The Well Control Rule: Safer or Just More Costly?
The U.S. House Committee on Natural Resources has been told that the Obama administration’s new well control regulations will result in a virtual moratorium on Gulf of Mexico offshore energy development and that they undermine safety rather than enhance it.
The House Committee on Natural Resources held an oversight hearing in New Orleans on the current state of offshore oil and gas activity in the Gulf of Mexico this week where the panel received testimony from Senator Bill Cassidy (R-LA), industry representatives and the U.S. Department of the Interior’s (DOI) Bureau of Safety and Environmental Enforcement (BSEE).
The hearing focused on the impact of federal policies on energy development in the Gulf, including the DOI’s proposed well control rule, and what actions can be taken to promote the responsible development of outer continental shelf (OCS) resources.
BSEE says the proposed rule is designed to improve equipment reliability, building upon enhanced industry standards for blowout preventers. The rule also includes reforms in well design, well control, casing, cementing, real-time well monitoring and subsea containment. It is the result of recommendations from various investigations into the Deepwater Horizon tragedy where the blowout preventer (BOP) buckled around the time a surge of natural gas from the well ignited, causing an explosion which killed 11 crew members. The blowout preventer punctured a pipe that led to about five million barrels of oil being released before the well was closed off 87 days later.
However, the rule has met with opposition. "Federal regulations such as the proposed well-control threaten another moratorium by shutting down the majority of the Gulf rig fleet,” said Committee on Natural Resources Chairman Rob Bishop (R-UT). “Some provisions of this rule could actually undermine safety, rather than enhance it."
Cassidy highlighted a lack of development in the Gulf of Mexico and told the committee that under the Obama administration, less than two percent of the 1.71 billion federal OCS acreage is under lease. Over 63 million acres in the Gulf of Mexico remains locked up.
“If the Draft Proposed Plan for offshore production is finalized in 2016, the Obama Administration will have effectively controlled a decade of offshore oil and gas lease planning. The draft five-year plan for 2017-2022 lists 14 lease sales - the lowest number of lease sales in the 42 year history of the planning process,” says Cassidy. “Now, the Obama administration is proposing complex rules that will increase the cost of development and erode away the economic viability of well production, which, combined with depressed oil prices, will further hamper future production in the Gulf of Mexico.”
He says drilling in the Gulf of Mexico may shut down for over 12 months until all requirements are met. The well control rule could drive up the cost per well by $10-$30 million. Industry studies estimate that the 10-year cumulative cost of the rule to be approximately $32 billion.
Drillers Objections
In July, the International Association of Drilling Contractors (IADC), along with seven other oil and gas industry trade associations, submitted a joint letter to BSEE identifying three major areas of concern with the proposed rule. These included its prescriptive requirements that go beyond international standards and will negatively affect the U.S. market for drilling units; the significant costs to drilling contractors to comply with the rule, which were not accounted for in BSEE’s impact analysis, and the inspection and more massive BOP equipment requirements, which will negatively impact operations.
Reform
On first announcing the new rule in April, BSEE stated that it was another step in the most ambitious reform agenda in the department’s history to strengthen, update and modernize offshore energy regulations. “Interior has made sweeping reforms for safe and responsible development, overhauling federal oversight by restructuring to provide independent regulatory agencies that have clear missions and are better-resourced to carry out their work, while keeping pace with a rapidly evolving industry.
“In the wake of the Deepwater Horizon blowout, explosion, and oil spill, BSEE strengthened preparedness and planning regulations applicable to oil and gas companies operating offshore, and raised the bar through new requirements for well design, production systems, blowout prevention, and well control equipment.”
There are more floating deepwater drilling rigs working in the Gulf of Mexico today than prior to the Deepwater Horizon spill, and drilling activity is expected to steadily increase over the coming year, said the BSEE statement.
According to BSEE, the rule will, amongst other things:
• Incorporate the latest industry standards that establish minimum baseline requirements for the design, manufacture, repair, and maintenance of blowout preventers
• Require more controls over the maintenance and repair of BOPs.
• Require the use of BOPs with double shear rams, which is now a baseline industry standard (API Standard 53).
• Require more rigorous third party certification of the shearing capability of BOPs.
• Require real-time monitoring capability for deepwater and high-temperature/high pressure drilling activities.
More information on the rule can be found here.