Gulf E&P feeling the effects of lower prices
Even as the recent return of $40/bbl oil brought back some optimism to the market, several reports have begun to come in detailing the impact of lower oil prices on GoM E&P activities over the past few months.
In mid-March, Evercore ISI’s Oil Services, Equipment & Drilling group issued its monthly update on the number of drilling permit data files with the US Bureau of Ocean Energy Management. The analysis found that both drilling and exploration permits were down in the first two months of 2016.
A total of 13 new permits were issued in the US GoM in February, Evercore ISI said. This number is down from 18 in January but in line with 13 in February 2015. Eight permits were issued for new wells, including two ultra-deepwater, three deepwater, two mid-water, and one shallow-water.
Three permits were issued for side tracks while two were issued for bypasses. Permits for side tracks and bypasses have declined substantially year-on-year while new well permits have held up relatively well thus far (flat year-over-year). Though the number of ultra-deepwater and mid-water new well permits was relatively robust last year, deepwater new well permits fell 17% to 25 and shallow-water new well permits dropped 78% to just 14 (from 65), thus the current pace of new well permitting remains muted.
Meanwhile, the number of new exploration plans filed in the GoM last month fell to just two (from eight) and operators filed plans to drill only two wells, down from plans to drill 27 wells in January. No development plans were filed to drill during February (or January) and development of the Lower Tertiary appears to be stymied, at least for the time being.
Two new offshore plans were issued in the first two weeks of March, the firm said. The group said that activity in the Gulf of Mexico is also “down sharply.”
Walter Oil & Gas filed an exploration plan for three wells in 836-ft (255-m) water depth, which is estimated to start in April. Shell filed an exploration plan for four wells in 7,404-ft (2,257-m) water depth estimated to start in May.
Meanwhile, the US GoM rig count is hovering around the 27 mark, a number that is significantly lower than previous-year levels. On Mar. 11, the Baker Hughes Weekly Rig Count reported that the US GoM rig count had jumped back up to 27. That was an increase of three from the previous total of 24, as reported in the company’s weekly rig count of Mar. 4.
That number, in turn represented a decrease of three (from 27) from the company’s weekly rig count dated Feb. 26. But the most recent number is still down 21 rigs year over year.
Noble Bob Douglas is currently under contract for Anadarko in the deepwater Gulf of Mexico. (Courtesy Noble Corp.)">
Battle over BSEE well control rule hits US House
Meanwhile, in Washington, D.C., debate over the new well control rule being proposed by the Bureau of Safety and Environmental Enforcement (BSEE) hit the US House of Representatives in early March.
On Mar. 3, the US House Subcommittee on Energy and Mineral Resources heard testimony from three major federal agencies on President Barack Obama’s 2017 budget and the administration’s regulations. The panel included representatives from the Bureau of Ocean Energy Management (BOEM), the BSEE, and the Bureau of Land Management.
One area of focus within the hearing was on BSEE’s proposed well control rule, recently sent to the Office of Management and Budget for final review. This is typically the last step before finalization.
Rep. Garret Graves (R-LA) questioned BSEE Director Brian Salerno on the agency’s proposed well control rule, with the subcommittee referring to it as “a case study into how prescriptive federal regulations could potentially impair projected production increases and future leading activity.” He also commented that the rule needs to go back out for public comment.
The industry has spoken out against parts of the rule, including the drilling margin outlined within the document, and the cost to an industry already hurting from plunging oil prices. Both the National Ocean Industries Association and the American Petroleum Institute have been outspoken opponents, along with other industry groups. “If implemented as proposed, the Interior Department’s Well Control Rule may slow or shut down oil and gas drilling in the Gulf of Mexico,” said a representative from the industry advocacy group the Gulf Economic Survival Team.
Just days before the hearing, Wood Mackenzie released a report on the impact that rule could be expected to have. The report found that the rule is “expected to reduce offshore activity, both development and exploration, due to higher incurred costs and technical constraints of implementation.” It found that industry investment would be reduced by an average of up to $11 billion a year, and that exploration drilling would drop 35-55%, or up to 10 wells per year.
However, in his testimony at the hearing, Salerno said that the agency worked with stakeholders to create a rule that made official changes the industry has seen in response to Macondo. “The bureau codifies risk mitigation measures by promulgating new regulations, such as the Well Control Rule,” he said.
“The Well Control Rule is intended to account for all aspects of drilling operations in order to reduce risks that could lead to technical and operational failures,” Salerno commented. He also said that adjustments had been made to the wording of the rule to placate the concerns of the industry.
