April 2018 Industry Digest

NEW ORLEANS–The Bureau of Safety and Environmental Enforcement is implementing a risk-based inspection protocol that it says employs a systematic framework to identify Outer Continental Shelf facilities and operations that exhibit a high-risk profile.

The new protocol, which BSEE says supplements its existing national safety inspection program, looks beyond compliance and assesses the integrity of critical systems on facilities and operations. Those that have had multiple incidents of noncompliance or events may need more attention.

“We developed this program to address areas where trends in compliance and incident data suggest the potential for imminent safety concerns,” said Jason Mathews, chief of BSEE’s Gulf of Mexico Region Safety Management Office, in announcing the initiative on March 12.

Mathews explains that BSEE will use facility- and performance-based inspection findings and incident reports to assign a risk-factor score to each Gulf of Mexico production facility. Facility-based inspections will analyze low-probability/high-consequence potential incidents at facilities, while performance-based inspections will analyze key performance indicators and utilize trend analysis to focus on reducing the likelihood of events and compliance issues. Based on those results, BSEE says it will prioritize areas that require follow-up.

Speaking March 6 at the CERAWeek conference in Houston, Interior Secretary Ryan Zinke described the risk-based inspection system as one of six initiatives BSEE will institute by midyear. A second initiative, Zinke said, was developing a software application that accepts electronic versions of BSEE’s Form BSEE-0131, performance measures data, which enables users to enter, save and submit their data online as well as track previous submissions. The new electronic form was announced to the offshore industry in Notice to Lessees 2018-N02, issued Feb. 8.

BSEE estimates the risk-based inspection protocol along with electronic data collection will save it nearly $20 million over the next three-and-a-half years while increasing staff members’ physical offshore inspection time.

Other initiatives BSEE is pursuing, Zinke outlined, are:

• Increasing its engagement with industry;
• Identifying the best available and safest technology requirements for critical offshore equipment;
• Identifying gaps between advancing technologies and regulations; and
• Researching the potential for third-party certification of BSEE’s inspection program by the International Standards Organization.

WASHINGTON–Gulf of Mexico Lease Sale 250 generated $124.8 million in high bids on 148 tracts covering 815,403 acres in a sale livestreamed from New Orleans on March 21.

Interior Assistant Secretary for Land and Minerals Development Joe Balash says 33 companies submitted $139.1 million in total bids. Lease Sale 250 included 14,474 blocks located from three to 231 miles offshore in the Gulf’s Western, Central and Eastern planning areas in water depths ranging from three to more than 3,400 meters. It was the second sale held under the 2017-22 Outer Continental Shelf Oil and Gas Leasing Program, which calls for 10 regionwide sales.

The Bureau of Ocean Energy Management reports 43 of the 148 tracts receiving bids are located in waters less than 200 meters deep and are eligible for 12.5 percent royalty rates. The remaining 105 bids, which are subject to an 18.75 percent royalty, include 59 in waters at least 1,600 meters deep.

Mississippi Canyon Block 509 received the greatest number of bids at three, while Total E&P USA Inc., turned in the highest single bid at $7.0 million for Mississippi Canyon Block 697.

BP Exploration & Production Inc. submitted the highest number of bids, according to BOEM, offering $20.1 million for 27 tracts. BP was followed by Chevron U.S.A. Inc. at $29.4 million for 24 tracts and Shell Offshore Inc. at $22.9 million for 16 tracts.

Rounding out the top 10 most active bidders were Total E&P, Hess Corp. Byron Energy Inc., Arena Energy LP, SBD Offshore Energy Inc., W&T Offshore Inc. and EnVen Energy Ventures Inc.

BHP Billiton Petroleum (Deepwater) Inc. moved into the top five spenders in Lease Sale 250 by bidding $5.3 million on three tracts, following Total E&P’s $15.1 million for nine tracts.

National Ocean Industries Association President Randall Luthi terms the sale “encouraging,” and says it shows “a promising trajectory toward the future. While the bidding activity reflects improving–yet still lower than desired–commodity prices, both the number of bids submitted and the total amount of bids received are up compared with the August 2017 sale.”

Gulf of Mexico Lease Sale 249 netted $121 million out of $137 million on 99 bids for 508,096 acres (AOGR, September 2017, pg. 19).

WASHINGTON–The White House added 173,660 acres in Wyoming to its latest auction shortly before the lease sale took place in mid-March. According to published reports, almost 80 percent of the added lands are habitat for the greater sage grouse.

Federal land-use plans adopted in 2015 pushed the Interior Department to prioritize oil and gas leasing and drilling outside of such habitat, but Interior Secretary Ryan Zinke overturned that commitment in December. The department argues the revised instruction memoranda will allow multiple land use and economic development while continuing to protect the habitat (AOGR, February 2018, pg. 94).

In its IM dated Dec. 27, DOI states the Bureau of Land Management no longer needs to lease or develop outside of greater sage grouse management areas before considering any leasing or development within those areas. Where BLM has a backlog of expressions of interest for leasing, DOI says the bureau will prioritize its work first in nonhabitat management areas, followed by lower priority, and then higher priority, habitat management areas.

Several anti-development groups, including the Center for Biological Diversity, attacked Zinke’s actions, saying the change endangers the sage grouse. CBD points out the bird’s habitat also is home to more than 350 species, including the pronghorn, elk, golden eagle and nearly 200 other bird species.

In response to comments submitted in opposition to the March lease sale, BLM says the new IM authorizes more stringent lease stipulations within the greater sage grouse habitat areas to encourage lessees to acquire leases outside those areas. The bureau also notes that since it, Wyoming and other partners began developing the current sage grouse conservation strategy in 2008, there has been a 73 percent reduction in federal oil and gas leases in the sage grouse’s core population areas.

The Wyoming sale resulted in competitive bids for 152 of the 170 parcels, with sales topping $19 million. It was the first BLM lease sale of 2018 in the state, and included parcels in 13 counties in the BLM Wyoming High Plains and Wind River/Bighorn Basin districts. The highest per acre bid, submitted by Titan Exploration LLC, was slightly more than $12,000 an acre.

BLM adds its second-quarter lease sale will be held the third week of June and will be composed of parcels from the bureau’s Wyoming High Desert District.

NEW YORK–Attorneys with Spilman, Thomas & Battle term “precedent setting” the U.S. Court of Appeals for the 2nd Circuit’s March 12 decision that New York State’s failure to make a timely Clean Water Act 401 certification decision constituted a waiver of the state’s right to act on the pipeline.

The Federal Energy Regulatory Commission ruled last September that the New York Department of Environmental Conservation had waived its right to issue the 401 certificate for Millennium Pipeline Company’s Valley Lateral project because the DEC had not acted within one year of the filing date.

Spilman, Thomas & Battle note the NYDEC had claimed the one-year time frame did not begin to toll until Millennium’s application was complete, which it contended was not because its environmental assessment did not consider downstream greenhouse gas emissions that could occur as a result of the pipeline’s supply to consumers.

However, in the majority opinion for New York State DEC v. FERC, Circuit Judge José Cabranes wrote, “We conclude that the DEC waived its authority to review Millennium’s request for a water quality certificate . . . by failing to act on that request within one year,” according to published reports.

“FERC does have jurisdiction over the pipeline,” Cabranes concluded.

A Bloomberg report quotes ClearView Energy Partners Managing Director Christi Tezak saying the ruling “does provide certainty about what the timeline is,” and that the decision may make it more difficult to block pipelines by withholding permits.

MONTGOMERY, AL.–The Trump administration has yielded to pressure from 20 states and agreed to reconsider rules that restrict property owners’ land use. The rules were changed by President Barack Obama to expand the federal government’s authority to designate areas as critical habitat under the Endangered Species Act.

According to Alabama Attorney General Steve Marshall, the Obama-era rules were not only wildly unreasonable, but contrary to both the spirit and letter of ESA, and also violated provisions of the Administrative Procedure Act.

In 2016, the U.S. Fish & Wildlife Service and the National Marine Fisheries Service unveiled rules that allowed the designation of land as critical habitat for an endangered species, even if the species was not present on that acreage and it lacked the biological features needed to support the species (AOGR, January 2016, pg. 151).

Alabama sued in the U.S. District Court for the Southern District of Alabama, alleging the rules were an illegal federal overreach. The lawsuit was joined by 19 states and four trade associations. The lawsuit was temporarily stayed in February 2017 to allow the Trump administration and the states to coordinate efforts to revise the regulations (AOGR, March 2017, pg. 20).

To settle the lawsuit, the White House has agreed to have the two agencies submit revised rules for public review, Marshall’s office says.

“We are encouraged that the Trump administration has agreed to revisit these rules, which threaten property owners’ rights to use any land that the federal government could dream that an endangered species might ever inhabit,” he says. “Congress purposely set a stricter standard for when unoccupied land could be classified as critical habitat, and that is only if the current inhabited land is not adequate to the species’ survival and the unoccupied land is essential to preserve the species.”

The Obama revisions allowed the federal government to prevent activities it decided could adversely affect habitat features that don’t actually exist, Marshall points out. The states’ lawsuit posed as a hypothetical example Washington declaring a desert as critical habitat for an endangered fish and preventing highway construction through desert lands under the theory that it would prevent the future formation of a stream that might one day support the species.

Joining Alabama in the suit were Alaska, Arkansas, Arizona, Colorado, Idaho, Kansas, Louisiana, Michigan, Missouri, Montana, Nebraska, New Mexico, Nevada, North Dakota, South Carolina, Texas, West Virginia, Wisconsin and Wyoming.

SAN FRANCISCO–A federal judge in San Francisco has ordered the U.S. Environmental Protection Agency to designate nonattainment areas under its 2015 70 parts per billion National Ambient Air Quality Standards for ozone by April 30.

According to published reports, Judge Haywood Stirling Gilliam Jr. of the U.S. District Court for the Northern District of California issued the order on March 12.

Last June, EPA Administrator Scott Pruitt advised states he intended to push back the date for implementing the Obama-era standard from Oct. 1, 2017, to Oct. 1, 2018 (AOGR, July 2017, pg. 33), but a few months later rescinded that order (AOGR, September 2017, pg. 34).

However, EPA missed the Oct. 1 deadline, saying it needed additional time to gather information, which it contended the Clean Air Act allowed. In December, the attorneys general for 14 states plus the District of Columbia, as well as several environmental organizations, filed suit (AOGR, January 2018, pg. 24).

According to the reports, EPA responded to Judge Gilliam’s order by saying it was reviewing smog information from the states and “look(ed) forward to working with co-regulators to continue the designation process for the 2015 standards.”

The reports mention that in November, EPA announced 2,646 counties in the country–about 85 percent–met the new standards, but it did not declare the remaining counties to be in nonattainment.

SACRAMENTO, CA.–Instead of requiring costly dredging to remove sediment behind water reservoirs and diversions, sediment from reservoirs in the Missouri River Basin may be used as fracturing proppant feedstock, the U.S. Geological Survey says.

USGS scientists investigated the potential of reservoir sediments in the delta headwaters of Lewis and Clark Lake in Nebraska and South Dakota, downstream from the Niobrara River. They collected and analyzed 71 sediment samples from 25 locations, and found that 48 percent of the samples were the adequate size, shape and strength to be used as fracture sand.

Sediments similar in size to those found in the Niobrara River also are carried by the Loup River, which already is used as a source of proppant, notes Ron Zelt, a USGS hydrologist at the California Water Science Center in Sacramento and lead author of the study. He points out both of the rivers run through the Sand Hills of Nebraska.

The study also analyzes particular methods that can be used to identify and assess sediments for fracture-related commercial products.

“Information from the new study could shift how deposited reservoir sediment is mitigated, and how recovered sediments potentially could be viable to various industries,” Zelt says.

The study also notes that sediment buildup in waterways can impair infrastructure life span, public water supplies, hydroelectric power generation and recreational activities. Using the material as fracturing sand feedstock can defray some costs of mitigating the problematic sediment buildup, it suggests.

WICHITA FALLS, TX.–Increased production and higher wellhead prices propelled the Texas Petro Index upward for the 14th consecutive month in January. The Texas Alliance of Energy Producers, which sponsors the monthly measure of Texas’ oil and gas economy, says the index reached 192.7 in January, 25 percent above its year-ago level of 153.7.

“The statewide upstream oil and gas economy remains in a state of expansion with generally favorable pricing, a slowly rising rig count, growing industry employment, and record crude oil production,” affirms Karr Ingham, the economist who created the TPI.
Ingham says the number of drilling permits granted in January increased to 1,166, about 22 percent more than in January 2017, and was the highest January level in four years. Oil well completions also turned the corner in January, Ingham adds, rising 77 percent while natural gas completions increased 113 percent.

Ingham says most of the impetus for the continuing upstream expansion in Texas comes from crude oil. “According to TPI estimates, crude oil production in Texas in January totaled 119.4 million barrels, which would surpass all prior volumes in January, including the early 1970s when the statewide annual production record was set,” Ingham reveals.

“In addition,” he observes, “the posted price for crude oil in Texas jumped more than $6 a barrel compared with December to average more than $60 a barrel for the first time since November 2014.”

Among the highlights of the January TPI:

• The value of Texas-produced crude oil amounted to nearly $7.2 billion, 48.8 percent more than in January 2017.
• Texas natural gas output increased 2.7 percent compared with January 2017 to nearly 665.9 billion cubic feet. With natural gas prices averaging $3.62 an Mcf in January, the value of Texas-produced gas increased 16.4 percent to $2.4 billion.
• The Baker Hughes count of active drilling rigs in Texas averaged 456 units, 35.7 percent more than in January 2017.
• An estimated average of 226,200 Texans remained on upstream oil and gas industry payrolls, 15.5 percent more than the revised average of 195,900 in January 2017, but 23.4 percent fewer than the estimated high of 295,200 in December 2014.

With U.S. onshore rig counts and drilling permits continuing to show significant year-to-year increases, Permian Basin International Oil Show officials say they are preparing for what may be one of the event’s highest attendance levels in more than a decade. The 2018 PBIOS is scheduled for Oct. 16-18 at the Ector County Coliseum and Fairgrounds in Odessa, Tx.

The Permian Basin has led the recovery in the domestic oil and gas market, accounting for more than 40 percent of the total number of active U.S. rigs through the first quarter of 2018. With the entire industry focusing on the Permian, PBIOS Executive Director Anthony “Tony” Fry notes that the 2014-17 industry downturn and ongoing recovery have resulted both in a number of new entities, as a result of mergers and acquisitions, as well as a growing roster of new startups interested in exhibiting at this year’s show.

“Everyone in the industry realizes that these company mergers create a demand for unified exhibit locations, whereas the legacy companies may have been in separate locations. There also is a pronounced influx of inquiries this year from newly formed companies requesting information about the availability of exhibit space,” Fry elaborates, noting that show officials are fielding requests from potential new exhibitors from across the nation as well as those asking for larger exhibit spaces throughout the vast show grounds.

PBIOS President Stephen Castle, owner and president of Cowboys Resources Corp., presides over the 200-member volunteer PBIOS Board of Directors and Executive Committee. He notes that nearly all of these individuals are coping with increased workloads as firms throughout the Permian and surrounding areas increase the pace of activity. “With the March 29 Baker Hughes rig count showing 443 rigs turning to the right in the Permian Basin, compared with 319 last year, we certainly are aware that industry events showcasing the latest technology from all industry sectors are going to experience increased attendance levels. We are preparing for one of the busiest PBIOS events in recent history,” he observes.

Castle announces that the executive committee, who traditionally have worn trademark brown blazers, will be recognized more easily at the 2018 PBIOS in new blue jackets with highly-visible oil show emblems. The updated jackets are designed to help exhibitors and attendees recognize individuals strategically located at show ground entry gates and throughout the exhibit areas. Castle also notes that there again will be information booths immediately inside the show ground entrances to provide attendees with details on PBIOS as well as general information about the Odessa and Midland area.

Fry indicates a smart new PBIOS app is in development to dovetail with the show grounds maps, and extensive exhibitor and product/services listings in the Official Program Guide published by The American Oil & Gas Reporter.

For information about exhibit space, contact Jessica Smith at the PBIOS show office at 432-367-1112, pbioilshow@pbioilshow.org or visit www.pboilshow.org.

For details about advertising in the Official Program Guide for the 2018 Permian Basin International Oil Show, please contact Bev Brady, bbrady@aogr.com, Tim Castillo, tcastillo@aogr.com, or call 1-800-847-8301.

TOPEKA, KS.–The Eastern Kansas Oil & Gas Association has combined its association management and lobbying services into a single team by hiring Topeka association management firm, PMCA Servco, to represent the association, according to President Rob Eberhart.

Eberhart recalls that after former Executive Director Janelle Aikins announced her intention to resign at the end of 2017, EKOGA formed a search committee to find a replacement. “After many months of interviews, we decided to take a new approach,” he says.

Tom Palace, executive director of PMCA Servco, will serve as EKOGA’s executive director as well as its lobbyist. “We are looking forward to his leadership and knowledge to help EKOGA navigate the regulatory and legislative environment,” Eberhart says.

Palace says PMCA Servco was founded in 1992 and also manages the Petroleum Marketers and Convenience Store Association of Kansas. Its office and staff of seven are located at 115 SE Seventh St. in Topeka. He describes PMCA Servco as a single-source provider for services such as meeting planning, record keeping, accounting, lobbying and general association management.

“We will carry out the policies and procedures set forth by the EKOGA Board of Directors, and will assist the committee process, providing input when needed and support staff as directed by committee chairs,” he pledges. “PMCA Servco will do its best to make this change transparent while offering a level of service that will take pressure off EKOGA’s leadership and help take the association to the next level.”