2019 Regular Session ENROLLED
SENATE CONCURRENT RESOL UTION NO. 116
BY SENATORS CHABERT, ALLAIN, GATTI, LAMBERT, MILLS AND WARD
A CONCURRENT RESOL UTION
To urge and request the United States Department of the Interior to adopt a public policy
that encourages the avoidance of stranding assets in the Gulf of Mexico Shallow
Water Province to ensure maximum benefit for the nation.
WHEREAS, the Gulf of Mexico Shallow Water Province (GOMSWP) has been
defined as water depths less than two hundred meters; and
WHEREAS, for the last two decades, the GOMSWP has experienced declining
leasing, discoveries, reserves, average field sizes, and production; and
WHEREAS, previous attempts to address the decline in the GOMSWP have been
unsuccessful; and
WHEREAS, the GOMSWP has been explored and produced for seventy-two years,
with the first well drilled in 1947; and
WHEREAS, more than forty seven thousand wells have been drilled in this province
since 1947; and
WHEREAS, natural gas is now the dominant commodity produced in the GOMSWP;
and
WHEREAS, the United States Energy Information Administration's Annual Energy
Outlook 2019 with Projections to 2050, dated January 24, 2019, concludes, "Natural gas
prices remain comparatively low during the projection period."; and
WHEREAS, the report dated November 2018, titled 2018 Comparative Analysis of
the Federal Oil and Gas Fiscal Systems: Gulf of Mexico International Comparison, prepared
by IHS Global, Inc. (IHS Report), states, "Natural gas fields face significant challenges to
drive offshore exploration and development on the shelf and deepwater areas of the GOM,
even despite its relatively low government take. Potential natural gas projects are met with
marginal or negative internal rates of return in the base case scenario, reflecting the value
of current gas commodity prices. These projects also face stiff competition from the
abundance of onshore natural gas supply from shale and associated gas."; and
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WHEREAS, the GOMSWP has experienced a seventy-seven percent reduction in oil
production and a ninety-two percent reduction in natural gas production in the last twenty
years; and
WHEREAS, the number of wells drilled per year in the GOMSWP has decreased
eighty-nine percent from 2008 to 2018; and
WHEREAS, the number of wells producing in the GOMSWP has decreased
sixty-one percent in the last twenty years; and
WHEREAS, the average reservoir size discovered in the GOMSWP in the last ten
years is approximately eleven times smaller than the reservoir size of the Deepwater
Province, defined by a water depth of more than two hundred meters; and
WHEREAS, the IHS Report referenced above states, "The U.S. GOM shelf is limited
in terms of resource availability. With the expected field sizes matching the small reserve
size under this study, the best hope for such projects on the shelf is reliance on existing
facilities and infrastructure. The market conditions do not favor development of the small
reserves in the U.S. GOM shelf on a stand-alone basis. With the wave of decommissioning
continuing strong in the shelf – more than 100 structures being decommissioned each
year – the establishment of efficient policy solutions that encourage such developments
could be necessary."; and
WHEREAS, research conducted by several others indicates, "The largest fields in
a basin tend to be discovered early in the exploration cycle, while smaller fields are generally
discovered in the mature phase of exploration."; and
WHEREAS, by all accounts, the GOMSWP is a mature oil and natural gas basin,
first produced more than seventy years ago; and
WHEREAS, the remaining GOMSWP opportunities are increasingly limited in size
as "Mature fields may still have potential but since they are presumably marginal targets a
special effort is required to pursue these high-risk, small-upside opportunities."
(Kaiser & Siddhartha, 2018); and
WHEREAS, smaller companies usually make those special efforts " … because the
size of the projects does not often meet the scale requirements for the majors." (Diffley, et
al., 2010); and
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WHEREAS, the Kaiser and Siddhartha 2018 publication states it is important to
safely and responsibly extract economically-recoverable hydrocarbons while the
infrastructure to do so is still in place "[a]s long as the net revenue generated by a structure
is greater than its direct operating cost, the structure will likely continue to produce."
(Kaiser & Siddhartha, 2018); and
WHEREAS, once production from a structure drops below that economic threshold,
however, the wells are typically abandoned and the platform removed, making it nearly
impossible, absent some unforeseen technology advances or substantial increases in
commodity prices, to justify the reinstallation of platforms for only a fraction of the
remaining resources; and
WHEREAS, consequently, stranding the remaining resources for the foreseeable
future along with the associated royalties would reduce the full benefit the nation receives
from the development of its Outer Continental Shelf oil and gas resources; and
WHEREAS, the denial of these benefits appears to be substantial when calculated
using estimated recoverable reserves and current commodity prices; and
WHEREAS, reserves are defined as being commercially recoverable by application
of development projects to known accumulations; and
WHEREAS, these accumulations are discovered, recoverable, commercial, and
remaining; and
WHEREAS, these volumes are expected to be produced, however, contingent
resources may be more at risk of not being produced; and
WHEREAS, contingent resources are potentially recoverable from known
accumulations by application of development projects but may not be recovered; and
WHEREAS, in some cases, contingent resources have been identified by a previously
drilled and plugged well, and capital expenditures are required to access these volumes; and
WHEREAS, historically, GOMSWP fields were largely the domain of the major oil
companies who sold them to large independents, and who, after additional production, sold
the assets to smaller companies; and
WHEREAS, this historical practice has resulted in most current GOMSWP leases
being owned by companies classified as "non-majors", of which approximately forty-three
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percent are privately owned; and
WHEREAS, interest in acquiring new leases in the GOMSWP has been consistently
trending downward for a decade; and
WHEREAS, approximately seven thousand production platforms have been installed,
and approximately five thousand one hundred production platforms have been removed, in
the GOMSWP since 1947, for an all-time ratio of platform installation to removal of 1.37
to 1; and
WHEREAS, during the last twenty years, approximately one thousand three hundred
production platforms have been installed, and approximately three thousand five hundred
have been removed, for a twenty-year ratio of platform installation to removal of 0.37 to 1;
and
WHEREAS, the removal to installation activity has further accelerated during the
past five years, with only thirteen production platforms installed and five hundred sixteen
production platforms removed, for a five-year ratio of platform installation to removal of
0.025 to 1; and
WHEREAS, in 2018, no platforms were installed and ninety-seven platforms were
removed; and
WHEREAS, these data points serve as evidence that the GOMSWP is a mature and
declining hydrocarbon basin; and
WHEREAS, the combination of the sharp decline of drilled and producing wells with
the sharp decline of new platform installations and accelerated platform and pipeline
infrastructure removal has resulted in a situation where the nation is on a "shot clock" to
avoid stranding oil and gas resources in the GOMSWP; and
WHEREAS, the loss of these benefits appears to be substantial when calculated by
the Bureau of Ocean Energy Management (BOEM) using estimated recoverable reserves and
current commodity prices as of April 10, 2019; and
WHEREAS, BOEM has estimated as high a value as twenty-four billion dollars
could be stranded in the GOMSWP, of which the nation's share would be a function of its
applicable royalty rate, less allowable costs, multiplied by this twenty-four billion dollar
value for the portion of those resources that would be economically viable to produce; and
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WHEREAS, without a significant increase in drilling activity in the near term in the
GOMSWP, there is a significant risk that many of these resources will never be developed;
and
WHEREAS, foreign offshore competition is increasing, as two of the largest
GOMSWP lessees and platform owners have begun to deploy capital in the Mexico territory
of the Gulf of Mexico despite their significant assets in the GOMSWP; and
WHEREAS, contributing factors of declining interest in the GOMSWP include: the
size of the reservoir is too small, the high cost of GOMSWP development versus onshore,
the margins do not match risk, the GOMSWP is predominantly a natural gas province, and
too few players are operating in the province; and
WHEREAS, using BOEM's MAG-Plan Gulf of Mexico model and accompanying
analyses, BOEM estimates that for every million dollar investment in shallow water, the
total economic impact, including the reinvestment of state and local taxes, is approximately
$1.7 to $2.0 million and largely benefits the parishes of Orleans, Jefferson, St. Bernard,
Plaquemines, Terrebonne, Lafourche, St. Mary, Iberia, Lafayette, Calcasieu, Jefferson Davis,
Vermilion, and Cameron, where drilling and production activities are hosted; and
WHEREAS, the goals to ensure a fair and equitable return on the resources and to
maximize ultimate recovery are becoming increasingly challenging in the GOMSWP, the
most mature offshore province on the planet; and
WHEREAS, the IHS Report referenced above states: "Declining production sees
little benefit from the current end-of-life royalty relief, the best hope for extending the useful
life of existing assets is finding additional reserve volumes beyond the existing field profile.
This means considering a special case relief to improve the economics of tying-back nearby
discoveries to existing facilities to access new reserves. Investments that access significant
additional reserves better supplement declining field incomes used to support the baseline
field facility operations."; and
WHEREAS, over two hundred thirty of the nearly six hundred active GOMSWP
platforms could permanently cease production within the next three years; and
WHEREAS, these same platforms are expected to produce about two hundred sixty
million dollars in federal royalties over the next three years; and
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WHEREAS, as production from each lease ceases, the lease will terminate within a
year, after which the lessee has one year to decommission all infrastructure on that lease,
including platforms, wells, and pipelines; and
WHEREAS, the IHS Report states, "[d]ue to the mature nature of the GOM, it is
anticipated that a significant number of structures on the shelf will be decommissioned in
the relatively near term."; and
WHEREAS, since the royalties generated from the GOMSWP, eligible to be shared
with the states through Federal Revenue Sharing, is currently trending downward, as a result
of the significant decline of the wells drilled and thus the production within this province,
there is limited risk decreasing the amount of federal revenue shared with the eligible states
resulting from targeted policies designed to avoid stranding assets in the GOMSWP, and
more than likely, an upside to these targeted policies when considering the impacts to jobs
as a result of increased activity.
THEREFORE, BE IT RESOLVED that the Legislature of Louisiana does hereby
request the United States Department of the Interior to adopt a public policy that encourages
the avoidance of stranding assets in the Gulf of Mexico Shallow Water Province in order to
ensure maximum benefit for the nation to grow the national economy, to help create
American energy dominance, and doing all in a manner that minimizes the risk to Federal
Revenue Sharing to the eligible states.
BE IT FURTHER RESOLVED that a copy of this Resolution be transmitted to the
Honorable David Bernhardt, secretary, United States Department of the Interior;
Dr. Walter Cruickshank, acting director, Bureau of Ocean Energy Management; and
Mr. Scott Angelle, director, Bureau of Safety and Environmental Enforcement.
PRESIDENT OF THE SENATE
SPEAKER OF THE HOUSE OF REPRESENTATIVES
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