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Archive for the ‘Regulation’ Category

For historians: the OCS Orders

Posted in energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , on March 23, 2023| Leave a Comment »

The OCS Orders were the foundation for the current operating regulations in the US and many states and other countries. They were logically organized, easily updated, and published for public comment prior to being finalized.

I have an email message indicating that the first OCS Order No. 1 (Identification of Wells, Platforms, and Structures) was signed on 1/31/1957 and the first OCS Order No. 2 (Drilling) dates back to 2/3/1958! (If anyone has access to the actual documents, please let me know.) The orders were developed much further in the 1970s and 1980s.

Contents of the 1/1980 Atlantic Orders:

  • OCS Order No. 1: Identification of Wells, Platforms, Structures, Mobile Drilling Units, and Subsea Objects
  • OCS Order No. 2: Drilling Operations
  • OCS Order No. 3: Plugging and Abandonment of Wells
  • OCS Order No. 4: Determination of Well Producibility
  • OCS Order No. 5: Production Safety Systems
  • OCS Order No. 6: Well Completions and Workover Operations
  • OCS Order No. 7: Pollution Prevention and Control
  • OCS Order No. 8: Platforms and Structures
  • OCS Order No. 9: Oil and Gas Pipelines
  • OCS Order No. 10 (reserved)
  • OCS Order No. 11: Oil and Gas Production Rates, Prevention of Waste, and Protection of Correlative Rights
  • OCS Order No. 12: Public Inspection of Records
  • OCS Order No. 13: Production Measurement and Commingling

You can view the full set of 1977 Gulf of Mexico OCS Orders here

There has been much discussion, particularly since the 1988 Piper Alpha tragedy, regarding the optimal approach to offshore safety regulation be it prescription, goal setting, safety cases, management systems, or some combination, and how to best influence facility, company, and industry safety culture.

My personal view is that the quality and type of regulations are not nearly as important as the people implementing them. My take:

  • Good regulators are more important than good regulations and are the key to a successful regulatory program. 
  • Regulators must understand and be committed to their organization’s mission and the strategy for achieving that mission. 
  • While they should have a good understanding of the activities that they regulate, their focus is on challenging operators, not directing them. 
  • Regulators should audit operator activities and carefully review incident and performance data.  They should identify problems and concerns, but should not direct solutions. 
  • Safety leaders should be applauded and poor performers should be penalized. 
  • The quality of regulators is more important than the quantity. 
  • Internal and external communication and collaboration are critical to their success.
  • Management should ensure that regulators are able to focus on their mission and that organizational distractions are minimized.  

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Did the IRA’s royalty provisions and DOI lease sale decisions penalize small offshore producers?

Posted in Alaska, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , , , on March 9, 2023| Leave a Comment »

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).

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Lawrence Livermore National Laboratory and the US offshore oil and gas program

Posted in California, Offshore Energy - General, Regulation, tagged , , , , on March 3, 2023| 1 Comment »

Lawrence Livermore is receiving attention for concluding that the Covid pandemic most likely arose from a laboratory leak in Wuhan.

This reminded me of an important Lawrence Livermore project that was funded by the Minerals Management Service in 1995. The study considered seismic hazard criteria for offshore platforms on the California OCS. My colleague Dr. Charles Smith, a structural engineer, had an important role in this research. Charles had been instrumental in the establishment of an earthquake measurement network in the Pacific Region. The measurement system at Platform Grace in the Santa Barbara Channel  successfully recorded 5 earthquakes and the structural responses at multiple locations on the platform.

Lawrence Livermore and the other national laboratories have many outstanding scientists and engineers. The national labs do excellent work, although their studies are a bit pricey 😉

Platform Grace

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Would BOEM’s new bid adequacy procedures have changed the outcome of Sale 257 or prior lease sales?

Posted in energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , on February 28, 2023| Leave a Comment »

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! 😉

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Indicted former Congressman once charged BSEE with finding ways to “bleed” Repsol

Posted in cuba, energy policy, Regulation, Uncategorized, tagged , , on January 26, 2023| Leave a Comment »

“Former U.S. Rep. David Rivera, a well-connected Florida Republican, has been arrested on federal charges that include failing to register as a foreign agent. The case centers on Rivera’s signing of a $50 million contract with Venezuela’s government in early 2017, and his subsequent attempts to thaw Venezuela’s icy relationship with the U.S.”

NPR

Perhaps Mr Rivera’s conduct at a 2012 hearing on Cuban offshore drilling was a hint of things to come. Mr. Rivera inappropriately pressed BSEE, represented by Lars Herbst, to find ways to “bleed” Repsol should there be an incident while they were drilling in Cuban waters.

“So, we need to figure out what we can do to inflict maximum pain, maximum punishment, to bleed Repsol of whatever resources they may have if there is a potential for a spill that will affect the U.S. coast. So, I hope you will look into that and verify that for us.”

Congressman David Rivera, 2012 Hearing on Cuban offshore drilling

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2022 Safety Honor Roll: Gulf of Mexico operators

Posted in Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , , , , , , on January 24, 2023| 1 Comment »

The Honor Roll companies for 2022 (listed alphabetically) are Anadarko (Oxy), bp, Cantium, Chevron, Contango, Hess, LLOG, Murphy, and Shell.

Our criteria:

  • Must average <0.3 incidents of noncompliance (INCs) per facility-inspection.
  • Must average <0.1 INCs per inspection-type. (Note that each facility-inspection may include multiple types of inspections (e.g. production, pipeline, pollution, Coast Guard, site security, etc). On average, each facility-inspection included 3.25 types of inspections in 2022. Here is a list of the types of inspections that may be performed.)
  • Must operate at least 3 production platforms and have drilled at least one well (i.e. you need operational activity to demonstrate compliance and safety achievement).
  • May not have a disqualifying event (e.g. fatal or life-threatening incident, significant fire, major oil spill). Due to the extreme lag in updates to BSEE’s incident tables, investigation and news reports are used to make this determination.
  • Pacific and Alaska operations will be considered separately.
oil (million bbls)gas (BCF)
Shell145.8163.5
bp82.457.1
Chevron79.445.2
Anadarko59.650.8
Murphy28.145.5
LLOG19.634.3
Hess17.939
Cantium3.95.3
Contango0.023.5
2022 production through Oct.

Mid-Year 2022 review

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2022 Gulf of Mexico Safety Honor Roll companies to be announced tomorrow

Posted in Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , on January 23, 2023| Leave a Comment »

Nine operating companies have qualified.

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New BOEM Director: Liz Klein

Posted in energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , on January 10, 2023| Leave a Comment »

Liz is an experienced attorney and leader in clean energy, climate change, and environmental law and policy. A member of the Biden-Harris administration since January 20, 2021, Liz has served as Senior Counselor to Secretary Haaland with an emphasis on water policy and climate change resilience. In this role, Liz also served as Chair of the Indian Water Rights Working Group, which manages, negotiates and implements settlements of water rights claims.

Prior to joining the Administration, Liz was Deputy Director of the non-partisan State Energy & Environmental Impact Center at NYU School of Law, which supports state Attorneys General addressing clean energy, climate, and environmental initiatives of regional and national importance. President Biden is the third President under which Liz has served at Interior, having worked for both the Clinton and Obama administrations. Under Secretaries Ken Salazar and Sally Jewell, Liz served as Interior’s Associate Deputy Secretary as well as Principal Deputy Assistant Secretary in the Office of Policy, Management and Budget. She was a key architect of the Obama Administration’s work to create a new offshore wind industry and leasing program.

DOI

Congratulations to Ms. Klein on being appointed to lead the Bureau of Ocean Energy Management. In addition to her commendable support for offshore wind energy, I trust that she appreciates the national importance of the OCS oil and gas program and the need for regular lease sales.

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More on the tragic Gulf of Mexico helicopter crash (12/29/2022)

Posted in accidents, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , , , on January 9, 2023| Leave a Comment »

David Scarborough, Island Operating Co. employee who died in the crash.
  • The bodies of the 4 victims have been recovered.
  • The 3 offshore workers were employees of Island Operating Co., a production contractor. The pilot worked for Rotorcraft Leasing Company, the owner of the Bell 406 helicopter that crashed. The platform is owned by Walter Oil and Gas, the operating company.
  • A preliminary FAA report confirms that the helicopter crashed onto the helideck during takeoff, breaking apart and falling into the Gulf.
  • 4 passengers had been dropped off at the platform before the fatal takeoff. Presumably there were witnesses to the incident.
  • According to the FAA report, the platform was located at West Delta Block 106. Per the BOEM platform data base, the platform was installed in 1994, is in 252′ of water, and is continuously manned.
  • Per the BSEE INC data base, the platform had not been cited for any violations since 2016.

Lacy Scarborough, wife of victim David Scarborough, is pregnant. Tragically, the couple lost their first child in an accidental drowning in March. David was heading home for the holidays after completing his 2 week shift on the platform. He had worked offshore for 8 years. Per Lacy, David’s last message was that he was taking off and would be home soon.

The only other victim who has been identified is Tim Graham of Quitman, Mississippi.

I trust that the NTSB will conduct a timely and thorough investigation, and hope they consider offshore helideck oversight, both in terms of industry programs and government regulation. The most recent Coast Guard – BSEE MOA for fixed platforms added to helideck regulatory uncertainty by assigning decks and fuel handling to BSEE and railings and perimeter netting to the Coast Guard. This is the antithesis of holistic, systems-based regulation.

More on the crash: ominous message, update #3

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Raphael Moura (ANP Brazil) interview

Posted in IRF, Offshore Energy - General, Regulation, well control incidents, tagged , , , , on December 22, 2022| Leave a Comment »

Raphael is a highly regarded offshore safety leader and a positive force for continuous safety achievement in Brazil and internationally.

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