BOEM Director Addresses Oil and Gas Association with Outlook for Securing America’s Offshore Energy


01 25, 2012 by Bureau of Ocean Energy Management

2012-01-25 New Orleans

Bureau of Ocean Energy Management Director Tommy P. Beaudreau delivered remarks today at the Louisiana Mid-Continental Oil and Gas Association annual meeting.

Director Beaudreau provided an update on BOEM since its reorganization last fall, the future of oil and gas development as it relates to the nation’s energy security, and the status of the Proposed Outer Continental Shelf Oil and Gas Leasing Program for 2012 – 2017. President Obama discussed the Proposed Program last night in his State of the Union address, which would make available for development 75 percent of recoverable oil and gas resources on the Outer Continental Shelf.

Director Beaudreau’s remarks, as prepared for delivery, are below:

Good afternoon. My name is Tommy Beaudreau, the Director of the Bureau of Ocean Energy Management, or BOEM. I want to extend my sincere thanks to Chairman Hutchinson, President John and Secretary Angelle for their invitation to speak with you today at the annual meeting of the Louisiana Mid-Continental Oil and Gas Association.

The subject of this year’s annual meeting — “Securing Our Energy Future” — could not be more timely or more urgent, for the state of Louisiana and for the entire United States. I have listened with great interest to the speakers today, and have been looking forward to sharing my thoughts and outlook with you. The bottom line is that offshore oil and gas development in the Gulf of Mexico is, and will remain, one of the cornerstones of America’s energy portfolio and is central to our country’s energy security and future. I will talk today about why I believe so strongly that this is true.

First, though, I would like to take a few minutes to introduce myself and my agency, which is one of the three federal agencies established to replace the former Minerals Management Service in the wake of the Deepwater Horizon oil spill. I also want to take a moment to reflect on how far we — in the government and in industry — have come following the spill to implement meaningful reforms that have improved the safety and environmental responsibility of offshore drilling, as well as strengthened oversight.

I grew up in Alaska. My father worked in the Prudhoe Bay oil field on the North Slope, and he moved our family to Alaska during the boom times in the 1970s. Like a lot of those workers, he was laid off after the boom times went bust in the mid-1980s. So, I know firsthand what this industry means to the men and women who work in it, and to the families who depend on it for their livelihoods.

I arrived, along with Director Michael Bromwich, at the Interior Department on June 21, 2010. The Macondo well had been flowing uncontrolled into the Gulf for two months, and a moratorium on deepwater drilling was in effect. Our direction from the President and Secretary Salazar was both simple and daunting — reform offshore drilling and oversight so that the American people can be confident that oil and gas development on our oceans, which is vital to our economy, will be safer, for workers and for the environment, and overseen by strong, independent and effective regulators.

We all remember what a difficult time that was, especially for the people of the Gulf Coast, and Louisiana in particular, who were faced with mounting environmental and economic uncertainty. Fundamental questions were being asked about the safety of offshore drilling, especially in deepwater, and a great deal of ire and criticism was directed at the federal government, including at the agency I had just joined, the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) at the time.

I first met Secretary Angelle a couple weeks into my work at BOEMRE. Soon after our first in-person meeting, he called my office line to make sure I had been fully sensitized to the effects that the spill and suspension of deepwater drilling were having on industry and the economy of Louisiana. I recall Secretary Angelle’s words very clearly — he said to me, “How could someone named Beaudreau hate Louisiana so much?”

Well, we have come a long way since those difficult days. And, for the reasons I’ll talk about today, far from having any negative feelings, I am quite optimistic about offshore oil and gas in the Gulf of Mexico and its role in securing America’s energy future.

Role of Regulation and Environmental Protection

The National Petroleum Council (NPC), a federal advisory committee, recently completed a study, requested by Secretary Chu and presented to federal agencies, entitled, “Prudent Development: Realizing the Potential of North America’s Abundant Natural Gas and Oil Resources.” This impressive and valuable study was prepared by a team of experts from industry, state and federal government agencies, conservation groups, financial institutions, and academia, and overseen by a committee chaired by Jim Hackett from Anadarko and a number of vice chairs, including Marvin Odum of Shell, from whom you heard this morning.

If you haven’t yet reviewed the study, I recommend it to you. It is comprehensive and thought-provoking. For the purposes of my discussion today, I would like to focus on one of the study’s four fundamental conclusions — that “realizing the benefits of natural gas and oil depends on environmentally responsible development.” The study emphasizes that, “the critical path to sustained and expanded resource development in North America includes effective regulation and a commitment of industry and regulators to continuous improvement in practices to eliminate or minimize environmental risk.”

That conclusion is premised on a sophisticated and compelling insight into the relationships between industry, government oversight and the public’s trust, and I could not agree with it more. Frankly, following the Deepwater Horizon oil spill, the public’s confidence in all of us — industry and government — was shaken. Fundamental, challenging questions were being asked of all of us — Can offshore drilling for oil and gas, especially in waters more than a mile deep, be conducted safely? Have we thoroughly analyzed, and do we really understand, the risks this activity poses to the environment? Are we adequately prepared to respond if there is an accident? Does government have the expertise, resources and ability to evaluate the risks and ensure that this activity is conducted properly and that the rules are obeyed?

We — and again, I mean industry and government — owe the American people good answers to all of those questions. I believe we have made tremendous progress since the spill, as we have implemented the most aggressive and comprehensive reform and enhancement of offshore safety, environmental responsibility and regulatory oversight in U.S. history.

My agency, BOEM, now conducts site-specific environmental assessments under the National Environmental Policy Act (NEPA) of every deepwater exploration and development plan. These reviews, which were not done in the past, evaluate the potential environmental effects of individual exploration and development projects, and result in mitigation measures tailored to those risks.

We have implemented enhanced drilling safety and blowout preventer standards and introduced for the first time mandatory performance-based standards in the form of Safety and Environmental Management System (SEMS) programs. We have revised the way in which the worst case discharge potential for wells is calculated so that we better understand and evaluate risk potential of individual reservoirs, and this information is used to help define the spill response capacity and resources necessary in the unlikely event of a blowout.

Moreover, industry has devoted hundreds of millions of dollars to the development and staging of subsea containment systems — including capping stacks, riser systems and support and capture vessels — that are now readily available in the event of another blowout in deepwater. These systems did not exist at the time of the Macondo blowout, but they have now been built and tested, and are part of the permitting process for deepwater drilling operations in U.S. waters. Industry deserves tremendous credit for investing in and building these systems.

A federal safety advisory committee, led by Dr. Tom Hunter and comprised of experts from government, industry, academia and environmental NGOs, has been active (including a series of meetings last week in Houston) in analyzing and developing recommendations for further enhancements to offshore safety and emergency preparedness. This committee is designed to help government and industry keep pace, from a safety perspective, with rapid developments in technology and the challenges of drilling in new frontiers.

Finally, one of the most fundamental and sweeping changes that has been implemented is the Interior Department’s overhaul of the offshore resource development oversight and regulatory regime.

We have established the Bureau of Safety and Environmental Enforcement (BSEE), led by retired Coast Guard Admiral Jim Watson, as a strong, independent safety authority responsible for promulgating high standards for safety and spill response, ensuring that permitted operations comply with those standards, and enforcing safety and environmental protection measures through rigorous inspections and, where appropriate, administrative enforcement actions.

My agency, BOEM, is responsible for overseeing the environmentally and economically responsible development of our country’s abundant offshore conventional and renewable energy resources. This includes promoting responsible offshore oil and gas development. BOEM’s decision-making must closely consider the resource potential of geographic regions on the Outer Continental Shelf (OCS), the critical role offshore energy development plays in the mix of resources necessary to meet the nation’s energy demands, the significance of offshore oil and gas to the economy and employment, and the vital need for environmental protection and responsible stewardship. These are concerns and values shared by everyone in this room.

I am often asked — how will BOEM work to strike the right balances and make sound resource management decisions? The answer is, and has to be, that BOEM’s decision-making is based on the rigorous collection and analysis of scientific information and data. It is important that this be true, and that the public have confidence that it is true.

Let me be clear about what science-based decision-making encompasses. We have geologists, geophysicists, petroleum engineers and other resource evaluation experts who developed sophisticated assessments of where the resource is and its significance. Our environmental scientists and biologist possess broad expertise in evaluating the potential effects of offshore energy activity on habitats, species and ecosystems. BOEM’s impressive group of economists ensures, among other things, that the American people receive fair value for the development of our public resources. We also employ social scientists who consider impacts on cultural and historical resources.

For a relatively small agency, we have a tremendous breadth and diversity of subject matter expertise. I will tell you that they are some of the best in the business, and I am tremendously proud to work with them.

Outlook for the Gulf of Mexico

So, what is my outlook for the Gulf of Mexico and its role in securing America’s energy future? The bottom line is that I am enthusiastic about the Gulf and what offshore oil and gas development in this region offers Louisiana, the Gulf Coast and America. My optimism for the Gulf of Mexico and the role of offshore oil and gas development in securing our energy future is grounded in part on the strength and credibility of BOEM and BSEE as regulators. As the NPC concluded, one of the pillars of maintaining public trust is confidence in properly resourced, effective oversight.

Moreover, we cannot lose sight of the fact that the Gulf of Mexico still has the greatest, by a large margin, untapped resource potential in the entire United States OCS. I have heard some people say — including some people who know better — that exploration in the Gulf of Mexico means simply drilling in the same old places. The truth is that the Gulf of Mexico is the crown jewel of the U.S. OCS, and will remain so for the foreseeable future. The Gulf of Mexico, in particular the deepwater, already has several world class producing basins, and just in the past year there have been a number of significant new discoveries.

According to my agency’s recent Assessment of Undiscovered Technically Recoverable Oil and Gas Resources of the Nation’s Outer Continental Shelf, issued late last year, we estimate that the Central Gulf of Mexico holds more than 30 billion barrels of oil and 133.9 trillion cubic feet of natural gas yet to be discovered. This is nearly double the resource potential of even the Chukchi Sea. The Western Gulf of Mexico is just behind the Chukchi with more than 12 billion barrels of oil and nearly 80 trillion cubic feet of natural gas.

Right of off the coast of Louisiana is a new oil and gas frontier that will fuel the state’s economy and help meet our nation’s energy needs for decades to come.

I meet regularly with operators who speak with enthusiasm and passion about plans for the Gulf. High resolution, depth-migrated 3-D seismic data are revealing whole new realms for exploration, including untapped subsalt plays. New and rapidly advancing drilling technology and techniques, including innovations in directional drilling, enable drilling crews to reach around salt structures to make new reservoirs accessible. We also are seeing major developments and ingenious solutions that are improving the recoverability of hydrocarbons.

The Gulf of Mexico remains an enormously attractive place to work. The Gulf offers unparalleled infrastructure and support to develop finds and bring resources to market efficiently. Indeed, there currently are more drilling rigs working in the deepwater of the Gulf than there were at the time of the spill.

Even with the regulatory enhancements that have been introduced over the past year and a half, the Gulf is a stable and reliable environment in which to work. We continue to work with individual operators, as well as with working groups such as the coalition that Secretary Angelle assembled, to promote compliance with our standards and regulations and to make the regulatory process more efficient and transparent. While more work remains on these fronts, there has been marked improvements in compliance as well as in processing times for exploration and development plans. While it takes time to conduct the rigorous operational and environmental reviews involved in evaluating plans and BOEM will not cut corners, industry deserves and should be able to expect a process that is efficient, well-understood and consistent.

And we have seen that investment in the Gulf remains strong. Last December, BOEM held Lease Sale 218 for the Western Gulf of Mexico, the first lease sale after the spill. We held this sale after completing a thorough Supplemental Environmental Impact Statement (SEIS) analyzing, among other things, available information about the effects of the Deepwater Horizon oil spill. Although there were questions from some quarters about the level of interest that would be shown in the sale, it was a tremendous success by virtually any measure. The sale garnered nearly $338 million in high bids — the second highest amount for any Western Gulf sale conducted over the past 10 years.

Earlier this month, we completed our SEIS for the Central Gulf, which obviously suffered most directly the effects of the Deepwater Horizon spill. We will announce additional details about a sale in the Central Gulf soon.

As you are probably aware, the draft five-year oil and gas leasing program for 2012 – 2017 that we issued last November includes 12 lease sales in the Gulf of Mexico, including annual area-wide lease sales in both the Western and Central Gulf, as well as two sales in the Gulf of Mexico Energy Security Act (GOMESA) area of the Eastern Gulf. We expect the first of these Gulf sales under the new five-year plan to be held late this year.

While I am optimistic for the Gulf of Mexico, we are also pursuing the strategic resource potential, as well as the potential environmental effects of oil and gas exploration, in other areas of the U.S. OCS. The proposed five-year program schedules potential lease sales in the Chukchi and Beaufort seas off Alaska, as well as a special interest sale in Cook Inlet. While we are proceeding cautiously in the Arctic and we must be extremely thoughtful about environmental, subsistence use and infrastructure concerns, the resource potential in those areas is significant and warrants analysis.

Together, the planning areas included in our proposed five-year program encompass 75 percent of the undiscovered, but technically recoverable oil and gas resources offshore of the United States.

While the proposed leasing program makes available the areas with the richest resources, we are also evaluating the oil and gas potential of areas where drilling has not occurred in the past. We are moving forward with a strategy to evaluate the potential for oil and gas exploration off of the mid- and south- Atlantic. Although it is premature to schedule lease sales in those areas, we will be issuing a draft EIS relating to seismic activity in the mid- and south-Atlantic so that current, accurate data can be collected about the oil and gas potential in the region. We are also actively engaging with the Department of Defense about the military’s needs in these areas, as well as developing information about other potentially conflicting uses. These are all threshold issues that must be better understood to inform decisions about whether — and if so where — any oil and gas activity in the Atlantic should occur in the future. And we are serious about pursuing our strategy to develop that understanding.

Conclusion

Public trust and confidence — in industry and in government oversight — are essential to ensuring that offshore oil and gas exploration and development, the potential of which is and will remain enormous, fulfills its potential to contribute to the over energy future of the United States. Both industry and government must remain vigilant, promote operational safety and a culture of working safely, and protect the environment, the ocean and coastal habitats. The resources, as well as the benefits of their development, are available. Industry must go about developing offshore resources the right way, and the public must have confidence industry is committed to working safely and responsibly and that the regulators are doing their jobs. If we do this, oil and gas in the Gulf of Mexico has a bright future indeed.

Thank you for your time, and I am happy to take a few questions

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