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Archive for the ‘Regulation’ Category

BOEM’s decommissioning financial assurance rule is arguably a step backward in protecting the public interest

Posted in decommissioning, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , on April 17, 2024| Leave a Comment »

The final decommissioning financial assurance rule has been published and is largely unchanged from the proposed rule that we reviewed last summer.

Major concerns:

  • Despite ample evidence regarding the importance of compliance and safety performance in determining the need for supplemental financial assurance, BOEM has dropped all consideration of these factors. Did BSEE field personnel concur with this decision?
  • Proved reserves should not be a basis for reducing supplemental assurance. The uncertainty associated with reserve estimates and decommissioning costs can easily negate the assumed buffer in BOEM’s 3 to 1 reserves to decommissioning costs ratio. That approach failed completely at the Carpinteria Field in the Santa Barbara Channel (Platforms Hogan and Houchin). See other points on this issue.
  • Given that the reverse chronological order process for determining predecessor liability was dropped from consideration last April, there is no defined procedure for issuing decommissioning orders to prior owners. The absence of such a procedure increases the likelihood of confusion, inequity, and challenges, particularly when orders are first issued to companies that owned the leases decades ago, in some cases prior to the establishment of transferor liability in the 1997 MMS “bonding rule.”

BOEM’s concern (below) about investment in US offshore exploration and production is interesting given that their 5 year leasing plan strongly implies otherwise.

BOEM’s goal for its financial assurance program continues to be the protection of the American taxpayers from exposure to financial loss associated with OCS development, while ensuring that the financial assurance program does not detrimentally affect offshore investment or position American offshore exploration and production at a competitive disadvantage

final decommissioning rule, p. 40

I’m just guessing here, but my sense is that BOEM was pressured to finalize this rule in a timely manner (<10 months is timely for such a complex rule) and was thus reluctant to make any significant changes to the proposal published last summer. A public workshop during the comment period would have been a good idea to facilitate informed discussion on the important issues addressed in this rule. Such workshops were once commonplace for major rules.

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Odd Bjerre Finnestad

Posted in Norway, Offshore Energy - General, Regulation, tagged , , , , , , on April 15, 2024| Leave a Comment »

Bud and Odd (2008 photo)
L to R: Jan de Jong (Inspector General, State Supervision of Mines, the Netherlands), Max Ruelokke (CEO, Canada – Newfoundland and Labrador Offshore Petroleum Board), and Odd FInnestad

Yesterday, I learned that Odd Bjerre Finnestad passed away on Christmas Eve, 2021. Odd was an international safety leader, a founder of the International Regulators’ Forum (IRF), and a driving force behind the IRF book, “A legacy of safety.”

In 2003, the US Minerals Management Service honored Odd, two other Norwegians, Magne Ognedal and Gunnar Berge, and Taf Powell from the UK, with International Leadership Awards for their outstanding leadership in facilitating the exchange of information among offshore regulatory agencies, encouraging cooperation on offshore safety and pollution prevention issues, coordinating participation in the development of international standards, cooperating on safety audits and research projects, compiling incident data, exchanging training information and discussing materials and equipment issues.

Odd was also an important contributor to this blog during the difficult times following the Montara and Macondo blowouts in 2009 and 2010.

Pasted below is the English language version of the excellent obituary that appeared in the Stavanger Aftenblad. RIP Odd; your impressive contributions to offshore safety are greatly appreciated.

Memorial: Odd Bjerre Finnestad died on Christmas Eve 2021, aged 79.
Odd was employed by the Norwegian Petroleum Directorate (OD) in 1980, later the Petroleum Safety Authority (Ptil) when resource and safety management was divided into two agencies in 2004. He worked there until his retirement in 2013.

Born in the maritime city of Stavanger, he chose a maritime career. As a young naval officer, he met his Anna Dorothy in Londonderry in Northern Ireland. They married in 1967, and our thoughts go out to her and the rest of the family today.
His maritime education and experience led Odd to a scholarship position at the Norwegian Institute of Maritime Research and a research program focusing on personal safety at sea. This was an important experience as head of the Section for Worker Protection and the Working Environment in NPD.

Even though most of the Working Environment Act had been applied to permanent installations on the Norwegian continental shelf as early as 1977, demands for employee participation and tripartite cooperation met resistance in parts of the industry.

Odd took on the big challenges with great commitment. On the drilling deck there was still something of the cowboy culture, where safety and the working environment had poor conditions. Several of the residential quarters appeared to be barrack-like accommodation and little had yet been arranged for women in the new industry.

He was concerned that the professional environment should have professional diversity, and that the work should be anchored in research and development. At a time when the share of women offshore was minimal, he was a driving force behind realizing the film project “Norwegian continental shelf – also for women”.

The major accidents with the Bravo blowout in 1977 and the Alexander L Kielland disaster in 1980 had documented the risks in the business in the worst possible way. With these as a backdrop, he participated in the work to develop a new supervision scheme with subsequent information work. This laid the foundation for a three-year engagement at the International Labor Organization (ILO) in Geneva from 1989, where he worked on a global study on various inspection regimes related to the working environment.

For the rest of his professional life, Odd was closely linked to international cooperation at government level. The most important arena was the International Regulators ́ Forum (IRF) where the Ptil director represented the Norwegian authorities. The forum meets annually, but much of the work takes place through ongoing contact between the participating countries. This is where Odd’s ability to see connections and make strategic contacts came in handy. He actively contributed to the IRF developing a culture for rapid and effective exchange of information on risk levels, regulations and supervision.

Odd monitored all channels almost around the clock, in order to convey news of interest. Often before these were picked up by the world press. He thereby also became an important contributor to Ptil’s information environment.

It is a pioneer in Ptil’s role as watchdog and promoter of safety and the working environment in the petroleum industry who has now passed away. We will remember Odd as a committed colleague and friend.

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Interesting new player in the deepwater Gulf of Mexico – GOM 1 Holdings Inc.

Posted in decommissioning, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, well control incidents, tagged , , , , , , on April 9, 2024| Leave a Comment »

Houston, TX, March 29, 2024. Beacon Offshore Energy LLC (“Beacon”) announced today the completion of the divestment of its non-operated interests in certain fields in the deepwater Gulf of Mexico in accordance with a previously executed definitive agreement with GOM 1 Holdings Inc., an affiliate of O.G. Oil & Gas Limited. The divestment includes Beacon’s 18.7% interest in the Buckskin producing field, 17% interest in the Leon development, 16.15% interest in the Castile development, 0.5% interest in the Salamanca FPS/lateral infrastructure, and 32.83% interest in the Sicily discovery.

Beacon

According to BOEM records, GOM 1 HOLDINGS INC, a Delaware company, registered with BOEM effective 3/15/2024. The parent entity, O.G. Oil & Gas Limited, is a privately held E&P company incorporated in 2017 and based in Singapore.

O.G. Oil & Gas Ltd is part of the Ofer Global Group, “a private portfolio of international businesses active in maritime shipping, real estate and hotels, technology, banking, energy and large public investments.”

After a partial takeover by O.G Oil & Gas Limited in 2018, New Zealand Oil and Gas is now 70% owned by the Ofer Global Group. Among other interests, NZ Oil and Gas produces from fields offshore Taranaki, NZ.

Because they are jointly and severally liable for safe operations and decommissioning, minority investors should take a strong interest in safety management and financial assurance. Investors should remember that partners are adversely affected by the mistakes of the operating company. Anadarko and Mitsubishi took a hit following the Macondo blowout. To what extent had they been monitoring bp’s risk and safety management programs for drilling operations?

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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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Perfect scores for Wyoming and California – albeit at opposite ends of the spectrum 😉

Posted in California, Canada, energy policy, Regulation, Uncategorized, tagged , , , , , on March 13, 2024| Leave a Comment »

The Fraser Institute’s 2023 Canada-US Energy Sector Survey of senior executives in the upstream oil and gas sector provided data for assessing the competitiveness of US and Canadian jurisdictions. The resulting perception index (below) ranked Wyoming at the top with a score of 100.0 and California at the bottom with a score of 0.0. Perhaps one or more of the respondents have been mired in the California decommissioning quagmire. ☹

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A US offshore wind lease may NOT be issued after 12/20/2024 unless an oil and gas lease sale is held prior to that date.

Posted in energy policy, Offshore Energy - General, Offshore Wind, Regulation, tagged , , , on March 12, 2024| 2 Comments »

(2) the Secretary may not issue a lease for offshore wind development under section 8(p)(1)(C) of the Outer Continental Shelf Lands Act (43 U.S.C.1337(p)(1)(C)) unless—
(A) an offshore lease sale has been held during the 1-year period ending on the date of the issuance of the lease for offshore wind development; and (B) the sum total of acres offered for lease in offshore lease sales during the 1-year period ending on the date of the issuance of the lease for offshore wind development is not less than 60,000,000 acres.

‘‘Inflation Reduction Act of 2022,” p. 646

Lease Sale 261 was held on 12/20/23. Absent legislative action, no wind leases may be issued after 12/20/24 unless another oil and gas lease sale is held prior to that date. Given that the minimalist 5 year oil and gas leasing plan, which is being challenged, does not propose a sale until 2025, wind lease issuance will likely be suspended at the end of the year. (Note: I wonder if the legislative restriction also applies to lease assignments from existing owners to new owners? Probably not, but that would be very significant given the current state of the offshore wind industry.)

The legislative restriction may be a partial explanation for the apparent rush to issue wind leases. 16 new wind leases were issued in 2022 and 2023, bringing the total number of active leases to 36. The philosophy seems to be this: issue as many leases as you can, as fast as you can, wherever you can (ala James Watt’s failed strategy for the oil and gas program.) Coastal residents are not entirely thrilled.

Perhaps the wind program should be required to develop 5 year leasing plans, as is the case for the oil and gas program. This might facilitate a more holistic approach to wind energy development and ease concerns about cumulative impacts.

Morro Bay protest

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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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2022 BSEE incident statistics are finally posted and include a major error

Posted in accidents, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , , on March 5, 2024| Leave a Comment »

As we enter the third month of 2024, BSEE has finally updated the incident tables to include 2022 data.

The OCS program managers I was privileged to work for would never have accepted such delays in posting fundamental safety data. Carolita Kallaur (RIP) wouldn’t tolerate a delay of 14 days in publishing quarterly incident statistics, let alone a delay of 14 months for annual data with no quarterly updates. Transparency and timeliness in informing the public about offshore safety performance was her highest priority. Cynthia Quarterman, Tom Readinger, and other OCS program leaders were similarly insistent on timeliness and transparency in the reporting of incident data.

The belated 2022 BSEE tables also include a glaring error. The most important figure, the number of fatalities, is incorrect. Five workers died from US OCS incidents in 2022, not one. The fatal helicopter crash at the West Delta 106 A helideck on 12/29/2022 that killed four workers (photos below) is inexplicably not included. 

Is the failure to include this fatal incident a regulatory fragmentation issue? OCS safety data should be reported holistically and should not be parsed based on perceived regulatory jurisdiction? In any event, the tragic accident at the West Delta 106 A platform occurred at the helideck, which per the MOA with the Coast Guard is under BSEE jurisdiction.

It’s unfortunate that 2023 data are not available, even in summary form. At a minimum, BSEE should be proudly reporting that 2023 was the first zero fatality year on the US OCS since at least 1963! While acknowledging that this outstanding achievement will be difficult to repeat, it most certainly deserves public attention.

Lastly, what about incident data for the offshore wind program? When will these data be posted?

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GAO: “Interior Needs to Improve Decommissioning Enforcement and Mitigate Related Risks”

Posted in California, decommissioning, Gulf of Mexico, Offshore Energy - General, Offshore Wind, Regulation, tagged , , , , , , , , , , on February 27, 2024| Leave a Comment »

Offshore facility decommissioning is a frequent target of Federal auditors given the complex financial and regulatory challenges. Unfortunately, the reviews have done little to better protect the public interest. As have previous inquiries, the new GAO report (attached for your convenience) calls for improved regulations and enforcement practices. That, of course, has been the objective for decades, but the problems have only worsened.

While the GAO recommendations are unsurprising, the body of the report is informative. Most notably, GAO (p. 29) raises a significant inconsistency on a key provision in the proposed decommissioning financial assurance regulations published last year:

One of the five criteria BOEM would no longer use under the proposed rule is demonstrated reliability, as shown by record of compliance with laws, regulations, and lease terms, among other factors. BOEM’s June 2023 regulatory analysis concluded this criterion is not a good predictive indicator of default on decommissioning obligations. However, BOEM and BSEE officials we spoke with told us that poor compliance records—such as safety and maintenance issues or delayed decommissioning obligations—can be an indicator of potential decommissioning noncompliance or financial stress.

Why was there such a disconnect between the opinions of BOEM and BSEE officials (who are directly involved with decommissioning) and BOEM’s decision not to include a company’s compliance record among the factors to be considered in determining the need for supplemental financial assurance? As pointed out here and here, safety performance is arguably the most important predictor of financial failure and decommissioning noncompliance.

The GAO report correctly acknowledges the difficulties in disqualifying operating companies. However, the regulations at 30 CFR § 250.135 specifically provide for disqualification for poor performance. While the regulations could be tighter, enforcing disqualifications regulations is dependent on persistence and strong support from management and DOI attorneys. Given the political risks associated with disqualifying operators, that support is often lacking.

Disqualification difficulties make it imperative that BOEM carefully consider past performance before approving lease assignments or determining financial assurance amounts. Provisions in 30 CFR §585.408 and §585.107 could have been used to disapprove assignments to Signal Hill, Fieldwood, Cox, and other problem operators. The failure to do so has significantly delayed decommissioning and increased public exposure to financial risks.

In some cases, lease assignments to unqualified companies have not only been approved but they have been facilitated by BOEM/MMS. The case of Platforms Hogan and Houchin, in the Santa Barbara Channel, is a particularly good example. (Did GAO inquire about the Inspector General report on this matter or ask why that report has still not been released?)

Most operating companies are responsible about planning for and fulfilling their decommissioning obligations. The problem is the exceptions, and they are not difficult to identify if you look at compliance data and obtain input from BSEE inspection personnel.

Other important decommissioning questions that need to be considered:

Additional comments on the GAO report from decommissioning specialist John Smith will be posted tomorrow.

gaodecomDownload

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Island Drilling – Trident BOP safety dispute raises many questions

Posted in drilling, Norway, Offshore Energy - General, Regulation, UK, tagged , , , , , , on February 20, 2024| Leave a Comment »

Background:

  • Last summer, Trident Energy exercised multiple options for the use of the Island Innovator semi-submersible (pictured above), extending the duration of the Equatorial Guinea contract to approximately 230 days.
  • The rig arrived in Equatorial Guinea in Nov. 2023.
  • On 7 Feb, a Trident team briefed Equatorial Guinea Minister of Mines and Hydrocarbons Antonio Oburu Ondo about problems with the Innovator’s BOP system. Apparently, Island Drilling, the rig owner, was not present at that meeting.
  • Mr. Ondo subsequently reported that the BOP had serious problems and failed to respond to control system commands.
  • Trident terminated the rig contract on safety grounds.
  • Island has publicly responded that (1) the Trident statements are inaccurate, (2) there have been no critical safety incidents, (3) the BOP has been checked and tested by the OEM representative on the rig and declared safe and ready for operations, and (4) they will challenge the contract termination.

Questions & comments:

  • Since the rig had just arrived on location, the BOP issues were presumably identified during onboard stump testing. Were corrective measures discussed? Why was contract termination deemed necessary?
  • Island’s statement indicates that the rig was tested with the OEM representative present. Presumably those tests were in accordance with API S53 or the ISO equivalent.
  • Had inspections and maintenance also been conducted in accordance with the standard? Did Trident inspect the rig and review maintenance and testing records before signing the contract?
  • Have other companies had similar issues with the Innovator? None have been identified in my web search.
  • Was a bridging document in place to address differences in Trident/Island management systems? If so, what does that document say about BOP inspection and oversight.
  • Why was the drilling contractor not present at the meeting with the Equatorial Guinea authorities? Was Island advised that the contract was being terminated prior to that meeting? Did the authorities speak with Island to hear their side of the story?
  • Does the contract provide for mandatory arbitration in the event of such disagreements?
  • Could other factors have influenced the cancellation decision? I was involved with an arbitration case involving an operator that used safety issues as the reason for terminating an expensive long-term rig contract. The arbitration panel ruled in favor of the drilling contractor resulting in a very large payment to the rig owner. Ironically, serious safety violations by the operating company (but not the drilling contractor) were identified during the arbitration process.
  • Island Drilling is a Norwegian Company with an experienced management team. The Innovator has conducted operations in the Norwegian and UK offshore sectors. These factors typically imply a strong commitment to safe operations.

Hopefully, we’ll be able to learn more about the specifics of this dispute in the near future.

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