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By Alan Kovski
July 7 — A final rule tailoring oil and natural gas exploration regulations to the rigors of the offshore Arctic environment was unveiled July 7 by Interior Department officials.
The rule will standardize the rigorous requirements imposed on Royal Dutch Shell Plc in 2012 and 2015, said Janice Schneider, assistant secretary for land and minerals management.
The requirements include such expensive elements as a separate drilling rig stationed in the region to drill a relief well if necessary, and a spill containment system such as a capping stack or containment dome kept readily available.
Interior estimated the rule will cost industry $1.75 billion to $2.05 billion over 10 years.
Schneider said benefits were not quantified because of the difficulty of making such estimates, but she pointed to the Deepwater Horizon disaster in the Gulf of Mexico as an indication of the high costs that can be avoided thanks to the strictures of the Arctic rule.
There are 42 leaseholders remaining in the Beaufort Sea and one (Shell) in the Chukchi Sea, but companies have no exploration plans ready for either sea, other than a Hilcorp Alaska LLC plan for drilling from a gravel island, which would not be governed by the new regulations.
The final rule will apply to work involving mobile offshore drilling units, meaning floating rigs, jackup rigs and drillships operating in the planning areas of the Beaufort and Chukchi.
The rule (RIN:1082-AA00) was developed jointly by the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) and will become effective 60 days after publication in the Federal Register.
Special regulations for Arctic production—as opposed to exploration—are still to be developed by the two regulatory agencies.
It also remains to be seen how restrictive the BOEM will be in the final version of its next five-year program for offshore oil and gas leasing, expected to be completed this year. Environmental activists hope to see Arctic leasing left out of the plan entirely.
Interior officials have explained that the Arctic rule was needed to cope with a region characterized by extreme environmental conditions, geographic remoteness and a relative lack of infrastructure to support operations.
The area has a short drilling season, typically late June to early November. The season becomes shorter still because of requirements that a problem be contained before the floating ice arrives to end the season.
The rule will require operators to have access to a separate relief rig staged at a location such that it could arrive on site, drill a relief well, kill and abandon the original well and abandon the relief well prior to expected seasonal ice encroachment at the drill site and in no event later than 45 days after the loss of well control.
The need to be able to do all that in such a time frame means that an operator cannot drill or work below the surface casing of a well right up to the last days before the ice arrives, because time must be left for a possible spill control operation.
The shortness of the season adds to the expense because it raises the prospect that at least two seasons will be needed to explore a site.
"This is an unfortunate turn by this administration and will continue to stifle offshore oil and natural gas production," said Erik Milito, the American Petroleum Institute's director of upstream and industry operations.
Randall Luthi, president of the National Ocean Industries Association, reacted similarly. He released a statement saying the rule “includes unnecessary requirements, such as same season relief wells, which may not be needed due to the availability of new response and containment equipment. Prescriptive requirements in the rule could thwart industry innovation and development of new technology, and may not actually increase operational safety.”
The rule is a mix of prescriptive and performance-based requirements.
In the final rule, the section on the relief rigs and spill containment systems was revised to more clearly state the standards operators must meet to satisfy the requirements while also providing that operators may request approval of an alternate technology if the operator can show the alternate technology will be as good or better than the requirements.
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The final rule for Arctic offshore oil and gas exploration work is available at http://www.bsee.gov/ArcticRule.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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