What’s Going On With Offshore Safety?   Four Trends To Watch

In my last post I looked at the ways that the government agency overseeing offshore safety is addressing the challenge.  As a followup, here is a look at some of the trends impacting offshore safety.

The safety net is bumping into the bottom line in offshore oil and gas.  We are three years onto a truly savage downturn in prices and at least one Supermajor wonders if the phrase “lower for longer” should really be “lower forever.” Continue reading “What’s Going On With Offshore Safety?   Four Trends To Watch”

Offshore Oil & Gas Enforcement: Smarter, More Focused

The last decade has been a wild ride for offshore oil and gas in the Gulf of Mexico.   Macondo oil spill disaster.   Crash of oil prices.   New regulations like the Safety and Environmental Management (SEMS) rule.  Then there is decommissioning, a trend that which hasn’t gotten the attention it deserves.

It has been traumatic for industry, but it has also had a big impact on government regulators, who have gone through three name changes (MMS-to-BOEM-to-BSEE), four directors and a sea change in the way they do business.   So it is worth asking, how has BSEE – the Bureau of Safety and Environmental Enforcement – adapted. Continue reading “Offshore Oil & Gas Enforcement: Smarter, More Focused”

Did The U.S. Government Just Change The Game on Offshore Safety?

In the spring, the Bureau of Safety and Environmental Enforcement (BSEE) published its new rules on blowout preventers and well control for offshore oil and gas companies.    Most of the attention was focused on impacts to drilling operations through tighter regulation of blowout equipment, maintenance and mud densities.

However, a new analysis indicates that the impact may be much broader, forcing changes to the entire offshore oil and gas industry.   The analysis comes from the Van Ness Feldman law firm and it focuses on one small section of the rule.  

Under the section of 30 CFR 250.107 titled “What must I do to protect health, safety, property, and the environment,” BSSE added this:

(a)(3) Utilizing recognized engineering practices that reduce risks to the lowest level practicable when conducting design, fabrication, installation, operation, inspection, repair, and maintenance activities; 

The article points out three reasons why that is important:

  1. It applies to just about everything that happens on offshore leases.  Instead of specifically targeting activities which control hydrocarbons in drilling and production, the section of the regulations applies to the entire process of exploration and development.
  2. What does the term Lowest Level Practicable mean?  It doesn’t mean “lowest priced” and it may not even mean “reasonable.” One definition is “capable of being put into practice.” In BSEE regulations, a reference to “maximum extent practicable” means “within the limitations of available technology.”  Chances are the courts will have to weigh in on what practicable means here.
  3. It is now the law!  Industry experts will tell you they are always looking for ways to reduce risk and they are right.  The challenges of offshore work, the costs of making a mistake and the level of government oversight have driven industry to work at a high level of safety.  But now there is a regulation that says, if the decision is between two options, engineers needs to choose the one that presents the lowest level of risk and there are penalties for the operator and the contractor is that doesn’t happen.

How much offshore activity does this cover? Since almost all significant activities offshore take some level of engineering, it will impact a lot of activities.  How about well interventions?   Liftboat or crane operations? Pipelines that are regulated by BSEE?

What changes could it force?  Here is a partial list:

  • Construction and maintenance records.   No documentation, no proof the rule is being followed.
  • Documentation of engineering processes.  Engineering is usually focused on designs and processes.  Now it may need to look at how options were weighed in reaching decisions.
  • SEMS compliance, especially contractor oversight.  This has largely been performance-based, but this change could mean operators need to get into the decisionmaking process of their contractors.
  • Coordination.   What happens when an operator or contractor choice of the lowest risk option raises the risk for some other contractor or phase of a project?   For example, a larger BOP with redundant systems may be better for preventing a blowout, but it may be too big to be safely installed by the driller.   Who’s risk is more important?

This would be a good time to review your policies and decisionmaking processes, especially management of change.  If you want to make sure your safety management system addresses this new change, contact us at Info@lifelinestrategies.com.

 

 

 

New Rules on Blowout Preventers Being Finalized/ BOP Company Asks BSEE to Be Flexible

BOP Technologies JPGIt looks like BSEE’s new rules on blowout preventers and well control have cleared the first internal hurdle and are now being reviewed by the Interior Department’s lawyers.    BSEE Director Brian Salerno posted on his Director’s Corner Blog that the agency has waded through the more than 170 comments to the docket and met repeatedly with industry and has now sent the draft of the final rule up the ladder to the Department of Interior.   The next stop is the White House Office of Management and Budget for a review before being released to the public as a final rule.

One of my clients, a new Houston-based startup, BOP Technologies released this statement on the proposed rules: http://boptechnologies.com/designer-of-next-generation-bop-asks-government-to-be-flexible-on-blowout-rules/

Court Rules That BSEE Can Fine Contractors

BSEE logoBSEE can write Incidents of Noncompliance that penalize contractors working on offshore oil and gas projects, according to a ruling from Department of the Interior’s Board of Land Appeals Judge Christina Kalavritinos.   This is one of the most controversial issues facing offshore contractors and the ruling opens them up to heavy fines or potentially being blocked from working offshore if they violate BSEE regulations.

As background, the Incident of Noncompliance, or INC, process is BSEE’s chief tool for citing companies that break safety or environmental rules on the U.S. Outer Continental Shelf.  In the past, BSEE only wrote INCs on oil and gas companies, even if the contractor was really responsible for the violations.  That changed with the Macondo disaster, when BSEE cited one of the contractors involved in that incident.   The agency later released an Interim Policy in August of 2012 warning  that it would be citing contractors with cause (the term used in the offshore world is “INCing them”) and giving guidance to BSEE investigators on how to cite contractors.

Many in industry questioned whether BSEE had the right to INC contractors, since the regulations were so clearly tied to the leasing process, which involves operators, not contractors.   Others warned that the potential for being cited changed the risk potential for contractors and would create insurance and other problems.   On the other hand, many supported the change because it would hold contractors accountable when they commit violations.

Judge Kalavritinos reviewed the history and legislative intent behind the penalty regulations and determined that, in effect, the government has always had the ability to INC contractors, even if it has not used that power in the past.  In making the ruling, she set a three part test:

In order to establish that a contractor violated 30 C.F.R. § 250.107(a), BSEE
must demonstrate only that, in accordance with § 250.146(c), the contractor was
“the person actually performing the activity” that violated § 250.107(a); the activity
being performed constituted, in accordance with § 250.107(a), “operations” under
the lease; and the contractor failed to perform such operations, in accordance with
§ 250.107(a), “in a safe and workmanlike manner[.]” Here, BSEE properly concluded
that Island was actually performing the activity, which violated § 250.107(a), and
which constituted operations under the Lease, and failed to perform them in a safe and
workmanlike manner, thus violating § 250.107(a).

Meaning, if the contractor is doing a job that is part of the operations at the lease site and the work is not done in a “safe and workmanlike manner,” BSEE can INC the contractor.   The law firm Phelps Dunbar has provided a very good analysis of the ruling, as well as posting the original decision itself.

What does this decision mean?  First, a caveat.  This is the first ruling on an emerging issue (what lawyers call a case of first impression).  It may be appealed.  A different judge looking at a different case may have a different opinion.

However, it stands to alter the risk and liability balance offshore.   Contractors performing work need to know that they may face penalties if they break the rules and those penalties can be quite high.  One contractor was fined $430,000 in 2014.    This could change the way underwriters view policies and it may alter the liability under contracts between operators and contractors.   Phelps Dunbar also points out that this could affect marine companies that used to only be regulated by the Coast Guard, because it means BSEE may also take an active interest in their compliance.


This ruling makes it even more important that offshore contractors implement the right policies, training and skills and knowledge competency systems for their offshore work.   If you need help with any of your programs or would like a third party review of your safety systems, contact us at SEMS@lifelinestrategies.com or (985) 789-0577.


 

BSEE Considers Risk-based Inspection Program

Logo & SEMSSmaller oil and gas companies operating in U.S. offshore waters need to pay close attention to the message that is coming out of Washington these days.   That message is that the government expects them to maintain high safety standards and focus on preventing incidents, regardless of their size or any unique types of hazards they may face on their facilities.  Now it looks like companies may face targeted inspections.

Here’s why. The government’s challenge in enforcing offshore safety and environmental laws is finding a way to even a very uneven playing field.  Offshore oil and gas operations are a world of contrasts.  Shelf and deepwater.  Drilling, production and decommissioning.  Old and new facilities. Large operators and small operators.  Each different type of operation has its own hazards and risks.

Yet BSEE must push for the safest and most environmentally sound approach for the entire industry.  The deepwater Macondo incident and the regulations that follow highlight the problem.   Macondo was a large-scale disaster, both in loss of life and environmental harm.  The goal of the post-Macondo initiatives was to prevent that kind of accident from happening again.   There may be little chance that a smaller facility could have an incident on a Macondo scale, may they do have more, smaller-scale incidents.

How can the agency address both large-scale and smaller-scale incidents?  Officials with the agency appear to be wrestling with just that problem.    Last month, BSEE Director Brian Salerno wrote in an online blog that there is a discrepancy in offshore safety.   The Center for Offshore Safety has released its second annual safety report and it shows that COS members did not experience any fatalities or and one loss of well control in 2013 and 2014.    However, Salerno points out that the overall safety statistics for the U.S. Outer Continental Shelf showed three fatalities and eight well control incidents in 2013 alone.  The Director also points out that in 2013, COS members reported 23 lifting incidents versus 197 for all operators.  He concludes that “The disparity in numbers demonstrates that the COS membership is comprised of companies that have made a real commitment to safety. It makes sense that their performance in preventing such incidents would exceed industry norms.”

He is not saying that other operators do not share the same commitment to safety, but it is implied.   COS’s members are generally deepwater operators who have larger and newer projects.  Many of them have sold off the shelf projects which carry the headaches of older, smaller and lower profit-margin shelf projects.  Who bought them? Generally the operators who are not members of COS.    Those operators need to pay close attention to the words of Director Salerno.  BSEE is holding them to the same standard as the largest, most financially sound operators.

But COS members also need to be careful about not resting on their safety record.  As we have seen deepwater incidents carry the potential for enormous consequences.

Where does BSEE go next?  The agency is sending signals that it wants to shift to a risk-based inspection program.  One of the bullet points raised by BSEE officials at the September COS forum was the potential to use “SEMS Maturity as a factor in the Risk Based Inspection program.”   That means BSEE could factor plan sophistication into its decisions on who to inspect and how often.   It could look at previous incidents, equipment maintenance or other factors and target companies that don’t have what Director Salerno calls “a real commitment to safety.”

This is not the time for either large or small operators to be complacent about their approach to safety.

Record Year For BSEE Fines

The U.S. offshore oil and gas industry is awash in INC!  Incidents of Noncompliance, that is.   The Bureau of Safety and Environmental Enforcement’s (BSEE) chief weapon is the INC, the penalty it can assess if an oil company violates regulations.   According to the agency’s statistics, BSEE used that weapon to assess higher fines last year than ever before.

BSEE Cases Resulting in INCsEvery time BSEE pulls out its INC pen, that is called a case.    INC’s may result in warning or in initial penalties that may be removed if the company addresses the problem.  However, BSEE may pursue the fine or, as a worst case, block the company from operating leases.  In 2014, BSEE took 53 cases all the way to the penalty phase.   That is not a record.  Back in 2000, 66 cases resulted in penalties.  The number of cases don’t really fall into any pattern over the last 15 years.    They may be affected by the business cycle, the randomness of incidents or changes in the regulatory climate.

 

However, look at the dollar amount and it tells a completely different story:

BSEE Penalties on The OCS

At roughly $5.7 million in fines, the 2014 dollar figure is nearly twice the next highest year’s total.   What caused the jump?  It is always possible that the cases represented more serious violations than in the past.   A chief cause may be that, after sitting at $35,000 per instance, the maximum fine was increased to $40,000 in 2011.  However, there was not such a dramatic increase in 2012 or 2013.

We might speculate that this represents an interest by BSEE officials in seeking the highest penalties in more and more cases.  That is certainly in line with OSHA’s approach in recent years.   There is an old saying about newspapers – “Don’t pick a fight with someone who buys their ink by the gallon.”   With BSEE you might say, ” Never pick a fight with an agency that buys their INC by the barrel.”

 

Offshore SEMS May Change With New Audit Rules

lifelinelogoMost offshore oil and gas companies are getting ready to do their next round of audits of their Safety and Environmental Management Systems (SEMS) plans and these audits promise to be very different (and possibly tougher) than the last audits.   New audit rules went into effect for SEMS plans in June.  As of June 4, 2015, all audits of an oil and gas operator’s SEMS plan must be done according to the requirements of the SEMS II rules.   Under the change, the team lead for audits must be independent from the operator and must be part of an accredited audit provider.   Also in June, BSEE, the agency in charge of SEMS,  named the Center for Offshore Safety (COS) as the accrediting body for audit providers.

This promises to have a significant impact on how SEMS is done for two reasons.   The first is that upcoming audits must be done under the COS rules.  That means new training, new guidelines and possibly more expense for most offshore operators.  This is a whole new approach for most of the companies that hold offshore leases.

The bigger change may be in how audits are performed.   BSEE made it very clear that the first audits were all about getting the programs into place and beginning the process.   The agency expected to see SEMS programs evolve and improve, or else.  In its recap of audit results last year, BSEE said:

Based on the first cycle of BSEE audits, the general finding is that the current status of SEMS
implementation is geared toward compliance. Operators, in general, did not provide evidence
that they are implementing SEMS as an effective management tool. 

In May, BSEE officials went further in their presentation to the Offshore Technology Conference, saying that many of the audit protocols in the first round did not capture the level of documentation, implementation and effectiveness of operator programs.


Need help preparing for your next SEMS audit or making sure your safety program lines up with your customer’s  requirements?  Contact Lifeline Strategies at KenWells@LifelineStrategies.com or call (985) 789-0577.


 

What does this mean?  It means Operators will be under great pressure from both BSEE and the COS to perform systems audits rather than compliance audits.  The simplest explanation of this is that in a compliance audit, you may look at whether written procedures are in place and whether they are done according to the SEMS rule.  In a systems audit, you may look at whether the operator has a system in place that allows it to ensure that the right procedures are in place and are being followed.   For contractors, it means operators will put even more pressure on them to ensure that they have their own systems and that procedures are effective.

Remember, what gets audited gets done and when the audit rules change, it can change the way everyone does business.

 

BSEE Chief: Contractor SEMS Compliance a Priority

Now that the SEMS II deadline has passed, the big question is, where will BSEE focus its attention?    The answer is in a new interview with  Bureau of Safety and Environmental Enforcement Director Brian Salerno.   According to the interview that Salerno gave to Platt’s Energy Week, getting contractors and sub contractors on board with operator SESM plans is a priority.    He told Platts, ““The challenge, really, is to get all of them to work together seamlessly and safely.”

The comments are in line with speeches Director Salerno made in Houston this spring in which he talked about the need for contractors to adopt a strong safety culture and that BSEE was searching for ways to improve the safety connections between operators, contrctors and their subs.

Director Salerno said the industry is making progress on improving coordination but said it will take time to meet the goal.  He did not elaborate on how the agency may enforce the SEMS rule to speed up that progress.    He also discussed the first round of operator SEMS audits that were completed in November, saying there was a high rate of compliance, but that the results were a “mixed bag” and BSEE is looking at ways to increase the value of the audits in the future.

Read more here and access the video interview here.