The U.S. Department of the Interior announced on July 7 that it was publishing a final drilling safety rule for oil and gas exploration on the Arctic outer continental shelf. The new regulations, which apply to drilling from drill ships, semi-submersible drilling rigs and jack-up rigs, cover the federal waters of the U.S. Beaufort and Chukchi seas.
The regulations include a requirement for the development of an integrated operations plan in advance of the filing of an exploration plan for proposed exploration drilling. Under the regulations, an operator must be able to promptly deploy source control and containment equipment such as well capping stacks or containment domes when drilling below the surface casing of a well. The operator must also have access to a backup drilling rig for the timely drilling of a relief well, in the event of a loss of well control. And the regulations mandate the implementation of an oil spill response plan designed for the Arctic outer continental shelf operating environment. Also included is the mandated real-time monitoring of offshore drilling progress from an onshore site.
Interior has estimated that the cost to industry of compliance with the regulations will be $1.74 billion to $2.05 billion over 10 years, depending on the discount rate used.
“Conducting safe and environmentally responsible Arctic exploratory drilling operations presents a variety of technical, logistical and operational challenges,” said Bureau of Safety and Environmental Enforcement Director Brian Salerno. “This rule making seeks to ensure that operators prepare for and conduct these operations in a manner that drives down risks and protects both offshore personnel and the pristine Arctic environment.”
Balanced approach
Janice Schneider, Bureau of Ocean Energy Management assistant secretary for lands and mineral management, said that the regulations support the Obama administration’s “thoughtful and balanced approach to oil and gas development in this unique and challenging frontier environment” and that the regulations would “raise the bar for safety and environmental protection for any future exploration of Arctic OCS oil and gas resources.”
“The Arctic isn’t like the Gulf of Mexico, where weather conditions and established industry practice allow for nearly year-round open water operations,” Schneider said. “The Beaufort Sea and Chukchi Sea planning areas are remote, vastly undeveloped and subject to extreme weather and climate.”
Schneider also commented that many of the requirements in the new regulations are already needed for the approval of exploration plans for the Arctic outer continental shelf.
Tailored to the Arctic
Salerno characterized the new regulations as being tailored to the unique needs of the Arctic. The regulations include both prescriptive and performance based elements, Salerno said. However, the regulations also allow operators to propose alternative compliance approaches, if an equivalent or greater level of safety can be demonstrated, he said.
The concept behind the mandated integrated operations plan, which must be submitted to BOEM at least 90 days prior to the filing of an exploration plan, is that it enables regulators to address conceptual issues in an operator’s plan at an early stage, well before the short Arctic offshore drilling season, Salerno explained.
One of the more contentious components of the regulations consists of the requirement for the availability of a backup drilling rig for relief well drilling, and for time to be allowed for the drilling of both a primary well and a relief well during the same open water season, should a relief well be needed to plug the primary well following a blowout. The oil industry has argued that state-of-the-art capping and containment systems render same-season relief well drilling unnecessary and that, given the already short duration of the Arctic open water drilling season, same-season relief well drilling requirements may render Arctic offshore drilling unrealistic.
Salerno commented that, unlike in the Gulf of Mexico, where a second rig is usually readily available, that rapid access to a backup rig would typically not be possible in the Arctic offshore unless the backup rig is deployed in conjunction with the drilling operation.
Response to comments
Abigail Ross Hopper, director of the Bureau of Ocean Energy Management, said that, following the publication in February 2015 of a proposed version of the new rule, Interior had received more than 1,300 letters from more than 100,000 individual commenters. After considering the comments, conducting an environmental analysis and using direct experience from Shell’s 2012 and 2015 drilling operations on the Arctic outer continental shelf, Interior had concluded that finalizing the new exploration drilling regulations “would enhance existing regulations and was appropriate for establishing a more holistic, Arctic outer continental shelf oil and gas regulatory framework,” Ross Hopper said. Interior had conducted extensive outreach with industry, Alaska Native tribal organizations, the state of Alaska, the North Slope tribal communities, as well as other federal agencies, academia and non-governmental organizations, she said.
Changes to the regulations in response to comments received included the relaxation of well blowout testing frequencies from every seven days to every 14 days. Revisions also clarified the requirements for real-time monitoring of drilling operations. The final regulations now specify the standards to be met by relief well drilling - the relief well, or any alternative procedure used, must be “able to kill and permanently plug an out-of-control well,” the regulations now say.
Hopper also commented that, although the new rule would bring regulatory certainty for the oil industry, the question of whether to allow future oil and gas exploration on the Arctic outer continental shelf was a separate issue, beyond the scope of this particular rule making. BOEM is currently reviewing public comments on a new 2017-2022 OCS lease sale program that includes a lease sale each for the Beaufort Sea and the Chukchi Sea.
Reactions to the rule
Alaska Gov. Bill Walker, in his response to the finalization of the drilling safety rule, commented that, given the time that Interior has spent on developing the new rule, the administration should move to expedite Chukchi and Beaufort lease sales.
“We will look very carefully at the regulatory package to understand the implications for companies interested in exploring in the Arctic,” Walker said. “One risk profile does not fit all projects. Flexibility is necessary to accommodate different types of programs.”
Environmental organizations remain adamantly opposed to Arctic offshore oil and gas. Oceana, while expressing its satisfaction with the new rule, urged Interior to halt leasing in U.S. Arctic waters.
“We congratulate the government for taking this important step to advance spill prevention and response,” said Michael LeVine, Pacific senior counsel for Oceana. “The new rules should help lead to better choices by the government and companies in the future. The decisions by Shell and other companies to halt exploration and relinquish leases give us an opportunity to chart a new course in the Arctic Ocean. There is no compelling reason to sell more leases now, and the government should remove proposed Arctic Ocean sales from the 2017-2022 five-year program.”
Alaska delegation concerned
The members of Alaska’s Congressional delegation expressed their concerns that the new regulations will act as roadblocks to oil and gas exploration.
“The rule finalized today by the Department of the Interior revises and adds new requirements to regulations for exploratory drilling and related operations in the Arctic OCS,” said Sen. Lisa Murkowski. “While claiming to increase safety and environmental standards, Interior’s rule appears more likely to reduce investment and harm energy production in the region. This rule should be a positive sign for the administration’s willingness to offer new leases in the offshore Arctic, but instead it continues to hint toward an even more uncertain future for the regulatory regime in this region.”
“By the administration’s own estimate this regulation will add more than $2 billion in compliance costs over 10 years to Arctic OCS exploration, casting further uncertainty on the future of oil production in Alaska,” said Sen. Dan Sullivan. “So while some might view this announcement as a positive sign for future lease sales, it is clear that this decision continues a policy of overregulation and hostility toward responsible resource development that directly threatens American energy security and good job opportunities for all Alaskans and Americans at a time when our economy is struggling.”
“If this administration was serious about Arctic exploration and resource development, about stabilizing the trans-Alaska pipeline system and securing energy for U.S. supply, they would not be moving ahead with the ‘mother-may-I’ approach prescribed in their final rule,” said Rep. Don Young. “The proper approach would be taking advantage of planning, standards and engineering practices in the industry and not overlooking areas to improve best practices.”
