Obama cancels lease sales; halts OCS activity in spill's wake

US President Barack Obama ordered a halt to new US offshore oil and gas activity on May 27 as his administration grapples with the Gulf of Mexico crude oil spill.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 27 -- US President Barack Obama ordered a halt to new US offshore oil and gas activity on May 27 as his administration grapples with the Gulf of Mexico crude oil spill. He extended a deepwater well drilling permit moratorium for 6 months, cancelled the next scheduled gulf lease sale and one scheduled off Virginia in 2011, suspended planned exploration off Alaska this summer, and suspended operations at 33 other gulf deepwater wells.

“I continue to believe that domestic oil production is an essential part of our energy strategy,” he said at a news conference. “I also believe it will be insufficient to meet our needs, and that we have to develop other technologies. But we won’t be able to transition to these new sources immediately. We’re going to have to rely on domestic oil production so we don’t rely so heavily on imports.

“Where I was wrong was when I believed the oil companies had their act together in terms of worst case scenarios,” Obama continued. “Oil drilling has been going on in the gulf, including in deep water, for some time and we haven’t seen accidents like this before. It only takes one to realize that claims that blowout preventers or other systems would work proved to be incorrect. I’m absolutely convinced that we have to do a thorough-going scrub of those safety procedures and records, and we have to have confidence that even if it’s just a one-in-a-million shot that we can shut something like this down in 3-4 days, and not 4-5 weeks.”

The 33 gulf wells where operations will be suspended were the ones inspected immediately after the blowout, US Interior Secretary Ken Salazar said in a media teleconference after Obama’s announcement. Those inspections found only minor problems on a couple of rigs, he indicated. “It’s my view that there are additional safety measures that can be taken, including dealing with cementing and casing of wells and significant enhancements and redundancies of blowout prevention mechanisms,” he said. “Although these rigs passed the inspections, we will look at standards that are in place.”

BOP inspections
Steps include inspecting and recertifying the rigs’ blowout preventers (BOPs), an action he recommended in the report he submitted to the president on May 27 after visiting two of the three domestic BOP manufacturers and receiving input from the National Academy of Engineering, Salazar said. “There are BOPs that are sitting on the rigs. Those obviously can be inspected immediately. The others will need to be pulled out of the water,” he said. “The recertification we will require will be by the manufacturer and an independent third party to verify the device’s operability.”

He said that the full causes of the Apr. 20 rig explosion won’t be known until the full investigation is completed. “From the preliminary investigation I have seen, there were problems with the cementing, the casing, or both,” he said. “Second, once the blowout was caused, other issues occurred on the drill rig itself, which is another angle of the investigation, involving whether the mechanisms were actuate and decisions made in the hours and perhaps days before it occurred.

“Third, the BOP, which was supposed to be the fallback, didn’t work,” said Salazar. “There are a whole host of questions about the mechanism itself, including why the remote operated vehicles which were supposed to be actuated could not be.”

Oil and gas industry groups were critical. American Petroleum Institute Pres. Jack N. Gerard said an extended moratorium on gulf production would hinder economic growth and job creation by undercutting US access to domestic oil and gas supplies. “Additional moves to curtail domestic production by postponing exploration and development off the coasts of Alaska and Virginia, as well as areas in the gulf, have the potential to significantly erode our energy and economic security,” he observed.

‘May be premature’
National Ocean Industries Association Pres. Randall B. Luthi noted that lease sales occur long before exploration and possible production, and that exploration plans are reviewed in the interval. “Canceling lease sales now without having the full benefit of what actually caused the accident in the gulf may be premature,” he said. “In addition, limiting opportunities for domestic production will lead to other countries filling our energy void, making American more dependent on foreign oil being transported by foreign tankers. US jobs and revenues for our state and federal governments will also be lost.”

Several members of Congress expressed concern, while others said they approved of Obama’s action. US Sen. Lisa Murkowski (R-Alas.), the Energy and Natural Resources Committee’s ranking minority member, said that she was particularly interested in the delay of Shell Offshore Inc.’s plans to begin exploring its Chukchi and Beaufort Sea leases for 1 year. “If the delay is for a season to ensure we have the highest levels of protection in place, that’s one thing,” she said on May 27. “But if it means that existing permits are allowed to lapse, effectively killing Shell’s participation in Alaska, that’s not acceptable to me or Alaska.”

Salazar said during the teleconference that he did not believe Shell Offshore had submitted its drilling permit application yet, and that the decision whether to grant it would be based on the findings of Obama’s independent commission.

US Rep. Doc Hastings (R-Wash.), the Natural Resources Committee’s ranking minority member, conceded that it’s appropriate to take interim steps to keep offshore drilling operations safe while the Apr. 20 rig accident and subsequent spill are fully investigated. “By taking long-term actions to shut down American energy resources so critical to job creations and our energy future, the president has an obligation to understand the impact of his decisions,” he said. “We need to fix what went wrong, but we also need to fix it in the right way.”

But another Natural Resources Committee member said she supports Obama’s decision to call for an extended timeout from new deepwater exploration until his independent commission has issued a final report and hew safeguards are in place. “It’s as plain as the nose on your face that the current system for regulating offshore oil activities is broken,” said Lois Capps (D-Calif.). “To prevent disasters like this from ever happening again, it is imperative that we take stock of where we are before moving forward with any new drilling activities.”

‘Highest priority’
At the briefing, Obama disputed allegations that he and his administration did not respond promptly and forcefully to the spill. “The day that the rig collapsed and fell to the bottom of the ocean, I had my team in the Oval Office,” he said. “This has been our highest priority. I am briefed every day and have had more meetings on this than anything else. This White House and administration has been singularly focused on stopping the leak and mitigating the damage to our coastlines.”

He called the spill an unprecedented disaster. “The fact that the source of the leak is one mile below the surface where no human being can go has made it difficult to stop,” he said. “We will use every resource to stop it. Every day I see this leak continue, I’m angry and frustrated. I realize the response effort will continue to be filtered through the prism of politics, but that’s not what I’m concerned about.”

Obama also insisted that the federal government has had charge of the spill response from the beginning. “It’s not true that we have sat on the sidelines for the past 3-4 weeks,” he said. “What is true is that when it comes to stopping the leak down below, the federal government does not have the technology that BP has. We do not have superior technology to deal with this particular crisis. One question is whether the government should have this technology. Should we make a consortium of oil companies pay for it? For now BP, along with other oil companies, have the best technology.”

There have been disagreements, the president noted. BP originally wanted to drill only one relief well, but is drilling two because the government insisted on it, he said. On this top-kill, there have been concerns that operating at such depths and such frigid temperatures could pose a problem,” he said. “I sent Energy Secretary [Steven] Chu with other experts down to make calculations about how much can be poured down how fast without risking making the whole thing blow.

“Here’s the broad point: There’s never been a point where any agency in this government hasn’t understood that this is our top priority, and that the government is in charge. The decisions we have made reflect the best science we’ve got and the best experts we have,” Obama maintained.

Considering offers
The spill response team is considering offers of help and proposals to protect beaches and is acting on them based on their timeliness and effectiveness, he emphasized. He said that when he met with Louisiana Gov. Bobby Jindahl two weeks ago to discuss the governor’s idea of constructing berms to protect the state’s coastline, the president said that the Army Corps of Engineers would evaluate the plan’s effectiveness. “From the Corps perspective, there are some areas it would work and others where it would be counterproductive. We’re working with him to come up with a solution that works,” he said.

Obama also noted that BP is working through several subcontractors as it processes damage claims, and that US Coast Guard Adm. Thad W. Allen, the incident commander, has the authority to redirect those resources if he determines that the subcontractors aren’t moving as nimbly as possible. “We’ve got the power to correct those decisions. We don’t necessarily have to reconfigure the system. But in each of those decisions, we have to get it right,” he said.

The president also said that the spill also remind Congress of the need to pass legislation to support development of renewable and alternative energy resources. “More than anything else, this economic and environmental tragedy underscores the need for this nation to develop new sources of energy,” he said. “We’ve talked about doing this for decade and have made significant strides in the last year. The House has passed a bill which would jump-start the process and there’s a proposal in the Senate.”

Carol M. Browner, the White House’s energy, environmental and global climate change policy coordinator who participated in the teleconference with Salazar, said that she hoped the US Senate would be ready to consider proposals when it returns from its Memorial Day recess. “I think every member understands we need to break our dependence on oil, and that we need to pass a law that assures large-scale investments in alternatives and compete in the global clean energy revolution,” she said. “We should be at the forefront of that, and we’re not. This is a reminder that we need to make some changes.”

Contact Nick Snow at nicks@pennwell.com.

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