LOGA Annual Meeting: NOIA President Randall Luthi


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NOIA (National Oceanic Industries Association) President Randall Luthi's presentation to the LOGA Annual Meeting on Tuesday April 5th, 2011 at L'auberge Du Lac in Lake Charles, LA.


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  • Good morning. Thank you for the opportunity to meet with you. It is always a pleasure for me to get out of DC for a day or two, and particularly to visit with those who work for a living. You are well aware of NOIA, but just in case there might be a few of you who aren’t , please indulge me for a minute.
  • NOIA was established in 1972 by a coalition of producers, drillers, shipbuilders, mariners, helicopter and transportation providers and more. We have about 275 member companies that are associated with the development of oil, gas and other energy sources from the outer continental shelf. As a trade organization, we are solely focused on offshore development and our membership includes majors, independents, producers, operators, G&G companies, service companies, suppliers, ship and vessel builders, financiers and law firms. It was my pleasure to join NOIA on March 1 of last year. I leave it to you to contemplate the timing of that decision. Our job is to tell industry’s story. And, even with the events of the last year, it a good story! The offshore energy industry is a moving, vibrant industry. Or at least we have been, and are capable of being so again. You are all a part of that story. You help supply the energy that makes America run. Thank you for your efforts. NOIA and LOGA are affiliate members, which means we share our information with each other and it has been a pleasure for me to work with Don and the crew. You are well represented.
  • April 20, 2010 is possibly the darkest day in U.S. offshore history. For nearly three months, the world watched as the worst offshore oil accident in the history of the U.S. unfolded. Never has the world’s attention been more focused on the offshore oil and gas industry and never has our mission to develop oil and gas safely been more important. The tragedy of the loss of 11 lives was soon lost in the coverage of oil sheens, oiled birds and possible corporate mismanagement. Now, almost a year later, are still in a state of uncertainty and transition as we search for what we call the NEW NORMAL. Much of that new normal will come from DC.
  • I know that many of you make a few trips to Washington, so it is not news to you that it can be a rather odd place. Many of you were there just over a month ago. And while last year was financially, emotionally and ecologically stressful to all those in the offshore business, Washington was even more crazy than usual.
  • For those of you who like drama, this was the perfect stage -- the worst spill in US history, an economy struggling to survive, concerns over health care legislation, a tea party uprising, and did I mention it was an election year? If you can remember your high school class on American government, you probably recall you were taught that government policy, laws and regulations come as a result of careful and thorough deliberation and discussion of the pros and cons of an issue. Well, you can all call your high school teachers (if they are still living) and tell them that really IS the case. … .about 5 percent of the time!
  • However, these were the images that drove the response from Washington. Not surprisingly, Washington was compelled to do something, but that something was often unclear, undefined and was often a shot gun approach
  • Congress considered legislation targeting members of the oil and gas industry as well as the industry as a whole. It considered subjects ranging from the adequacy of the Oil Pollution Act detailed discussions of blow out preventers, liability limits, financial responsibility thresholds, adequacy of exploration plans and scrutiny of response plans. Dozens of pieces of legislation were proposed last session.
  • By far the most action came from the Administration and as you know, the most costly in terms of jobs and energy security.
  • On May 19, the Secretary of the Interior ordered MMS dismantled. In it’s place the Bureau of Ocean Energy Management, Regulations and Enforcement was established. On May 22, 2010 President Obama established the National  Commission on the BP Deepwater Horizon Oil Spill and Offshore to examine the facts and circumstances to determine the cause of the Deepwater Horizon Oil Disaster, develop options for guarding against future oil spills associated with offshore drilling. The Commission held 5 meetings, The Commission’s final report was delivered to the President on January 11, 2011. Various supplemental reports have been published since. Congress may or may not act upon some of the recommendations.
  • Less than a week after the creation of the oil spill commission, on May 27, Secretary Salazar postponed consideration of Shell’s proposal to drill up to five exploration wells in the Arctic.  Also on May 27, Secretary Salazar cancelled the proposed 2012 lease sale for offshore Virginia, and canceled a lease sale for the Gulf of Mexico that was scheduled for August 2010. 
  • But the most visible of the administrative actions taken on May 27 (a busy day for Secretary Salazar) was the imposition of a six-month moratorium on all deepwater exploration activities. The moratorium was officially lifted on October 12, however, new rules, new Notices to Lessees and unclear direction have brought all exploration to a crawl, and a slow crawl at that. There is no longer a formal moratorium, but concern continues to exist over the pace of permitting and what uncertainty over what is acceptable and required. Six wells have been approved in the last three weeks.
  • So here are some of the impacts of the moratorium and permitorium: Administration estimated a loss of 23,000 jobs. That has not yet happened, mostly due to companies putting employees to work on maintenance or cleanup projects as they waited out the moratorium. But with the “permitorium” persisting, we may see more layoffs. We do know that Louisiana has lost more than 25,000 jobs statewide since June 2010 (these are not all due to the moratorium/permitorium). There is also a projected 18-24 months loss of momentum in developing oil and gas resources from the Gulf. So, logically, instead of new development and new discoveries, there is a current decline in production from the Gulf. And, by 2017-2018, the U.S. will likely produce 300,000-500,000 barrels per day less per year. The Energy Department states that 2011 offshore oil production will fall 13% compared to 2010.
  • At the same time, we hear of companies such as Pride and Ensco ordering new rigs, but unless there is a change in the permitting progress, it may be the rigs never reach the Gulf of Mexico.
  • Not all the actions have been are directly related to the Macondo Well accident. The Administration’s enactment of a national ocean policy by Executive Order will have uncertain and long term effects. Concepts such as marine spatial planning and interdepartmental review may create a morass of conflicting missions and goals that no one will be able to navigate. On November 2, Secretary Salazar proposed establishing an “Ocean Energy Safety Institute” designed to facilitate research and development, training, and implementation in the areas of offshore drilling safety, blowout containment and oil spill response. The Institute would be a collaborative initiative involving government industry, academia and scientific experts. That concept has now evolved in the formation of the Offshore Energy Safety Advisory Committee. Nominations are currently being sought, and NOIA will submit a few nominees.
  • Administrative Actions also include the OCS 5-Year Leasing Plans. We are now less than two years from the end of the current 2007-2012 OCS 5-Year Plan. As earlier discussed, lease sales in this current plan have been cancelled for the Western Gulf, the Chukchi and Beaufort Seas, and offshore Virginia. BOEMRE has begun work on a supplemental EIS for the remaining Gulf sales in the current 5-Year Plan. However, it appears the next scheduled lease sale in the Gulf will also be cancelled. While DOI extended the initial comment period for the 2012-2017 Plan, it has only just begun any of the necessary environmental reviews. It normally takes anywhere from 18-24 months to complete a Programmatic EIS. DOI is running out of time. NOIA has taken the opportunity to publicly “nudge” the Secretary into action. Scoping meetings are currently underway. NOIA is commenting.
  • Aside from the five year programs, BOEMRE announced December 17 that it would complete the first seismic environmental impact study in the Atlantic. The EIS should be complete in late 2012. And in January Secretary Salazar announced the formal structures for completing the separate entities of the former MMS, currently known as BOEMRE. The Bureau of Ocean Energy Management or BOEM will be responsible for the resource development and energy management functions of the current BOEMRE, while the Bureau of Safety and Environmental Enforcement or BSSE will be responsible for the safety and enforcement functions of BOEMRE.
  • I mentioned earlier, that one of the reasons I believe Congress did not act upon widespread legislation was that the industry reacted quickly, strongly and correctly. Not waiting for the government to make recommendations or at the time, new regulations, Industry moved rapidly in the wake of Deepwater Horizon to identify potential safety and response improvements. These are some of those initiatives.
  • Task Forces were formed to determine what worked and what needs improvement. The Joint Industry Oil Spill Response Task Force and the Joint Industry Subsea Well Control and Containment Task Force presented their findings in to the Bureau of Ocean Energy Management, Regulation and Enforcement in September. The task forces comprise members from oil and gas industry trade groups including NOIA, the American Petroleum Institute (API), the United States Oil and Gas Association (USOGA), the Independent Producers of America Association (IPAA) and the International Association of Drilling Contractors (IADC).
  • Exxon Mobil, Conoco Phillips, Shell and Chevron announced a billion dollar program to provide containment equipment for the future. BP later joined the effort to lend its hard-learned lessons. Apache joined MWCC in mid-March. The Marine Well Containment Company will provide flexible and adaptable systems to contain the well subsea and provide subsea production capability via subsea equipment, risers, and containment vessels that will safely capture, store and offload the oil. The interim well containment system is ready for deployment with the capacity to contain up to 60,000 barrels per day of fluid in up to 8,000 feet of water. Work is also under way on the expanded system for delivery in 2012 to handle up to 100,000 barrels per day of fluid in up to 10,000 feet of water.
  • 23 independent E&P companies have formed the Helix Well Containment Group ("HWGC") to facilitate a joint industry response between operators, who are members of Clean Gulf Associates. The Helix Fast Response System is an integral component of this response. The Helix Fast Response System includes subsea equipment, the Q4000 and the Helix Producer I vessels, to facilitate control and containment of spills in water depths to 5,600 feet. The system is anticipated to expand to ratings of 8,000 foot water depths, with capture and processing capabilities of 55,000 barrels of oil per day and 95 million cubic feet of gas per day by the end of March. At this time, both are awaiting approval from BOEM. I am hopeful that approval of one or both is the last remaining obstacle to moving ahead in the GOM.
  • What will 2011 bring? The election of a new majority in the House is certainly welcome news. But what does it mean, what does it change? As you have seen in the debate on the various continuing resolutions, there are still great divides between the House and Senate and the House and the Administration. You will see a far more critical eye on the Administration, by increased oversight combined with some control over the purse strings. There is now a clear philosophical difference between the House and the Administration. For example, the House appears far more focused on reducing spending without raising taxes, whether that be personal income taxes or taxes on the oil and gas industry. In contrast, remember the State of Union address, wherein tax hikes were proposed for the oil and gas industry, stating: "I don’t know if you’ve noticed, but they’re doing just fine on their own."
  • Just because the Congress didn’t act in 2010, doesn’t mean they won’t act on some kind of oil spill related legislation in the next two years. For now, it appears the most interest is on the Senate side, consisting of several pieces over the various committees. At the forefront appears to be the liability issue. (Discussion of response costs and the third party liability limit of $75 million in addition to response costs). Early drafts of the Landrieu bill will raise the cap to $150 M and introduce the concept of a mutual find. This fund would be fueled with industry assessments, based upon various factors including location, depth, safety history of the lease holder, geological factors, location of the BOP, and other factors as determined by the Secretary of the Interior. Mutual insurance fund would carry a balance of $2 billion. Fund would cover certain claims between the $150 M and $1 Billion. (Discussion of Bingaman’s retirement.)
  • Should Congress decide to act, there are plenty of choices. On January 11, 2011, the President’s Oil Commission released its 300+ page report and recommendations. Included are recommendations that the economic liability limit needs to be raised, discussion of a mutual fund and an industry self policing body fashioned after what the nuclear industry did after Three Mile Island. Congress will act on the budget, but there is not much interest in eliminating tax deductions. We have taken the position that enough money is collected through existing means. In 2008- over $8 billion in offshore royalties, 237 $M in rent and $9.4 B in bonus bids. In 2010 - 4.0 B in royalties, 245 $M in rent and 979 $M in bonus bids. The emphasis should be on getting back to work. I would not be surprised if there is legislation on the MMS restructuring, whether it be a clean bill or a vehicle for some of the other baggage that is out there.
  • At this moment, it is hard to be positive of where we are and where we are headed in the permitting and regulatory front. The Administration’s decision to not use categorical exclusions will have long term, costly and time consuming consequences. Environment groups have targeted seismic operations for litigation under the NEPA, MMPA and where possible the ESA. After conducting a site-specific Environmental Assessment (SEA) and finding no significant impact, BOEMRE approved the first deepwater exploration plan since the Macondo incident. Environmental groups state that the EA will not withstand a judicial challenge.
  • In summary, we are all seeking to define the “new normal” in offshore energy exploration and development. But we are certain of what hasn’t changed. We need a reliable, secure and reasonably priced energy source for the nation and the world. Oil and gas will play a major role in that energy source for at least the next generation. We can explore and develop safely and we must demonstrate that ability now. As for the future, I believe timelines will improve. The hard part is saying exactly when!
  • I close with remembering the most tragic consequence of the Macondo well. It is the 11 who lost their lives -- Jason Anderson, Dale Burkeen, Donald Clark, Stephen Curtis, Gordon Jones, Roy Wyatt Kemp, Karl Kleppinger, Blair Manuel, Dewey Revette, Shane Roshto and Adam Weise . It is their families, loved ones and friends that we offer comfort and solace. They are not forgotten, and we mourn their loss. A permanent memorial to the 11 men who died in the explosion aboard the Deepwater Horizon drilling rig was put in place at the bottom of the Gulf of Mexico. The final corrosion-proof cap placed on top of the ill-fated Macondo well has 11 stars on it, one for each of the victims. It also bears the inscription: “ In Memory of the Deepwater Horizon 11 .” No well is worth the loss of a life. These men died working for an industry that is vital to our nation’s economy and energy security. We must press forward, but we must do so safely.
  • Thank you for your attention. Please make sure to visit our website at ww.noia.org. We have recently jumped into the social media pool with Facebook and Twitter, which can also be accessed from our website. If there are any questions, I am happy to attempt to answer them.
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