Approval of Noble Energy Inc.’s plans to move forward with a bypass well in the Santiago prospect in Mississippi Canyon Block 519 was a good first step, but the Interior Department needs to grease the wheels of the permitting system for drilling operations in the Gulf of Mexico (GOM), Capitol Hill lawmakers said last week.

“The official moratorium on deepwater drilling was lifted over four months ago, yet the administration just…issued the first permit [for deepwater drilling]. The people in the Gulf need more than just one token permit. One permit will not put thousands of people back to work. We need to see real progress and the immediate issuance of additional permits,” said Rep. Doc Hastings, chairman of the House Natural Resources Committee, during a hearing before his committee last Thursday.

“Given the deeply troubling situations in Libya, Bahrain [and] Iraq, I think there is little if any patience for continued delay in bringing back our American energy production and the associated jobs,” echoed Sen. Lisa Murkowski of Alaska, the ranking member of the Senate Energy and Natural Resources Committee, during a separate hearing last Wednesday.

The Obama administration imposed a moratorium on overall drilling in the GOM last May following the explosion and fire aboard the Deepwater Horizon mobile rig and resulting oil spill in the previous month (see NGI, April 26, 2010). The moratorium was lifted in October (see NGI, Oct. 18, 2010).

Last Monday Interior’s Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) approved the first deepwater drilling permit since the Deepwater Horizon explosion. The permit allows Houston-based Noble to move forward with a bypass well about 70 miles southeast of Venice, LA. The producer is the operator of the well, which it was forced to plug as the result of the moratorium, and has a 23.25% working interest. BP plc, which leased the Deepwater Horizon rig, is reportedly the largest shareholder in the well. Noble said it expects to resume drilling by early April.

In early January BOEM notified 13 producers whose deepwater drilling activities were suspended by the deepwater drilling moratorium that they may be able to resume previously approved activities without the need to submit revised exploration and development plans for supplemental review under the National Environmental Policy Act. Noble Energy was among the 13 (see NGI, Jan. 10).

With the Noble permit, Interior essentially tossed the oil and gas industry a bone, according to the American Petroleum Institute (API). “It’s a very small step and more action needs to be taken,” said API President Jack Gerard.

Analysts for FBR Capital Markets called Interior’s approval of the Noble Energy deepwater drilling permit a “positive incremental step toward normalization of the regulatory environment” in the GOM, but they cautioned investors against chasing stocks with GOM exposure in the near term. “We continue to believe that the first permit marks the beginning of a long period of slow permitting similar to the slog that has been observed in the shallow water, where there is no moratorium,” wrote four FBR analysts in an “Energy & Natural Resources: Energy Policy” research report last Tuesday.

Looking to the future pace of permitting, “expect a trickle, not an avalanche,” said the analysts with Arlington, VA-based FBR. Currently there are seven applications for permits to drill in the deepwater pending at BOEM: two new wells, three revised plans for new wells, one sidetrack and one bypass, the analysts said.

API indicated that the holdup will be with the new deepwater drilling permits, which will require environmental assessments (EA). Currently there are an estimated 40 exploratory plans pending at BOEM, the API said. The oil and gas industry wants Interior to return to the pre-spill timeline of 30 days for reviewing an EA, said Erik Milito, director of API’s upstream and industry operations.

Noble Energy was the first to receive a deepwater permit because it had a waiver from an EA, he noted.

The FBR analysts agreed the approval process for new permits “could be significantly more arduous than the pathway for the ‘grandfathered’ permits [such as Noble’s] and offer significantly greater opportunity for litigation delays.”

However Interior Secretary Ken Salazar provided a rosier outlook. “I expect [the Noble permit] will become a template,” he told the Senate energy panel. “There are others that will be issued in the days ahead that will become a template for additional deepwater permits to be issued.”

Murkowski and eight other senators from both sides of the aisle recently introduced a resolution calling on Interior to streamline the review process for shallow and deepwater drilling applications and provide better guidance to producers seeking new permits (see NGI, Feb. 21).

Containment systems designed to contain a subsea blowout, including the system included in Noble’s plans, have yet to gain the full trust of regulators, according to Salazar.

Salazar and BOEM Director Michael Bromwich met at the end of February with executives of two companies — Helix Well Containment Group and Marine Well Containment Co. (MWCC) — that have been developing containment systems.

“There’s still a significant amount of work to be done with the MWCC system; the second chapter is going to take a year or two to be able to develop,” Salazar told members of the Senate committee. “With respect to the Helix system, the sealing cap itself was just tested in the last couple of weeks. We’ve been doing everything we can, knowing that it’s going to be a work in progress.”

After a new containment system was tested successfully in February, industry groups pressured the BOEM to reopen the Gulf. The pressure from the industry came during the same week that a federal district judge granted a preliminary injunction ordering the BOEM to act within 30 days on five pending permit applications to drill wells in the deepwater Gulf (see NGI, Feb. 21).

“We will comply with the court order and make the decisions up or down on the pending permits that were identified in the court order within the time frame required,” Interior Deputy Secretary David Hayes said last Wednesday. But Interior will appeal the case, according to Salazar.

“The judge in this particular case in my view is wrong, and we’ll argue the case, because I don’t believe that the court has the jurisdiction to basically tell the Department of Interior what my administrative responsibilities are,” Salazar said.

Interior may have missed out on billions of dollars of oil and gas royalties by not accurately tracking production, Government Accountability Office (GAO) officials told Congress last week. That testimony echoed a list of management challenges faced by Interior detailed in a recent GAO report.

“We have created an office of natural resource revenue which is focused exclusively on that issue of revenue collections,” Salazar said. In addition, he said he has directed Bureau of Land Management to perform “a study that looks at the central question — whether or not the American taxpayer is getting a fair return on the resource we’re allowing to be developed, and whether the collections are being done in the best way possible.” The study is expected to be completed by this fall (see related story).

“We’re trying to look at systemic change that will reduce our reliance on industry-supplied data,” Hayes said. “The royalty-in-kind program elimination is a good example of that. The other example that we are actively considering is to move away from the deduction for processing and transportation of oil in the royalty correction number.”

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