backThe worlds attention was drawn abruptly to environmental, health and safety (EHS) systems failure in Outer Continental Shelf (OCS) drilling when the Deepwater Horizon/BP Macondo (Macondo) disaster occurred in April of 2010. Despite the barrage of criticism showered on the former Minerals Management Service (MMS) following Macondo, MMS had already begun to take steps toward improving EHS performance in the OCS a few years before Macondo.
Citing the twin goals of improving regulatory efficiency and minimizing worker injuries, pollution incidents and damage to the marine environment, MMS had issued an advanced notice of proposed rulemaking in May of 2006 and requested comments on how to improve the regulatory approach to safety and environmental management systems (SEMS) for operations conducted in the OCS.[1]
But MMS did not survive to shepherd the final rule into effect.
In October of 2010, MMSs successor agency, the U.S. Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE)[2], published a final rule mandating the implementation of SEMSs for all operators conducting oil and gas and sulphur operations in the OCS.[3]
This final rule made mandatory the American Petroleum Institutes (API) recommended practice for the development and maintenance of offshore drilling SEMS.[4] The recommended practice, first introduced in 2004 and reaffirmed in 2008, provides a framework for OCS owners and operators to formulate policy and objectives concerning significant safety hazards and environmental impacts over which they can control and can be expected to have an influence.[5]
Practitioners familiar with the U.S. Occupational Safety and Health Administrations process safety management rule will find familiar content in the API's recommended practice, along with some equally familiar environmental stewardship principles.[6]
In giving the recommended practice the force of law, BOEMRE explained that allowing operators to implement such systems on a voluntary basis proved ineffective, as the number of operators with SEMS programs in place continued to decline even as finalization of the SEMS rule was pending.[7]
The rule noted that the desultory implementation of voluntary systems had negative effects on worker and environmental safety, pointing to the recent Deepwater Horizon disaster as the inevitable example of why implementation of SEMSs should be mandatory.[8]
Requiring deepwater operators to adopt and operate an SEMS is not surprising standardized management systems in the EHS realm have become commonplace across industries over the last decade. The ISO 14001 environmental management system[9] is the most well-known and widely adopted of management standards on the environmental side, with the more recently developed OSHAS 18001 standardized system[10] available on the health and safety side.
Moreover, homegrown standardized operational management systems have been adopted by all major operators in the oil and gas industry.[11] These systems provide for a highly intensive and deeply integrated set of EHS, and other, standards governing the worldwide operations of those companies.
Some of these systems even delve into the realms of the human factors/human performance improvement approaches utilized in the nuclear and aviation industries, which strive for near total elimination of human error in their safety management systems.[12]
But a recently proposed amendment to the SEMS rule has thrown a fresh complication into the operational aspirations of OCS drillers. As it currently stands, the SEMS rule requires operators SEMS programs to be audited periodically by either an employee within the company, known as designated qualified personnel (DQP), or an independent third-party (I3P) auditor.[13]
However, on Sept. 14, 2011, BOEMRE issued a proposed rule (SEMS II) that would eliminate the option for audits to be conducted internally by a DQP.[14] Instead, SEMS II requires that operators be audited by an I3P only, and imposes stringent requirements on who may qualify as an I3P auditor.[15]
These new requirements, which will likely be adopted, would drastically reduce the pool of potential auditors qualified to audit an SEMS, thus impeding an operators ability to comply with the SEMS auditing requirement.
Comments submitted in response to SEMS II reveal that reducing the already limited number of auditors available is a major concern among operators, contractors and trade associations.
Undercutting the supply of available external auditors, per the commenters, only exacerbates a lack of guidance in the SEMS rule regarding what constitutes an adequate SEMS, what will happen if BSEE (or the U.S. Bureau of Safety and Environmental Enforcement) determines that an operators SEMS is not adequate, what constitutes a proper audit, and what the process is for resolving adverse audit findings to prevent a disruption in an OCS operators authority to continue drilling and production activities.
In addition to the limitation that operators may only be audited by an I3P, SEMS II further narrows the field of available auditors by imposing restrictions on who qualifies as an I3P.
First, the I3P must not be owned, controlled or otherwise affiliated with the operators company. Operators must sign a statement verifying this lack of affiliation.[16]
Further, an auditor who consulted to help design or develop an operators SEMS is automatically disqualified from being permitted to audit that SEMS on the basis of a lack of independence.[17] Finally, after an operator nominates an I3P from this already limited pool of auditors, SEMS II empowers BSEE to reject the operators nomination.[18]
Comments reveal that these proposed auditing requirements are a source of confusion and alarm among operators, trade associations and contractors. Commenters observe that, under SEMS II, the number of qualified I3Ps would be insufficient to meet the SEMS audit demand.[19]
This problem is compounded, since many companies hired the few available I3Ps to develop their current SEMS programs in response to BSEEs initial SEMS rulemaking last year. Further exacerbating this lack of I3Ps is the fact that there are currently no training or accreditation programs for SEMS auditors, so operators will face uncertainty as to whether BSEE will approve their designated I3P in time for a scheduled audit.[20]
Additionally, operators express concerns that, because SEMS IIs requirements disqualify auditors who helped develop an operators SEMS, the individuals that are permitted to audit a particular operator will be necessarily unfamiliar with its SEMS and thus ill equipped to audit it. This would reduce the potential safety and environmental gains sought by SEMS II.[21]
Moreover, SEMS IIs auditing requirements are as vague as they are restrictive. SEMS II provides that once an I3P is approved, BSEE may accept or reject that I3Ps audit report; however, SEMS II does not specify the circumstances under which such a rejection might occur.[22]
Further, if BSEE rejects an audit report, it is unclear how the operator should proceed i.e., whether the operator would be required to obtain a different auditor for submitting a new audit report, and what timetable would apply for resubmitting the audit report in such a situation.
Some operators suggest that BSEE clarify its timetable by only allowing 30 days for BSEE to approve or disapprove an I3P, and allow for extensions of time to nominate another I3P auditor if the I3P does not meet BSEE standards.[23]
Presumably, if such an extension of time were granted, the operator would not be required to cease drilling during that extension. However, at present, issues such as these remain unresolved. Of course, operators do not want to leave these issues to chance, as an abrupt cessation of drilling operations would potentially affect hundreds of millions of dollars in investment.
Given the potential shortage of qualified I3P auditors, BSEE should strongly consider addressing at least two key issues regarding I3P audits before finalizing SEMS II: (1) the uncertainty surrounding how BSEE will evaluate whether an entity is qualified to perform an I3P audit; and (2) how BSEE can ensure that the supply of I3P audit services is sufficient to meet the demand for those services.
A necessary step toward clarifying the first issue would be for BSEE to precisely define the requisite criteria for becoming a qualified I3P. Further, some commenters suggest that BSEE create an I3P certification program that in the long term would reduce uncertainty in the marketplace about whether a given I3P meets BSEEs standards.[24]
Such a certification program would also address the second issue by enabling BSEE to keep an accurate account of whether a sufficient number of qualified I3Ps exist in the marketplace at any given time, which would help prevent a shortage in the supply of I3P audit services.
BSEE may also want to rethink, or at least clarify, its restrictions regarding an I3Ps eligibility to audit an SEMS on which it was previously consulted. While it is clear why an I3P should be prevented from auditing an SEMS that the I3P played a substantial role in developing, the rule, as written, could potentially discourage operators from consulting I3Ps on discrete SEMS issues or questions for fear that such a consultation would disqualify the I3P from auditing that SEMS in the future.
If SEMS II, as written, becomes final, operators will likely face a reduced pool of qualified auditors that will impede their ability to comply with SEMS audit requirements. BSEE should consider specifying criteria or developing programs for I3P qualifications to both rectify the uncertain implications of SEMS II and help alleviate the shortage of qualified auditors.
It seems appropriate for API and member companies to take the initiative on this pivotal issue impacting future exploration and production on the OCS. The SEMS rule is based on APIs own industry standard for the underlying SEMS. Member companies have long adopted these systems and undertaken a variety of internal and external auditing efforts to validate their performance.
This article was originally published as a Law360 guest column on January 26, 2012.[1] Oil and Gas and Sulphur Operations in the Outer Continental Shelf (OCS) - Safety and Environmental Management Systems, 71 Fed. Reg. 29277 (proposed May 22, 2006) (to be codified at 30 C.F.R. pt. 250.106-124.). [2] On October 1, 2011, BOEMRE was replaced by the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) as part of a major reorganization. Bureau of Ocean Energy Management, Regulation and Enforcement, www.boemre.gov/ (last visited Dec. 13, 2011). BOEM is responsible for oil and gas lease sales and offshore renewable energy programs, including environmental reviews, while BSEE provides regulatory oversight focused on operators compliance with environmental regulations. Bureau of Ocean and Energy Management, About BOEM, boem.gov/About-BOEM/index.aspx (last visited Jan. 19, 2012); Bureau of Safety and Environmental Enforcement, About BSEE, bsee.gov/About-BSEE/index.aspx (last visited Jan. 19, 2012). [3] Oil and Gas and Sulphur Operations in the Outer Continental Shelf, 30 C.F.R. 250 (2011). [4] American Petroleum Inst., RECOMMENDED PRACTICE FOR DEVELOPMENT OF A SAFETY AND ENVIRONMENTAL MANAGEMENT PROGRAM FOR OFFSHORE OPERATIONS AND FACILITIES (reaffirmed 2008). [5] Id., at 1. [6] APIs Recommended Practice 75 and OSHAs Process Safety Standards share many features, including sections on hazard analysis, management of change, emergency response, compliance audits, and safety standards. APIs Recommended Practice 75 also includes a section on environmental information. See American Petroleum Inst., RECOMMENDED PRACTICE FOR DEVELOPMENT OF A SAFETY AND ENVIRONMENTAL MANAGEMENT PROGRAM FOR OFFSHORE OPERATIONS AND FACILITIES (reaffirmed 2008); Occupational Safety and Health Administration, PROCESS SAFETY MANAGEMENT (2000). [7] Oil and Gas and Sulphur Operations in the Outer Continental Shelf -- Safety and Environmental Management Systems; Final Rule, 75 Fed. Reg. 63610, 63610-11 (proposed Oct. 15, 2010) (codified at 30 C.F.R. 250). [8] Id., at 63612-13. [9] International Organization for Standardization, ISO 14001 ENVIRONMENTAL MANAGEMENT SYSTEMS - REQUIREMENTS WITH GUIDANCE FOR USE (2d ed. 2004). [10] Occupational Health and Safety Assessment Series, OSHAS 18001 OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT SYSTEMS: REQUIREMENTS (2d ed. 2007). [11] See, e.g., Chevron, Operational Excellence Management System, www.chevron.com/about/operationalexcellence/managementsystem/ (last visited Jan. 20, 2012); ConocoPhillips, Health, Safety and Environmental Policy, Management System and Audits (last visited Jan. 20, 2012); ExxonMobil, Operations Integrity Management System, www.exxonmobil.com/Corporate/safety_ops_oims.aspx (last visited Jan. 20, 2012). [12] See Federal Aviation Administration, FAA SYSTEM HANDBOOK 17-1 - 17-9 (2000); International Atomic Energy Agency, HUMAN PERFORMANCE IMPROVEMENT IN ORGANIZATIONS: POTENTIAL APPLICATION FOR THE NUCLEAR INDUSTRY (2005). [13] Oil and Gas and Sulphur Operations in the Outer Continental Shelf, 30 C.F.R. 250 (2011). [14] Oil and Gas and Sulphur Operations in the Outer Continental Shelf - Revisions to Safety and Environmental Management Systems, 76 Fed. Reg. 56683, 56692 (proposed Sept. 14, 2011) (to be codified at 30 C.F.R. pt. 250). After BOEMREs reorganization into BOEM and BSEE, BSEE will be administering the SEMS program. See David Nedorostek, Offshore Energy Safety Advisory Committee, SEMS II PROPOSED RULE UPDATE (Nov. 8, 2011). [15] Id. [16] Id., at 56693. [17] Id. [18] Id. [19] Shell Exploration & Production Co., Public Comment Number BOEM-2011-0003-0025, Oil and Gas and Sulphur Operations in the Outer Continental Shelf - Revisions to Safety and Environmental Management Systems, 76 Fed. Reg. 56683 (proposed Sept. 14, 2011) (to be codified at 30 C.F.R. pt. 250) (Nov. 11, 2011), www.regulations.gov/#!documentDetail;D=BOEM-2011-0003-0025; Stone Energy Corp., Public Comment Number BOEM-2011-0003-0034, Oil and Gas and Sulphur Operations in the Outer Continental Shelf - Revisions to Safety and Environmental Management Systems, 76 Fed. Reg. 56683 (proposed Sept. 14, 2011) (to be codified at 30 C.F.R. pt. 250) (Nov. 11, 2011), www.regulations.gov/#!documentDetail;D=BOEM-2011-0003-0034. This concern is shared by the vast majority of public comments on SEMS II by operators, contractors, and trade associations. [20] Apache Corp., Public Comment Number BOEM02001-0003-0033, Oil and Gas and Sulphur Operations in the Outer Continental Shelf - Revisions to Safety and Environmental Management Systems, 76 Fed. Reg. 56683 (proposed Sept. 14, 2011) (to be codified at 30 C.F.R. pt. 250) (Nov. 8, 2011), www.regulations.gov/#!documentDetail;D=BOEM-2011-0003-0033. [21] Id. [22] Oil and Gas and Sulphur Operations in the Outer Continental Shelf - Revisions to Safety and Environmental Management Systems, 76 Fed. Reg. 56683, 56693 (proposed Sept. 14, 2011) (to be codified at 30 C.F.R. pt. 250.1926(c)). [23] Alaska Oil and Gas Assoc., Public Comment Number BOEM-2011-0003-0027, Oil and Gas and Sulphur Operations in the Outer Continental Shelf - Revisions to Safety and Environmental Management Systems, 76 Fed. Reg. 56683 (proposed Sept. 14, 2011) (to be codified at 30 C.F.R. pt. 250) (Nov. 15, 2011), www.regulations.gov/#!documentDetail;D=BOEM-2011-0003-0027. [24] ExxonMobil, Public Comment Number BOEM02001-0003-0013, Oil and Gas and Sulphur Operations in the Outer Continental Shelf - Revisions to Safety and Environmental Management Systems, 76 Fed. Reg. 56683 (proposed Sept. 14, 2011) (to be codified at 30 C.F.R. pt. 250) (Nov. 11, 2011), www.regulations.gov/#!documentDetail;D=BOEM-2011-0003-0033; Western States Petroleum Assoc., Public Comment Number BOEM02001-0003-0013, Oil and Gas and Sulphur Operations in the Outer Continental Shelf - Revisions to Safety and Environmental Management Systems, 76 Fed. Reg. 56683 (proposed Sept. 14, 2011) (to be codified at 30 C.F.R. pt. 250) (Nov. 11, 2011).