Salazar: More work needed before deepwater drilling fully rebounds

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Mar. 2 -- The first successful demonstration of an offshore containment system let the US Bureau of Ocean Energy Management, Regulation, and Enforcement issue its first deepwater drilling permit since the Macondo well blowout and spill, but much more work needs to be done before new US deepwater drilling reaches previous levels, US Interior Sec. Ken Salazar said.

“I spent this past Friday in Houston watching a demonstration of the Helix system and was impressed with the progress we and the industry have made,” he told the US Senate Energy and Natural Resources Committee on Mar. 2.

“But there’s much more work to do,” Salazar continued. “The Marine Well Containment Co.’s system still has to be successfully demonstrated. “Both groups are still working on other key questions about their systems. We will continue to work with the industry to make sure that deepwater exploration and production will be safe and effective as it resumes.”

More permits will follow the one which BOEMRE approved on Feb. 28 for Noble Energy Inc.’s No. 2 well on its Santiago prospect in the Gulf of Mexico because templates are coming into place for well casing, cementing, and other deepwater systems, he told reporters following the hearing.

“I went to Houston because I wanted to know these containment systems are for real,” Salazar said. “I’m impressed with the work that’s been done, but I’m equally impressed with how much more needs to be resolved. Monitoring systems aren’t a part of blowout preventers at this point, for example.”

‘Interim phase’
“These containment systems are in their interim phase,” added Deputy US Interior Sec. David J. Hayes, who stood alongside Salazar as reporters questioned the two DOI officials. “We are working with the companies to improve them.”

Four multinational oil companies operating in the gulf formed MWCC after containment of the 5 million bbl spill from the ruptured Macondo well stem proved inadequate last year. Helix Energy Solutions Group Inc. began to work on a containment process with independent producers around the same time. That system, with enhancements Noble Energy supplied to allow deeper operation, was the one submitted and tested for the approved drilling permit.

The approval rate for subsequent deepwater drilling permits will partly depend on DOI’s final budget for fiscal 2012, Salazar told reporters. “If we don’t receive funding to do this safely, deepwater drilling in the gulf won’t return to previous levels as quickly,” he said. “Industry has stepped up to the plate, but more needs to be done before we reached the gold standard we both want for US offshore oil production.”

Regarding a federal judge’s order that BOEMRE start issuing 5 other drilling permits customers of Ensco International Inc. have requested, he said that he is not certain that the judge has jurisdiction in the matter and is considering an appeal. DOI also is preparing to be ready to reach decisions on the applications to comply with the order within its timeframe, Hayes said.

In his first appearance before the 112th Congress to discuss DOI’s proposed 2012 budget, the secretary said DOI aims to continue an oil and gas program that remains robust despite the deepwater drilling moratorium he imposed following the Macondo incident. The budget request aims to expedite offshore permitting while building safer management and stronger regulation. Onshore oil and gas goals also are robust, with the US Bureau of Land Management expected to issue 7,250 drilling permits during fiscal 2012, Salazar said.

Wild lands order
Responding to questions from committee members about his Dec. 23 order directing BLM to conduct inventories of its holdings to identify land with wilderness characteristics and manage them accordingly, he said: “From my point of view, it’s required by law.” The order does not usurp congressional authority to establish federal wilderness or wilderness study areas, Salazar emphasized. It protects existing rights with provisions that another multiple use purpose can override wilderness characteristics so impairment won’t occur, he said.

Salazar also defended a provision in the proposed budget which would impose a $4/acre fee on onshore leases where sufficient development has not occurred. Only 12.2 million of the 42.1 million acres which BLM has leased for oil and gas development are producing, he noted. “I realize it takes time to do seismic and other evaluations before going ahead,” he said. “We are considering this as we look at how these fees would be imposed.”

DOI officials also recognize that other federal agencies’ delays in issuing permits should be considering in deciding whether to assess such a “use-it-or-lose-it” fee, he continued. “A large percentage of this acreage has no activity whatsoever,” said Hayes. “Our intent is to get some going or return the land for leasing to other producers.”

Pamela J. Haze, DOI’s deputy secretary for budget, finance, performance, and acquisitions, said that the department is working with the White House Office of Management and Budget on draft lessee fee legislation. “The intention is to provide incentives, not punishment,” she told the committee.

The group is scheduled to testify about the proposed budget before the House Natural Resources Committee on Mar. 4 and the House Interior Appropriations Subcommittee on Mar. 9.

Contact Nick Snow at nicks@pennwell.com.

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