BSEE Signals Change in OCS Regulation and Leasing
Since the end of December 2017, the Department of Interior (DOI) has proposed significant changes to its offshore drilling program, rolling back and delaying implementation of Obama-era rules in favor of the oil and gas industry, and dramatically increasing the number of Outer Continental Shelf (OCS) acres available for lease. We have summarized the key elements of the recent changes below.
Proposed revisions to the safety rule
On December 29, the last business day of 2017, the DOI’s Bureau of Safety and Environmental Enforcement (BSEE) published in the Federal Register proposed revisions to its regulations regarding offshore drilling safety equipment. The proposal includes several revisions to the offshore drilling safety regulations, but one key change includes the removal of the requirement for offshore operators to certify through an independent third party that their critical safety and pollution prevent equipment (e.g., subsea safety equipment, including blowout preventers) is operational and functioning as designed in the most extreme conditions.
The third-party certification requirement, finalized in September 2016, was one element of the offshore Production Safety Systems Rule, which was part of the Obama Administration’s overhaul of the offshore safety regulations following the 2010 offshore explosion and sinking of the Deepwater Horizon semi-submersible drilling rig. The failure of the blowout preventer installed at the wellhead of Deepwater Horizon’s Macondo well was identified as a significant contributing factor to the large volume of oil spilled in the Gulf of Mexico, and the third-party certification rule was meant to provide a higher level of assurance that such safety equipment would not fail in the future. However, the new proposal states that the assurance provided by third-party reviews is already achieved if each device meets the various industry standards imposed by regulation (including American Petroleum Institute (API) Spec Q1, American National Standards Institute (ANSI)/API Spec. 14A, ANSI/API RP 14B, ANSI/API Spec. 6A, and API Spec. 6AV1).
Stating that certain elements of the Production Safety Systems Rule “created potentially unduly burdensome requirements to oil and natural gas production operators on the OCS, without significantly increasing safety of the workers or protection of the environment,” BSEE’s proposal estimates the proposed changes will lead to reduced compliance burdens and a total cost savings of approximately $281 million over ten years for the industry. This amount is considerably less than the $900 million in total savings initially reported by The Wall Street Journal in December.1
Other revisions or eliminations to the Production Safety Systems Rule include:
- clarifying the failure reporting requirements, when operators must provide certain documents to BSEE, when operators must update existing documents, requirements for Class I vessels, and requirements for inspection of the fire tube for tube-type heaters;
- revising some production safety system design requirements; and
- simplifying requirements for electrical system information; among others.
The public is invited to comment on BSEE’s proposals until January 29, 2018.
Upcoming revisions to the blowout preventer rule
The revision to the Production Safety Systems Rule, noted above, is the first in a series of revisions that BSEE is expected to propose to curtail Obama-era offshore regulations. National Ocean Industries Association President Randall Luthi has indicated that BSEE is also expected to propose revisions to its Blowout Preventer Systems and Well Control Rule sometime in the first quarter of 2018.2 The rulemaking would revise specific provisions of the well control rule, finalized in April 2016, for drilling, workover, completion, and decommissioning activities. BSEE submitted the proposed revisions for review to the White House Office of Management and Budget on December 12, 2017.3
Continuing delay and likely revision of the financial assurance rule
While the Trump Administration acted quickly to reverse several Obama-era conservation and environmental policies in 2017, the administration delayed implementation of certain rules while it reviewed them to determine its future course of action. For example, in July 2016, the DOI’s Bureau of Ocean Energy Management (BOEM) issued a Notice to Lessees and Operators (NTL) conducting oil, natural gas, and sulfur activities on the OCS that significantly altered the federal government’s offshore financial assurance program relating to the performance of decommissioning obligations on the OCS. The NTL (described in detail here) prescribed new procedures for determining a lessee’s ability to carry out its lease obligations (primarily plugging, abandonment and decommissioning of facilities) and whether lessees should be required to furnish additional security to guarantee performance. But implementation of the NTL has stalled since its issuance and its future under the current administration remains uncertain. Below, we have summarized the movement of the NTL since it was released.
- September 12, 2016: original effective date of the NTL.
- December 2016: BOEM issued Orders to Provide Additional Security for sole liability properties.4
- January 6, 2017: BOEM announced a 6-month extension of the implementation timeline for the NTL as it applied to leases, rights-of-way, and rights of use and easements for which there are co-lessees and/or predecessors in interest (except in certain circumstances).
- February 17, 2017: BOEM announced its withdrawal of the sole liability orders issued to OCS lessees and grant holders in December 2016 “to allow the new administration to review the complex financial assurance program.”
- May 1, 2017: DOI Secretary Order 3350 directed BOEM to review the NTL and provide a recommendation on whether it should be implemented.
- June 22, 2017: BOEM determined that, based on its review and significant industry feedback, more time was necessary to review the NTL and that its implementation timeline would extend beyond June 30, 2017 (except in certain circumstances where there is a substantial risk of nonperformance of the interest holder’s decommissioning liabilities).
In early January 2018, staff at BOEM indicated to us that the NTL “pause” is still in effect and indicated that it could offer no current guidance as to when that might change. Given the continuing delay in implementation, it is possible that BOEM is considering issuing a replacement NTL that would relax the security requirements imposed under the offshore financial assurances program.
Dramatic increase in OCS leasing program
The DOI is also moving to expand offshore drilling on millions of acres in the OCS previously off-limits for exploration and development. On Thursday, January 4, 2018, DOI Secretary Ryan Zinke announced the National OCS Oil and Gas Leasing Draft Proposed Program (DPP) for 2019-2024, which offers over 90% of OCS acreage and more than 98% of undiscovered, technically recoverable oil and gas resources in the OCS. Together with the DPP, the DOI published a Notice of Intent (NOI) to prepare a Draft Programmatic Environmental Impact Statement (EIS) in the Federal Register on January 8, 2018.
The DPP proposes the largest number of offshore lease sales in U.S. history — 47 potential lease sales in 25 of the 26 planning areas, including 19 sales off the coast of Alaska; 7 in the Pacific Region; 12 in the Gulf of Mexico; and 9 in the Atlantic Region. While Secretary Zinke announced on January 9, 2018, that no lease sales would occur off the coast of Florida (to preserve the state’s unique and tourism-dependent coasts), it is unclear whether other states could be exempted from the proposed DPP, as governors from the states of New York and New Jersey have both expressed a desire to remove their respective states from the currently proposed leasing program.5
The DPP is another effort by the Trump Administration to loosen Obama-era policies that sought to expand government oversight of oil and natural gas exploration and production, which were ostensibly adopted to enhance environmental protection or increase the safety of exploration and production facilities. In addition to the increased OCS leasing provided in the DPP, a provision of the tax overhaul bill, signed into law by President Trump on December 22, 2017, opens the Arctic National Wildlife Refuge to oil production, a goal long sought by oil companies.
Both the DPP and NOI will be available for public comment until March 9, 2018. In addition, the DOI began hosting public meetings around the country on January 16, 2018, to receive comments on the DPP and to inform the Draft Programmatic EIS.
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1 Mann, Ted, Drilling Plan Eases Rules, The Wall Street Journal, at A1 (Dec. 26, 2017).
2 Jim Magill & Maya Weber, BSEE proposes revision to safety device rule, Gas Daily, at 5 (Jan. 2, 2018).
3 Office of Information and Regulatory Affairs, Office of Management and Budget, List of Regulatory Actions Currently Under Review (last visited Jan. 12, 2018), available at https://www.reginfo.gov/public/jsp/EO/eoDashboard.jsp.
4 Sole liability properties are leases, rights-of-way, or rights of use and easements for which the holder is the only liable party (i.e., there are no co-lessees, operating rights owners and/or other grant holders, and no prior interest holders liable to meet the lease and/or grant obligations).
5 Kat Green, Christie Wants NJ Coast Out of Offshore Drilling Plan, LAW360 (Jan. 10, 2018), available at https://www.law360.com/articles/1000978/.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.