By R. Lee Vail

Deepwater oil and gas production from the Gulf of Mexico has become a significant portion of the current production within the United States, equal to over 1.6 million barrels per day of oil equivalent; total U.S oil production is around 5.3 million barrels per day. (1)  Worldwide shallow water oil production peaked around the year 2000 whereas worldwide deep water production has risen to around 5 million barrels per day. On May 10, 2011, the Bureau of Ocean Energy Management, Regulation and Enforcement (“BOEMRE”) approved Royal Dutch Shell’s Exploration Plan S-0744 to better define discoveries announced in 2009 and 2010. (2) 

Several environmental groups filed suit in an attempt to block the approved plan. Gulf Restoration Network, Inc., Florida Wildlife Federation, and Sierra Club Inc. filed a petition on June 8, 2011, in the United States Court of Appeals, 11th Circuit, in an attempt to set aside BOEMRE’s approval of the plan. The allegations in the petition are relatively general, alleging violation of the National Environmental Policy Act (“NEPA”) (i.e., for BOEMRE’s alleged failure to appropriately conduct the required environmental assessments and/or impact statements) and further alleging elements required pursuant to 43 U.S.C §1349(c) necessary to maintain the suit under the Outer Continental Shelf Lands Act (“OCSLA”).
 

Details of the alleged violations of NEPA are located in comments supplied by Earth Justice to docket number BOEM 2011-0021. Earth Justice, a public interest law firm, submitted the comments on behalf of themselves and the environmental groups named above. Among the complaints made by Earth Justice is that Shell’s actual compliance with BOEMRE regulations is unlikely and that BOEMRE’s risk analysis is flawed.

In response to the Deepwater Horizon Incident, on June 18, 2010, BOERMRE issued new regulations concerning exploration, production and development plans. In interpreting one of these, BOEMRE Notice to Lessees (NTL) No. 2010-N06, establishes that calculation of the worst case discharge (“WCD”) is “the daily rate of an uncontrolled flow from all producible reservoirs into the open wellbore.” (3)  In compliance with the regulation and notice, Shell calculated a theoretical worst case discharge (“WCD”) that exceeded estimates of the Deepwater Horizon incident. (4)  

The plan includes Shell’s evaluation of potential mitigating factors, effectiveness of intervention devices (including redundant blow out preventers “BOPs”) and containment methods (sub-sea containment assembly and other specialized connection devices). Earth Justice’s comments contend it is unreasonable for exploration plans to rely on use of BOPs in light of the failure of BOPs during the Deepwater Horizon incident and dismiss planned containment methods as “reliance on an unproven system of unknown reliability.”  (5)

The Shell Exploration Plan relies on new technology developed by Marine Well Container Co. (“MWCC”), a consortium of oil companies operating in the Gulf of Mexico. MWCC recently announced that the new system can operate at depths of up to 10,000 feet. (6)  According to a Dow Jones press release, “MWCC’s containment system improves on techniques that were gradually developed by BP after several failed attempts to cap the Deepwater Horizon spill. It consists of a capping stack that would stop the high-pressure flow of oil and gas from a runaway well, and ship the hydrocarbons to a surface vessel if needed.” (7)  BOEMRE previously approved an exploration plan that used the MWCC containment system for drilling a prospect in 6,941 feet of water. (8)

In its comments, Earth Justice further questioned BOEMRE methodology in determining that the likelihood of a spill. In an attempt to diminish the historical successful drilling of offshore wells without incident, Earth Justice argues that BOEMRE should reduce the set of comparable wells to only those in the Gulf of Mexico drilled in water of similar depths or complexity. Considering the single catastrophic failure in the Gulf (Deepwater Horizon), this approach, which lowers the number of comparable wells drilled in the Gulf, presumably would result in a greater risk of failure for future wells. (9)

Given the importance of oil and gas production from deep water Gulf of Mexico, this challenge will be an interesting test of the adequacy of industry efforts to comply with regulations developed by BOEMRE in response to the Deepwater Horizon incident and of BOEMRE’s adequacy in addressing NEPA requirements when approving drilling plans. 

 

(1)  Rafael Sandrea, Deepwater Crude Output: How Large Will it Be?, Oil & Gas Journal, 48-51 (Nov. 1, 2010).

(2) GoM: Shell Receives BOEMRE Approval for Appomattox Deep Water Exploration Plan in the Gulf of Mexico, http://www.energy-pedia.com/article.aspx?articleid=145375 (last visited June 15, 2011).

(3) NTL No. 2010-N06, Frequently Asked Questions, No. 14, http://www.gomr.boemre.gov/homepg/regulate/regs/ntls/2010NTLs/10-n06-FAQs.pdf (last visited June 14, 2011),

(4) Supplemental Exploration Plan, Section 2(j) Blowout scenario, http://www.gomr.boemre.gov/PI/PDFImages/PLANS/30/31468.pdf (last visited June 14, 2011).

(5) Earth Justice Comments dated April 21, 2011, http://www.courthousenews.com/2011/06/14/ShellDoc.pdf (last visited June 14, 2011).

(6) Angel Gonzalez (Dow Jones Newswire), MWCC Oil Spill Containment System Approved for 10,000-Foot Depths, Oil & Gas Journal (June 14, 2011), http://online.wsj.com/article/BT-CO-20110614-713284.html?mod=WSJ_Energy_middleHeadlines (last visited June 15, 2011).
(7)  Id.

(8)  BOERMRE’s Fourth Permit with MWCC System, Oil & Gas Journal, p. 5 (March 28, 2011).

(9)  Ultra-deep Gulf of Mexico exploration started in 2005 resulting in a lower number of comparable events. Deepwater drilling also occurs worldwide.