By: Sharyn Alden
July/August 2010

Offshore Drilling Moratoriam Causes Confusion

Oil and gas operators involved in deepwater drilling prior to the BP Gulf of Mexico oil spill are finding a lot confusion regarding how to continue or start drilling operations on the Outer Continental Shelf.
New directives on top of newer directives are making life interesting, albeit confusing for offshore drillers today.

On May 29, in the wake of the Gulf oil spill, President Obama implemented a six-month deep-water drilling moratorium. He announced new oil and gas wells in water deeper than 500 feet would be prohibited. Conversely, if you’re operating in 500 feet deep or less there has been a rescission of Applications for Permit to Drill (APDs).

Then on June 2, Bureau of Land Management Director Bob Abbey, and Acting Director of the Minerals Management Service (MMS), announced any new drilling has to be under an exploration or development plan that satisfies new safety and environmental requirements and recommendations of the Presidential Commission on the BP Deepwater Horizon Oil Spill.

Fast forward five days. On June 7, all operators of new oil and gas wells on the OCS will need to submit new information. Even if exploration and development plans were previously approved by MMS, now they will have to be resubmitted. Abbey said more information is being required so potential risks and safety considerations can be updated and examined before they can be reapproved.

On June 7, the same day that the drilling reapproval process was announced, the National Ocean Industries Association (NOIA) sent a letter to Abbey asking for immediate clarification. Their position was loud and clear. They said that the rescissions of APDs were sending off confusing signals to the offshore drilling industry. Not only did it appear that the agency was putting a moratorium on drilling in water deeper than 500 feet, it might be construed the moratorium covered drilling in shallow water less than 500 feet.

What NOIA is asking for is clear, fast guidance and detailed information about the additional safety measures now needed for approval of APDs.

Here’s what they want: Specific safety parameters spelled out so they can continue to work as quickly as possible. They point out that a long delay in drilling will only add to lost jobs and economic challenges facing many people in the region. Consequently, NOIA is also urging MMS to allow operators to continue exploration and production as rulemaking processes evolves.

If this sounds adversarial, that’s not necessary the case. NOIA is in the process of putting together an Industry Response Team, along with a diverse group of energy professionals including associations and inside experts. They welcome the Department of the Interior to join the oil spill review team that is going to make recommendations for improving current and future clean-up response methods.

Fast forward to June 22, when Judge Martin Feldman of the U.S. District Court for the Eastern District of Louisiana ordered the U.S. Department of Interior to “immediately” stop enforcing the drilling moratorium until a full trial on its merits occurs.

Interior Secretary Ken Salazar said the moratorium “was and is the right decision” and that the Justice Department is appealing the ruling.

In his ruling, Feldman said the moratorium “does not seem to be fact-specific” and didn’t account for the safety records of the many companies that operate in the Gulf.

Marcellus Shale Well Blowouts

In early June, in Pennsylvania’s Clearfield County, a natural gas well blowout occurred in the Marcellus Shale region in the northwestern section of the state. The well, owned by National Fuel Gas Co. and operated by EOG Resources, unleashed a combustible 75-foot fountain of natural gas and toxic wastewater after workers lost control of the well.

It is not known how much natural gas is commercially recoverable in the Marcellus Shale, but the area has been a hotbed of drilling activity this year. According to the Department of Environmental Protection, 195 Marcellus Shale wells were drilled in Pennsylvania in 2008, another 768 in 2009, and through early May, 364 wells were drilled this year.

Estimates vary widely, but the region is thought to contain between the equivalent of 46 billion and 51 billion cubic feet of natural gas. Geologists and energy companies have only recently figured out how to extract the shale from rocks 6,000 feet underground.

EOG had been drilling in the Marcellus Shale formation during a month-long operation that ended in early March. The contractors returned in late May for a 12-day period of hydraulic fracturing. The blowout happened on June 3, two days after fracing operations ended.

After the Pennsylvania explosion, state regulators shut down EOG’s other wells. The work stoppage affects about 70 wells operated by the company.

National Fuel said the blowout is not expected to significantly impact the company’s production totals this year.

After the Pennsylvania well was shut down, inspectors assessed the damage to see if chemicals used in hydraulic fracturing seeped into underground water supplies. The stop-drilling order against EOG will remain in place until the Pennsylvania Department of Environmental Protection can determine what changes EOG needs to implement before resuming drilling.

No injuries were reported and the well did not ignite in the Pennsylvania blowout, but gas and polluted water were released in the forested area for about 16 hours. Neil Weaver, a company spokesperson said that early assessments showed modest damage to the environment.

A week after the Pennsylvania blowout, another gas well blew in West Virginia. This time the well caught fire and injured seven workers.

While blowouts are extremely rare, these recent natural gas explosions brought out galvanized opponents of gas drilling and fracing.

Advanced technologies, horizontal drilling and fracturing, are making it easier to get at rich natural gas deposits in the Marcellus Shale formation. But opponents saw the recent incidents in Pennsylvania and West Virginia as a springboard to oppose fracturing and overall natural gas drilling. They brought out the message that fracing and drilling for gas are environmentally risky pursuits and inevitably pollute invaluable drinking water supplies.

The two well blowouts come at a sensitive time for the energy industry with the Gulf spill fresh in the minds of many. It remains to be seen if these two domestic incidents will increase tension between proponents of drilling in the Marcellus Shale region and those who have concerns about contaminated drinking water.

The Race is on to Drill for for Oil Under a North Dakota Lake

In North Dakota, there is an interesting mineral rights arrangement between the state and tribal rights of a reservation. The drilling arrangement involves oil deposits under a reservation’s lake. The site is being tapped for oil by several companies.

The Three Affiliated Tribes of North Dakota include Mandan, Hidatsa and Arikara located at the Fort Berthold Reservation. The reservation spans about 1 million acres. The tribe has the right to lease and collect fees for drilling under Lake Sakakawea due to the Minerals Restoration Act of 1984 which restored the tribe’s mineral rights beneath the lake.

By the end of this year between 80 and 100 wells are expected to be drilled at the Lake Sakakawea site. Currently, about 12 wells below the lake are in the process of being drilled. Two other producing wells are owned by the state of North Dakota.

Operators now have to follow new environmental assessment guidelines from the U.S. Fish and Wildlife Service (FWS). Since May 17, as a direct result of the Gulf oil spill, the permitting process for Lake Sakakawea drilling now has to include the FWS. It’s another layer in the approval process and not every tribal official or member is happy about the hoops in front of them.

Every well that is drilled on federal acreage, which includes the Fort Berthold Reservation, has to go through additional environmental assessment steps.

The Three Affiliated Tribes have complained that the additional assessment now in place is slowing down the reservation’s oil development. The resulting number of complaints has led to the Fort Berthold Agency Bureau of Indian Affairs (BIA), located in New Town, adding more staff to address the situation.

Three Affiliated Tribes has an advocate in Senator Byron Dorgan, a North Dakota democrat who has come forward saying there ought to be a “one-stop oil-and-gas shop” that can help expedite the situation and make the permitting process flow faster and more efficiently.

Marathon Oil Corporation is drilling about 10,000 acres under the lake, Questar Gas is operating on roughly 53,000 acres, and Spotted Hawk Development LLC is drilling about 32,000 acres. All of the drilling operations are basically onshore since there are no wellheads in the lake.

To give you an idea of how much attention is being focused on oil under these waters, the BIA Fort Berthold Agency reports that they have approved 115 applications for permits for drilling. About 504,000 trust acres have been leased with a balance of approximately 29,000 acres left to lease. The BIA reports 40 producing wells on trust minerals.

Total acreage under the BIA reports includes minerals under the lake but it doesn’t include the nearby riverbed channel. The riverbed of the old Missouri River channel is owned both by the state of North Dakota and the Fort Berthold Reservation and each party leases portions of acreage and collects leasing fees.

2010 Deepwater Horizon Chain of Events

March 2008 The Minerals Management Service’s Lease Sale #206 is held at the Superdome in New Orleans. BP purchases rights for Mississippi Canyon Block 252 in the Gulf of Mexico about 40 miles off the Louisiana coast.
February 15, 2010 – Transocean’s rig, Deepwater Horizon, begins drilling in water depth of approximately 5,000 feet in an area of the Macondo Prospect.
April 20 11 p.m. EST - Deepwater Horizon catches fire. An explosion kills 11 platform workers and injures 17 others; 98 people survived without serious injury
April 22 10:21 a.m. – Deepwater Horizon sinks to the ocean floor.
April 24 NASA images of the oil spill show black smoke more than 30 miles long. Search and rescue look for 11 missing workers.
April 25 Oil sheen covers 580 square miles southwest of Mississippi and Alabama.
April 26 Search and rescue is suspended. Eleven are still missing. Booms begin to be deployed near Louisiana shores.
April 28 The National Oceanic and Atmospheric Administration (NOAA) estimate that the leak was likely 5,000 barrels a day. US Coast Guard sets oil slick on fire in effort to reduce the spill.
April 29 100,000 feet of containment booms are rendered ineffective by high winds and waves.
April 30 President Barack Obama begins a six-month moratorium on new offshore deepwater drilling. Oil is seen for the first time washing up on the shore.
May 3 Major fishing areas remain closed from the Mississippi Delta to Florida Coast.
May 5 BP announces that one of three known leaks has been capped.
May 7 A container dome is placed over the largest of the well leaks to siphon to the surface. BP also begins drilling first relief well.
May 8 BP reports that methane is freezing on the dome, making it too dangerous to continue.
May 10 A smaller, containment vessel “top hat” is used after the dome fails. Another strategy, nicknamed “junk shot” is also discussed.
May14 BP inserts 4-inch wide riser into the damaged pipe.
May 16 Second relief well drilling begins.
May 20 EPA mandates that BP halt use of controversial chemical dispersant, Corexit EC9500A. BP has applied 650,000 gallons of chemical dispersant since the leak began.
May 21 BP streams live underwater video broadcasts of the leak.
May 26 BP plans to use drilling mud to plug well in a project called “top kill.”
May 27 The oil spill surpasses the Exxon Valdez as the worst spill in US history. A second underwater plume is discovered.
May 29 Since the top kill method doesn’t work, the next option is the Lower Marine Riser Package (LMRP) Cap Containment System.
June 3 Containment Cap in place, oil is siphoned to surface.
June 6 The Cap is capturing 10,000 barrels a day.
June 8 BP announces plans for a floating production, storage and offloading (FPSO) vessel that could then be offloaded with a shuttle tanker.
June 9 BP’s COO, Doug Suttles, publicly questions NOAA’s findings of underwater plumes.
June 16 BP agrees to the creation of a $20 billion fund to satisfy certain obligations arising from the oil and gas spill.
June 17 Approximately 103,000 barrels of collected oil is transferred from storage on the Discoverer Enterprise to the Overseas Cascade tanker.
June 22 U.S. District Judge Martin Feldman in New Orleans overturns the moratorium on new deepwater drilling.
June 23 The White House promises an immediate appeal of the judge’s decision
June 23 BP Chief Executive Tony Hayward hands over management of the Gulf of Mexico oil spill to Bob Dudley, now the front man in the efforts to stop the leak and deal with the economic damage it has caused.

Two Natural Gas Line Explosions Jolt Texas

There were numerous problems associated with natural gas pipelines in June. Two sites became the focus of national attention. Both explosions, which happened almost back-to-back, occurred in Texas.

One of the news-making events that roared onto news desks across the country happened near Cleburne, Texas in rural Johnson County about 50 miles southwest of Dallas. One construction worker was killed when he was on a truck drilling holes for utility poles. Eight other people were injured in the blast.

The 23-member crew had been working in the area for several months. At the time of the accident they were drilling holes for utility poles when the gas line ruptured sending a huge fireball into the air. The hole they were drilling at the time of the accident was for a pole that towered about 100-feet in height.

The pipeline carries natural gas from West Texas across the state bringing gas to utility companies and numerous commercial users on the eastern side of the state.

When the blast shook the Cleburne region in June, witnesses in northern Texas reported the June 7 explosion sounded like an 18-wheeler slamming into a wall. The boom was accompanied by a giant fireball that shot hundreds of feet in the air. About two hours after the explosion and the gas flow was shut off, the fire was put out.

After the gas line explosion, investigators from the federal Occupational Safety and Health Administration and the NTSB’s Office of Railroad, Pipeline and Hazardous Materials Investigations rushed to the scene to begin assessing the accident.

First arrivals at the scene of the explosion found an overturned truck and a 2,000-pound drilling component that was blasted off the truck. Investigators first tried to determine if the natural gas line had been marked properly before the utility crew started digging. The crew had a survey map, and had also made calls to verify the locations of the gas lines in the area.

Owners of the gas line, Houston-based Enterprise Products Partners LP, said the line had an automatic shut-down system which stopped gas from leaking into the broken section of pipe. After investigators finished their work, it was expected to take several days to repair the damaged line.

In an odd twist of fate, two days after the first Texas gas explosion, another natural gas pipeline exploded, this time in the remote area of the Texas Panhandle a few miles from the Oklahoma border near the town of Darrouzett. The blast occurred while five men were working in a clay pit removing caliche — commonly used in cement — for a dirt-contracting company. They happened to be in the area when a bulldozer accidentally struck and ruptured a pipeline. Two people were killed and three others sustained injuries.

After news surfaced about the back-to-back explosions in the same month, many are hoping there won’t be any more news about natural gas explosions for a long time.

Permian Basin International Oil Show

Even though the Permian Basin encompasses only a little more than 100 square miles in Texas and New Mexico, its biennial oil show reaches thousands of miles to attract exhibitors from across the nation and, in fact, across the world.

The show brings together people from every sector of the petroleum industry. Leaders come to Odessa, Texas from every corner of the world to learn about the latest technology, the newest equipment, to transact business and renew friendships. Unlike most exhibitions, the Permian Basin International Oil Show Inc. is a non-profit venture whose sole purpose is educational, designed to serve the oil and gas industry. Run by oilmen, its mission is unwavering and its commitment is the single most important factor in its overwhelming success.

This year’s PBIOS is scheduled for October 19-21 at the Ector County Coliseum Complex. The event not only showcases the very latest technology, it also honors the industry’s past. A working cable tool rig operates daily on the show grounds during the three-day show, surrounded by trucks and oilfield equipment from the 1930s, a key growth period for the industry in the Permian Basin.
At the south entrance of the complex, you’ll find the magnificent Lincoln Fox statue entitled “Dressing the Bit,” a nod to the pioneering spirit that is the backbone of our industry.

This world-wide event began humbly in 1940 as the “Little International Oil Show” with a mere 35 exhibits in the then boomtown of Odessa, Texas. The show lasted two years before World War II intervened. Then, in 1950, oilmen from around the Permian Basin revived the project. The group formed a non-profit corporation and The Permian Basin Oil Show Inc. was established. The show was presented again in October 1952 and has been held every two years, on the even numbered years, since that time. Because of the growing interest of foreign exhibitors and attendees, the name was changed in 1994 to The Permian Basin International Oil Show Inc.

This year’s show will have over 700 oil and gas related companies exhibiting in 1,114 spaces. There seems to be a genuine feeling of enthusiasm from spectators and exhibitors alike as every facet of the oil industry is displayed.

One of the main reasons a lot of the companies come to Odessa is because they know the show is located in the heart of the nation’s largest oil producing region and they will have the opportunity of making more customer contacts in three days than they could make in weeks or months.

Over the years the show has grown not only in size but in importance as well. Having survived the booms and busts, industry slumps and slow-downs, wars and embargoes, the Permian Basin International Oil Show is still one of the largest petroleum expositions in the world today. Thousands of people consider it a “can’t miss” event.