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Archive for the ‘Gulf of Mexico’ Category

Assuming the Gulf of Mexico oil and gas lease sale proceeds tomorrow in accordance with Judge Cain’s order, some interesting questions and issues remain:

  • Will the lingering Rice’s whale issues affect bidding for deepwater leases? Friday’s court order is not a final resolution of those issues, either legally or administratively. While the Rice’s whale stipulation, at the direction of the Federal court, will not be included in the Sale 261 leases, BOEM’s Notice to Lessees and Operators (NTL) includes the same provisions and still stands pending further consultations with NOAA. Although the NTL is a “guidance document” (wink-wink), there are ways of making it stick through the exploration plan approval process. Even without binding requirements, companies might choose to fully comply to minimize legal risks.
  • When will the next GoM lease sale be held? Will the uncertainty spur or constrain bidding?
  • Will the 14 blocks with rejected high bids at Sale 259 receive bids at Sale 261? If so, will the bids be higher or lower?
  • Will bp, Chevron, Shell, Equinor, Oxy, and Woodside continue to be bullish on the GoM?
  • Will Red Willow Offshore, owned by the Southern Ute tribe, again be an active bidder?
  • Will Exxon again seek to acquire carbon sequestration leases at an oil and gas lease sale? After a long absence, it would be good to see the US super-major acquire leases for oil and gas purposes. Ditto for ConocoPhillips.
  • How many companies will participate in the sale? 30-35 would be a nice outcome.
  • What will be the sum of the high bids? >$300 million would be a good result.

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The Federal Government has joined the Sierra Club et al in appealing Judge Cain’s order on Sale 261. BOEM has nonetheless committed to complying with the order if the appeal fails (likely).

BOEM is taking steps to comply with an order issued on September 21, 2023, by the U.S. District Court for the Western District of Louisiana regarding Gulf of Mexico Outer Continental Shelf Oil and Gas Lease Sale 261.   

Lease Sale 261 will be conducted on September 27, 2023. In accordance with the court’s order, BOEM will include lease blocks in Lease Sale 261 that were previously excluded due to concerns regarding potential impacts to the Rice’s whale distribution in the Gulf of Mexico.  

BOEM is also extending the bid submission period to 3 p.m. CST on September 26, 2023. 

BOEM

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Quotes from the judge’s order (emphasis added):

The challenged lease term for the expanded Rice’s whale area only arose in a July 2023 district court filing and then appeared in the FNOS for Lease Sale 261 on August 25, 2023—one month before the statutory deadline for the sale. BOEM failed to follow its own procedures by making significant changes to the FNOS, thereby depriving both affected states and the public the opportunity for meaningful review and comment. The procedural error is particularly grave here, because of both the compressed timeline and BOEM’s inexplicable about-face on the scientific record it had previously developed. (p.19)

The challenged provisions inserted into these leases at the eleventh hour, and the acreage withdrawal, are based only on an unexplained change in position by BOEM on a single study a few months after that supplemental EIS. The process followed here looks more like a weaponization of the Endangered Species Act than the collaborative, reasoned approach prescribed by the applicable laws and regulations. (p.22).

According to an affidavit from Shell’s commercial manager, the new restrictions on vessel traffic apply to an area of the northern Gulf that separates Shell’s existing offshore leases from the onshore infrastructure that supports them. Shell Offshore Inc., No. 2:23-cv-1167, at doc. 4, att. 2, ¶¶ 23–27. (p. 23).

Given the shaky justification offered by BOEM, the court cannot find that the challenged provisions are so necessary that withholding them even on a preliminary basis will outweigh the risk of irreparable economic harm shown by plaintiffs. Additionally, “there is generally no public interest in the perpetuation of unlawful agency action.” (p. 26)

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For the reasons stated above, the court hereby ORDERS that the Motions for Preliminary Injunction be GRANTED. Accordingly, the government defendants are enjoined from implementing the acreage withdrawal and Stipulation 4(B)(4) as described in the Final Notice of Sale and Record of Decision for Lease Sale 261. Government defendants are ordered to proceed with Lease Sale 261, absent the challenged terms, by September 30, 2023.

Full docket: State of Louisiana v. Haaland (2:23-cv-01157)

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Rice’s whale restrictions

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Impressively, 4 GoM operators with significant production and well activity did not incur a single civil penalty payment during the most recent 4 year period. Each of these operators also had low incident of noncompliance (INC) to inspection ratios. The companies are as follows:

Operator2022 oil production (million bbls) 2022 oil production rank2022 gas production (bcf)No. of platformsNo. of well starts (2019-2022)
Hess21.6746.535
Kosmos8.5147.8subsea tiebacks 6
Beacon7.21512.2subsea tiebacks4
Cantium4.7196.18637
  • All of these companies deserve kudos.
  • Cantium’s record is especially impressive given that most of their platforms were installed more than 40 years ago and some date back to the 1950s. They have also been a very active development well driller.
  • Hess is the 7th biggest oil producer and 5th biggest gas producer in the GoM. Hess CEO John Hess made some encouraging comments (pasted below) about the deepwater GoM at a recent energy conference.
  • While Kosmos and Beacon have somewhat lower violation and penalty exposure because their production is via subsea wells tied back to surface facilities operated by other companies, they are demonstrating that entrepreneurial deepwater independents can also be safety leaders.

“The Pickerel-1 prospect was our first (exploration well on the Mississippi Canyon 727) and we are delighted that it was an oil discovery. Black Pearl will be the next and that will hopefully be a tieback (to Tubular Bells with first oil expected mid-2024).

“Then we have a wildcat opportunity (the Vancouver exploration prospect) later in the year in the Green Canyon. With the other 80 exploratory blocks that we have in the Gulf, we will be actively drilling for the next several years,” Hess said.

OilNow

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  • Per the previous civil penalties post
  • Data are on a fiscal year basis (i.e. 2022 started on 10/1/2021 and ended on 9/30/2022)
  • These data are only for civil penalties paid in that year. Data for civil penalties referrals are not publicly available.
  • Nothing terribly surprising in the data. Fieldwood’s issues have been discussed at length.
  • Note (last chart) the lag between the date violations were observed and the date penalties were paid. This lag is significant but understandable given due process considerations.
  • Fastest payment: 6 months by Shell for an open hole that was not properly barricaded ($26,750 penalty, 2018).
  • Slowest payment: 54 months by LLOG for failing to install and maintain equipment properly (three 2016 violations)
  • Largest civil penalty paid: $512,900 by bp for a high-pressure gas release caused by the use of improper seals (May 8, 2018 violation).
  • Smallest civil penalty paid: $16,300 by Arena for the release of 1000 psi gas on October 16, 2018
  • The current maximum penalty amount is $52,646 per day, per violation.
  • To learn more about the specific cases.

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Right whale – Atlantic
Rice’s whale – Gulf of Mexico

Both species are endangered, but the operating restrictions differ significantly:

North Atlantic wind leases: right whale restrictions GoM Lease sale 261: Rice’s whale restrictions
No leasing prohibitions or turbine-free areas have been established despite concerns raised by NOAA (see attached letter)All of the expanded Rice’s whale area is excluded from leasing (i.e. the entire area between the 100 and 400 m isobaths across the GoM)
seasonal 10 kt max speed for vessels > 65′year round 10 kt max for all vessels
vessel separation distance of 500 m for any sighted right whale or unidentified large marine mammalseparation distance of 500 m for any sighted Rice’s whale; if unsure, must assume whale is Rice’s
no visibility restrictions for vessel operationsvessels must avoid transit between dusk and dawn and other times of low visibility
no automatic identification system (AIS) requirementsvessels > 65′ must have AIS functioning at all times
no documentation requirementsmust maintain records to document compliance

Note (below) the proximity of existing and planned wind leases to moderate to high density RIght whale areas compared to the more speculative expanded Rice’s whale area in the central and western GoM that is predicted based on passive acoustic recordings.

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  • Field: Trion
  • Operator: Woodside
  • Partner: Pemex
  • Water depth: 2500 m (Mexico’s first ultra-deepwater project)
  • Distance from US maritime border: 30 km
  • Distance offshore: 180 km
  • Reserves: 324.7 million BOE proved, 478.7 million BOE probable
  • Production: Floating Production Unit with an oil production capacity of 100,000 B/D connected to an FSO vessel with a capacity of 950,000 bbl. Gas not used to power FPU will be reinjected
  • First oil: 2028
  • Only mentioned here 😉: The predicted Rice’s whale habitat extends southward between the 100 and 400 m isobaths into Mexican waters. Background.

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For those interested in safety and compliance data, a good BSEE update for the Gulf of Mexico is attached.

Interestingly, (slide pasted below), there were 20% fewer Incidents of Noncompliance (INCs) per component inspected but 37% more INCs/inspection. This would seem to imply high INC rates at less complex (typically older) facilities with relatively fewer components.

Posted 2023 inspection data indicate high INC/inspection rates for Cox and affiliates Energy XXI GOM and EPL that have filed for bankruptcy. Through August, these companies have accounted for 44% (635/1457) of all INCs issued in 2023. This may explain, at least in part, the divergence in the 2 compliance measures.

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