American Oil and Gas Reporter - April 2016 - 120

tic's Beaufort, Chukchi and Cook Inlet
programs, which the association warns
"may be a possible precursor to removing
these areas in the final program."
DOI acknowledges that possibility.

"BOEM identified environmentally and
culturally important areas where there is
potential conflict between oil and gas
activity, ecologically important habitats,
and subsistence, cultural, and economic

resources," it says. "Some of these EIAs
may warrant additional consideration or
protection for environmental or subsistence
reasons at either the final program or
lease sale stage."
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BSEE BOP Rules Draw More Criticism
WASHINGTON-Regulations mandating
new engineering standards and third-party
verification of designs for blowout preventers
would cost $11 billion a year in industry investment and discourage Gulf of Mexico
production, a study from Wood Mackenzie
warns. Several industry groups have expressed
renewed opposition to the proposed changes.
The Bureau of Safety and Environmental
Enforcement sent its final draft regulations
for BOP systems and well control to the
Office of Management and Budget for review in early February, following the end
of the public comment period. Oil and
gas trade groups criticized the draft proposals after they were published in the
April 17 edition of the Federal Register
(AOGR, September 2015, pg. 49).
According to Wood Mackenzie, the
well control rule will reduce both offshore
development and production because of
higher costs and the technical constraints
of implementing the changes. Its analysis
of the proposed impacts, assuming an
$80 a barrel reference price, includes:
* Exploration drilling in the Gulf will
decrease by 35-55 percent, or as many as
10 wells a year.
* Government taxes will fall by as
much as $70.0 billion (20 percent) through
2030.
* Lease sale bonuses will drop by
$3.5 billion (more than 40 percent) through
2025.
* Cumulative U.S. gross domestic
product will decline by as much as $390.0
billion through 2030.
Gulf of Mexico production could decline
by as much as 1.0 million barrels of oil
equivalent a day by 2030, or a drop of 35
percent, Wood Mackenzie says, with as
many as 190,000 offshore jobs at risk. Because the prospect inventory on held leases
likely will be condensed and fewer leases
will be acquired in bid rounds, the study
warns that the production gap will continue
to widen, and could be irreversible after
2030, further limiting jobs, GDP and taxes.
Proposed Revisions
Among the changes sought by BSEE
is mandating BOPs with double shear
rams. The revised rules also require the
shear rams be designed to include technology that allows drill pipes to be centered

during shearing operations. One of the
reasons for the 2010 Macondo spill is
thought to be the drill pipe was not centered, the agency notes.
Operators would be required to have a
BSEE-approved third party annually review
their repair and maintenance records of
BOP systems. The regulations also mandate
BOPs be maintained as specified by original
equipment manufacturer requirements,
good engineering practices, and industry
standards. The revisions also mandate more
rigorous third-party certification of BOPs'
shearing capacity, and specify testing criteria
to be used in the certification process.
BSEE also seeks to include new requirements for real-time monitoring by
onshore personnel of the BOP system,
the rig's fluid-handling system, and downhole conditions. The agency says onshore
personnel can assist rig crews in identifying
and evaluating abnormalities or unusual
conditions. The revised regulations also
state BSEE will be provided access to
the real-time monitoring facility, and operators will be required to retain data at
the facility and make it accessible to
BSEE on request.
BSEE adds it is considering expanding
the requirements of real-time monitoring
facilities to operations other than those using
subsea BOPs or any BOP operating in a
high pressure/high-temperature environment,
including shallow-water shelf operations.
One-Size-Fits-All Approach
Lori LeBlanc, executive director of the
Gulf Economic Survival Team, worries
the proposed rule will force operators out
of the Gulf, devastating communities already
hurt by the energy industry's downturn.
The group was established by Louisiana
Governor Bobby Jindal in 2010 in response
to the drilling moratoria that followed the
Deepwater Horizon accident.
"We share BSEE's intent to develop a
rule that enhances safety and environmental
protection. However, several provisions in
the rule are not consistent with this goal,"
she says. "Some provisions inadvertently
increase risk to the safety of workers because
of the one-size-fits-all prescriptive approach,
as well as the exceedingly high costs involved
in implementing it as written today."
BSEE's proposed rule changes pose a

120 THE AMERICAN OIL & GAS REPORTER

unique threat to the nation's independent
operators, who hold 81 percent of producing leases in the Gulf of Mexico and
produce 30 percent of U.S. offshore oil
and gas, Barry Russell, president of the
Independent Petroleum Association of
America, writes in a newspaper op-ed.
The revised regulations contain restrictive and obstructive safety requirements that limit room for performancebased standards and fit-for-purpose designs
that allow producers to adapt to the unique
operational needs of each well location,
Russell says. While BSEE's proposals
intend to provide standard best practice
technologies, instead he predicts they
will limit the ability of operators to adjust
and enhance their safety procedures.
"Each offshore well takes millions of
dollars in investment, planning, regulatory
approvals and oversight," Russell says.
"Without the appropriate regulatory structure in place, companies not only will be
unable to afford to produce the energy
we all rely on, but the safety and productivity of these operations will be at risk.
BSEE has yet to fully account for these
unintended consequences."
Russell says that safety is the top priority for the oil and gas industry, but
safety must be matched with appropriate
regulations that meet the needs of the environment, public and industry.
"The proposed well control rule fails to
provide the regulatory certainty that independent oil and natural gas operators need
to continue their work of developing affordable, American energy," Russell says.
"From fewer jobs supported by development,
to lower safety levels through overly uniform
requirements, this rule is the wrong choice
for a safer oil and natural gas industry."
While the changes to well control regulations purport to improve safety, overly
prescriptive rules may decrease safety
and increase risk, warns Randall Luthi,
president of the National Ocean Industries
Association.
"A federal regulation of this magnitude
must be crafted carefully to actually focus
on ways to allow companies to adopt its
requirements in a safe and practical manner, instead of an approach that seems to
be designed around a political objective
and deadline," Luthi says.
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American Oil and Gas Reporter - April 2016

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