April 2014
Port Fourchon

Outdated lease terms, production rule top GEST hit list

With Gulf of Mexico operators forced to jump through increasingly onerous regulations, just to get a permit to drill wells that likewise have become more complex and time-intensive, the current federal leasing model is totally out of sync with the new-world realities.

 

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“We have very high expectations for the Gulf,” said Lori LeBlanc, executive director of GEST.

 

With Gulf of Mexico operators forced to jump through increasingly onerous regulations, just to get a permit to drill wells that likewise have become more complex and time-intensive, the current federal leasing model is totally out of sync with the new-world realities.

So says the Thibodaux, La.-based Gulf Economic Survival Team (GEST), which is pushing regulators of the U.S. Department of the Interior (DOI) for “operations-based” lease term extensions to 270 days, from the current 180-day federal requirement. Lori LeBlanc, GEST executive director, said the tandem of more challenging offshore wells, and progressively more stringent regulations, means 180 days after the end of the primary lease term is insufficient time for most operators to move off one well, and begin inter-lease operations on another well.

Revising the lease terms for the more complex offshore wells is one of three key issues comprising the 2014 hit list of the four-year-old organization, which describes itself as a liaison between the industry, state and federal officials with a primary objective to “get some predictability and clarity in the regulations.” That objective is being put to the test this year, as GEST joins other industry groups in urging regulators to delay adoption of the proposed Production Safety Rule, until the industry has had sufficient time to examine and comment on the intricacies of what, it says, will require thousands of additional tests, having a tremendously burdensome impact on offshore operations. Included within the production safety rule, but being tackled as a separate issue, is a proposed change to the Best Available and Safest Technology (BAST) requirements.

Meanwhile, in a Jan. 28 letter to the DOI’s Bureau of Safety and Environment Enforcement (BSEE) Director Brian Salerno, LeBlanc pointed out that deep and ultra-deepwater operators, in particular, face a double whammy in meeting the 180-day lease term requirement. Complying with more, and tighter, regulations is extremely time-consuming, as is the planning for deepwater wells that are being constructed to target deeper, more foreign geological horizons.

Specifically, GEST is asking that the terms be extended for wells drilled in waters deeper than 1,000 ft, and to depths of 20,000 ft TVD or greater. LeBlanc, who this year is serving a dual role as director of the Offshore Committee of the Louisiana Mid Continent Oil and Gas Association (LMOGA), said Salerno has shown “a willingness to work with us” on the lease extension request, which, as of the end of January, remained under discussion.

LeBlanc said much of the GEST focus this year will center on the proposed Production Safety Rule, which she describes as a “huge rule with significant impacts” to the industry. In a Dec. 5 meeting with BSEE, she said GEST presented a list of issues with the proposal, including an Offshore Operators Committee (OCC) computation that showed the rule as written affecting 3,000 production facilities, 42,000 inspectable components, and 215,000 in-service functional and safety devices.

“When BSEE released the Production Safety Rule, we asked for an extension of the public comment period and our industry folks went through it and found things that were problematic with this (proposed) rule,” she said. “In the letter we submitted to Salerno on Nov. 22, we indicated why we needed an extension. They gave use somewhat of an extension, but not enough, we felt, for an adequate discussion.”

Lumped into the Production Safety Rule, but being treated by GEST and industry groups as a separate issue, is a proposed regulatory change to what is considered Best Available and Safest Technology (BAST). “BAST should never have been included under the production rule,” says LeBlanc.

At issue is the possible replacement of existing BAST requirements with revised options for assessing new compliant technologies. With the industry having already made Herculean investments in offshore safety technologies, the proposed changes are described as neither “warranted or justified.”

In a letter to BSEE’s Salerno on Oct. 16, the API, IADC, IPAA, NOIA and OCC jointly requested the proposed changes to the current BAST regulations be withdrawn “as soon as possible in order to maintain confidence and certainty in the offshore regulatory regulations.”

In the meantime, LeBlanc said the industry has more or less adjusted to the sluggish pace of the permitting process, described as “the new normal.”

For other issues, however, LeBlanc says that, considering the high stakes in the Gulf of Mexico, it behooves the regulators to listen closely to the industry’s concerns, especially with upwards of 85% of the remaining Outer Continental Shelf (OCS) closed to drilling. LeBlanc cited a recent Wood-Mackenzie report as evidence of the enormity of those stakes. The report estimated that the ultra-deepwater Lower Tertiary alone would generate some $50 billion in capital expenditures through 2020. wo-box_blue.gif

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