Approval of Noble Energy'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), members of the Senate Committee on Energy and Natural Resources told Interior Secretary Ken Salazar Wednesday.

"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," said ranking Republican member Lisa Murkowski (R-AK).

The Obama administration imposed a moratorium on overall drilling in the Gulf of Mexico last May following the explosion and fire aboard the Deepwater Horizon mobile rig and resulting oil spill in the previous month (see Daily GPI, April 22, 2010). The moratorium was lifted in October (see Daily GPI, Oct. 13, 2010).

On Monday BOEM approved the first deepwater drilling permit since the Deepwater Horizon explosion (see Daily GPI, March 2; March 1). 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.

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.

"I expect [the Noble permit] will become a template," Salazar said. "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 last week 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 Daily GPI, Feb. 17).

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 Michael Bromwich, director of Interior's Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM), met last week 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 Wednesday. "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 (see Daily GPI, Feb. 18a). 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 Daily GPI, Feb. 18b).

"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," Department of Interior Deputy Secretary David Hayes said 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 a House subcommittee earlier this 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 BLM 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..

"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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