Oil industry review under way

Posted: Sunday, July 04, 2010

The state of Alaska is reviewing its rules on offshore and "ultra-extended reach" drilling and may impose new requirements for relief wells on certain wells.

The Alaska Oil and Gas Conservation Commission, an independent agency that regulates drilling safety and production practices, has opened a docket on possible revisions to drilling rules and will hold a hearing this fall after President Barack Obama's national commission on the Deepwater Horizon accident has completed its report.

A notice on the review was published by the commission June 24, signed by Chairman Dan Seamount.

John Norman, one of the AOGCC's commissioners, said "this is something Alaskans expect us to do in light of the events in the Gulf of Mexico. We want to learn from what has happened in the gulf to see if we can improve our own requirements."

In a separate action, Gov. Sean Parnell has asked state agencies regulating industry to review current rules for blowout prevention and spill containment, and to identify gaps in state regulatory oversight.

Both actions are in response to the well blowout and oil spill in the U.S. Gulf.

Kevin Banks, director of the state Division of Oil and Gas, said his division has a "gap analysis" under way that will show the existing authority of state agencies on petroleum and whether they overlap or whether there are gaps. That study is due to be completed in September.

The oil and gas division and its parent agency, the Department of Natural Resources, manages state-owned lands and leases on state lands.

The conservation commission, however, has jurisdiction on drilling on all Alaska lands, including federal, private and state-owned lands, as well as submerged offshore lands out to Alaska's three-mile territorial limit.

Any changes to the commission's drilling rules could affect plans under way now to drill new Cook Inlet offshore exploration wells next spring with a jack-up rig, and for BP's plans this fall to drill ultra-extended reach wells to tap the Liberty offshore field.

Alaska petroleum producing companies have been drilling "extended reach" wells for years, and as drilling technology advances, the companies are able to drill to reservoir targets that are farther out and farther laterally from the surface location of the drill rig.

BP's Liberty field is five miles offshore the northern Alaska coast. The company plans to produce the field with ultra-extended reach wells, some as far as eight miles laterally, drilled with a heavy drill rig on a gravel production island in the producing Endicott field, which BP operates.

BP hopes to have the field in production in 2011.

Norman said the state drilling permit for Liberty need not wait until the state revises its rules because the commission now has flexibility to write additional stipulations in the permit, if needed.

The concern is whether there might be unusual technical risks with such long-distance wells that could complicate control of the well if there were a gas "kick" such as that experienced in the Gulf of Mexico blowout.

The Liberty wells are also unusual, from a regulatory standpoint, because the drilling operation, and the wellheads, will be on state lands and subject to state drilling permits and rules, while the bottom location in the reservoir will be in federal outer continental shelf lands regulated by the U.S. Minerals Management Service.

To drill these wells BP will need two drilling permits, Norman said, one issued by the state and one from the MMS. The company will need to secure both permits before drilling can begin, he said.

The state bears the primary responsibility for blow-out prevention and spill containment because the drilling and wellheads will be located on lands under state jurisdiction, Norman said.

However, the kinds of reservoir-related regulatory issues that the AOGCC and the MMS concern themselves with, such as well-spacing and ensuring efficient production practices, will be left to the MMS because the reservoir is under federal leases.

In Cook Inlet, Pioneer Natural Resources has drilled an extended-reach well into its offshore Cosmopolitan oil prospect near Anchor Point, and Marathon Oil has drilled extended-reach wells to tap offshore natural gas deposits near Kasilof.

Also in Cook Inlet, however, two small independents, Escopeta Oil and Gas, and Buccaneer Oil and Gas, are working on plans to bring a jack-up rig to the Inlet to drill on state offshore leases that are too far from shore to reach with extended-reach wells drilled from shore.

Apache Oil and Gas, a major independent, is also interested in the planned Cook Inlet exploration.

Banks said the state's concern for independents drilling offshore in Cook Inlet is not only the relief well capabilities, but also the financial capabilities of the companies to finance spill containment and cleanup operations if those were needed.

Any new state requirements for relief well capability could add to the cost of the program, however, and additional financial responsibility requirements could pose problems for small companies seeking to drill offshore.

In its notice, the conservation commission said it is considering requirements that capabilities to drill a relief well be demonstrated, and as well as requirements for concurrent relief well drilling in offshore and ultra-extended reach wells.

The commission is also soliciting comments on its current rules on reliance of drilling fluids as a mechanism for primary well control; regulations on degassing of drilling muds, blow-out preventer and diverter requirements, including testing and inspection procedures, and casing and cementing programs.

Problems with cementing, casing and the blow-out preventer have been identified as contributing to the Deepwater Horizon disaster in the Gulf.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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