House of Commons - UK Deepwater Drilling - Implications of the Gulf of Mexico Oil Spill

UK Deepwater Drilling - Implications of the Gulf of Mexico Oil Spill - Energy and Climate Change Contents

3 Offshore Regulation

16. In the Annual Energy Statement to Parliament on 27 July 2010, Rt Hon Chris Huhne MP, DECC's Secretary of State, announced that the UK would, "undertake a full review of the oil and gas environmental regulatory regime" following the outcome of investigations into the causes of the Gulf of Mexico incident.[18] This was a re-announcement of plans released originally on 8 June 2010, by which date a review by DECC officials had already found the UK's existing regulatory regime "fit for purpose".[19] Mr Webb, of the industry-body Oil and Gas UK, told us: "possible [regulatory] enhancements are relatively marginal in nature",[20] and "[UK regulations mitigate] strongly against the likelihood of anything like Macondo ever happening here".[21]

UK Offshore Regulatory Regime

17. Charles Hendry MP, Minister of State for DECC, told us: "the regime we have in place in the North Sea is one of the most robust in the world".[22] The offshore safety regime was revised following the Cullen Inquiry into the 1988 Piper Alpha disaster, leading to a tripartite arrangement for offshore regulation. Mr King, Managing Director of Transocean's North Sea Division, told us: "If I look at the conditions I worked under offshore in 1975 and compare that to the way we operate today [since the Cullen Inquiry], there is no comparison whatsoever".[23] Total's Mr Festor added: "I came back [after] 30 years [...] and I discovered that here in the UKCS—before Piper Alpha and after Piper Alpha—it's another world".[24]

18. Mr Webb told us: "[The Cullen Report into Piper Alpha] called for the revision of responsibilities between the licensing regulation and safety regulation, and it was from that that the whole concept of the safety case came and the whole concept of independent verification and inspection".[25] The Health and Safety Executive (HSE), an executive non-departmental public body of the Department for Work and Pensions, has responsibility for assessing and regulating the integrity and safety of offshore installations in the UK. DECC's Energy Development Unit is responsible for licensing and regulating UK oil and gas activities, including environmental regulation, and the approval of Oil Pollution Emergency Plans (OPEPs).[26] The Maritime and Coastguard Agency (MCA), an executive agency of the Department for Transport, is responsible for deploying counter pollution measures during an oil spill. The US Minerals Management Service (MMS) that oversaw both regulation and licensing of offshore drilling during the Deepwater Horizon incident has since been split into separate agencies, reflecting the changes that took place in the UK after the Piper Alpha incident.[27]

19. The HSE requires that all operations have detailed safety cases on potential dangers, their consequences, and the methods of controlling any risks. The overall responsibility for safety on an installation falls to the Safety Case Duty Holder who appoints an Offshore Installations Manager (OIM) to discharge this responsibility. In the case of mobile drilling rigs, the duty holder is the drilling contractor (for example, Transocean in the Deepwater Horizon incident). Mr Walker, Head of the HSE's Offshore Safety Division, told us: "Before an operator brings a drilling rig into the UK or operates a fixed platform, they have to prepare a safety case for the Health and Safety Executive to approve".[28]

20. The Operator, or Licence Holder (for example, BP in the Deepwater Horizon incident), is subject to separate and additional verification requirements under the Design and Construction Regulations in the form of well examinations carried out by an independent and competent person (ICP). All parties involved have legal duties to cooperate with both the OIM and the well Operator when the well is under construction. The Safety Case Duty Holder and the well Operator must demonstrate how their safety management systems will operate together, who has primacy in an emergency, and who has overall responsibility.

21. The UK's goal-setting safety regulations allow a flexible approach in the choice of technology and systems to meet safety standards. Oil and Gas UK, the industry association, described the goal-setting regime to us:

The UK's goal-setting safety regime requires a systematic approach to the identification of hazards and through the application of quality engineered solutions and systems ensures that risks are reduced to as low as reasonably practicable (ALARP).[29]

This is in contrast to the prescriptive regulatory regime that the Deepwater Horizon operated under in the United States.[30] A prescriptive regime has specific obligations on the types of equipment required and the degree to which a risk has to be mitigated.

22. In the light of recent drilling activity in the waters around the Falkland Islands, we asked witnesses from OSPRAG and Oil and Gas UK whether the UK regulatory regime applied to drilling in that area. There was a lack of clarity over responsibility for drilling and oil response in the Falkland Islands. We recommend that the Government clarify what regulatory regimes apply to drilling and oil spill response in the Falkland Islands and who is responsible for enforcing them.

US and UK Offshore Regulations

23. The industry association Oil and Gas UK pointed out the different basin characteristics between the Gulf of Mexico and the UK Continental Shelf, and the way in which the UK regulatory safety case regime is more advanced than in the US. They also highlighted the following differences in regulation between the US and the UK:

in the UK the safety and licensing aspects are handled by two separate regulatory bodies, the HSE and DECC respectively—by contrast, until the Deepwater Horizon incident, both safety and licensing fell under the remit of the US Minerals Management Service, MMS;
design of all UKCS wells requires clearance by an independent competent person (ICP) who is contracted and paid for by the oil and gas exploration company; and
the safety case—required for all UK installations and introduced following the recommendations of the Cullen Report into the 1998 Piper Alpha disaster.

24. DECC gave evidence that since drilling began on the UKCS in 1964, over 10,000 wells have been drilled, and "although there have been a small number of incidents [...] there has not been an oil blow-out [as opposed to a gas-blowout] or any significant spillage of oil directly resulting from drilling operations".[31]

25. Mr Steve Walker, Head of HSE's Offshore Safety Division (OSD), told us: "we have a more sophisticated inspection regime [compared to the US] because we have a performance-based legislation [...] we have a different safety culture compared to the safety culture that applied in the Gulf of Mexico".[32]

Environmental Regulation and Inspection

26. DECC's Energy Development Unit is responsible for licensing and regulating UK oil and gas activities, developing the environmental regulatory framework for the UK Continental Shelf (UKCS), and for administering and ensuring compliance with that regime in relation to offshore oil and gas exploration and production and decommissioning, including the approval of facility-specific Oil Pollution Emergency Plans (OPEPs). The Minister told us: "[DECC inspectors] are looking at the environmental implications [...] during the drilling process [whereas] The HSE are responsible for every aspect of safety on those operations for the whole of their lifetime".[33]

27. Among the interim steps taken in the UK since the Deepwater Horizon incident, DECC doubled the number of annual environmental inspections to drilling rigs, and recruited three additional inspectors. This brought the total number of inspectors to ten (including one senior inspector). Given DECC's less extensive areas of responsibility compared to the HSE, it and its predecessor Departments have all operated with fewer inspectors than the HSE—the HSE Offshore Division has 114.5 specialist inspectors, while DECC has ten environmental inspectors.[34] DECC inspectors visit offshore installations and onshore offices to inspect records and management systems, as well as interviewing people and observing site conditions, standards and practices. DECC told us that the increased number of inspectors will allow "DECC to double the number of environmental inspections carried out on mobile drilling rigs in the UKCS from an average of eight to at least sixteen on annual basis with immediate effect".[35] The Minister referred to the movement of inspectors between the public and private sectors.[36] This may make it difficult for DECC to recruit and maintain high-quality inspectors in the future.

28. DECC's Offshore Inspectorate describe their environmental inspection strategy as "risk based".[37] Of the rigs currently undertaking drilling activities (approximately 24 according to DECC), about 20% are on gas reservoirs, which DECC say "inherently pose less of a potential risk to the environment compared with those working on oil reservoirs".[38] Taking this into account, along with the location of the rig and the nature of the well, DECC targets inspections on rigs undertaking drilling activity on specific oil reservoirs.

29. We heard from oil and gas industry representatives that they were not aware of anyone on their boards who had a background in environmental consultancy.[39] Given the potential environmental impacts—and the large associated costs—that we have seen in the Gulf of Mexico as a result of an offshore incident, we are surprised that companies have not seen fit to include such expertise on their boards.

30. Oil company boards lack members with environmental experience. The industry should take steps to remedy this and the Government should encourage them to do so.

EMERGENCY RESPONSE

31. Oil Pollution Emergency Plans (OPEPs) set out the arrangements for responding to oil spill incidents that have the potential to cause marine pollution. They aim to prevent such pollution and reduce or minimise its effects should it occur. OPEPs are risk assessments that are relevant to a specific field or installation. The plans focus on the worst-case scenario; following the Gulf of Mexico incident, UK operators are now required to carry out additional modelling for deepwater drilling installations, including an extended assessment of oil spill beaching predictions. The plans are also reviewed by Maritime Coastguard Agency and relevant consultees, such as the Marine Management Organisation (or relevant devolved authority), the Joint Nature Conservation Committee and the relevant inshore statutory body.

Changes since Macondo

32. We asked witnesses how they had changed their methods of operation in UK deepwaters since the incident in the Gulf of Mexico. Mr Cohagan of Chevron told us: "I don't believe that we have fundamentally changed in any way [since the Deepwater Horizon incident]".[40] This was owing to the strong regulatory regime that was a legacy of the Cullen Inquiry into the Piper Alpha incident. With regard to making any regulatory changes in response to the Deepwater Horizon tragedy Mr Webb was wary of "making global and universal changes that may not be appropriate from situation to situation [...] the kernel of what we have in the safety case regime, is, on a case-by-case basis, the expertise within the industry [...] the independent verifier, and then [...] the regulator".[41]

33. There is a sense that the industry seems to be responding to disasters after they have happened rather than anticipating and planning for high-consequence, low probability events. Dr Hayward agreed that "there is no doubt that the inability of BP and the industry to intervene because it wasn't properly prepared was unacceptable".[42] He went on to observe that "the occurrence of black swans [high-impact, low-probability events] seems to be more often than not these days".[43] Mr McAllister admitted that "as an industry, if we can do something better, it is to make sure that we do not take maybe such an introverted view of our operations".[44]

34. We conclude that the UK has high offshore regulatory standards, as exemplified by the Safety Case Regime that was set up in response to the Piper Alpha tragedy in 1998. The UK regulatory framework is based on flexible, goal-setting principles that are superior to those under which the Deepwater Horizon operated.

35. Nevertheless, despite the high regulatory standards in the UK we are concerned that the offshore oil and gas industry is responding to disasters, rather than anticipating worst-case scenarios and planning for high-consequence, low-probability events.

AUTHORITY TO STOP OPERATIONS OFFSHORE

36. We were told from both the regulator and industry that there were people on offshore installations who—at all times—have the authority to close off the well.[45] Mr Walker told us: "there will be a bridging document between the rig owner's systems and the well operator's systems to make sure that issues such as who has the final say [...] [are] well and truly agreed before you start the operation".[46] The HSE told us that there will always be one person who is ultimately responsible for safety on the rig, and that is the Offshore Installations Manager (OIM), who is usually the drilling contractor.

37. There are enormous financial costs of halting or delaying drilling operations, even for short periods. In the case of the Deepwater Horizon, BP aimed for the drilling of the Macondo well to take 51 days, at an estimated cost of $96 million. It was expected that the drilling platform would be leaving as early as 8 March 2010, but the Macondo well took longer to complete than anticipated. By 20 April—the day of the blowout that killed 11 workers—the rig was 43 days late, which would have cost an extra $21 million in lease fees alone.[47] There is a risk that those responsible for taking decisions to halt operations could feel commercial pressure not to do so if at all possible.

38. It is imperative that there is someone offshore who has the authority to bring a halt to drilling operations at any time, without recourse to onshore management. We urge the Government to seek assurances from industry that the prime duty of the people with whom this responsibility rests is the safety of personnel and the protection of the environment.

CATASTROPHIC FAILURE OF THE BOP

39. The last line of defence against a blowout of the Macondo well was a device called the "blind shear ram", part of the blowout prevent (BOP) stack located on top of the wellhead, over a mile below the surface on the ocean floor. If the upward pressure from the oil and gas in the reservoir overcame the downward pressure of the heavy drilling fluid - and all other recourses to control the well failed - the blind shear ram's two blades, or "pinchers" as they are sometimes referred to, were supposed to slice through the drill pipe and seal the well. The importance of the BOP was highlighted by Dr Hayward who told us "If it [the BOP] had functioned as designed, there would not have been the [Deepwater Horizon] accident".[48]

40. The blind shear ram is described as the "ultimate fail-safe device". The Deepwater Horizon had a single blind shear ram located inside the 15.5m tall BOP stack at the wellhead on the seafloor. An April 2000 report Risk Assessment of the Deepwater Horizon BOP Control System carried out by EQE International for Cameron Controls Corporation (the manufacturer of the BOP for Transocean, owner of the rig) concluded that:

The major contributor to the failure likelihood associated with the BOP control system results from the selected stack configuration. With only one shear ram capable of sealing the well in, it is extremely difficult to remove all the single failure points from the control system. The final shuttle valve, which supplies the hydraulics to the blind shear ram, represents such a single point failure [...] and accounts for 56% of the failure likelihood of the system to perform an EDS (Emergency Disconnect Sequence).[49]

41. A further concern is that with a single blind shear ram, there is a risk it could close on one of the extremely strong joints that connect the sections of drilling pipe, and be unable to collapse it. Such a risk is mitigated by the use of two blind shear rams. Deepwater Horizon's single blind shear ram malfunctioned and never fully closed.

42. Despite the fact that the BOP on the Deepwater Horizon had only a single blind shear ram, Dr Hayward told us that: "The blowout preventer that you are referring to was fully compliant with the [US] regulatory regime and it should have functioned".[50] Mr Bernard Looney of BP North Sea told us: "We operate at the moment two mobile drilling units in the North Sea. They have one blind shear ram".[51] However, Mr Looney went on to explain that as a result of the Macondo incident they were now bringing an independent third party on to each rig to ensure that the BOP had not been compromised and was operating as it was designed to.[52]

43. In the UK, the BOP has to be tested every 14 days.[53] As to whether a drilling rig in the UK could operate with the same BOP setup as the Deepwater Horizon, Mr Walker, head of the HSE Offshore Safety Division, told us "we would have asked the well operator [...] 'why have you chosen that design? Why have you chosen, say, only one [blind shear] ram or two rams' [...] we would then assess their answers".[54]

44. Mr Cohagan, Managing Director of Chevron UK, told us that adding an extra blind shear ram to existing BOPs would be a difficult job, as they can be up to three storeys tall and extremely heavy.[55] Mr Cheshire added "if it's not the appropriate piece of equipment for the specific well [...] you are taking more [health and safety] risks with individuals handling these at the surface".[56]

45. Given that the failure of the single blind-shear ram to fire on the Deepwater Horizon's blowout preventer seems to have been one of the main causes of the blowout of the Macondo well, we recommend that the Health and Safety Executive specifically examine the case for prescribing that blowout preventers on the UK Continental Shelf are equipped with two blind shear rams.

46. At an advanced stage in the inquiry it came to our attention that an incident had occurred on a Transocean platform on 23 December 2009. The Sedco 711 platform was being operated for Shell in the North Sea Bardolino Field. According to Tom Fielden of the BBC:

[...] key indicators that something was going badly wrong were either misinterpreted or discounted [...] A major spill was averted only when the BOP, or blowout preventer, was activated capping-off the well on the sea floor.[57]

47. Once this incident was brought to the public attention, Shell issued a statement on the incident that had been updated from 18 August 2010. Shell said, "the well was successfully closed using the BOP [...] Three barrels of oil-based drilling mud were released into the sea, no people were injured and there was no loss of asset integrity".[58] Shell pointed out that the well involved "differs from the Gulf of Mexico in that it is not in deepwater and it is not a high pressure well".[59] In evidence originally submitted to us by Transocean, the only reference to the Sedco platform was that it was now operating West of Ireland rather than on the UKCS.[60]

48. We asked Transocean and the HSE to provide further information on the nature of the incident that took place on 23 December 2009. Transocean noted that the Sedco 711 incident was a "matter of public record" and that they had "reported the incident to the HSE [...] on 24 December".[61] Regarding reports that there was "not enough heavy mud available to pump back down into the well" to control it,[62] Transocean explained that:

The mud displaced from the hole after the blowout preventer was closed was contaminated with hydrocarbons [oil and gas] and not suitable to pump back in the hole. As a result, good mud needed to be brought back onboard from a supply vessel.[63]

49. However, given that there will always be a risk that drilling mud could become contaminated with hydrocarbons during a loss-of-well-control event, it is not clear why Transocean did not have sufficient ingredients for kill-weight mud on the platform. According to the oilfield services provider Schlumberger: "Kill-weight mud, when needed, must be available quickly to avoid loss of control of the well or a blowout".[64] We see this as yet another example of the offshore industry not planning for high-impact, low probability events. The HSE told us:

There is no specific prescriptive requirement to have mud of the required density that could kill the well onboard a drilling installation at all times [...] It is therefore good industry practice to have sufficient weighting agents onboard the installation that can raise the mud's density to kill the well if required.[65]

50. However, the HSE stated that the "performance of the crew prior to the incident was not satisfactory" and "problems caused by not having sufficient mud at the correct mud weight available should have been foreseeable, planned for and dealt with better by the offshore and onshore management".[66] In light of the Sedco 711 event Shell and Transocean implemented "corrective actions" that the HSE told us "addressed the shortcomings that led to this incident".[67]

51. The UK's goal-setting safety regulations allow a flexible approach in the choice of technology and systems to meet safety standards. However, evidence to us from the Institute of Mechanical Engineers told us: "the safety regimes have focused heavily on mitigating and managing consequences rather than fundamental integrity assurances in equipment and systems",[68] a call that was echoed by the Marine Conservation Society for the HSE to provide "more guidance and possibly regulation with regard to the best available technology".[69] Mr Walker of the HSE argued: "performance-setting legislation [...] [is] more challenging for the industry [than prescriptive regulation]".[70]

52. While the flexibility of the UK safety regulation regime appears to have worked well, we recommend that for fail-safe devices such as the blowout preventer the Government should adopt minimum, prescriptive safety standards or demonstrate that these would not be a cost-effective, last-resort against disasters.

THE IMPORTANCE OF SIMPLE CHECKS

53. An examination of the two control pods on Deepwater Horizon's BOP following the accident revealed that there was a fault in a critical valve in one of the control pods, and that the other control pod had insufficient charge on its batteries; these faults probably existed at the time of the incident.[71] At least one operational control pod was required to operate the Automatic Mode Function (AMF) which would have closed the BOP. The AMF function should have happened automatically, without intervention, when the electric cables and hydraulic line were damaged during the explosion on the rig. The AMF is a critical backup system, also known as the "deadman".

54. We are concerned that such simple failures were not spotted during inspection. Dr Hayward told us: "we have implemented across our global drilling operation a programme to ensure that the equipment will do what it is designed to do [...] the second thing we have done [...] is significantly enhance the testing protocols of blowout preventers, including ensuring that the backup systems work and are tested in the course of drilling a well".[72] Although the new regime is welcomed, this is another example of the industry responding to a disaster rather than anticipating a potential problem.

55. We believe that the Government must ensure that the UK offshore inspection regime could not allow simple failures—such as a battery with insufficient charge—to go unchecked.

INDEPENDENCE OF ICPS

56. Unlike the US regulations under which the Deepwater Horizon operated, design of all wells on the UK Continental Shelf (UKCS) requires clearance by an independent competent person (ICP). UK companies are also required by law to ensure that their well is managed in such a way that there can be no unplanned escape of oil or gas (or any other well fluids) and that risks to people and the environment are as low as reasonably practicable. This requirement is set out in the Offshore Installations and Wells (Design and Construction, etc) Regulations 1996 (DCR), covering all stages of a well's life including design modification, commission, construction (drilling), operation, maintenance, suspension of activities and abandonment.[73] The DCR regulations require that:

the conditions below ground are properly assessed beforehand;
the materials used for all parts of a well are suitable for the task;
the well control equipment is installed to protect against blowouts; and
the well is operated by appropriately qualified people.

57. A key component of the regulations is the requirement for a formal well examination scheme and the appointment of an independent well examiner who must verify the design, construction and maintenance of a well. An operator must have arrangements in place for a well examination scheme by such an ICP before starting on a new well design. The ICP monitors all stages of the well's life from planning through to execution and operation. It is also the ICP's role to examine how the operator controls the pressure in the well, and to ensure that the pressure containment equipment that forms part of the well is suitable for this purpose.

58. A well's ICP is normally employed by a separate specialist company, and must be sufficiently knowledgeable and separate from the immediate line management of the well operations. These details must be available for inspection by HSE. Well designs are usually peer-reviewed by in-house and external bodies at each stage. Chevron state that their well design process is now subject to an additional peer review by "experienced drilling staff from our Gulf of Mexico Deep Water business unit".[74] The final well design is presented to and examined by the independent Well Examiner and the HSE.

59. Mr McAllister of OSPRAG told us: "the independent company [...] is populated by seasoned drilling professionals, who've got no commercial interest in the well".[75] He added: "they [...] may have worked in oil companies in their past".[76] Mr Toole of DECC told us that if his organisation felt the degree of independence between the ICP and the operator was insufficient they would do something about it.[77] Even so, Ms Susie Wilks, Biodiversity Lawyer for ClientEarth argued that "the legal requirement[s] for independence are not tough enough".[78]

60. Whilst there is a risk of conflicts of interests affecting the judgement of independent competent persons who assess the design of wells we have had no evidence of such conflicts presented to us.

PROTECTION OF WHISTLE-BLOWERS

61. Due to the enormous commercial pressures to keep a drilling rig operating, we are concerned that employees who try to draw attention to safety problems may be—or feel—intimidated by their managers. Dr Jonathan Wills, Independent Councillor for Lerwick South and freelance environmental consultant told us that "whistle-blowers are not able to call a halt to things and the managers are obviously trying to make money for the company [...] They're not there to protect the environment".[79] However, Mr Webb of Oil and Gas UK tried to assure us that the offshore workforce are "free and able to intervene on issues of safety, and without fear of retribution".[80] This assurance was repeated to us by other members of the industry.[81]

62. However, the HSE Offshore Division's Specialist Inspection Report for 2009 indicated that Transocean rig staff were subject to "bullying, aggression, harassment, humiliation and intimidation" from offshore management.[82] When we asked Paul King—Managing Director of Transocean's North Sea Division—about these claims, he told us:

[...] the report needs to be viewed in its entirety [...] We have several alternative ways for people to get [...] [safety concerns to us including] via an ombudsman line, which is manned by a third-party company. Anybody who has anything that they are concerned about can, in complete confidence, talk to someone and report it, and move on from there.[83]

63. Mr Cohagan of Chevron UK described to us a "stop work authority card" that are handed out offshore.[84] These cards have Mr Cohagan's signature on, and he told us: "it says 'Not only do you have the duty but you have the responsibility, if you see anything wrong, to stop the work.'" When we raised concerns with the Minister about intimidation of whistle-blowers, he told us: "The crime is not reporting [health and safety concerns]".[85]

64. We asked the oil and gas industry about a policy known as "not required back". This was the process by which an Offshore Installations Manager (OIM) could have contractor personnel permanently removed from a rig. Oil and Gas UK, the industry-body, highlighted concerns in trade unions and the industry that the "lack of a clear and transparent process could potentially prevent individuals from raising safety concerns".[86] Oil and Gas UK worked with trade unions to introduce new guidelines to ensure that "where removal [of personnel from a rig] is deemed an appropriate course of action [...] this is done in a fair and transparent way".[87] Mr Looney, of BP North Sea, told us: "We are fully compliant with the [not required back] agreement that Oil and Gas UK as a trade association has with the unions and the workforce and we have no issues with that policy".[88]

65. At an advanced stage in the inquiry we received evidence from the National Union of Rail, Maritime and Transport Workers (RMT) regarding the need for offshore safety representatives to have greater powers. The RMT told us that they "want to see more specialised training become a statutory entitlement [...] Safety Reps should have the statutory power to insist on more training".[89] The RMT are of the opinion that the existing "five-day basic safety rep course" is insufficient, and the following specialised training should become a regulatory requirement:

principles of Risk Assessment;
root Cause Analysis—accident/incident investigation;
major hazard awareness;
development of safety auditing/inspection skills; and
communication skills—presentation, negotiation, interpersonal, and meeting organisation.

66. We find some conflict in the reports from the HSE about bullying and harassment on rigs and the assurances of the industry that sincere whistleblowers will be heard and protected. We recommend that the Government should discuss with the industry and unions what further steps are needed to prevent safety representatives from being or feeling intimidated into not reporting a hazard, potential or otherwise.

CONTRACTOR OVERSIGHT

67. BP's Bly Report emphasises that the failures that led to the Deepwater Horizon incident involved a number of companies as well as themselves. Dr Hayward told us: "in our report we talk about [the need for] 'significantly greater oversight [of principal contractors]'".[90] Dr Hayward went on to tell us that they had identified "a lack of rigour and quality of oversight" of contractors as one of the factors leading to the incident.[91]

68. It is important and necessary that the offshore safety culture is cascaded throughout the supply chain, from existing contractors at all levels, through to new-entrants on to the UK Continental Shelf.

OPERATING IN DIFFERENT REGULATORY REGIMES

69. The oil and gas industry operates under many different regulatory regimes around the world. BP North Sea's Mr Looney told us "We apply the same standards [worldwide]. They are clearly influenced by variations in regulatory regime". Dr Hayward added that: "this does not imply a difference in the level of standard but there are different requirements".[92]

70. To demonstrate operating at the same standard, but under different regulatory requirements, Mr Festor of Total described to us the assumptions that were made when designing the well-casing under different regulatory regimes.[93] These assumptions define the load that will be applied on the casings. In the US, the sealed well is assumed to be half full of liquid, and half full of gas. In the UK it is assumed to be full of gas. The UK assumption is more conservative, leading to the casing being able to withstand a greater load, as under the US assumption the liquid offsets a greater proportion of the upward pressure from the oil and gas in the reservoir.

71. We received evidence from the industry, regulators and other stakeholders, that the UK offshore regime changed dramatically for the better after the Cullen Inquiry into the 1988 Piper Alpha tragedy. A comparable change in regulatory regime is expected in the US as a result of the incident in the Gulf of Mexico. Already in the US, the responsibilities for licensing, safety and promotion of the oil and gas industry have split into three separate agencies.[94] Under the regime that the Deepwater Horizon operated in the Gulf of Mexico, these issues were all the responsibility of the US Minerals Management Service (MMS). In the UK, promotion of the oil and gas industry—namely, identification of investment opportunities and liaising with new entrants—remains within DECC (under the Energy Development Unit) along with licensing. Platform, the social and ecological justice campaigners, argued that "close links between the [...] industry and the government [...] undermine public confidence in the ability to regulate and legislate effectively".[95] The Minister told us: "It's the industry's own job to promote itself"[96] and that if "[other countries] decide to go beyond [...] [the level of UK regulation] we would need to [...] respond to that".[97]

72. There is both risk and the advantage of competition where global oil and gas companies operate to different standards when working in different regulatory regimes. We recommend that the Government monitor any changes in the US regulatory regime to see if—in the light of the response to the Deepwater Horizon incident—the US establishes a new gold-standard of regulation, as the UK and Norway did after the Piper Alpha tragedy. We would urge the Government to work with regulators in other offshore oil and gas provinces to ensure that the highest standards of safety can be achieved globally through an exchange of best practice lessons.

Licensing

73. Before a drilling programme is approved, the HSE needs to be satisfied that well design and construction are satisfactory and DECC needs to be satisfied that emergency plans for all wells represent best practice. We were told that, "for deepwater drilling, operators are being required to demonstrate that the factors identified in the BP report have been satisfactorily addressed".[98] On 27 October 2010 it was announced by DECC that 144 licences to extract oil and gas from UK waters were offered in the 26^th licensing round.[99]

CONTROVERSY OVER THE BLY REPORT

74. In a press release on 8 June 2010, the Secretary of State said that the Deepwater Horizon incident gave the Government, "pause for thought [...] given the beginning of exploration in the deeper waters West of Shetland".[100] DECC claims that the process of approving new licences for deepwater wells "now includes rigorous testing against the findings of BP's report into the causes of the Deepwater Horizon accident".[101] But we note that BP's internal investigation—the Bly Report—into the Gulf of Mexico incident implied that, while BP was partially responsible for the disaster on Transocean's Deepwater Horizon drilling rig, decisions made by "multiple companies and work teams" contributed to the incident.[102] Dr Hayward said, "to put it simply, there was a bad cement job [...] based on the report, it would appear unlikely that the well design contributed to the incident":[103] a claim he reiterated when giving evidence to us.[104] If the Macondo Well design were found to be seriously flawed, BP would be liable for an additional fine of $15 billion under the US Clean Water Act.[105]

75. Transocean, who owned the Deepwater Horizon and operated it on behalf of BP, claimed that BP's well design was "fatally flawed", while BP's cement contractor Halliburton said that it found a number of omissions and inaccuracies in the Bly Report and, "contractors do not specify well design [...] that responsibility lies with the well owner".[106] British Gas (BG Group) told us that in their view "it appears that the Macondo blowout was significantly attributable to a flawed well design".[107]

76. It is argued that the Bly Report does not represent a "root-cause analysis" into the Macondo incident.[108] Its author, BP's Head of Safety and Operations, told us that "We were trying to understand what were the chain of events that happened and what the immediate causes were so that we could get some insights as quickly as possible".[109] Mr Cohagan argued that "If you really want to do a root cause analysis, it is a very time-consuming process".[110]

77. We asked the Minister on the influence of the Bly Report on the safety regime in the UK. He told us that they had taken account of the recommendations in the Bly report,[111] but it was "not the building block of [licence granting]"[112] and DECC were "now waiting for the further US investigations to decide whether there are any recommendations [...] we should take into account".[113] We were assured when the Minister told us: "if there is further evidence that comes through that requires any greater tightening of those [licensing conditions] then we will take account of that".[114]

78. The Bly Report—BP's internal investigation into the Deepwater Horizon incident—does not contain a root-cause analysis of the events that led to the blowout of the Macondo well, the loss of 11 men on the Deepwater Horizon, and the release of 4.9 million barrels of oil into the Gulf of Mexico. We urge the Government not to rely extensively on the Bly Report, given the controversy surrounding the responsibility for the incident and the design of the Macondo well, but rather to consider its conclusions in parallel with the observations of other companies involved with the incident, and with the recommendations of US agencies investigating the incident.

79. We believe that the environmental impacts of a sub-sea well blowout need to be understood and taken into account when a drilling licence is issued in the UK. We urge the Government to ensure that the licensing regime takes full account of high consequence, low probability events.

80. We observed throughout the inquiry that the offshore oil and gas industry believed they had mitigated away the risks associated with high-consequence, low probability events. The Minister told us: "as part of changes that we've made, [operators] have to look at worst case scenarios".[115]

81. We recommend that as part of the drilling-licence process, the Government require companies to consider their responses to high-consequences, low-probability events—such as a blowout. The Government should not automatically accept claims that companies have mitigated away the risk of such worst-case scenarios. We urge the Government to introduce this requirement as drilling ventures into increasingly extreme environments.

18 HC Deb, 27 July 2010, col 867 Back

19 "UK increases North Sea rig inspections", DECC Press Release, 8 June 2010 Back

20 Q 1 Back

21 Q 1 Back

22 Q 271 Back

23 Q 36 Back

24 Q 234 (Festor) Back

25 Q 85 Back

26 Ev 596 Back

27 "Salazar Divides MMSs Three Conflicting Missions", US Department of the Interior press release, 19 May 2010 Back

28 Q 189 Back

29 Ev 63 Back