API urges ending moratorium once new deepwater rules emerge

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Sept. 29 -- The deepwater drilling moratorium should be lifted promptly once the US Bureau of Ocean Energy Management, Regulation, and Enforcement issues new safety regulations, an American Petroleum Institute official said.

“Safety will remain our top priority and ongoing task,” Erik Milito, API’s upstream operations director, told reporters in a Sept. 29 teleconference. “But it is also important that the industry be able to develop the resources the American economy will demand and produce the jobs and revenue that will flow from that development.”

US Department of the Interior officials have indicated deepwater drilling won’t necessarily resume immediately in the Gulf of Mexico, where it was suspended following the Apr. 20 Macondo well accident and subsequent 5 million bbl oil spill. BOE Director Michael R. Bromwich told President Barack Obama’s independent oil spill commission on Sept. 27 he expected to issue an interim final rule imposing new technical requirements by the end of the week.

“These won’t be a surprise; they were foreshadowed in [Interior Sec. Ken Salazar’s] May 27 report to the president,” he said. “I don’t know which operators already comply with them and which will need more time. But there are a significant number that they’ll need to comply with and certify they are complying with it. You’re not going to see drilling the next day or week.”

Bromwich said he has already directed employees be reassigned to BOE’s gulf regional offices from California and Alaska. “We will have a significant number of people dealing with the shallow-water permit applications we already have and the deepwater permit applications we are expecting,” he maintained.

Significant work
Milito indicated the US oil and gas industry and federal government already have done significant work in response to the well blowout, rig explosion, and spill. “Industry task forces have provided the government with safety recommendations on offshore equipment, operating procedures, spill response, and subsea well control,” he said. “API continues to review and improve its existing offshore safety standards. It also has begun writing a new standard on deepwater well design.”

All deepwater rigs which were operating in the gulf successfully passed inspections which Salazar ordered immediately after the accident, and BOE issued new safety guidance in two notices to lessees in June which the forthcoming interim final rule is expected to incorporate, Milito continued. Several of the largest US offshore operators are investing $1 billion in new deepwater well containment technology, he said.

“We don’t know for certain what the new requirements will include, nor do we know how smoothly and efficiently they will be implemented and the ultimate impact they might have on energy production,” the API official said. “The industry takes safety and environmental performance very seriously and will continue to work with [DOI and BOE] to ensure the highest standards in offshore operations. We hope the government will work with us to minimize delays going forward.”

At the spill commission’s Sept. 27 hearing, Salazar said while the accident and spill’s causes have not been fully determined, “there’s no doubt in my mind that at the end of the day, the hand of human beings had some responsibility for what happened, even in the days before. Having said that, we can move ahead with new requirements for cementing, testing of blowout preventers, and other matters. The lessons we’ve learned the last 6 months will be applied in the new regulatory framework Director Bromwich will initiate in the days ahead.”

Milito said most of the expected technical requirements in the forthcoming interim final rule are in one of the June notices to lessees, NTL-5. “When it came out, every company in the deepwater gulf took it into its internal structure, dissected it, and tried to move forward to meet potential requirements,” he said. “They want to get back to work and have equipment and personnel ready to go.”

Effective early steps
He conceded it made sense for the federal government to “take a pause,” as Salazar often described the moratorium. But Milito said regulators also should consider the effective initial steps they took and how the oil and gas industry was able to respond with new recommendations.

“While there were some stumbles in capping and containment, we were able to cap the well without having to complete the relief well,” he said. “We also shouldn’t forget how long the industry operated in the gulf without significant problems. A pause made sense, but it may have been too long a pause. We’ve seen three service companies relocate operations and others invest in idle operations, essentially sitting on leases and expecting to go back to work quickly. We need to do everything we can to get them back to work so we don’t lose them to other areas.”

Milito said he does not expect BOE’s new interim final rule to contain BOP requirements along the lines of the bill passed by the US House. “There already are a lot of new requirements in place. Others, such as having more than one shear ram in place, may need to go through a public rulemaking,” he said. “Simply increasing the number of shear rams or requiring a specific number of feet between them may not work as well as alternative methods in some cases.”

He agreed with Bromwich and Salazar that simply lifting the moratorium won’t result in an immediate return to previous deepwater drilling levels. “There’s a whole slew of various requirements which have to be met, and the companies are trying to get into a position to meet them. That will make it incumbent on the government to process those applications and get operations moving,” he said. “If the new requirements diverge a lot from what was in NTL-5, a lot of companies will have to resubmit applications.”

Milito said API has not surveyed its members with gulf deepwater operations, but added it generally understands that producers have gone back, reviewed their internal practices, and started to line up independent engineers to meet third-party verification requirements. “Several consulting firms which do classification and certification work have seen this as an opportunity,” he said. “We’re seeing a real push by the entire offshore oil and gas industry to maintain opportunities in the gulf. It’s not just the majors but independent producers who are pushing for development of the whole [US Outer Continental Shelf].”

Contact Nick Snow at nicks@pennwell.com.

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