    In January 1997, NOAA approved the Texas coastal zone management program. Texas is the 30th state to receive federal approval of its plan. As of January 10, 1997, all federal activities occurring within or outside the Texas coastal zone, including OCS activities, must be consistent to the "maximum extent practicable" with the Texas coastal zone management plan.

    Passing the Royalty Simplification and Fairness Act - a step in the right direction

    Signed into law by President Clinton in 1996, the NOIA-backed Federal Royalty Simplification and Fairness Act revamps the royalty collection procedures for oil and gas leases on federal lands and the Outer Continental Shelf on terms more favorable to the oil and gas industry.

    The act sets a seven-year statute of limitations for any judicial proceeding or demand arising from a royalty obligation. The limit will be waived only in the case of fraud or if the lessee and MMS agree on a different time schedule. Previously, MMS had been able to collect on unpaid royalties as far back as they were discovered.

    The law also requires royalty overpayments to be "offset" or credited against underpayments within each state or collectively for Outer Continental Shelf leases for a one-year period. In the case of an overpayment, MMS must refund the excess money with interest within 90 days of a request. MMS initiated refunds and interest on overpayments in February 1997.

    If an oil or gas company underpays its obligations in a given year, MMS can charge interest only on the net under-payment, not on the total amount owed without taking overpayments into consideration. The act also amends the OCS Lands Act to repeal the guidelines governing refunds or credit granted to a lessee for excess payments.

    The act also prescribes procedural guidelines under which MMS and states can jointly determine on a case-by-case basis the amount of what production from marginal properties shall be subject to prepayment or regulatory relief. By August 1997, the MMS is required to offer accounting, reporting, and auditing relief to operators in order to enhance production and development of marginal wells.

    The law also allows states at their request to increase their role in the area of royalty collections.

    MMS plans to publish a notice of proposed rule making concerning the delegation of royalty collection functions to states by the end of March. The proposed rule would include guidelines and standards for the transfer of the royalty collection of oil and gas receipts and related auditing activities to qualified states.

    NOIA has supported a series of industry meetings focusing on the new legislation and the energy trade associations have met with MMS to discuss issues related to the timely implementation of the act.

    Amending the Oil Pollution Act of 1990 - a catalyst for improvement

    Just prior to adjournment of the 104th Congress, a coordinated industry effort helped realize another legislative victory for the NOIA Membership - amendments to the Oil Pollution Act's (OPA) offshore facility financial responsibility provisions. Signed into law on October 19, 1996, the amendments resolve industry concerns regarding implementation of the act's offshore facility financial responsibility requirements and the ability of OCS operators to find and afford OPA liability coverage.

    The amendments lower the level of financial responsibility that offshore facilities must maintain.

    Under OPA, Congress had required those facilities to carry a $150 million certificate of financial responsibility (COFR). The recent action by Congress would lower that mandate to $35 million, the same that was required before the 1990 law, unless the president determines that a higher level is justified. The measure as passed also includes a Senate advanced provision requiring a $10 million level for facilities located in state waters.

    The language exempts from financial responsibility requirements small offshore operators who, even under a worst-case scenario, lack the capacity to cause a major spill. This exemption applies to facilities with a worst-case spill discharge potential of less than 1,000 bbl of oil. This de minimis exemption removes the potential for imposing an unjustifiably heavy financial burden on small operators that pose only minimal environmental risk.

    Congress also removed the barrier to available and affordable insurance coverage for smaller operators. The amendments allow direct action by the federal government, either for its own spill removal costs or to recover any compensation paid out by the oil spill liability trust fund to an OPA claimant, and in cases of insolvency or bankruptcy of an OCS operator. The provision also clarifies that the total liability of guarantors of financial responsibility is limited to the amount of the coverage provided. With the passage of the OPA amendments, offshore operators now can pursue traditional insurance policies at market rates.

    MMS has issued a notice of proposed rulemaking to implements the OPA amendments. NOIA is working with MMS.

    E&P remains exempt from Toxics Release Inventory (TRI)

    In June 1996, the exploration and production (E&P) sector was able to win an exclusion from the EPA's regulatory proposal to expand the number of industries required to report under the Toxics Release Inventory (TRI) program. However, expansion of the program still remains an administration priority. The program requires covered facilities, with at least 10 employees, to report annually to EPA the amounts of over 600 listed toxic chemicals contained in their environmental releases and other waste streams.

    A study by the Interstate Oil & Gas Compact Commission, released in January of this year, supports claims that expanding the program to the E&P sector would result in significant regulatory costs, duplicative reporting requirements, and increased environmental regulation while little or no environmental benefit would be achieved. It found that the public already has access to oil and gas exploration and production data from numerous sources. In addition, the study also revealed a noteworthy amount of regulatory overlap in the major environmental programs.

    According to EPA, the basis for expanding TRI to additional industries is to provide the public with a more comprehensive picture of toxic releases. This is in accordance with the Administration's community right-to-know initiative, a nation-wide partnership among EPA, the National Oceanic and Atmospheric Administration, the Interior Department, as well as state and local agencies to "protect communities from toxic pollution by the year 2000."

    On Feb. 26, EPA announced the creation of a new office to handle its community right-to-know programs. The new Center for Environmental Information & Statistics, to be housed within the Office of Policy, Planning & Evaluation, will manage the agency's efforts to expand public access to information. It is scheduled to open Jan. 1, 1998.

    NOIA will continue to work with the existing association coalition and members of Congress to prevent expansion of the TRI program to the E&P sector. Due to congressional concerns over the EPA program and its adverse regulatory impact on businesses, the General Accounting Office (GAO) was directed to undertake a review of the program, address concerns regarding the risks associated with chemicals and how to more effectively communicate those risks to the public.

    GAO also is to evaluate EPA information management practices and address the effectiveness of the current mechanisms for TRI reporting requirements. The study requirements were contained in the Fiscal Year 1997 EPA appropriations bill, which was signed by the president last September.

    New regulatory approaches on BOP testing save time and money

    Continuing its push in 1996 to reform MMS's approach to regulating the offshore industries - from the old-style prescriptive method to the more flexible and effective performance-based approach-NOIA met with success on revising Blowout Preventer Testing requirements.

    Instead of requiring a seven-day minimum testing frequency, MMS has revised its requirements to a 14-day cycle. MMS officials believe the change in testing frequency will save industry an estimated $20-30 million a year. Industry estimates are nearly double.

    Background

    MMS, NOIA, and several industry trade associations cooperated on a study of blowout preventer (BOP) equipment and the testing frequency the equipment requires. At issue was industry's request to extend MMS required seven-day minimum testing frequency to a 14-day cycle.

    In 1992, the offshore oil and gas industry asked MMS to revise its regulations for testing blowout preventer (BOP) systems and equipment. The specific request was for MMS to change the testing regulations to reduce the number of times that BOP tests had to be performed. MMS regulations required lessees to test BOP systems at least once every seven days.

    In 1993, MMS formed a working group to assess the current BOP performance on the OCS and make recommendations for future BOP requirements. In order to complete this study, MMS granted exemptions to the seven-day requirement to allow a 14-day test interval. This exemption was granted to about 75% of the Gulf of Mexico drilling rigs.

    Results from this initial review were inconclusive and actually indicated higher than expected failure rates as the time interval between tests increased. Based upon these results and with further discussions with industry, MMS decided to undertake a second study to assess BOP performance. NOIA and several of its sister trade associations participated in the study and provided financial support in this effort.

    MMS engaged a contractor to accumulate and analyze data related to the testing of blowout preventers. The object of the exercise was to arm MMS with the necessary data to determine whether a seven-day or 14-day test cycle was appropriate. The report indicated that there was virtually no difference noted in failure rates whether testing was done on a seven-day basis or a 14-day basis.

    Result

    On Jan. 31, MMS issued a Notice to Lessees (NTL) revising its blowout preventer pressure test requirements to a 14-day test interval for new wells and current drilling activities effective January 31, 1997. In addition to the revised test interval, the NTL covered the following conditions and requirements:

    1. Sidetrack and completion activities

    2. Workover activities

    3. BOP pressure testing after setting casing

    4. Inspection, maintenance and performance requirements.

    EPA rules on synthetic drilling fluids

    In 1993, NOIA organized an industry group of over 30 operators and mud companies in an attempt to obtain EPA clarification over the regulatory treatment of offshore discharges of synthetic-based drilling fluids and cuttings. With the publication of the EPA Coastal Effluent Guidelines, the objectives established by industry were achieved and the new EPA permit guidance will provide a greater measure of regulatory certainty for offshore operators wishing to utilize synthetic fluids.

    After three years of discussion between industry and the federal government, EPA has issued NOIA-supported language that incorporates definitions for "synthetic material" and "enhanced mineral oil," and allows the discharge of synthetics on a "best professional judgment" basis. EPA also has provided an opportunity for industry to submit data on new drilling fluid technologies, including enhanced mineral oils, for consideration and analysis for possible discharge allowances.

    Through the NOIA Environmental Conservation and Safety Committee, industry has entered into a dialogue with EPA and other federal agencies, including the Department of Energy and the MMS to work cooperatively and address the barriers keeping the domestic OCS industry from making full use of the new synthetic drilling fluid technology.

    The industry group reached consensus that EPA permit restrictions on discharges of traditional oil-based fluids and inverse emulsions were unintentionally preventing the discharge of drill cuttings generated with the new synthetic technology. Industry offered a series of recommendations to EPA that would allow discharges of synthetics while ensuring continued compliance with existing Clean Water Act requirements.

    Industry also provided EPA with data showing that the synthetic materials exhibit low levels of aquatic toxicity, are biodegradable, and provide enhancements in waste minimization and pollution prevention. Data indicate that when using synthetic-based drilling fluids, the volume of cuttings is significantly reduced, as much as a 70% reduction in the discharge of conventional pollutants when compared to water-based fluids.

    In addition, several case histories concerning field use of synthetic-based drilling fluids confirm these enhanced operational and environmental benefits. Recent OCS records for extended reach wells and well completions were established using synthetic drilling fluids.

    NOIA's Regulatory Reform Task Force

    NOIA's Regulatory Reform Task Force continues its cooperative work effort with MMS to review existing OCS regulations. The task force addressed the following regulationsin 1996:

  • 250.10: "Suspension of Production or Other Operations" - have been addressed by MMS in the Letter to Lessees (LTL) format. The release of an LTL in July 1996 clarified the MMS policy on suspensions of production (SOP) and operations (SOO).

  • 250.13: "Effect of Production, Drilling or Well Reworking on Lease Term" - final rule was issued in the Federal Register on Oct. 30, 1996. MMS agreed to extend the 90-day automatic suspension time limit between operations to 180 days.

  • NTL 83-3: "Shallow Hazard Requirements" - a draft notice was released by the Gulf of Mexico office for comment. NOIA submitted a letter suggesting clarification of some language. The final NTL is expected to be released this spring.

    Improving communications between OCS stakeholders

    No longer is it hyperbolic to talk about the "reinventing" going on in the public affairs and grassroots arena - in organizational modes, in exploiting new technologies, in changing concepts about image, reputation, mission, customers and strategies. In the years ahead, NOIA's Public Affairs Committee and NOIA's grassroots arm, the Domestic Energy Advocates, will have the delicate tasks of balancing the "traditional" work that is so important to internal and external communications and responding to the new needs and new realities that will require quite different tools and strategies.

    All of this means that the NOIA Public Affairs Committee and the Domestic Energy Advocates will be working even harder to serve as a facilitator for transferring information on innovations occurring in the offshore industry and even more importantly, changing public misperceptions of the industry. These two assemblies will be weighing in more heavily with well-conceived strategies to educate the media, leaders of public opinion and the public at large about the role and necessity of domestically producing offshore oil and gas.

    In 1996, both assemblies moved forward with dynamic and innovative approaches to enhancing and improving NOIA's communications operation. (See Flrida Initiative - page 108).

    Membership growth highest in 10 years

    At the center of the strategic plan of NOIA's Membership Committee is the premise that the association must continue to enhance member value through its programs and member services. That premise was fulfilled during 1996, marking the strongest year in membership development in over a decade. Thirty-one companies joined the association during the course of the year, strengthening NOIA's voice with new participants and adding additional revenue of $109,750.

    The Membership Committee surpassed the new member revenue goal of $70,000 for the fourth consecutive year. Another milestone in membership development was also reached in 1996. Dues collection this year surpassed the goal of $1,097,000, established by the Financial Planning Task Force in 1993.

    Behind the scenes is the less visible progress that the Membership Committee's strategic plan is making. The committee has begun a number of initiatives including the establishment of a membership advisory panel to regularly review the process for membership recruitment and evaluate programs and services being offered to members. The Membership Committee has also taken greater interest in the activities of NOIA's other committees. By establishing closer ties with the various committee chairmen, the committees now have a greater appreciation for their dual role as ambassadors of the membership committee as their work relates to membership recruitment and retention efforts. This has been reflected by the increase this year in committee participation across the board.

    Copyright 1997 Oil & Gas Journal. All Rights Reserved.

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