Drilling is still ongoing in the shallow waters of the Gulf of Mexico (GOM), but producers and rig providers are “uncertain” as to how long this will continue. They say they have received “mixed signals” from the Interior Department’s Minerals Management Services (MMS) in recent days over whether they can proceed with any drilling in the Gulf, no matter what the water depth.
The Obama administration recently imposed a six-month moratorium on drilling in the deepwater GOM, but not the shallow water (see NGI, May 31). But it has levied what some say may be an indefinite “de facto moratorium” in the shallow water (500 feet or less) by requiring producers to satisfy new yet-undefined safety and environmental requirements before they can drill new wells.
The administration could release the safety requirements by early next week, but “we’re hopeful it will be sooner,” said Jim Noe, vice president and general counsel of Hercules Offshore, the largest provider of jack-up rigs in the GOM. Interior Friday declined to say when it would release the new safety and environment requirements for producers. In the meantime, shallow-water producers and rig operators essentially are operating blind when it comes to whether and how quickly they can proceed with drilling, he said.
“When you don’t know the rules of the game, you don’t know if you’re playing it right,” he told NGI. “There’s lot of questions and not a lot of answers at this point.”
While Interior Department spokesmen were continuing to state that shallow water drilling was not part of the moratorium, when pressed by NGI, they conceded that shallow drilling would be nevertheless suspended for an undetermined amount of time, or until the yet-unknown, new safety and environmental requirements are met.
Exploration and development plans that have already been approved by Interior’s Minerals Management Service (MMS), including those that were approved using “categorical exclusion” under the National Environmental Policy Act, will need to be resubmitted before any drilling can resume, said Acting MMS Director Bob Abbey in a statement.
Noe said that one of Hercules’ clients, Houston-based Phoenix Exploration Co., received a permit to drill in the shallow waters of the GOM last Wednesday, but it appears to have been rescinded by MMS. He cited an e-mail sent out by by the MMS Gulf of Mexico office last week that stated: “Until further notice we have been informed not to approve or allow any drilling no matter the water depth.” Interior refused to say how many permits for shallow water drilling it has rescinded or will rescind.
A number of other producers received permits to drill in shallow waters following the April 20 explosion aboard the BP Plc-leased Deepwater Horizon rig, but may not be able to move forward. The companies are Bandon Oil and Gas LP, Apache Corp., Hall-Houston Exploration LP, Kerr-McGee Oil & Gas Corp., Arena Offshore LLC, LLOG Exploration Offshore Inc., Stone Energy Corp. and Hilcorp Energy GOM LLC.
The “big concern is what are the additional [safety] requirements and how quickly can they be satisfied,” Noe said. Will it take producers “20 days, 40 days, 60 days” or more, he asked. If it takes longer, “it could be a de facto moratorium.”
Because of the uncertainty “new operations are not being planned or commenced at this point” in the Gulf, Noe said. Since 1997 the GOM has accounted for about 22% of the natural gas produced in the United States. And it’s predominantly natural gas that is targeted by wells in the shallow waters of the Gulf. “You just can’t turn that off,” he said.
Of the 57 marketed shallow-water rigs in the GOM, it’s estimated that 50 rigs may be unable to continue work in the next six weeks, according to data from the Shallow Water Energy Security Coalition, which was formed in response to the rig explosion and mammoth oil spill. It projects that 5,000 jobs on these rigs could be at risk.
The economic impact on the U.S. of a lengthy pause in shallow-water drilling would be about $1 billion in one month; $3.1 billion in three months; $6.28 billion in six months; $9.4 billion in nine months; and $12.56 billion in a year, the coalition said.
And repercussions from the deepwater drilling ban were beginning to surface Friday. Drilling company Noble Corp. said one of its customers, Anadarko Petroleum, said it believes that the deepwater drilling moratorium is a force majeure event under its contract for the offshore drilling unit Noble Amos Runner.
Noble said it “believes that Anadarko will attempt to terminate the contract by claiming a force majeure event.” Noble said it has advised Anadarko that it does not believe that the moratorium constitutes force majeure. The company’s drilling units, including the Noble AmosRunner, are ready and able to drill and Anadarko is not prevented from using the unit on a variety of activities permissible under the contract, Noble said.
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