OTC 8768

Regulation of FPSO's in the Gulf of Mexico OCS

Chris C. Oynes, MMS, Regional Director, Gulf of Mexico OCS Region

Don Howard, MMS, Regional Supervisor for Field Operations

Copyright 1998, Offshore Technology Conference

This paper was prepared for presentation at the 1998 Offshore Technology Conference held

in Houston, Texas, 4-7 May 1998.

This paper was selected for presentation by the OTC Program Committee following review of

information contained in an abstract submitted by the author(s). Contents of the paper, as

presented, have not been reviewed by the Offshore Technology Conference and are subject to

correction by the author(s). The material, as presented, does not necessarily reflect any position

of the Offshore Technology Conference or its officers. Electronic reproduction, distribution, or

storage of any part of this paper for commercial purposes without the written consent of the

leasing in the GOM. Five recordbreaking or very large lease sales

Offshore Technology Conference is prohibited. Permission to reproduce in print is restricted to

an abstract of not more than 300 words; illustrations may not be copied. The abstract must

contain conspicuous acknowledgment of where and by whom the paper was presented.

Abstract

With the advances being made in deepwater technology, the United

States Outer Continental Shelf (OCS) has embarked on a new era

of development potential. , a welcomed change after the slowdown during the lateThe Gulf of Mexico (GOM) has

reemerged as one of the principal offshore oil and gas basins in the

world

1980's and early 1990's. With this move into deepwater comes a

new set of challenges for both MMS and the oil and gas industry.

The MMS has worked hard to keep pace with industry initiatives,

technology developments, and the issues associated with deepwater

activities. One aspect that we recognize needs further evaluation

is floating production storage and offloading system (FPSO)

operations in the Gulf of Mexico.

The MMS continues to gather information and has participated

in discussions with the industry, both domestic and international,

on FPSO technology. If an operator proposes the use of an FPSO

to develop a Gulf of Mexico OCS discovery, MMS will evaluate

the proposal using its established environmental and technical

review procedures. A generic FPSO proposal or a specific FPSO-

based project may require the preparation of an environmental

impact statement (EIS) or similar document to identify and evaluate

fully the significance of potential impacts associated with such a

facility.

The purpose of this paper is to discuss the regulatory issues

associated with FPSO operations in the GOM from three general

perspectives: environmental, technical, and the conservation of

natural resources.

Introduction

The past several years has been remarkable in terms of leasing

activity and operations, particularly for the deepwater portion of the

Gulf of Mexico OCS: record lease sales, drilling activities, and the

application of new technologies that have pushed away some of the

historical deepwater barriers. The MMS considers deepwater to

begin where industry has to use different technology to develop and

produce oil and gas from the OCS. In the Gulf of Mexico, this shift

occurs where industry stops using fixed platforms and begins using

other types of facilities to produce oil and gas, i.e., subsea facilities,

floating production facilities, tension leg platforms, etc. As a rule

of thumb, MMS adopted 1,000 feet as the marker for deepwater;

that terminology will be used throughout this paper.

Over the last three years, there has been a surge in deepwater

have been held. Another indicator of this surge in deepwater

leasing is the relatively high number of rigs operating in the GOM:

an average of nearly 200 rigs working and 150 rigs drilling since

late 1996. The continued growth of deepwater activity levels is

illustrated by the following statistics (April 1998):

- 29 rigs drilling in deepwater, the number steadily

increasing from just 10 rigs in April 1994; several are in

water greater than 4,000 feet, and one lies in more than 7,000

feet (Shell, MC 739 - 7,082 feet); 70 percent are mobile

rigs;

- 24 deepwater fields are currently producing;

- 1997 estimated deepwater production: 25 percent of total

Gulf of Mexico OCS oil, 7 percent of total gas as compared

with 4.4 percent total oil and 0.6 percent total gas in 1990;

- approximately 17 percent of the total pipeline miles are

associated with deepwater projects.

There have been 1,190 exploratory and development wells

drilled to date in the deepwater areas of the GOM from both mobile

and platform rigs. Deepwater drilling has been concentrated in the

Green Canyon, Mississippi Canyon, Viosca KNoLinkList, and Garden

Banks areas; 90 percent of the deepwater wells have been drilled

in these areas. Increased activities in the western GOM are

expected beginning in 1998, particularly in the East Breaks,

Garden Banks, Keathley Canyon, and Alaminos Canyon areas. The

number of discoveries also continues to increase; many are remote

from existing infrastructure.

FPSO's in U.S. Waters

The MMS's experience with FPSO-type vessels is limited to a

single application in the Pacific Outer Continental Shelf Region

Exxon's offshore storage and treating (OS&T) vessel associated

with the Santa Ynez unit development offshore California. The

OS&T was located less than 10 miles offshore in the western end

of the Santa Barbara Channel. After the first discovery of oil and

gas in 1968, Exxon installed Platform Hondo (1976) in 850 feet of

water. Oil, gas, and water pipelines, each approximately 8,000 feet

in length, connected the platform to a single anchor leg mooring

(Salm) in 490 feet of water. The OS&T vessel was permanently

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Regulation of FPSO's in the Gulf of Mexico OCS

OTC 8768

connected to the Salm. Initial production from Hondo began in

of MMS's regulatory approach to FPSO's. Indeed, the regulatory

April 1981.

approach continues to evolve.

The OS&T was a converted 50,000 deadweight ton (dwt) oil

As with other deepwater initiatives, MMS has found itself

tanker (previously the

Esso Newcastle

) - 743 ft length, 102 ft

beam, and 50 ft draft. The OS&T's primary function was to serve

as a floating separation, power generation, and storage facility.

The vessel's six main cargo tanks could store 197,000 bbls of

treated crude oil, 36,000 bbls of "offspec" product, and 18,000

bbls of produced and treated water. These tanks were located in

the center of the vessel. Smaller tanks surrounded the cargo tanks.

A cargo heat exchanger was used to circulate and heat the cargo

tanks. Storage tanks were gas blanketed and vented to a vapor

recovery system where vapors were compressed into the fuel

system. Tank relief valves were piped to the vent system. A claus

sulfur recovery unit operated on the OS&T.

Each day the OS&T could treat up to 40,000 bbls of oil,

Environmental

. As part of an overall deepwater strategy, MMS

25,000 bbls of water, and 40 million cubic feet of natural gas. It

is preparing a deepwater environmental assessment (EA) on

was also capable of producing eight long tons of sulfur per day. Its

operations in the deepwater areas of the Gulf of Mexico OCS and

cargo transfer rate was 600,000 bbls per day. The oil was

from associated support activities and infrastructure. The MMS is

offloaded by the

Exxon Jamestown

(240,000-bbl capacity) to Los

Angeles area refineries; approximately 35 trips per year were

made.

FPSO Discussions

A workshop cosponsored by MMS and the industry consortium

completed in July 1998.

Deepstar was held in April 1997, with the purpose of educating the

As no formal proposal for an FPSO-based development

participants about the floating production technology in operation,

project has been submitted to the MMS, no decision has yet been

and the proposal for use in the GOM. The workshop was also

made on what level of National Environmental Policy Act (NEPA)

1

designed to help identify the issues and concerns with FPSO

evaluation and documentation would be needed. It is likely that an

operations as they relate to the Gulf of Mexico OCS. An equally

EIS would be required for the first FPSO-based development

important objective for MMS was to identify the sources of

project on the Gulf of Mexico OCS. The decision on whether to

information available to help with the environmental reviews that

prepare an EIS is based on several considerations, including the

are mandated by law for OCS activities. Presentations were given

potential for environmental impacts, the degree of uncertainty

by industry experts, contractors, offloading/transport operators,

about the significance of potential impacts, and the level of concern

MMS, and the U.S. Coast Guard (USCG). Discussions focused on

or controversy associated with a proposed action. There are

the advantages and disadvantages of FPSO's, technology and scope

specific environmental issues and potential impacts related to

of operations projected for the Gulf of Mexico, MMS requirements

FPSO's, as well as some broader programmatic concerns, that will

for use of FPSO's, USCG requirements for use of FPSO's,

likely trigger an EIS.

lightering and shuttle tanker operations, and the risks and hazards

If an EIS is prepared by the MMS, the process would likely

associated with tanker-supported FPSO's. Technical challenges

take about 2 years. Various industry representatives have

for FPSO operations were described, along with some of the efforts

expressed concern about the length of time involved if an EIS is

underway to meet those challenges. The MMS role in the approval

required for a development project that uses an FPSO. According

of offshore oil and gas operations is quite broad, leading to MMS

to some, such a delay negates the advantages of using the FPSO,

involvement in all aspects of FPSO's.

specifically the reduction of the cycle time associated with a

Regulatory Issues

production). Regarding those concerns, the MMS believes that it

Since the time of the workshop, MMS has met with representatives

of Gulf of Mexico OCS operating companies, FPSO companies,

and tankering companies to gather technical information and

discuss risks and concerns related to FPSO's in the Gulf of

Mexico. In these meetings, MMS has explained that the burden of

proof for demonstrating that FPSO operations can be performed in

the Gulf of Mexico OCS in a safe and pollution-free manner

resides with the operator. Since this would represent the first time

OCS oil and gas production would be transported by tanker in the

Gulf of Mexico, MMS will need to be assured that the use of such

technology does not increase the general risk to the environment

over other alternatives. The observations made by the MMS

officials in this paper in no way definitively enumerate all aspects

needing to adapt some areas of the regulatory program and

responsibilities to address the different issues and concerns related

to FPSO's. The MMS has had a long-term and productive

relationship with Deepstar, interacting primarily with their

Regulatory Issues Committee to address issues before they become

major concerns, and to share information about emerging

technology. The open dialogue with Deepstar has been very

beneficial making the concerns and needs of both MMS and

industry mutually understood. Building on the success with

Deepstar, similar lines of communication have been established

with other segments of the offshore industry.

using the EA process as a planning and management tool to ensure

appropriate environmental review of deepwater operations.

Objectives of the EA are to identify and evaluate the significance

of potential impacts from operations in deepwater and to develop

appropriate mitigation measures if needed. The EA will be

deepwater development project (time from discovery to first

may be wise for industry to begin the preparation of an

environmental document. There are two options for initiating the

environmental document. One option would be the formal

submission of a site-specific, FPSO-based development operations

coordination document (DOCD).

A second option would be the preparation by industry of a

generic environmental document by a third-party contractor. In

such a case, an operator or industry group would fund the

preparation of the document and supply the technical information,

and a typical FPSO operation expected in the GOM would be

analyzed by the contractor. This environmental document would

not formally be an EIS. (By law, MMS must remain responsible

for the overall scope and findings of the EIS.) The advantages to

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OTC 8768

Chris C. Oynes and Don Howard

3

"contracting out" such a document are that the process could be

of the system and associated operations plan prior to major

initiated sooner and the process could be compressed into a shorter

commitments and expenditures for hardware. It should be

time (14-18 months). Any decision regarding the eventual use of

submitted for approval after the lessee has substantially completed

an FPSO still resides with the MMS; the environmental document

system design and prior to commencing procurement and

would provide the environmental information necessary for making

fabrication.

an informed decision. In addition, subsequent environmental

3)The final part updates information previously submitted in

review of DOCD's for FPSO's could tier off this and would not as

the preliminary or conceptual parts. This part shall be submitted

likely require a full blown EIS. The NEPA evaluations of

for approval within 90 days following initial production.

subsequent FPSO-based projects would most likely be

The 3-part DWOP is intended to coincide with the operator's

environmental assessments.

knowledge regarding the project. The DWOP is also intended to

Conservation.

As with all projects on the OCS, operators will be

expected to conserve resources. The primary issues MMS sees

with FPSO operations are flaring of associated gas and the early

abandonment of producing zones. Gas disposition will be

reviewed closely by MMS. Operators can expect that MMS will

not allow extended flaring for any project, including an FPSO-

based project. The MMS will consider and has approved some

limited volumes and durations for flaring to allow for well testing,

well unloading, and other infrequent, short-term efforts. Flaring oil

field gas for up to 1 year may be permitted for economic reasons,

with justification, if there is an approved plan of action to

eliminate the flare. One example of such a situation might involve

early production where a pipeline will ultimately be installed to

transport the gas to market. Any economic analysis should include

how the operator intends to address the gas disposition. The MMS

is aware of gas reinjection as a disposition strategy. Reinjection

would require further investigation, particularly regarding the

potential for subsequent recovery once gas has been reinjected.

Such proposals would likely be addressed on a case-by-case basis.

The MMS has established procedures to look at the

conservation aspects of deepwater developments, both at the

development (pre-production) stage and prior to zone

abandonment. A Notice to Lessees and Operators (NTL)

2

describes the conservation review process and what information is

required for GOM deepwater or subsea development projects.

Technical

The MMS initiated a Deepwater Operations Plan (DWOP)

agencies regarding the delineation of responsibilities for all floating

requirement in 1996 to address the growing complexities and

production systems, of which FPSO's is a subset. The USCG

issues evolving with deepwater development projects. Through

expertise in marine transportation and facilities will be valuable to

MMS's active involvement with the Deepstar Regulatory Issues

the ensuing discussions. There have been concerns expressed

Committee, MMS and industry participants were able to evolve

regarding the need for a double hull for the FPSO, and the

the DWOP concept jointly.

applicability of OPA regulations to FPSO operations. The USCG

A DWOP is required for all deepwater development projects

has indicated that double hulls would likely be required for a Gulf

and all projects utilizing subsea production technology. Projects

of Mexico FPSO.

that use conventional fixed-leg platforms are exempt from the

The topic of FPSO classification by independent groups

DWOP requirements. The DWOP addresses technology, safety

(classification societies) is also of interest to the MMS. The

systems, inspection, testing and maintenance practices, alternative

integration of offshore production facility design and tanker design

compliance, and other subject areas. The DWOP is a proprietary

philosophies is understood to be a challenge, and has resulted in

document submitted to MMS in three parts: conceptual,

some criticism by operators about FPSO system quality and project

preliminary, and final. Each part is described further as follows:

delays. It is unclear to MMS if the concerns raised to date were

1) The conceptual part addresses the general design basis and

directed at specific projects (and shipyards), or if they are intended

philosophy used to develop the field. This part provides an early

for the entire classification process. The MMS must be assured

opportunity for MMS and the lessee to agree on a plan of

that the verification and classification process for FPSO operations

development prior to major expenditures for engineering design.

is credible before an FPSO can operate in the Gulf of Mexico

It should be submitted for approval after the operator has identified

OCS.

the concept(s) for development and prior to commencing with

The FPSO operations deviate from historical activities in the

engineering design.

GOM by the number and variety of systems that interface with the

2) The preliminary part provides an opportunity for approval

production system (e.g., offtake to shuttle tankers interfacing with

reduce the overall project planning and scheduling risk of the

deepwater development project by eliminating the uncertainties

associated with approving new technologies and alternative

compliance measures. The DWOP approach has reduced the need

for MMS to revise regulations constantly to keep pace with rapidly

evolving deepwater technology.

A continuing dialogue with Deepstar and others has resulted

in the revision of the first set of DWOP guidelines. Following an

extensive review by MMS, a new NTL is planned to be issued in

May 1998 to implement the revised DWOP guideline. The

significant changes made include:

- improved readability;

- information requirements for floating production systems

and nonconventional fixed facilities;

- increased flexibility by focusing DWOP information on a

component basis; allowing unique technologies (new to the

GOM) to be addressed without revising the guideline;

- requiring a conceptual part for every project that requires

a DWOP; and

- waiving the preliminary part for certain shallow-water

subsea developments.

The USCG role in regulating FPSO operations will be a key

issue to delineate as we move forward with possible developments.

There are jurisdictional overlaps between MMS and the USCG that

we believe can be identified and coordinated to avoid duplication

of effort. The Memorandum of Understanding between MMS and

the USCG has integrated some of the initial thoughts of the two

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Regulation of FPSO's in the Gulf of Mexico OCS

OTC 8768

production processing). The United Kingdon (UK) Health and

systems, their capabilities, operability, and experiences in other

Safety Executive (HSE) recently published a report titled "Close

areas of the world. The MMS continues to investigate the

Proximity Study," which assesses the "risk of collision during close

international efforts that are focusing on the interfaces between the

proximity operations involving shuttle tankers at offshore

production and nonproduction processes.

locations." All aspects of the FPSO and shuttle tanker are

No one has proposed an FPSO as a development strategy for

3

addressed on a component basis (e.g., propulsion, surface export

the GOM to date, although several operators have indicated that

system, controls). The report includes a secondary objective of

they are close to making a formal submittal. Once again, MMS has

identifying mitigating measures to minimize the risks associated

the environmental and regulatory regime in place to address such

with collision. The report concludes that the "greatest single

a proposal, and it will be the operator's responsibility to

marine risk is that of collision between the Floating Storage Unit

demonstrate to MMS that the FPSO can operate in the GOM in a

or FPSO and the offtake tanker."

safe and pollution-free manner.

The MMS is interested in how the various aspects of an

FPSO-based project interrelate (i.e., production, processing,

References

storage, offloading), and how stresses such as weather, process

upsets, delays, etc., affect safety of the operation. Included in the

HSE document are risk management, joint/simultaneous

operations, delineation of responsibilities, emergency systems and

procedures (includes risk reduction measures for shuttle tanker

operations when in close proximity to the FPSO), communications,

and interface operations and equipment. Before MMS can approve

a project, the operator must be able to demonstrate to MMS that

there are sufficient safeguards built into the production system to

prevent the occurrence of significant incidents that impact safety or

environmental concerns. Clearly defined operating procedures that

describe the division of responsibility and accountability will be a

factor in the acceptability of an FPSO development.

The MMS is aware of international efforts underway to

develop guidelines for safe offtake from FPSO's, FSO's, and

single-point mooring buoys, and for the associated shuttle tanker

operations. We encourage operators considering the FPSO option

for field development in the GOM to evaluate the international

efforts underway, and integrate the results of these efforts as

appropriate into the project planning and implementation.

A common theme for many deepwater development projects

is the operator's desire to fast-track the process. In some instances,

construction begins in parallel with design work, and time frames

are compressed in an effort to reduce the cycle time, i.e., move up

the date of first oil. The MMS is concerned about the move toward

fast-track development, particularly in relation to the quality and

safety of the systems developed for production on the OCS.

Operators need to understand that there are environmental reviews

and regulatory requirements that cannot be compromised as part of

the fast-tracking effort. An early dialogue, as provided in the

DWOP process, will continue to be a necessity for the

sophisticated deepwater developments.

Conclusions

The MMS is committed to ensuring the safe and pollution-free

exploration, development and production of the offshore mineral

resources. As interest and activity continue to grow, especially in

the deepwater areas of the GOM, it will become increasingly

important for the industry and MMS to maintain an open dialogue

about technological advances, regulatory needs and concerns, and

operational safety. The MMS has been working to keep pace with

advances in technology and with the issues that most affect safe and

pollution-free exploration and development offshore. The issues

involved with FPSO operations in the Gulf of Mexico OCS have

been discussed jointly with operators, contractors, and others over

the past two years. We have a better understanding of the FPSO

1.

"Floating Production, Storage, and Offloading Systems in the Gulf

of Mexico - Proceedings of a Workshop

,

Houston, April 16, 1997

,"

U.S. Minerals Management Service, OCS Report MMS 98-0019.

2. MMS Notice to Lessees and Operators (NTL) No. 96-6N,

"Conservation Information," October 1, 1996.

3. U.K. Health and Safety Executive, "Close Proximity Study,"

Offshore Technology Report OTO 97 055.