Jim Regg, MMS GOMR

Introduction

Minerals Management Service (MMS) is a regulatory agency within the United States Department of the Interior charged with responsibility for administering the Outer Continental Shelf (OCS) oil, gas, sulphur, and marine minerals program. These responsibilities include resource assessment, competitive sales for rights to explore and develop OCS resources, protection of correlative rights, revenue collection (rents and royalties), conservation of resources, and regulating operations. In addition to these, MMS is responsible for conducting inspections of lease operations to ensure compliance with safety and environmental protection mandates.

The past year has been remarkable in terms of leasing activity and operations, particularly for the deepwater Gulf of Mexico. Some statistical information will be provided to put the level of activity into perspective. MMS believes the potential for sustained long term activity levels in the Gulf of Mexico OCS have improved during the past 4 years.

MMS Authority and Jurisdiction

MMS's basic authority resides in the OCS Lands Act, as amended, and in the Code of Federal Regulations Parts 250, 251, and 256. The Gulf of Mexico (GOM) Region has the jurisdiction for all Federal OCS lands in the Gulf from Texas to Florida, seaward of the coastal States' offshore boundaries. The Region also has responsibility for the Atlantic OCS.

The MMS has collateral responsibilities with other State and Federal agencies under the Endangered Species Act, the Clean Water Act, the Oil Pollution Act, and others. Responsibility for compliance with these laws is shared with the Environmental Protection Agency, National Marine Fisheries Service, Fish and Wildlife Service, United States Coast Guard, and Coastal States.

The MMS reviews and updates its regulatory program to reflect advancements in offshore equipment and operating technologies. Operating experiences, industry recommended practices, feedback from our customers, and regulatory programs from other countries are reviewed to identify areas where the MMS regulatory program could be improved.

The Vice President's "Hammer Award" was presented to MMS at an October 1997 ceremony as recognition for the Agency's innovative achievements program. The initiative focuses on improving customer service, employee creativity in solving problems, and streamlining work processes. The MMS was specifically recognized for evolving from a traditional agency to a customer- and mission-driven organization.

GOM Activity

There are three major planning areas in the Gulf of Mexico: Eastern, Central, and Western. The MMS holds a lease sale in each of the Central and Western GOM planning areas annually, granting exclusive mineral rights to the successful high bidder on a particular lease. Lease sales are area-wide, offering acreage throughout the planning area. The length of a primary lease term is dependent on water depth, up to 10 years for deepwater. The primary term can be extended by a suspension of operations, a suspension of production, or the continuation of production beyond the primary term. Unitization agreements can also extend the lease term. Some lease statistics follow (approximates; March 1998):

-- 7,500 active hydrocarbon leases; (1,820 leases are producing);

-- 3,300 producing oil wells; 3,450 producing gas wells;

-- 3,900 active platforms;

-- 26,600 miles (total) of pipelines;

-- 33.7 million barrels of oil per month (average; 1997);

-- 433 billion cubic feet of gas per month (average; 1997).

There are currently 197 rigs working in the GOM as compared with 210 in March 1997. Of these, 155 are drilling versus 154 last year. The continued growth of deepwater (>1,000 feet of water) activity levels is illustrated by the following statistics (March 1998):

-- 27 rigs drilling in greater than 1,000 feet of water, several >4,000 feet with one in more than 7,000 feet (Shell, MC 739 -- 7,082 feet); 70% are mobile rigs (Figure 1).

-- 23 deepwater fields are currently producing;

-- 1997 estimated deepwater production: 25% of total oil, 7% of total gas as compared with 4.4% oil and 0.6% gas in 1990 (Figure 2); GOM OCS deepwater production (barrels of oil equivalent) has increased at a rate of 28% per year since 1985;

-- approximately 17% of the total pipeline miles are associated with deepwater developments.

Deepwater Rig Use - GOM OCS (Monthly Average)

There have been 1,190 wells drilled to date in the deepwater areas of the GOM from both mobile and platform rigs. Deepwater drilling to date has been concentrated in the Green Canyon, Mississippi Canyon, Viosca Knoll, and Garden Banks areas (90% of the deepwater wells). Increased activities in the Western GOM are expected beginning in 1998, particularly in the East Breaks, Garden Banks, Keathley Canyon, and Alaminos Canyon areas. The number of discoveries also continues to increase. Figure 3 shows the approximate locations for the 60-plus deepwater discoveries to date.

Lease Schedule

The MMS held another significant sale for leases in the Central GOM earlier this month. The sale received 1,188 bids on 794 offshore tracts. The total of the high bids was $810.4 million (MM). Last year's Western GOM Lease Sale was another record for the Western Gulf (1,224 bids), with MMS awarding nearly $600MM in high bids and resulting in 777 leases being issued. Figure 4 shows the leases issued by year beginning in 1992. Industry's deepwater successes and continued level of confidence in the potential of the Central GOM have been mentioned as part of the reason for record lease sales and the rebound of the entire GOM. Passage of the Deepwater Royalty Relief Act in November 1995 established royalty relief for new deepwater leases in the GOM and has been a direct contributor to the increase in leasing activity. Royalty relief may also apply to some existing leases. The MMS published final regulations implementing the royalty relief provisions on January 16, 1998; this initiative will be described later in this paper. The MMS website (http://www.mms.gov) has recent statistical information, copies of news releases, and other information relevant to the lease sales.

The 5-Year OCS Oil and Gas Leasing Program (1997-2002) was approved by the Secretary of the Interior in November 1996. Annual sales are scheduled for the both Central and Western GOM; one sale is scheduled for the Eastern GOM in November 2001. Given the similar and annual nature of the Central and Western GOM OCS lease sales, the prelease planning and decision process for these areas has been modified to eliminate redundancy and save resources. A multisale environmental impact statement (EIS) was prepared on the remaining sales scheduled in the current 5-Year Program. The multisale EIS for the Central GOM was published in 1997; the one for the Western GOM in 1998. The multisale EIS is intended to focus the EIS process on differences among the proposed sales and on significant environmental issues and recent information. An Environmental Assessment (EA) will be prepared annually to address each proposed sale.

In response to the rapid pace of deepwater activities in the GOM, the MMS is preparing an EA to assess the potential effects of deepwater exploration, development, and production operations and supporting activities. The MMS is using the EA process as a planning and management tool to ensure appropriate environmental review of deepwater operations. The objectives of the EA are to identify and evaluate the significance of potential impacts from operations in deepwater and to develop appropriate mitigation measures if needed.

Regulatory Update

A continuing regulatory effort is the rewrite of existing rules using simplified, clear language. Subparts A (General), D (Drilling Operations), J (Pipelines), L (Oil and Gas Production Measurement, Surface Commingling and Security), and O (Training) are currently being revised to eliminate obsolete and burdensome requirements in addition to the plain English initiative. Where appropriate, these regulations will be updated to be consistent with industry standards. The Subparts are in varying stages of the rulemaking process. A companion effort to the rewrite of these Subparts is a redesignation (i.e., changing the numbering) of the entire Part 250 regulations.

Summarized below are the other major regulatory initiatives through February 1998. The MMS has expanded its efforts in recent years to involve industry in issues affecting offshore operations.

Subpart A - Disqualification of Operators for Poor Performance

A Proposed Rule was published on February 13, 1998, addressing provisions for disqualifying an OCS operator for poor safety performance. If an operator demonstrates repeated poor safety performance, he could be prevented from acquiring additional leases and could lose his designated operator status. This rule is designed to strengthen MMS's effort to make certain safety remains a top priority for OCS activities.

BOP Testing

A study to investigate the performance of blowout prevention (BOP) equipment on offshore drilling rigs was referenced at last year's seminar. The MMS was joined by the Offshore Operators Committee, American Petroleum Institute, National Ocean Industries Association, International Association of Drilling Contractors, and Independent Petroleum Associates of America in funding the BOP Performance Study. The study concluded that no statistical difference in failure rates exists between BOP's tested every seven days and those tested between the 8- to 14-day interval.

The MMS has prepared a Final Rule to implement the findings of the BOP study, specifically allowing operators to test BOP equipment at intervals not to exceed 14 days between tests. The Final Rule should be published by June 1998. As guidance for BOP testing and maintenance, API Recommended Practice 53 will be included by reference in the Subpart D rewrite.

Safety and Pollution Prevention Equipment

A Final Rule regarding quality assurance for safety and pollution prevention equipment (SPPE) used in OCS wells and facilities was published in the Federal Register on August 8, 1997, and became effective on October 7, 1997. The rule allows the use of noncertified valves for as long as the device functions properly. It further addresses under what criteria a noncertified valve must be replaced with a certified valve. After April 1, 1998, an operator may no longer install a noncertified SPPE that is in his inventory.

Deepwater Royalty Relief

On November 28, 1995, the OCS Deepwater Royalty Relief Act was passed for both new and existing leases in water depths of at least 200 meters. On January 16, 1998, final regulations were published implementing the provisions of the Act. Regulations concerning tracts leased during a sale held after the Act's enactment (new leases) are contained in 30 CFR Part 260. Regulations concerning leases issued prior to the Act's enactment (existing leases) are contained in 30 CFR Part 203. Royalty relief for both new and existing leases applies only to fields in which no current lease produced prior to November 28, 1995. Only existing leases require the submittal of a deepwater royalty relief application. The minimum royalty suspension volumes are:

- 17.5 million barrels of oil equivalent (MMBOE) for fields in 200 to 400 meters of water;

- 52.5 MMBOE for fields in 400 to 800 meters of water; and

- 87.5 MMBOE for fields in more than 800 meters of water.

Detailed information can be obtained from the MMS website (http://www.mms.gov). To date, one application for royalty relief has been approved and two are currently being reviewed.

OPA 90 Spill Financial Responsibility

The purpose of this rule is to ensure that parties responsible for offshore oil facilities are able to pay claims for cleanup and damages from facility oil spills. The proposed rule has been revised to reflect provisions established in the USCG Authorization Act of 1996. The rule will require financial responsibility ranging from $10MM to $150MM for facilities in State waters, and ranging from $35MM to $150MM for facilities on the OCS. A Notice of Proposed Rulemaking was published in the Federal Register on March 23, 1997. Comments received have been evaluated and a Final Rule is being prepared.

Bonding - Phase II

New bonding requirements became effective on August 27, 1993, establishing three tiers of general and area-wide bonding requirements. The rule establishes a deadline for all leases to be brought into compliance with new area-wide and general bonding requirements; establishes the three-tier approach along with a regulatory regime for alternative forms of security; and updates bonding requirements for rights-of-way and G&G permits. The Final Rule was published in the Federal Register on May 22, 1997, with an effective date of August 22, 1997.

Performance-Based Regulation

The MMS continues to work with the offshore industry to encourage voluntary adoption of API RP 75 by OCS lessees. A performance measures workgroup has been established with industry to develop a methodology for determining the effectiveness of offshore safety management systems and how such can be measured. The group is working to establish an overall benchmark that can be used to compare all operators' Safety and Environmental Management Program (SEMP) efforts. Industry and MMS have held several workshops to establish performance measures to be used in judging the adequacy of the SEMP initiative. A pilot project is planned to test the methodology being developed and, if successful, could lead to full-scale implementation as an audit tool for SEMP compliance.

In 1997, MMS announced that each OCS operator will be required to meet with MMS to review their performance. A significant amount of information will go into these annual performance reviews, with a focus on incidents of noncompliance, past and pending civil penalties, and accidents. These meetings are intended to be a management-to-management performance review. As information becomes available, MMS will incorporate each company's data from the industry-wide performance measures project. This effort will also provide MMS with the opportunity to learn more about each company's approach to implementing SEMP, leading to the identification of ways to improve the effectiveness of SEMP.

G&G Exploration

On December 24, 1997, MMS published a Final Rule covering the conduct of geological and geophysical (G&G) data collection on the OCS. The new rule clarifies obligations of third parties who obtain data collected under a G&G permit. The rule also standardizes definitions and archaeological requirements and reflects the changes that have occurred in G&G technology. Effective January 23, 1998, G&G operators are now required to notify MMS of all scientific research activities on the OCS.

Deepwater

Two Notices to Lessees and Operators (NTLs) were issued in 1996 to address the growing complexities and issues associated with deepwater development projects. Effective on August 19, 1996, the Deepwater Operations Plan (DWOP) NTL (96-4N) established a proactive approach for reviewing deepwater development activities.

The DWOP addresses technology, safety systems, inspection, testing and maintenance practices, alternative compliance, and other subject areas. The Plan is submitted to MMS in three parts: Conceptual, Preliminary, and Final. Each part reflects the operator's state of knowledge regarding the project and will provide an early opportunity for the operator and MMS to agree on the proposed development strategy (design basis and philosophy) prior to major expenditures. The three-part submittal is intended to reduce the overall risk of the deepwater development project. The DWOP approach has reduced the need for MMS to constantly revise regulations to keep pace with rapidly evolving deepwater technology. With DeepStar, guidelines for implementing the DWOP requirement were developed.

A continuing dialogue with DeepStar and others has resulted in the revision of the first set of DWOP guidelines to simplify the language and to include specific information in the DWOP about floating production systems. Following an extensive review by MMS and with the approval of the Office of Management and Budget, a new NTL will be signed in April 1998 to implement the revised DWOP guideline. The significant changes made include:

-- improved readability;

-- include provisions for floating production systems and nonconventional fixed facilities;

-- designed flexibility by basing DWOP information on a component basis; allows unique technologies (new to the GOM) to be addressed without revising the guideline;

-- require a Conceptual Part for every project that requires a DWOP;

-- waive the Preliminary Part for certain shallow water subsea developments.

A second NTL (96-6N) addresses conservation information needs for deepwater and subsea development projects. This NTL became effective October 1, 1996. The purpose of the Conservation NTL is to ensure the lessee/operator develops all penetrated, economically producible reserves before abandoning the field. Action on the conservation information is taken as part of the Development and Operations Coordination Document (DOCD). A formal review of the Conservation NTL will be initiated later this year to evaluate its effectiveness and any changes that may be needed based on the past 2 years' experiences. This review will be coordinated with the same industry groups that helped develop the Conservation Information NTL.

Other NTLs

NTL 97-9: Hydrogen Sulfide Requirements

This regulation was published on January 27, 1997, with an effective date of March 28, 1997. The purpose of NTL 97-09 was to provide clarification, guidance and information regarding the interpretation of certain provisions contained within the revised 30 CFR 250.67.

NTL 97-11: Special Security Handling of Well Logs and Data

This NTL eliminates the special security handling procedures that were established in NTL 73-4, and NTL 89-02. The MMS recognizes the need for security handling of well logs and data and maintains procedures to protect such information. The MMS believes elimination of special security handling will not compromise the proprietary nature of the data submitted by lessees and operators.

NTL 97-2N: Well Naming and Numbering Standards

The MMS has developed new well naming and numbering standards to simplify and clarify well identification and data storage. The new approach will result in significant cost and man-hour savings for MMS and perhaps as much as 10 to 15 percent of the data processing costs for industry. The goals of the revised and improved standards and practices are: (1) to ensure that all wellbores in the OCS, including bypasses, sidetracks, redrills, and well deepenings, are assigned a unique, consistent identifying number; and (2) to address recent naming and numbering challenges posed by new technology wellbores such as multilateral, horizontal, and downhole splitter wells. The new standards apply to all wellbores drilled in the future and will facilitate the numbering of 8,000 to 10,000 historic wellbores that were never assigned API numbers. This will be accomplished without having to change any well numbers already assigned.

NTL 97-3N: OCS Program

In August 1997, OCS lessees and operators were informed that MMS will conduct an Annual Performance Review of each operator. This annual review will examine the operator's history of compliance as it relates to the MMS Inspection Program, any action that MMS has forwarded for review or has resulted in a civil penalty, the operator's safety record as it relates to accidents and incidents, and the operator's progress in implementing SEMP. The Annual Performance Review does not require an operator to submit any addiotional information. To date, 80 reviews have either occurred, been scheduled, or are pending.

NTL 98-3N: Guidelines Available for Royalty Relief Under 30 CFR Part 203

Two supplementary guidelines have been developed by MMS to assist with the implemention of royalty relief regulations. These guidelines address the application, review, approval, and administration of royalty relief for both deepwater and for end-of-life leases. They also explain the procedures MMS will follow for evaluating applications and implementing royalty relief, and our rationale for excluding selected cost items from consideration.

Research

Safety and pollution prevention research sponsored by MMS continues to focus on well control initiatives as well as projects involving structural, pipeline, produced fluids, safety devices (valves, blowout preventor equipment, etc.) and deepwater technological issues. Several of these studies are risk and reliability analyses. Oil spill clean-up techniques have been another major focus for MMS research. Modeling of a deepwater release (i.e., blowout), and the fates and effects of such a release (oil and gas) have become high priority research needs as operations continue to move into deeper water. A joint effort by MMS and industry is evaluating proposed research on deep plume modeling, surveillance and remediation.

Conclusions

The MMS is committed to ensuring the safe and pollution-free exploration, development and production of the offshore mineral resources. As interest and activity continue to grow, especially in the deepwater areas of the GOM, it will become increasingly important for the industry and MMS to maintain an open dialogue about technological advances, regulatory needs and concerns, and operational safety. The MMS has been working very hard to keep pace with advances in technology and with the issues that most affect safe and pollution-free exploration and development offshore. The Marine Safety Seminar gives us an excellent opportunity to explain our accomplishments and to obtain necessary feedback from our customers. The MMS appreciates the opportunity to participate in this forum.

Figures

1. Deepwater Rig Use

2. Deepwater Production - 1985 through 1997

3. Map of GOM OCS Deepwater Discoveries

4. New GOM OCS Deepwater Leases - 1992 through 1997

Gulf of Mexico Activities and OCS Regulatory Trends

1998 Marine Safety Seminar

March 27, 1998

Biographical Sketch

Jim Regg is a Petroleum Engineer with the MMS Gulf of Mexico Region, located in New Orleans. He currently works in the Field Operations office, responsible for technical, safety, research and regulatory issues relating to drilling and production activities. He coordinates the Deepwater Operations Plan process for MMS. Jim has offshore experience in drilling and production operations in Alaska and the Gulf of Mexico, and also experience with the MMS offshore inspection program. He has had numerous papers published, conducted several workshops, and serves on several joint MMS-industry initiatives, including DeepStar. Jim received a Petroleum Engineering degree from the Pennsylvania State University. He will be discussing MMS regulatory initiatives as well as providing a brief overview of the activity level in the GOM Outer Continental Shelf. Deepwater activities will be emphasized because of the dramatic effect they are having on all aspects of the MMS program.

Abstract

The Minerals Management Service (MMS) is a regulatory agency within the United States Department of the Interior with responsibility for administering the Outer Continental Shelf (OCS) oil, gas, sulphur, and marine minerals program. These responsibilities include resource assessment, competitive sales for rights to explore and develop OCS resources, protection of correlative rights, revenue collection (rents and royalties), conservation of resources, and regulating operations. In addition to these, the MMS is responsible for conducting inspections of lease operations to ensure compliance with safety and environmental protection mandates.

An update of MMS regulatory initiatives for the past year will be presented. As background information, a brief description of the following will be provided: MMS jurisdiction and authority, Gulf of Mexico OCS activities and MMS research. Several areas of regulation and policy will be discussed, including operations and safety, performance-based regulation, deepwater initiatives, and training.

1. The number of wells drilled does not distinguish sidetracks out of the existing wellbore as separate wells (for purposes of this report, only a separate surface (seafloor) location would be considered a separate well).