FEDERAL REGULATION OF FPSOs IN THE GULF OF MEXICO Jonathan A. Hunter Liskow & Lewis New Orleans, LA

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis Outer Continental Shelf Lands Act All OCS leasing, exploration, and development (beyond State waters) is governed by the OCSLA, 43 U.S.C et seq. Pursuant to the OCSLA, the Secretary of the Interior administers the federal offshore leasing program, and the Secretary has broad authority to promulgate regulations, approve operations, regulate facilities, etc.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis Outer Continental Shelf Lands Act OCSLA declares as policy that “operations... should be conducted in a safe manner by well- trained personnel using technology, precautions, and techniques sufficient to prevent or minimize the likelihood of blowouts, loss of well control, fires, spillages, physical obstruction to other users of the waters or subsoil and sea bed, or other occurrences which may cause damage to the environment or to property, or endanger life or health.” 43 U.S.C

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis Minerals Management Service MMS is the subagency within Interior that is responsible for performing the Secretary of the Interior’s duties under the OCSLA. Among other things, MMS holds offshore lease sales, approves exploration and development plans, approves changes in ownership of leases, conducts inspections, collects lease payments, AND specifies the criteria that govern the design and use of offshore facilities.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis Minerals Management Service MMS has extensive regulations and programs in place relating to OCS oil and gas operations, including regulations that address the types of facilities that may be used, design requirements for facilities, reporting requirements regarding operations and production, and similar matters. See 30 CFR Part 250.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis Minerals Management Service Interior, through the MMS, thus has a dual role: it is both lessor (interested in increasing production and collection of lease payments) and regulator (interested in conservation, ensuring a domestic supply of hydrocarbons, protecting the environment, requiring safety, etc.).

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs Although FPSOs have been used in offshore operations internationally, they have not been used in the United States. Because of the governing statutory and regulatory framework, MMS must approve the use of FPSOs in the Gulf of Mexico. In January 2002, MMS announced that it has, at least conceptually, approved the use of FPSOs in the Gulf.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs The process started in 1996, when MMS commenced discussions with members of the offshore oil and gas industry about the potential introduction of FPSOs into the Gulf of Mexico. Increased interest in FPSOs was a by-product of the increase in deep water exploration. FPSOs respond to the need created by the lack of an existing pipeline infrastructure in deep water areas; also, they potentially offer cost savings for marginal discoveries.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs January 1999 MMS and United States Coast Guard issue an updated Memorandum of Understanding (MOU) concerning their respective jurisdictions, including with respect to Mobile Offshore Drilling Units (MODUs) and Floating OCS Facilities (including FPSOs).

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs June 1999 MMS publishes Notice of Intent to Prepare Draft Environmental Impact Statement (EIS) with regard to the use of FPSOs in the Gulf of Mexico, pursuant to the National Environmental Policy Act (NEPA), which requires preparation of an EIS on any major Federal action that may have a significant impact on the environment. MMS believed that a completed, programmatic EIS would hasten the approval of future requests to use FPSOs for specific operations.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs 1999 The EIS evaluated what MMS considered to be the most typical FPSO to be used in the Gulf of Mexico in the next ten years – permanently moored, double-hulled, ship-shaped, storage up to 1 million bbls, multiple subsea wells, conventional shuttle tankers with 500,000 bbl storage, and used in water depths exceeding 200 meters in the Central and Western Planning Areas of the Gulf.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs 1999 MMS also funded a separate “Comparative Risk Analysis” (CRA) by the Offshore Technology Research Center. The CRA was a quantitative risk analysis performed to assess and compare oil spill and fatality risks for four types of production systems: Spars, Tension Leg Platforms, Hub/Host Jacket Systems, and FPSOs.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs 2000 Work on the EIS and CRA proceed. MMS issues NTL 2000-N06, containing guidance on obtaining agency approval for Deep Water Operations Plans (DWOPs) for projects involving “nonconventional facilities,” including FPSOs.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs February 2000 MMS issues Final EIS and CRA, both of which find that FPSOs present safety and environmental risks comparable to those of other production systems.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs February 2001 EIS proposed three alternative regulatory systems:  Alternative A – Approve the general concept of using FPSOs in deepwater areas of the Western and Central Planning Areas of the Gulf. Alternative B – Approve the general concept of using FPSOs with geographic and operational restrictions or conditions.  Alternative C – No action at this time.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs December 2001 MMS issues its Record of Decision, reviewing the EIS alternatives and choosing Alternative B-1, according to which FPSOs are approved in the Central and Western GOM except in USCG- designated lightering prohibited areas. The prohibited area is just off of the continental shelf from Galveston to New Orleans. MMS will revisit this prohibition in two years, following discussions with the USCG and further study of environmental issues applicable to this area.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs December 2001 MMS’s announced policy, like the EIS, is limited to the period MMS also proposed new regulations relating to the use of FPSOs and other Floating Production Systems (66 FR 66851, 12/27/01).

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs January 2002 “MMS has completed a rigorous environmental and safety review of FPSO’s for use in the deepwater areas of the Central and Western Gulf of Mexico. We examined the environmental risks and found them comparable to other types of production systems currently accepted for use in these deepwater areas. Therefore, we have concluded not to categorically exclude them from use as an offshore production system….While we will accept applications for the use of FPSO’s, each will be considered on a case-by- case basis.” Acting Director, Lucy Querques Denett.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs January 2002 “While this programmatic level decision does not approve any specific FPSO site or project, it provides a foundation for considering a specific request by a company to use an FPSO for a project. When a specific project is applied for, MMS will still conduct a site-specific environmental assessment as well as a project-specific technical and operational review before a project is approved. A review for projects that fall within the base case can now be completed in less time, since an EIS has already been prepared.” Acting Director, Lucy Querques Denett.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs MMS has extended the comment period on its proposed regulations to May 28, A final rulemaking is not anticipated for 6-12 months. Generally, the proposed regulations incorporate by reference a series of industry-approved technical standards (primarily API standards) for planning, designing, constructing and installing column- stabilized units, FPSOs, TLPs, Spars, etc. The goal of the proposed regulations is to streamline the permitting process.

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs Finalization of the proposed regulations is not a prerequisite to obtaining agency approval to use an FPSO An operator/lessee may seek approval to use an FPSO in essentially the same manner as with other “nonconventional facilities” (like TLPs or Spars)

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs Deep Water Operations Plan (DWOP) and the Development Operations Coordination Document (DOCD) – main vehicles for agency approval “Any proposed FPSO operation that is not within the range of operations evaluated in the programmatic EIS will require a more extensive environmental review and [NEPA] documentation than would a proposed operation within the range addressed in the EIS.” (MMS Press Release)

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs “Key components of this regulatory framework include the deepwater operations plan (NTL 2000-N06) and the development operations coordination document (30 CFR ) with associated conservation reviews (NTL 2000-N05) and environmental reviews (NTL 2000-G21). Additional engineering reviews of the facility and safety systems will ensure the FPSO can operate safely. Once an FPSO system is installed, MMS inspectors will examine the facility on a routine basis.” (MMS Press Release)

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs Concerns over how to handle natural gas “The MMS will require the operator to transport produced gas to market. This will likely require a dedicated pipeline for gas production. The MMS has stated throughout the development of the FPSO strategy that flaring of gas would not be permitted on an extended basis.” (MMS, December 2001)

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis MMS Approval Of FPSOs MMS has received no applications to use an FPSO

2002 Houston Marine Insurance SeminarJonathan A. Hunter, Liskow & Lewis Other Agencies Despite its extensive role, MMS is not the only federal agency with jurisdiction over offshore oil and gas operations. Other agencies are involved as well – most notably for FPSOs, the United States Coast Guard FPSOs will also have to satisfy certain USCG regulations, but MMS and the USCG are working together to minimize any overlap between their respective jurisdictions. See 1999 MOU (64 FR 2660)