July 2001 Vol. 222 No. 7  Offshore

Robert E. Snyder,  Editor

Eastern Gulf lease sale; FPSO shuttles

After more than five years of study, the government should proceed with its conservative OCS Lease Sale 181 in the Eastern Gulf of Mexico, declared C. Stedman Garber, Jr., IADC VP and president / CEO of Santa Fe International Corp. "We have an exciting opportunity to make a difference in energy for America," he said of the planned lease sale, which would be the first in the Eastern Gulf since 1988.

Mr. Garber said at the recent OTC that "This hydrocarbon-rich region has the potential to greatly increase oil and gas supply to meet the growing needs of our nation and of the state of Florida. It can be developed safely and without damage to the environment. Best of all, the clean gas this region possesses can aid tremendously in cutting air pollution in the populous state of Florida." The state has "soaring" SO₂ emissions, stemming partly from its coal-burning power plants.

Garber identified the main area, located 100 mi south of the Florida panhandle, as holding enough natural gas to meet the needs of 5.9 million Florida households for the next 16 years. He cited the National Petroleum Council’s 1999 study on natural gas, which found that the lease sale area potentially holds 7.8 Tcf gas, and 1.9 billion bbl oil. The Council has estimated that demand for gas in the U.S. will increase about 32% by 2010, to 29 Tcf.

He pointed out that the bulk of the lease acreage lies far from the beaches of the Florida Panhandle. "In fact," he observed, "The state of Florida twice has expressed its appreciation to the DOI for the lease sale’s 100-mi buffer from Florida’s coast. This buffer zone was in accordance with the state’s wishes, as is the 15-mi buffer offshore Baldwin County, Alabama."

However, all is not rosy regarding Florida’s possible negative action. Although the proposed sale may go through as planned, the state government could use the Coastal Zone Management Act to effectively halt oil and gas exploration in the area, particularly if several pending amendments to the Act pass into law. Under current regulations, states can object to exploration / development activities off their coasts, if a given activity is inconsistent with the state’s policies under the CZM Act.

Speaking at a recent IPAA forum, Jonathan Hunter with Liskow & Lewis said a proposed regulatory change may move this discretion outside of the traditional territorial jurisdiction of a state. The new regulation would allow a state to object to and effectively derail E&P plans in a second state if the first state determines that such activities will impact its coastal zone and are inconsistent with its own CZM Act policies.

The implications of this regulatory change on the proposed Sale 181 are clear: The "stovepipe" section of the sale area begins 15 mi from the coast of Alabama, in waters offshore Alabama. It extends some 80 mi north from the main, 80-sq mi body of the sale area, located more than 100 mi off Florida’s panhandle and 200 mi from its main coast. However, the tip of the "stove pipe" is also about 30 mi off Florida’s western-most coast.

Florida, which takes a dimmer view of offshore exploration / production than Alabama, could effectively bring offshore activities in the area to a halt. According to Hunter, an appeals process is in place in which an oil company could appeal directly to the Secretary of Commerce to override a state’s decision to sabotage exploration offshore its, or another state’s, coastline. However, he said that the average time to get a ruling on an appeal is four years. Thus, the proposed regulatory change could allow Florida to tie-up all exploration projects in the "stove pipe" in a legal quagmire, essentially ending exploration in the area.

Getting ready for FPSOs. At the spring NOIA meeting, the point was made that if, suddenly, there were FPSOs deployed in the U.S. Gulf in any number, there would be no provision for shuttling the extra produced crude to shore from deepwater areas, 100 – 200 miles offshore. Due to water depths, pipelines become more difficult to install and monitor.

Two companies are being formed to prepare for this dilemma. Conoco’s wholly-owned affiliate, Seahorse Shuttling & Technology, has formalized an alliance with Alabama Shipyard of Mobile and Samsung Heavy Industries of Korea, to develop a design and construction plan for making American-built shuttle tankers available for service by 2004. Seahorse was formed by Conoco to provide crude storage and tanker shuttling services for new oil discoveries made by Conoco and other companies in the deepwater GOM. Conoco reportedly remains confident that the MMS will approve the shuttling concept in the GOM and is continuing its program to deploy shuttles in the region as soon as possible.

Earlier, Norwegian-based Navion, which dominates shuttle tanker operations in the North Sea, had linked up with Skaugen PetroTrans to form American Shuttle Tankers to compete in the same market. Navion has been investigating a tanker building program in the U.S., while feeling out the authorities on whether they might be able to get a Jones Act exemption for bringing in non-U.S. built and flagged vessels on a short-term basis.

As noted by the Gulf of Mexico Newsletter, although shuttle tankers can be utilized to transport oil to shore, dealing with associated gas presents a different challenge. The MMS has indicated that gas reinjection, in relation to FPSO-produced fields may be an approvable option, provided the operator can show a gas production plan and make a firm commitment to produce the gas in the future, but there is no guarantee of approval for such a scheme.

Syntroleum and Petroleum Geo Services are planning a joint venture to deploy Syntroleum’s gas-to-liquids technology on a marine-based platform. The conversion to synthetic crude would enable the operator to produce a field in compliance with MMS regulations by shipping the converted liquid via shuttle tanker.