- Should CCS leases have been offered in a separate sale as is the case for salt, sulfur, and wind operations?
- Was CCS activity considered in the environmental reviews for this sale?
- Was CCS mentioned in the Notice of Sale?
- How will these CCS bids be evaluated?
- Will the CCS bidding influence the Judge’s decision on the pending Sale 257 litigation?
Posts Tagged ‘BOEM’
More questions on the Sale 257 “CCS leases”
Posted in CCS, energy policy, Gulf of Mexico, Offshore Energy - General, tagged BOEM, CCS, Exxon, Lease Sale 257 on November 18, 2021| Leave a Comment »
Carbon intensity workshop recommended
Posted in conferences, energy policy, Gulf of Mexico, Offshore Energy - General, tagged BOEM, carbon intensity, deepwater operations, GHG emissions, GRP, NASEM, NOIA, Wood Mackenzie on October 21, 2021| Leave a Comment »
With regard to air emissions, the advantages of deepwater Gulf of Mexico production are rather obvious:
- High production rates per well
- Few surface facilities (57 deepwater platforms, 3% of GoM total, produce 90+% of oil)
- Modern gas turbines for power generation
- Tightly enforced restrictions on flaring and venting
- Better control of fugitive emissions
- Distant from shore (not a factor for GHG effects)
Wood Mackenzie, NOIA, and others contend that restrictions on GoM leasing are contrary to carbon reduction goals.
An important and unintended consequence of enacting more restrictive policies such as a lease ban or increase in royalty rate in the Gulf of Mexico is that it could give rise to carbon leakage to countries that export crude to US.
Wood Mackenzie
In light of the policy implications of GHG emissions, a Carbon Intensity Workshop is highly recommended. The estimates generated by Wood Mackenzie, Rystad, and others need to be explored in depth. Is data quality an issue? How are the data verified? Is there regulator or third party oversight? What are the assumptions behind the estimates? Also, for the purposes of US policy decisions, product transportation emissions should certainly be included. A barrel produced in the Middle East is not the same as a barrel produced in the GoM.
Looking at the chart above, I have immediate questions about the drilling emissions (blue). What wells are included? What about workovers and other well operations? I’m surprised that the deepwater GoM drilling emissions are so high relative to the other regions. While dynamically positioned MODUs have high fuel consumption rates, deepwater wells are few in number relative to shale drilling. Also, why are Brazil’s drilling emissions, which I assume are primarily associated with deepwater operations, so much lower that those for the GoM.
BOEM/BSEE and/or the Gulf Research Program (NASEM) would seem to be good sponsors for such a workshop.
The troubling case of Platforms Hogan and Houchin, Santa Barbara Channel
Posted in California, Offshore Energy - General, Regulation, tagged BOEM, BSEE, decommissioning, Hogan, Houchin, OIG, Santa Barbara Channel on September 21, 2021| Leave a Comment »
Platforms Hogan and Houchin were installed 52 and 53 years ago respectively on Lease OCS P-0166 in the Santa Barbara Channel. The lease, which had initially been issued to Phillips Petroleum, Cities Service Oil Co., and Continental Oil Co., was assigned to Signal Hill Service effective 2/19/1991. The assignment was approved despite concerns within the Minerals Management Service (MMS) about the financial strength of Signal Hill and the technical competence of Pacific Operators Offshore Inc (POOI), the affiliate that would operate the facilities.
Three decades of frustration followed for MMS, BOEM, and BSEE regulators in the Pacific Region. Per the terms of the assignment, Signal Hill was required to establish an Abandonment Escrow Account, funded from oil production revenue, with a “target balance” equal to the abandonment cost, plus 25 percent. These payments were seldom made in a timely and consistent manner.
Compliance with safety regulations was also poor. In that regard, violations data are consistent with anecdotal reports from inspectors. POOI accounted for a high percentage of the regional Incidents of Noncompliance (INCs), and Platforms Hogan and Houchin had INC/inspection ratios that were far higher than Pacific or Gulf of Mexico platform averages (see inspection data below).
| INC’s | Warnings | Component Shut-ins | Facility Shut-ins |
| POOI | 485 | 562 | 46 |
| All companies (Pacific Region) | 1965 | 3103 | 281 |
| POOI % of total | 24.6 | 18.1 | 16.4 |
A 9/20/2020 Inspector General report found significant irregularities in the use of funds from an offshore production company’s escrow account. While the IG’s summary (pasted below in its entirety) doesn’t say so, the company is assumed to be Signal Hill.
The OIG investigated allegations that an offshore oil and gas production company improperly paid operational expenses with money from an escrow account dedicated to paying expenses related to decommissioning offshore platforms in Federal waters.
DOI OIG, 9/20/2020
We found that the company routinely used funds from its decommissioning account to pay what appeared to be various operating expenses. We also found instances where the company appeared to claim reimbursement for duplicate expenses.
Based on our findings, the company submitted credits and adjustments, totaling $1.9 million, to the decommissioning account to cover these expenses and other disbursements. In addition, we referred a number of unresolved expenses for non-decommissioning activities to the Bureau of Safety and Environmental Enforcement and the Bureau of Ocean Energy Management for resolution.
We referred this matter to the U.S. Department of Justice, which declined to pursue it.
Questions:
- Why haven’t BOEM, BSEE, or the OIG released the full report? The public and the offshore industry certainly have a right to know given the potential costs to the taxpayer and the reputational damage to the industry.
- Why was a company with such a poor payment and compliance record allowed to withdraw funds from their decommissioning account to cover operating expenses?
- Signal Hill owes the State $287,000 in unpaid rentals. What unpaid royalties are owed to the Federal government?
- BSEE (2014) estimated decommissioning costs of $74.3 million. What is the current estimate? What is the remaining balance in the escrow account?
- How do the escrow account irregularities affect the decommissioning obligations of prior lessees?
GoM reserves tick upward after long decline
Posted in energy policy, Gulf of Mexico, Offshore Energy - General, oil, tagged BOEM, Gulf of Mexico, oil and gas reserves on September 14, 2021| 1 Comment »
BOEM just released their update of Gulf of Mexico OCS oil and gas reserves as of 12/31/2019. Oil reserves increased by 35.2% as a result of 6 new fields being added.
The reserve additions are necessary and welcome given the high depletion rates from 2002 to 2018 when reserves (plotted above) declined steeply while production rates held steady or increased. The concerns about the sustainability of current GoM production rates, as expressed in our 7/26/2021 post, remain given the historically low levels of exploratory drilling. For the reasons presented in that post, our view is that the importance of GoM production will increase, not decrease, over the next decade.
RODA sues BOEM on Vineyard Wind I approval
Posted in Offshore Wind, Uncategorized, Wind Energy, tagged BOEM, Nantucket, RODA, Vineyard Wind on September 13, 2021| Leave a Comment »
Washington, D.C. (9/13/2021) — Responsible Offshore Development Alliance (RODA), a broad membership-based coalition of fishing industry associations and fishing companies, filed a Petition for Review today in the First Circuit U.S. Court of Appeals regarding the Secretary of the Interior’s July 15, 2021 decision approving the Vineyard Wind 1 offshore wind energy project. This action is the culmination of many years of conscientious participation by fisheries professionals only to see their expertise and value summarily ignored by decision-makers during the leasing process.
The RODA statement is quite strong. While the new administration understandably wants to advance offshore wind development, they would have been wise to accept input from RODA and other interested parties before approving Vineyard Wind I. The fishing industry certainly has a legitimate interest in the outcome of this and other offshore wind projects.
A group of Nantucket residents had already sued BOEM over concerns about the endangered North Atlantic Right Whale. Concerns have also been expressed about the wind farm’s proximity to shore:
Fifteen miles was not OK in North Carolina or Long Island; then why is it OK for Nantucket? It’s just wrong.
David Stevenson, Caesar Rodney Institute
Record of Decision for Gulf of Mexico Lease Sale 257 is a Positive Step
Posted in gas, Gulf of Mexico, Offshore Energy - General, oil, Regulation, tagged BOEM, DOI, Gulf of Mexico, Record of Decision, Sale 257 on September 1, 2021| Leave a Comment »
In light of the ongoing litigation regarding the Department of the Interior’s “leasing pause,” DOI’s Record of Decision for Sale 257 is most encouraging. The viewpoints expressed in the two quotes below are fundamental to the future of the OCS Oil and Gas Program. Hopefully, all parties can put aside their differences and build upon these consensus views.
While offshore exploration and development cannot be made risk free, OCS oil- and gas-related activities can be conducted safely and responsibly with strong regulatory oversight and appropriate measures to protect human safety and the environment.
ROD, p. 5
The decision to hold Lease Sale 257 recognizes the role that GOM oil and gas resources play in addressing the Nation’s demand for domestic energy sources and fosters economic benefits, including employment, labor income, and tax revenues, which are highest in Gulf Coast States and also distributed widely across the United States. Revenues from offshore oil and gas lease sales support national conservation programs and coastal resiliency for applicable coastal states and political subdivisions under the Gulf of Mexico Energy Security Act of 2006.
ROD, p. 7
Pipeline Decommissioning
Posted in decommissioning, Gulf of Mexico, offshore, Offshore Energy - General, tagged BOEM, BSEE, decommissioning, financial assurance, GAO, WP on August 16, 2021| Leave a Comment »
A recent Washington Post (WP) article, based in part on a March 2021 General Accountability Office (GAO) report, raises interesting pipeline decommissioning issues, but might benefit from some additional context, which I have attempted to provide below:
- Decommissioning liability issues are not simply a matter of “companies trying to get out of that obligation.” Much of the complexity is associated with decades-long chains of lease ownership and the respective responsibilities of prior lessees. Pertinent questions include the following:
- If a company sold a lease decades ago and there have since been multiple owners, to what extent is the original owner still liable for decommissioning lease facilities? (Note that guidance from the Federal government has not been entirely consistent over the decades.)
- If current leaseholders fail to fulfill their obligations, who is next in line and why?
- To what extent are prior lessees liable for wells and structures constructed subsequent to their ownership?
- Knowing that decommissioning costs can vary significantly, what amounts of security should be required? How should these funds be protected or managed? Should an assigning company also collect funds to protect their interest?
- How do inconsistent Federal policies and financial assurance requirements, and improper practices by subsequent owners, affect the liability of prior lessees? In that regard, the case of Platforms Hogan and Houchin in the Pacific OCS Region is interesting and pertinent.
- Per the WP, “Federal regulations require the removal of offshore pipelines once they are decommissioned, but the rules are rarely enforced.” This statement is doubly incorrect.
- 30 CFR § 250.1750 provides for decommissioning pipelines in place when the Regional Supervisor (BSEE) determines that the pipeline does not constitute a hazard (obstruction) to navigation and commercial fishing operations, unduly interfere with other uses of the OCS, or have adverse environmental effects. The consensus opinion of the regulators’ engineers and scientists has been that the safety and environmental risks associated with pipeline removal were significantly greater than those for decommissioning in place in accordance with the procedures specified in 250.1751.
- The comment about enforcement is unfounded. BSEE and its predecessors have strictly enforced decommissioning requirements despite the challenges related to inconsistent policy direction, industry downturns, and hurricane damage. BSEE has an effective program to ensure that idle wells are plugged and platforms are removed in a timely manner. For this reason, 3315 platforms have been removed since 2001; 1933 since 2010. Only about 1800 platforms remain. This very significant loss of habitat is a concern to fishing organizations, another factor that complicates decommissioning policy.
- In situ decommissioning of buried or trenched offshore pipelines is the standard throughout the world. The seafloor disturbance and safety risks associated with the removal of such pipelines are universally viewed as unwarranted. The pipeline decommissioning procedures followed elsewhere are similar to those described in 30 CFR 250.1751. In the Gulf of Mexico, pipelines installed in less that 200′ of water are typically buried (30 CFR 250.1003) to minimize interference with commercial fishing and other activities.
- The decommissioning of wind turbines, which are typically more densely located and closer to shore, and their attendant power cables and substructures, will also be challenging. In their 9/16/2019 Congressional testimony, the Responsible Offshore Development Alliance expressed concern about the practice of leaving structural foundations when turbines are abandoned.
In remarks to the WP, Syed Khalil, a coastal restoration geologist for the State of Louisiana, commented that they have enough sand to meet their short term needs, but future needs were a major concern. The Gulf of Mexico Offshore Sand Management Working Group would seem to be the best mechanism for timely action and a workable, long-term action plan. The minutes of their meetings are quite instructive. Rulemaking is not a solution unless the parties want to tie their fate to both the 25 year pipeline rule rewrite (draft published in 2007, another draft coming? final?) and the contentious and similarly interminable financial assurance rule.
“Oil and Gas” or “Gas and Oil?” Why We Care
Posted in Alaska, Gulf of Mexico, natural gas, Offshore Energy - General, Uncategorized, tagged API, BOEM, BSEE, DOE, Gulf of Mexico, offshore oil on August 9, 2021| Leave a Comment »
In the early 1990’s, Department of the Interior (DOI) and Department of Energy (DOE) leadership dabbled at re-branding the OCS Oil and Gas Program by reversing the order of the words. Clever? Perhaps by Washington public relations standards. One senior manager even changed his license plate from “OCS OIL” to “MMS GAS” (not much competition for those tags 😃). Technical staff were less enthused about this simplistic marketing gimmick that misrepresented the historical and scientific facts about oil and gas production. For many years, natural gas was a byproduct of oil production that was commonly flared. (This practice continues in some regions of the world, although to a lesser extent than in the past.)
Understandably, the Oil and Gas Journal wasn’t very impressed by the change. I saved a copy of their 1/24/1994 editorial (attached) on the subject. Per the OGJ:
We at the Journal love natural gas. But that doesn’t warrant an attempt to repeal the laws of nature and ignore the weight of tradition by renaming everything “gas and oil” this and that.
John L. Kennedy, Editor, Oil and Gas Journal, 1/24/1994)
To their credit, BOEM and BSEE web pages and announcements during recent administrations (both parties) indicate a preference for the more traditional “oil and gas.” (The DOE website largely ignores the existence of either oil or natural gas.) Surprisingly, the American Petroleum Institute (API), an industry trade organization with more than 100 years of history, is now consistently using “natural gas and oil.” This rearrangement of words is not entirely consistent with the interest of API’s members. In the offshore sector, the primary interest of API members is in finding and producing oil. if you think otherwise, look at the EIA GoM gas production data. Most of the Gulf’s declining gas production is now associated with deepwater oil production, and BSEE rightfully requires that this gas be used for fuel or transported for sale. Similarly, gas is a secondary consideration for API members exploring in Alaska given that 35 trillion cu ft of North Slope gas still awaits a pipeline.
Oil companies, and those who represent them, should be proud of their current and historical role in producing oil (and gas) for our economy, security, and way of life; and of the men and women who have toiled to locate and produce petroleum resources for the benefit of society. Are there better energy alternatives? Perhaps, but issues with these alternatives remain to be resolved, and oil and gas will continue to be important. Let’s focus on producing these resources as safely, cleanly, and reliably as possible.
GoM Production Held Steady in May
Posted in drilling, Gulf of Mexico, offshore, Uncategorized, tagged BOEM, carbon intensity, Gulf of Mexico, production on August 6, 2021| Leave a Comment »
A previous BOE post estimated that current stabilized GoM oil production rates were 1.7 – 1.8 million BOPD. EIA recently announced that May production was 1.791 million BOPD, which is consistent with our estimate. Per the chart below, GoM production was essentially unchanged from the beginning of the year despite a 37% increase in the price of oil (WTI) from 1 January to 31 May. This suggests that stabilized GoM production may have peaked pending first oil from several new projects.
Key production questions:
- Will new production from Mad Dog 2, Vito, PowerNap, Thunder Horse South 2, and the recently sanctioned Whale project offset high depletion rates elsewhere in the deepwater GoM?
- Looking further ahead, is deepwater GoM production sustainable without increased drilling activity? Per BSEE data, only 33 deepwater wells were started in 2021 YTD, just 18 of which are classified as exploratory. Drilling is thus at historic low levels. For reference, there were 477 wells started in 2001, 149 of which were exploratory. This level of activity facilitated a 30% growth in oil production, peaking at 2 million BOPD in 2019.
Regardless of one’s views on the urgency and timing of the “energy transition,” is there any doubt that oil and gas will continue to be important to our economy and security for years to come? If not, should deepwater GoM production, with its relatively low carbon intensity, be a core element of our energy strategy? To better understand the trade-offs, I suggest that BOEM’s Environmental Studies Program conduct a peer reviewed assessment of the carbon intensity of domestic and international supply alternatives. Product transportation considerations should be included in this assessment.
Gulf of Mexico Oil Production: Attention Needed!
Posted in drilling, energy, Norway, offshore, Offshore Energy - General, oil, tagged BOEM, deepwater production, NPD on July 26, 2021| Leave a Comment »
In light of energy security and price considerations, rebounding oil demand, uncertainty about the long-term viability of non-conventional onshore production, and the elimination of most other offshore options, sustaining deepwater GoM production should be a high-priority U.S. policy objective. The deepwater GoM also offers significant environmental advantages in that approximately 1.6 million BOPD are produced from only 58 widely dispersed surface facilities that are well maintained, closely monitored and inspected, and distant from shore. Another advantage of US deepwater production is the low carbon intensity relative to other sources of petroleum (more on this in a later post).
EIA (Chart 1) projects relatively stable GoM production over the next 2 years. Platt’s (Chart 2) is forecasting a slight decline in 2021 production primarily because of COVID-related delays in the initiation of production at Shell’s VIto and PowerNap and BP’s Mad Dog 2 and Thunder Horse South 2 facilities. Based on the latest available EIA data, current stabilized GoM oil production appears to be in the 1.7-1.8 million BOPD range.
Going forward, the concern is the high rate of reserve depletion and the absence of drilling activity needed to replace reserves. Schlumberger data through 2016 (Chart 3) show depletion rates rising to above 20%, the highest (by far) of the offshore regions analyzed. I was unable to find more recent data, but unless this trend line has made a sharp turn, production declines are likely in the next 3-5 years. Further, drilling trends do not suggest the likelihood of significant reserve growth. Data from BSEE’s Borehole File (Chart 4) indicate deepwater well start activity that is comparable to the moratorium years of 2010 and 2011. Even more concerning is the absence of exploratory drilling (chart 5) and the very few operating companies that are drilling deepwater wells. Only five operators have spudded deepwater exploratory wells in 2021 YTD. One US supermajor hasn’t started a well since 2019, and another US major has essentially exited the Gulf.
Deepwater production trends are not easily reversed, so dialogue is urgently needed to assess the implications of declines in drilling, reserves, and industry interest. As the resource manager on behalf of the public, BOEM is the logical choice for initiating these discussions. BOEM’s Norwegian equivalent, the Norwegian Petroleum Directorate (NPD) demonstrates the importance of pro-active land management. The NPD has done an outstanding job of sustaining exploration activity and production consistent with Norwegian safety and environmental values, which are among the highest in the world. On their website, NPD provides ongoing updates on exploration, production, and reserve depletion parameters. Their competency and commitment to sustaining production on the Norwegian shelf is underscored in this news release, an excerpt from which is pasted below:
Exploration is of great importance for the long-term value creation on the shelf. The supply of oil and gas resources from new discoveries, as we have seen so far this year, is necessary so that activity in the petroleum industry does not fall sharply after 2030. Without new discoveries, production can fall by more than 70 percent in 2040 compared to 2020, says Torgeir Stordal, director of Technology and coexistence in the Norwegian Petroleum Directorate.
NPD, July 21, 2021
Chart 3: Depletion calculated as annual production divided by proved-developed reserves at end of same year
Bud's Offshore Energy (BOE) 