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OCS Issues Drive Policy Debates

Three outer continental shelf (OCS) oil and gas issues were prominent in 2015 policy debates: Atlantic offshore, including permitting seismic surveys and a new five-year lease sale plan; new rules for offshore drilling equipment, notably blowout preventers; and new rules governing Arctic drilling. The topics will continue in the policy limelight in 2016 as the federal government moves to release final versions of the permits, plans and rules.

Presidential and/or congressional moratoria on oil and gas exploration in the Atlantic OCS started in the mid-1980s. The moratoria were lifted in 2008 and Atlantic OCS lease sales were planned. However, after the Deepwater Horizon blowout, drilling was again banned in the Atlantic OCS.

The current (2012-17) OCS leasing plan initially allowed leasing only in the historically active areas of the western and central Gulf of Mexico and Alaska’s Beaufort and Chukchi seas and Cook Inlet. This fall, the Obama administration further restricted oil and gas leasing by canceling 2016 and 2017 lease sales in the Beaufort and Chukchi seas.

The mid- and south-Atlantic planning areas may be included in the 2017-22 OCS leasing plan the Bureau of Ocean Energy Management (BOEM) began developing in 2014.

The draft for the proposed 2017-22 leasing plan released for comment in January 2015, includes Atlantic, Beaufort Sea and Chukchi Sea lease sales. The next version will reflect public comments received in 2015, and will be available for additional public comments in the first half of 2016. Whether it will include Atlantic and Arctic areas is unknown.

Separately BOEM decided in July 2014 to allow seismic (geological and geophysical, or “G&G”) surveys in the Atlantic OCS. Several companies applied and a lengthy public comment and review process continues. The most recent activities include:

The National Oceanographic and Atmospheric Administration (NOAA) is in the process of reviewing the applications from several seismic companies under the Marine Mammal Protection Act. Once BOEM receives the NOAA review it will have additional work before issuing or denying the permits.

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Three outer continental shelf (OCS) oil and gas issues were prominent in 2015 policy debates: Atlantic offshore, including permitting seismic surveys and a new five-year lease sale plan; new rules for offshore drilling equipment, notably blowout preventers; and new rules governing Arctic drilling. The topics will continue in the policy limelight in 2016 as the federal government moves to release final versions of the permits, plans and rules.

Presidential and/or congressional moratoria on oil and gas exploration in the Atlantic OCS started in the mid-1980s. The moratoria were lifted in 2008 and Atlantic OCS lease sales were planned. However, after the Deepwater Horizon blowout, drilling was again banned in the Atlantic OCS.

The current (2012-17) OCS leasing plan initially allowed leasing only in the historically active areas of the western and central Gulf of Mexico and Alaska’s Beaufort and Chukchi seas and Cook Inlet. This fall, the Obama administration further restricted oil and gas leasing by canceling 2016 and 2017 lease sales in the Beaufort and Chukchi seas.

The mid- and south-Atlantic planning areas may be included in the 2017-22 OCS leasing plan the Bureau of Ocean Energy Management (BOEM) began developing in 2014.

The draft for the proposed 2017-22 leasing plan released for comment in January 2015, includes Atlantic, Beaufort Sea and Chukchi Sea lease sales. The next version will reflect public comments received in 2015, and will be available for additional public comments in the first half of 2016. Whether it will include Atlantic and Arctic areas is unknown.

Separately BOEM decided in July 2014 to allow seismic (geological and geophysical, or “G&G”) surveys in the Atlantic OCS. Several companies applied and a lengthy public comment and review process continues. The most recent activities include:

The National Oceanographic and Atmospheric Administration (NOAA) is in the process of reviewing the applications from several seismic companies under the Marine Mammal Protection Act. Once BOEM receives the NOAA review it will have additional work before issuing or denying the permits.

In early December, Representatives Mark Sanford (R-S.C.), Bobby Scott (D-Va.) and 29 others sent a letter to BOEM asking for a halt to the use of seismic airguns in the Atlantic. The legislators claim that close to 90 towns, cities and counties along the Atlantic coast have passed resolutions opposing seismic testing and/or drilling. Representing different opinions, the Outer Continental Shelf Governors Coalition, which includes governors of North Carolina, South Carolina, Virginia and Maine as well as Gulf Coast states and Alaska, has called for keeping mid- and south-Atlantic leasing in the 2017-22 plan.

Proposed Well Control Rule

The Bureau of Safety and Environmental Enforcement (BSEE) released its proposed well control rule in April and is now considering thousands of pages of technical comments from more than 170 commenters.

In December, the Senate Energy and Natural Resources Committee (ENR) conducted a hearing on the well control rule and offshore oil and gas regulations, where Brian Salerno, BSEE director, testified about the well-control rule. Salerno declined to predict what revisions BSEE will make in the final rule or when it will be released.

The hearing illuminated the differing opinions on some of the most contentious elements of the proposed rule:

Salerno testified that the new specifications for design, repair and maintenance of blowout preventers (BOP) incorporate the recommendations of multiple investigations and studies of the Macondo blowout, and numerous meetings with industry.

He noted also that an important driver for new rules is the fact that loss of well control incidents are occurring at the same rate as before the Macondo blowout.

He identified major areas of contention to the draft rule: drilling margins, blowout preventer inspections, accumulator capacity and real-time monitoring. He also acknowledged industry concerns about overly proscriptive language and potential unintended consequences of the rule.

Erik Milito, group director for upstream and industry operations at the American Petroleum Institute (API) complained that industry experts did not get sufficient time or enough meetings with BSEE staff to fully comment on the well control rule, but he thanked BSEE for scheduling an additional meeting later in December.

He objected to the rules’ lack of flexibility to allow for the unique conditions of each well. He also voiced concerns about proposed modifications to BOPs and expanded BOP testing schedules that could create additional risk for safe operation of the equipment. In addition, Milito quoted economic analyses that showed the 10-year cost of the rule to industry would be $32 billion – an eye-catching 36-times greater than BSEE’s cost estimate of $883 million.

Jaqueline Savitz, vice president for U.S. oceans at Oceana, stated that her group considers the rule to be a significant improvement over existing regulations, although not sufficiently robust. She recommended the use of dual blind shear rams in BOPs to provide needed redundancy. Savitz also stated concerns that the compliance times – as much as seven years – were too long, creating unnecessary risk until industry installs improved equipment. She also recommended larger penalties for industry noncompliance and increased government oversight.

Arctic OCS

BSEE is working to finalize its Arctic drilling rule even though there is no expectation of any Arctic activity for many years, due to Shell canceling its Chukchi Sea drilling plans and Statoil’s announcement that it would exit all of its existing Chukchi Sea leases.

The most contentious elements of the draft rules are those calling for a stand-by rig capable of drilling a relief well, a shortened drilling season, and the requirement for the capability to capture oil using only mechanical techniques (i.e., excluding burning or using dispersants).

At the December hearing, Milito described substantial economic and employment impacts from federal policies that keep the huge potential Alaska oil and gas resource from being developed. He also recommended performance-based rules that would allow equivalent technologies, rather than the proposed rigid requirements. He also observed that some of the BSEE proposals could decrease safety and increase pollution, for example, by requiring more vessels at a drilling location.

Sen. Maria Cantwell (D-Wash.), ranking member of the ENR committee, stated that six to eight loss of well control incidents each year “emphasize the need for comprehensive and robust safety standards.”

Cantwell also pointed out that, according to the U.S. Coast Guard, there is no way to clean up oil in ice. For that reason she recommended that the Arctic and well control rules be finalized quickly.

Mark Rockel, principal consultant at Ramboll Environ, testified that because of the low probability of a blowout of the shallow, low-pressure exploration and appraisal wells expected in the Arctic offshore, the cost, over 20 years, of the same season relief well requirement would overwhelm potential benefits. He also stated that use of performance-based seasonal drilling limits and use of alternative spill mitigation would reduce costs and be more effective.

In case readers are wondering about the rules under which Shell drilled its Chukchi Sea well this summer – those were included in its revised exploration plan negotiated with BOEM in 2015. The plan generally mirrored the preliminary Arctic drilling rule.

The preliminary 2017-22 leasing plan includes lease sales in both the Beaufort and Chukchi seas, although a 25-mile near-shore exclusion zone would be added to the Chukchi Sea area.

Good news from the Gulf of Mexico

In the meantime and in the midst of declining oil prices, new projects in the Gulf of Mexico have come online, and offshore U.S. production rose to over 1.68 million barrels per day in September, offsetting declines in some shale-producing regions, according to the Energy Information Administration.

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