Archive for February, 2022

Since well before the Putin crisis, this independent blog has been expressing concerns about sustaining US offshore oil and gas production without new leases and increased exploration (more here). Now that concerns about domestic production and energy security are heightened (understatement of the year!), let’s review where the leasing program stands:

  • 466 days have elapsed since the last oil and gas lease sale (Nov. 19, 2020), with no future sales in sight.
  • There had been 182 sales in the previous 66 years of the US offshore oil and gas program, an average of 2.76 per year. Never before (since 1953) has a year transpired without a lease sale.
  • Currently, there are only 2016 active US OCS leases and 506 producing leases, the fewest in at least 40 years (recent history charted below).
  • Despite favorable geology beneath the deepwater Gulf of Mexico and advanced exploration and well completion technology, US offshore oil production (1.713 million bopd per the latest EIA data – Dec. 2021) is down 16% from the August 2019 peak of 2.044 million BOPD. Gulf oil production is thus the lowest since 2018 (except during hurricane shutdowns).
  • New projects and higher ultimate recoveries from producing reservoirs could increase total offshore production by 10-20% over the next few years, but sharp declines will follow without new leases and increased exploration.

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The Board of Shell plc (“Shell”) today announced its intention to exit its joint ventures with Gazprom and related entities, including its 27.5 percent stake in the Sakhalin-II liquefied natural gas facility, its 50 percent stake in the Salym Petroleum Development and the Gydan energy venture. Shell also intends to end its involvement in the Nord Stream 2 pipeline project.


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On Sunday, the Norwegian government announced that its sovereign wealth fund, the world’s largest, wwould divest its Russian assets, worth around 25 billion Norwegian crowns ($2.80 billion).


“In the current situation, we regard our position as untenable,” Equinor Chief Executive Anders Opedal said in a statement. “We will now stop new investments into our Russian business, and we will start the process of exiting our joint ventures in a manner that is consistent with our values.”


British oil giant BP said Sunday that it is “exiting” its $14 billion stake in Russian oil giant Rosneft over Moscow’s invasion of Ukraine in one of the biggest signs yet that the Western business world is cutting ties over the Kremlin’s invasion of Ukraine.

Washington Post

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Per offshore-energy.biz, Russian giant Lukoil has closed a $450 million deal to acquire operator interest in Mexican offshore tracts. Not a good look for Mexico, but in their defense:

  • The deal was closed on 3 February.
  • Many countries, including the US, continue to import Russian oil and gas.
  • Lukoil continues to sell gasoline in the US and worldwide.
  • Unlike some elements of the US government, Mexico appreciates the domestic and international importance of expanding their offshore program.

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Excerpt from Press Secretary Psaki’s (2/24/2022) response to a question about lifting restrictions on the energy industry:

A. There’s also plenty of oil leases that are not being tapped into by oil companies, so you should talk to them about that and why.

  • Hopefully, this was a glib response that is not indicative of the Administration’s understanding of oil and gas exploration and development.
  • When you acquire a lease, you aren’t buying a certain amount of oil and gas in the ground that you can simply produce at your leisure. You are buying the opportunity to explore for and, if you are fortunate, produce oil and gas.
  • Exploration begins with the acquisition, processing, and evaluation of geophysical and other data. If these data are encouraging, you seek internal, partner, and regulatory approvals to drill exploratory wells. The drilling of unnecessary wells makes no sense from any standpoint: financial, safety, or environmental.
  • You have a limited amount of time to initiate production depending on the terms of your lease. Otherwise you lose the lease. The Federal regulators are strict about this, as they should be.

As has been noted on this blog, recent offshore exploration activity is not sufficient to sustain current production levels. The absence of regular lease sales is an important factor. The UK Energy Minister commented recently about the importance of new licensing and continued investment. Norway has also taken steps to encourage such activity. Note the emphasis on predictability in this statement from the Norwegian Ministry of Petroleum and Energy:

Predictability about which areas it is possible to apply for in APA (allocation in predefined areas; i.e. leasing or licensing) and regular replenishment of new area is important to achieve an effective exploration. APA rounds are therefore conducted annually.

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This is inexcusable if true:

A federal investigation into the October oil spill that paved the Orange County coast has been stalled for several months as authorities await approval to cut, remove and analyze part of the ruptured pipeline.

LA Times

Coast Guard and National Transportation Safety Board investigators currently have to rely on video captured during underwater pipeline inspections. Without a more detailed forensic examination of the damage in a lab, investigators won’t know whether to continue with their original investigation or move the investigation in a new direction.

LA Times

It’s not good when bureaucratic processes stall an important investigation. Hopefully the responsible agencies will be sufficiently embarrassed to get the investigation moving.

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Bad decision by Blackstone; worse timing. Putin and OPEC must be pleased.

Blackstone Inc., once a major player in shale patches, is telling clients its private equity arm will no longer invest in the exploration and production of oil and gas, according to people with knowledge of the talks. The firm’s next energy fund won’t back those upstream investments — a first for the strategy.



As the United States continues to tie its hands with regard to the transportation of natural gas, a fuel that has actually led to a large decrease in CO2 emissions over coal, Russia and China reached an agreement under which Russia will supply 100 million tons of coal to China so that China can continue to open up new coal-fired power plants


Embargo Russia, not US producers!

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Britain sees a “good, solid” future for the North Sea’s oil and gas industry and will issue new licences to expand output in the future, Energy Minister Greg Hands said on Tuesday.

“We need continued investment into the North Sea,” Hands told the International Energy Week online conference.


Meanwhile, the US government seems intent on supporting legal and administrative actions that stymie offshore exploration and development. The US is sanctioning its own offshore industry during an international crisis centered around energy.

2021 was the first year in the history of the US offshore program dating back to the passage of the OCS Lands Act in 1953 without a single oil and gas sale, and there is no lease sale on the horizon. Most years have had multiple sales, regardless of the party in power. The only attempted 2021 sale (no. 257) was required by a Federal Court decision in Louisiana. That sale was annulled by a questionable DC court decision that the Federal government chose not to appeal.

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The New York Times calls out the CDC for not releasing Covid data:

Kristen Nordlund, a spokeswoman for the C.D.C., said the agency has been slow to release the different streams of data “because basically, at the end of the day, it’s not yet ready for prime time.” She said the agency’s “priority when gathering any data is to ensure that it’s accurate and actionable.”

Another reason is fear that the information might be misinterpreted, Ms. Nordlund said.

“The C.D.C. is a political organization as much as it is a public health organization,” said Samuel Scarpino, managing director of pathogen surveillance at the Rockefeller Foundation’s Pandemic Prevention Institute. “The steps that it takes to get something like this released are often well outside of the control of many of the scientists that work at the C.D.C.”

BOE and others interested in offshore safety have expressed similar frustration over delays in the release of incident data and reports by BSEE and the Coast Guard, and the limited inspection data that are publicly available. As is the case with the CDC, we suspect these issues have more to do with bureaucratic obstacles than technical limitations or staff reluctance.

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From an excellent FT article:

BP owns almost a fifth of Russia’s largest oil producer Rosneft. UK-listed rival Shell controls 27.5 per cent of Gazprom’s huge Sakhalin-2 offshore gas project in Russia’s far east. Exxon has been operating in Russia for 25 years and producing oil and gas in eastern Russia since 2005 in a partnership involving two Rosneft affiliates.

Financial Times

More than 20 European countries import gas from Russia. The Czech Republic and Latvia import 100% of their gas from Russia. Hungary, Slovakia, Bulgaria, Finland, Germany, and Poland import more than half of their gas from Russia.

Clumsy sanctions could send oil and gas prices soaring to Russia’s benefit and the West’s detriment. We should first remove the sanctions that have intentionally and inadvertently been imposed on our own producers, including leasing blockades and permitting obstacles. The Ukraine crisis and its side effects will be with us for years, as will the demand for oil and gas. We need both immediate and longer term supply solutions.

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