Intelligence brief: US well-control rule imposes heavy costs; Baker Hughes to put Halliburton breakup fee to use

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New well-control rules aim to prevent a repeat of the 2010 Deepwater Horizon oil spill (Image credit: US Coast Guard)

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US well-control rule imposes heavy costs on operators

The Obama Administration’s final well-control regulations could force small operators out of business and drive larger operators out of US waters, the Van Ness Feldman law firm has warned.

The Bureau of Safety and Environmental Enforcement released the final version of the regulations in April, taking into account some of the suggestions made by industry groups. The new rules will become effective at the end of July.

Among other things, the final rule includes new and revised requirements for blowout-preventer systems and double shear rams; third-party reviews of equipment; real-time monitoring of data; safe drilling margins; centralizers; inspections intervals; and other reforms related to well design and control, casing, cementing, and subsea containment.

In a 531-page document explaining the regulations, the Department of the Interior (DoI) estimated the total 10-year cost to industry would reach $890 million. It estimated that this would be partially offset by $636 million in net benefits from a decrease in the blowout-preventer testing frequency for workover and decommissioning operations from the current seven days to 14 days.

Small entities will spend about $328,000 per year on complying with the new rules, in comparison to an average of $897,900 for all entities, the DoI said. It based this calculation on the assumption that the cost for a small entity would be 36.6% the cost per entity for all entities. According to the DoI, 50 of the 99 entities operating in US waters are small entities. These small entities account for 18.5% of total offshore oil and gas revenues, implying that the average small firm has operations about 36.6% as large as the operations of an average operator.

Industry groups have been slow to react to the final regulations, although the American Petroleum Institute and Ramboll Environ were among those at a December Senate hearing to criticize the draft proposal for being overly prescriptive. According to news reports, ExxonMobil told White House and DoI officials in March that the rules would cost the industry $25 billion and increase the danger of a blowout by stripping on-site staff of the power to make decisions.

Baker Hughes to put Halliburton breakup fee to immediate use

Baker Hughes has said it will use a $3.5 billion breakup fee from Halliburton to implement structural changes that reduce costs and improve efficiency.

The world’s second- and third-largest oilfield-services companies announced May 1 that they have terminated the merger agreement they entered into in November 2014. In doing so, they acknowledged their inability to satisfy the antitrust concerns of regulators in the United States and abroad.

Baker Hughes said it expects to make $500 million in annualized savings by the end of 2016 on the back of the initial phase in its cost-reduction efforts. The company intends to buy back shares totaling $1.5 billion and debt totaling $1 billion, from the proceeds of the breakup fee.

In a separate announcement, Baker Hughes said it cut 2,000 jobs in the first quarter to add to 18,000 job cuts last year. It said it had about 43,000 employees as of December 31, 2015.

Chevron sells 19 GoM fields in one deal

Chevron has sold 19 fields and associated assets in the Gulf of Mexico (GoM) to privately owned Cox Oil Offshore for an undisclosed sum.

The assets, located primarily on the GoM Outer Continental Shelf and in Louisiana state waters, includes 170 active wells, 70 platforms, 70 caissons and other offshore structures. More than 100 Chevron employees will join Cox.

Chevron earned $23.553 billion in revenues in the first quarter of 2016, 32% less than the $34.558 billion it earned in the corresponding period in 2015, the company announced in its quarterly report.

The company said its average sales price per barrel of crude oil and natural gas liquids was $26 in the first quarter of 2016, down from $43 one year earlier. Net oil-equivalent production reached 701,000 barrels per day, up 2,000 barrels per day from one year earlier.

“Production increases due to project ramp-ups in the Gulf of Mexico, the Marcellus Shale in western Pennsylvania, and the Permian Basin in Texas and New Mexico were mostly offset by maintenance-related downtime in the Gulf of Mexico, normal field declines and the effect of asset sales,” it said.