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Whenever oil and gas prices rise, we hear the non-producing leases shtick

Posted in energy policy, Offshore Energy - General, Regulation, tagged deja vu, DOI, leasing, non-producing leases, Yogi Berra on May 13, 2022| Leave a Comment »

Department of the Interior spokesperson: “there are 10.9 million acres of offshore federal waters already under lease to industry,” and “of those, the industry is not producing on more than three-quarters (75.7% or 8.26 million acres).”
Fox Business

As if the preventable expiration of the 5 year leasing program wasn’t bad enough, we get to hear the non-producing leases bit yet again. This pitch was popularized during the oil embargoes in the 1970’s and resurfaces whenever it is deemed to be politically helpful.

New comments:

As of May 1, 24.5% of the active leases were producing. This is relatively high by historical standards.
To have producing leases, you have to have active leases, and the number of active leases is the lowest in at least 40 years.
The decline in the number of producing leases since 2011(62%) has been less than the decline in the number of active leases (71%).
DOI’s primary concern should be the preventable decline in active leases.

Old comments:

539 days since the last US offshore oil and gas lease sale
182 lease sales since 1954, but none since 2020
Only 0.5% of US offshore land is leased for oil and gas exploration and production (assuming commercial quantities of oil and gas are discovered).
When you acquire a lease, you are not purchasing oil and gas. You are acquiring the right to explore for, and hopefully produce, those resources. Most leases will never produce.
Drilling strategies are linked to geophysical data and geologic information obtained in drilling other wells in the area and region.
Leases expire if they are not producing by the end of the lease term, which is 5 to 10 years depending on location.
You pay bonuses for all leases and annual rental fees for non-producing leases. None of these payments are returned if no discoveries are made.
US offshore leases are among the smallest in the world, only a fraction of the sized of those offered by most other nations with offshore oil and gas programs. This complicates exploration and often makes development contingent on the acquisition of additional tracts at future sales.
Oil is where you find it, not where you or the government think it is or want it to be.

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Thank you US Coast Guard….

Posted in Offshore Energy - General, Regulation, tagged BOEM, Brad Butman, BSEE, Conservation Division, Georges Bank Monitoring Program, Mike Bothner, MMS, Subchapter N, US Coast Guard, USGS on May 11, 2022| Leave a Comment »

….for continuing to recognize the Conservation Division of the Geological Survey (USGS) as the US offshore safety regulator, even though 40 years have passed since that was the case and there have been 3 successor bureaus. 😀

33 CFR § 140.4 Relationship to other law. (current text excerpted from Coast Guard Subchapter N regulations)
(a) Design and equipment requirements of this subchapter for OCS facilities, including mobile offshore drilling units in contact with the seabed of the OCS for exploration or exploitation of subsea resources, are in addition to the regulations and orders of the U.S. Geological Survey applicable to those facilities.

USGS North Atlantic District, Hyannis, MA, Halloween 1980

Most of us old-timers think the best regulatory framework for the offshore program was in the USGS days (pre-1982). Some of this may be nostalgia, but there are some good reasons for this thinking:

USGS was/is an internationally acclaimed scientific organization that was always headed by a renowned geologist. The regulatory program was thus somewhat insulated from political pressures. Vince McKelvey, Bill Menard, and Dallas Peck were the Directors when I worked for USGS. Their credentials are linked. Bill and Dallas visited our Hyannis office (not at Halloween 😀) and were very supportive.
The Conservation Division was responsible for onshore operations on Federal lands as well as offshore activity. This facilitated information sharing and offered diverse career opportunities. My first bosses in New Orleans had worked previously in the Farmington and Roswell, NM offices.
We had excellent synergy with the other USGS divisions. The Marine Science Center in Woods Hole was an incredible resource for our Hyannis office. The Woods Hole office, particularly Mike Bothner and Brad Butman, had a critical role in the Georges Bank Monitoring Program, the best ever (in my biased opinion) environmental study of exploratory drilling operations in a frontier area.
The USGS Conservation Division had a very small and supportive headquarter’s staff, which minimized the potential for conflict with field offices.
Prior to the formation of the Minerals Management Service (MMS) in 1982, the Bureau of Land Management was responsible for leasing, but all regulatory functions were under USGS. This included resource evaluation/conservation, plan review and approval, permitting, inspections and enforcement, and investigations. The division of MMS responsibilities, most notably the assignment of plan approval to the leasing bureau (BOEM) rather than the regulatory bureau (BSEE), complicates the work of both bureaus and is a prescription for inefficiency, confusion, overlap, and conflict.

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Gulf of Mexico scoreboard

Posted in drilling, Gulf of Mexico, Offshore Energy - General, tagged AnadarkoOxy, Arena, bp, Cantium, Chevron, exploration, Exxon, Gulf of Mexico, Hess, INCs, LLOG, Murphy, natural gas production, oil production, Shell, violations, well starts on May 10, 2022| Leave a Comment »

Operating companies that produced >1 million bbls of oil or >1 BCF of gas in 2021 are listed in descending order based on oil production.
Both the total number of well starts and the number of exploratory wells are indicated
An INC is an Incident of Noncompliance (i.e. a violation). W=warning, CSI=component shut-in, and FSI=facility shut-in are the enforcement actions.
All of the below data are publicly available on the BSEE-BOEM websites.

	2021 oil (MMbbls)	2021 gas (BCF)	2021/22 well starts total-expl	2021/22 INCs W-CSI-FSI
Shell	149.8	190.8	28-12	11-14-4
bp	114.0	82.7	5-2	6-3-4
Chevron	83.7	42.2	8-8	1-1-3
Anadarko (Oxy)	67.7	57.8	8-6	8-5-1
Hess	27.5	61.7	2-2	7-4-0
Murphy	25.1	50.0	7-7	4-8-1
LLOG	20.4	29.0	3-0	1-1-1
Talos	17.7	23.0	5-0	25-26-14
BHP	14.5	5.9	3-2	2-3-0
Exxon	13.2	2.3	–	1-1-1
Beacon	10.5	15.7	1-0	0-0-0
Fieldwood	10.4	24.7	–	685-235-91
EnVen	9.6	12.6	6-0	2-6-3
Kosmos	9.4	8.4	1-1	1-0-0
Arena	8.6	27.9	32-0	68-45-19
Walter	8.1	36.2	2-2	3-1-2
Cox	6.2	30.3	–	237-169-3
Eni	4.7	13.6	2-0	8-0-2
W&T	5.0	27.2	1-0	65-40-7
Cantium	4.5	5.5	18-0	23-15-2
QuarterNorth	4.2	8.3	–	no data
GoM Shelf	2.3	4.8	–	52-5-2
ANKOR	1.4	2.5	–	0-0-1
Byron	1.0	4.4	–	5-8-2
Renaissance	0.7	1.6	–	20-9-3
Sanare	0.3	4.5	–	38-20-3
Helis	0.2	1.2	–	1-0-2
Contango	0.03	5.0	–	4-0-0
Samchully	0.02	1.2	–	no data

Comments:

“Energy transition” companies Shell and bp still love the Gulf of Mexico, which is a good thing for them and us. Together they accounted for 42.4% of the 2021 oil production.
The top 4 producers, Shell, bp, Chevron (includes Unocal), and Anadarko accounted for 2/3 of GoM oil production, nearly all of which was from deepwater leases.
Those are impressive production numbers for Anadarko (Oxy). No wonder Warren Buffett likes Oxy stock.
The relative number of deepwater exploratory wells is mildly encouraging given our concerns about sustaining production.
Exploratory well determinations are rather subjective and may not be entirely consistent.
Understandably, no exploratory wells were drilled by Arena or Cantium, the companies responsible for most well operations on shelf (shallow water) leases.
Overall, the INC numbers are impressively low for the deepwater operators, with Chevron and LLOG standing out. BSEE does not post the specific violation information (more on this in an upcoming post), so it’s difficult to properly assess a company’s compliance record.
Unfortunately, incident data could not be included on the scoreboard. BSEE’s incident tables are badly out of date, and no 2021/2022 summaries have been posted.
Fieldwood’s disturbing INC numbers were discussed earlier this year. High INC rates for 3 other operators have also were noted last month.
Exxon production is limited to the Hoover Diana spar, which was installed 22 years ago. The largest US oil company has only drilled one GoM exploratory well (2018) in the past 5 years. Currently, their main GoM interest seems to be the sequestration (disposal) of onshore emissions. (More on this topic in an upcoming post.)

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Say no to NOPEC

Posted in energy policy, Offshore Energy - General, tagged NOPEC, OPEC on May 9, 2022| Leave a Comment »

The Senate Judiciary Committee (with bipartisan support no less) has passed the old, stale, hypocritical, and insulting “No Oil Producing and Exporting Cartels Act” or “NOPEC”. Congress is again engaging in what it does best – blaming others. When oil prices are high, OPEC, nonproducing leases, and price gouging are the targets of choice.

Note the NOPEC language pasted below, particularly the highlighted text. Our government has proven quite capable of limiting production without OPEC’s help. This is especially true for the US offshore sector, which could be responsibly producing at least 1 million more BOPD with fewer access restrictions and timely leasing. Less than 0.5% of the US OCS is currently open to exploration and development.

Other than for grandstanding purposes, how is this bill helpful? Haven’t we been pleading with OPEC to increase production? Even the White House seems to think NOPEC is a bad idea:

White House spokesperson Jen Psaki said the administration has concerns about the “potential implications and unintended consequences” of the legislation, particularly amid the Ukraine crisis. She said the White House is still studying the bill.
Reuters

NOPEC Bill – SEC. 7A. OIL PRODUCING CARTELS.

“(a) In General.—It shall be illegal and a violation of this Act for any foreign state, or any instrumentality or agent of any foreign state, to act collectively or in combination with any other foreign state, any instrumentality or agent of any other foreign state, or any other person, whether by cartel or any other association or form of cooperation or joint action—

“(1) to limit the production or distribution of oil, natural gas, or any other petroleum product;

“(2) to set or maintain the price of oil, natural gas, or any petroleum product; or

“(3) to otherwise take any action in restraint of trade for oil, natural gas, or any petroleum product,when such action, combination, or collective action has a direct, substantial, and reasonably foreseeable effect on the market, supply, price, or distribution of oil, natural gas, or other petroleum product in the United States.

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Another East Mediterranean gas discovery

Posted in natural gas, Offshore Energy - General, tagged Athena, Eastern Mediterranean, Energean, Israel on May 9, 2022| Leave a Comment »

Announced by Energean (see details)
Athena gas well
283 bcf
De-risks other nearby prospects

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Happy Mothers’ Day to offshore moms and the mothers of offshore workers!

Posted in Offshore Energy - General, tagged Mothers' Day, Offshore Moms on May 8, 2022| Leave a Comment »

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4 House Democrats send letter to the President urging completion of the 5 Year leasing plan

Posted in energy policy, Gulf of Mexico, Offshore Energy - General, Uncategorized, tagged 5 year leasing plan, 532 days, DOI, House Democrats urge action, Senate Democrats support on May 6, 2022| Leave a Comment »

letter

One important action your administration can take to ensure American energy independence is to publish a new Five-Year Outer Continental Shelf Oil and Gas Leasing Plan (“Five-year Plan”) as required under the Outer Continental Shelf Lands Act of 1953. Finalizing the Five-year Plan, with frequent area-wide leases, would help bring millions of additional barrels of U.S. oil to market. According to a recent analysis by Energy and Industrial Advisory Partners, a further delay of federal offshore leasing could result in 500,000 fewer barrels of domestic oil produced per day, 60,000 lost jobs, and a $900 million per year decrease in federal conservation funding.
.

The four Democrats are Texas Representatives Vicente Gonzalez, Sylvia Garcia, Henry Cuellar and Lizzie Fletcher.

Meanwhile, the Senate approved language supporting the issuance of a new 5 Year Program ASAP. Four Democrats -Joe Manchin (D-WV), Kyrsten Sinema (D-AZ), John Hickenlooper (D-CO), and Mark Kelly (D-AZ) – voted for the measure.

When will we hear from the Department of the Interior on the status of the 5 Year Program? It has now been 532 days since the last US offshore lease sale.

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Gulf of Mexico flaring data sets don’t match

Posted in climate, Gulf of Mexico, natural gas, Offshore Energy - General, tagged Argonne, BSEE, EIA, flaring data, Gulf of Mexico, ONRR, UMich, venting, World Bank on May 5, 2022| Leave a Comment »

Given the importance of flaring and venting from both environmental and resource conservation standpoints, accurate and reliable data are necessary and should be readily available to the public. ONRR has advised me that they will begin posting flaring and venting data on their website within 2 months. This is a positive step. Currently, data from the 3 primary sources differ considerably.

Data Sources:

US Energy Information Administration (EIA): Per EIA, their flaring and venting data are received directly from the Bureau of Safety and Environmental Enforcement (BSEE).
Office of Natural Resources Revenue: ONRR is a sister bureau of BSEE within the Department of the Interior. Per BSEE regulations, all flared or vented gas must be reported to ONRR. As noted above, ONRR will begin regularly posting flaring and venting data within the next 2 months. This is a most welcome and positive step and may help address these inconsistency issues.
World Bank Global Gas Flaring Reduction Partnership: “a multi-donor trust fund composed of governments, oil companies, and multilateral organizations committed to ending routine gas flaring at oil production sites across the world.”

Comments:

The EIA (from BSEE) and ONRR flaring/venting numbers should be the same given that the ONRR data are reported in accordance with BSEE regulations, and BSEE is presumably providing ONRR data to EIA. This needs to be clarified.
The World Bank’s gas flaring estimates are based on observations from satellites. This explains their lower numbers given that vented gas would not be detected and some flares might be missed.
In a 1/2021 interview with World Oil, the exiting BSEE Director commented that the “industry has consistently achieved a ratio of less than 1.25% of flared, vented gas to produced gas.” However, based on EIA flaring and venting data (from BSEE per EIA) and EIA gas production data, the volume of gas flared/vented exceeded 1.25% of the gas produced from 2016-2020 and was as high as 1.8% in 2019. (See the chart below.) Even if the lower ONRR flaring/venting totals are used, those volumes exceeded 1.25% in 2019 (1.5%).
BSEE/ONRR should make more detailed flaring/venting data available so that the differences between facilities and sectors (e.g. deepwater vs. shelf) could be assessed. Efforts should also be made to post these data in a more timely manner. At this time, 2021 data are still not available.

Reports of interest:

Argonne report for BSEE (2017):
- p. 17 – “The 2015 BSEE/BOEM study on reducing methane emissions observed that “while natural gas production has declined, …vented and flared gas volumes as a percentage of produced natural gas are increasing” and noted that additional investigation is needed to determine why.” This is consistent with my observations and is probably due in large part to the fact that most gas production is now from oil-wells (e.g. associated gas).
- p. 24 – “Argonne estimates, in 2015, platform startups for deep-water floating structures accounted for roughly 15% of the total annual flaring volume on the OCS and an additional 20% of the annual total resulted from monthly spikes associated with compressor outage, pipeline maintenance, and well-unloading.”
Univ. of Michigan study (2020): “Large, older facilities situated in shallow waters tended to produce episodic, disproportionally high spikes of methane emissions. These facilities, which have more than seven platforms apiece, contribute to nearly 40% of emissions, yet consist of less than 1% of total platforms.”

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US oil and gas leasing policy: what the law says vs. the current reality

Posted in energy policy, Gulf of Mexico, Offshore Energy - General, tagged active leases, Gulf of Mexico, history, OCS Lands Act, producing leases on May 4, 2022| Leave a Comment »

OCS Lands Act, 43 U.S. Code § 1332 – Congressional declaration of policy

(3) the outer Continental Shelf is a vital national resource reserve held by the Federal Government for the public, which should be made available for expeditious and orderly development, subject to environmental safeguards, in a manner which is consistent with the maintenance of competition and other national needs;

Current reality:

International energy markets (and consumers) are under stress
US is withdrawing 1 million BOPD from the Strategic Petroleum Reserve
Very limited access to offshore land for oil and gas operations
- 1.7 billion acres on the US OCS
- Currently only 2057 active offshore leases nationwide covering 8.3 million acres (0.5% of total area), the fewest leases in > 40 years
- Only 499 producing leases covering 2.65 million acres ( 0.155% of total area)
182 lease sales since 1954, but none since 2020
- 2021 was the first year since 1958 without a single lease sale;
- 2022 will likely be the second year without a sale
Gulf of Mexico operations history
- 55,000 wells drilled
- 23 billion bbls of oil produced
- 192 trillion cu ft of gas produced
Gulf of Mexico – current status
- Oil production remains relatively stable (1.7 million BOPD) owing to past deepwater discoveries
- Drilling is at historic low levels – only 31 well starts YTD (5/4/2022), only 8 of which were deepwater exploratory wells
- Current levels of production are not sustainable without new leases and increased exploration