November 21, 2011 Articles

Compliance Issues on the OCS Post-Macondo

The 2010 Gulf oil spill has generated an extraordinary body of new environmental regulations aimed at overseeing offshore drilling.

By Anthony C. Marino – November 21, 2011

In the aftermath of the explosion on the Deepwater Horizon on April 20, 2010, which killed 11 workers, the U.S. government has become more vocally and visibly involved in regulating the oil and gas industry. The Macondo incident continues to generate new permitting requirements, enhanced financial spill obligations for operators, and an extraordinary body of new environmental regulations aimed at overseeing offshore drilling.

New to the pre-Macondo world has been the issuance of numerous notices to lessees (NTL), introducing new regulations. The Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE) (formerly the Mineral Management Services, or MMS) has used these NTLs to set out new requirements requiring reexamination of the environmental assessment procedure and archaeological mitigation requirements. Other requirements set out changes in the methodology for calculating worse case discharges  and require CEOs of operating companies to issue certifications of compliance and BOEMRE approval of Oil Spill Financial Response (OSFR) plans prior to issuing applications for permits to drill.

Other regulations came in the form of interim safety measures rules that affect blow-out preventers (BOP), cementing requirements, and well-control equipment. Equally troubling were final regulations issued by the BOEMRE on October 15, 2010, requiring operators to develop and implement Safety and Environmental Management Systems (SEMS) for oil and gas and sulphur operations on the Outer Continental Shelf by November 15, 2011.

On October 21, 2011, the Bureau of Safety and Environmental Enforcement (BSEE) issued NTL No. 2011-N09, in an attempt to (1) clarify the policy, procedures, and requirements for OCS lessees and operators required for implementing the SEMS Programs for OCS Oil, and (2) “describe the anticipated interactions between BSEE personnel and the operator community.”

Background 
On October 15, 2010, BOEMRE published final requiring operators to develop and implement SEMS for oil and gas and sulfur operations on the outer continental shelf. The rule, which took effect on November 15, 2010, requires an operator (a lessee, the owner or holder of operating rights, or the designated operator) to integrate a comprehensive SEMS program into the management of their OCS operations by November 15, 2011.Thefinal rule’s intent was to provide a regulatory mechanism for the Bureau to hold operators accountable for the overall safety of offshore facility, including ensuring that all contractors and subcontractors adopt safety policies and procedures that (1) support implementation of the operator’s SEMS program, and (2) are consistent with the principles of managing safety delineated in API RP 75. The rule requires operators to develop, implement, and maintain a safety and environmental management system program that satisfies the requirements of the rules and to have those programs in effect on or before November 15, 2011.

What Is a SEMS Program?
Under the regulations, a SEMS program has 13 elements: general requirements; safety and environmental information; hazards analysis; management of change; operating procedures; safe work practices; training; assurance of quality and mechanical integrity of critical equipment; pre-start-up review; emergency response and control; investigation of incidents; audit of SEMS elements; and record keeping and documentation.

Industry Response
On October 1, 2011, the Department of the Interior announced two new independent agencies, the BSEE and the Bureau of Ocean Energy Management (BOEM), charged with overseeing the offshore energy management and safety and environmental duties now under the jurisdiction of the BOEMRE. Compliance with the new regulatory requirements has become more difficult after the reorganization of the MMS into the BOEM and the BSEE. Prior to the issuance of October 21, 2011, the BOEM had not been approving OSFR plans and no fines had been issued by either the BOEM or the Environmental Protection Agency. Operators had been in the awkward position of having to use alternative self-certification procedures that can only be used for two years. Exactly what this meant for operators was and remains a question industry cannot answer.

News from the BSEE 
On October 21, 2011, the BSEE issued NTL No. 2011-N09 to clarify the policies, procedures, and requirements for OCS lessees and operators as included in 30 CFR § 250, Subpart S. Many important questions remain unanswered or not addressed. In its earlier pronouncements, the BOEM stated that it would not grant extensions for operators who cannot make the deadline. Moreover, an operator that does not meet the deadline for program implementation may be required to shut in such facilities, but the BOEM will consider these on a case-by-case basis.  The BOEM also stated that contractor safety reviews must be complete by November 15, 2011, and a suspension of production (SOP) will not be granted to permit an operator time to implement its program. Equally troubling is the BOEM’s position that a SEM is needed for platforms with or without processing equipment and with no current or future production planned, and a hazards analysis (HA) must be conducted on older shelf properties that have never had such assessments within the same one-year period. Among the issues that the October 21, 2001, NTL purports to address are the following.

SEMS Program
Those entities that must have a SEMS program include a lessee, the owner or holder of operating rights, a. designated operator or agent of the lessee(s), a pipeline right-of-way holder, or a state lessee granted a right-of-use and easement. 30 CFR 250.105.

The regulation does not require a contractor or subcontractor performing work for an owner or a holder of operating rights, a designated operator or agent of the lessee(s), a pipeline R-O-W holder or a state lessee granted an R-U-E to have a SEMS. 30 CFR 250.1900.

Environmental Information
As required in 30 CFR 250.1910, a SEMS program must include environmental information, in accordance with API-RP 75 1.1.1 (American Petroleum Institute Recommended Practice incorporated by reference at 30 CFR. 198(e)(80)), including the policies and objectives of a contractor or subcontractor performing work for an owner or a holder of operating rights, a designated operator or agent of the lessee(s), a pipeline R-O-W holder or a state lessee granted an R-U-E concerning environmental impacts over which such parties have control and can be expected to have influence.

Such parties must review environmental requirements aimed at preventing environmental impacts as set forth in BSEE regulations, clarifying NTLs, or applied through lease stipulations, mitigations, or conditions of approval. In addition, relevant environmental requirements must be addressed throughout all phases of the SEMS program, including planning, implementation, and operation; verification and corrective actions; management review; and continual improvement. Environmental resources that must be considered in a SEMS program include, but are not limited to, water quality; air quality; biological resources, including protected species, chernosynthetic, and benthic communities; and archaeological and cultural resources.

Hazards Analysis
Pursuant to 30 CFR 250.1911(a), an initial HA must be conducted on all facilities by November 15, 2011. An existing HA can be used by an operator only if it is accurate, current, and reflects the current level of operational complexity on the facility. If an existing HA is not up-to-date, a new HA must be developed for all company facilities in accordance with 30 CFR 250.1911. If piping and instrument diagrams are used as part of the HA, the diagrams must accurately reflect the facility's layout and operation. The results of the initial HA need to be used in creating the SEMS program. No extensions will be granted to implement a SEMS program later than November 15, 2011.

Job Safety Analysis
Under 30 CFA 250.1911(b), a job safety analysis (JSA) must be developed and implemented for all activities discussed in a company’s SEMS program. The operator should define a JSA format that is suitable for the extent, scope, and depth of its operations. Multiple JSA formats within a company are allowed for use in addressing different OCS operations (e.g., drilling, production, pipeline, lifting, construction) or on different types of facilities as defined in an operator's SEMS program.

The supervisor of the person in charge of a task must approve a JSA prior to the commencement of work. 250.1911(b)(3).

Management of Change
Written management of change procedures (MOC) are required for personnel changes including those of contractors. 30 CFR 250.1912(a)(3). Personnel changes that would trigger a MOC include, but are not limited to, company mergers and acquisitions, substitution of personnel (replacements), changes in company management, and personnel vacancies (hiring). No MOC is required for a tour rotation (i.e., 12-hour crew rotation) or shift rotation (e.g., 7, 14, or 21-day change-out of crews).

Under 30 CFR 250.1912(b), a MOC for situations involving a replacement in kind of components with the same performance capabilities is not required. However, a MOC would be required if the replaced parts are not the same as those provided by the original equipment manufacturer (OEM). A MOC will also need to be conducted if the replaced parts have performance capabilities exceeding those of the OEM.

Operating Procedures 
Development and implementation of written operating procedures for the “initial startup”of a facility is required under 30 CFR 250.1913(1)(a). The term “initial startup" includes not only when a facility is first brought online, but also the startup of that facility after it has been shut down temporarily for emergency, maintenance, or other reasons. Operating procedures must be accessible to all employees involved in suchoperation. Employees involved in a particular operation must have the ability to review and use a set of operating procedures specific to the particular job or activity they will be involved in. This requirement does not call for these employees to have access to all of the operating procedures in use on a particular facility.

Safe Work Practices and Contractor Selection Criteria
30 CFR 250.1914 requires an operator to document contractor selection criteria. To accomplish this, an operator needs to evaluate information related to a contractor's safety performance. Information that can be used by the operator for this evaluation includes, but is not limited to, verification of (1) a contractor's safety record, (2) contract personnel training and activities, and (3) contractor-conducted (internal or external) audit(s) of their safe work practices and/or safety program.

30 CFR 250.1914 requires an operator to ensure their contractors have their own written safe work practices. Such documentation needs to be available to BSEE during a BSEE-conducted evaluation of the operator's SEMS program. Documentation showing that this has been accomplished includes, but is not limited to, an operator-conducted pre-work audit of their contractors’ safe work practices or an operator-conducted evaluation of their contractors' focus on their safe work practices. A copy of all contractors' safe work practices must be made available to BSEE in either paper or electronic format. Also the operator and contractor must document their agreement concerning use of appropriate contractor safety and environmental policies and procedures before the contractor begins work at the facility. This agreement may be requested by BSEE during a BSEE-conducted evaluation. A signed letter between the two parties is acceptable to BSEE.

Under 30 CFR 250.1914(b), an operator is required to document that each contractor working for such operator is knowledgeable and experienced in the work practices it will be performing. This documentation needs to be available to BSEE during a BSEE-conducted evaluation of the SEMS program. BSEE does not specify a format for preparing this documentation. Acceptable verification procedures include, but are not limited to, options listed in the regulation.

Under 30 CFR 250.1914(e), the operator is required to perform “periodicevaluations” of the performance of contract employees to verify they are fulfilling their obligations. These periodic evaluations may include the verification techniques listed above in relation to complying with 30 CFR 250.1914(b), or they may employ other operator-conducted methods of verification. These periodic evaluations must be available to BSEE during an agency audit of the SEMS program.

In accordance with 30 CFR 250.1914(f), the operator must inform its contractors of any known hazards on the facility requiring work. The regulation sets out methods by which the operator may achieve this, and such method must be documented and the relevant documentation made available to BSEE upon request. An operator may adopt or incorporate sections of a contractor's safety policies and procedures into its SEMS program if the program meets the requirements of this rule and meets the operator’s expectations of the SEMS program.

Training
In accordance with 30 CFR 250.1915 and API RP 75, Section 7, an operator's SEMS program is required to assure all personnel have the necessary skills to work safely in accordance with their duties and responsibilities, including operating procedures, safe work practices, and emergency response and control measures. Personnel means "direct employees of the operator and contract workers." SEMS training requirements are in addition to those included in Subpart O. Subpart O requirements are specific to well control and production safety activities. The training requirements in a SEMS program will normally exceed those included in Subpart O because they apply to all personnel and all activities, not just well control and production safety activities. As of November 15, 2011, any audit of training-related activities conducted by BSEE, including provisions under Subpart O (such as tests, interviews, and audits), will be implemented under the authority of Subpart S, 30 CFR 250.1900, and will be treated as a SEMS evaluation.

Under 30 CFR 250.1915, the operator must document training instructors’ qualifications.

Mechanical Integrity
Under 30 CFR 250.1916(d) and API RP 75, Section 86an operator must document the inspection and testing of all equipment and systems. The documentation must include, among other things, the date of the inspection or test and the name, position, and signature of the person who performed the inspection or test. This documentation must be available to BSEE if requested during an inspection, evaluation, or audit.

Operator-Conducted SEMS Audits
In accordance with 30 CFR 250.1920(a), an operator’s independent third party or designated and qualified personnel must conduct an audit of its SEMS program within two years of the initial implementation of such program and once every three years thereafter.

This audit contains two distinct parts: (1) a comprehensive evaluation of all 13 elements of the program for compliance with Subpart S and API RP 75, and (2) a field evaluation of at least 15 percent of the operator’s facilities in accordance with API RP 75, Section 12.3. During each audit, at least 15 percent of the facilities operated (with a minimum of one facility) must be audited. If the operator’s offshore operations consist of only one facility, such facility will be audited every three years. The audited facilities should be representative of operator’s offshore operation and/or the types of operations conducted on such facilities. In accordance with 30 CFR 250.1920(b)(4), BSEE has authority to change the list of facilities proposed for audit if the agency believes that the sample does not adequately represent the scope of operator’s OCS operations.

The operator’s written audit plan must be submitted to BSEE at least 30 days in advance of audit by either an independent third-party auditor or by designated and qualified personnel. The contents of such an audit plan should comply with the provisions included in API. RP 75, Section 12A, and must be submitted to the national SEMS coordinator for the Office of Offshore Regulatory Programs (OORP). The list of facilities proposed for audit can be revised if weather-related problem(s), operational issues, safety concerns, or other circumstances so require.

After completion of the audit, the independent third-party auditor or by designated and qualified personnel is required to file an audit report to BSEE within three days of completing the audit in accordance with 30 CFR 250.1920(c), outlining the results of the audit. If the independent third-party auditor or by designated and qualified personnel finds deficiencies as part of its audit, operators are required to submit to BSEE within 36 days of completing the audit a copy of a corrective action plan(CAP) addressing each deficiency in accordance with 30 CFR 250‘1920(d).

BSEE Evaluations of Operator’s SEMS Program
To determine SEMS program compliance with 30 CFR 250.1924(b)(5), BSEE may review documents including, but not limited to, documentation of contractors, independent third-party auditor or by designated and qualified personnel qualifications, training instructor qualifications, HA records, JSA verifications, training records, evidence of SEMS implementation, and/or SEMS policies and procedures associated with company or company’s contractors' implementation of company’s SEMS program

BSEE evaluations will begin on or after November 15, 2011. These BSEE evaluations may be conducted in an operator's office, on an operator's facility, on a mobile offshore drilling unit (MODU) under contract by an operator, at both an office location and an operator's facility, or on a MODU. A BSEE evaluation may address all elements of the operator's SEMS program, focus on a single element, or concentrate on more than one element of a SEMS program (partial evaluation). An evaluation should not be confused with aninspection performed by BSEE for the purpose of gauging compliance with regulations. A SEMS evaluation will not be used in lieu of a prescriptive inspection.

Evaluations may be conducted by BSEE on either an announced or an unannounced basis. Should BSEE decide to conduct an announced evaluation of your SEMS program, a notification letter will be sent at least 30 days in advance of the evaluation. This letter will identify the time and location of the audit, who from BSEE will be participating, the scope of the audit, and a request for operator to provide BSEE with a copy of its SEMS program. After completion of a BSEE-conducted complete or partial audit (announced or unannounced), BSEE audit report will issue an audit response within 30 days. If BSEE has identified any deficiencies as part of the audit, an incident of noncompliance (INC) will be issued as part of the BSEE audit report. Each INC will specify a date by which the correction needs to be made. Depending on the seriousness, complexity, and scope of the INC, form BSEE-1832 requires correction of the identified deficiency within 14 days or some other period of time as specified by BSEE.

Critical Equipment
The operator is responsible for identifying critical equipmentand systems on SEMS covered facilities and operations as described at 30 CFR 250.1911. The determination concerning which piece of equipment or systemshould be deemed critical may vary from operator to operator and from facility to facility.

Identification of Operator's SEMS Contact
Operators must provide BSEE with a primary and an alternative SEMS contact. These individuals will be contacted by BSEE for all issues and concerns within operator’s company on Subpart S. Such information should be provided to the national SEMS coordinator by November 15, 2011.

Keywords: Macondo, Deepwater Horizon, SEMS, job safety


Anthony C. Marino is a shareholder in Slattery, Marino & Roberts in New Orleans, Louisiana.



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