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Archive for 2022

If the Schumer-Manchin bill is enacted, what happens to the Sale 257 CCS bids?

Posted in CCS, energy policy, Gulf of Mexico, Offshore Energy - General, tagged , , , , , , on August 2, 2022| Leave a Comment »

The subject legislation requires the Secretary of the Interior to accept the highest valid bid that was received for each tract offered in OCS Lease Sale 257. Exxon was the sole bidder on 94 tracts on the nearshore Texas shelf. The leases were to be acquired for carbon sequestration purposes.

The CCS bids should not be considered valid given that:

  1. Sale 257 was an oil and gas lease sale. The Notice of Sale said nothing about carbon sequestration and did not offer the opportunity to acquire leases for that purpose. Therefore, the public notice requirements for CCS leasing (30 CFR § 556.308) were not fulfilled.
  2. Because there was no draft or final Notice of Sale, interested parties and the public did not have the opportunity to consider and comment on CCS leasing, tract exclusions, bidding parameters, and other factors.
  3. 30 CFR § 556.308 requires publication of a lease form. No CCS lease form was posted or published for comment.
  4. CCS operations were not considered in the environmental assessments conducted prior to the sale.
  5. No evaluation criteria for CCS bids have been published.

Unexpectedly, the Infrastructure Bill, signed on 11/15/2021 (just 2 days before Sale 257) included a provision for OCS carbon sequestration. However, that legislation did not require CCS leasing or authorize DOI to sell CCS leases as part of an oil and gas lease sale; nor did it exempt DOI from complying with its leasing regulations. Instead, It gave the Secretary a year (until 11/15/2022) to promulgate necessary implementing regulations. If carbon sequestration in the Gulf of Mexico is deemed to be desirable, a separate CCS sale should be held when the regulatory framework has been established.

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RIP John Fitzgerald

Posted in Canada, Offshore Energy - General, Regulation, tagged , , , , , on August 1, 2022| Leave a Comment »

The offshore world lost an important figure over the weekend with the passing of John Gregory Fitzgerald. As Chairman and CEO of the Canada Newfoundland Offshore Petroleum Board in the late 1990’s, John presided over the first production from the massive Hibernia field. He also approved the pioneering Terra Nova project, the first FPSO development in a harsh, iceberg laden environment.

John worked closely with his international counterparts and hosted an important offshore safety meeting in St. John’s in 1996. It was an honor to be associated with such an outstanding individual and dedicated safety leader.

RIP John, your contributions will not be forgotten.

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Wind vs. oil and gas: Is this necessary?

Posted in climate, energy policy, Gulf of Mexico, Offshore Energy - General, Wind Energy, tagged , , , on August 1, 2022| Leave a Comment »

When we (MMS) drafted the OCSLA amendments (incorporated into the Energy Policy Act of 2005) that authorized offshore wind operations, we envisioned complementary and synergistic programs. Offshore wind and oil/gas development have many similarities and a common purpose – energy production. There is considerable overlap among the operating companies and contractors.

Unfortunately, politicians are better at dividing than uniting, and a provision in the Schumer-Manchin legislation pits the offshore wind and oil/gas programs against each other. The text (pasted below) from p. 646 of the bill restricts wind leasing when no oil and gas lease sale has been held in the prior year.

I share the concerns about the OCS program evolving into a wind-only program, as has already happened in the Atlantic (more on this at a later date). However, oil and gas sales should be held because they make economic and environmental sense, not because they are a condition for holding wind sales. Oil and gas sales are not punishment and wind sales are not rewards, and holding a single GoM lease sale each year does not balance the offshore program.

(b) LIMITATION ON ISSUANCE OF CERTAIN LEASES OR RIGHTS-OF-WAY.—During the 10-year period beginning on the date of enactment of this Act—

(2) the Secretary may not issue a lease for offshore wind development under section 8(p)(1)(C) of the Outer Continental Shelf Lands Act (43 U.S.C.1337(p)(1)(C)) unless—
(A) an offshore lease sale has been held during the 1-year period ending on the date of the issuance of the lease for offshore wind development; and (B) the sum total of acres offered for lease in offshore lease sales during the 1-year period ending on the date of the issuance of the lease for offshore wind development is not less than 60,000,000 acres.

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May GoM production slides 9%

Posted in Gulf of Mexico, Offshore Energy - General, tagged , , on July 29, 2022| Leave a Comment »

If last fall’s Hurricane Ida dip is excluded, the latest production figure in 2021/2022. New projects should boost production over the next 2 years, but not enough to reach the August 2019 peak of 2.044 million bopd.

Meanwhile the GoM rig count remains sluggish at 15.

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More on the Manchin-Schumer bill

Posted in climate, energy policy, Gulf of Mexico, Offshore Energy - General, Offshore Wind, Regulation, tagged , , , , , on July 29, 2022| Leave a Comment »

Here is a link to the entire bill. Good weekend reading for energy policy nerds. 😀

The energy sections begin on page 232 and continue until the end (page 725!). Some highlights from an offshore energy perspective (more important items in bold):

  • p. 429 – Tax credit eligibility for offshore wind energy components including blades, nacelles, foundations, and towers.
  • p. 447 – Credits for CCS equipment
  • p. 460 – For offshore wind facilities, this section specifies the % of the total costs that must be expended in the US for the facility to qualify as being manufactured in the US. That % rises gradually to 55% after 12/31/2027.
  • p. 518 – Eligibility of CCS for credits
  • p. 615 – $100 million for offshore wind electricity transmission planning, modelling, and analysis. (Seems like a lot for planning and analysis.)
  • p. 621 – $10 million for oversight by DOE Inspector General. (Those folks will have their hands full!)
  • p. 628 – Authorizes wind leasing in the EGOM and South Atlantic areas withdrawn from all leasing at the end of the Trump administration.
  • p. 631 – Authorizes offshore wind leasing adjacent to US territories. (Should be interesting!)
  • p. 632 – Codifies increase in offshore royalty rates: range of 16 2/3% – 18 3/4% for 10 years; not less than 16 2/3 % thereafter
  • p. 640 – The provision requiring that royalty be paid on flared/vented gas could be problematic. The exceptions are not consistent with those currently in the regulations, and would be difficult for BSEE/ONRR to manage. The proposed legislation (exception 1) exempts “gas vented or flared for not longer than 48 hours in an emergency situation that poses a danger to human health, safety, or the environment.” However, current BSEE regulations allow limited (48 hours cumulative) flaring for certain operations (e.g. during the unloading or cleaning of a well, drill-stem testing, production testing, and other well-evaluation testing). This flaring is essential but not normally an emergency situation. Requiring royalty payments for such essential, but not emergency, flaring would be unreasonable and inconsistent with the intent of this provision (minimize unnecessary flaring and venting).
  • p. 641 – Per our previous post, this section reinstates Lease Sale 257 (GoM) and requires that the scheduled 2022 lease sales 258 (GoM) and 259 (Cook Inlet) be held by 12/31/2022. Lease Sale 261 (GoM) must be held by 9/30/2023. Saddle up!

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“Manchin-Schumer” energy legislation reinstates lease sale 257 and requires additional lease sales in accordance with the 2017-2022 program

Posted in climate, energy policy, Gulf of Mexico, Offshore Energy - General, tagged , , , , on July 28, 2022| Leave a Comment »

p. 643

(b) LEASE SALE 257 REINSTATEMENT.—
(1) ACCEPTANCE OF BIDS.—Not later 30 days after the date of enactment of this Act, the Secretary shall, without modification or delay—
(A) accept the highest valid bid for each tract or bidding unit of Lease Sale 257 for which a valid bid was received on November 17, 2021; and
(B) provide the appropriate lease form to the winning bidder to execute and return.

As predicted by BOE (with no inside information) on 5/27/2022. 😀

What about the CCS bids? More to follow.

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A bit more on that “first OCS platform” (1947)

Posted in Gulf of Mexico, Offshore Energy - General, tagged , , , , on July 28, 2022| 2 Comments »

Kermac 16, Energy Global News
  • Located in Ship Shoal Block 32
  • Constructed by Brown & Root for Kerr-McGee.
  • Supported by sixteen 24-inch pilings, 104 feet of penetration
  • 2,700 square foot wooden deck (I recall reading that the deck had previously been used as a railroad bridge, but I can’t find the source.)
  • Withstood Category 5 hurricane a week after drilling began in 1947. (It must have withstood many more because BOEM’s platform file indicates that the platform remained in place until 1988. Other reports indicate that the platform produced continuously for 37 years.)
  • The platform was supported by an attendant barge that provided living quarters and equipment and materials needed for the drilling operations. This was reportedly the first drilling tender.
  • BSEE’s borehole file records indicate that 31 wells were drilled on this block beginning in September 1947.
  • BOEM’s production file shows initial production rates of 7000 to 10,600 bbls of oil per month. The accuracy of these old data is uncertain.
  • This was reportedly the first time drilling crews worked 12-hour tours for seven days and then rotated to shore for seven days off.

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After 75 years, GoM shelf operations roll on

Posted in Gulf of Mexico, Offshore Energy - General, rigs-to-reefs, tagged , , , , , on July 27, 2022| Leave a Comment »

While 93% of GoM oil and 76% of the natural gas is now produced on deepwater leases, successful operations on the shallow waters of the shelf continue 75 years after the first OCS platform was installed. Three of our compliance honor roll companies, Arena, Cantium, and Walter, have successful shelf operations. Arena and Walter are top ten gas producers and top twenty oil producers. Cantium also has solid production numbers and along with Arena is the leading 2022 development well driller on the shelf (see chart below). Other shelf operators like Cox Operating LLC are significant shelf producers.

Without much hype, shelf operators continue to find and extract oil and gas from beneath the shallow waters of the GoM. The 1700 shelf platforms that remain provide energy for our economy and important hardbottom substrate for marine life. Keep it going! Only 25 more years until the 100th anniversary! 😀

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GoM exploration is insufficient to support sustained production at current levels

Posted in drilling, energy policy, Gulf of Mexico, Offshore Energy - General, tagged , , , , , , , on July 26, 2022| Leave a Comment »

Foremost energy experts like Daniel Yergin understand that oil and gas will be critical to our economy and security for decades, and that offshore production is an important component of our energy supply chain. Unfortunately, our massive outer continental shelf has, from an oil and gas standpoint, been effectively reduced to the central and western GoM.

Opportunities in the GoM are being seriously constrained by the extended pause in leasing. A lease sale has not been held for 615 days, the longest US offshore leasing gap since the 1950’s.

Reserve replacement and sustained production are dependent on exploration. The charts below illustrate the decline in GoM exploratory drilling and the reduced activity by some of the more important operating companies.

Per BSEE data, the number of exploratory well starts averaged only 3/month for the last 18 months (chart 2). This level of activity is the lowest since the early days of deepwater operations (chart 1). There was even more drilling during the post-Macondo moratorium (2010-2011).

ConocoPhillips and Exxon have not drilled a GoM exploratory well since 2016 and 2018 respectively. Activity by other operators has also declined significantly (chart 3). BP has not spudded an exploratory well since Sept. 2021.

No one should be surprised by the sharp decline in reserves and the dearth of recent field discoveries. Hopefully, government and industry will engage in a more thorough discussion of these trends and measures that might improve the intermediate and longer term production outlook.

chart 1
chart 2
chart 3

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Re. the Strategic Petroleum Reserve sales, who knew…?

Posted in climate, energy policy, Gulf of Mexico, Offshore Energy - General, tagged , , , , on July 25, 2022| Leave a Comment »

  1. …that the SPR legislation authorized the sale of large volumes of oil for the purpose of easing worldwide prices. Per section 151 of the statute, which was passed following the oil embargoes in the 1970’s, the SPR was intended to diminish the vulnerability of the United States to the effects of a severe energy supply interruption.
  2. …that SPR oil could be sold to all entities including Chinese companies that are also buying oil from Russia, the country being boycotted. How absurd is that? (The confirmation of one such transaction is pasted below.)
  3. …that increased worldwide emissions from the consumption of SPR oil are okay, but emissions from the consumption of our offshore oil and gas are not. Remember that Lease Sale 257 was vacated because BOEM did not analyze the effect that lower prices (from increased US production) would have on GHG emissions. Why are EarthJustice et al silent on the SPR sales? Where is DOE’s environmental assessment of these sales?

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