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Archive for February, 2023

BOEM’s new procedures, which have been published for public comment, seem reasonable. However, it would be helpful to learn more about the testing of the new methodology. (See the quote below). Further, would the rejected Sale 257 bid have been accepted? What was the LBCI for that tract? Would any accepted Sale 257 bids have been rejected? Would the outcome of other sales have been affected?

After a 2-year comprehensive technical review of the delayed valuation methodology, BOEM intends to replace the delayed valuation methodology with a statistical lower bound confidence interval (LBCI) at a 90 percent confidence level as a decision criterion for accepting or rejecting qualified high bids on tracts offered in OCS oil and gas lease sales. Following extensive testing of the alternative approaches using both historical and current lease sale tract data and existing BOEM cash flow simulation models, BOEM determined that the LBCI approach would be the most appropriate substitute for the delayed valuation methodology. The LBCI is a statistical concept that captures the lower bound of a range of values encompassing the true unknown mean of the risked present worth of the resources at the time of the lease sale. The LBCI incorporates the uncertainty of parameters unique to the valuation of each OCS oil and gas lease sale tract. These parameters may include, but are not limited to, subsurface characterization of reservoir properties, cost and timing of the development, and projected revenues. Unlike the delayed valuation methodology, the LBCI approach would not require that BOEM estimate the time delay period between the current OCS oil and gas lease sale and the projected next lease sale. As such, BOEM finds the LBCI to be a better approach going forward.

Federal Register

Below is the flow chart for the new procedures. It’s interesting that high bids on nonviable tracts are automatically (and gratefully) accepted! 😉

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BOEM published their Sale 257 Decision Matrix on Friday (2/24/2023), and my previous speculation regarding the rejected Sale 257 high bid has proven to be partially incorrect. The rejected high bid was submitted by BP and Talos and was for Green Canyon Block 777. BOEM’s analytics assigned a Mean of the Range-of-Value (MROV) of $4.4 million to that tract, which tied for the highest MROV for any tract receiving a bid. The BP/Talos bid was $1.8 million or just 40% of BOEM’s MROV. BOEM’s tract evaluation is interesting given that the other bid on this wildcat tract (by Chevron, $1.185 million) was considerably lower than the rejected BP/Talos bid.

The Sale 257 bid that I thought might have been rejected was for lease G37261. This lease was never issued per the lease inquiry data base and the final bid recap. BHP’s bid of $3.6 million for that tract (Green Canyon Block 79) was more than 5 times BOEM’s MROV of $576,000, and was accepted per the decision matrix. Why was the lease never issued?

Both Green Canyon 79 and 777 should again be for sale in legislatively mandated Sale 259, which will be held in just a few weeks on March 29, 2023, just 2 days prior to the deadline. It will be interesting to see what the bidding on those tracts looks like.

Meanwhile, Exxon and BOEM are still mum about the 94 Sale 257 oil and gas leases that Exxon acquired for carbon sequestration purposes. Note the large patches of blue just offshore Texas on the map above. These leases were all valued by BOEM at only $144,000 each, which is equivalent to the minimum bid of $25/acre. This valuation reflects the absence of perceived value for oil and gas production purposes. Exxon bid $158,400 for each tract, $27.50/acre or 10% higher than the minimum bid. Given that (1) the Notice of Sale only provided for lease acquisition for oil and gas exploration and production purposes, and (2) it was common knowledge that these tracts were acquired for carbon sequestration, should these bids have been rejected?

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An international regulatory colleague brought this puzzling RigZone article to my attention. Quotes:

“From one perspective, one can look at the overall absence of risk – from this perspective, we can easily say that either the United Kingdom’s North Sea or Canada’s Nova Scotian continental shelf is the safest region for offshore oil and gas operations right now,” Robak told Rigzone.

“Canada’s offshore industry accounts for approximately one million barrels per day, and its geographic location along the Nova Scotian continental shelf has been a benefit in that there is little to no risk to its continued operation on a day-to-day basis,” Robak said.

Comments:

Scotian shelf

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Opinions on Jimmy Carter’s presidency vary, but he merits praise for his administration of the OCS program from 1/1977 to 1/1981. Carter oversaw an active leasing program in all OCS regions. On the operations side, he appointed Don Kash to head the Conservation Division of the US Geological Survey, the OCS regulator at the time. Dr. Kash was an outstanding leader and a gifted communicator and program manager.

Some of the Carter administration’s impressive accomplishments during his 4 year term:

  • 15 lease sales including 3 offshore Alaska, 3 in the Atlantic, and 1 offshore California
  • Drilling activity in all 4 regions: GoM, Pacific, Alaska, and Atlantic
  • Natural gas discovery in the Mid Atlantic (Hudson Canyon Unit)
  • North, Mid, and South Atlantic District offices for permitting and inspections
  • 5300 well starts including 97 in water depths > 1000′
  • 314 new platforms including Cognac, the world’s first platform in > 1000′ of water
  • Comprehensive amendments to the OCS Lands Act (1978)
  • Annual natural gas production reached nearly 5 tcf (approximately 6 times current OCS gas production)
  • Annual oil production was approximately 1/2 current levels which is impressive given that the deepwater era was just beginning and shelf wells had relatively low productivity.

Thank you Jimmy. I hope you are resting comfortably with your family during your final days.

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Did you miss the boat on Guyana?😉 This may be a good opportunity. The risk-reward ratio looks pretty favorable.

Per the Energy Advisors Group:

  • Gaffney, Cline & Associates have audited the drill-ready target prospect with mean resources of 400 MMbbls
  • Standalone success on hitting the mean target is expected to achieve NPV10 of $2.5 billion at $60 oil
  • The test well cost is estimated to be $30 million and provides exposure to own a material interest in the entire license
  • The initial target is a carbonate platform and shows strong evidence of reservoir trap and intact seal, Cretaceous kitchen source and live oil seeps
  • Recent advanced seismic relative dispersion technical work provides further evidence of reservoir porosity and permeability, the presence of a seal, and additional reservoir potential
  • The License, formerly owned by Tullow, is well-supported by the Jamaican government with attractive fiscal terms

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Good read.

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While it’s highly unlikely that wind turbine siting activities are responsible for the alarming number of whale deaths, some of the vociferous wind industry defenders would have been among the first to point the finger at oil and gas operations if there were any in the US Atlantic.

Some quotes from a recent USA Today article followed by BOE comments:

It’s just a cynical disinformation campaign,” said Greenpeace’s oceans director John Hocevar. “It doesn’t seem to worry them that it’s not based in any kind of evidence.” (Comment: World class chutzpah on the part of Greenpeace, the master of disinformation.)

Gib Brogan, a campaign director with Oceana, an international ocean advocacy group, said those opposed to wind power are using a spate of whale deaths in the area as an opportunity. (Comment: Does Oceana suddenly find this type of opportunism to be shocking?)

Groups opposed to clean energy projects spread baseless misinformation that has been debunked by scientists and experts,” said JC Sandberg, chief advocacy officer with the American Clean Power Association, a renewable energy trade group. (Comments: Use of the term “clean energy” is clever advocacy that serves to discredit other forms of energy. All energy sources have pros and cons, environmentally and otherwise. Wind and solar have significant visual, space preemption, navigation, wildlife risk, and intermittency issues, and are heavily dependent on subsidies and mandates. When all issues are considered, one could argue, as we have, that offshore gas, particularly nonassociated gas, is perhaps the environmentally preferred energy alternative.)

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The corporate media is disinterested (which is a story by itself), but independent journalists like Briahna Joy Gray are coming to the fore.

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15 Minute Cities

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MSC Danit and Beijing were ID’d by Sky Truth as likely dragging anchors over the damaged Beta Unit pipeline

Per the LA Times, companies linked to the cargo ships accused of dragging anchors over Amplify Energy’s pipeline have agreed to pay $45 million to settle lawsuits. The ships were identified by Sky Truth (see above image) shortly after the spill (October 1, 2021).

Meanwhile, Amplify is suing the vessel owners for damaging the pipeline and failing to notify the authorities after the damage occurred. Amplify would seem to have a good case given that inspection reports indicate that the pipeline was in good shape prior to the anchor damage and that the Beta Unit platforms had a good safety and compliance record.

Finally, when will we see the investigation report for this spill? It has now been nearly 17 months since the incident.

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