Offshore E&P: The Risk/Safety Disconnect

The Bureau of Oceans Energy Management (BOEM)  is looking for public input on whether it needs to rewrite its regulations on risk management and financial assurance for offshore energy projects.   The fundamental goal of the regulations is to make sure that the taxpayer doesn’t wind up holding the bag if, for some reasons, an oil company can’t or won’t manage a lease from cradle to grave.

In light of some of the changes and increasing costs offshore, BOEM wants to update its risk and financial regulations, so it is releasing an Advanced Notice of Proposed Rulemaking (ANPRM) that asks more than 50 questions.   You can read more about the ANPRM here.

What is striking about the proposal is the nearly complete disconnect between BOEM’s effort to manage risk and sister agency Bureau of Safety and Environmental Enforcement’s  (BSEE) efforts to manage safety.   The ANPRM asks what risk measures BOEM should look at and how it affects individual projects, but here are some of the works that do not show up in the questions:

  • Safety management
  • SEMS
  • Compliance
  • Incidents of Noncompliance (INCs)
  • BSEE Performance Improvement Plans  (The most powerful tool BSEE has to force compliance)

In other words, BOEM does not seem to be looking at actual safety performance in looking at risk.

A little background may be in order.   Risk management is generally the process of identifying, prioritizing and controlling risks caused by uncertainty or unpredictable events.   Risk can include natural disasters (hurricanes, etc.), financial strength (potential for bankruptcy, etc.), exposure (insurance, etc.) and, significantly, safety performance.    Safety management involves  identifying, prioritizing and controlling hazards to humans and property.    For a look at how much overlap there is between risk management and safety management, take a look at this presentation from the Atlanta Safety Council.

In a practical sense, risk management lives in the world of loss control and insurance.  Safety management belongs to the safety department and, increasingly operations departments.   But just about everyone in business understands the connections.  If you don’t control accidents, your insurance goes through the roof.   We have also seen a number of cases offshore where there was a connection between significant incidents and the responsible party’s financial health.

All of which makes it curious that BOEM would not be more interested in how a company manages safety as a function of risk or to use the quality of a company’s safety program as a way to offer lower financial requirements.  It seems out of sync with the direction that insurers have been moving for years.