Nathanial Gronewold, E&E reporter. Published:
NEW ORLEANS — A new era in oil and gas activity in the Gulf of Mexico is opening, one that may be an improvement from the way things were done before the 2010 Deepwater Horizon oil spill, but also unprecedented in scale.
Within weeks or possibly days, drilling activity in the Gulf will return to pre-Macondo spill levels.
But offshore drillers are now operating in a different environment, with a tighter enforcement regime and a rapidly evolving system of spill prevention and containment to minimize the social and environmental impact of another major incident, should one occur.
The new atmosphere was evident here last week at the annual deepwater technical symposium hosted by the Society of Petroleum Engineers. The two-day session of technical papers and presentations on emerging technologies and concepts was punctuated by discussions of the new regulatory environment, announcements from top regulators of final draft rules being released, and updates on where things stood in other areas of regulation and enforcement.
The final day was topped with an overview of the new spill response systems developed over the course of two years by two nonprofits formed hastily in the wake of the Gulf spill. The message industry professionals took away was that the government is watching them closely, but that methods and technologies are now available to ensure that any future spill can be contained and its damage limited.
Last week, officials at the Bureau of Safety and Environmental Enforcement (BSEE), the offshore energy industry’s new principal watchdog, reported to industry officials that 25 drilling rigs are now active in the waters of the U.S. Gulf. Prior to the 2010 spill and subsequent drilling moratorium, 27 rigs were actively exploring in the region, meaning offshore drilling is more or less back to its pre-spill levels.
“I think we’re back to work, I really do,” said Phillip Smith, regulatory affairs manager at Shell.
High crude oil prices, new and improved offshore drilling equipment, and major recent finds in the deepwater Gulf environment are causing a rapid rise in interest in new exploration.
Mike Prendergast, a regional Gulf of Mexico official at BSEE, said his agency has issued permits for about 30 more rigs to operate in the Gulf, and fully expects that number to grow to at least the mid-40s.
“Depending on discoveries, that number can grow even larger,” Prendergast said. “The Gulf has never seen that many rigs before working in the deepwater.”
He and others in government agencies admit that the growth in activity will make it difficult for them to keep a handle on it all. Staff additions may be necessary, he and others say, with the Bureau of Ocean Energy Management and BSEE officials at last week’s forum pointing to higher pay and active recruitment campaigns as tools they will likely have to rely upon to encourage industry professionals to consider working for the government.
“It’s going to be a challenge to us all,” Prendergast said.
But by and large, the post-Macondo learning curve described by those dealing with the new, stricter regulatory atmosphere seems to be almost past the industry. Both regulators and the regulated say they are more comfortable and familiar with the new procedures and rules. As a consequence, wait times for permit approvals are shrinking and drillers seem more satisfied with the level of predictability they can expect in the permitting regime.
“We are understanding the process a lot better,” said Rick Fowler, vice president of deepwater projects at the small, privately held operator LLOG Exploration.
Preparing for disaster
Government officials also say they are more confident in the industry’s ability to head off another spill, thanks to an increased emphasis on safety and prevention, but also due to the efforts by the Helix Well Containment Group (HWCG) and the Marine Well Containment Co. (MWCC), two of the offspring of the 2010 Deepwater Horizon disaster.
Last month, MWCC completed the first real-world simulation of a loss of well control and oil spill in the deepwater Gulf environment. The drill, as described by its participants, included everything but an actual rig collapse and release of oil.
The simulation, a mock-up of a Macondo-like blowout at the Walker Ridge 536 offshore site, culminated in the installation of a sophisticated new capping stack on top of a well head lying almost 7,000 feet beneath the surface some 200 miles south of Louisiana.
Martin Massey, CEO at MWCC, took an audience of petroleum engineers through a step-by-step explanation of how the simulation proceeded, to give them a sense of what would happen should one of their companies need MWCC’s equipment.
Working with Shell, Massey said, it took his organization about seven days to move the capping stack from its warehouse to the “spill” site. MWCC then swiftly handed off the stack and other subsea well intervention equipment to Shell, where it worked with contractors to fix it atop the well head and stop the fake leak. A pressure test at 10,800 pounds per square inch (psi) confirmed that the technology works, he said.
“Our system is available to all operators in the U.S. Gulf of Mexico,” Massey assured his industry peers. “If you are not a member, you can still access our system as a nonmember on a per-well basis, by working with us and putting an agreement in place for that particular well.”
Both MWCC and HWCG say their systems can stop leaks at 10,000 feet below the surface, with capping stacks capable of withstanding 15,000 psi of pressure. MWCC says it also stores 200,000 gallons of subsea dispersant.
David Coatney, CEO of HWCG, says his group’s system can manage 55,000 barrels oil per day of flowback in cases where spilling oil can be captured and collected from the well head. He said HWCG is now moving to build and deploy more capping stacks to be made available in other major offshore energy centers outside the United States.
“Actually, four that will be strategically located in oil provinces around the globe,” Coatney said. “But certainly necessary for that, in addition to the equipment, will follow processes, procedures, integration, response protocols, etc.”
Coping with change in liability
Aside from new government agencies, new rules and new spill response equipment, the industry also must contend with a new attitude from government that it hasn’t had to face in most of its offshore drilling past.
Chiefly, regulators will no longer hold the leaseholder or principal offshore operator solely liable for any major accidents or spills that may occur.
BSEE Director James Watson made that point crystal clear in comments he made after his keynote address to the Society of Petroleum Engineers conference on its first day. Though citations for incidents of noncompliance — a government determination that rules were willfully ignored or violated — have traditionally been issued only to the main operator of an offshore project in the past, BSEE’s new policy will be to hold contractors and subcontractors responsible in cases where it thinks such a reprimand is appropriate, he said.
“I’ve looked closely at some of the investigations that have been done, in some cases people were killed or some serious environmental damage occurred, and the investigations clearly show that there was a contractor that had direct control over the circumstances that led to these incidents,” Watson explained in defending the new, harsher approach.
“You’ve got a serious incident, you’ve got a contractor that’s really obviously in a position to have not allowed this to occur, and that really there’s been an expectation by the people out there that a supervisor from that contractor was going to manage the situation and they didn’t, and there was no other primary reason for this incident to occur,” Watson explained further. “I have to say that the policy is the right policy, to identify that as an incident of noncompliance and take a look at what corrective actions are necessary to make sure it doesn’t happen again.”
Equipment, labor concerns — and lawsuits
The industry seems to be more or less coming to terms with the new attitude, as it is with the new permitting and approvals process in general. Still, some head winds to further expanded drilling activity in the Gulf of Mexico remain.
The threat of lawsuits from environmentalists remains, as seen in Alaska, where Shell is preparing to begin drilling once sea ice clears from the site.
And though the industry always anxiously watches the price of oil, which could make or break the economic incentives to drill, companies nowadays express more concern over securing the skilled labor they will need to expand their operations in the deepwater Gulf of Mexico environment.
Rig owners and operators are enjoying robust demand for the rigs and drill ships being called into service. But some of those companies are reporting struggling profit margins, citing high labor costs as one factor eating into their revenues.
Some also worry over whether the number of rigs they are planning to use to drill in the Gulf will be available. Rigs are being called to other emerging offshore energy regions of the world, in places such as the west and east coastlines of Africa, offshore Brazil, and the Indian Ocean northwest of Australia. Drilling in the Arctic is also expected to pick up should Shell, Statoil and some other high-latitude operators report success.
Well control and containment companies also say they need to improve upon what they have done already to increase confidence in their capabilities. Massey admitted that the recent MWCC drill occurred in perfect weather. Its system may prove less easy to deploy in rougher seas.
But development of more robust well intervention technologies is expected to parallel the rapid advancement in offshore drilling technology itself. Both nonprofit spill response companies say they’re looking into developing tougher capping stacks that can handle up to 20,000 psi of pressure, and narrower capping equipment that can squeeze into situations where sunken debris makes intervention more difficult.
Spill response drills will likely continue to expose areas for improvement. And the agencies are continually looking at new and better ways to manage the expanding activity in the Gulf of Mexico, including possibly requiring firms to begin tracking cases of narrowly avoided accidents instead of just incidents or injuries that do occur.
“As we push into the deepwater, these wells will become more complex, more challenging, and some of the technology we’re still working on,” said Smith at Shell. “And finally, there is some uncertainty still regarding some upcoming regulations.
“We’ll hopefully continue to work through those and continue to have the progress that we’ve seen in the past two years.”
