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Archive for the ‘CCS’ Category

Important CO2 leakage study included in BOEM Studies Plan

Posted in CCS, climate, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , on June 27, 2024| Leave a Comment »

Carbon sequestration (i.e. subsurface disposal) is a controversial and divisive topic, and important questions regarding the costs and benefits remain. Nonetheless, the Infrastructure Bill of 2021 authorized the disposal of CO2 on the OCS, and stipulated that the Secretary of the Interior promulgate regulations for that purpose. However, that major task cannot be completed without a better understanding of the potential environmental impacts.

BOEM has announced a study (see attached pages from their new Environmental Studies Plan) to consider the potential for CO2 leakage and related environmental concerns. A few excerpts from BOEM’s summary follow:

Problem:  Potential CO2 leakage from carbon sequestration (CS) project activities could occur via a number of pathways. Few studies model and/or measure CO2 leakage, transport, dispersion, attenuation, and environmental impacts in the offshore environment, and those that do exist are preliminary. 

Intervention:   BOEM needs more information about the dynamics, fate, transport, and potential environmental impacts of CO2 leakage under various scenarios, including worst-case, on the OCS to inform the new nationwide CS Program and to protect the environment from CO2 leakage. 

Comparison:   The study will model CO2 leakage under various scenarios, including worst-case scenarios, using the GOM OCS Region as a case-study and can be applied to all OCS regions. Outcome The leakage and worst-case scenario modeling will aid BOEM’s ongoing rulemaking efforts, program development and implementation, and future operational needs including NEPA analyses, lease planning, lease stipulations, consultations, plan and permit approvals, mitigation measures, risk assessment and monitoring requirements, etc. Study results will also provide direction for future studies to include field and/or laboratory analyses.

The performance period for this important study extends through 2027, so it’s hard to envision final CS regulations prior to that date. You can’t issue regulations without first assessing the potential harm that could result from their promulgation (as required by NEPA).

BOEM’s summary mentions “the anticipation of a CS lease sale in the GOM after final regulations are published.” Hopefully, this also means that BOEM will not permit improperly acquired oil and gas leases (Sales 257, 259, and 261) to be converted to CS leases.

BOEM 2025-2026 Environmental Studies Plan CCS leakage studyDownload

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Gulf of Mexico carbon disposal: No news is good news!

Posted in CCS, climate, energy policy, Gulf of Mexico, Offshore Energy - General, tagged , , , , , , , on June 18, 2024| Leave a Comment »

At Sale 261, Repsol was the sole bidder for 36 nearshore Texas tracts in the Mustang Island and Matagorda Island areas (red blocks at the western end of the map above). Exxon acquired 163 nearshore Texas tracts (blue in map above) at Sales 257 (94) and 259 (69).
  • The 199 oil and gas leases that were wrongfully acquired for carbon disposal purposes remain idle with the government collecting rental payments at the rate of $10/acre/yr ($7 for Sale 257 leases). Collectively, this amounts to approximately $10 million/yr.
  • Presumably, the lessees cannot claim CCS tax credits for their bonus and rental payments.
  • The primary term for these leases is only 5 years, and the clock is ticking. The 94 oil and gas leases acquired by Exxon at Sale 257 for carbon disposal purposes are approaching the end of their second year. They would be almost a year older if litigation hadn’t delayed the issuance of Sale 257 leases (break for Exxon?).
  • No exploration plans have been filed for any of these leases. Presumably Exxon and Repsol do not intend to drill any wells unless the leases are converted to authorize carbon disposal.
  • The “Infrastructure Bill,” signed 2 days before Sale 257, required the Secretary of the Interior to promulgate regulations not later than one year after the date of enactment (11/15/2021). That deadline has long passed.
  • The delay in the regulations is understandable given the complex lease management, operational, and environmental issues.
  • Like the practices and operations they are intended to enable, the regulations are certain to be divisive. Neither the offshore industry nor the environmental community are of one mind on these issues, particularly with regard to the acquisition of oil and gas leases for carbon disposal purposes.
  • Energy Intelligence suggests that final carbon disposal regulations will be promulgated this year. This is highly unlikely, given that a proposed rule must first be published for public comment.
  • Interior could seek to demonstrate “good cause” for a direct final or interim final rule. However, such an attempt at corner-cutting is unlikely, especially given the controversy associated with carbon disposal.
  • Publication of a proposed rule prior to the election is unlikely – too controversial.
  • Presumably, the regulations will establish a competitive process for the conversion of any oil and gas leases.
  • The leases that were wrongfully acquired at Sales 257, 259, and 261 should not be extended for any period of time, even if their expiration date approaches before a competitive process is established.

Closing comment: “Sequestration” is a euphemism that is being incorrectly applied to soften the reality of disposing carbon beneath the Gulf of Mexico. Sequestration implies storage for later use and that is clearly not the intent. Because carbon disposal is arguably dumping, a special exemption from the Marine Protection, Research, and Sanctuaries (Ocean Dumping) Act of 1972 had to be added to the Infrastructure Bill.

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Energy Intelligence: “Exxon Pushes US to Allow ‘Conversion’ of Oil Leases for CCS”

Posted in CCS, climate, energy policy, Gulf of Mexico, Regulation, tagged , , , , on May 8, 2024| Leave a Comment »

“Exxon Mobil has led a persistent and apparently successful lobbying campaign behind the scenes to push the US federal government to adopt rules that would allow the conversion of existing oil and gas leases in the Gulf of Mexico into offshore carbon capture and storage (CCS) acreage, according to documents seen by Energy Intelligence and numerous interviews with industry players.” Energy Intelligence

The Energy Intelligence article documents the ongoing carbon disposal lobbying by Exxon and others. Those meetings are okay prior to publishing a Notice of Proposed Rulemaking (NPRM) for public comment. However, the article implies that the next step is a final rule: “Whether or not Exxon succeeds will become fully clear when the US issues final rules guiding CCS leasing, expected sometime this year.”

A final rule this year is unlikely, because an NPRM has to be published first for public comment. The only exception would be if BOEM was able to establish “good cause” criteria for a direct final or interim final rule in accordance with the Administrative Procedures Act. Such an attempt at corner cutting seems unlikely, especially in an election year when all regulatory actions are subject to additional scrutiny.

Exxon must have thought they had a clear path forward after 11th hour additions to the “Infrastructure Bill” authorized carbon disposal on the OCS, exempted such disposal from the Ocean Dumping Act, and provided $billions for CCS projects. Keep in mind that the Infrastructure Bill was signed just two days before OCS Oil and Gas Lease Sale 257, at which Exxon acquired 94 leases for carbon disposal purposes.

What the Infrastructure Bill did not provide is authority to acquire carbon disposal leases at an oil and gas lease sale. Now the lobbyists are apparently scrambling to overcome that obstacle administratively.

BOEM, which arguably made a mistake in accepting irregular carbon disposal bids at the last 3 oil and gas sales, should not amplify Exxon’s unfair advantage (also Repsol at Sale 261) by allowing the conversion of these leases (map below). This is not a small matter given that Exxon has publicly projected that carbon disposal is a $4 trillion market opportunity.

A single company or small group of companies should not be dictating the path forward for the Gulf of Mexico. Super-major Exxon is a relative minnow in the Gulf of Mexico OCS. They have not drilled an exploratory well since 2018, not drilled a development well since 2019, operate only one platform (Hoover, installed in 2000), ranked 11th in 2023 oil production, and ranked 29th in 2023 gas production.

Lastly, and most importantly, public comment on the myriad of technical, financial, and policy issues associated with GoM carbon disposal is imperative. That input is essential before final regulations are promulgated.

At Sale 261, Repsol was the sole bidder for 36 nearshore Texas tracts in the Mustang Island and Matagorda Island areas (red blocks at the western end of the map above). Exxon acquired 163 nearshore Texas tracts (blue in map above) at Sales 257 and 259.

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Sale 259 bid rejections: how did the govt fare?

Posted in CCS, energy policy, Gulf of Mexico, Offshore Energy - General, tagged , , , , , on April 2, 2024| Leave a Comment »

14 of the high bids at Gulf of Mexico Lease Sale 259 were rejected. Did those tracts receive bids at sale 261? What was the net gain or loss of revenue? See the summary bullets and table below

  • 6 of the 14 tracts received no bids whatsoever
  • 5 of the 14 tracts received higher bids that were accepted.
  • 2 tracts received substantially higher bids that were again rejected
  • 1 tract received a lower bid that was accepted
  • net bonus revenue gain to the govt from the bid rejections (pending re-offering at future sales): $1,032,877
  • net bonus revenue gain = 0.27% of the total high bids at sale 261
  • net loss in future rental and royalty payments: ????

For a net bonus revenue gain to date of only 1/4 of one per cent, 8 of the 14 sale 259 tracts with rejected high bids remain closed to exploration. The timing of any future sales is very much in doubt given the minimalist 5 year leasing plan and the associated legal challenges.

Current bid evaluation practices only make sense if regular lease sales are held on a predictable schedule, as has historically been the case.

Meanwhile, 100% of the improper CCS bids (199/199) were accepted at the last 3 oil and gas lease sales.

area and blockSale 259 rejected high bid – companySale 261 high bidbid acceptedgovt gain (loss*)
DC 6222,101,836 – Shell615,628 – Shellyes(1,486,208)
GC 173307,107 – Woodsideno bidNA(307,107)
GC 5471,783,498 – Chevronno bidNA(1,783,498)
GC 5911,291,993 – Chevronno bidNA(1,291,993)
GC 642605,505 – Anadarkono bidNA(605,505)
GC 777583,103 – bpno bidNA(583,103)
AT 51,551,130 – Anadarko5,215,628 – Shellyes3,664,498
AT 133607,107 – Woodsideno bidNA(607,107)
KC 745707,777 – Beacon2,422,222 – Beaconno(2,422,222)
KC 789707,777 – Beacon2,143,299 – Beaconno(2,143,299)
WR 794724,744 – Beacon1,487,624 – Beaconyes762,880
WR 795774,242 – Beacon5,301,107 – Woodsideyes4,526,865
WR 796774,242 – Beacon3,310,107 – Woodsideyes2,535,865
WR 750724,744 – Beacon1,498,555 – Beaconyes773,811
total govt. gain1,032,877
*Loss based on rejected sale 261 high bid. If no sale 261 bid, loss based on sale 259 high bid. These tracts could receive bids at a future sale.

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How much of the decline in shelf bids is attributable to higher royalty and rental rates?

Posted in CCS, decommissioning, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , , , , on March 19, 2024| Leave a Comment »

A post from last March discussed the high and seemingly unfair royalty and rental rates for new leases in the shallow waters of the Gulf of Mexico shelf. A 50% increase in the shelf royalty rate for lease sales 259 and 261 combined with rather punitive rental rates have likely contributed to the sharp decline in bidding for shelf lease blocks (see table below).

This decline in shelf bidding is unfortunate because the smaller companies that operate in the shallow waters of the Gulf are critical to sustaining the production infrastructure. These companies are also significant producers of environmentally favorable nonassociated (gas-well) natural gas.

lease saleshelf blocks with bids
(excluding CCS bids)		sum of high shelf bids
($million, excluding CCS bids)
25746$8.1
25929$4.1
26113$1.7
The royalty rate for shelf production jumped 50% from sale 257 to sales 259 and 261

BOEM has completed their evaluation of the Sale 261 shelf bids (see below). Each of these blocks received only a single bid, and every bid was accepted. Ironically, the invalid CCS bids for blocks that have no oil and gas value, were the first to be accepted. This was also the case for Sales 257 and 259.

CompanyBlockhigh bid ($)
per acre ($)		date accepted
ByronSM 60128,750
25.75		2/2
ByronSM 70182,235
33.32		2/20
CantiumGI 35125,000
25.00		2/20
CantiumGI 36125,000
25.00		2/20
CantiumMP 314125,000
25.00		3/12
CantiumSP 63125,000
25.00		3/12
ArenaEI 231135,000
27.18		2/20
ArenaEI 277135,000
27.18		2/20
ArenaEI 281135,000
27.18		2/20
ArenaEI 340135,000
27.18		2/20
ArenaEI 343135,000
27.18		2/20
ArenaWD 119135,000
26.75		3/12
FocusV 152121,152
25.16		2/20
Repsol36 CCS bids187,200 (1)
32.50		1/23
(1) All of the Repsol bids were $32.50/ac. Total bids varied by block size, but were $187,200 for the 5760 acre blocks.

Suggestions:

  • Seek a legislative fix to the Inflation Reduction Act😉 provision that established a 1/6 royalty rate floor for all OCS leases (formerly the royalty rate was 1/8 for leases on the shelf).
  • In the interim, administratively lower the royalty for shelf leases to 1/6 (from 18 3/4%).
  • Reconsider the rental rate scheme for shelf leases.
  • For future oil and gas lease sales, accept all high bids that exceed the specified minimum bid (currently $25/ac for the shelf). The Gulf of Mexico shelf has been extensively explored and developed for 70 years. While prospects remain, they are generally marginal as evidenced by the recent lease sale results. Fair market value is what any company is willing to bid (above the specified minimum).
  • Focus on assuring that lease purchasers are technically qualified to minimize safety risks, and that financial assurance for decommissioning (for new and existing leases owned by the high bidder) has been fully addressed.

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US offshore carbon disposal: And so it has begun…

Posted in CCS, climate, decommissioning, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , on March 7, 2024| Leave a Comment »

Bayou Bend CCS LLC commenced drilling an offshore (Texas State waters) and an onshore stratigraphic well for carbon sequestration in the first quarter 2024.

Talos

Is offshore carbon disposal ocean dumping? One of the provisions that was slipped into the “2021 Infrastructure Bill” exempted carbon sequestration from the Marine Protection, Research, and Sanctuaries Act of 1972 (Ocean Dumping Act). This exemption revises the OCS Lands Act and thus does not apply to State offshore lands. The Texas offshore wells must therefore be permitted by EPA as “Class VI wells,” as is the case for onshore disposal wells. However, Texas and Louisiana have asked the EPA for “primacy,” which would allow state agencies to approve and oversee these operations.

Meanwhile, the regulations for carbon disposal on the OCS, which the Infrastructure Bill mandated by November 2022, have yet to be published for comment. The latest Federal regulatory agenda indicates a publication date of 12/00/2023 for these regulations. Presumably the staff work has been completed and the rule is stalled in the review process.

Despite the absence of a regulatory framework, BOEM has accepted sequestration bids at the last three oil and gas lease sales. These bids were evaluated as if the leases were being acquired for oil and gas exploration and production, even though the bidders’ intentions were widely known. Why was BOEM a willing participant in this charade, not just at one sale, but at three sales in succession?

Given that the perceived carbon disposal bonanza is dependent on mandates and subsidies, one has to wonder about the massive revenue projections for this industry and raise concerns about the associated public and private financial risks. What is the long term business plan for this industry? Who will be monitoring the offshore wells (in perpetuity)? How will the public be protected from financial assurance and leakage risks? We will see how the myriad of carbon sequestration issues are addressed in the proposed regulations.

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Stabroek Supermajor Squabble

Posted in CCS, Guyana, Offshore Energy - General, tagged , , , , , , , on February 29, 2024| Leave a Comment »

Note that the Stabroek block is equivalent in size to 1,150 Gulf of Mexico lease blocks and contains multiple outstanding prospects.

Are Exxon and Chinese partner (CNOOC) attempting to use Chevron’s acquisition of Hess to improve their already lucrative position in Guyana’s prolific Stabroek block?

From OilNow Guyana:

  • The Stabroek operating agreement outlines terms for Hess, Exxon, and CNOOC to explore and develop the block.
  • This Stabroek agreement includes a right of first refusal (ROFR) provision which allows the parties to buy out the stake of one of them in the event of a ‘change of control’ transaction.
  • Chevron and Hess argue that the merger’s structure does not trigger the ROFR clause.
  • Exxon and CNOOC argue that the clause applies. This could force Hess to offer its stake in the Stabroek block to its partners first. 

The Exxon/CNOOC position seems to be a stretch. Chevron did not buy the Stabroek share; they bought the company that holds that share. Hess is to be part of Chevron and there would be no change of control from the standpoint of the partnership.

As an offshore operator, Exxon has been highly responsible from a safety standpoint. However, the company has a shown tendency to stretch the envelope when it comes to contract rights. The most recent example was their acquisition of 163 GoM oil and gas leases for carbon disposal purposes, contrary to the terms of the sale notice and lease contracts.

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Still waiting ….

Posted in accidents, California, CCS, decommissioning, energy policy, Gulf of Mexico, Offshore Energy - General, oil spill response, pipelines, Regulation, tagged , , , , , , , , , , , on February 12, 2024| Leave a Comment »

Still waiting for:

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All 36 of Repsol’s carbon disposal bids at Oil and Gas Lease Sale 261 were accepted by BOEM!

Posted in CCS, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , on January 31, 2024| Leave a Comment »

At Oil and Gas Lease Sale 261, Repsol was the sole bidder for 36 nearshore Texas tracts in the Mustang Island and Matagorda Island areas (red blocks at the western end of the map above). Exxon acquired 163 nearshore Texas tracts (blue in map above) at Sales 257 and 259. All 36 of the Repsol bids have now been accepted.

As previously posted here and here, carbon disposal bidding at the last 3 oil and gas lease sales has made a mockery of the leasing process and the regulations that guide it.

Hopefully, the carbon sequestration regulations that are under development will preclude conversion of leases acquired at Sales 257, 259, and 261. At a minimum, these regulations should require a competitive process for converting any oil and gas leases.

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Sale 261: Repsol’s nearshore Texas bids should be rejected without delay

Posted in CCS, climate, Gulf of Mexico, Offshore Energy - General, tagged , , , , , on January 15, 2024| Leave a Comment »

The above map shows the offshore carbon disposal leases acquired by Repsol from the Texas General Land Office (GLO) and the adjacent Federal tracts Repsol bid on at OCS Lease Sale 261. There should be absolutely no confusion regarding Repsol intentions at Sale 261. They plan to develop a large CO2 disposal hub offshore Corpus Christi and bid improperly at an OCS oil and gas lease sale to support that objective.

Perhaps blinded by visions of “a stream of U.S. government grants, followed by generous tax credits for every ton of carbon stored,” Repsol (Sale 261) and Exxon (Sales 257 and 259) have made a mockery of the OCS leasing process and the regulations that guide it. The Repsol bids should be promptly rejected.

So what about the Exxon nearshore Texas leases that have already been issued? Given that Exxon misled the Federal government and improperly acquired carbon disposal leases at an oil and gas lease sale, those bids should be cancelled pursuant to 30 CFR § 556.1102:

(c) BOEM may cancel your lease if it determines that the lease was obtained by fraud or misrepresentation. You will have notice and an opportunity to be heard before BOEM cancels your lease.

While Exxon’s oil production increases in the Permian Basin and offshore Guyana are impressive, is it not hypocritical for Exxon and other major producers to capitalize on the capture and disposal of emissions associated with the consumption of their products? Is it not just a bit unsavory for oil companies to cash in on (and virtue signal about) carbon collection and disposal at the public’s expense? Perhaps companies that believe oil and gas production is harmful to society should be reducing production rather than engaging in enterprises intended to sustain it.

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