Industry consultancy Rystad Energy estimates Guyana will be pumping 1.7 million barrels per day by 2035, which is higher than other major offshore basins including the Gulf of Mexico, ranking the country as the world’s fourth largest offshore oil producer.
The GoM is currently producing >1.8 million bopd. If Rystad/OilPrice intended to say that Guyana production will exceed GoM production in 2035, that could be the case. However, sustained GoM production in 2035 could easily be >1.7 million bopd with proper resource management by government and industry. In fact, BOEM’s latest forecast (table below) calls for production >1.8 million bopd in 2031, the last year in their forecast.
“BSEE will continue to evaluate the process for issuing decommissioning orders and will continue to issue decommissioning orders to jointly and severally liable parties on a case-by-case basis.“
Although the news release for BSEE’s final decommissioning rule asserts that the regulations “provide the certainty requested by industry,” that does not seem to be the case. The main change in the final rule was to delete the reverse chronological order (RCO) provision which called for issuing decommissioning orders to the most recent predecessor first. Instead, BSEE may continue to issue decommissioning orders arbitrarily.
While deleting the RCO provision may be advantageous for the regulator, and in some cases for the public, claiming that the decision provides certainty for industry is quite a stretch. BSEE may continue to issue a decommissioning order to anyone in the ownership chain, whether the company was a recent lessee or one that had owned the lease decades ago. Original or early lessees may be held liable for decommissioning old facilities regardless of subsequent damage, modifications, or neglected maintenance.
The absence of a defined procedure for issuing decommissioning orders may also expose BSEE to new legal challenges, particularly in cases where a company has not held the lease for decades. A 1988 letter from the Director of the Minerals Management Service to Amoco (attached below) explicitly relieves the assignor (predecessor) of decommissioning liability after the lease has been assigned. A revised bonding rule published on May 22, 1997 reversed that policy, but decommissioning liability for leases assigned prior to the 1997 rule may still be very much in question.
Another concern is the split jurisdiction for decommissioning between BSEE and BOEM. The financial, land management, operational, and environmental aspects of decommissioning are inextricably intertwined and attempts to divide these responsibilities between two bureaus with separate regulations is a prescription for gaps, overlap, inconsistency, inefficiency, disputes, and confusion. Decommissioning should be regulated holistically, not with separate “BOEM-only” and “BSEE-only” regulations.
Finally, wind facility decommissioning may prove to be even more challenging given the higher facility density and economic uncertainties. The regulatory regime needs to be clearly established early in the development phase.
Promoting the offshore wind program is a very high BOEM priority. The bureau is charged with deploying 30 gigawatts of offshore wind energy capacity by 2030, which requires extensive advocacy. However, BOEM is also a core regulator for offshore wind projects, and the concern is that their regulatory role could be compromised by their advocacy priorities.
Per Notice to Lessees 2023 N-01, which arguably should have been published for public comment given its regulatory significance, BOEM has retained important responsibilities for wind project development and operations. These include review and approval of construction and operations plans, site assessment plans, and general activities plans. BOEM may also exercise enforcement authority through the issuance of violation notices and the assessment of civil penalties.
BOEM exists because in 2010 the Administration wanted to separate the OCS program’s leasing (sales/advocacy) and safety (regulatory/enforcement) functions. The intent was to avoid conflicting missions (or the appearance thereof) in the post-Macondo era. (More on this in an upcoming post.)
Ironically, the Save LBI comment describes BSEE as “a distinct unit within BOEM.” That may seem to be the case, but BSEE is actually a separate bureau in the Department of the Interior.
The authors conclude that inventory emissions of CO2 (as reported to BOEM) “are generally consistent with observations from our aircraft survey, suggesting that combustion is well represented in the federal inventory.“
However, that is not the case for methane (CH4) emissions which are underestimated by the Federal inventories. As summarized in the chart below, deepwater facility methane emissions are consistent with the reported inventories, but shelf emissions in State and Federal waters differ significantly.
Comments:
As previously discussed, the lower CI for deepwater production is entirely consistent with expectations. When the most modern 5% (57) of GoM platforms are producing 93% of the oil and 76% of the gas, their CI should be impressive (which indeed it is).
As summarized using ONRR data, more gas-well gas was vented from 2015-2021 than was flared, which is not what you want from a GHG standpoint. Gas wells are predominantly at shallow water facilities, many of which are not equipped with flare booms.
Oil-well gas, most of which is produced at deepwater platforms, is flared rather than vented by a ratio of approximately 4 to 1.
One bad actor may have been a major contributor to the shelf methane emissions observed during the study’s observational flights. That company entered into bankruptcy proceedings. Presumably those issues have been resolved and more rigorous monitoring and enforcement practices have been implemented. I’ll be looking at the 2022 ONRR flaring and venting data for evidence of such improvement. The remainder of the 2022 data should be available in May.
The subject study’s only observational measurements were in August 2020. Followup airborne measurements would be helpful.
The study only considered production emissions. Shelf facilities are primarily natural gas producers and would thus have a lower relative CI when consumed.
Deepwater (>1000′) activity continues to dominate, accounting for 61% of the well starts.
Not a single company drilled both shelf and deepwater wells.
While shelf facilities currently account for only about 7% of GoM oil production, 1122 of the 1179 remaining platforms are on the shelf and they account for 24% of GoM gas production, most of which is environmentally favorable nonassociated gas.
Two companies, Arena and Cantium, accounted for 75% of the shelf well starts. Excluding the CCS bids, Arena and Cantium were the most active shelf bidders in Sale 279. Arena bid alone on 7 blocks. Cantium was the high bidder on 5 blocks. (Focus Exploration was high bidder on 4 shelf blocks and was “outbid” by Exxon for High Island 177.)
One company, Shell, accounted for 39% of the deepwater well starts
One of BP’s exploratory wells (drilled subsequent to Sale 257) was in Green Canyon 821, immediately south of GC 777, the block that BP/Talos bid $1.8 million for in Sale 257. That bid was rejected by BOEM. In sale 259, BP was the sole bidder for GC 777, and their bid was only $583,000, less than 1/3 of their Sale 257 bid. Perhaps the GC 821 exploratory well reduced the value of GC 777? Will this lower bid now be accepted?
DW expl
DW dev
shelf expl
shelf dev
Anadarko
5
1
Arena
22
BOE
1
4
BP
2
3
Byron
2
Cantium
20
Chevron
3
Contango
2
Cox
2
Eni
2
5
EnVen
5
Greyhound
2
Hess
2
Kosmos
1
LLOG
3
1
Murphy
4
QuarterNorth
2
Shell
25
9
Talos
2
8
Walter
1
Woodside
3
1
Gulf of Mexico well starts during 2022 and the first quarter of 2023
Exxon doubled down on their strategic CCS bidding; their only bids (69 in total) again appeared to be solely for carbon sequestration purposes. As previously noted, acquiring tracts for CCS purposes is not authorized in an oil and gas sale. Arguably, these bids should be rejected.
The other super-majors, BP, Chevron, and Shell, were active participants as were many independents.
It was good to see BOEM Director Liz Klein announcing bids. This shows respect for the OCS oil and gas program.
The 2019 annual production record remains intact at 1.897 million bopd, but could be exceeded in 2023 if (1) projected deepwater startups are on schedule, (2) prices remain above $70/bbl, (3) depletion is effectively managed, and (4) the hurricane season is again favorable
The “energy transition” will not affect oil and gas demand for the foreseeable future, more nuclear power plants are not being built, and shale has its limitations. We better not neglect what is left of the OCS oil and gas program.
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.
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?
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:
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.
Bud's Offshore Energy (BOE) 