News / Resources

The U.S. Department of the Interior (DOI) recently issued a Safety Notice (NTL No. 2010-N05) to all lessees and operators on the Outer Continental Shelf (OCS) of the United States in the Gulf of Mexico and the Pacific Area (Safety Notice). Unlike the previous Moratorium Notice issued by the DOI as of May 30, 2010 (NTL No. 2010-N04) that was limited solely to deepwater operations, the Safety Notice applies to both shallow and deepwater operations. As a result, drilling operations in shallow water and production operations in both shallow and deep water may continue as long as the operations are in compliance with the new safety requirements. While the Safety Notice provides a modicum of guidance for operations, it also should be noted that the Safety Notice states in several instances that additional safety measures will be addressed in future rulemakings, implying that these guidelines will continue to evolve for quite some time.

MORATORIUM NOTICE

The Moratorium Notice directed all operators and lessees to cease drilling all new deepwater wells (including sidetracks and bypasses), prohibited spudding new deepwater wells, and notified those lessees and operators that the Minerals Management Service (MMS) will not consider permits for drilling and any related activity for deepwater wells for a period of six months starting on May 30, 2010.

Expressly excluded by the Moratorium Notice were the following activities:

• Intervention or relief wells for emergency purposes, including the two relief wells related to the ongoing BP spill
• Operations necessary to sustain reservoir pressure from production wells
• Workover operations; waterflood, gas injection or disposal wells
• Drilling operations or other activities necessary to safely close or abandon a well or to accomplish well completion operations in accordance with applicable regulations

The six-month period coincides with hurricane season and the timeline for the Presidential Commission to examine the root causes of the BP oil spill and develop options for guarding against and mitigating oil spills. It also provides time necessary to develop regulations addressing safety concerns described in the DOI’s report on “Increased Safety Measures for Energy Development on the Outer Continental Shelf” dated May 27, 2010.

The Moratorium Notice defined “deepwater” as depths greater than 500 feet primarily due to the fact that jack-up rigs and human diver capability do not exist beyond that depth, thus creating significantly greater challenges in containing a blowout. Lessees and operators were required to submit their plans to stop operations and secure their wells to their MMS District Managers on or before 5:00 p.m. EDT, June 1, 2010.

SAFETY NOTICE

Under the Safety Notice, lessees and operators in both shallow and deep waters on the OCS are required to do the following:

• General Certification of Compliance With Existing Regulations and National Safety Alert—Submit (1) a general certification that they are knowledgeable of all operating regulations published in 30 C.F.R. 250 and that they are conducting their operation in compliance with those regulations, and (2) a certification that they have reviewed their operations to ensure that they are performed in a safe and workmanlike manner. The latter certificate must be based on a review of specified equipment and portions of operations. These certifications must be made by the operator’s CEO and submitted to the MMS by 5:00 p.m. EDT, June 28, 2010. If an operator cannot make these certifications, then it must submit an explanation and a plan and timetable for certification. Failure to provide the certification will result in the issuance of an incident of non-compliance and may result in a shut-in order.
• BOP Configuration and Performance Information—All operators that were conducting operations using a subsea blowout preventer (BOP) or a subsurface BOP on a floating platform on May 27, 2010, must submit BOP and well control system configuration information for the drilling rig that was in use, together with test results, BOP and loss of well control events, and BOP and well control downtime. Certain specified items must cover the lesser of the time that the rig has been under contract or three years. This report must be submitted to the MMS by 5:00 p.m. EDT, June 17, 2010.
• BOP Certification Requirements for Floating Drilling Operations—Before beginning new or resuming floating drilling operations that were suspended under the Moratorium Notice, the lessee or operator must have an independent third party conduct a detailed physical inspection and review the design of the BOP. Floating drilling operations include the use of a subsea BOP system and a floating production platform that employs a surface BOP system. Those lessees and operators that are conducting workover, completion or abandonment activities must conduct the same inspection and review before beginning work on another well. The design review must be conducted in accordance with the original equipment manufacturer (OEM) specifications, applicable regulations and other standards and must certify that the BOP will operate as originally designed and that any modifications or upgrades to the BOP after delivery have not compromised the design or operation of the BOP. The independent third party must sign a certification regarding the inspection and review. The certification is to be sent to the appropriate MMS District Manager and made available for public review. The qualifications of the independent third party should be attached to the certification. This certification is required to be made only one time on or after the effective date of the Safety Notice.
• BOP Inspection, Maintenance and Repair for All Wells—Each operator must have documentation showing that the BOP has been maintained; inspect its surface and subsea BOP; and maintain records of maintenance and inspection of its BOP systems—all in accordance with applicable regulations. All of the foregoing must be made available to the MMS upon request.
• BOP Compatibility Verification for All Wells—Before beginning to drill any new well or resuming drilling of any well suspended pursuant to the Moratorium Notice, the lessee or operator must obtain independent certification that the BOP stack is designed for the specific equipment on its rig and for the specific well design, including certification that the shear rams are appropriate for the project; the BOP stack has not been compromised or damaged from previous service; and that the BOP stack will operate in the conditions in which it will be used. The qualifications of the independent third party should be attached to the certification.
• Secondary Control System Requirements and Guidelines for Subsea BOP Stacks—Each BOP on dynamically positioned rigs must install a secondary control system with a remote operated vehicle (ROV) intervention capabilities, including one set of blind-shear rams and one set of pipe rams. (The requirements for secondary control systems for moored rigs will be established by rulemaking.) In addition, every subsea BOP system must have an emergency shut-in system, a deadman system and an autoshear system, as defined by API Spec 16D - “Specification for Control Systems for Drilling Well Control Equipment and Control Systems for Diverter Equipment,” as well as an acoustic system to activate the BOP in case of an emergency. The emergency shutdown system must be powered by a separate and independent rechargeable accumulator bank with sufficient capacity to close at least one set of blind-shear rams.
• ROV Hot Stab Function Testing of the ROV Intervention Panel—During the stump test for subsea BOP stacks; perform function tests of the hot stabs that would interface with the ROV intervention panel during the stump test at the same rate and pressure of the ROV pump with the ROV intervention panel. The District Manager must be informed at least 48 hours before the test so that the MMS may observe or participate in the test. The results of the tests must be submitted to the District Manager within 14 days following completion.
• Verification That Blind-Shear Rams Will Shear Pipe in the Hole—Obtain verification by an independent third party that the blind-shears installed in the BOP stack are capable of shearing the drill pipe in the hole under maximum-anticipated surface pressure. The qualifications of the independent third party should be attached to the certification.
• BOP Inspection and Testing After Well Control Event for All Wells—If blind-shear rams or casing shear rams are activated in a well control activity and the pipe or casing was sheared, the BOP stack and its components must be fully inspected after the situation is fully controlled to ensure that the stack and its components will continue to operate properly. The test must include a full pressure test and the inspection and testing must be documented as to date, time and description of the situation and the results of the inspection and testing.
• Well Design and Construction for All Wells—Before beginning any new drilling operations using a surface or subsea BOP stack or resuming drilling operations that were suspended under the Moratorium Notice, all well casing designs and cementing programs/procedures must be certified by a Professional Engineer as being appropriate for the purpose for which it is intended under expected well bore conditions. In addition, while installing casing, the lessee or operator must ensure that casing lockdown mechanisms are engaged at the time of installation in the wellhead; and for the final casing string, verify installation of dual mechanical barriers in addition to cement. Verification must be submitted to the MMS District Manager no later than 30 days after installation of the dual mechanical barriers.
• Revised APD and APM—If an application for permit to drill (APD) or application for permit to modify drilling (APM) was issued but drilling had not commenced as of May 27, 2010, those operations cannot be commenced until submission to the MMS of the relevant information required in the Safety Notice. The MMS will then notify the holder of the permit whether it is required to submit a revised application for MMS approval before commencing operations.

How Baker Hostetler’s Energy Team Can Help

Baker Hostetler’s Energy Team is presently advising our clients with respect to current issues affecting operations on the Outer Continental Shelf. If you would like to discuss any energy-related matters or have questions about these issues and how they may affect your business or your operations, please contact any of our Energy Team members or your regular Baker Hostetler contact.

Authorship Credit: W. John English

Subscribe to Baker Hostetler’s Energy and Environmental News

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the Firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. © 2010 Baker & Hostetler LLP