The Department of Interior Tuesday issued a directive to oil and gas lessees and operators on the Outer Continental Shelf (OCS) implementing stronger safety requirements, and saying shallow-water drilling that is in compliance with the new requirements could continue.
Deepwater drillers also will have to comply with the new directive, but those operations will continue under a six-month moratorium.
“The deepwater drilling moratorium that is in place will provide time for the Presidential Commission to complete its work, but production and shallow-water drilling may continue under the stronger safety requirements that we are implementing today,” said Interior Secretary Ken Salazar.
The new rules came as complaints grew that the confusion over the cessation of shallow-water drilling was only serving to exacerbate the already devastating economic impact on the Gulf Coast of the BP oil spill and the moratorium on deepwater drilling.
Indications came after high-level meetings of administration officials Monday night that the Minerals Management Service (MMS) would move swiftly to issue new guidelines in response to industry leaders’ protests against the agency’s reported plans to pile an interruption in shallow-water drilling on top of the six-month moratorium on deepwater drilling in the wake of the BP oil spill in the Gulf of Mexico.
“…[T]his additional work stoppage in shallow-water activity threatens to cripple the industry, extending job losses and economic devastation to onshore communities that support the drilling industry,” Randall Luthi, president of the National Ocean Industries Association (NOIA) said in a letter Monday to Bob Abbey, who is the Director of the Bureau of Land Management and acting director of the Minerals Management Service.
“Your recent recissions of recently approved [drilling permits] for some wells send a signal that a moratorium on drilling exists in both shallow and deep water. To that end, we urge you to issue guidance, possibly in the form of a Notice to Lessees, as soon as possible outlining the additional safety measures referenced by Secretary Salazar to be taken in order to proceed with the approval of [applications for permit to drill] or exploration plans,” Luthi said.
The safety Notice to Lessees (NTL) said drilling operations that are not subject to the deepwater drilling moratorium must fulfill their blowout preventer (BOP) reporting requirements listed below by June 17 and submit the required safety certifications by June 28. Failure to provide required certifications will result in the issuance of an incident of noncompliance and may result in a shut-in order, the directive said.
The safety NTL issued Tuesday implements the seven safety requirements that Salazar’s 30-day safety report to the President determined could be implemented immediately. Under the NTL, lessees and operators are required to:
In the coming days, DOI will be issuing expanded requirements for exploration plans and development plans on the OCS, said Abbey. DOI and the Council on Environmental Quality are also conducting a review of MMS’ procedures under the National Environmental Policy Act.
“We are following an orderly, responsible process for implementing stronger safety and environmental requirements of offshore drilling,” said Abbey. “We need to make sure that drilling is done right, that it is done safely, and that oil and gas operators are following the law.”
Luthi said the job loss from the deepwater moratorium alone could cost up to $330 million per month, and the canceled lease sales in the Western Gulf, Virginia and Alaska will add long-term job losses, cause loss of revenue for the federal government and threaten energy security through increased dependence on foreign oil, he added.
Last week the MMS confirmed that it would be issuing no new shallow-water drilling permits and could be suspending existing drilling operations until drillers could comply with new safety and environmental rules that had not yet been issued (see Daily GPI, June 7).
At that point, several shallow-water producers and rig operators had been notified to suspend operations, while others essentially were in the dark as to whether they could proceed with drilling. Some queries to MMS met with the response that all drilling in the Gulf was suspended, while others at MMS said the suspension would only affect new drilling.
Meanwhile, Wall Street analysts were compiling assessments of the impact of the deepwater moratorium, attempting to add up the number of rigs that would be moved out of the Gulf to other drilling locations worldwide. FBR Capital Markets said it was aware of five to six rigs “already preparing to depart the U.S. GOM for other markets,” but “it remains unclear how many will leave in total…Should operators begin to fear a longer hiatus, we believe that the vast majority of deepwater rigs would depart the U.S. GOM, likely for at least several years on average. This would deal a severe blow to royalties on existing production as it declines, as well as dramatically reduce or eliminate federal lease sale revenue.”
The length of the moratorium is key. FBR said, “We are hesitant to see the rationale for an extended moratorium,” adding “it is possible that the moratorium is being used to give the perception that the current administration is in control and acting responsibly.”
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