Feeds:
Posts
Comments

Archive for the ‘Gulf of Mexico’ Category

Senator Manchin and the Alaska delegation criticized the DOI decision memo for Sale 258. The memo implied that the highest allowable royalty rate was chosen to minimize bidder interest and limit future production. Unfortunately, the “Inflation Reduction Act,” which mandated these lease sales, was not particularly helpful in creating interest in the less attractive OCS tracts like those in the Cook Inlet and the shallower waters of the Gulf of Mexico.

Sec. 50261 of the IRA raised the minimum allowable royalty rate from 12 1/2% to 16 2/3%, while capping the maximum rate at 18 3/4%. This provision favors deepwater operators, typically majors and large independents, whose royalty rates were capped at 18 3/4%, the same rate as for previous OCS sales.

Conversely, the IRA royalty provisions penalize the smaller companies and gleaners who are critical to sustaining shallow water (shelf) operations, including environmentally favorable nonassociated (gas-well) natural gas production, by raising the minimum royalty rate to 16 2/3%. DOI exacerbated IRA’s impact by electing to charge the highest allowable royalty rate for Cook Inlet and GoM shelf leases. The net result was a 50% royalty rate increase from prior sales (12.5 to 18.75%).

The table below illustrates the royalty rate implications of the IRA language and the DOI decisions.

AreaSaleDate% royalty: <200m water depth% royalty: >200m water depth
Cook Inlet2446/21/201712.512.5
GoM25611/18/202012.518.75
GoM25711/17/202112.518.75
Cook Inlet25812/30/202218.7518.75
GoM2593/29/202318.7518.75

Notes:

  • The base primary term for GoM shelf leases is only 5 years vs. 10 years for leases in .>800 m of water.
  • In lease year 8 and beyond the rental rates are nearly double for shelf leases vs. deepwater leases ($40/ac vs. $22/ac).
  • While deepwater development typically requires more time, the higher rental penalty for delayed shelf production (which must be approved by BSEE) is not warranted. $40/acre or $240,000 per year (plus inspection and permitting fees) is a high cost for a marginal shelf lease.
  • Cook Inlet Sale 244 drew 14 high bids totaling more than $3 million. Sale 258 drew only 1 bid of $64,000. While many factors influence lease sale participation, the 50% increase in royalty rate certainly made the Cook Inlet leases less attractive.
  • Other than the increased royalty rate, the terms for both Cook Inlet sales were essentially the same. The primary lease term was 10 years and the minimum bonus bid was $25/hectare for both sales. The rental rate was increased by only $3/hectare ($13 to $16).

Read Full Post »

Presentations from the January 2023 HSAC meeting have now been posted. None of the presentations addresses the tragic crash in the Gulf of Mexico on 29 December. This is understandable given the ongoing investigation.

Attached is an update from the Helideck Committee which also addresses wind farm issues.

Read Full Post »

“I am of a firm view that the world will need oil and gas for a long time to come,” (Shell Chief Executive) Sawan, who started the job on Jan. 1, told Times Radio in the U.K. on Friday. “As such, cutting oil and gas production is not healthy.

Back in 2021, Shell predicted that its own oil production would decline every year and drop by as much as 18% by 2030. BP had a similar outlook, but CEO Bernard Looney rolled back its climate targets this year and said it will increase investment in exploration and production.

BP and Shell have trailed their U.S. peers in price to earnings ratios. Analysts have said investors interested in exposure to oil and gas have shunned them for putting more money into renewables, while investors focusing on environmental concerns haven’t rewarded them. That’s kept European energy firms trading at a discount.

Barron’s

It will never happen, but a separate company composed of BP and/or Shell upstream US assets would be very attractive to investors.

Read Full Post »

Comments on 2022 oil production:

Read Full Post »

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! 😉

Read Full Post »

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?

Read Full Post »

Shell Vito

Last year, BOE featured 5 deepwater platforms that were under construction: Shell’s Vito and Whale, Murphy’s King’s Quay, bp’s Argos, and Chevron’s Anchor. These floating production units are noteworthy for their lighter, smaller designs. King’s Quay was the first to produce, beginning last April. The spotlight is now on Vito which began producing today. Vito’s peak production should reach 100,000 boe. The other 3 platforms are expected to begin production this year or next.

Read Full Post »

The Nord Stream sabotage likely released more methane than the complete lifecycle of a GoM lease sale (upstream and downstream). Also, the Nord Stream explosions may have released more methane than is emitted by all US offshore producers in an entire year. Here are the numbers:

Source of MethaneCH4 emissions (1000s of tons)
Nord Stream (probable range)100-400
Nord Stream (maximum)500
Nord Stream – first 48 hrs (CAMS est)175
all US offshore production in 2020 (EPA)193
all US on- and offshore exploration in 2020 (EPA)12
lifecycle upstream emissions from a typical GoM lease sale (BOEM)118
lifecycle up- and downstream emissions from a typical GoM sale (BOEM)151

Finally, remember that offshore oil and gas leasing results in a net reduction in GHG emissions.

The No Leasing scenario results in roughly double the CO2e emissions for upstream activities compared to those of the Leasing scenario, given that, collectively, the substitute energy sources have higher GHG emissions per unit of production (also known as “GHG intensity”) compared to the forgone domestically produced OCS oil and natural gas of the Leasing scenario.

BOEM

Even when mid- and downstream emissions are included, leasing is preferable to no leasing. See the table below from the BOEM report:

Bottom line: we need more energy leasing and less military aggression!

Read Full Post »

Now that the 2021 US OCS incident spreadsheet has been posted and I have commented on the fatalities, I’ll be looking at some incidents by category starting with losses of well control (LWCs). Incident summaries and links to investigation reports follow the bullet points.

  • 4 LWCs incidents in 2021
  • None posed a significant threat to worker safety or the environment
  • All were deepwater wells
  • 3 were during exploratory drilling and 1 was during completion operations
  • All 3 drilling incidents involved water flows after setting 22″ surface casing.
  • The completion LWC was the result of the inadvertent opening of fluid control devices. The report on this incident provides important information for well completion risk assessments.

Incident summaries

Spreadsheet incident 19: Well completion operation. Inadvertent shearing and opening of the fluid loss control devices were not adequately assessed during the planning and review phases of the completion. While displacing the wellbore from 14.8 ZnBr to 14.8 packer fluid, the downhole equivalent circulating density sheared the upper and lower fluid loss control devices. The rig immediately began to experience fluid losses of 600 bph. A 50 bbl fluid loss pill was spotted and losses slowed to 345 bph. A second fluid loss pill was pumped which significantly decreased the losses eventually resulting in zero losses. After losses stopped, the rig experienced approximately a 14 bbl gain on the trip tank. The well was shut in on the annular and circulated out using the driller’s method. Oil was observed in the returns. While waiting on additional fluids and materials, wellhead pressure was managed by bullheading 14.8 brine when required. The well was killed via bullheading down the annulus followed by bullheading down the workstring with 3 CaCo3 pills. investigation report

BOE comment: While the cause of this incident is classified as “human error,” the failure to properly assess and plan for risks associated with the inadvertent shearing and opening of the fluid loss control devices is an organizational/management issue.

Incident 186: Shallow water flow during exploration drilling. Lost well. A shallow water flow was observed from one of the ports in the 38″ wellhead housing following cementation of the 22″ riserless casing string at Caramel Keg (GB 962 #1). Additional wireline logging (casing bond log and temperature log) runs were performed to gain additional insights into the potential source/location of the flow, as well as the quality and presence of cement behind the 22″ casing string. Approval from BSEE Lafayette district was received on April 1st to proceed with running the riser/BOP and continue with subsequent planned operations. Flow from the wellhead was monitored and a general reduction trend in flow from wellhead port was observed. Approval was received from BSEE on April 19th to install and close ball valves on two wellhead ports to isolate flow from wellbore. On April 20th, the ball valves were closed and flow from the wellbore ceased approximately 23 days after initial observation. Approval to temporarily abandon the well was received from BSEE on April 25, along with a monitoring plan of the wellbore and the surrounding area. TA operations concluded on April 27th. The ongoing monitoring program has since identified no indications of flow/broaching at or near the GB 962 #1 wellbore as of May 7th. No personnel were injured or evacuated as a result of this subsurface shallow water flow. report

Comment: The BSEE incident investigation team determined that salt contamination probably caused the cement to go under-balanced triggering flow and channeling behind the 22-in casing.

Incident 478: Exploration well – 7188′ WD; exploration. The 22″ casing cement job went as planned with positive cement returns to the mudline from dye and pH meter. The rig observed post cementing flow. Flow was predominantly gas. The flow started with a single source from the seabed, about 20 ft away from the wellhead. Within the next 2-3 hours, two other flow sources developed, one immediately adjacent to the jetpipe while another flow source surfaced about 10ft away from the wellhead. The rig continued to monitor the post cementing flow and completed multiple ROV wagon wheel surveys. No new seafloor anomalies or active flow points were identified away from the wellhead. Minor flow of water and gas continued at the wellhead. No investigation report.

Incident 507: Post Cement Flow Summary: The 22″ casing was cemented in place at 2:30 AM on August 18, 2021. At approximately 5:45 AM, a minor post cementing flow was observed by the ROV. The flow was only observed from 1 cement port/ball valve connected to the 28″x22″ annulus. The flow composition was predominately cement and absent hydrocarbons. The ROV continued to monitor the flow. No investigation report.

Read Full Post »

I do not recall any other such incidents.

Victoria Nuland’s glee over the Nord Stream damage (video clip below) is particularly galling to those responsible for offshore production, worker safety, and environmental protection. Does she realize that the Gulf of Mexico has more than 13,000 miles of active offshore pipeline that could be similarly targeted, and that the US has 2.6 million miles of onshore pipelines?

Whether or not the US was involved in the Nord Stream sabotage, Ms. Nuland’s schadenfreude is disturbing given the economic and security implications of the attack.

Read Full Post »

« Newer Posts - Older Posts »