As you read this column I will be in New Orleans discussing with others the implications of events in the Gulf of Mexico for regulation of the offshore industry and for future contracting strategies.
The focus of press and politicians’ attention has very much been on the risks of deepwater drilling, but there is no bright line in terms of water depth at which risks suddenly increase.
All offshore exploration and production is potentially dangerous and there are many factors which determine exactly how dangerous, including water depth, well depth, reservoir temperature and pressure, the presence of contaminants such as hydrogen sulphide or radioactivity, the nature of the environment including wave height, wind strength, current and ice — the list could go on.
The European Commission’s attention, however, has now focused on the issue of oil and gas safety in the EU. Following an assessment of the offshore safety regime in European waters, the commission published a communication entitled Facing the Challenge of the Safety of Offshore Oil and Gas Activities.
The EU commissioner for energy had previously called for a temporary ban on new deepwater drilling but, interestingly, the commission has not repeated that call.
The commission has stated that any decision to suspend offshore drilling will be left to the discretion of the member states, but calls upon them to rigorously apply a precautionary approach in the licensing of new complex oil and gas explorations until European offshore safety regimes have been fully assessed.
Its own proposals do not single out deepwater drilling but would apply to all offshore activities. The commission has identified six main areas where it considers that action is needed to maintain the safety and environmental credentials of the EU:
Single legislative framework.
Thorough licensing procedures.
Improved uniform controls for offshore operations.
Addressing gaps in liability regimes.
Reinforced EU disaster response.
International co-operation to promote offshore safety and response capabilities worldwide.
But what is the essence of each of these six proposals?
Single legislative framework
The commission notes that offshore safety regulation is largely determined by individual member states, as EU legislation either does not cover relevant areas, or only sets minimum performance requirements.
The fact that legislation differs between member states can complicate the management of health, safety and environmental (HSE) risks across Europe and increases costs for companies. It may also risk slowing down co-ordinated response to accidents affecting several member states as technical standards, data formats and response procedures vary across Europe, and even within the same sea basin.
The commission proposes the development of a coherent legal framework for offshore oil and gas activities in Europe so that European citizens and the environment benefit from EU-wide application of “state-of-the-art practices”, and the offshore industry benefits from the “simplification and levelling of the playing field”.
While consistency across borders is a laudable aim, the concern from a UK perspective is that any legislation which attempted to capture the “state of the art” would inevitably become out of date very quickly.
There is also a risk of developing a “tick-box” approach to safety, which was found sadly wanting in the UK by Lord Cullen in his report following the Piper Alpha disaster, in which he recommended the “goal oriented” approach which now underlies UK health and safety legislation.
This approach requires operators to assess all risks of operations and to mitigate those risks in an appropriate way but does not specify how this should be done, thus enabling operators to adopt new technologies rapidly and to deal with the particular circumstances of each operation.
EU requirements for licensing
Existing EU legislation on licensing deals only with competitive aspects of licensing procedures so as to ensure equal access to national bidding rounds for EU bidders.
The commission argues that licensing procedures in all member states should reflect recognised best practices, and include certain minimum criteria including:
Presentation of a full “safety case” and associated health and safety documentation for each operation.
Demonstration of the technical capacity of prospective operators to take appropriate measures to prevent and respond to critical events.
Financial capability to handle the consequences of unforeseen events.
The commission aims to submit its proposals in this area next year. On the face of it, it seems likely that existing UK procedures would already meet these standards but we will need to wait to assess the detail.
Uniform criteria for offshore operations
The commission recognises that, as member states transpose minimum requirements from EU health and safety directives to national legislation, variations will occur, compromising the integrity of safety measures, increasing costs for the industry and hampering the function of the internal market.
It says that to guarantee maximum safety and a level playing field, the requirements should be uniform, comply with the state of the art in the sector and must be rigorously enforced. It therefore proposes to:
Critically assess current regulations and practices for well design and control, in co-operation with national authorities.
Encourage the development of necessary technical standards.
Assess ways to strengthen environmental legislation in relation to pollution-control, inspection, accident prevention and management of individual installations.
Review the health and safety framework in light of the Gulf of Mexico investigations, including rules on minimum protection of workers.
Define state-of-the-art practices to be applied by the regulatory and supervisory authorities in offshore licensing, inspections and compliance monitoring.
Establish a voluntary consultation/reporting mechanism on licensing of complex offshore operations.
Provide the public with easy access to continuously updated information.
Provide a framework for independent evaluation of performance national regulators.
The UK is probably the most developed in Europe in this regard for the offshore sector but again we will need to wait to see what further details emerge.
In terms of liability for environmental damage, the commission advises that it will submit proposals to amend the Environmental Liability Directive to cover environmental damage to all marine waters, and reconsider introducing a requirement for mandatory financial security.
The commission will also provide guidance as to the applicability of the Waste Framework Directive to oil spills and examine the feasibility of extending EU product-safety legislation to include equipment installed and used on drilling rigs.
The UKCS already has a system for security through OPOL, which has recently been increased and is under further review through OSPRAG. It is to be hoped that any security requirements at European level take account of this.
Reinforced EU disaster response
The commission states that work is under way to further strengthen the overall EU disaster prevention and response capacity. Later this year, it is scheduled to present a communication aimed at bringing the wealth of expertise and resources together into a strengthened EU disaster-response system.
The commission wants the industry to make further quantifiable and far-reaching commitments to adopt an uncompromising safety-first culture. The industry should work in partnership with public authorities on new emergency-response tools, which will be deployable in all marine environments in Europe.
The commission calls on the industry to initiate the creation of a consortium to develop and establish facilities in Europe for a first rapid response in the event of accidents, and to develop tools for emergency well control. Through OSPRAG, the UK has already taken steps towards developing such tools.
The commission believes that the EU is well placed to take a key role in international efforts to strengthen existing rules globally. It aims to combine efforts with its international partners (for example, the US, Norway, Russia, Opec member states) to initiate a global initiative for offshore safety.
It is entitled to propose the legislative changes and initiatives set out in its communication. Whether these changes are eventually given the force of law will depend on the European Council, which is made up of the ministers of member states.
Many of the proposals reflect the good practice that already exists in the UKCS, and the UK government is keenly aware of the impact that certain other proposals might have for the effectiveness of the existing regime. We will need to wait and see.
Penelope Warne is head of energy at international law firm CMS Cameron McKenna
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