Offshore update

Sept. 2002 Vol. 223 No. 9  Offshore Update

Robert E. Snyder,  Executive Engineering Editor

Offshore U.S. terrorism risk insurance. As reported by IADC in its August Drill Bits, the U.S. Congress has been deliberating the Terrorism Risk Insurance Act of 2002, (S.2600), which would provide the insurance industry additional security in the wake of the September 11 attacks. Lloyd’s of London has asked IADC for its support of key amendments to S.2600 necessary to provide adequate coverage for U.S. Outer Continental Shelf (OCS) oil / gas facilities. The amendments are also supported by the API.

The problem centers on ambiguities which exist under the proposed legislation, which could leave critical energy production facilities and maritime operations in U.S. waters unprotected by the intended insurance program. Both the definition of "act of terrorism" and "insured losses" in S.2600 refer, with certain exceptions, to acts and harm occurring "within the United States." But, IADC notes, how this latter phrase will apply to activities conducted in jurisdictional waters of the U.S., if at all, is subject to doubt.

Such activities include energy production on the U.S. OCS, which is estimated to produce 28% of U.S. domestic oil and 26% of its gas. Lloyd’s argues that S.2600 should be clarified by incorporating, by reference, the jurisdictional lines set forth in the Violent Crime Control and Law Enforcement Act of 1994. Doing so would ensure that all shipping within 12 nmi of the U.S. coast, and all oil / gas activities on the OCS, fall within the geographic scope of the bill.

Rising insurance costs for the drilling industry will be the subject of a panel discussion during IADC’s Annual Meeting in San Antonio, September 26. For more information, contact: Brian T. Petty, +1 (202) 293-0670; email: brian.petty@iadc.org.

U.S. Gulf production heading up. The U.S. MMS, Gulf of Mexico Region, has released oil and gas daily-production-rate projections that encompass the year 2006. According to the report, Daily oil and gas production rate projections from 2002 through 2006, Gulf of Mexico Outer Continental Shelf, MMS is forecasting a production rate of 2.00 to 2.47 MMbopd, and gas production of 10.97 to 16.39 Bcfd by the end of 2006. These represent high- and low-case estimates.

New MMS Director Johnnie Burton said the projections "Are a healthy, sizeable increase. Should the high-case estimates be reached in 2006, we will see a 160% increase in oil production from the Gulf in the period 1995 – 2006." Oil production has been rising steadily in the Gulf from the 945,000 bopd in 1995; it was an estimated 1.5 MMbopd in 2001. Deepwater oil production surpassed shallow-water production in March 2000. According to these forecasts, as much as 77% of the oil production in the Gulf, and 26% of gas, could come from deep water (1,000 ft, or greater) by 2006.

Keppel acquires Dutch shipyard. Singapore’s Keppel Corp. Ltd., through its offshore rig-building division Keppel FELS Ltd., has signed a preliminary agreement with Verolme Botlek b.v. to acquire an 85% interest in Dutch offshore repair and conversion shipyard Verolme Botlek for EURO 18.3 million (S$32 million). The management (10%) and workers’ foundation (5%) will hold the remaining interest. The acquisition is expected to be completed "within a few months."

Keppel says acquisition of the Rotterdam yard is in line with its near-market, near-customer strategy to better serve its customers by being closer to them. It will give Keppel a stronger foothold in the North Sea and European offshore and marine markets. This will be the latest addition to its current stable of 14 yards in the U.S., Brazil, Azerbaijan, Philippines, UAE and Singapore. With acquisition of this yard in the Netherlands, its strategic capability to service customers prospecting and drilling in the North Sea will be further enhanced. The North Sea holds Europe’s largest oil and gas reserves and is one of the world’s key non-OPEC producing regions. Its oil output reached 5.9 MMbopd in 2001.

Founded in 1954, Verolme Botlek is a well-established shipyard in the Netherlands, providing integrated services and activities in offshore repair, conversion and modification work. Situated in Rotterdam’s Botlek area, the yard covers a total 54 hectares (133 acres), and has three drydocks up to 500,000 dwt, plus good workshop and craneage facilities. Its location in the Port of Rotterdam offers convenient access to both the North Sea and much of the industrial hinterland of Western and Central Europe.

Gulf of Mexico leasing. MMS has identified proposals, alternatives and mitigating measures to be analyzed in environmental analyses covering two proposed offshore oil / gas lease sales in the Eastern Gulf of Mexico. The two sales under consideration are Sales 189 and 197, both included in the recently approved 2002 – 2007 oil and natural gas leasing program. Sale 189 is tentatively scheduled to be held in December 2003, Sale 197 in March 2005.

MMS published a Call for Information and Nominations and Notice of Intent to Prepare an Environmental Impact Statement (EIS), in the Federal Register, in February 2002; and subsequent scoping meetings on the two-sale EIS have been held. The MMS area identification decision will be incorporated in the two-sale EIS, as well as in a planned subsequent Environmental Assessment (EA) for Sale 197. The EA will focus primarily on new issues, to determine whether MMS should prepare either a Finding of No New Significant Impact or a supplemental EIS. The draft EIS is scheduled to be released in late November with public hearings to follow in January 2003.

The general area to be studied includes unleased whole blocks located within the portion of the Eastern GOM Planning Area, which generally ranges from 100 to 196 mi south of Alabama and from 70 to 148 mi offshore Louisiana. This is the same area that was offered for lease in Eastern GOM Sale 181 held in December 2001. The area comprises 1.5 million acres, of which 0.8 million acres are currently available for bid in Sales 189 and / or 197.

Editor’s note. World Oil will discontinue this offshore column starting with the October issue. Yours truly will be doing the drilling and production columns, in which quite a bit of offshore technology will continue to appear.