DUBAI, June 13 (Reuters) – OPEC does not see a peak in oil demand in its long-term forecast and expects demand to grow to 116 million barrels a day by 2045, and may be higher, the secretary general said on Thursday.
The International Energy Agency said in a report on Wednesday it sees oil demand peaking by 2029, levelling off at around 106 million barrels per day (bpd) towards the end of the decade.
Hathaim Al Ghais, writing in Energy Aspects, called the IEA report “dangerous commentary, especially for consumers, and will only lead to energy volatility on a potentially unprecedented scale”.
24 million bbls have been added since the reserve was drained to the historic low of 347 million bbls last July. At this rate and assuming no further sales, the SPR will be refilled in a scant 15 years!
Noble’s acquisition of Diamond Offshore will unite two safety management pioneers and long-time offshore safety leaders. The press release stresses the importance of their “culture commonality around safety, operational excellence and service posture,” and their “shared commitment to these foundational principles is expected to be a driving force toward a successful and seamless integration.” While such statements are common in corporate merger announcements, Noble and Diamond “walked-the-walk” for decades, so their statement is more than corporate lip service.
Based on BOEM and BSEE lease and well data for the past 10 years, LLOG’s Dome Patrol field appears to have reached first production in the shortest time for any new deepwater field. Less than 6.5 years after acquiring the Mississippi Canyon lease, LLOG began producing from a single Dome Patrol well (Mississippi Canyon Block 505) that is tied back to the Who Dat subsea infrastructure.
Dome Patrol was the nickname for the outstanding linebacker corps of the New Orleans Saints during the late 1980s and early 1990s, and is thus consistent with the Who Dat theme.
Diamond Ocean Blackhawk is drilling MC 40 well for Anadarko
Following up on last year’s deepwater diligence post, 4 recent deepwater exploratory wells (table below) were spudded within 4.5 years of the effective date of their leases.
Particularly noteworthy is Anadarko’s well on newly acquired Mississippi Canyon Block 40, which was spudded only 18 months after the lease was acquired. Everything has to be in place for such an outcome: corporate priority, data gathering and analysis, well plan, permitting, and rig contract/availability.
The well was apparently a high priority not just for Anadarko, but also for Chevron and Murphy. MC 40 was acquired by Chevron (bidding alone) at Sale 257 for $4,409,990, the third highest bid at the sale. Murphy had submitted a losing bid of $3 million, but was assigned a 33% share of the lease by Chevron on 12/15/2023. One month earlier, Anadarko had been assigned a 33% interest and became lease operator.
Interestingly, BOEM’s Mean Range of Value (MROV) estimate for the block was only $576,000, so the three companies are seeing something that BOEM doesn’t. We’ll see how this plays out.
According to rig tracker data the Ocean Blackhawk is still on location at MC 40. Per BSEE permitting data, the well was approved to be bypassed in mid-May.
April 2018:New Zealand is halting all new offshore oil and gas exploration to become a global leader in the fight against climate change, the centre-left government said Thursday, but opponents accused it of “economic vandalism”.
June 2024: The country’s coalition government is preparing to invite energy companies to resume exploration in the three major offshore fields that supply most of its gas. It comes after National Grid operator Transpower was last month forced to warn families to limit their electricity usage to avoid a shutdown during a cold snap.
Will the policy changes, the details of which remain to be announced, be sufficient to attract E&P investors?
…Rick Carrier became the first allied soldier to discover the Buchenwald concentration camp. The next day, April 11, 1945, he marched into the camp with Patton’s Third Army and liberated the prisoners.
More than a half century later, and after leading a successful effort to protect the American bald eagle, he was the first person to submit an offshore wind application to the Minerals Management Service.
Rick wanted nothing from the government except the opportunity to demonstrate his green hydrogen concept with a single turbine in the Atlantic. He did not ask for any subsidies or research grants. This war hero from the greatest generation just wanted to continue doing great things for the country and the world.
Unfortunately, the Energy Policy Act of 2005 had yet to be enacted, and the framework for permitting such projects had not been established. While we tried to find a way to make the project possible, the legal obstacles were too great.
It was an honor to have worked with Rick on his green hydrogen initiative. RIP.
“In the 1950s, Soviet engineers built a massive city in the Caspian Sea off the coast of Azerbaijan. It was a network of oil platforms linked by hundreds of kilometers of roads and housing 5,000 workers, with a cinema, a park and apartment blocks. Gradually disintegrating but still closely guarded, this astonishing place inspired a fiery scene in a James Bond movie.“
Neft Dashlari (Black Rock), as the town is known, is no doubt the most unique oil town in history – the oil patch’s Venice! 😉
“In Neft Dashlari’s heyday, some 2,000 drilling platforms were spread in a 30-kilometer circle, joined by a network of bridge viaducts spanning 300 kilometers. Trucks thundered across the bridges and eight-story apartment blocks were built for the 5,000 workers who sometimes spent weeks on Neft Dashlari. The voyage back to the mainland could take anything between six and twelve hours, depending on the type of ship. The island had its own beverage factory, soccer pitch, library, bakery, laundry, 300-seat cinema, bathhouse, vegetable garden and even a tree-lined park for which the soil was brought from the mainland.“
Decommissioning lesson: “Dismantling Neft Dashlari properly would probably be more expensive than simply keeping it going with a scaled-down oil production.” Sound familiar?
Decommissioning financial assurance issues are complex!
This blog has raised significant concerns about BOEM’s decommissioning financial assurance rule, and will continue to comment on decommissioning policy. That said, decommissioning issues are complex and have challenged industry and government in the US and internationally for decades. Add well plugging practices, corrosion, storm risks, reefing vs. total removal, alternative uses for old platforms, and pipeline and seafloor equipment abandonment to the myriad of financial issues and you get a sense of the breadth and complexity of decommissioning issues.
Decommissioning is unique in that the issues divide sectors of the offshore industry that are typically aligned (majors vs. smaller producers). The environmental community is also divided with the reefing and fishing advocates opposing those who insist on complete removal.
Given these divisions, and decommissioning’s operational, environmental, and political complexities, highly partisan assertions are common. A recent article about the financial assurance rule includes a number of such assertions, and provides a framework for discussing some of the more prominent issues. Excerpts from the article and my comments follow.
“This costly rule became final on April 15, 2024, but in the 10 months since its initial proposal, BOEM did nothing to alleviate concerns for smaller companies that comprise of 76 percent of oil and gas operators in the Gulf.“
Comments:
While I concur that shelf operations and the independent companies that conduct them are important, 94% of OCS oil production and 80% of the gas (2023 data) were from deepwater facilities (>1000′ WD) which are largely the domain of the majors (although the participation of independents in the deepwater sector is increasing).
In 2023, four majors – Shell, bp, Oxy (Anadarko) and Chevron – accounted for 2/3 of the Gulf’s total oil production.
1467 of the remaining 1527 GoM platforms are in <1000 feet of water and are almost exclusively operated by small producers. So 96% of the platforms are producing only 6% of the oil and 20% of the gas.
This dichotomy presents a major challenge for BOEM which must protect the public from decommissioning liabilities without unfairly penalizing small producers.
Having worked for respected political appointees from both parties, my experience has been that the smaller producers (somewhat surprisingly) have more political influence than the majors. For this reason, along with the general lack of attention to financial assurance issues in the early years of the offshore program, the standard bond requirement was ridiculously low for much of the program’s history, and supplemental financial assurance assessments were typically inadequate (and still are which is why the new rule was promulgated).
Attention to decommissioning issues grew exponentially in the early 1990s. Prior to that time, platform removal, like well plugging, was classified as “abandonment,” a term that was considered too harsh when bankruptcy issues and the Brent Spar controversy in the North Sea attracted worldwide attention.
“Records obtained via the Freedom of Information Act show private meetings between Interior officials and representatives of the major oil companies as they cooperated on this rule.“
Comments:
The linked FOIA records are not at all problematic. They pertain to meetings prior to the publication of the draft rule, which are appropriate and desirable.
Some of these meetings were in response to BOEM’s request for input regarding their review of the OCS oil and gas program. Such meetings are particularly helpful when a new administration is trying to assess the direction of the program.
Indeed 42 of the 71 pages in the FOIA were official industry comments in response to the BOEM request.
Per the Regulations.gov docket on the financial assurance rule, BOEM also met with stakeholders after the proposed rule was published. Those meetings are allowed as long as the regulator simply receives input and does not signal decisions regarding the content of the final rule.
The docket shows that BOEM had 8 listening sessions with advocates for independent producers. These included 2 sessions with the Gulf Energy Alliance and 6 sessions with individual independent producers.
BOEM also had 2 listening sessions with Oceana, a prominent environmental organization, and multiple sessions with tribal organizations.
The only sessions with representatives from major producers were a single session with API and a single session with Shell, the Gulf’s largest producer.
These meetings (after the proposed rule was published) are noted in the docket as required.
I am concerned that many listening session documents (from all sides of the decommissioning financial assurance issue) were removed from the docket at the direction of OIRA/OMB, purportedly because they included privileged information. This is rather troubling given the number of deletions and the complete absence of information about those meetings. What types of privileged information were these organizations providing and why is there no information whatsoever on these meetings? At a minimum, a list of attendees and general summary for each meeting should have been posted, as was our practice in the past.
“Big Oil must think it won’t miss the small competitors the rule will drive from the market.“
Comments:
There is important synergy between the major producers and independents, and no reason for driving smaller companies from the market.
The independents are critical to sustaining the shelf infrastructure and the associated service companies, which helps to facilitate deepwater development. Majors also benefit from partnering with independents on lease acquisitions, development projects, and lease assignments.
Financial assurance for decommissioning of transferred assets is the one area of significant conflict, particularly when there have been multiple ownership changes since the facilities were initially transferred.
“Historically, joint and several liability protected these small businesses from the financial demands of surety bonds.”
Comments:
Surety bonds, or other forms of financial assurance, have always been required. As previously noted, the amounts were often inadequate.
Joint and several liability was not established in the regulations until May 22,1997. Whether companies are liable for facilities transferred prior to that date has yet to be considered in court.
1130 of the 1527 remaining GoM platforms were installed prior to May 22,1997. Many of these platforms were no doubt transferred prior to that date, which means the liability of the initial owner is uncertain.
Predecessor liability does not apply to new wells and platforms constructed by the current lessees.
Joint and several liability was never intended to relieve current lessees from their financial assurance responsibility, which is why assignors were required to provide such assurance. BOEM is correct in strengthening their enforcement of this requirement.
“The new rule is largely silent on joint and several liability, causing some uncertainty.”
Comment: The joint and several liability provision remains in place at 30 CFR 250.1701(a) BOEM has added language to part 556.704, to clarify, correctly in my opinion, that they may withhold approval of any transfer or assignment of any lease interest if the financial assurance requirements have not been satisfied.
Companies may not be able to acquire the needed financial assurances because the market likely will not even exist.
Comment: The history of small producer failures is no doubt a concern to financial institutions. BOEM offers multiple financial assurance options, some of which have been questioned on this blog. If a company can’t qualify, it’s not the responsibility of the public to assume their decommissioning risks.
What makes matters worse is that all this cost covers a risk that is effectively a rounding error historically and in the context of the royalties flowing from the offshore oil and gas industry. According to BOEM, taxpayers have borne decommissioning liability totaling $58 million – from a single company that lacked predecessor owners of the platform to call on to cover unfunded cleanup costs.
Those who seek to minimize the Federal government’s risk exposure should consider the findings in the 2024 GAO report. Per that report, “BOEM held about $3.5 billion in supplemental bonds to cover between $40 billion and $70 billion in total estimated decommissioning costs as of June 2023.”
When will we find out who will be paying the hundreds of millions needed to decommission long-idled Platforms Hogan and Houchin in the Santa Barbara Channel?
Decommissioning financial assurance is a responsibility of lessees, not the taxpayer.
March production (1823 MBOPD) has been added to the GoM summary chart (below).
The Main Pass Oil Gathering (MPOG) system reportedly remained shut-in until early April. We should learn more about the impact of that shut-in when the EIA releases the April production figure at the end of June. Meanwhile, we are still waiting for information from the NTSB on the MPOG incident. To date, the NTSB has only posted a short summary
Note that BOEM’s 2024 forecast called for production to average 2,013 MBOPD, which is above the 2023 peak of 1,997 MBOPD in September.
Most forecasts call for an active 2024 hurricane season, so interruptions in production are likely. There were no production shut-ins from tropical storms in 2023.
Bud's Offshore Energy (BOE) 