The MMS has issued three Notice to Lessees and Operators (NTL) providing guidance for the 2009 hurricane season. All took effect 1 June.

In the first, the MMS noted that it would use API RP 95J, Gulf of Mexico Jackup Operations for Hurricane Season, to guide its review and evaluation of information submitted to demonstrate the jackup’s capability to perform at the proposed location. It was strongly advised that the 95J recommendations be followed in the preparation of Applications for Permit to Drill (APDs) and Applications for Permit to Modify (APMs). An assessment checksheet can be found online at www.mms.gov/tarprojects/593.htm.

In the second, the MMS endorsed API Bulletin 2TD, Guidelines for Tie-downs on Offshore Production Facilities for Hurricane Season, First Edition. These guidelines should be followed in reviewing and evaluating information that demonstrate the ability of the tie-downs to perform during a hurricane, the agency said.

The third NTL provides guidance and requirements for global positioning systems for MODUs. MMS stated that MODUs should be outfitted with multiple GPS transponders that are operational by 1 July. The tracking system equipment should be protected from storm damage and be capable of transmitting data for at least seven days after a storm has passed.

Operators or their contractors also must ensure that the MMS has real-time access to MODU location data by 1 July.
MMS hopes that these recommendations and guidelines will help to improve performance during this hurricane season. For more information, visit the MMS website at www.mms.gov.

CONFRONTING US ENERGY LEGISLATION

With the election of President Barack Obama, combined with US House of Representatives leadership, the oil and gas industry faces a hostile environment in Washington. House Energy and Commerce Committee chairman Henry Waxman, D-Calif., has produced a “Clean Energy” bill that, among other things, would reverse the 2005 Energy Security Act, which provided significant incentives for domestic onshore E&P. It proposes to eliminate many incentives that pre-dated the Act, including the expensing of intangible drilling costs, a major component of working capital for independent operators. The legislation would also penalize offshore E&P by raising royalty rates and imposing an excise tax on existing OCS production.

The US MMS has issued Notices to Lessees and Operators to help improve performance in this hurricane season, regarding jackup operations, tie-downs for offshore production facilities, and global positioning systems for MODUs.

Industry anticipated the assault by establishing a campaign called BRIEF, Bringing Real Information on Energy Forward. The goal is to have a rapid-response mechanism to rebut inaccurate information in the press and on Capitol Hill. As part of the campaign, a website has been launched at www.energy
indepth.org, supported by IADC and independent producer associations.

IADC PRESSES INDIA SERVICE TAX LITIGATION

IADC filed a writ petition in 2006 against the Indian government in the Mumbai High Court for imposing a “service tax” on offshore drilling contractors by classifying their services as “survey and exploration of mineral oil” and “site formation and clearance.”

This unprecedented interpretation exposes offshore drilling contractors to significant new taxes, which the operators refuse to pay as a pass-through part of their contracts, even though they acknowledge the correctness of IADC’s position. That suit is still pending.

Subsequently, IADC filed a different writ petition in December 2008 challenging the Indian tax authorities’ definition of India, which IADC argues, for purposes of the service tax levy, extends only 12 nautical miles offshore. IADC has asked the Mumbai High Court to combine both cases as they are closely related. The High Court agreed and announced it will consider the merits in June 2009.

URGING US ACCESSION TO LAW OF THE SEA

At a Washington, DC, seminar, IADC urged the US to accede to the UN Convention on the Law of the Sea and emphasized the nation’s need to explore for hydrocarbons on the extended continental shelf (ECS). The Oil, Gas and Mineral Resources of the Extended Continental Shelf seminar was held on 20 April by the Environmental Law Institute. Other speakers on the panel represented the US government, academia and a major environmental organization.

Oil and gas companies are excited by the possibility of the US becoming a party to the Law of the Sea treaty because the ECS holds significant potential for exploration and extraction, said Brian Petty, IADC senior vice president – government affairs, who served as a panelist at the seminar. The $2.6 billion that was submitted for a MMS lease in the Chukchi Sea was a signal of producers’ high interest and the estimated potential in the Arctic region, he said.

However, oil companies will not invest the significant capital that’s necessary unless there is a legal regime in place to protect their investments.
At the same time, other Arctic countries are rapidly expanding hydrocarbon recovery activities. Norway, for example, is aggressively developing platforms and producing in far northern waters in an environmentally sound manner.

Mr Petty noted that all ocean industrial sectors are strongly in favor of accession to Law of the Sea and that the battle is strictly political. He pointed out that the Council on Foreign Relations will soon release a treatise that could provide momentum against opponents of the treaty.

By Linda Hsieh, assistant managing editor

Build a better mousetrap and the market will beat a path to your door, so goes the saying. But as many good inventors know, that’s rarely the case.

Especially in the world of drilling – where “better mousetraps” can run hundreds of thousands of dollars and affect projects costing hundreds of millions of dollars – it often requires more effort to get innovative technologies noticed and into the field. That’s where marketing could make the difference between the success or failure of new technologies and even companies.

Marketing isn’t just logos and brochures. It touches
all parts of an organization, said Christine McGee,
Weatherford’s VP of marketing services.

“A lot of people, when they hear the term marketing, they have quite a narrow view of it. They tend to think of it being all about the logo or brochure,” said Christine McGee, vice president of marketing services for Weatherford International. “But it really has much broader tentacles than that. It touches all parts of the organization.”

In 1998, Ms McGee was recruited as a PR/corporate communications manager to create a unified public relations effort for Weatherford, which was growing rapidly at the time through various acquisitions. Among her efforts was the launch of a company magazine to serve as a “vehicle where we could talk about the whole scope of the company and … to communicate to key audiences how much we were changing.”

She later took on marketing as well, being named director of marketing and public relations in 2000. By 2003, she had been promoted to vice president of marketing services and began forming strategies to remold the role of the marketing team.

That’s been a successful effort, she said. Rather than being an “order taker,” they are now able to have dialogues with internal clients about how marketing services can help them improve business. “The counseling role (we play) is much more prevalent now.”

Another focus area has been making sure the team serves both global and local marketing needs. Weatherford currently has approximately 800 locations around the world, and “how you’re going to market in Russia is different than how you’re going to market in the Middle East,” she said. “A lot of our revenues in the future are going to come from the Eastern Hemisphere markets. Our role is to make sure that we’re supporting these efforts … and continuing to find ways to make local marketing organizations as strong as possible.”

In 2007, Weatherford was named Marketer of the Year by the American Marketing Association Houston Chapter, beating finalists from other industries like Continental Airlines and the Houston Astros. “It was a good validation-slash-reality check that a lot of the things we were doing made sense,” she said.

IN THE BEGINNING
You could say that Ms McGee got her start in the business when a University of London fellowship program waylaid her plans for going to law school. The six-month stint gave her a taste of public relations/marketing when the fellowship put her to work for a British member of Parliament, doing everything from press releases to constituent relations to legislation research. The experience was so enjoyable that, after graduating from Baylor University with degrees in English and political science, she ended up accepting a job writing for a small trade journal based in Waco, Texas.

A couple of years later, she moved to Houston looking for a change and soon came in contact with the energy industry. Through jobs with Lyondell Chemical Company and Churchill Group, a local PR firm, she began doing community-based relations, helping the public to understand the downstream oil business and the critical role that petroleum plays in everyday lives. When she moved into the upstream segment when she joined Weatherford, “it became even more apparent that what we’re doing is basically providing the building blocks for modern life,” she said.

IN THE FUTURE
With new drilling and completion technologies continually being invented and innovative applications happening all the time, the job is never finished for Ms McGee and her marketing services team. “It’s not like I ever come to work and say … everything’s done. I tend to be the opposite, which is, there’s still so much we could be doing.”

“You’re only as good as your last project. Every project is like a new day,” she added. “You’ve got to prove yourself over and over again all the time.”

Bob Bloom, National Oilwell Varco senior vice president and chief technology officer, is retiring after 40 years of service to the company. His position will be succeeded by Hege Kverneland, who will relocate from Stavanger, Norway to Houston.

“Bob has played a tremendous role in the creation of what National Oilwell Varco is today. His leadership has molded the company and our industry,” said Pete Miller, NOV chairman, president and CEO.

Ms Kverneland received a M.Sc. in mechanical engineering from the Norwegian University of Science and recently graduated from the General Management Program from Harvard Business School. She has 10 years of extensive engineering and product management background, contributing to quality assurance and research and product development.  Ms Kverneland  began with Hitec in 1994, joining National Oilwell through acquisition.

Mr Bloom will continue to serve as chairman of the 2010 IADC/SPE Drilling Conference, 2-4 February in New Orleans, La.

Ronald Hoope

Longtime IADC supporter Ronald Hoope retired in June 2009 after more than 40 rewarding years with Neddrill and Noble Drilling. “Ronald will be greatly missed for his insight and tireless contributions to the industry,” said Dr Lee Hunt, IADC president.

Mr Hoope has served in a wide range of positions over the span of his career, from barge engineer to safety engineer to certified rig mover, on all types of drilling units and based all over the world. All were offshore positions too, he remarked, adding that, “I was sort of born offshore.”

“It was an honor to have a rig named after
me,” Mr Hoope said of the Noble Ronald Hoope.

From 1985 to 1991, he was stationed in Houston as the Neddrill representative for North & South America. Since 1991, he’s managed the company’s European commercial affairs based out of the Netherlands. Most recently he was commercial director for Noble Drilling International and director of Noble Drilling Netherlands BV.

Mr Hoope noted that he’s seen the industry make significant improvements in efficiency and safety over the past several decades. Especially in safety, he is proud of the industry’s achievement. “In the year I started in this industry, I wouldn’t have sent my kids offshore. It was not safe. Nowadays, safety is number one. … I can tell my kids it’s safe to go offshore,” he said.

Mr Hoope was a recipient of the IADC Exemplary Service Award at the 2007 World Drilling Conference & Exhibition in Paris. In honor of his service to the company, Noble Drilling also named a jackup drilling rig after him, the Noble Ronald Hoope, which is currently working in the North Sea for Gaz de France.

Freddy Gebhardt

Wild Well Control has named Freddy Gebhardt as president. He has served as the company’s executive vice president and general manager since 2005. His career spans more than 30 years, with a focus on well control and blowout response and prevention, well capping, snubbing and coiled tubing operations. He joined Wild Well Control in 1983 as a senior well control specialist.

Dr H.B. (Bernie) Luft has joined Global Tubing as senior technical consultant. He has more than 30 years of oil and gas engineering experience in coiled tubing research, engineering and applications.

Schlumberger recently announced key management changes. Reporting to Chakib Sbiti, executive vice president, will be the following product group presidents: Paal Kibsgaard, reservoir characterization; Doug Pferdehirt, reservoir production; and Jeff Spath, reservoir management.

Larry P Heidt has assumed the role of chairman and CEO of Nabors Well Services. He has been with Nabors for over 17 years, serving as president of Nabors’ North Sea operations until 1997, when he became president of US Lower 48 land drilling operations. Since 2004, Mr Heidt has served as special assistant to the chairman. Prior to joining Nabors, Mr Heidt was with Noble Drilling and Peter Bawden Drilling.

Knight Oil Tools debuted its patent-pending inspection program, KIP, an interactive quality assurance innovation, at the 2009 OTC. KIP is a touch-screen computer system allowing technicians and inspectors to retrieve technical data, review reference material and record inspection results from the shop floor. Its key benefit is ensuring thorough and consistent inspections at all Knight locations.

Atlas Copco Drilling Solutions has completed construction of a drill rig test and rig-up complex at its Garland, Texas, facility. It was built in concert with the development and production of the Predator Drilling System. The new system consists of three integrated components – the mobile drilling rig, substructure support system and a pipe-handling skate. The rig incorporates a telescopic mast that reduces overall rig transport length while maintaining the ability to handle Range II and Range III pipe and casing. It also uses an Iron Roughneck and hydraulic slips. Its “on demand” hydraulic system allows the driller to allocate power to various drilling systems as needed. Click below for a video demonstrating the Predator system.

Commercial Coating Services International recently surpassed one million manhours worked without filing a lost-time injury report. “Every CCSI employee has contributed to this significant milestone through daily dedication to following our defined safety procedures,” said Dave Hammon, CCSI human resources & HSE manager.

PRODUCTS

Cummins introduces QSK60

Cummins Inc launched the QSK60 offshore drilling power module at the 2009 OTC. It is rated at 1,855 hp (1,383 kW) at 1,200 rpm with a 10% overload capability and is integrated with a Cummins-manufactured AvK DSG99 alternator at 2,140 kVa and 690 volts. The Cummins Modular Common Rail (MCR) fuel system enables full authority electronic control over fuel timing, quantity, pressure and delivery rate shape. Precision control over the number of injection events enables optimum performance, fuel economy, smooth power delivery, better idle stability and reduced engine noise. It also provides the capability for an in-cylinder Tier 2 emissions solution.

Trans-Tek has created a category of linear displacement transducer (LVDT) for high pressures and temperatures. There are two models based on the company’s Series 230. However, the same features can be added to any stroke AC-AC LVDT. To accommodate high pressures, the transducer housing is perforated to equalize pressure inside and outside the LVDT. The high temperature ratings are achieved by using special internal materials. These LVDT’s are rated for pressures up to 35,000 psi in electrically non-conductive, chemically benign media, at continuous temperatures as high as 450˚F.

DBI-SALA, a Capital Safety brand, has developed a self-retracting lifeline (SRL), the Ultra-Lok RSQ SRL with Rescue. It offers dual-mode operation that provides fall arrest and rescue/descent in one product. Workers can select either the traditional “fall arrest” mode or a “rescue/descent” mode. If a fall event occurs while in the rescue/descent mode, the lifeline will arrest the fall and automatically lower the worker safely to the ground or next level.

SkillsXP from the Tritanium Company is a competence management tool for managing skills, work experience, qualifications and training, developed specifically to help companies get their competency assurance under control. SkillsXP enables customers to put in place an up-to-date and accurate registration of certificates and competencies. The latest update V7.0 includes improved and expanded personal/assessments section, dashboard section and planning section.

Futuretec introduces its Turbocaser casing reaming system, a powered, drill-through reaming system for casings and liners to facilitate casing placement. After drilling any borehole section conventionally, casing is run with the system, which reams through obstructions, getting the casing to the correct depth. Casing is then cemented through the system. The next drilling assembly then drills right through the system and drills straight ahead.

BP is providing Futuretec with drilling engineering and operational input into the design and will propose the first candidate well trials later in 2009.

Nautronix’s NASMUX, developed in cooperation with Cameron, is an acoustic system providing full control for subsea blowout preventer (BOP) equipment and offers an alternative to traditional multiplexed (MUX) control systems. NASMUX replaces the command, control and monitoring aspects of a control umbilical with an acoustic system that requires very little topside equipment. As a result, immediate benefits are realised, including: flexibility to transfer the system between rigs quickly and cheaply; increasing available deck space and reductions in handling and transportation costs. Click below for an animation video demonstrating the NASMUX.

When 2,000 rigs were out in the field in 2008, drilling contractors barely had time to scratch, let alone think about sending their employees off for safety training. Now, with drilling activity decreasing to less than 1,000 rigs, many are more inclined to lay off workers than use the lull for learning new skills.

Big mistake.

Almost every well blowout that happens starts with human error, and most are preventable if the early warning signs are addressed right away. That means that the right time to train a drilling crew is now, regardless of whether the industry is in boom or bust mode.

Almost every blowout starts with human error,
and most are preventable if the early warning signs
are addressed right away. Whether the industry is in a
bust or boom, training should always remain a priority.

Based on my 30 years of experience with capping runaway wells, my gut tells me that training pays off. For a more credible source, though, look at the statistics:

• In 2008, there were 28 out-of-control blowouts in the United States. The insurance company that covers a majority of the oil well industry – and makes free training available to every policyholder’s crew – was involved in only six of them.
• In 2006, the same insurer tracked blowouts and potential claims against the cost of providing 24/7 consultation and free training. The company estimated it saved $16.2 million.

Training obviously makes a difference.

WHY TRAINING GETS OVERLOOKED
There are always plenty of excuses for ducking training. First, the government does not require well certification for land-based employees as it does for offshore workers. Second, training costs both money and time, usually in short supply for most drilling contractors. Third, with the kind of turnover most operations see, why invest in training people who are here today and gone tomorrow?

Such excuses can all be answered: The government may be lagging behind in safety requirements, but that does not mean training should be skipped. Low- and no-cost training options are available, complete with sophisticated simulation and up-to-date technology. And training is an excellent motivator to keep good employees onboard even when competition for labor is tight.

The biggest barriers to training, however, are not the excuses but instead the culture of the business and the mentality of those involved. You have to be bold and aggressive to be successful in the oil industry, with a dash of luck thrown in. When something starts to go wrong with a well, some would just rather power through it and hope for the best. But hidden behind most success stories is a strong dose of the prudence and pragmatism that creates its own kind of “luck” by being prepared and taking the right steps at the right time.

Another long-embedded part of the culture and mentality is that if a well blows, insurance will pick up the tab for taking care of the mess and then the cost of redrill. This overlooks the fact that there are still plenty of costs associated with a well blowout that impact a contractor, including job delays, regulatory compliance responses, insurance deductibles and the potential for higher future premiums.

Finally, there is the culture and mentality that leaves a contractor certain that the operator who hires him does not want to hear that something is amiss, does not want to be told there may be a delay, and is completely uninterested in footing the bill for any remedial actions. What that means is that it is often too late to address a problem with simple solutions by the time the contractor calls for help. Training that teaches the contractor the early signs of a well going bad and instills the practice of calling on experts immediately can make a difference.

Land contractors should use the down swing to build on
employee training to help ensure safety in the future.

OVERCOMING BARRIERS
It is not easy to change a culture, create a new mentality and address every excuse that makes training seem impossible. Many large oil operations, however, are beginning to see the light and are investing in training on their own. Smaller operators can follow in their footsteps more easily if they look to their insurance company not just as a check writer when the worst scenario plays out, but as a partner in reducing risks.

Not all insurers provide the same level of risk management services, but it makes sense to ask if the following types of assistance are available:

• On-call expertise, with free 24/7 availability of oil industry veterans who can coach an operator through the steps to take once a well begins to kick.
• First-sign-of-trouble coverage, with the insurer picking up the bill for preventive action that is successful in avoiding a blowout and the necessity of a claim.
• Free and convenient training, with employees receiving IADC WellCAP certification upon completion.
• Emergency plan preparation, providing a customizable template for the actions that will be taken during a well crisis.

The oil industry has always been cyclical, and right now the market is bottoming out. The best contractors use these down swings to catch up on equipment maintenance, cull inept performers from their crews and keep their eyes open for the next opportunity.

If they are smart, contractors also increase skills and build employee loyalty by investing in training for their core crew members. Once the up-turn begins, the training is sure to pay off.

Huisman’s newly developed containerised drilling rig, the LOC 400, operated by the Northern Dutch Drilling Company (NDDC) for Northern Petroleum Netherlands (NPN), successfully completed its first well in Werkendam, The Netherlands. The unit drilled the well to a TD of 2,650 m (8,694 ft), from spud to rig release, in a period of six weeks.

The LOC 400 drilled its first well
to a TD of 2,650 m in six weeks.

In addition, the 780-m (2,559-ft) surface hole was completed using drilling with casing techniques, which is a first for The Netherlands, and the depth of the surface hole by drilling with casing is a record for Europe.

Besides the surface hole, the project scope comprised two additional well sections: section 2 with a target depth of 2,100 m (6,890 ft) and section 3 with a final depth of 2,650 m (8,694 ft). Both sections were smoothly completed using drill pipe and a steerable BHA with mud motor. After this first project, the rig will be transported with regular container trucks to the north of the Netherlands to start its next project.

Huisman introduced the LOC 250, a fully containerised super single drilling rig for on- and offshore use, in 2005. They built on that experience to develop the LOC 400. The drilling process does not require personnel on the rig floor for both drilling with casing and conventional drilling, which enhances safety for rig personnel. The pipe handling and connections can be controlled from the driller’s cabin.

The pipe handler can manage pipes without risk of damage to the thread, enabling the protectors to be removed and the pipe to be doped while on the horizontal pipe rack, just 1.5 m (4.9 ft) above the ground. The top drive, stabbing arm and power tong make connections easy, safe, fast and reliable. For drilling with casing, the top drive and power slips can make and break connections, while the make-up is also monitored closely, including torque graph recordings.

The LOC 400 has a small footprint and is easy to transport, with 27 ISO containers. It requires only four crew members to operate the rig.

China Oilfield Services (COSL) announced that a full-scale trial of its “Atlantis” Artificial Seabed System was successfully completed on 27 April on the Chinese Continental Shelf in the South China Sea. The Atlantis system is a patented technology owned by Atlantis Deepwater Orient (ADOL), a joint venture between COSL and the Norwegian company Atlantis Deepwater Technology Holding. It was deployed under the semisubmersible Nanhai V, owned and operated by COSL. The successful completion of this trial confirms that COSL can perform deepwater drilling using semis that deploy the Atlantis deepwater technology.

The concept is to use a buoy positioned at a depth of about 250-400 m below surface where the wellhead and blowout preventer will be located. The buoy is anchored to the seabed by means of a tieback casing, which is connected to the wellhead located on the seabed.

Enventure Global Technology announced its first commercial installation of the SET solid expandable technology in Australia in an offshore exploratory well near Broome. “Though we’ve run more than 1,000 expandable applications worldwide, we are still thrilled when we add yet another country or region to our portfolio,” said Asia Pacific GM Iain Jennings.

The Australian operator experienced wellbore instability and was forced to set the 9 5/8-in. casing higher than planned. Regaining formation integrity through cement squeezes was unsuccessful, and alternatives such as sidetracking, downsizing, and/or pulling the 9 5/8-in. string were not cost effective.

Instead, a 7 5/8-in. x 9 5/8-in. SET Openhole Liner was run through the 9 5/8-in. conventional string and into a shale formation about 65 m below the 9 5/8-in. shoe. The expandable installation enabled the operator to drill as planned into the production zone at a depth of 12,995 ft.

Halliburton’s Stim Star Angola can deliver
specialized fracturing and acidizing
treatments for offshore West Africa assets.

Halliburton’s Completion and Production Division is launching a next-generation stimulation vessel, the Stim Star Angola, in response to operators’ needs for stimulation treatments on offshore West Africa assets. The vessel will serve as a high-performance platform for delivering technology and helping reduce rig downtime and associated costs for operators.

“With the new Stim Star Angola stimulation vessel, operators will have cost-effective access to all phases of production stimulation, including acidizing, fracturing, sand control and conformance solutions for this developing deepwater market,” said Marc Edwards, VP of production enhancement.

Certified for DP2 dynamic positioning, the Stim Star Angola will be capable of working in difficult sea conditions in deepwater locations at tension leg platforms, drillships, large semisubmersibles, or single wellheads. Cycle time will be minimized by the vessel’s proppant, acid and liquid additives capacity, which permits loading sufficient material for multiple treatments, reducing trips to the dock. Cycle time will also be reduced by using the vessel’s onboard crane and water maker system.

The vessel is capable of delivering specialized fracturing and acidizing treatments such as the patented SurgiFrac service for fracturing deviated and horizontal wellbores.

The Stim Star Angola will be available by the third quarter of 2009 and will be based in Soyo, Angola.

The Intervention & Coiled Tubing Association (ICoTA) awarded Baker Hughes INTEQ its 2009 Intervention Technology Award. Presented at the SPE/ICoTA Coiled Tubing and Well Intervention Conference Exhibition in Houston in April, the award recognized INTEQ’s rib-steered motor (RSM) for coil tubing directional drilling. The RSM combines the proven quality borehole construction capabilities of closed-loop rib-steering technology with the drilling performance of INTEQ’s X-treme pre-contoured motors. This combination results in minimized tortuosity in slimhole wellbores, extending the envelope of complex well geometries. The RSM allows for smooth, straight trajectories, eliminating the need for the undulating wellpaths typically associated with coiled tubing drilling. The resulting quality wellbores reduce drillstring drag and allow for optimal extended-reach capabilities and 3D steering.

Baker Atlas was a finalist for the award. The Baker Atlas Deployment Risk Management system and perforating flywheel assemblies were recognized for significantly improving wireline deployment in deviated wellbores.

The buoyancy module is applied during the replacement of
steel flexible pipe with Flexible Fiber Reinforced Pipe.

DeepFlex announced the manufacturing and replacement of 490 m of flexible, 4-in. diameter pipe used as an oil export riser for PetroSA (the Petroleum, Oil and Gas Corp of South Africa). The pipe was connected to an offloading buoy located in 120 m of water in the ORIBI field near the coast of the Cape of Good Hope.

Upon routine inspection and subsequent detailed examination, it was found that the existing traditional steel flexible pipe was in a “failure stage” due to abrasion of the cover and subsequent corrosion. The riser was approximately 10 years old. The pipe needed to be replaced quickly and efficiently in order to avoid a costly field shut-down. The DeepFlex Flexible Fiber Reinforced Pipe (FFRP) was selected because of its non-corrosive properties, higher fatigue resistance and lower weight. Installation allowed production to be maintained without a shut-down.

Drilling optimization solutions for Comstock Resources have result in their first well with less than 30-day drilling time in the Haynesville shale gas play, according to Smith International. Comstock also realized a total drilling time reduction of more than 20% over a three-well drilling program. Services such as i-DRILL, Smith’s advanced drilling simulation technology, were integrated with PathFinder’s drilling optimization team. PathFinder is Smith’s directional drilling and formation evaluation services company, acquired last year as part of the W-H Energy Services merger.

Keppel FELS delivered the new jackup COSLSTRIKE to China Oilfield Services Limited (COSL) ahead of schedule and with a clean safety record. It is the third of three KFELS B Class jackup rigs commissioned by Awilco Offshore ASA prior to COSL’s acquisition. The first two rigs were delivered in December 2006 and January 2008. COSLSTRIKE is capable of operating in water depths up 400 ft and drilling depth of up to 30,000 ft.

The new COSLSTRIKE jackup.

NOV M/D Totco and Louisiana State University (LSU) unveiled the physical drilling model for NOV’s IndustryConnect program during a ribbon-cutting ceremony in May. NOV M/D Totco contributed two RigSense systems and financial assistance to develop the drilling model, a fully functional small-scale rig, at LSU’s Petroleum Engineering Research Technology Transfer Laboratory (PERTT Lab). The IndustryConnect program was created in 2008 as a bridge between NOV and various university petroleum engineering departments. The drill model will provide students and faculty with state-of-the-art technology and allow them to be challenged through hands-on experience, paving the way for future research and innovation.

ENAGAS has awarded KCA DEUTAG a land drilling contract worth in excess of US $25 million for its 2,000-hp rig T-46. It includes the execution of 11 wells as part of the construction of the Underground Natural Gas Storage Project in YELA, Guadalajara. T-46 will be mobilised to the area in June 2009, and the drilling of the wells will take approximately two years.

Separately, KCA DEUTAG spud its first well for RAK Petroleum Al Khaleej in the East Sajaa field in Sharjah, UAE, in April. The mobilization and start-up of the 3,000-hp rig T-79 was carried out with zero incidents.

The Ocean America has been returned to service after
undergoing inspections and customer-planned modifications.

Signal International recently completed and returned to service two Diamond Offshore rigs, the Ocean Titan and the Ocean America. The LeTourneau Class 64 jackup, Ocean Titan, entered Signal’s East Pascagoula, Miss., yard for modifications and repairs on 6 March 2009 and departed on 14 April 2009.

Meanwhile, the eight-column semisubmersible Ocean America spent 97 days on dry dock at Port Arthur, Texas, undergoing periodic inspection procedures and customer-planned modifications.

In addition to ensuring compliance with ABS Special survey requirements for both rigs, upgrades and modifications to the Ocean Titan included installation of an extension to the BOP control system house, fabrication of two new life boat platforms and replacement of 500 ft of leg jet piping and hangers.

Repairs and modifications to the Ocean America included tank cleaning; contain, blast and paint columns, deck box, tubular supports and derrick; removal and reinstallation of anchor chain for inspection; sacrificial anode installation and replacement of the drilling mud treatment system.

Petrobras announced that the drilling of another well in the Tupi area reinforces estimates of the potential for 5 to 8 billion barrels of recoverable light oil and natural gas in the pre-salt reservoirs of that area, in ultra-deep Santos Basin waters. The well is still being drilled in search of deeper objectives. The new well, called 4-BRSA-711-RJS, is located 33 km northeast of the pioneering I-RJS-628 well. The well is located in the Tupi Assessment Plan area, in waters where the depth is 2,210 m from the water line.

Separately, Petrobras has acquired from Chariot Oil and Gas a 50% interest in Block 2714A offshore southern Namibia. The block covers an area of approximately 5,500 sq km in water depths ranging from 150 m to 1,500 m, located an average of 80 km from the coast.

Noble Drilling Corp was the winner in the Safety Award for Excellence (SAFE) drilling contractor category, presented by the US Minerals Management Service (MMS) on 7 May. SAFE recognizes companies for outstanding safety and pollution prevention performance. The selection criteria consist of inspection and incident data and input from MMS offices. This is the third consecutive year that Noble Drilling has won the SAFE Award. Winners in other categories are: Danos & Curole Marine Contractors (production contractor), Devon Energy (high-activity operator), and Noble Energy (moderate-activity operator).

Diamond Offshore Drilling’s bid to purchase the newbuild 10,000-ft, dynamically positioned semisubmersible PetroRig I has been accepted by Jurong Shipyard. The purchase was expected to close on or about 25 June.

EMS Energy has completed and handed over the US$17 million Mobile Modular Workover Unit (MMWU-1), which will operate offshore Vietnam, to Vietsovpetro. The first of its design, the MMWU-1 facilitates swift installation and mobilisation for efficient re-working and repairing of oils wells. Its modular design offers considerable time-savings. Driven by three Caterpillar generators, the 750-hp MMWU-1 has a hook load of 200 tons.

ENSCO 8500, the first of seven new ultra-deepwater semisubmersible drilling rigs in the ENSCO 8500 Series, has commenced operations in the Gulf of Mexico under a four-year contract with Anadarko and Eni. Additionally, ENSCO International has taken delivery of ENSCO 8501, the second of the series. The rig will soon commence an expected 50-day mobilization to the US Gulf of Mexico, where it will undergo deepwater sea trials and final outfitting prior to its three and a half year term drilling contract with a subsidiary of Nexen and Noble Energy. Drilling operations are expected to commence in mid-October 2009.

Sevan Marine and Premier Oil have entered into a firm contract for the continued provision and operation of the FPSO Sevan Voyageur for the development of the Shelley field in the central UK North Sea. The Sevan Voyageur is already moored on the field, and hook-up of the field subsea facilities is expected to take place mid-2009 to enable production start-up.

Odfjell Invest has reached an understanding with Petrobras for the provision of the sixth-generation semi Deepsea Stavanger. The contract is scheduled to commence when the unit arrives in Brazil in September 2010. Delivery from South Korea is scheduled for June 2010. The contract will have a fixed duration of three years. Petrobras also has the option to contract Deepsea Metro I and Deepsea Metro II, both under construction at Hyundai Heavy Industries in South Korea.

The workover rig for Remedial Offshore’s first self-propelled jackup Elevating Support Vessel (ESV unit) rigged up at the ARS yard in Houston in May. The rig was engineered, built and monogrammed per API 4F and 8C and AISC allowable stress design (9th Ed.). Static and dynamic loads were analyzed for workover activities and with the rig stored on the ESV deck during in-field moves or ocean tows.

Once functional testing is complete, the rig will be shipped to Asia to be integrated with the Remedial ESV Solution, the first ESV well intervention unit. The crown block is approximately 180 ft (55 m) above ground.

The workover rig is shown atop
the vessel’s cantilever beams.

Helix Energy Solutions Group’s multi-service vessel, the Q4000, has finished a 21-day deepwater drilling project in the Gulf of Mexico, in support of a Methane Hydrates Joint Industry Program (JIP) with Chevron as operator. In April and May 2009, the Q4000 drilled seven deepwater slimbore wells in Walker Ridge, Green Canyon and Alaminos Canyon in water depths ranging from 4,800 ft to 6,600 ft. Four wells found high concentrations of hydrate in porous, permeable sands. Two found low concentrations of hydrate in promising sands. One found promising sand but no hydrate. The Q4000 crew conducted 8 ½-in. open-hole drilling and real-time logging-while-drilling (LWD).

The Q4000 drilling deck.

Rowan Companies subsidiary, LeTourneau Technologies has entered into a contract to provide the rig kit, license and certain technical consultancy assistance to PetroVietnam Marine Shipyard J/S Company for the construction of a newbuild LeTourneau Super 116E jackup rig with 377 ft of leg. PetroVietnam will construct the Super 116E jackup for Vietnam Oil & Gas Group in Vung Tau City, Vietnam.  LTI’s contract, valued at approximately $40 million, provides key rig kit equipment, including the leg components, elevating system, controls, spud can materials, cantilever skidding system and hold-down structures. LTI will deliver the rig kit equipment in stages commencing in Q4 2009.

“Biofouline” is the latest environmental hobgoblin impacting global industries and the world, but it is just the tip of the green iceberg. Biofouling is the introduction of non-native species into a new environment. This usually has a happy ending – but only for the immigrants, who quickly settle into their new, predator-free habitats. From a shipping or mobile rig standpoint, unwanted critters stow away for trans-oceanic voyages in ballast or bilge water (including inside pipes), by clinging to hulls or rig legs, anchor chains, or within internal compartments. (See DC, July/August 2008.)

The dichotomy about invasive species is that they are easy to eliminate when they first arrive, but difficult to detect. By the time their presence is obvious, eradication is nearly impossible. So the best approach is a great defense – keep them out from the get go.

Live Asian green mussel (left) removed from a drydocked vessel shows that mussels can survive sea journeys and potentially establish in new areas (right).
Image left: John Polglaze, URS Australia, courtesy of Helix ESG; Image right: Chris Gazinski, courtesy Mote Marine Laboratory
Images and caption taken from “National Biofouling Management Guidance for the Petroleum Production and Exploration Industry”

AUSTRALIAN GUIDANCE
Australia in late May issued a 60-page guidance document for the petroleum industry on biofouling. The voluntary “National Biofouling Management Guidance for the Petroleum Production and Exploration Industry” is one of several issued to various sectors instrumental in transporting invasive species into Australian waters. Other targeted areas include recreational boating, fishing and aquaculture, commercial shipping and ports, non-trading vessels, and consumer and retail aquariums and aquarium suppliers. (Remember that goldfish you dropped in the pond as a youngster?)

Australia and neighboring New Zealand take biofouling seriously. Asian Green mussels, European green shore cabs, European fan worms, and New Zealand screw shells are just a few of the rapacious newcomers that have entrenched themselves in Aussie waters and currently lord it over unprepared native ecology.

The European green shore crab is an invasive species wreaking its share of havoc in Australian waters.

NOT JUST DOWN UNDER
But biofouling is not just a problem Down Under. The Australian guidance presents statistics indicating that biofouling has resulted in introduction of 70% of non-indigenous marine species introduced into coastal North America; 78% in Port Phillip Bay, Australia; and more than half in the North Sea, to cite a few.

NOBLE’S CHALLENGE
At the recent 2009 IADC Environmental Conference in Stavanger, Norway, Franco dos Santos, Noble Drilling, presented a paper detailing the precautions and procedures Noble undertook to move its semi Noble Homer Ferrington from the Ivory Coast to Libya. Noble’s analysis quickly identified three potential hitchhikers, including two bryozoan species and the bacteria responsible for cholera. (“Bryozoans” are aquatic animal lacking purposeful movement and forming mosslike colonies of small tentacled polyps. Yuck.)

One of the bryozoans was already native to the Mediterranean, so required no action. The second could not survive for long in the larval stage, and thus was not a real danger. Nonetheless, Noble undertook careful ballast management to guard against biofouling. A recommended guide to ballast management is http://globallast.imo.org.

Hand scraping biofouling in drydock
Image: John Polglaze, URS Australia, courtesy of Helix ESG
Image and caption taken from “National Biofouling Management Guidance for the Petroleum Production and Exploration Industry”

In the USA, the state of California has specific legislation and regulation in place on biofouling. On the federal level, though, no rules exist, other than a general quarantine rule that could potentially be imposed.

But the eyes of the US public and government show some signs of focusing on the biofouling issue. For example, an MMS official based in Alaska informed me recently that he had begun receiving questions on the topic.

ENVIRONMENTAL INDEXING
On another front, the International Maritime Organization is proposing a system of environmental indexing for ships. This index aims at qualtifying efficiency – environmental efficiency of propulsion equipment and fuel efficiency of engines.

Only cargo-carrying vessels are affected thus far. Since mobile rigs carry no cargo, they are exempt.

GREENHOUSE GASES
IMO is likewise keen on control of greenhouse gases (GG). The organziation reportedly likes the Cap and Trade approach, already implemented in Europe and under consideration – and fierce debate – in the USA.

However, implementation of GG limits is a perogative – for mobile offshore rigs – of the Flag State. The hitch is that the common Flag States – i.e., Vanautu, Liberia, Panama, etc – fall under Annex II of the Kyoto Agreement on GG. These are the countires exempted from GG controls. So the immediate consequences for offshore contractors are limited.

IPPC
Another dog in the fight is the European Commissions’ Integrated Pollution Prevention & Control Directive (IPPC), which sets thresholds on power generation. Slated for possible July implementation, the IPPC requires that output above the thresholds must employ “the best technology” on new installations.

This is an issue, because some of the new, large MODUs already exceed these thresholds. The real rub is that while the thresholds are defined, no definition exists for “best technology”. A classic conundrum, indeed.

Illustration adapted from a diagram provided by Mermaid Marine Australia Ltd.
Images: Ashley Coutts Cawthron Institute (bow thruster); John Polglaze, URS Australia, courtesy of Helix ESG (anchor locker & cable, sea chest and propeller)
Image and caption taken from “National Biofouling Management Guidance for the Petroleum Production and Exploration Industry”

BE AWARE, DEVELOP A STRATEGY
Unfortunately, benchmarks for engine efficiency are basically non-existent industrywide, limiting comparisons.

The best advice is first to be aware of the requirements. Then, develop and understand one’s corporate strategy. How efficient should one’s rigs become? How to best assess potential problems when moving into a new area? Preparing for environmental regulations may not be covered by one’s contract. Will the operator or contractor take responsibility for site-specific preparation?

And on the biofouling front, it is small world – for people and invasive species.

Thanks to Alan Spackman, IADC Vice President-Offshore Technical & Regulatory Affairs, in preparing this column.

Winners of the IADC North Sea Chapter (NSC) Annual Safety Awards were announced during a ceremony on 15 May at Ardoe House Hotel, Aberdeen. Chapter chairman Steve Rae, Seawell, welcomed nearly 400 guests who joined him to recognise and celebrate the efforts of IADC members as they strive toward HSE excellence.

NSC Annual Safety Award winners were announced on 15 May.
Back row from left are: Dave Walls, Transocean; Kenny Dey, Seawell; Gunn Ekenberg Sondervik, Seawell; Tom Gravemaker, Noble Drilling; Paul McKay, Diamond Offshore; and Jon Bryce, Odfjell Drilling.
Front row from left are: Rune Lorentzen, KCA DEUTAG; Ian McCartney, Weatherford UK; Jamie Rawson, Rowan Drilling;Neil Wilson, Rowan Drilling; DI Rona Grimmer, Grampian Police Family Liaison Team;Iain Mitchell, Stena Drilling; and Steve Coghill, Noble Drilling.

Mr Rae reviewed the implications of the recent helicopter tragedy and commented, “Let’s remember the ultimate goal we have set ourselves as an association – ‘incident-free operations’ each and every day.”

Claus Hemmingsen, Maersk Drilling, also spoke in his capacity as 2009 IADC chairman. The “industry speaker” for the evening was Bob Keiller, CEO of PSN, co-chair of the Oil & Gas UK Board and chair of the Helicopter Issues Task Group.

Safety Award winners are:

• Jackups over 1 million manhours: Noble Drilling.

• Jackups under 1 million manhours: Rowan Drilling.

• Semisubmersibles over 2 million manhours: Transocean.

• Semisubmersibles 1-2 million manhours: Stena Drilling.

• Semisubmersibles under 1 million manhours: Noble Drilling.

• Platforms: Seawell.

Merit Award winners are:

• Outstanding safety performance over 5 years: Visund Platform, Odfjell Drilling.

• Outstanding safety performance over 4 years: Brent Delta Platform, Seawell.

• Outstanding safety performance over 4 years: Kvitebjorn Platform, KCA DEUTAG.

• Environmental Award: Diamond Offshore.

Associate Member Award winners are:

• Weatherford UK for its Stabberless Single Joint Elevator.

• Chairman’s Special Award: Grampian Police Family Liaison Team.

DONATIONS SOUGHT FOR ALZHEIMER’S STUDY SPONSORED BY BANDERA

A study to combat Alzheimer’s disease funded by long-time IADC supporters Ray and Ann Brazzel, Bandera Drilling, is seeking additional donations. Organizers are hoping to continue testing a promising dietary supplement that has been shown to improve memory, cognition and daily functional capacities in patients.

The basic science behind the development of the supplement was originally initiated by a Texas-based research institute. The supplement is a special sugar derived from the aloe vera plant leaf gel. In a pilot study, the supplement was added to patients’ daily diets and was shown to improve dementia in 42% of 48 patients. This encouraging finding then led to a controlled study now in progress at a retirement center, which is organized and monitored by a division of a medical school. Positive results have already been reported.

Excited by these initial results, organizers are hoping to raise $100,000 to $200,000 so that documentation of the supplement’s benefits can be improved and additional patients can be taken in.

A formal controlled study, estimated to cost $1-1.5 million, is also being planned. The cost is higher than studies for typical prescription drugs because using a nutritional supplement to support gene-orchestrated restorations is a departure from the standard pharmaceutical paradigm; the standard for proof and validation is also higher.

Mr and Mrs Brazzel have been involved in the study since December 2006 and have been waiting for the study to get qualified through a review board and finally become a reality.

“Two of Ray’s sisters died from Alzheimer’s, so you can understand that this research is dear to our hearts,” Mrs Brazzel said. “It is our hope that others who have a heart for those suffering with this disease will want to join us.

For more information or to make a donation, contact Bandera Drilling at +1/325-676-5591, or e-mail Mrs Brazzel at ann@banderadrilling.com. This e-mail address is being protected from spam bots, you need JavaScript enabled to view i

IADC MAKES DONATION TO US CHARITY

IADC recently donated US$5,000 to Homes for Our Troops, a nonprofit organization that builds specially adapted homes for severely injured service members returning from Iraq and Afghanistan. The homes are provided at no cost to the veterans.

IADC’s donation was made specifically towards the construction of a home for Naval Petty Officer Anthony Thompson, who was injured in 2007 during his second deployment to Iraq. In a bombing near Fallujah, he suffered a traumatic brain injury, an incomplete spinal cord injury and a punctured right lung. Now a paraplegic, he remains at the James A. Haley VA in Tampa, Fla. His wife Ivonne was a schoolteacher but now cares for Mr Thompson and their toddler son A.J. full time.

The house being planned for the Thompson family is in Houston. It will be a barrier-free house with special fittings, such as wheelchair ramps, hands-free toilets and a ceiling lift system, all designed to provide Mr Thompson as much independence as possible.

The cost for each home averages around US$300,000. Fund-raising for the Thompson home is in progress, with a volunteer registration day held in Houston on 29 April. A general contractor has already been identified for the project, but the group remains in need of donations (monetary, land, materials, equipment and services) and volunteers (professional tradesman and key volunteers).

Homes for Our Troops has built approximately 40 homes since its inception five years ago and plans to build about 30 additional homes this year in various locations around the US. It is supported entirely by donations, and the group says it has received an amazing level of support across the US.

Among other charitable donations around the world, IADC has given more than $12,000 to Homes for Our Troops since 2008, mostly in lieu of speaker gifts at conference events. Involvement was initiated through Oilfield Helping Hands, another nonprofit group that helps Houston-area oilfield families in critical need of financial assistance.

For more information, please contact project facilitator Lisa Fitzgerald at +1/508-823-3300 or LFitzgerald@HomesForOurTroops.org. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Details and a video about Mr Thompson can also be found online at www.homesforourtroops.com/thompson.

REMINDER: WELLCAP INSTRUCTOR QUALIFICATIONS

The new WellCAP instructor qualifications requirements went into effect 30 June 2009.

What this means for you:

• All new instructor applications must follow the new requirements immediately.

• All currently approved instructors retain their approval status for the courses, levels and stack qualifications currently held until 30 June 2011. Their current certificates do not expire until 2011.

• Any request for change in instructor status must follow the new requirements immediately.

Details of the new requirements are documented in Bulletin 09-01, which can be found online at www.iadc.org on the WellCAP page.

SCOTT GORDON TO LEAD CONTRACTS COMMITTEE

Scott Gordon, Unit Texas Drilling, has been chosen as the new chairman of the IADC Contracts Committee, succeeding Dave Faure, Transocean. Mr Gordon has previously served as vice chairman – land of the committee. In that capacity, he led an extensive review of the 1998 US land model contract forms, which resulted in the 2003 version, still in use today.

The committee’s 2009 vice chairmen are Ernie Nelson, Nabors Drilling USA, for land; Glen Kelley, Atwood Oceanics, for international; and John Buvens, Rowan Companies, for offshore.

As interest in the Marcellus gas play intensifies, two Pennsylvania lawyers well-versed in the state’s environmental and land use planning laws have a simple message for the gas exploration industry in Texas and other states: Be a good neighbor.

Joel R Burcat

We represent industry in Pennsylvania and are deeply familiar with the environmental and land use planning laws in the commonwealth. We were delighted to see the initial reports of the Marcellus Shale and its promise, and we welcome the economic boom and energy independence that this gas play promises for

Pennsylvania and its residents. So do many others, including landowners, tax collectors, and government and economic development professionals.

At the same time, and in the spirit of making this a “win-win,” we want to caution our friends in the oil and gas exploration industry. Pennsylvanians, in general, are fiercely protective of their natural resources.

George Asimos

Let us give some examples. Throughout the regions in which the Marcellus Shale will be exploited, hunting, fishing, camping and other outdoor activities are part of everyday life, indeed part of Pennsylvania’s culture. State government alone owns about 2.5 million acres of some of the most beautiful forest in America. Nearly 1 million hunting licenses are sold annually in Pennsylvania, and nearly as many fishing licenses. Our sportsmen contribute huge resources to wildlife and habitat protection and are well-organized to protect the land they love.

Pennsylvanians put their money where their mouths are. State and local governments spend hundreds of millions of dollars purchasing development rights on forest and farm land. Landowners have donated hundreds of millions of dollars worth of conservation easements. All of this is to permanently protect the land for habitat, outdoor sports and agriculture.

Many tourism jobs are dependent on the quality of our outdoor spaces. The state actively promotes the “Pennsylvania Wilds” as a vacation destination. Come up and visit us. You will be impressed. Northeast Pennsylvania is home to the natural beauty of the Pine Creek Gorge, the Allegheny National Forest and the darkest skies in the east at Cherry Springs State Park.

Pennsylvania forests have been touted as one of the greatest environmental comebacks of the 20th century. Why? Because much of it was decimated by the forest industry in the late 19th and early 20th centuries.  Pennsylvanians have long memories. Wise leaders, including our Gov. Gifford Pinchot, whom some call America’s first professional forester and first conservationist, orchestrated the purchase and management of much of that land. It is one of the crown jewels of our commonwealth.

Pennsylvania businesses that rely on the rivers for their industrial purposes (and need a certain level of cleanliness in that water) will not hesitate to demand state action if there is a dramatic change in water quality.

Local and statewide environmental groups are respected and carry political clout. Some voices are already, prematurely, predicting widespread environmental degradation from Marcellus Shale exploitation, on the scale of the aforementioned forestry destruction. Citizens of Pennsylvania are listening and watching. Their message, we believe, would sound familiar to Texans – “Don’t mess with Pennsylvania.”

Please understand, we are avowed supporters of the prospect of trillions of cubic feet of natural gas being pumped from beneath Pennsylvania lands, and we wish the industry well. It is good for America and good for Pennsylvania.

We are convinced that it can be done in an environmentally sound way, preserving our wild and natural resources while also meeting the economic needs of Pennsylvania’s landowners, workers and taxpayers.

So what is the catch? How the industry performs, environmentally, at the onset of the “play,” will determine the success of the gas industry’s future in Pennsylvania. Now under tremendous scrutiny, some influential few are just waiting for you – industry – to mess up.  It is crucial that the industry prove its critics wrong. If not, the result will likely be an overregulated industry that could delay Marcellus Shale gas drilling for years. The mechanisms are in place to do that damage rapidly and irreparably.

Initial reports indicate that when exploration companies started withdrawing water for “hydrofracing,” they neglected to get water withdrawal permits from the Susquehanna River Basin Commission (SRBC) or the Delaware River Basin Commission (DRBC). Before this issue was resolved, fines were levied against several companies. The SRBC and DRBC now scrutinize all water extraction efforts by drilling companies for fresh water and disposal of production water.

The Monongahela River, near Pittsburgh, suddenly has significant levels of total suspended solids (TSS). This TSS did not exist prior to the recent Marcellus gas activities, leading to the initial assumption that it is the disposal of used “hydrofracing” water that is contributing the TSS. The Pennsylvania Department of Environmental Protection (PaDEP) is examining whether production fluids are being dumped into tributaries of the Monongahela (either illegally, or from neighboring West Virginia) and causing this problem.

More recently, a water well-house blew up. The reported cause was natural gas that had seeped out of a Marcellus well and resulted in the explosion.

We have seen news reports of natural gas and gas residues being found in drinking water drawn from wells.

There are concerns about contamination of public water supplies. The city of New York is fighting drilling in southern New York state right now because of fear that its massive reservoirs may be contaminated by Marcellus drilling.

Keep in mind that much of the drilling is in rural areas, where the roads were never intended to handle the heavy drilling rigs or hundreds of water trucks a day that are necessary to support shale drilling. Being mindful of the local concerns and compensating the municipalities for damage to their roads will go a long way towards keeping the municipalities where drilling is taking place happy.

As industry continues exploration and production, we strongly urge the industry to bear in mind that Pennsylvania has not one but multiple environmental agencies and levels of government, each with jurisdiction over some aspect of gas drilling.

While Pennsylvania’s Oil and Gas Act supposedly pre-empts local regulation, that pre-emption has been recently challenged before our Supreme Court. That court ruled that, while much local regulation is pre-empted, in some significant ways, oil and gas drilling is subject to local land use planning and zoning.  Again, industry would be well advised to be a good neighbor, whether it is dealing with the commonwealth, or one of the more than 2,500 municipal governments in Pennsylvania with regulatory authority over zoning and development activities.

Widespread regulation by local government, should it be prodded into action by the realization of even some of the dire or unfounded predictions of environmental problems from shale production, could significantly impede economical exploration.

STILL LOOKING GOOD

Despite our cautionary message, industry still has it pretty good in Pennsylvania. As one prominent elected official here said recently, if you drew a map of where jobs and economic development are needed in Pennsylvania, you could not have created a more perfect match with the Marcellus Shale region.  We suggest that industry wants to keep it that way, and so do many responsible Pennsylvania leaders. But the job will be more difficult if influential citizens groups are galvanized into action by reports of environmental damage from gas production.

The burden is on industry to do its job with a minimum of environmental damage so that (Pennsylvanian) state agencies do not react by promulgating massive regulations and so that municipalities do not attempt to make it impossible to drill within their corporate borders.

We hope for a long, happy and mutually beneficial relationship between gas drillers, landowners the public and regulators. The Marcellus gas play is unusual in its size, extent and proximity to customers. This gas would go a long way towards assisting the United States achieve energy independence.

Right now, the burden is on industry to do its job with a minimum of environmental damage so that our state agencies do not react by promulgating massive regulations and so that municipalities do not attempt to make it impossible to drill within their corporate borders.

Our advice to the industry is to demonstrate that it does not need to be overregulated in order to be a good corporate citizen.

Joel R Burcat and George Asimos are partners with the Pennsylvania law firm of Saul Ewing LLP. Mr Burcat is an environmental lawyer, vice-chair of the Environment, Energy and Utilities Department and is based at the firm’s Harrisburg office. Mr Asimos has been a real estate and land use lawyer practicing throughout Pennsylvania for more than 20 years.

Balancing the need to control benefit plan costs and the need to provide value to employees is a challenge. In times of uncertainty, the struggle to balance objectives is even more difficult. Today, there are several variables that create uncertainty in the worlds of business and benefit plans:

• Drilling contractors are paying more attention to costs due to low commodity prices and overall economic uncertainty.
• Employees perceive benefits, especially healthcare and retirement, as an important part of total compensation.
• Employees and businesses are uncertain about President Obama’s efforts to reform the healthcare industry.
• Reductions in the workforce have employees very nervous and unsure if they will have company-provided healthcare next month. Nervousness about changes in the workforce creates higher-than-expected utilization of benefits, which impacts benefit plan costs. Some of these costs will not begin to surface until the middle part of 2009 or beyond.

Benchmarking the performance (cost and coverage levels) of your benefits program is an effective exercise that should be part of any annual planning process. A company needs to know where it stands in relation to others before it charts a course for change.

Employee Benefit Solutions (EBS) published the 4th annual edition of its Drilling Industry Benefit Plan Survey on 21 May. It caters exclusively to drilling contractors, which means the results are not skewed by exploration and production, midstream or other sectors in the energy industry.

Median values for PPO medical plans
for the drilling contractor industry.

With significant input from survey participants, EBS has developed an online survey tool to capture data that ensures the timely accumulation of accurate information, while maintaining the confidentiality of individual participants and safeguarding the data.

Twenty of the drilling industry’s onshore and offshore companies participated in the 2009 survey, representing a fair cross-section of the industry:

• 10 companies report operations onshore:
  o Seven of the 10 operate exclusively onshore.
  o Two operate onshore and offshore in shallow water (<4,500 ft).
  o One operates onshore and offshore (shallow and deepwater).
• 10 companies report operations exclusively offshore:
  o    Seven focus on shallow and deepwater combined.
  o    Two focus on shallow water only.
  o    One focuses on deepwater exclusively.

The survey is broad and captures data points specific to coverage, costs and cost-sharing across healthcare (medical, dental, pharmacy and vision), retirement, life, accident, disability and paid time off (vacation and holidays) for hourly and salaried employees.

The results are distributed exclusively to participants and provide insightful data points worthy of consideration when planning for 2010 annual enrollment.

MEDICAL PLANS
Across the 20 companies, the survey measured 33 unique medical plan options. Approximately 85%, or 28 medical plans, are preferred provider organizations (PPOs). The PPO medical plan coverage differs when comparing onshore companies to offshore. Offshore coverage does not differ when comparing deepwater to shallow water.

Costs and cost sharing
The average annual PPO medical plan costs reported across all participants (onshore and offshore) increased 7.1%; onshore increased 3.0% and offshore increased 7.5%. These results appear to be consistent with the rate of medical plan increases that EBS has observed in general industry surveys conducted across the country.

Since demographics (age and gender) play a significant role in the cost of healthcare, we are concerned about the potential for the drilling industry’s future medical plan cost increases to exceed the normative results in the general industry. On average, the typical drilling company employee is male and approximately age 50. In general, employees with these population characteristics tend to utilize the medical plan more frequently and in a higher cost setting (acute hospital inpatient versus minor outpatient).

The monthly contribution or payroll deduction for the employee’s participation in the medical plan has a significant impact on the employee’s perception of value of the benefits and the company’s ability to attract and retain employees.  We observe a difference between contributions made by employees who work onshore and those who work offshore.  While contributions may not be as important to salaried employees, hourly or lower-paid employees do recognize the significance of their payroll deductions.

The average annual PPO cost, per employee
per year, according to the EBS survey.

RETIREMENT
While three of the 20 survey participants indicated that they continue to offer a defined benefit pension plan to active employees, defined contribution or 401(k) plans remain the most prevalent type of plan used by drilling contractors. EBS observes that the industry’s adoption of 401(k) plans is consistent with what has been adopted by other industries across the United States. Next to healthcare, retirement is the most highly appreciated benefit plan within a well-designed program.

The 2009 survey results show that there is a wide array of 401(k) plan designs that vary by the amount the employer contributes to the plan and the method by which employees may contribute.

Almost all companies that have 401(k) plans match contributions made by their employees, with the percentage matched ranging from 2.5% to 15%, and the average matching percentage being 5.5%.  Twelve companies reported matching contribution percentages of between 4% and 6%. Only five companies reported making non-matching profit-sharing contributions, ranging between 3% and 10%.

Beginning in late 2008, employers nationwide began reporting cutbacks or suspensions of their companies’ 401(k) contributions. In contrast, only one of the survey participants reported cutbacks to its matching or other employer contributions for 2009.  The average company contribution for the drilling industry was 6.65%. The average for offshore drillers was higher at 7.00% than for onshore drillers at 5.89%.

Many 401(k) plans now include an automatic enrollment feature to encourage employees to save for retirement and to simplify the enrollment process.  The drilling industry is lagging behind national averages, which are approaching 50%, in implementing automatic enrollment into 401(k) plans. This may be due to the unique payroll complexities inherent within the drilling industry.  However, automatic enrollment is becoming more prevalent in the drilling industry, with 37% of survey participants reporting its use in 2009 compared with 27% in 2008.

The median values for monthly payroll
deductions for PPO medical plans.

OPPORTUNITIES FOR IMPROVEMENT
There are many areas where drilling contractors can reduce benefit plan costs while maintaining their commitment to provide comprehensive benefit plans. A few areas to discuss with your benefit manager include:

Medical plans

• Reduce the amount of claims that are incurred outside the managed care network. Conduct an evaluation of your managed care network to ensure that the company is contracting with the vendor that provides the widest access and the most favorable network discounts in geographic regions where employees live and work.
• Evaluate the competitiveness of your pharmacy contract. Approximately 15%-20% of every healthcare dollar is spent on pharmacy. EBS routinely observes contracts with outdated pricing terms in effect. An updated pharmacy contract can reduce pharmacy costs by 7%-15% without changing copayments.
• Consider adding a fourth copayment tier applicable to “specialty medications.” The US Food & Drug Administration (FDA) is approving new specialty medications each day for consumers to purchase. The cost of specialty medications can be 15%-25% higher than brand-name drugs. A fourth-tier copay should share the additional cost burden with employees who use these therapies.
• Clean up your internal records by conducting an audit of dependents who participate in the medical plan. Often, employer records are outdated and still extend coverage to dependents who are no longer eligible for plan coverage.

Automatic features for drilling contractors’ 401(k) plans.

Insurance policies

• Aggressively market your insurance policies in order to lower premiums on plans like life, accident and disability.  The insurance marketplace is very soft and open to aggressive reductions in premiums while guaranteeing premiums for multiple years.

Retirement plans
Retirement plans that are participant-directed require plan fiduciaries to manage them so that they benefit all participants. There are some regular tasks that need to be performed and the process documented to reduce the fiduciaries’ exposure to risk. Conducting these tasks should not only reduce exposure but also increase the value of the plan for participants.

• Establish an investment review committee to monitor the performance of the plan. The committee should meet quarterly. Minutes should be documented and retained.
• Hire an independent adviser to assess the performance of retirement assets, unrelated to any assessment of the fund manager or record keeper. In this review, identify performance of asset returns and the reasonableness of investment management fees that impact participants’ returns.
• Conduct a market review and competitive assessment of the record keeper to ensure it is competitive in cost and services. Document this process.
• Ensure that participants have the appropriate means to diversify assets.

CLOSING
Benchmarking through the use of survey data is a critical step to strategically ensuring that a company’s benefit plan is performing effectively and that it remains competitive. Knowing where your plans are relative to others is the first step in establishing a business case for change.

More about the annual Drilling Industry Benefit Plan Survey is available at www.ebenefitsolutions.com. Brett Haugh is principal of Employee Benefit Solutions.