Despite the existence of an OCS oil and gas regulatory program, DOI noted that stakeholder engagement revealed the need for new and revised measures for activities involving mobile offshore drilling units (MODUs), such as jack-ups and anchored drillships. The proposed rule focuses on exploratory drilling that uses MODUs and related operations during the Arctic open-water drilling season (late June to early November). It would allow for technological innovation if operators can demonstrate that their level of safety and environmental performance satisfies or surpasses the protection provided by the Source Control and Containment Equipment (SCCE) and relief rig requirements set forth in the proposal.

The proposal would also incorporate key components of Shell’s 2012 Arctic exploratory program and measures that DOI required for Shell’s safe operations. In January 2013, DOI directed a high-level assessment of Shell’s 2012 offshore drilling program in the Beaufort and Chukchi Seas – including the company’s preparations for the 2012 drilling season and its maritime and emergency response operations – to identify challenges and lessons learned. In March 2013, the DOI released the findings identifying Shell’s operational inadequacies that led to problems in containment system deployment, marine transport, and grounding of drilling rigs. Though Shell’s operations were subject to Arctic-specific standards, it failed to obtain timely containment vessel certification and finalize vital components of its drilling program. The assessment included recommendations to guide future exploratory activities, emphasizing the need for an Arctic-specific model and continued safety and environmental improvements. The assessment also expressed the need for coordination across federal, state, and local authorities, drilling companies, and communities to streamline permitting and exploration activities.

Unique Planning Needed to Ensure Safe Arctic Exploration

The proposed rule would establish a proactive safety approach to identify possible vulnerabilities early in the planning process, thereby facilitating corrections and decreasing the possibility of spill incidents.  It would integrate emergency response, comprehensive operational and safety planning, contractor oversight, and upfront mutual aid agreements.

The proposed regulations would ensure that exploratory activities suit the extreme, unpredictable, and rapidly changing Arctic OCS conditions. Operators would develop and submit an integrated operations plan (IOP) addressing all phases of proposed exploration programs to DOI at least 90 days prior to filing their exploration plan. The IOP would facilitate prompt information sharing across relevant federal agencies, reflecting oil and gas operators’ preference for performance-based rules and early engagement with agencies to achieve up-front regulatory consistency. Operators would also develop and implement an Oil Spill Response Plan (OSRP) that suits the unique Arctic OCS operating environment and has the necessary equipment, training, and personnel. The proposed rule would ensure that operators have the ability to deploy source control and containment equipment while drilling or working below the surface casing; have access to a separate relief rig to drill a timely relief well in the event of losing well control; have the capability to predict, track, report, and respond to ice conditions and adverse weather events; and effectively manage and oversee contractors.

Potential Benefits of Proposed Regulations Justify Estimated Costs

The proposed rule is estimated to cost $1.1B to 1.2B (at discount rates of 7 percent and 3 percent, respectively) over 10 years. According to DOI’s Bureau of Safety and Environmental Enforcement (BSEE) and the Bureau of Ocean Energy Management (BOEM), the potential benefits – based primarily on preventing or reducing the severity and duration of oil spills – would justify potential costs. The DOI noted that the Deepwater Horizon oil spill demonstrated that even low-probability events could result in significantly adverse economic and environmental impacts. As of October 2014, BP spent more than $14B for cleanup and response operations related to the Deepwater Horizon oil spill.

The proposed requirements would support the National Arctic Strategy goals and provide additional clarity and specificity for better planning and more effective exploratory activities. This would result in oil and gas development and production with lower risk and fewer delays.

President Obama Aims to Designate OCS Areas Off-Limits to Oil and Gas Leasing

On January 27, President Obama designated 9.8 million acres in the Beaufort and Chukchi Seas as off-limits to consideration for future oil and gas leasing. On January 25 – following the release of a revised conservation plan for Alaska’s Arctic National Wildlife Refuge (ANWR) – President Obama announced that he will make an official recommendation to Congress to designate 12.28 million acres of ANWR’s Coastal Plain and core areas as wilderness.

The designation would block oil drilling efforts in the Coastal Plain region estimated to contain about 7.7 billion barrels of oil (BBO).  It could also impact future proposed offshore oil and gas lease sales in the Beaufort Sea, which is estimated to hold approximately 7.2 BBO.  If Congress passes the policy, it would result in the largest wilderness designation since the Wilderness Act of 1964. In December 2014, President Obama designated the waters of Bristol Bay off limits to oil and gas development.

Insight to Industry: Despite Presidential Opposition Arctic OCS Could Yield Significant Oil Production

Arctic region oil and gas production could have a substantial impact on U.S. energy independence and energy security. According to BOEM’s 2011 Assessment of Undiscovered Technically Recoverable Oil and Gas Resources of the Nation’s Outer Continental Shelf, the Beaufort Sea and Chukchi Sea Planning Areas contain approximately 17.8 billion barrels of economically recoverable oil and approximately 50.1 trillion cubic feet of economically recoverable natural gas. Oil and gas industry’s interest in offshore oil and gas exploration on the Arctic OCS remains high despite the exploration pace and operational challenges.As part of its current Five-Year OCS Oil and Gas Leasing Program, BOEM may lease up to 64.72 million acres in the Beaufort Sea — partially off the ANWR shoreline — for oil and gas development in 2017. The lease sale is pending further industry interest and environmental impact analyses. In addition, part of potential coastline leases could be removed from sale if the ANWR wilderness proposal is upheld.On January 27, DOI released Draft Proposed Program (DPP) to develop the OCS Oil and Gas Leasing Program for 2017-2022. The DPP includes three potential lease sales offshore Alaska, including areas that contain 90 percent of undiscovered technically recoverable oil and gas resources in the Chukchi and Beaufort Seas. It also includes 10 sales in the Gulf of Mexico and one in a portion of the Mid- and South Atlantic.

Originally published by EnerKnol.

EnerKnol provides U.S. energy policy research and data services to support investment decisions across all sectors of the energy industry. Headquartered in New York City, EnerKnol is proud to be a NYC ACRE company.