MOBIL PERSISTS IN CAMPAIGN TO DRILL OFF NORTH CAROLINA

Patrick Crow
Washington Editor

A struggle to obtain a permit to drill a wildcat off North Carolina is setting precedents for the U.S. petroleum industry, Minerals Management Service, and state governments.

For 3 years, Mobil Oil Corp. and partners have been seeking MMS approval to drill a test on their Manteo prospect, an offshore structure Mobil believes could contain 5 tcf of gas.

Although the prospect is 38 miles from tourist beaches of Nags Head and is highly unlikely to contain oil, making the chance of an offshore oil spill very small, state and congressional officials resolutely have opposed drilling.

In response, Mobil has made extraordinary concessions to North Carolina and has agreed to an environmental study MMS calls "the most thorough analysis of a one well exploration plan in the history of the OCS program."

At present, the wildcat cannot be drilled before summer 1992 and probably not until summer 1993.

Ten years after it acquired a lease covering its proposed drillsite, Mobil still faces two roadblocks:

• The U.S. Commerce Department must determine if the well is inconsistent with North Carolina's coastal zone management program, as the state alleges.

• A scientific panel must fulfill a congressional mandate to decide whether environmental studies for the wildcat are adequate.

The petroleum industry drilled 32 dry wildcats off the mid-Atlantic region in 1977-83 along the same trend. Although several of those were drilled off North Carolina, the state did not oppose them.

DRILLING PLAN

Mobil wants to drill on Block 467, for which it and its partners paid $103.775 million in Outer Continental Shelf Sale 56 held in summer 1981. It was the high bid of the sale (OGJ, Aug. 10, 1981, p. 38).

Nineteen blocks sold in the 1981 sale and two more from a 1983 offering were consolidated into the 21 block Manteo unit. Bonuses for the 21 leases totaled $296 million.

Mobil's partners in the Manteo prospect are Marathon, Amerada Hess, Shell, Chevron, Conoco, Union, and Occidental.

The Manteo prospect is a postulated 5 by 30 mile Upper Jurassic reef structure. Target is the crest of the carbonate buildup near the ancient continental shelf ledge, where the carbonate complex is thought to be nearly 3,000 ft thick.

Mobil said the structure, if half filled with gas, could contain more than 5 tcf. It estimates the wildcat has a 1 in 10 chance of finding gas and a 1 in 100 chance of finding oil.

It has spent $7 million so far to prepare for drilling, including environmental and scientific studies which it said found a geologically stable site with no evidence of shallow gas or hydrogen sulfide (OGJ, Sept. 11, 1989, p. 30).

Mobil plans to use the Sonat Discoverer 534 drillship to drill the $25 million, 11,260 ft hole in 2,690 ft of water. Drilling would take 100-120 days and would occur in summer to avoid the hurricane season and strong winter storms off Cape Hatteras.

However, the drillship can withstand 41 ft waves, 60 mph winds, and 65 knot currents.

SPECIAL ENVIRONMENTAL STUDY

Mobil, MMS, and North Carolina negotiated an unusual memorandum of understanding during November 1988-July 1989, a compact designed to ease the state's concerns about drilling.

C.E. Spruell, president of Mobil Exploration & Producing U.S. Inc., has described that report as an unprecedented event in offshore exploration.

The memorandum expanded the offshore environmental study area to 189 sq miles from 9 sq miles and required a number of hearings.

It included up to date information on the effects of drilling based on development scenarios and required Mobil to file a "draft" exploration plan in September 1989. MMS analyzed the exploration plan in a draft environmental report submitted to the state the following November.

But the state said the report needed more studies on currents north of Cape Hatteras in the event of an oil spill and on fisheries resources and spawning conditions at the proposed drillsite.

MMS suspended the process to gather the added data and released the report last summer. The agency called the report "the most comprehensive body of environmental information ever assembled on a proposed exploration well in the history of the U.S. offshore drilling program."

The 2,200 page report concluded the wildcat would have only "temporary, local, and minor environmental effects."

MMS even said Mobil would not need to conduct a strict environmental monitoring program at the wellsite or dispose of water based drilling mud onshore (OGJ, Sept. 17, 1990, p. 46).

ASSURANCES GIVEN

A Mobil spokesman said, "We clearly have gone much further than ever before" to give state officials data on the proposed well that normally would be considered proprietary. But he admits the company could have avoided some problems by explaining its proposal better to the North Carolina public.

Mobil has pledged if the Manteo wildcat is dry, no wells will be drilled on the other 20 leases. If it finds production, appraisal wells would be drilled in later summers.

Mobil notes production of any discovery could not begin until after an environmental impact statement was prepared and a development plan approved.

It said if it needs an onshore plant to treat natural gas, it would not build it on North Carolina's Outer Banks, "which would be an inappropriate place for such a facility."

Dare County, N.C., in June 1989 changed its land use plan to ban construction of onshore facilities to support offshore exploration. But Mobil had planned to use Morehead City in Carteret County to the south as a base.

Mobil said, "In the highly unlikely event of an oil discovery, no refinery will be built in North Carolina. All onshore facilities will be located where they intrude as little as possible on the interests of others."

While the wildcat is being drilled, Mobil will have an oil spill response vessel standing by the drillship. The boat could pick up 2,700 bbl, and another vessel could be summoned from Morehead City to pick up 6,000 bbl/12 hr.

MMS has agreed for the first time to have an inspector aboard the drillship 24 hr/day for the duration of the drilling. MMS also will completely inspect the drillship before the well is spudded.

Mobil says it needs no new technology to drill the hole. Industry has drilled 107 holes in deeper waters and in similarly intense currents as those off North Carolina.

Responding to complaints of fishermen who said the drillship will be only 2 1/2 miles from The Point, a rich offshore fishing area, Mobil conducted studies that found drilling would affect fishing only within 300 ft of the wellsite.

Mobil has participated in meetings of the governor's working group, held public hearings, met with local fisherman, funded television call in programs, and taken public officials and environmentalists on tours of its Gulf of Mexico operations.

STATE OPPOSITION

However, the state's cooperation in the process-uneasy at best since the Exxon Valdez oil spill-ended after President Bush ordered a halt to offshore exploration in other regions.

Bush deferred leasing off New England, Florida, California, Washington, and Oregon due to complaints from environmentalists and state officials (OGJ, July 2, 1990, p. 26).

But state officials were angered that Bush declined to block drilling on leases off North Carolina, although the situation was different from the other regions where the issue was holding lease sales.

North Carolina Gov. James Martin repudiated the memorandum of understanding before the process was completed, pledging to "do all I can to prevent drilling."

Rep. Walter Jones (D-N.C.), who represents coastal North Carolina counties, began to strongly oppose drilling. He is chairman of the House merchant marine committee, which has jurisdiction over offshore leasing legislation.

Jones wrote Bush, complaining, "Offshore North Carolina and the surrounding waters are frontier areas that have never been subjected to the kind of environmental studies which-although now proven inadequate-have already taken place off California and Florida."

Jones later said, "Regrettably, in his offshore moratoria proposal, the president forgot about North Carolina. Well, I have not. Treating the citizens of our state fairly is long overdue."

Jones said many North Carolinians did not know of Mobil's plans to drill offshore because the closest public hearings on the issue were held 250 miles away.

"I've been fighting to make sure these people have the opportunity for full participation in future decisions, including complete and unbiased scientific information," Jones said.

Sen. Terry Sanford (D-N.C.) also has opposed drilling. He said, "Most North Carolinians do not want to take a 'not in my backyard' approach to petroleum exploration. But they are insisting, as they should, that we not roll out the red carpet for a significant new activity until we are sure what it means for the Outer Banks."

Martin also wrote Bush, urging him to delay drilling off the state for 10 years and offering to take him marlin and mackerel fishing so Bush could "get a strong grasp of the situation."

ENVIRONMENTAL REVIEW

When Congress passed the 1990 Oil Pollution Act last summer, legislation that focused on preventing offshore oil spills, Jones used his powers over the merchant marine committee to include a chapter on the Manteo prospect.

The Bush administration lobbied to remove Jones' amendment from the bill, but the House of Representatives voted 281-82 to retain it.

The bill's report said, "The state has consistently maintained that oil spill trajectory models are inadequate due to insufficient understanding of ocean currents off Cape Hatteras.

"While Mobil expects exploration offshore to yield a natural gas discovery, they have indicated a possibility that oil may be discovered ' and the state insists that this potential requires adequate preparation for oil spill contingency and response.

"The area off North Carolina is extremely important to the recreational and commercial fishing industries and to the tourism industry of the state. The physical oceanographic characteristics of the area off North Carolina between Cape Hatteras and the mouth of Chesapeake Bay are not well understood. More information needs to be gathered on the ecological relationships of the fisheries resources in the area."

The amendment banned Interior from conducting a lease sale or approving an exploration plan until after a special environmental sciences review panel determines if oceanographic, ecological, and socioeconomic data are adequate to support leasing.

The review panel is due to meet Aug. 5-6 at Woods Hole Oceanographic Institute, Woods Hole, Mass., to discuss the conclusions and recommendations of its draft report. It then will meet Aug. 27-28 at Nags Head, N.C., to review revised conclusions and recommendations.

The panel will report to the secretary of Interior, who then must tell Congress whether existing environmental data are adequate.

The panel consists of five members, including two marine scientists, one chosen by the Interior secretary and one by the North Carolina governor. The Interior secretary and the governor jointly appointed scientists in oceanography, ecology, and social science.

After passage, Jones said he took "special pride" in the amendment. "We've made the coastline of North Carolina appreciably safer-at least for a time-from the threat of willy-nilly offshore oil and gas development."

CONSISTENCY APPEAL

Last year, North Carolina ruled that Mobil's request for a national pollution discharge elimination system permit and its exploration plan were inconsistent with the state's coastal zone management plan.

In both cases, the state said, Mobil failed to provide adequate, site specific information and scientifically acceptable analysis for determining the effects of drilling.

The state said baseline environmental studies should be conducted for about a decade before drilling should be allowed.

Last December, Mobil appealed to the Commerce Department, which has the authority to override the state's ruling on grounds that the proposed offshore activity is either consistent with the objectives of the Coastal Zone Management Act or is necessary in the interest of national security. Commerce is not expected to rule before early 1992.

Mobil said, "Not only did an unprecedented gathering process precede this project planning effort, but indeed, the exploration plan ... is the most comprehensive plan ever prepared for oil and gas drilling."

It said the state never told it of any deficiencies.

And Mobil said when Chevron filed an exploration plan to drill a wildcat on nearby Block 510 in 1982-83, the state found the plan consistent with its coastal management program.

Mobil noted its drilling plan is more extensive, has more environmental safeguards, and calls for a test farther from shore.

It said, "The governor's announced opposition assures that no additional 'studies' will change the state's contrary position."

FUTURE MID-ATLANTIC SALES

Controversy over the proposed Manteo well has cast a pall over future mid-Atlantic leasing.

MMS has scheduled combined mid- and South Atlantic sales in 1994 and 1997 under the proposed 5 year leasing program (OGJ, Mar. 4, p. 16).

It would offer unusually limited sales. It would consider only 1,000 blocks for leasing in the entire mid- and South Atlantic region, then narrow the sale offering to just 250 blocks.

MMS said, "These areas have a good possibility of containing significant quantities of natural gas."

In comments on the 5 year leasing plan, R.E. Galvin, Chevron senior vice-president for exploration, said, "The more significant prospects that would be available for lease in the mid- and South Atlantic are those on trend with our Manteo prospect.

"We anticipate we would not support or participate in the proposed sales while we and other industry members are prevented from conducting drilling operations on existing leases.

"We cannot commit the manpower for geological reviews in preparation for participation in a lease sale or the funds to acquire leases until the proposed Manteo well is approved for drilling."

HYDRATES QUESTION

Last month a University of North Carolina geologist injected a new element into the North Carolina controversy with a warning that gas hydrates could cause drilling problems for the Manteo well.

Gas hydrates are a mixture of methane gas and water formed at cold temperatures and great pressure.

Charles K. Paull, assistant professor of geology, said, "Because there is a potentially very large reservoir of gas out there, there could be drilling problems we cannot predict associated with gas hydrates, and there has not been enough intelligent study or discussion of the situation.

"Instead of worrying about what would happen if there is an accident, we ought to spend our time finding out what might cause an accident in the first place and prevent it."

Paull said drilling into zones containing gas hydrates could cause the compounds to decompose and weaken the sea floor, allowing submarine avalanches.

"in traditional drilling on land, you don't have much of a problem because of the toughness of the rock or other material around the hole," he said. "In this case, the hole could be mechanically tough when you drill into it and later break down so that gas starts blowing up outside the pipe."

THE FUTURE

At his farewell press conference, former MMS Director Barry Williamson was confident the Manteo well will be drilled in the next few years.

Williamson said, "That's another instance in which one or two powerful members of Congress have used their political advantage and stopped a multimillion dollar process that is an environmentally clean option: natural gas. We need natural gas for this nation, and North Carolina needs additional gas."

He added, "Note we're talking about drilling one test.

We've drilled more than 28,000 wells on the OCS. We have a good track record. This is one natural gas well in which the risks are absolutely minimal."

Williamson said eventually Mobil and its partners may have to sue in federal court to win the right to drill.

"They have invested $300 million, plus interest for 7-8 years, plus other costs. You're up to $800-900 million."

He said if Congress blocks drilling of the wildcat, it would face the very difficult task of finding the funds to reimburse Mobil and partners.

"There is no scientifically legitimate reason not to move forward," Williamson said. "We have an environmental study panel reviewing what we have done. That report will be done sometime late this summer or early this fall. The secretary will review it and make his recommendations. Then we get back to the process."

And Nicholas Bush, president of the Natural Gas Supply Association, noted at a North Carolina hearing that the state, which imports all of the 165 bcf/year of gas it consumes, is hurting its own economy.

Bush asked, "Why would North Carolina wish to deny itself the opportunity to obtain significant quantities of clean burning natural gas at highly competitive prices? The alternative is to relegate North Carolina consumers to higher priced energy from the Southwest or to increase the use of other fossil fuels.

"And for what reason? There is absolutely no evidence that the risks associated with an exploration gas well are not minimal and manageable."

Copyright 1991 Oil & Gas Journal. All Rights Reserved.