Posted in Mexico, offshore, Regulation, tagged deepsea mining, Hidden Gem, Manzanillo, Mexico, The Metals Company on May 29, 2023| Leave a Comment »
Andrew Konczvald reports that the Hidden Gem, a deepsea mining vessel owned by The Metals Company (TMC) is still parked offshore Manzanillo. Andrew’s latest picture of the Hidden Gem is pasted below.
TMC is awaiting international deepsea mining regulations, hence the extended and costly downtime for this massive rig. Per TMC, the regulations seem to be progressing.
Posted in accidents, Gulf of Mexico, Offshore Energy - General, pipelines, Regulation, tagged BOEM, BSEE, Coast Guard, fires and explosions, Huntington Beach pipeline spill, macondo, OCS fatalities, regulatory fragmentation, safety, South Pass 60 B on May 18, 2023| Leave a Comment »
Linking an interesting academic paper on regulatory fragmentation:
Regulatory fragmentation occurs when multiple federal agencies oversee a single issue. Using the full text of the Federal Register, the government’s official daily publication, we provide the first systematic evidence on the extent and costs of regulatory fragmentation. We find that fragmentation increases the firm’s costs while lowering its productivity, profitability, and growth. Moreover, it deters entry into an industry. These effects arise from regulatory redundancy and, more prominently, regulatory inconsistency between agencies. Our results uncover a new source of regulatory burden: companies pay a substantial economic price when regulatory oversight is fragmented across multiple government agencies.
Regulatory Fragmentation
The US has a highly fragmented offshore regulatory regime that has become even more fragmented with the complex division of responsibilities between BOEM and BSEE. The slide below is from a presentation on this topic.
While the linked paper focuses on costs and productivity, fragmentation may also be a significant safety risk factor. A UK colleague once asseted that “overlap is underlap,” and I believe there is something to that. If multiple agencies have jurisdiction over a facility, system, or procedure, the resulting redundancy, inconsistency, and ambiguity may create significant gaps in industry and governmental oversight.
For example, regulatory fragmentation was arguably a significant factor in the most fatal US offshore fire/explosion incidents in the past 35 years – the South Pass B fire in 1989 and the Macondo blowout in 2010. More specifically:
South Pass 60 B: The investigation of the 1989 South Pass 60 B platform explosion that killed 7 workers noted the inconsistency in regulatory practices for the platform, regulated by DOI, and the pipeline regulated by DOT. Cutting into the 18-inch pipeline riser did not require an approved procedure, and the risks associated with hydrocarbon pockets in the undulating pipeline were not carefully assessed. Oversight by the pipeline operator was minimal, and the contractor began cutting into the riser without first determining its contents. A massive explosion occurred and 7 lives were lost.
Decades later, DOT and DOI pipeline regulations and oversight practices are still inconsistent. Note the confusion regarding the applicable regulations following the Huntington Beach pipeline spill in 2021. As posted following that spill:
One would hope that this major spill will lead to an independent review of the regulatory regime for offshore pipelines. Consideration should be given to designating a single regulator that is responsible and accountable for offshore pipeline safety (a joint authority approach might also merit consideration) and developing a single set of clear and consistent regulations.
Macondo: While the root causes of the Macondo blowout involved well planning and construction decisions regarding the casing point, cementing of the production casing, and well suspension procedure, the blowout would likely have been at least partially mitigated (and lives saved) if the gas detection system was fully operable, the emergency disconnect sequence was activated in a timely manner, flow was automatically diverted overboard, or engine overspeed devices functioned properly. Indeed, regulatory overlap led to underlap as summarized below:
| Macondo contributing factor | jurisdiction |
| flow not automatically diverted overboard | DOI/USCG (also concerns about EPA discharge violations) |
| some gas detectors were inoperable | DOI/USCG |
| generators did not automatically shutdown when gas was detected | USCG/DOI |
| failure to activate emergency disconnect sequence in a timely manner (training deficiencies and chain-of-command complications) | USCG/DOI |
| engine overspeed devices did not function | USCG/DOI |
| hazardous area classification shortcomings | USCG/DOI |
MOUs and MOAs are seldom effective regulatory solutions as they are often unclear or inconclusive, and tend to be more about the interests of the regulator and protecting turf. They also do nothing to ensure a consistent commitment among the regulators. In the case of the US OCS program, BOEM-BSEE have a greater stake in the safety and environmental outcomes given that offshore energy is the reason for their existence. That is not the case for any of the other regulators identified in the graphic above.
The contributing factors listed in the Macondo table are not clearly or effectively addressed in the current MOAs for MODUs and floating production facilities.
Helicopter safety is another example of MOA inadequacy. Three offshore workers and a pilot died in December when a helicopter crashed onto the helideck of a GoM platform during takeoff. 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.
Posted in Norway, Offshore Energy - General, Regulation, tagged Norway, Norwegian Petroleum Directorate, Petroleum Safety Authority, resource management, safety on May 15, 2023| Leave a Comment »
Oil and Energy Minister Terje Aasland takes over the constitutional responsibility for the Petroleum Safety Authority with effect from 11 May 2023. Labor and Inclusion Minister Marte Mjøs Persen previously held responsibility. With this, the government wishes to strengthen comprehensive and good management of HSE, safety and preparedness on the Norwegian continental shelf.
The transfer of responsibility to the Ministry of Oil and Energy (OED) is in line with the main principle in Norwegian administration that one ministry and one cabinet minister have the constitutional responsibility for the sector as a whole.
press release
The Petroleum Safety Authority and the Norwegian Petroleum Directorate, the resource management agency, now report to the same ministry. Prior to a December 2003 decree that established the PSA, both the safety and resource functions were administered by the NPD.
Could this be the start of a trend toward better coordination of regulatory and resource management functions? If so, that would be a positive development. Fragmented oversight is neither in the best interest of safety nor resource management. (More on this in an upcoming post.)
Posted in accidents, Guyana, Offshore Energy - General, oil spill response, Regulation, well control incidents, tagged bp, Exxon, Guyana, macondo, oil spill iiability, Supreme Court on May 10, 2023| 6 Comments »
There are a number of recent articles related to the Guyana Supreme Court ruling on Exxon’s financial assurance obligations. An Oil Now piece (quoted below) is the most informative. It seems that the Supreme Court decision is based on a provision of Exxon’s EPA permit and that EPA is siding with Exxon in this dispute.
The Guyana government and the Environmental Protection Agency (EPA) are set to appeal a recent Guyana Supreme Court ruling that determined that the EPA and ExxonMobil affiliate, Esso Exploration and Production Guyana Limited (EEPGL), breached the terms of the Liza 1 environmental permit. The permit was revised and granted to EEPGL last year for operations in the Stabroek Block, offshore Guyana.
Justice Sandil Kissoon granted several declarations, including that the EPA failed to enforce compliance by EEPGL of its Financial Assurance obligations to provide an unlimited Parent Company Guarantee Agreement and/or Affiliate Company Guarantee Agreement to indemnify and keep indemnified the EPA and the Government of Guyana against all environmental obligations of the Permit Holder (EEPGL) and Co-Venturers (Hess and CNOOC) within the Stabroek Block.
While acknowledging the court’s ruling, the Government of Guyana, as a major stakeholder, maintained in a statement that the Environmental Permit imposes no obligation on the Permit Holder to provide an unlimited Parent Company Guarantee Agreement and/or Affiliate Company Guarantee Agreement. The government believes that Justice Kissoon erred in his findings and that the ruling could have significant economic and other impacts on the public interest and national development.
OIlNow
Unlimited liability is a rather daunting and open-ended obligation that would trouble permittees in any industry.
In the US, the liability for oil spill cleanup costs is unlimited for offshore facilities, but there is a liability cap for the resulting damages. That cap is currently $167.8 million after a recent inflation adjustment. BP, of course, paid far more than that for damages associated with the Macondo blowout. BP’s costs, which amounted to an astounding $61.6 billion, were both voluntary and compulsory as a result of agreements and settlements. Keep in mind that the damage liability limit was only $75 million at the time. One can imagine what would have happened if a company with less financial strength or more inclination to fight had been responsible for the spill.
Posted in energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged Coast Guard, floating production units, OOC, SCOTUS, vessel definition on May 8, 2023| Leave a Comment »
Dr. Malcolm Sharples, a leading marine engineer and offshore safety advocate, brought this Supreme Court’s decision and the resulting regulatory confusion to my attention.
It turns out that the SOCTUS decision about this houseboat…..
has created regulatory uncertainty for floating production facilities like this:
In a 7-2 decision, the court ruled that a gray, two-story home that its owner said was permanently moored to a Riviera Beach, Florida, marina was not a vessel, depriving the city of power under U.S. maritime law to seize and destroy it.
Reuters
The floating production facilities are still subject to Coast Guard regulation and inspection pursuant to separate authority under the OCS Lands Act. The extent to which Coast Guard approval and inspection practices will change is not entirely clear. The Coast Guard will issue new certificates of inspection for these floating facilities, and new policy guidance is being developed.
Attached are answers that the Coast Guard provided to questions from the Offshore Operators Committee.
This may be a good warmup for an upcoming post on regulatory fragmentation.
Posted in energy, energy policy, Offshore Energy - General, Regulation, Uncategorized, tagged Chevron Doctrine, offshore energy, Regulation, Supreme Court on May 4, 2023| Leave a Comment »
The Supreme Court will hear a case that could significantly scale back federal agencies’ authority, with implications for regulations affecting the US offshore program. The court could overturn a precedent known as the “Chevron doctrine” that instructs judges to defer to federal agencies when interpreting ambiguous federal laws.
Few Supreme Court doctrines have been stretched more by regulators and lower-court judges than Chevron deference, which says judges should defer to regulators’ interpretations when laws are supposedly ambiguous. The High Court agreed Monday to give Chevron a much-needed legal review.
WSJ
One of the most important principles in administrative law, the “Chevron deference” was coined after a landmark case, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984). The Chevron deference is referring to the doctrine of judicial deference given to administrative actions. In Chevron, the Supreme Court set forth a legal test as to when the court should defer to the agency’s answer or interpretation, holding that such judicial deference is appropriate where the agency’s answer was not unreasonable, so long as Congress had not spoken directly to the precise issue at question.
Cornell Law
Posted in energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged OCS Orders, offshore regulations on March 23, 2023| 2 Comments »
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:
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:
Posted in Alaska, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged Alaska, Cook Inlet, Inflation Reduction Act, Lease Sale 258, lease terms, royalty rate, Sale 244, Sale 256, Sale 257, Senator Manchin 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.
| Area | Sale | Date | % royalty: <200m water depth | % royalty: >200m water depth |
| Cook Inlet | 244 | 6/21/2017 | 12.5 | 12.5 |
| GoM | 256 | 11/18/2020 | 12.5 | 18.75 |
| GoM | 257 | 11/17/2021 | 12.5 | 18.75 |
| Cook Inlet | 258 | 12/30/2022 | 18.75 | 18.75 |
| GoM | 259 | 3/29/2023 | 18.75 | 18.75 |
Notes:
Posted in California, Offshore Energy - General, Regulation, tagged California platforms, earthquakes, Lawrence Livermore, Minerals Management Service, seismic studies 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 😉
Posted in energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged bid adequacy procedures, BOEM, Lease Sale 257 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! 😉
Bud's Offshore Energy (BOE) 