Wheels in motion to hold next Gulf of Mexico lease sale after US fortifies safety standards for offshore oil & gas ops

The U.S. Bureau of Ocean Energy Management (BOEM) has published a final notice to hold the next offshore oil and gas lease sale for acreage in the Gulf of Mexico (GOM) in September 2023. This comes on the heels of the U.S. Department of the Interior’s new measures, which are being put in place to strengthen workers’ safety and enhance the safety and oversight standards of offshore oil and gas operations on the Outer Continental Shelf (OCS).

The Inflation Reduction Act (IRA) of 2022, which President Joe Biden signed into law in August 2022, outlined that it would reinstate the vacated Gulf of Mexico Lease Sale 257 and hold the cancelled lease sales 258, 259, and 261. Is this energy bill living up to the expectations of opening the door to more federal onshore and offshore lease sales? Based on the Inflation Reduction Act, Lease Sale 261 needs to be held no later than 30 September 2023.

To company with this, the Bureau of Ocean Energy Management announced in January 2023 that it had prepared a Final Supplemental Environmental Impact Statement (EIS) for two Gulf of Mexico oil and gas lease sales – 259 and 261. BOEM’s announcement followed a Draft Supplemental EIS from October 2022 when BOEM disclosed the next steps for oil and gas leasing on the Outer Continental Shelf, including a proposed sale for the Gulf of Mexico region and completion of an environmental review for Cook Inlet, offshore Alaska.

At the end of March 2023, BOEM held the Gulf of Mexico Lease Sale 259, which generated $263,801,783 in high bids for 313 tracts covering 1.6 million acres in federal waters of the Gulf of Mexico. This lease sale offered approximately 13,600 unleased blocks, around 73 million acres, in the Gulf’s Western, Central and Eastern Planning Areas. Four oil majors – Chevron, ExxonMobil, BP, and Shell – submitted the biggest chunk of high bids during the lease sale.

As required by the Inflation Reduction Act of 2022, the Bureau of Ocean Energy Management proposes to conduct the GOM Lease Sale 261 on Wednesday, 27 September 2023. To this end, BOEM intends to publish the final notice of sale (FNOS) and record of decision (ROD) for this lease sale in the Federal Register on 25 August 2023.

Lease Sale 261 will offer approximately 12,395 blocks on around 67 million acres on the U.S. Outer Continental Shelf in the Western, Central, and Eastern Planning Areas in the Gulf of Mexico. The lease sale terms include stipulations to mitigate potential adverse effects on protected species and to avoid potential conflicts with other maritime uses. 

In response to BOEM’s final notice of sale for Lease Sale 261, Holly Hopkins, the American Petroleum Institute’s Vice President of Upstream Policy, underscored: “While the Department of the Interior announced a much-needed offshore lease sale today, the Biden administration continues to throw up roadblock after roadblock to American energy production, prioritising their campaign promise to stop American oil and natural gas development in federal waters over their duty to meet Americans’ energy needs.

“With this announcement, the administration is removing approximately 6 million acres of the Gulf of Mexico and adding new and unjustified restrictions on oil and gas vessels operating in this area, amounting to a lease sale in name only. These restrictions are not supported by the record and target the men and women of the oil and natural gas industry operating in this region, ignoring all other vessel traffic.

“Today’s announcement leaves American energy developers in a period of extended uncertainty, with no future offshore lease sales scheduled. This action defies Congress’s mandate in the Inflation Reduction Act, jeopardises U.S. energy security and violates the Biden administration’s energy obligations to the American people.”

The U.S. Interior Department has been entrusted with preparing a five-year offshore leasing programme for the past 45 years to meet America’s energy needs for the ensuing five-year period, detailing a schedule for regular oil and natural gas lease sales, including in the Gulf of Mexico. However, more than a year has gone by since the DOI allowed the five-year programme for federal offshore oil and natural gas leasing to lapse with no immediate replacement.

According to API, the Gulf of Mexico produces some of the lowest carbon intensity barrels in the world and the constrained production in this basin could be replaced by higher carbon intensity barrels from elsewhere in the world. The U.S. Energy Information Agency (EIA) claims that the Gulf of Mexico federal offshore oil production accounts for 15 per cent of total U.S. crude oil production and federal offshore natural gas production in the Gulf accounts for 5 per cent of total U.S. dry production. 

In addition, over 47 per cent of the total U.S. petroleum refining capacity is located along the Gulf Coast together with 51 per cent of the total U.S. natural gas processing plant capacity. The American Petroleum Institute points out that the Stipulated Stay agreement in Sierra Club v. National Marine Fisheries Service from last month imposed restrictions on an estimated 11 million acres in the U.S. Gulf of Mexico and proposed operating recommendations that would impose significant burdens on operators and increase emissions from vessels forced to operate at suboptimal speeds or idle outside the restriction areas.  

Furthermore, API emphasises that adopting the nighttime and low visibility restrictions could cut transit windows to approximately 50 per cent– requiring the industry to “balance the government’s recommended practices against safely and efficiently servicing ongoing operations. These restrictions would unfairly single out oil and gas traffic in an area that is one of the most used maritime areas in U.S. waters by a variety of industries. Thousands of vessels pass through this area every day.”

Back in September 2022, the Department of the Interior proposed revisions to the 2019 Well Control Rule to help boost safe and environmentally responsible energy operations and ensure offshore oil and gas operations on the Outer Continental Shelf were “conducted with the utmost safety and oversight standards.” This rule has now been finalised to enhance worker safety.

Building on reforms instituted by the DOI since the Deepwater Horizon tragedy killed 11 offshore workers, caused billions of dollars of damage and made lasting impacts on the environmental landscape in the Gulf of Mexico, the focus of the proposed rule is on well integrity and blowout prevention to help protect human lives and the environment by incorporating the latest technology and the lessons learned from operator experience and incident data since the current rule was adopted. 

Commenting on this, Deb Haaland, U.S. Secretary of the Interior, remarked: “The Biden-Harris administration is committed to the highest standards of worker safety and environmental protections. These improvements are necessary to ensure offshore operations, especially those related to well integrity and blowout prevention, are based on the best available, sound science. As our nation transitions to a clean energy economy, we will continue strengthening and modernising offshore energy standards and oversight.”

In the aftermath of the Deepwater Horizon incident, the Bureau of Safety and Environmental Enforcement (BSEE) adopted several recommendations from multiple investigation teams to improve the safety of offshore energy operations, leading to the publication of the 2016 Well Control Rule. In May 2019, BSEE published a final rule that weakened certain safety provisions.

In light of this, the DOI claims that the new final rule incorporates key lessons learned from operator experience, incident data regarding blowout preventers, and well integrity since the publication of the 2016 rule and revises or rescinds certain modifications that were made in the 2019 rule.

Kevin Sligh, BSEE Director, elaborated: “Finalising this rule will enable BSEE to continue to put the lives and livelihoods of workers first, as well as the protection of our waters and marine habitats. This rule strengthens testing and performance requirements for blowout preventers and other well control equipment, provides for timely and robust analyses and investigations into failures, and clarifies reporting requirements to ensure we have appropriate visibility over information and data critical to maintaining well integrity.”

Therefore, the DOI has finalised revisions that will require blowout preventer systems to be able to always close and seal the wellbore to the well’s maximum anticipated surface pressure, except as otherwise specified in the BOP system requirement section of the regulations.

Additionally, these revisions will require failure data to be reported to both a designated third party and BSEE; failure analysis and investigations to start within 90 days of an incident; and independent third-party qualifications to be submitted to BSEE with the associated permit applications.

Aside from specifying that surface BOPs on existing floating facilities need to follow the dual shear ram requirements when replacing an entire BOP stack, the revisions require that remotely operated vehicles be capable of opening and closing each shear ram on a BOP while the operator will be required to provide BOP test results to BSEE within 72 hours after completion of the tests if BSEE is unable to witness testing.