Courts: BSEE Can’t Charge Contractors Under Offshore Safety Rules

A Federal District Court says the Federal government does not have the authority to cite and fine service companies under the offshore safety and environmental rules.  If the ruling stands, it would be a blow to one of the most aggressive enforcement interpretations that followed the Macondo disaster.

Late last month, in the case of Island Operating Co Inc v. Jewell et al, Judge Rebecca Doherty ruled that the government does not have the legal authority to cite drillers, services companies and other contractors under its offshore oil and gas safety regulations.

As background, the Bureau of Safety and Environmental Enforcement (BSEE) investigates offshore safety or environmental incidents.  If a violation is found, BSEE would write a Notice of Incident of Noncompliance (“INC”) against the operator of lease-holder of the offshore property.   The regulations allow BSEE to shut down the project until the violation is corrected and to fine the violator up to $42, 017 per infraction per day.

Until Macondo occurred, BSEE only cited operators or leaseholders, even if a contractor was to blame.  For example, if a welding company caused a fire offshore,  the operator would be cited (INC’d, in offshore terminology).  However, following the Macondo disaster, the government issued INCs to Transocean and Halliburton, as well as citing BP.  BSEE followed-up with an interim policy document stating that it had the authority to INC the lease-holder/permit-holder as well as “the person actually performing the work.”  

Ever since then, BSEE has cited a number contractors for violations, despite questions over whether the agency had the authority to make those determinations.   One of those cases went before an administrative law judge in 2015 and the ALJ supported BSEE’s position.

However, Judge Doherty’s decision reverses that ruling and says very clearly that BSEE overstepped its authority in trying to penalize the contractor in the case.  You can read a very good analysis of the case done by the HaynesBoone law firm here.

What happens now?   

The judge was very careful to limit the results of the ruling to this one case.  She did not order BSEE to cease INC’ing contractors altogether.   However, this case will carry a lot of weight and encourage challenges from any other contractors who were cited under the ruling.

HaynesBoone says the government is likely to appeal the ruling.   I think that remains to be seen and depends on the new administration and the direction that the Interior Department takes.   Under the laws, the U.S. Solicitor General decides what the government wants to appeal and the new administration will name the Solicitor General.   This may be the type of “regulatory overreach” Donald Trump has railed against.

The whole issue highlights a problem that is unique to offshore.  On land, if a contractor in the oil patch breaks safety regulations, OSHA will penalize it.   If the same company does the same thing offshore, there may not be any way to hold it responsible.  Some experts who say BSEE handled this interpretation wrong still say there should be some way to hold unsafe contractors accountable.

One option is for BSEE to not appeal the current ruling, but to go back and develop new regulations to address the responsibility of contractors.  That would allow for public comment and a way to ensure that the government’s approach is consistent.  However, the new administration has said it wants fewer, not more, rules, so addressing this issue with new regulations may also be unlikely.