Thursday, April 4, 2013

Witness Says Deepwater Horizon Accident Was 'Classic Failure of Management'

Deepwater Horizon Gulf of Mexico Oil Spill

NEW ORLEANS - An expert witness for plaintiffs suing BP PLC said the 2010 Deepwater Horizon accident was "a classic failure of management and leadership in BP," at the trial here in Federal District Court over liability for the disaster.

Robert Bea, a University of California Berkeley engineering professor who has worked as a safety consultant for BP starting in 2001, said Tuesday that he sent many warnings to the company's management in the years before the accident about how cost-cutting would hurt the safety of operations.

"It was too lean," Mr. Bea said of BP's operations after it reduced spending.

The testimony came on the second day of the civil trial that will determine the degree of culpability that BP and the other companies have for the accident, which killed 11 workers. On Monday lawyers for BP, drilling contractors Transocean Ltd. (RIG) and Halliburton Corp. (HAL), the federal government, Gulf Coast states and local businesses traded barbs over who was to blame for the explosion that unleashed the worst offshore oil spill in U.S. history.

Mr. Bea also criticized BP's own internal investigation of the Deepwater Horizon incident for failing to investigate management decisions leading up to the accident. Instead, he said, BP's study, known as The Bly Report, focused on the direct cause of the explosion on the drilling rig and the role that equipment and crew on the rig played.

During cross-examination, Mike Brock, a lawyer for BP, tried to challenge the credibility of Mr. Bea's testimony, emphasizing the limits of his expertise and emphasizing the role the companies suing BP played in providing him information for a report he did that was critical of BP's work leading up to the blowout.

"You understood that the plaintiff's legal team was focused on finding documents that hurt BP, not helped BP?" Mr. Brock asked.

Mr. Bea said he and his colleagues "were searching for the truth, the facts."

Mr. Brock also walked Mr. Bea through many efforts the company and its management made over the years to improve its safety operations, including surveying workers about safety operations.

BP has argued that the accident was due to many errors and misjudgments by all of the companies involved in the project, including rig owner Transocean and cement contractor Halliburton.

Other witnesses expected soon include Lamar McKay, chairman and president of BP Americas, and previously recorded depositions of former BP CEO Tony Hayward and Kevin Lacy, the former head of BP's Gulf of Mexico operations.

A second trial, scheduled for the fall, will determine how much oil leaked into the Gulf of Mexico. Together, they will determine the size of fines the companies face under the Clean Water Act, which could total as much as $17.6 billion.

BP, which hired Transocean and Halliburton to work on drilling its well, has said the fines would likely be under $5 billion.

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Mexico's Ruling Party Expected to Favor Private Investment in Pemex

MEXICO CITY - In what would be a historic step, Mexico's ruling party is expected to modify its political statutes Sunday to allow private investment in state oil monopoly Petroleos Mexicanos and the possibility of the party supporting value-added tax on currently exempt food and medicines.

The proposed changes by the Institutional Revolutionary Party, or PRI, if approved, would give President Enrique Pena Nieto additional maneuvering room as he prepares to submit significant tax and energy overhauls to Congress later this year.

The changes would be a bold move for the PRI, which was formed in the wake of the 1910 Mexican Revolution and became a world pioneer when it expropriated the oil industry in 1938 under former President Lazaro Cardenas.

A PRI member who has access to a draft agreement said the PRI is preparing to support changes in its political platform to recognize a need for "mechanisms to favor a greater involvement of the private sector in the generation of energy," while expressly keeping hydrocarbon resources in state hands. The party member spoke on condition of anonymity.

The proposal amends an article approved in 2008 in which the PRI said the state should maintain the "property, management, control and fruits" of the oil industry under Pemex.

The PRI would reiterate its defense of constitutional articles that establish a national oil industry, the party member said.

A reform to increase private involvement in the oil sector is one of the key promises of Mr. Pena Nieto to unleash economic growth. Government officials estimate an energy reform could add two percentage points to annual economic growth, but critics see it as a transfer of oil income to foreign firms.

Modifications to the PRI's platform are expected to be voted on Sunday during a national party congress in Mexico City where more than 4,000 delegates from all over the country will gather. Mr. Pena Nieto has been invited to the event.

In addition to easing its position on Pemex, the party that ruled Mexico from 1929 to 2000 before spending 12 years in opposition is also expected to erase from its platform the prohibition on supporting value-added tax taxes on food and medicines, an old battle flag of a party that still considers itself center-left.

The expected change is intended to give more margin to Mr. Pena Nieto's government on a tax reform expected to be presented from July, in parallel with the energy reform.

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Raisama Slashes Salaries of Two Executive Directors to Reduce Costs

Raisama Energy disclosed Wednesday that it has reduced the salaries of two of its executive directors, Jeff Steketee and Jim Durrant, to save on overhead costs.

In a statement released, the company noted that both of the directors will draw $231,030 (AUD 225,000) per annum; their salaries will be increased to $256,700 (AUD 250,000) per annum upon settlement of a dispute with Blade Petroleum. Steketee was earning $325,000 (AUD 333,710) per annum, while Durrant was drawing a yearly salary of $308,040 (AUD 300,000).

Blade started court proceedings against Raisama last year, the former was seeking to terminate a farm-in agreement pertaining to the Cadlao oil project located in the Philippines inked in 2010, according to a statement from Raisama.

The statement also revealed that both of the directors will be required to give six months' notice period for their rolling employment term of one year. Under their previous contracts, the directors had to present 18 months' notice.

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Industry Groups Refute Concerns Over US LNG Export Benefits

Industry associations American Petroleum Institute (API) and the Western Energy Alliance (WEA) jointly called for the U.S. Department of Energy (DOE) to approve applications for U.S. liquefied natural gas (LNG) export terminals beyond the one application that has been approved so far.

In a conference call with reporters Monday, API and WEA officials countered comments by proponents of LNG export restrictions that exporting natural gas would drive up domestic gas prices and put U.S. manufacturers at a disadvantage, arguing that the United States was capable of expanding gas production to meet demand.

The call came as the public comment period ended for DOE's 2012 Liquefied Natural Gas export Cumulative Impact Study, conducted by NERA Economic Consulting for the U.S. Energy Information Administration. Both groups decided to take the opportunity to reply to comments received so far on the study.

"In analyzing the comments, we found none that provided sufficient credible information to undermine the study's basic premise that the overall U.S .economy would greatly benefit from LNG exports, nor any that convincingly make the case for DOE to deny export terminal licenses," WEA said in a Feb. 22 letter to DOE.

Officials noted that expanding U.S. production would benefit consumers by creating new jobs and economic growth for the United States Recent data shows an average 213,000 new jobs per year could be created from 2015 to 2035 and $700 billion in growth could be created in the chemicals and manufacturing industries due to increased natural gas production, Erik Milito, director of upstream and industry operations with API, said.

The increase in U.S. natural gas supply thanks to the shale boom undercuts the main argument of proponents for restricting exports, which is that DOE used outdated supply data in its analysis that said allowing exports would be beneficial, Milito noted.

"The most recent data from DOE confirms that supplies will be very robust. This implies that there is more than sufficient natural gas to meet domestic and export needs with little adverse impact on prices – and that the net economic benefits of allowing exports are even greater than earlier though," Milito added. "The critics simply didn't acknowledge what an energy juggernaut the shale gas revolution has become and that it is still growing.

Further, the DOE study focuses rigidly on production and price increases, with not enough study into the ability of producers to increase capacity. While gas activity has fallen off in certain dry gas basins such as the San Juan, Powder and Green River basins, more associated gas is being produced with oil in the Bakken and Permian plays, meaning that gas production can be increased in response to demand and keep gas prices down, said Kathleen Sgamma, vice president of government and public affairs with WEA, a group that represents over 400 exploration and production companies, mostly smaller producers with less than 15 employees.

Nineteen projects have either been approved or proposed for U.S. public lands that could create jobs and drilling activity if they are allowed to move forward. These projects also could substantially add natural gas production in the western United States, said Sgamma, who pointed out that the most recent study used data that underestimated U.S. gas production.

However, United States should take advantage of its "first-mover" advantage with the abundant shale gas supplies now available and move forward with LNG exports before the window of opportunity runs out, Sgamma commented.

"Other nations are starting to invest in American-developed horizontal drilling and hydraulic fracturing technology to develop their own reserves. Now is the time for the Obama administration to approve LNG export terminal licenses, rather than continuing to delay job creation and economic growth."

To date, DOE has approved one LNG export application for the Sabine Pass project in Louisiana. The facility is scheduled to begin exporting LNG in 2015. Milito said he believes that the United States won't see "unlimited and unfettered" exports, noting that the market will impose natural gas limitations on which projects moved forward following approval by DOE.

Last week, a group of U.S. senators including Jim Inhofe (R-Oklahoma), Mary Landrieu (D-La.) and Mark Begich (D-Alaska) urged DOE Secretary Steven Chu to support the NERA Economic Consulting Report on U.S. LNG exports, rebutting comments filed that expressed concerns over whether U.S. LNG exports would be in the U.S. public interest.

"For the United States to be a hub of cheap energy, it is imperative to pursue government policies that allow the private sector to make every energy resource as abundant, accessible and as versatile in its consumption as possible," the senators wrote in a Feb. 21 letter. "Achieving this objective requires that producers be allowed access to markets, and that consumers be allowed access to resources.

"Providing this access without bias for one source over another will encourage more widespread production of all energy resources. This will benefit the economy, as it will be accompanied by increased economic activity, job creation, and more widespread energy choices," the senators commented in the letter.

Proponents of restricting U.S. LNG exports include some U.S. manufacturing and petrochemical companies who argue that exporting gas would raise U.S. domestic prices, putting these companies at a competitive disadvantage versus companies from other countries. Some environmental groups who are opposed to hydraulic fracturing also have expressed opposition to U.S. LNG exports, saying that exporting gas would result in increased hydraulic fracturing activity and that NERA did not factor in environmental damage into the costs of allowing LNG exports.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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Crude-Oil Futures End Little Changed as Equities Drop

Crude-oil futures settled 2 cents lower on Monday, shedding sizable gains amid broad macro-economic concerns.

Early gains were blunted by economic worries that span the globe.

China, the world's second-biggest oil consumer after the U.S., and the engine for oil-demand growth, is sending mixed signals. China's crude oil imports rose in January by a healthy 7.4% from a year earlier, but early indications show manufacturing activity dropped in February to a level that barely indicates a growing economy.

In Europe, uncertainty over the outcome of Italy's election created doubts about prospects for economic reforms. Those worries hit the euro and pumped up the dollar, driving some investors out of dollar-based commodities, like oil, analysts said.

In the U.S., meantime, the latest "economic data is not great" said Kyle Cooper, managing partner at IAF Advisors in Houston, and helped turn equities weaker, removing another prop for oil prices.

"As go equities, so goes crude," as market sentiment switched to a risk-off mode, he said.

Recent news from regional Federal Reserve banks discouraged buyers. The Chicago Fed said Monday that lower industrial production sent its National Activity Index down to a reading of negative 0.32 in January from plus 0.25 in December. Texas-area manufacturing activity barely grew in February, the Dallas Fed reported, with the Business Activity Index at 2.2 in February, down from 5.5 in January.

The economic doubts crushed crude's attempts to shake-off a significant sell-off last week. Traders again are refocused on lofty crude oil inventories at a time of weak demand from refineries and economical signals that don't bode well for oil-demand growth.

"It's got to be concerning for the bulls that the early gains couldn't hold," said Mr. Cooper.

Light, sweet crude-oil futures for April delivery on the New York Mercantile Exchange settled 2 cents lower, at $93.11 a barrel after trading in a broad range of $92.69 to $94.46 a barrel. Last week, the contract fell 3.4%, the worst weekly performance for front-month Nymex crude since Oct. 26, 2012.

April ICE Brent crude oil settled 34 cents lower, at $114.44 a barrel, after trading in a range of $113.73 to $115.87 a barrel. The contract lost 3% last week, the biggest drop since the week ended Dec. 7, 2012.

Last week, the federal Energy Information Administration reported U.S. crude oil stocks rose more than expected to put stocks at a level sufficient to meet nearly 27 days of current low demand from refiners. That was the highest level of inventory cover since March 1994, and put crude oil stocks outright at their highest level for this time of year on EIA data beginning in 1982.

Early forecasts from analysts show EIA data due out Wednesday are expected to show a further 2.3 million barrels in crude stocks, with little change in refinery activity.

March-delivery reformulated gasoline blendstock futures settled down 1.85 cents, at $3.0611 a gallon ahead of the contract's expiration Thursday.

Front-month prices have gained more than 40 cents a gallon since mid-January amid tight inventories in the Northeast U.S. Price volatility is common at this time of year as refiners walk a fine line between producing enough fuel to meet the winter-grade specification for the March contract before switching to the costlier, cleaner-burning summer-grade fuel that meets the April contract specifications.

March-delivery heating oil futures settled 0.53 cent lower, at $3.0989 a gallon. The contract also expires Thursday.

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Unknown Amount of Oil Spilled After Boat Crash

An unknown amount of oil has been discharged into a lake connected to the Gulf of Mexico after a boat allided with an inactive wellhead, the U.S. Coast Guard announced Wednesday.

The 42-foot crewboat ran into the wellhead about nine miles southwest of Port Sulphur, La., Tuesday evening, and the platform is discharging an "oily water mixture," the Coast Guard said.

The wellhead is owned by Swift Energy Company (SFY), and is no longer producing.

Swift said in a statement that the well was shut-in in January 2008 and hasn't produced since that time. In the last production test before that, the well's output was about 18 barrels of oil, three barrels of water, and 59 MCF of natural gas per day. Now, the well is releasing "primarily water and a small amount of oil," the company said.

The company said a containment boom and skimmers have been deployed around the well to keep the oil from reaching the shore and nearby marsh lands. A flyover was conducted to assess damage Wednesday morning, and the company said it is working with state, federal and local authorities to develop a "definitive plan" to bring the well under control.

Coast Guard teams are in Port Sulphur to secure the well and clean up any leaking oil.

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Chevron Evacuates Workers in Western Australia as Cyclone Nears

PERTH - Chevron Corp. has begun evacuating workers from some of its oil and natural gas operations in Western Australia state as Tropical Cyclone Rusty threatens to unleash high winds and flooding in the Pilbara region over coming days.

Chevron is moving non-essential workers on Barrow and Thevenard Islands as a precautionary measure, and tying down equipment ahead of the cyclone's arrival, the U.S. company said in a statement Tuesday.

Chevron operates oil facilities on the two islands, while Barrow Island is also the site of its 52 billion Australian dollar ($53.4 billion) Gorgon gas-export project, which is under construction and around 55% complete.

Workers have also been evacuated from the Atwood Osprey drilling rig, and Chevron said it is continuing to monitor the situation closely.

Woodside Petroleum Ltd., operator of the North West Shelf and Pluto gas-export facilities at Karratha, separately said it is taking precautions to "safeguard our people and assets" without being more specific.

Australia's three biggest iron ore ports are readying for the tidal surges, destructive winds and heavy rainfall predicted as Rusty heads towards land in the next day or so. Port Hedland, Cape Lambert and Dampier ports were closed Monday due to rough seas ahead of the storm.

Fortescue Metals Group Ltd. said its port and rail operations at Port Hedland have been locked down in accordance with cyclone readiness procedures.

"All work has been suspended on site," the Perth-based company said in an email.

Atlas Iron Ltd. said it has stopped work at its flagship Pardoo mining operations located about 75 kilometers east of Port Hedland.

"It is very much bearing down on us," managing director Ken Brinsden said of the cyclone on a conference call with investors. "It is looking almost like a direct hit on the Pardoo site."

He said Atlas didn't expect the temporary shutdown to affect the company's full-year guidance. Atlas Iron is targeting shipments of between 7.4-7.7 million metric tons of iron ore this fiscal year.

"There will be an impact, clearly, but we would expect to get back in pretty quickly," Mr. Brinsden said.

Rusty is expected to move close to the Pilbara coastline Wednesday and may intensify into a Category 4 system, Australia's second-most severe cyclone ranking that assumes very destructive winds and structural damage.

Australia's Bureau of Meteorology has also warned of flooding in some areas, along with a dangerous storm tide as the eye of the cyclone nears land.

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CEO Group Offers Recommendations for US Energy Policy

CEO Group Offers Recommendations for US Energy Policy

A group of U.S. chief executive officers (CEOs) are offering in a new report their recommendations on what a comprehensive U.S. energy policy framework should look like.

The CEOs of the Business Roundtable released a report Monday, "Taking Action on Energy", providing greater detail about the policies needed to make affordable, reliable energy a reality for U.S. consumers and businesses.

The new report is a follow up to the group's March 2012 "Taking Action for America" report. In the previous report, the Business Roundtable identified reliable, affordable energy as a critical strategy to revitalize economic growth and job creation.

"Taking Action on Energy" is an attempt to outline an energy policy framework that is both timely and durable. While many of the policy solutions in the report focus on major issues of the day, the group also attempts to place them within a broader system of national energy policy goals, principles and strategies.

"We believe that the framework outlined in this paper represents a balanced approach to enhancing economic growth and energy security while also reducing the environmental risks associated with criteria pollutants, greenhouse gases and other emissions," said David M. Cote, chairman and CEO of Honeywell International and chairman of the Business Roundtable's Energy and Environment Committee, in a statement.

To support this effort, the organization's Energy and Environment Committee is re-evaluating U.S. energy policy and forging a long-term framework that has the potential to simultaneously advance the nation's economic, security and environmental interests.

The group's initial assessment has found the United States' energy future to be exceptionally bright, Cote noted.

"The nation's energy outlook has improved substantially in recent years due to a confluence of factors that are fundamentally reshaping the U.S. energy landscape, including the development of technologies to unlock vast new domestic oil and natural gas resources and the application of innovative technologies to economically extract and deliver these resources to market," Cote commented. "In addition, the United States remains a global leader in the research, development and commercialization of energy efficiency, renewable energy, new nuclear and advanced coal technologies."

While the shale oil and gas revolution offers a textbook example of the private sector's ability to drive innovation and capitalize on new opportunities, Cote noted that the business community cannot lead the way along if the United States is to sustain its energy renaissance and restore its status as an energy superpower.

The Business Roundtable believes the United States should capitalize on these advantages and accelerate efforts to develop a portfolio of diverse, affordable and efficient options for meeting the nation's 21st century energy needs, Cote commented.

"Despite our optimism, we remain realistic about the difficulty of replacing our ad hoc energy policy with a more purposeful approach," Cote noted. "Making this change will require leaders to engage in an open and honest dialogue about our values and priorities as a nation, as well as the policy and regulatory approaches most likely to achieve them. This report is intended to contribute to that dialogue."

Boosting economic growth, enhancing energy security and promoting environmental stewardship are the three overarching goals the group has identified for a long-term national energy policy. To advance these goals, U.S. policies and regulations should be aligned with the principles of:

Fostering innovationEncouraging competition and energy resource diversityEmpower consumersEngage internationallyEnsure smarter regulationsFortify critical infrastructure

Noting that the United States will continue to rely heavily on traditional energy resources such as oil and gas to fuel future economic growth, the group recommended policies to enhance oil and natural gas production, including greater access to onshore and offshore federal lands, including promising areas such as the eastern Gulf, Atlantic and Pacific coasts and Alaska to ensure reliable oil, gas and coal in the coming decades.

The Business Roundtable also called for a streamlined permitting process to substantially lower the anticipated and unanticipated costs of investing in, producing, processing and transporting energy resources while continue to ensure public health, safety and environmental quality. The group also called on the executive branch to avoid regulations that duplicate or conflict with state regulations.

"Any proposal to promulgate new or expanded federal regulations should be weighed against the fact that the states traditionally have had the preeminent role in regulating oil and natural gas activity on non-federal lands," according to the report.

New federal regulation of oil and gas activities on federal lands should be developed in consultation with states and be consistent with state regulations.

Additionally, they called for the "expeditious approval" of infrastructure projects such as the Keystone XL pipeline and other privately funded infrastructure projects.

Regulations by the U.S. Environmental Protection Agency should be based on sound science, undergo thorough net cost-benefit analysis, and take into consideration the net cumulative impact of these regulations on energy costs, economic growth and job creation while protecting the environment and human health, the group noted in the report.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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Gasoline Futures Slump as Northeast Supply Worries Ease

Gasoline futures prices tumbled 4.2% Wednesday to a one-month low, a hopeful sign for drivers, after data from the U.S. Energy Information Administration offered an improving outlook for domestic fuel supplies.

Government data released Wednesday showed that refineries are returning to their work of churning out fuel after a period of maintenance work, raising oil processing by 335,000 barrels a day last week. The increasing activity helped push gasoline stockpiles higher in the key Northeast region, where refinery shutdowns over the past year have raised concerns about shortages.

Hit by Hurricane Sandy, gasoline stocks in the Northeast had dropped to as much as 19.3% below year-earlier levels at the end of November, sending futures higher and raising prices at the pump. Now, they are bouncing back. Gasoline stocks in the region are at the highest level since last March and have gained 35% since mid-December.

Gasoline futures have fallen over 7% this week and the surge in retail prices over the past month is slowing, which has some analysts expecting lower prices for drivers. Retail U.S. gasoline prices averaged $3.786 a gallon Wednesday, according to AAA's daily Fuel Gauge Report, up just 0.4 cent from Tuesday. A month ago, gasoline averaged $3.349 a gallon.

"The product is now getting to the market," said Stephen Schork, head of energy-consultancy Schork Group. "Prices at the retail level should start to moderate."

March-delivery reformulated-blendstock for oxygenate blending, or RBOB, futures fell 12.51 cents to settle at $2.8565 a gallon on the New York Mercantile Exchange in the largest one-day percentage decline since December, 2011.

March-delivery gasoline meets the winter-grade fuel standard, while April gasoline must meet a cleaner-burning summer-grade standard. Gasoline futures for April delivery settled 2.9% lower Wednesday at $3.1063 a gallon.

Crude-oil futures finished with slight gains, settling 13 cents higher at $92.76 a barrel on the Nymex. ICE Brent crude futures settled 84 cents, or 0.8%, lower at $111.99 a barrel.

The EIA reported crude-oil stocks rose last week by 1.13 million barrels, less than an anticipated rise of 2.5 million barrels. And increasing refinery operations could signal rising demand for crude to turn into gasoline and other fuels. Still, stocks at 377.5 million barrels are the highest since last July and are the most on record for this time of year since EIA data began in 1982.

The sharp increase in gasoline futures over the past month also contributed to this week's steep decline, according to market watchers. Indications of strong regional supplies just ahead of Thursday's expiration of the March gasoline-futures contract helped spurred the dramatic skid.

"We're seeing more pullback after huge advances," said Kyle Cooper, managing partner at IAF Advisors in Houston.

March heating-oil futures settled 4.38 cents, or 1.4%, lower at $2.9879 a gallon.

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DNV Inks Contract for LLOG's Delta House FPS

Det Norske Veritas (DNV) will classify LLOG Exploration Company LLC's Delta House floating production platform, which is scheduled to begin production in the deepwater Gulf of Mexico in 2015.

The U.S. Coast Guard will accept plan review and inspection functions conducted by DNV for the project as part of the unit's certification under Title 33 Code of Federal Regulations. The acceptance follows from a general acceptance given by the U.S. Coast Guard in 2007, and will provide owners and operators of offshore floating units a new option for classification and certification work.

Until 2007, legislation stated that the American Bureau of Shipping (ABS) was the only company that could classify floaters in the Gulf of Mexico, a DNV spokesperson told Rigzone. U.S. Coast Guard and legislative requirements were changed that year, but uncertainty has existed in the market as to whether it would really be straightforward to use anyone else but ABS, a DNV spokesperson told Rigzone in an email statement.

"Owners have expressed a strong desire for choice of classification society's for floating offshore installations in American waters and we know there are many owners, designers, operators and yards who would prefer to work with DNV, and this contract is proof that they can do so, confident of legal and regulatory approval," said Kenneth Vareide, DNV's director of operations for maritime in North America, in a statement.

Besides the associated benefits of free choice and competition, DNV's extensive research and development efforts means the company can bring deep, often new knowledge and competence to challenges facing the industry, the spokesperson said. For example, the company was the first the comprehensively address the risks associated with all the systems and software that are critical for offshore units, and often a case of unexpected delay and downtime, when not properly addressed.

With local capabilities and expertise, DNV is a well-established alternative and experienced partner for classifying floaters and complex projects in the Gulf of Mexico.

"We now look forward to address the industry's needs and desires for increased safety, reliability, cutting edge technology and, of course, reduced downtime," Vareide commented. "We are confident that both owners and regulatory agencies will benefit from this."

The company will carry out approvals for classification and verification work, and surveys related to activities in the United States. DNV also is the certified verification agent (CVA) for the Bureau of Safety and Environmental Enforcement for the structure, mooring and riser, which will be handled from DNV's Houston office.

DNV has carried out extensive verification and independent analysis for many Gulf of Mexico floaters over the past 20 years, including many high profile failure and accident investigations. The company has a wide portfolio of CVA and development projects for the Gulf of Mexico oil and gas industry, including the first U.S. Gulf floating production, storage and offloading system at the Cascade and Chinook field.

The design basis agreement for Delta House, as approved by the Coast Guard, is based largely on DNV's offshore rules for a floating offshore installation.

LLOG Exploration and partners last December approved the Delta House project, which will include a floating production system (FPS), an oil export line, a natural gas export line and a number of subsea systems. Development costs for the project are estimated at over $2 billion.

The FPS, which will be located in Mississippi Canyon Block 254 in approximately 4,500 feet of water, will have production capacity of 80,000 barrels of oil per day (bopd) and 200 million cubic feet per day (MMcf/d) of gas, as well as peaking capability of up to 100,000 bopd and 240 MMcf/d. The facilities are expected to process and transport production from six initial wells when commercial operations begin.

The facility will be capable of accommodating production from nearby fields, including LLOG's previously announced discoveries in Mississippi Canyon Blocks 300 and 431. It will have space for 20 risers, which will allow production from up to nine simultaneously producing fields with dual flowlines.

The Delta House FPS will be constructed using Exmar Offshore Company's OPTI-11000 semisubmersible hull design at Hyundai Heavy Industries Ulsan, South Korea shipyard. Audubon Engineering will design and procure the topsides equipment.

Once construction is complete, the FPS hull will be transported by Dockwise to Kiewit Offshore Services yard in Ingleside, Texas. Kiewit will manufacture and integrate the topsides with the hull. Intermoor will moor and install the FPS.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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