The Interior Department has fired back at a federal judge's mid-February order for the department's Bureau of Ocean Management, Regulation and Enforcement (BOEM) to act within 30 days on five pending permit applications to drill wells in the deepwater Gulf of Mexico (GOM). In a new filing Interior has asked for a stay of the judge's order.
In a filing before the U.S. District Court for the Eastern District of Louisiana, the Interior Department asked for a stay of Judge Martin L.C. Feldman's order for decisions on five permits by March 19, as well as another order made last week covering decisions on two more permits by March 31. The Interior noted that some of the permit requests were incomplete, and that a forced ruling could result in rejections. "Cobalt, Nexen and ATP applications subject to the court's orders have not yet satisfied these requirements, and, accordingly, they cannot be approved in their current state."
In Feldman's original ruling (see Daily GPI, Feb. 18), the judge noted that even after the Oct. 12 lifting of the Interior Department's second moratorium on deepwater Gulf drilling (see Daily GPI, Oct. 13, 2010) "permits for deepwater drilling activities have not been processed; little to no deepwater drilling has resumed."
According to the department's filing, focusing on the seven applications under the deadline would require resource allocation such that "operations that may have otherwise been able to proceed in the coming weeks will be delayed; all in the name of a making a final decision on the seven applications that both the operators and BOEM know are not yet ready for final review."
Commenting on the case, analysts at FBR Capital Markets noted that Interior cannot be forced to issue permits. "According to Interior, the deadline could force the agency to deny the permits outright," analysts at FBR wrote in a research note. "We continue to emphasize that courts will not compel the department to issue permits, only to provide new reasons for not doing so."
The analysts also noted that Interior rejects the idea of arbitrary deadlines, noting that while Feldman interpreted the Outer Continental Shelf Lands Act (OCSLA) to require Interior to act within 30 days of receiving an application for a permit to drill, the statute itself imposes no such time limit.
They added that no one should expect a return to the old permitting rate in the near term. "We continue to emphasize that the amount of work being done by the department to review, verify, and approve each permit has gone up significantly, creating a sustained bottleneck to a return to the pre-Macondo permitting rate," the analysts wrote.
In a Houston Chronicle opinion editorial this past weekend, BOEM Director Michael Bromwich confirmed that the process of permitting has gotten a lot tougher since the April 20, 2010 tragedy in the Gulf of Mexico (see Daily GPI, April 22, 2010). "Improving the safety of offshore drilling, particularly in deep water, caused some slowdowns in the pace of permitting," Bromwich allowed. "And although these slowdowns are unsurprising after an event as transformative as Deepwater Horizon, the concerns about the slowdown need to be addressed in a responsible way. That is what we have done every day for the past several months."
He added that anyone who witnessed the devastating effects of last year's oil spill should understand the need for additional scrutiny of new permit applications. "We need to ensure that our new drilling safety rules are fully complied with; we need to review certifications by professional engineers of every stage of the drilling process; and in many cases we need to conduct more detailed environmental reviews. All of these steps are necessary and appropriate, but they extend the time needed to approve permits.
"Until very recently, the main reason permits to drill new deepwater wells had not been approved was that operators were unable to demonstrate the ability to regain control of wells in deep water, as our regulations require. In private, they conceded as much, but the public discussion -- focused on the absence of deepwater permits rather than the reasons for it -- obscured those reasons. Following Deepwater Horizon, it would be unforgivable for drilling permits to be issued in the absence of an answer to the question, what happens if there is a blowout? Now one operator has shown specifically what it would do, and we expect others to follow."
Last 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 Energy 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.
Down the road, FBR analysts see more permits reaching the finish line. "We note that Interior's case-by-case focus means that certain operators or service companies could see an uptick in activity even though permitting in general could remain slow," they wrote. "Moreover, as the industry learns from successful applications and as demonstration of subsea containment capability becomes more routine, an increased permitting pace is possible."
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