Outer Continental Shelf Update J. Keith Couvillion Chevron U.S.A. Inc.

Transcription

1 Outer Continental Shelf Update J. Keith Couvillion Chevron U.S.A. Inc. October 14, 2011

2 Cautionary Statement Cautionary Statement Relevant to Forward-Looking Information for the Purpose of Safe Harbor Provisions of the Private Securities Litigation Reform Act of This presentation of Chevron U.S.A. Inc. contains forward-looking statements relating to Chevron s operations that are based on management s current expectations, estimates and projections about the petroleum, chemicals and other energy-related industries. Words such as anticipates, expects, intends, plans, targets, projects, believes, seeks, schedules, estimates, budgets and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The audience should not place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Unless legally required, Chevron undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are crude oil and natural gas prices; refining margins and marketing margins; chemicals prices and competitive conditions affecting supply and demand for aromatics, olefins and additives products; actions of competitors; the competitiveness of alternate energy sources or product substitutes; technological developments; the results of operations and financial condition of equity affiliates; the inability or failure of the company s joint-venture partners to fund their share of operations and development activities; the potential failure to achieve expected net production from existing and future crude oil and natural gas development projects; potential delays in the development, construction or start-up of planned projects; the potential disruption or interruption of the company s net production or manufacturing facilities or delivery/transportation networks due to war, accidents, political events, civil unrest, severe weather or crude-oil production quotas that might be imposed by OPEC (Organization of Petroleum Exporting Countries); the potential liability for remedial actions under existing or future environmental regulations and litigation; significant investment or product changes under existing or future environmental statutes, regulations and litigation; the potential liability resulting from pending or future litigation; the company s acquisition or disposition of assets; government-mandated sales, divestitures, recapitalizations, changes in fiscal terms or restrictions on scope of company operations; and the factors set forth under the heading Risk Factors in the Annual Report on Form 10-K. In addition, such statements could be affected by general domestic and international economic and political conditions. Unpredictable or unknown factors not discussed during this presentation could also have material adverse effects on forwardlooking statements. U.S. Securities and Exchange Commission (SEC) rules permit oil and gas companies to disclose only proved reserves in their filings with the SEC. Certain terms, such as resources, oil-equivalent resources, potentially recoverable reserves, "ultimate reserves," and recoverable resources, among others, may be used in this presentation to describe certain oil and gas properties that are not permitted to be used in filings with the SEC. Investors should refer to disclosures in Chevron's Annual Report on Form 10-K.

3 Outline MMS/BOEMRE Reorganization New Procedures and Permitting Requirements OCS Lease Sales Questions 3

4 Minerals Management Service (MMS)/Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) Reorganization

5 Horizon Incident Government Impact April 20 th Beginning of a major change in Department of the Interior s Minerals Management Service (MMS) May 19 th - Secretary of Interior announces restructuring of MMS Deepwater Horizon Response Fleet

6 Minerals Management Service (MMS) Secretary of the Interior James Wyatt Founded on January 19, 1982 Minerals Revenue Management Bureau of Land Management Bureau of Indian Affairs Collects Revenue from: Oil and Gas, Coal, Metals, Potash, and Renewable Energy Resources Responsible for OCS Operations & Ensuring Compliance with Relevant Laws and Regulations Since 1982 MMS has collected over $210 Billion in Revenue distributed among States, Tribes, Counties, and the Federal Treasury

7 Former MMS Organization

8 Why Reorganize MMS was challenged by real and perceived conflicts of interest by working closely with industry. These challenges have been identified in critical reports issued by the Office of the Inspector General (OIG) and the Government Accountability Office (GAO). These reports describe ethical lapses, structural weaknesses in auditing, and other management issues. January 2009, the Administration initiated reform efforts including the publication of the MMS Code of Ethics and new ethics training at MMS offices. Also, the RIK program, which was the subject of many comments in the reports, was terminated.

9 BOEMRE Post-Deepwater Horizon Incident Order No Sec. 1 (July 14, 2010) The purpose of this Order is to separate and reassign the responsibilities that had been conducted by the Minerals Management Service into new management structures that will improve the management, oversight, and accountability of activities on the Outer Continental Shelf; ensure a fair return to the taxpayer from royalty and revenue collection and disbursement activities; and provide independent safety and environmental oversight and enforcement of offshore activities. BOEM (Bureau of Ocean Energy Management) Secretary of Interior Ken Salazar BSEE (Bureau of Safety and Environmental Enforcement) ONRR (Office of Natural Resources Revenue)

10 New Organizational Structure of MMS

11 Benefits by Separating BOEMRE into BOEM and BSEE Separates resource management from safety oversight Provides structure where environmental analyses are conducted and that the potential environmental effects of the proposed operations are given appropriate weight during decision-making process related to resource management in BOEM Strengthens the oversight of well design and loss of well control containment and response (BSEE) Focuses attention on facility and drilling rig inspections and regulatory compliance (BSEE)

12 Bureau of Ocean Energy Management (BOEM) The mission of the BOEM is to foster environmentally responsible and appropriate development of the Outer Continental Shelf for both conventional and renewable energy and mineral resources in a manner that is efficient and effective, and that ensures the American people receive fair market value for the rights conveyed. Resource Manager on the Outer Continental Shelf Primary Contact for the Public (including coastal states) interested in energy uses of the Federal Offshore Estate Headed by a Director (Tommy P. Beaudreau) under the supervision of the Assistant Secretary for Land and Minerals Management Tommy Beaudreau BOEM Director

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14 Bureau of Safety and Environmental Enforcement (BSEE) The mission of the BSEE is to promote and enforce safety in offshore energy exploration and production operations and assure that potential negative environmental and other impacts on marine ecosystems and coastal communities are appropriately considered and mitigated. BSEE will apply independent regulation, oversight, and exercise enforcement powers Including necessary engineering and safety reviews, inspecting operations for compliance, approving spill response plans, and reviewing NEPA compliance activities. Headed by a Director (Michael Bromwich) under the supervision of the Assistant Secretary for Land and Minerals Management. Michael Bromwich BSEE Director

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17 Office of Natural Resource Revenue (ONRR)

18 Office of Natural Resource Revenue (ONRR) The mission of the ONRR is to ensure the full and fair return to the American people of royalties and other monies owed for the utilization of public resources in the production of conventional and renewable energy and mineral resources both onshore and in the OCS. ONRR reports to the Deputy Assistant Secretary for Natural Resources Revenue Management and Oversight within the Office of the Assistant Secretary for Policy, Management and Budget who reports to Deputy Secretary who reports to the Secretary of Interior. Perform a variety of critical functions: Transparent and robust collections of royalties, rents, fees, and other revenues onshore and offshore Auditing of industry in compliance with the terms of each lease Enforcement against violators, cooperate with criminal investigations and prosecutions, and assessment of civil and criminal penalties. Asset Management and development of regulations with respect to revenue valuation and collection and enforcement activities.

19 Implementation & the Future New organization started on October 1 80 Touch Points identified and will continue to be worked between Bureaus Congressional intervention continues to be possible Multiple outreach meetings have been held by BOEMRE to roll out the organizations and answer questions

20 New Procedures and Permitting Requirements

21 Post Incident Operational Challenges May 27 th Secretary Salazar issues report entitled Increased Safety Measures for Energy Development on the Outer Continental Shelf (Buffalo Report) Secretary of Interior Ken Salazar

22 The President s Commission & Task Force National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling Presidential Executive Order dated May 21, 2010 The Commission was co-chaired by Senator Bob Graham and former EPA Administrator William K. Reilly. The other Commissioners were Frances Beinecke, Donald Boesch, Terry Garcia, Cherry Murray, and Frances Ulmer The final report was issued on January 12, 2011 Recommendations: Independent Safety Administration Bring offshore regulations and information into the 21 st century Need proactive, risk-based, regulatory and environmental analysis per location Most of the money from restoration be applied to Gulf of Mexico State Department engage other countries with Arctic environments Industry pay for independent safety administration with money paid out from leases Liability and Compensation Requirements under Oil Pollution Act Staff Report No. 10 NEPA and OCS Oil and Gas Activity Staff Report No. 12 A New Approach to Risk Assessment and Management Staff Report No. 21 Chief Counsel Report issued in March 2011 Gulf Coast Ecosystem Restoration Task Force - Presidential Executive Order dated October 5, 2010

23 New Government Procedures and Regulations Deepwater Operational Deficiencies & Concerns Drilling and workplace safety Well intervention Blowout containment Oil spill response

24 Industry Initiatives to Improve Drilling Safety Immediately after the Deepwater Horizon explosion and Macondo well blowout, the U.S. oil and gas industry mobilized an extensive, multipronged effort designed to improve the safety of deepwater drilling operations and restore public confidence. These initiatives, many of which have been done in collaboration with the US government, focus on preventing incidents from happening and preparing for the unexpected should an incident occur. Through these initiatives, the industry has collectively and significantly augmented its capabilities to prevent another blowout, to intervene and contain a blowout should one occur, and to recover spilled oil. These efforts addressed the issues raised by Congress, the President and the Secretary of Interior about the safety of deepwater drilling operations in the Gulf of Mexico and provided the basis for getting the industry back to work in the deepwater Gulf of Mexico.

25 Industry Engagement Joint Industry Task Forces/Committees Offshore Equipment Operating Procedures Well Intervention and Containment Oil Spill Preparedness and Response Center for Offshore Safety Offshore Issues Subcommittee State & Federal Agency Advocacy Administrative Regulatory Rulemaking Commenting

26 Joint Industry Task Forces Offshore Equipment Joint Industry Task Force: Tasked to review current BOP equipment designs, testing protocols, regulations and documentation to determine if any gaps existed or improvements that could be made. Made recommendations to the Department of Interior on May 17, 2010, which were reflected in the DOI s Notice to Lessees #05. Safety improvements include: New requirement of a secondary control system for subsea blowout preventer with remote operated vehicle intervention capabilities. New requirement for an independent third party to conduct a detailed inspection and design review of the BOP that certifies it will operate as originally designed. Offshore Operating Procedures Joint Industry Task Force: Tasked to review critical processes associated with drilling and completing deep water wells to identify gaps between existing practices and regulations and industry best practices. Made recommendations to the Department of Interior on May 17, 2010 that will move industry standards to a higher level of safety performance and tighten the range of acceptable operational practices. Many of these recommendations were reflected in the DOI s Notice to Lessees #05. Safety improvements to well design and construction include: New requirement that all well casing designs and cementing procedures will be certified by a Professional Engineer to verify the design is appropriate for the intended purpose under expected wellbore conditions. New requirement that two mechanical barriers are in place in addition to cement to prevent flow in the event of a failure in the cement. 26

27 Joint Industry Task Forces - Continued Subsea Well Control Joint Industry Task Force: Tasked to review current subsea well control preparedness and response options to determine their effectiveness throughout all offshore operations, particularly in deepwater, open sea environment. Primary focus of the review is on operations that can occur after a BOP has failed and ROV shut-in attempts have failed or are not possible. Submitted recommendations to the Department of Interior in August Recommendations covered drilling of relief wells and the application of production recovery devices such as top hats, cofferdams, manifolds, and umbilicals. Spill Response Joint Industry Task Force: Tasked to conduct a critical assessment of the entire spill response system, including reviewing processes and technologies associated with oil spill preparedness and response in both subsea and surface environments. Significant emphasis will be placed in the development and contents of spill response plans. Submitted a work plan to Department of Interior on July 6, 2010 and submitted recommendations and an action/implementation plan to the Department of Interior in August

28 Notice to Lessees and Operators (NTL s) Notices to Lessees and Operators (NTLs) are formal documents that provide guidance, clarification, description or interpretation of a regulation or OCS standard. Provides guidelines on the implementation of a special lease stipulation, regional or national requirement Provides a better understanding of the scope and meaning of a regulation by explaining BOEMRE current interpretation of a requirement Transmits administrative information such as current telephone listings and a change in BOEMRE personnel or office address

29 Post Incident - Notices to Lessees May 30 th NTL 2010-N04 Impose Moratorium on all Drilling of Deepwater Wells June 8 th NTL 2010-N05 Increased Safety Measures for Energy Development on the OCS June 18 th NTL 2010-N06 Information Requirements for Exploration Plans, Development and Production Plans, and Development Operations Coordination Documents November 8 th - NTL 2010-N10 Compliance with Regulations and Demonstrating Containment and Spill Response

30 New Regulations Drilling Safety Rule Issued as Interim Final Rules on October 14, 2010 Workplace Safety Rule (Safety and Environmental Management Rule SEMS) Issued as a Final Rule on October 15, 2010 (Implementation required by November 15, 2011) SEMS 2 Draft Rule Published Sept. 13 th Comments are due on Nov. 14th

31 Exploration and Development Plans

32 Exploration Plan (EP) to Application for Permit to Drill (APD) Flow Chart

33 Exploration Plans According to the BOEM, all exploration, development, and production activities except for preliminary activities may be conducted in accordance with an approved Exploration Plan. What s included in an EP? (Required under 30 CFR ) Description, objectives and schedule Location (lease & wells) Drilling Unit Service Fee What information must accompany an EP? Geological and Geophysical Oil & hazardous substance spills Support vessels and aircraft Environmental Impact Analysis Biological, Physical, and Socioeconomic Analysis Etc

34 Exploration Plans Timing There is a 15 day wait period in-between your submittal of the EP and the Deemed Submitted determination This does not include the fact that once they receive it they can ask questions and prolong the process even further A 2 day waiting period to let the Governor receive the Deemed Submitted EP A 21 day period to let the Governor submit comments about the EP including CZMA consistency determination (which can be extended to 180 days) A 30 day period to let BOEMRE review the EP and approve or disapprove it

35 Exploration Plans What s NEW in an EP? Worst Case Discharge (WCD) Calculations Blowout scenario/planned response Additional information to assist with NEPA compliance (EA s) Public comment period after EP is deemed approved Approval requirements for activities that involve the use of a subsea blowout preventer or a surface BOP on a floating facility Triggers requiring submittal of Revised Plan Change in Operator even if proposed activities are identical Change of surface/bottom hole location Change the type of drilling rig, production facility, or transportation mode Change the type of production or significantly increase the production or storage capacity Increase the emissions of an air pollutant above the specified amounts Significantly increase the amount of solid or liquid waste discharged Change the location of your onshore support base New H2S area classification or increase the concentration of H2S above the previous limit

36 Development Plan (DOCD or DPP) to Application for Permit to Drill (APD) Flow Chart

37 Development Plan Information Must be approved prior to conducting the first activity discussed in the plan Covers some items found in the Exploration Plan, plus additional items specific to the development project Impacts other permit timing Conservation Information Document (CID), Deepwater Operating Plan (DWOP), Down-hole Commingling, Rights of Use and Easements Includes an environmental review and Coastal Zone Management Consistency Certification

38 Development Plan Requirements Must address all facility infrastructure Facilities / pipelines New or Unusual Technology Water injection, polyester mooring, subsea pumping, single trip multi- zone frac pack, horizontal surface trees, etc. Air Emissions All emissions from fuel burning engines on/planned for the facility Transportation System Discussion and description of all methods of bringing production to shore (pipelines, etc.) Support Vessels All vessels used for construction/installation of the platform/modification

39 Deepwater Development Plan Major Interdependent Documents Deepwater Operations Plan (DWOP) Filed in 2 phases: Conceptual and Final Conceptual DWOP - must be filed prior to DOCD DWOP required prior to approval to commencement of startup operations Document that contains all requested departures associated with project development Conservation Information Document (CID) Designed to assure resource conservation through orderly development of hydrocarbons on the lease Submittal with or prior to DOCD approval

40 Critical Notices to Lessees

41 NTL (General) NTL (Information Requirements for EP, DPP, DOCD) The purpose of this NTL was to provide guidance to Lessees and Operators regarding the content of the blowout scenarios and worst case discharge scenario descriptions. The BOEMRE may require you to submit additional information necessary to evaluate your proposed or existing plan or document. The BOEMRE may also require you to provide information to demonstrate that you have planned and are prepared to conduct your proposed activities in a manner that conforms with all applicable federal laws and regulations, is safe, conforms to sound conservation practices and does not cause undue or serious harm or damage to the human, marine or coastal environment. Effective June 18, 2010

42 NTL (Worst Case Discharge) Provide a scenario for the potential blowout of the proposed well in your plan or document that you expect will have the highest volume of liquid hydrocarbons. Include the estimated flow rate, total volume, and maximum duration of the potential blowout. Describe the assumptions and calculations that you used to determine the volume (daily discharge rate) of your worst case discharge scenario required by 30 CFR (a)(2)(iv) (for EPs) Discuss the potential for the well to bridge over, the likelihood for surface intervention to stop the blowout, the availability of a rig to drill a relief well, and rig package constraints. Describe the measures you propose that would enhance your ability to prevent a blowout, to reduce the likelihood of a blowout, and conduct effective and early intervention in the event of a blowout, including your arrangements for drilling relief wells, and any other measures you propose.

43 NTL 2010-N10 (Containment and Spill Response) This NTL applies to operators conducting operations using subsea blowout preventers (BOPs) or surface BOPs on floating facilities. A statement of compliance with applicable regulations signed by a company official submitted with each well permit Provide demonstration of adequate access to and capable of deploying promptly containment resources to respond to a blowout or other loss of well control Must demonstrate adequate oil spill response capability (equipment, vessels & storage)

44 BOP Emergency Systems Emergency Disconnect Deadman Backup Autoshear Backup Remotely Operated Vehicle Acoustic Backup Management 2011 Chevron Committee U.S.A. Inc. May

45 Blowout Preventer Ram Types Insert Photo Blind Shear Ram shears smaller tubulars and then seals wellbore (or seals wellbore with no pipe) Insert Photo Casing Shear Ram shears large tubulars does not seal Insert Photo Pipe Ram seals annulus around various drill pipe sizes Management 2011 Chevron Committee U.S.A. Inc. May

46 Well Containment Marine Well Containment Company 10 Members (Chevron, ExxonMobil, Shell and ConocoPhillips) Rapid response system available to capture and contain oil in the event of a potential underwater well blowout The system will be flexible and able to begin mobilization within 24 hours and can be used on a wide range of well designs and equipment, oil and natural gas flow rates and weather conditions. The interim system (15,000 psig capping stack) is engineered to be used in deepwater depths up to 10,000 and have initial capacity to contain 60,000 barrels & 120 MMCFG per day with potential for expansion. Helix Well Containment Group 22 Members Operate in up to 8,000 feet of water 10,000 & 15,000 psig capping stacks Intervention equipment to cap and contain a well Capture and process 55,000 BOPD & 95 MMCFPD

47 Applications for Permit to Drill

48 Application for Permit to Drill (APD) Prior to starting the drilling of a well under an approved EP, DOCD or DPP, the lessee must file an APD (BOEMRE Form MMS-123) with the District Supervisor for approval. Timing has typically been 30 days although, post-macondo has increased that time significantly. An APD should include: (30 CFR ) Rated capacities of the proposed drilling unit and of major drilling equipment Fully completed Form MMS-123 (Application for Permit to Drill) Fully completed Form MMS-123S (Supplemental APD Information Sheet) Plat Design criteria considered for the well and for well control BOP equipment program Casing program Drilling prognosis Cementing program

49 Application for Permit to Drill (APD) June 3, 2011 Press Release- BOEMRE Implements Changes to Improve Efficiency of Permit Review Process Issues Permit Review Checklist to Ensure Submission of Complete Applications Key Improvements The publication of a completeness checklist for offshore oil and gas operators. BOEMRE personnel will conduct completeness checks before beginning an in-depth, substantive review of the application. Permits found to be complete will have a higher priority. The Priority Chain 1. Permits for ongoing operations, such as sidetracks or deeper exploration of an existing well 2. Applications deemed complete 3. Applications that are not deemed complete, such as those missing a required containment plan or the necessary professional engineer certifications, may begin to be processed. (This category also includes permit applications without an approved EP or DP.)

50 New Permitting Challenges New Notices to Lessees New Rules New Legislation Higher Level of Scrutiny Oil Pollution Act National Environmental Policy Act Coastal Zone Management Act Endangered Species Act Marine Mammal Protection Act

51 Offshore Lease Sales

52 Outer Continental Shelf Leasing Year Leasing Program Revised Leasing Program Published on December 23, 2010 Remaining Sales in Leasing Program Sale Central GOM 2011 (Combined with 222) Sale Western GOM 2011 (December 14, 2011) Sale Cook Inlet 2011 (Cancelled) Sale Mid-Atlantic 2011 (Cancelled) Sale Central GOM 2012 (May or June 2012) BOEM will complete a Supplemental EIS for each Lease Sale in the Gulf of Mexico before hosting the Sale. 52

53 New Year Leasing Program Draft Proposed Program Published in 2009 included 31 Lease Sales Post Macondo Obama and Salazar eliminated all OCS areas from consideration except CGOM, WGOM, small portion of EGOM, Cook Inlet, Beaufort Sea & Chukchi Sea Work continues on Programmatic National Environmental Impact Statement President Obama Final Leasing Program will most likely include only 16 to 18 Lease Sales Current Leasing Program Expires on June 30,

54 BOEMRE Leasing Program Process

55 Lease Sale Observations BOEMRE is behind schedule to completing new Year Leasing Program BOEMRE has not published revised proposed Lease Sale schedule for The likelihood of the new program being in place on July 1, 2012 is low 55

56 Certainty and Predictability Rebuilding government confidence Assurance future incidents will be minimized Greater worker and environmental safety Enhanced well containment and spill response 56