In April 2015, the Department of Interior’s Bureau of Safety and Environmental Enforcement (BSEE), proposed an array of new regulations to protect human health and the environment from oil spills. One of these proposals included more stringent design requirements and operational procedures for critical well control equipment for offshore wells. BSEE’s rationale for the proposed rule is to address many of the recommendations made after the Deepwater Horizon spill, close gaps in existing requirements, and update current regulations to reflect industry best practices on both new and existing offshore wells. Highlights of the proposed rule include the following new requirements:
- Incorporate the current industry standards that establish a minimum baseline for the design, manufacture, repair, and maintenance of blowout protectors (BOP).
- An annual review of the repair and maintenance records of BOP equipment by a BSEE approved third party and the complete breakdown and detailed physical inspection of BOPs at least every five years.
- Operators to use double shear rams for BOPs that would be subject to third party certification.
- Real time monitoring capability for deepwater and high temperature and/or high pressure drilling activities.
- Establishment of criteria for the testing of subsea well containment.
- Increased requirements for casing and cementing and the use of centralizers.
Industry has many concerns with BSEE’s proposal. In July 2015, the American Petroleum Institute, the International Association of Drilling Contractors, the Independent Petroleum Association of America, the Offshore Operators Committee, the National Ocean Industries Association, the Petroleum Equipment and Services Association and the U.S. Oil and Gas Association filed joint comments outlining areas where they believe the rule is unnecessary and counterproductive. For example, the comments note that that the proposal does not take improvements that have been made by industry, post Deepwater Horizon, into account. This includes the creation of the Center for Offshore Safety, which aims to ensure that the offshore oil and gas industry is using the safest and most environmental friendly technologies available to avoid new spills. They also questioned the need for prescriptive as opposed to performance based requirements in the proposal because prescriptive requirements would be more burdensome but not necessarily more effective. In addition, in many cases the proposed rule’s requirements go beyond international recognized standards. There are also real questions regarding how much the rule would cost the industry to implement.
According to BSEE, the cost would be approximately $833 million over 10 years. However, an industry sponsored cost assessment performed by Blade Energy Partners and Quest Offshore, finds that the cost of compliance could be as high as $32 billion over 10 years. Other findings of the Blade/Quest Analysis include:
- The number of wells being drilled would be reduced by 26% per year.
- A reduction of $4 billion per year in offshore energy investments in the Gulf of Mexico.
- A reduction of 500,000 barrels of oil (or 15%) by 2030 and 50,000 jobs by 2027.
- A 10 year reduction in gross domestic product of 27 billion and loss of $10 billion in government revenues.
In addition to concerns voiced by industry, in September 2015 House Natural Resources Committee Chairman Rob Bishop (R-UT) held a field hearing in New Orleans, Louisiana to discuss how this rule-making could have the unintended consequence of shutting down much of offshore energy production in the Gulf of Mexico. According to a legislative memo written to brief Energy and Minerals Subcommittee Committee members for the field hearing, this proposed rule, in its current form, has the potential to temporarily shut down 63% of the wells that have been drilled since the Deepwater Horizon incident, because they would not be in compliance with many of the provisions in the rule.
In his testimony, Joseph Mason, a professor with Louisiana State University and the author of a 2010 study, “The Economic Cost of a Moratorium on Offshore Oil and Gas Exploration to the Gulf Region,” said that the temporary moratorium and subsequent regulations put in place after the Deepwater Horizon disaster have had a negative impact on the Gulf’s economic development and that the new regulations being considered by BSEE would continue this trend. Joseph Leimkuhler, Vice President of LLOG Exploration Company, noted that BSEE is currently understaffed making it hard to get necessary permits for drilling in a timely manner and that more permitting would make this situation even worse and potentially make drilling in some areas unfeasible.
Now that comments have been submitted, BSEE is in the process of meeting with stakeholders to get more feedback for the final rule, which is likely to be released sometime in 2016.