United States experience in the deepwater Gulf of Mexico
Presented by Carolita Kallaur, Associate Director, Minerals Management Service at the Institute of Petroleum's International Conference on Deepwater Exploration and Production in Association with OGP, February 22, 2001, London, UK
Over the last decade significant deepwater oil and natural gas discoveries transformed the Gulf of Mexico (GOM) from a declining oil and gas province to one of world class stature. During this period, both government and industry have had to grapple with a number of Health, Safety and Environmental (HSE) issues that have arisen as more is learned about the deep waters of the GOM. This has been a learning experience for both parties. It is important that we benefit from this experience as we and others move forward with tapping the oil and gas riches of the deepwater, both in the United States (U.S.) and around the globe.
outer continental shelf (OCS) blocks to be offered for lease to more open access, or what the U.S. calls area-wide leasing, set the stage for innovative companies to begin to test the new deepwater frontier. Having broad access also promotes economies of scale because an expanding infrastructure over time lowers the size of what constitutes an economic field by allowing smaller, otherwise marginal fields, to be produced in conjunction with existing development.HSE issues cannot be separated from the economic/regulatory context in which oil and gas are developed. The goal should always be to accomplish HSE objectives in the most efficient and cost effective manner possible. One lesson that has been learned from the U.S. experience is that wherever possible, it is beneficial to provide industry as broad an access as possible to promote a diversity of exploration strategies and technological development. The move in the early 80's away from targeting specific groups of
An HSE lesson learned from our early experience with GOM deepwater development is that there is tremendous value from collaboration between government, industry and the scientific community in the area of research and operational requirements. This is particularly true if it is found that the operating environment is totally different from what one is used to, and it is critical to be able to "think out of the box." Having parties work together helps ensure that there is buy-in at the end of the process and that the most efficient and effective solutions are adopted. For this approach to continue to be successful, industry needs to find the means and commitment to organize itself so that the government is not left to deal with many individual companies on major cross cutting issues. This ensures that any industry views represented are collective views rather than those of one company and that any financial burden for research or environmental analyses is equitably shared among the participants. The DeepStar Consortium in the U.S has been very effective in performing this role and it is hoped that there will be willingness on the part of industry to form similar groups in the future. To forge a consensus on technical issues, it is critical that individual companies continue to be willing to allow their technical staffs to participate on standard-setting bodies and research committees. The mega-mergers, together with the ongoing investor concern about corporate profitability, have the effect of making this more difficult as companies take a close look at the economic value of industry cooperative efforts.
The last point is that we cannot and should not look only within our own borders. There is tremendous benefit from collaboration between governments and between industry and governments working together on a global scale. Half of the remaining oil and gas resources are located offshore, and the demand for energy continues to grow. While each country may have unique societal demands that must be addressed, we also share many common technical and environmental challenges as we continue to explore the deep water. By working together we can find ways to lower costs while at the same time enhancing HSE performance. The DeepSpill experiment off the coast of Norway, the efforts of the International Regulators Forum and the ongoing work on international standards are excellent examples of global cooperation. We must recognize that if a serious accident were to occur any place in the world, public confidence in the ability of industry to operate safely would be undermined. We all should have an interest in finding ways to enhance HSE performance on a global basis to ensure that the hydrocarbon resources of the oceans can be tapped safely for the benefit of mankind.
Introduction of Area-wide Leasing
Up until the early 80's, the U.S. Government controlled the size of offshore lease offerings through a tract selection process, which was designed to offer for lease by competitive bidding a limited number of blocks determined to have the greatest interest from a broad spectrum of industry. Growing concern over increased reliance on foreign oil prompted a review of domestic policies with an eye to increasing domestic production. In 1983, a change was made to allow companies to bid on virtually all acreage in the Central and Western GOM. This change in policy provided the basis for companies to begin to acquire blocks for their lease inventory at greater and greater water depths, providing an incentive for technological development and testing of this new frontier.
Blocks at these water depths were granted 10-year primary terms. The primary-term is the length of time a company has to complete exploration and begin production. While a number of deepwater blocks were acquired in lease sales, initial exploratory activity proceeded at a slow pace. The 1986 worldwide oil price bust had a devastating effect on the U.S. oil and gas industry; many jobs were lost and there was a severe curtailment of economic activity. Although a gradual recovery in energy prices did provide some incentive to restart domestic activity, a tremendous amount of investment capital went overseas. The exodus of capital combined with declining reserve projections led many to view the GOM as the "Dead Sea."
Initial Discoveries - Need for Economic Incentive
Despite the overall pessimism in the potential of the GOM, some individual companies continued to expand their deepwater portfolios and invest in the development of technology. Shell Oil was rewarded by the discovery of the Auger field in 1987, with reserves of approximately 220 million barrels of oil equivalent. The discovery of the Auger field and other promising finds gave rise to the view that the deepwater GOM had unrealized potential. What was striking was not only the size of the fields, but also the high flow rates of individual wells. For example, an average shallow-water oil well flows at just over 100 barrels of oil per day, whereas oil wells at the deepwater Ursa field each produce about 30,000 barrels of oil per day. Similarly, typical shallow-water gas wells flow less than 2 million cubic feet of gas per day, whereas a single well at the deepwater Mensa field produces about 100 million cubic feet of gas per day.
While there was a growing appreciation of the potential of the deepwater regime, the U.S. was still competing for capital on a global basis. Economic incentives were needed to spur the development of technology and allow for the expansion of needed infrastructure into deeper water, which would over time, lower costs and reduce the minimum economic field size. Finally in November 1995, after close to four years of debate, the U.S. Congress enacted the Deep Water Royalty Relief Act (DWRRA) providing a royalty holiday for a portion of new production from deepwater operations.
There was a tremendous response to the incentives provided by DWRRA in terms of record rates of deepwater leasing in 1996 and 1997. Only 17 percent of leases issued in 1994 were in deep water and only 39 percent in 1995. After the DWRRA was enacted however, 59 percent of leases issued in 1996 were in deep water and 70 percent were in deep water in 1997. Companies also continued to both explore and develop the leases acquired in the 80’s. The Minerals Management Service (MMS) recognized it had a number of management challenges to address in terms of being able to manage the record rates of leasing, and more importantly the oversight of exploration and development using evolving technologies at greater and greater water depths.
Development of Deepwater Strategy
The MMS realized it could not manage these rapidly evolving challenges on its own and looked to the scientific community and industry for help. It also began to reach out on a global basis as deepwater operations began to expand around the world. An immediate challenge was to gain a better understanding of the deepwater environment and the particular technological and regulatory issues that arise from operating at these depths.
OCS Advisory Board's Scientific Committee assisted MMS in identifying and prioritizing its deepwater information needs. The following topics were identified as critical environmental issues:While MMS had sponsored research since the mid-80's of the deep sea in general and chemosynthetic communities and marine mammals in particular, there clearly was a myriad of issues not yet addressed. Recognizing the magnitude of this task, MMS and Louisiana State University hosted a workshop on Environmental Issues Surrounding Deepwater Oil and Gas Development in the spring of 1997. Concurrently, the Deepwater Subcommittee of the
- Socioeconomic effects of deepwater activity on ports and coastal support facilities
- Storage, handling and discharge of chemicals and drilling muds
- Location and avoidance of deepwater benthic communities
- Potential of gas hydrates to cause problems in operations
- Characterization of fates and effects of deepwater blowouts or pipeline leaks.
A research strategy was developed to address these issues, with an ongoing commitment to continue to work with all stakeholders as the research program evolved. It was recognized early on that new issues would emerge and that collaborative efforts with industry and other governments would be necessary because MMS on its own could not fund the necessary research and would benefit from the views and input of others.
On a parallel basis, MMS recognized that there were technological issues that had to be addressed and a need for a different regulatory framework for the deep water than what existed for the shelf. Industry invited MMS to participate in DeepStar, an industry consortium formed to address the unique technological challenges posed by deepwater operations. DeepStar's willingness to involve MMS allowed both sides to address issues and concerns in a timely manner. This cooperation has allowed operations to move forward without undue delays while meeting MMS's safety and environmental protection mandates. It also provided a mechanism for research costs to be shared by industry participants in a fair manner without government involvement.
On the research front, MMS worked cooperatively with DeepStar to address a number of technical issues. These issues included subsea and subsurface safety device testing requirements, flow assurance (i.e., paraffin and hydrate control), well suspensions, risk studies, and subsea production tree designs to name just a few. DeepStar also has served as the industry point of contact for ongoing efforts to consider the use of Floating Production Storage and Offloading (FPSO) systems in the GOM.
On the regulatory front, DeepStar and MMS worked together to develop the Deepwater Operations Plan (DWOP) process to address the technical challenges associated with deepwater developments, particularly the use of subsea production equipment. The DWOP process is designed to address industry and MMS concerns by allowing operators to know, well in advance of significant expenditure of funds, whether the methods they propose to deal with in unique situations and not captured in MMS regulations are acceptable to MMS.
deepwater systems provide at least an equivalent level of safety and protection as existing systems.Deepwater activities represent a new set of challenges from a regulatory perspective, particularly when there is an inability to directly interact with the production equipment, as is the case with subsea development. We have worked diligently to understand and keep pace with technological developments, and have engaged industry in a dialogue designed to provide information to MMS demonstrating that any new
Rather than develop new regulations that would be out of date before they are implemented, MMS has chosen to work within the existing regulatory framework by developing some enhancements and flexibility to allow differences in deepwater operations to be fully addressed. The MMS demonstrated a willingness to discuss alternatives with industry, and an improved sharing of information has developed as a result of discussions between agency staff and operators. At the same time MMS holds the line when we believe a company's interest in fast tracking a project has the potential to jeopardize performance.
The MMS reviews deepwater development activities from a total system perspective, emphasizing operational safety, environmental protection, and conservation of natural resources. The DWOP process is a phased approach that parallels the operator's state of knowledge about how the field will be developed. One important aspect of the DWOP process is an early dialogue about the development strategy, equipment, and, where approvals are necessary, procedures that deviate from existing regulations.
The MMS has also joined forces with the Offshore Operators Committee (OOC) to address issues such as deepwater conservation information submittals, well naming and numbering conventions, and production within 500 feet of a lease line. The OOC is an industry cooperative formed to address operational issues in the GOM. The MMS has worked together with the International Association of Drilling Contractors (IADC) and OOC on well control guidelines for deepwater drilling and has an ongoing effort with the American Petroleum Institute (API) on standards and recommended practices for deepwater operations. This work has expanded into the global arena to include participation on technical committees of the International Organization for Standardization (ISO). The work with ISO is in recognition of the increasingly global nature of offshore operations and the belief that where it makes sense, a global standard is better than a domestic standard for all concerned.
The MMS has also benefited from its participation in the International Regulators Forum. In 1994, a small group of government regulators decided to set up an informal forum that would allow the sharing of information on safety related issues. The charter members were the U.S., the United Kingdom, Norway, Canada and Australia. The membership has since grown to include the Netherlands, New Zealand, and Brazil. We hold annual meetings, but the most important work occurs throughout the year. On a regular basis we share information about safety incidents, and alternative regulatory approaches, and we pursue issues such as whether there are standards each of our governments could adopt. In working together, we recognize that each of our governments has unique societal needs, yet we all share an interest in finding ways to enhance HSE performance in an efficient and cost-effective manner.
Advance into Deeper and Deeper Water—Continuation of Cooperative Approach to Problem Solving
Cooperation across the board allowed activity to proceed without unnecessary regulatory delay. Companies were successful in furthering the development of technology, and fortunately for all concerned, discovering significant hydrocarbon finds. The discoveries to date have principally been from leases issued prior to the passage of the DWRRA, which supports the conventional wisdom that the best fields are leased first. There have been over 100 deepwater discoveries to date in the GOM. During the past few years, operators have consistently added about 10 new deepwater discoveries per year plus brought about 10 new deepwater fields online per year.
Discoveries have primarily been concentrated in water depths less than 5,000 feet. There have been a few discoveries announced in the 7,000-foot water depth range, and several of those are projected to enter into the development phase within the next 2 to 3 years. We continue to see deepwater development relying upon the existing infrastructure as well as beginning to take place in the more remote areas of the GOM. Another notable fact is the large number of diverse operators drilling and proposing development of discoveries in deep water – it is not just a play for a few of the majors--at least 40 operators have drilled deepwater wells. Records also continue to be set. For example, Elf has proposed the Aconcagua development in more than 7,000 feet of water.
On deepwater leases that eventually produce, there has been an average 4-year delay between leasing and first drilling and another 6-year delay between discovery and first production (development cycle time). The development and application of technology for deepwater have enabled recent discoveries to enter into production, and in recent cases have significantly compressed the development cycle time. At the same time, these technologies have raised new issues to be addressed by both industry and government. From a technical perspective, one of the fundamental issues is the placement of production equipment on the seafloor, requiring both MMS and the GOM offshore industry to reassess design and operability of production equipment. Other issues include the fate and effects of synthetic based drilling fluids, the need for riserless drilling, the environmental effects of new seismic exploration techniques, the spatial effects of a deepwater spill, and the possible need for use of FPSO's in the GOM.
The MMS responded to these technological and environmental issues in a fashion similar to the way it had in the advent of deepwater activity by working with other governments, its scientific advisors and industry associations to find a way to address these issues. We led an international effort with Norway and 23 oil and gas companies to learn more about the behavior of oil/gas spills at great depths. A successful field experiment, known as "DeepSpill", was held in June 2000 off the coast of Norway, in which a deep spill (800 m) was observed and characterized. This information will be most useful in calibrating and validating deep spill models presently under development that will be used in spill contingency planning and response. Concerning disposal of synthetic based muds, MMS is currently participating in a jointly funded study, with industry and the U.S. Department of Energy, to evaluate the effects on the seabed from the discharge of cuttings from drilling with synthetic based drilling fluids in the GOM. The U.S. Environmental Protection Agency in their general discharge permits will use the information gathered.
The MMS has contracted with Continental Shelf Associates to prepare an Environmental Assessment (EA) for the GOM of all geological and geophysical (G&G) exploratory activities conducted by the offshore oil and gas industry and permitted through MMS. With certain specified exceptions, all G&G activities have been considered categorical exclusions (CE) under National Environmental Policy Act (NEPA). A CE allows an activity to proceed without further environmental review. In view of new technology, seismic operations in particular and increased activities in deepwater environments, the ongoing EA represents a re-evaluation of these activities to affirm CE status. If the ongoing analysis concludes any specific G&G activity to be significant or require additional mitigation measures to avoid significant impact, MMS will initiate appropriate actions to ensure compliance under NEPA.
To address the use of FPSO’s in the GOM, MMS has engaged industry, class societies, and other regulatory agencies worldwide for the past 4 years. Included in this effort were numerous meetings with FPSO experts and the preparation of a programmatic environmental impact statement (EIS) to examine the potential effects of the use of FPSO systems in the deepwater areas (> 200 m) in the Western and Central Planning Areas of the GOM. The EIS considers a generic FPSO system and operations, as well as a range of technical variations. Our study of FPSO’s has focused on developing a better understanding of environmental issues, risk and risk management, the adequacy of current regulatory requirements, and technical issues.
In addition to the EIS, other MMS efforts to study FPSO’s include a Comparative Risk Analysis; the identification of gaps in existing MMS regulations and standards relevant to FPSOs operating in the GOM; and an ongoing education of MMS technical personnel about FPSO design and operation. As was the case earlier, the DeepStar consortium has played an important role in coordinating industry efforts on hardware design, testing and technical reviews, including arranging for funding of the EIS. The OOC has served as a focal point for identifying and resolving regulatory issues with both MMS and the U.S. Coast Guard; the API has taken responsibility for developing industry specifications, recommended practices and guidelines; and the IADC has addressed drilling issues. These cooperative efforts have set the stage for an orderly decision process and for the formulation of necessary standards and guidelines.
As has been the experience to date, we recognize that new issues will continue to emerge that need to be addressed in both the environmental and technological arenas. Decisions will need to be made on the use of FPSO's in the GOM as well as the delineation of responsibility between MMS and the U.S. Coast Guard. A transportation infrastructure needs to be put in place that recognizes the technological capability of industry and the need to conserve resources. To date, the deep water has been principally an oil province with associated natural gas. Our domestic need for natural gas as an environmentally preferable fuel cannot be overlooked in regulatory decisions. Options to promote increased natural gas recovery such as on-site compression and gas-to-liquids technology will need to be pursued.
The remoteness of deepwater development has brought about consideration of several non-routine issues. The MMS has had discussions with various companies leading efforts to investigate offshore support facilities for equipment and consumables, temporary housing of personnel, emergency landing facilities for aircraft, field hospitals, offloading terminals, central gathering facilities, shuttle tanker transport of produced hydrocarbons, waste management, and mariculture initiatives. With each new proposal, environmental and technological challenges emerge. The role MMS will play in these nonroutine initiatives designed to support deepwater development in the GOM will evolve as individual projects become more certain.
Also, given the unknown aspects of what awaits discovery in ever-deeper waters, we must be environmentally vigilant. The recent discoveries of chemosynthetic communities, deepwater furrows on the seabed, and “iceworms” living on methane hydrates may be just a preview of what is to come. It is incumbent on us to use emerging technology being developed, such as remotely operated vehicles and ever-improving sensors, to further our understanding of these deep resources. A challenge for our future is to be ready and able to assess, protect, and possibly use these resources in a sustainable manner.