Inside BOEMRE: January 11, 2011

A periodic report from Steptoe & Johnson LLP with news and developments from the Department of the Interior’s Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE)

If you would like to speak with a Steptoe attorney about our practice relating to BOEMRE issues, please reply to this email or contact Tom Collier (202.429.6242 or tcollier@steptoe.com) or Jody Cummings (202.429.8096 or jcummings@steptoe.com).

BOEMRE Clarifies Certain Activities Suspended Under Deepwater Moratorium

BOEMRE announced on January 3 that it had notified 13 companies whose deepwater drilling activities were suspended by last year’s deepwater drilling moratorium that they may be able to resume those previously approved activities without submitting revised exploration or development plans for supplemental National Environmental Policy Act (NEPA) reviews. However, the companies must comply with BOEMRE’s new policies and regulations before resuming those activities.

Commenting on this clarification, BOEMRE Director Michael Bromwich indicated that BOEMRE is “substantially enhancing its environmental reviews and analysis under NEPA.” Still, BOEMRE will take into account the special circumstances of those companies whose operations were interrupted by the moratorium to ensure that they can resume previously approved activities. 

The notified operators will not be required to revise a previously submitted Exploration Plan or Development Operations Coordination Document if the worst-case discharge estimated for the project (as calculated by Notice to Lessees N06) is less than the worst-case discharge estimate included by the company in its Oil Spill Response Plan. However, if the worst-case discharge exceeds the Oil Spill Response Plan, further reviews will be conducted. 

BOEMRE issued guidance in mid-December 2010 indicating that new exploration and development drilling operations must be conducted under new or revised plans subject to appropriate NEPA analysis. That guidance can be found here.

The notified operators include ATP Oil & Gas Corp., BHP Billiton Petroleum (GOM) Inc., Chevron USA Inc., Cobalt International Energy, ENI US Operating Company Inc., Hess Corp., Kerr-McGee Oil & Gas Corp., Marathon Oil Company, Murphy Exploration & Production Company – USA, Noble Energy Inc., Shell Offshore Inc., Statoil USA E & P Inc., and Walter Oil & Gas Corp.

Steptoe advises caution with respect to proceeding with operations pursuant to this recent announcement because of uncertainty around NEPA issues. Restarting operations and having to stop again over questions about compliance could prove costly. 

BOEMRE Announces February 2011 Public Scoping Meetings on Draft EIS for Proposed 2012-2017 OCS Leasing Program

BOEMRE announced on January 3 that it will hold a series of public scoping meetings in February 2011 on the Programmatic Environmental Impact Statement (PEIS) for the proposed 2012-2017 Outer Continental Shelf Oil and Gas Leasing Program. The final PEIS will cover areas in the Central and Western Gulf of Mexico along with a small portion of the Eastern Gulf that was set aside by the Gulf of Mexico Energy Security Act for Lease Sale 224. Additional areas to be considered are Alaska’s Chukchi and Beaufort Seas and Cook Inlet.

Scoping meetings are currently scheduled for:

• February 14, 2011 – Kotzebue, Alaska
• February 15, 2011 – Houston, Texas
• February 15, 2011 – Point Hope, Alaska
• February 16, 2011 – Kenner, Louisiana
• February 16, 2011 – Point Lau, Alaska
• February 17, 2011 – Spanish Fort, Alabama
• February 17, 2011 – Wainwright, Alaska
• February 21, 2011 – Barrow, Alaska
• February 22, 2011 – Nuiqsut, Alaska
• February 23, 2011 – Kaktovik, Alaska
• February 24, 2011 – Dulles, Virginia
• February 25, 2011 – Anchorage, Alaska

During the meetings in the Gulf of Mexico region, BOEMRE will also accept public comments on a Supplemental Environmental Impact Statement being completed for the remaining Central and Western Gulf of Mexico lease sales under the current Five Year Program, which expires in 2012.

In addition to the scoping meetings, the public may submit written comments on the PEIS until March 31, 2011, via mail, to J. F. Bennett, Chief, Branch of Environmental Assessment, Bureau of Ocean Energy Management, Regulation and Enforcement, 381 Elden Street, Mail Stop 4042, Herndon, Virginia  20170-4817, or by clicking here.

Information concerning the leasing program and PEIS can be accessed here.

Is Aging Offshore Infrastructure Next BOEMRE Target?

Concerns about the aging infrastructure of US offshore oil and gas operations highlighted in a recent Wall Street Journal report could soon be in BOEMRE’s crosshairs. In the aftermath of the Deepwater Horizon incident, there is no question that BOEMRE is more closely scrutinizing offshore operations, and in the second half of 2010, industry realized first hand that the agency is becoming more aggressive in its investigation of offshore activity. The Obama Administration is undoubtedly determined that BOEMRE will not take the “business-as-usual” approach that maligned the Minerals Management Service (MMS).   

The mid-December Wall Street Journal report noted important facts that face the offshore oil and gas industry. Roughly half of the Gulf's more than 3,000 production platforms are at least 20 years old, and a third date back to the 1970s or earlier – well before the development of modern construction standards. It is also believed that more than half have been operating longer than their designers intended. As one might expect, older structures are more prone to accidents, especially fires, and more dangerous for workers.  Indeed, a Wall Street Journal analysis of federal accident records found that platforms that are 20 years old or older accounted for more than 60% of fires and nearly 60% of serious injuries aboard platforms in 2009.

Platforms are subjected to severe ocean currents, corrosive salt water, and frequent hurricanes, and often face more hurdles than mobile drilling rigs in obtaining repairs.  Further compounding the problem for industry’s use of older structures is the fact that needed maintenance records, design schematics, and other essential data about the platforms are too frequently missing or unreliable. Additionally, many experts claim that even when performed, platform maintenance work is often inadequate.

Pipelines appear to be a second area of concern. Many are decades old and have a history of spills and leaks due to corrosion. The Wall Street Journal report notes that offshore lines do not receive the same scrutiny as onshore lines, and the large majority of offshore lines cannot hold the internal inspection equipment that looks for corrosion.

The Administration has already taken some steps toward toughening its stance, announcing last fall that it would step up enforcement of existing rules requiring companies to plug dried-up wells and dismantle unused platforms. Still, operational wells, regardless of age, and pipelines were not touched by these rules. 

BOEMRE Director Bromwich has indicated on several occasions since his appointment that the agency is aggressively pursuing substantial reforms for offshore operations. Industry should be prepared for significant action on this front in 2011 and beyond. Infrastructure inspection is a logical target area for BOEMRE in the coming days as aging and poorly maintained platforms, pipelines, and other infrastructure concerns undoubtedly raise considerable safety worries—both human and environmental—for the Obama Administration.

BOEMRE’s Investigations and Review Unit, which has been manned with a number of federal prosecutors on detail, will likely be handling these issues.

Former Interior Official Says Significant Uncertainty Looms for Offshore Regulation

At the December 2010 Institute for Energy Law International Offshore Oil & Gas Conference held in New Orleans, Tom Collier, a partner at Steptoe & Johnson LLP and former Chief of Staff to Interior Secretary Bruce Babbitt, told attendees that nuclear sector-style self-regulation for the US oil and gas industry will be highly unlikely. Instead, all indications from the Department of Interior and the Obama Administration point to a very different approach, and much about the future of this regulatory regime remains unsettled.

Collier noted that regulation of the offshore oil and gas industry is going through a transition period fraught with certainty.  He suggested that—at best—the uncertainty will cause significant delays while companies wait to hear when BOEMRE permits will be issued again. Further, the postponement of new lease sales for 2012-2017 creates substantial concern about how offshore exploration and production activities will move forward.

Other highlights from Mr. Collier’s presentation follow:

• BOEMRE’s Structure

A significant question that remains for industry is what type of regulator BOEMRE will eventually resemble. The reformation of MMS is hardly over, and there is a good chance that Congress will take up legislation this year that could impact BOEMRE’s structure and regulatory reach. That effort is likely to head in a different direction than Interior Secretary Ken Salazar has taken it in so far. Limited funding for BOEMRE will also present a real challenge on this front.

• Investigations and Review Unit

The Investigation Review Unit (IRU) set up within BOEMRE will be very active in coming months. The four federal prosecutors brought in to run the IRU have limited experience with the industry, and are likely to be aggressive and thorough in their investigations. As a result, routine investigatory practices of the past are likely to be replaced by efforts that may be more extensive than necessary and burdensome. Also, the IRU’s work will likely overlap somewhat with the role typically filled by DOI’s Inspector General. 

Companies will want to watch penalty assessment and enforcement practices under this new system. IRU penalties are more severe for companies found to be in systemic regulatory violation. What were once monetary fines could now be criminal violations. While DOI is highly unlikely to pursue criminal prosecution for minor violations, offshore operators must proceed with due diligence.

• NEPA

Mr. Collier also highlighted the concern that DOI has declared inadequate all existing environmental studies conducted for permit applications in line with the National Environmental Policy Act (NEPA), because they do not deal with the issues that the Macondo incident raised. Given the tiering process for NEPA-compliant exploration plans and permitting that relies on the EIS completed for DOI’s five year OCS lease plans, significant delays may lay ahead. Still, an even greater problem may be environmental assessments that are done too quickly, owing to extraordinary industry and political pressure. Such steps may create the opportunity for more aggressive action from the environmental community, which may sue to stop the issue of permits because of inadequate NEPA compliance.

One bright spot in BOEMRE’s approach might be its apparent interest in cooperating with industry to collect technical data, suggestions, and advice on best practices currently being followed. Mr. Collier suggested that this collaborative effort will hopefully guide BOEMRE’s prescriptive regulatory approach to limit the burden on industry to the greatest extent possible.