House of Commons - Energy and Climate Change

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

Memorandum submitted by the Department of Energy and Climate Change,
Health & Safety Executive, and
Maritime and Coastguard Agency

INTRODUCTION

1. This Memorandum first sets out some general information relevant to the Committee's inquiry, including regulatory responsibilities within Government, and then responds to the specific questions posed by the Committee in their call for evidence. There are also some supporting documents attached including, at Annex A, responses to a number of additional questions suggested by the National Audit Office.

2. UK oil and gas production continues to form a vital component within the UK's energy needs (supplying over 60% of primary domestic energy demand in 2009). It contributes significantly to our economy. The upstream sector attracts around £12 billion annual expenditure by industry and provides around £10 billion annually to the Treasury in taxation. The industry supports around 350,000 UK jobs directly and indirectly (plus another 100,000 involved in exporting goods/services).

3. From both an economic and security of supply perspective, as we make the transition to a low carbon economy, it is vital that the Government and industry work to maximise economic recovery of the UK's indigenous hydrocarbon resources as part of our energy security policy. Production is declining but this is still a major UK resource and, although some 40 billion barrels of oil equivalent (boe) have been produced so far, there are perhaps 20 billion boe, maybe more, left to produce. It is a key Government objective to encourage industry to continue to invest in exploration, development and production so that we can fully realise this potential. However it is absolutely essential that, at the same time, such activities are carried out safely, high standards of management are maintained, and environmental impacts are minimised.

4. Our regulatory regime is already among the most robust in the world and the industry's track record in the North Sea is strong. But we must learn everything we can from the Macondo well. Over the last four months we have been looking very closely at all the information that has come out of the Gulf of Mexico incident including the recent BP investigation report, and determining how this relates to our own regime and will continue doing so until the formal US investigations are completed in 2011.

5. During the period from 1964-2009, over 10,000 wells have been completed on the UK Continental Shelf (UKCS). Although there have been a small number of incidents involving shallow gas events,[51] or blow-outs, during the course of these drilling operations, there has not been an oil blow-out or any significant spillage of oil directly resulting from drilling operations.

6. There are two incidents that are exceptions to that strong track record. First the Ocean Odyssey incident which took place on the UKCS in 1988 which involved a blow-out during exploration drilling. However this differed significantly from the recent US blow-out in that the Ocean Odyssey rig was drilling a high pressure well on a gas condensate field. The incident also pre-dated the restructuring of the UK offshore safety regime following Piper Alpha.

7. The Piper Alpha tragedy which also took place in 1988 has been the most serious incident on the UKCS. This was a gas explosion caused by leaking pipe-work that was under maintenance, and exacerbated because there were inadequate emergency shutdown facilities available to cut off production from other fields. At the time both safety and operational issues were dealt with by the then Department of Energy. After the incident, although Lord Cullen concluded that there had not been a conflict of interests within the Department, it was decided that the responsibility for these should be split to implement new arrangements with a clear separation of duties between those responsible for licensing operations and those regulating safety matters.

DEPARTMENTAL RESPONSIBILITIES

8. Following Piper Alpha new tripartite arrangements for offshore regulation were implemented.

9. Under these it is the responsibility of the Health & Safety Executive (HSE), an executive non departmental public body of the Department for Work and Pensions, to assess and regulate the integrity and safety of offshore installations in the UK via the Health and Safety at Work Etc Act 1974 and the offshore specific suite of regulations.

10. The Department of Energy and Climate Change's (DECC) Energy Development Unit is responsible for licensing and regulating UK oil and gas activities, developing the environmental regulatory framework for the 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 Oil Pollution Emergency Plans (OPEPs).

11. The Maritime and Coastguard Agency (MCA), an Executive Agency of the Department for Transport is responsible, if required, for deploying any counter pollution measures to minimise a pollution incident.

12. In order to provide a coherent picture to the Committee this Memorandum is being submitted jointly by all three organisations.

13. A chart is also attached at Annex B which shows the relationship between these three key regulatory bodies and the allocation of roles, which ensure that all aspects of the industry's activities are regulated holistically and in a seamless fashion.

OFFSHORE DRILLING—MEANING OF "DEEP WATER"

14. The Committee's questions are largely focused on activities in deep water and it is probably helpful to explain how this has been interpreted in this evidence. There is no standard or uniform definition of "deep water" in the industry or in use among regulators but, for the purposes of this Memorandum, DECC, HSE and MCA are using the term "deep water" as referring to activities taking place in water depths of more than 300 metres. This accords with the commonly used concept of "deep water drilling" as that which requires the use of floating rigs, rather than fixed production platforms or jack-up rigs.

15. There are very few fixed platforms operating around the world at a depth of 300 metres, and current technology would almost always dictate that a floating drilling facility is required for drilling activity at this depth and deeper. The US Administration uses a similar concept to identify "deep water drilling"; but it should be noted that water depths have not been stipulated specifically in recent measures put forward by the US Department of the Interior. A map showing the water depths in the Northern North Sea and areas to the North and West of Scotland is attached at Annex C to this Memorandum.

DEEP WATER DRILLING IN THE UK

16. Clearly the Deepwater Horizon incident in the US has served to focus great attention on how drilling operations are regulated and controlled. Given the move into deeper waters West of Shetland, there is every reason to increase our regulatory vigilance. Notwithstanding the strengths of the existing UK regime, the agencies are keen to secure full learning from all new and emerging information, and to ensure that the system is in every respect as good as it can be.

17. Interim steps are already being implemented including:

— action to double the number of annual environmental inspections by DECC to drilling rigs including the appointment of three additional inspectors, bringing the total number of environmental inspectors to 10 (nine inspectors and one senior inspector);

— the launch of a new joint industry and Government group called the Oil Spill Prevention and Response Advisory Group—(OSPRAG),—to review the UK's ability to prevent and respond to oil spills;

— the award, by OSPRAG, of a contract to Wood Group Kenny for the design of new oil spill mitigation technology for the UKCS;

— agreement by the industry to increase by more than double oil spill liability insurance for the settlement of claims, from US$120 to US$250 million;

— a study, set up by OSPRAG, in the light of the Gulf of Mexico incident, to look at estimates of the cost of oil spill clean up in the UK area; and

— bringing forward the planned testing of the National Contingency Plan, and its interaction with other major incident plans, including oil pollution emergency plans submitted by operators of offshore installations, with a major oil pollution exercise involving the offshore industry in 2011.

18. The consenting of all wells is on a case by case basis taking full account of new and emerging information. And for deepwater wells, this now includes rigorous testing against the findings of BP's report into the causes of the Deepwater Horizon accident. The companies will have to demonstrate effective coordination between companies involved in the well, and between the companies and relevant Government agencies. The testing of the effectiveness of these arrangements will be a condition of future permissions. The Government is working closely with other Government and international bodies to secure that all lessons from the Macondo accident are learned. This may result in additional cooperation across borders and, where appropriate, companies will need to demonstrate that they have given full effect to these arrangements and that they have been tested.

19. The Government plans to review our new and existing procedures as soon as the detailed results of the formal investigations into the Deepwater Horizon incident in the Gulf of Mexico are available. We expect this to build on the work already begun by OSPRAG.

INTERNATIONAL DIMENSION

20. As part of our response to these events HSE and DECC are also in contact with our counterpart offshore regulators in the United States, the Bureau of Ocean Energy Management, Regulation and Enforcement (previously the Minerals Management Service), as well as engaging in high level contacts with BP in the UK. This will ensure that we can identify at the earliest opportunity any lessons from Deepwater Horizon that might be relevant and applied to UK offshore activities.

21. At the European level HSE and DECC have been actively involved. Although nation states have primacy in these issues, Mr Oettinger, the European Union Energy Commissioner, has taken a particular interest in this matter and has called for a review of the broader EU regulation of such activities. Mr Oettinger has also called for a moratorium on deep sea drilling; a review of how to improve the capacity for co-operation in terms of response and clean up; and consideration of the need to strengthen regional and international standards. Through HSE and DECC, the UK will be a key contributor to Commission workshops to discuss these issues.

22. As has been described above the UK already has a robust regulatory regime, the but we are seeking to learn as much as possible from the Macondo accident, and steps have nevertheless already been taken to increase our regulatory vigilance. All drilling programmes are considered on a case by case basis, taking account of the latest available information. 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. For deep water drilling, operators are being required to demonstrate that the factors identified in the BP report have been satisfactorily addressed; and that there is effective coordination between all the companies involved, and between companies and relevant Government agencies. This may delay or halt the commencement of some wells but we do not consider that such an approach will result in a de facto moratorium. In this light, the UK Government does not see a case for any ban or moratorium on deep water drilling.

23. Following a meeting between UK and Norwegian Energy Ministers in August, a joint statement was issued which included a commitment by the UK and Norway to exchange information and confer on the investigations into the Gulf of Mexico oil spill and the appropriate regulatory and industry responses to the accident.

24. At a broader international level, through the G20, the Russian Government have initiated a review of best practice for deepwater drilling as part of a global marine environment initiative. The terms of reference and activities to deliver on this initiative are under discussion. The aim is an intermediate report mid-October 2010 and for the work to be concluded for the Seoul G20 Summit in November 2011.

25. The position of the three agencies with regard to these initiatives is that we need to be closely involved in shaping and contributing to them to ensure that lessons are learned and best practice is shared. However, we also need to ensure that any proposals for change:

— are based on robust evidence;

— are proportionate and risk assessment based;

— avoid disruption to existing mature regulatory regimes (such as the UK's) that have proven to be effective over time; and

— do not lead to any reduction in national safety requirements by setting lower international standards.

RESPONSES TO THE COMMITTEE'S QUESTIONS

What are the implications of the Gulf of Mexico oil spill for deep water drilling in the UK?

26. The majority of UK gas fields are located in water depths of less than 50 metres, whilst oil fields are mainly located in water depths between 50 and 250 metres. However, to the West of Shetland, there are a number of fields and undeveloped discoveries in water depths of between 300 and 1,600 metres, and proposals to drill in water depths greater than 1,600 metres.

27. The UKCS to the West of Scotland, which may be the subject of oil and gas exploration in the future, includes areas where the water depth is in excess of 3,000 metres.

28. Overall deepwater oil and gas resource potential (including both West of Shetland and the less well understood West of Scotland) is estimated to be around 3 to 3.5 billion barrels of oil equivalent (some 15-17.5% of UK total resources) of which about a third is gas and two thirds oil. Earlier this year DECC gave the go-ahead to Total's Laggan/Tormore gas development, which lies in 600 metres of water, and which is set to open up West of Shetland for wider development with a new gas pipeline to mainland Scotland via the Shetland Islands.

29. The southern part of the North Sea is a gas province and so if there were a blow out it would not result in significant oil spillage. Some other areas of the North Sea contain oil reservoirs which have insufficient pressure to support a blow out similar in nature to the Deepwater Horizon spill. In these reservoirs oil has to be pro-actively pumped for it to be produced. However, there remain other oil reservoirs, including some in the deeper waters to the West of Shetland, where the pressure and hydrocarbons are such that, were the safety measures in place to fail, a blowout incident could occur. Although the possibility of blowouts occurring are not confined to deep water, water depth clearly can increase the technical challenge of drilling a well and can make any mitigation measures required more difficult to implement. (See also Annex D for more detail of operational factors relevant to deep water operations.)

30. In advance of the conclusion of the formal investigations into the Gulf of Mexico incident, Oil & Gas UK (the offshore industry's main representative body) has established the Oil Spill Prevention and Response Advisory Group (OSPRAG) to review the industry's practices in the UK. The Group is formed of senior representatives from all sides of the industry, the relevant regulatory authorities—DECC, HSE and MCA—and trade unions.

31. OSPRAG has established four specialist review groups whose remit is to focus on:

— Technical issues including first response for protection of personnel, the well examination process and an inventory of blowout preventers and remotely operated vehicles currently employed in the UKCS;

— Oil spill response capability and remediation including national emergency response measures;

— Indemnity and insurance requirements; and

— European Issues (Pan-North Sea regulations/response mechanisms).

32. On 5 August 2010, OSPRAG announced that it had awarded the contract for engineering services to assess subsea capping and containment options for the UK continental shelf to Wood Group Kenny. Wood Group Kenny will work closely with the OSPRAG Technical Review Group and recommendations will be presented in September 2010. These recommendations will allow OSPRAG to make an informed decision about the potential contingency options for subsea capping and containment that should be put in place in the UK.

33. Clearly improvements in the stand-by capability to cap and capture leaking oil would allow us to engage much more rapidly in a mitigation exercise should an incident involving leaking oil occur on the UKCS in the future.

34. The strength of the UK regulatory regime is reflected in the fact that the initial report from the US Department of the Interior has already indicated that elements of our own approach will help inform the changes to be implemented in the US system—for example: case-by-case safety case appraisal, independent verification of the design of wells, and the separation of the safety function from licensing within Government.

35. Although the UK regulations on the design and construction of wells are goal setting in approach, they do require a full assessment of subsurface conditions before drilling. This is to identify potential hazards and require that the well is designed, constructed, maintained and operated such that, so far as is reasonably practicable, there can be no unplanned escape of fluids from the well. In addition the UK will not consent to the drilling of wells unless we are satisfied that the emergency plans represent best practice.

36. The Macondo incident has shown that co-ordination between all the companies involved, and between companies and relevant Government agencies, is an essential part of safe operation. For deepwater wells the case by case assessment of wells will now include the requirement for companies to demonstrate rigorously the effective coordination between all the companies involved, and between companies and relevant Government agencies. Companies seeking to drill in deep waters will need to provide evidence that such co-ordination arrangements are in place and tested.

37. The regime developed since Piper Alpha ensure that the roles and responsibilities of all parties, including rig owners, well operators, sub-contractors and regulators, are clear and well understood. The overall responsibility for safety on an offshore installation falls to the Safety Case Duty Holder who appoints an Offshore Installation Manager (OIM) and the ability to discharge this responsibility must be demonstrated through the Safety Case. All parties involved in offshore operations including, for example, the cementing contractors have legal duties to co-operate with both the operator of the installation (the Safety Case Duty holder, OIM) and the Well Operator when the well is being constructed. The Safety Case Duty holder and the Well Operator must demonstrate that their safety management systems will operate effectively in combination, who has primacy in emergencies, and who has overall responsibility for decision-making. A recognised way of achieving this is through a formal bridging document. Safety Case holders and Well Operators must be able to demonstrate appropriate crew training, and the crews' understanding of the decision-making procedures for events that may occur during the well construction. The regime is regulated by HSE who can take formal enforcement action where duty holders' performance falls short of that expected and poses serious risks.

38. In addition, the industry through its OSPRAG workgroup is reviewing the training of crews on this critical area and the crucial relationship between OIM, Well Operator and key contractors to be able to demonstrate that no opportunity to improve the safety of operations is missed.

39. Once the results of the formal investigations into the incident in the Gulf of Mexico are known we will ensure that all the lessons to be learnt are incorporated into our procedures and that the UK continues to appropriately regulate its offshore oil and gas industry in order to maintain the highest possible standards.

To what extent is the existing safety and environmental regulatory regime fit for purpose?

40. As detailed above, it cannot be guaranteed that a blow-out incident could not happen on the UKCS, but we strongly believe the safety and environment regulatory regime is fit for purpose. There is a comprehensive regulatory regime in place, administered by the HSE and DECC, which covers all aspects associated with the proactive management of this type of risk. Details are given below along with action that has been taken thus far following the Gulf of Mexico incident to provide further reassurance that the regime remains robust, and to improve it where possible.

HEALTH AND SAFETY REGULATION

41. HSE is responsible for regulating the risks to health and safety arising from work in the offshore industry on the UKCS. The UK has one of the best health and safety records in the world, based on the simple, enduring principle that those who create the risk are best placed to manage it. HSE has nearly 40 years' experience as an independent regulator of a wide range of industrial hazards. In practice, HSE has a system where the regulator, duty holders, worker representatives and other stakeholders work together, utilising the best available evidence, to produce proportionate regulation, standards and guidance aimed at protecting the health and safety of workers and the public. This is backed up by a regime of inspections, assessments, investigations and, where necessary, enforcement.

42. The UK has a comprehensive offshore regulatory framework in place to prevent or mitigate the health and safety risks associated with drilling for oil and gas offshore. The main regulations include:

The Offshore Installations (Safety Case) Regulations 2005 (SCR)

The Offshore Installations and Pipeline Works (Management and Administration) Regulations 1995 (MAR)

The Offshore Installations (Prevention of Fire and Explosion, and Emergency Response) Regulations 1995 (PFEER)

The Offshore Installations and Wells (Design and Construction, etc) Regulations 1996 (DCR)

Offshore Installations (Safety Representatives and Safety Committees) Regulations 1989

43. The UK offshore regulatory framework, developed after the Piper Alpha disaster in 1988, implements the relevant European Directive 92/91/EEC on the minimum requirements for improving the safety and health of workers in the mineral-extracting industries through drilling. The UK regulations also contain a range of additional safeguards to mitigate the health and safety risks associated with offshore drilling. These measures also reduce the risk of an oil pollution incident occurring:

— DCR requires a full assessment of subsurface conditions before drilling to identify potential hazards. DCR also requires that the well is designed, constructed, maintained and operated such that, so far as is reasonably practicable, there can be no unplanned escape of fluids from the well;

— There is a statutory requirement for wells to be notified to HSE at least 21 days prior to drilling or well intervention operations taking place, which allows specialist wells inspectors to review well design and procedures and require improvements if necessary;

— A second check is required of the design and construction of the well by a competent person, independent of the operator, to ensure that it is fit for purpose;

— An independent competent person (such as Lloyds Register) must verify the suitability and state of good repair of safety critical equipment such as blowout preventers (BOPs) on mobile drilling rigs;

— Regulations require that everyone involved in well operations has received suitable information, instruction, training and supervision;

— Weekly summaries of operations are required to be submitted by well operators to HSE Wells Inspectors; and

— HSE Wells Inspectors assess and inspect well control and well integrity arrangements and other HSE offshore specialists assess and inspect other aspects of drilling rig operations and integrity.

44. To apply the UK's legislation and monitor safety within the offshore oil and gas industry, HSE's Offshore Division has 114.5 specialist inspectors (figures as at 1 April 2010) who provide expertise in the following disciplines: regulatory inspection; well engineering; occupational health; process safety; fire and explosion; marine and structural; evacuation and escape; mechanical; electrical; and diving. Overall, this equates to 105.5 inspector years when factors such as part time working are taken into account.

45. A further measure worth noting is the level of Hydrocarbon Releases (HCRs) on the UKCS. This is a key indicator of how well the offshore industry is managing its major accident potential. The UK offshore oil and gas industry has shown considerable improvements in recent years in relation to HCRs. There has been a steady decrease from 2001-02 to 2009-10. However, HSE has just reported a rise in HCRs last year. There were 61 HCRs in 2008-09—the lowest since HSE began regulating the industry—with a provisional total of 85 being reported for 2009-10. These figures show that there is no room for complacency. As a result of this, HSE has increased the level of its offshore investigation of all major and significant HCRs to ensure that root causes are identified and rectified by duty holders. HSE will continue to monitor the industry's HCRs performance closely and will take action against operators where required improvements are not delivered and/or poor practice is evident.

46. In summary, the Government believes the UK has a rigorous offshore oil and gas safety regime, with significant differences in the type and style of the legislative requirements and the regulatory/enforcement approach compared with the USA. The UK offshore oil and gas industry also has a somewhat different safety culture than that in the Gulf of Mexico. Here, there is greater workforce engagement in safety issues, which is supported by regulatory requirements. Whilst it is impossible to say that such a blowout as occurred with the Deepwater Horizon could never happen in UK waters, our additional and different layers of regulatory protection provides a reduced probability that it would.

DECC—ENVIRONMENTAL REGULATION

47. A comprehensive framework of environmental protection measures has been developed to minimise the impact of oil and gas activities. This is embodied in the relevant legislation, consistent with and in large part derived from the legislation framework of the European Community (EC). In addition, the UK is a signatory to the Oslo and Paris Convention for the Protection of the Marine Environment of the North East Atlantic (the OSPAR Convention). To date, the UK has implemented and applied all of the OSPAR decisions and recommendations.

48. This robust offshore environmental protection regime covers oil and gas development throughout its life cycle, from the initial licence application to the final decommissioning of facilities. All activities that could potentially impact on the environment are subject to rigorous assessment, and significant activities are controlled through the issue of permits, consents or authorisations. There is also an inspection and enforcement regime in place to confirm compliance with the conditions included in the environmental approvals.

49. The robust regime is reflected by the industry's performance, and the UK has a good environmental record with no significant impact on the marine environment resulting from offshore oil and gas activity.

50. The regime includes:

The Environmental Assessment of Plans and Programmes Regulations 2004

The Offshore Petroleum Production and Pipelines (Assessment of Environmental Effects) Regulations 1999

The Offshore Petroleum Activities (Conservation of Habitats) Regulations 2001

The Offshore Chemicals Regulations 2002 (as amended)

The Offshore Petroleum Activities (Oil Pollution, Prevention and Control) Regulations 2005

The Offshore Combustion Installations (Prevention and Control of Pollution) Regulations 2001 (as amended)

The Greenhouse Gas Emissions Trading Scheme Regulations 2005 (as amended)

The Offshore Installations (Emergency Pollution Control) Regulations 2002

The Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) Regulations 1998

Offshore Environmental Inspections

51. As detailed above, most oil and gas activities are controlled by the issue of activity specific permits, consents or authorisations containing legally binding terms and conditions. DECC actively ensures that industry is complying with the conditions included in environmental approvals by reviewing permit compliance returns and undertaking a series of prioritised environmental inspections using a risk based approach.

52. DECC inspectors visit offshore installations and onshore offices to:

— inspect records and management systems;

— interview people; and

— observe site conditions, standards and practices.

53. This allows for a comprehensive assessment of environmental legislative requirements, restrictions or prohibitions imposed upon operators and best practice as regards pollution prevention and incident response measures. Where applicable enforcement action is taken in accordance with the DECC Enforcement Policy[52] to ensure that those who have duties under the law take preventative or remedial measures to prevent pollution; put in place measures to achieve compliance; and are held to account when failures to comply occur.

54. During 2008 and 2009, the Inspectorate undertook 76 and 65 offshore trips respectively, covering both inspection and investigation activities. To July 2010, 39 offshore visits have been undertaken (comprising of 23 fixed installation inspections, four fixed installation investigations and 12 drilling rig inspections).

55. In addition to regulatory inspections carried out by DECC, operators carry out their own internal audits and reporting as part of their Environmental Management System (EMS) requirements. DECC requires all operators of installations to have an independently verified EMS which satisfies the requirements of OSPAR Recommendation 2003/5 that recognises the requirements of international standards.

56. All of the 81 licensed operators on the UKCS have an independently verified EMS. An EMS is designed to achieve the prevention and elimination of pollution from offshore sources and to deliver and manage compliance with environmental laws and regulations on an ongoing basis. As part of the DECC EMS requirements operators must also produce an annual public statement providing an overview of their offshore operations and environmental performance. The public statements are available via the DECC website (www.og.decc.gov.uk).

57. Following an initial review of DECC procedures in the light of the Deepwater Horizon incident, it was concluded that with exploration and appraisal moving to ever deeper waters, including those West of Shetland, it would be prudent to reinforce the level of assurance available that the regulatory processes are being adhered to by increasing the number of inspections to drilling rigs operating in this area including undertaking joint environmental & safety inspections with HSE where appropriate.

58. DECC's regulatory process encompasses the general oversight of offshore activity through permitting and consenting which is undertaken prior to the activity being agreed. DECC's Offshore Environment and Decommissioning Unit has three senior environmental managers and six environmental managers, who are responsible for the environmental assessment of offshore oil and gas activities, and for the administration of environmental legislation. The Environmental Management Team coordinates the review of applications or submissions required under various legislation, for example environmental statements, applications for chemical permits and applications to undertake seismic surveys. Most of these activities are controlled by the issue of activity specific permits, consents or authorisations.

59. Given DECC's less extensive areas of responsibility compared to HSE, it and its predecessor Departments have always operated with many fewer inspectors than HSE. However, to further ensure industry compliance, three additional offshore environmental inspectors are being recruited alongside the existing team of six, bringing the total number of inspectors to ten (one senior environmental inspector and nine environmental inspectors). This will increase supervision of drilling contractors by allowing 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 an annual basis with immediate effect.

60. Offshore drilling activity varies throughout the year but currently there are approximately 24 mobile drilling operations ongoing in the UKCS. DECC's Offshore Inspectorate use a risk based strategy to implement their offshore environmental inspection regime. Of those rigs undertaking drilling activity in the UKCS at present, approximately 20% are working on gas reservoirs, which inherently pose less of a potential risk to the environment compared with those working on oil reservoirs. The locality of any rig and the nature of the well also contributes to the risk assessment process. On this basis the Department targets inspections on those rigs that are undertaking exploration, appraisal and development drilling of specific oil reservoirs.

Reporting of Oil and Chemical Spills

61. Under the Regulations DECC requires that all oil and chemical spills, irrespective of volume, be reported to the Offshore Inspectorate within six hours of such an accident occurring, or within one hour if the release is over one tonne. DECC's Inspectorate maintain a 24/7 incident response on call service to receive calls regarding pollution incidents and incidents which may affect security of supply. If a pollution incident occurs the Inspector communicates with the operator to ensure that contingency arrangements are implemented in accordance with the operators approved OPEP (see paragraph 71). In doing so, the Inspector would also liaise with the MCA on matters associated with pollution response and act as assistant to the SOSREP (see paragraph 76), who would monitor the operators actions to ensure adequate measures were taken to prevent pollution. This allows the most effective incident response and environmental strategy to be developed and adopted according to the circumstances of the incident.

62. In accordance with DECC's investigation policy, incidents are investigated by Inspectors from the Department's Offshore Inspectorate, and the relevant enforcement action pursued. Methods of enforcement include letters, enforcement notices, prohibition notices, revocation of a permit and prosecution. The first four methods are non-punitive in nature and are focussed on bringing the permit holder or licensed operator into compliance.

63. Incidents that could be of relevance to other operators on the UKCS, because of common working practice or because of the nature of the event, are circulated as an Environmental Alert on the DECC website, which can be accessed by all operators (who are notified of new alerts by e-mail), drilling contractors or other third party companies.

64. In addition to the HSE Hydrocarbon Release reporting (see para 45), DECC, as the offshore environmental regulator, also requires operators to submit details of oil spills to sea, regardless of quantity. During 2009 DECC were notified of 56 crude oil spills which resulted in approx six tonnes of crude oil being released to sea which, by comparison to the previous years' results, where 83 crude oil spills were notified resulting in approx 20 tonnes of oil being released to sea, shows that spill numbers and quantity have gone down. Against this background the industry's general performance has improved but there is always more that can be done and DECC will continue to regulate the environmental aspects of the offshore oil and gas activity as rigorously as possible.

National Contingency Plan

65. As a party to the United Nations Convention on the Law of the Sea, the United Kingdom has an obligation to protect and preserve the marine environment. The National Contingency Plan for Marine Pollution from Shipping and Offshore Installations(NCP) is one of the measures the UK has taken to meet this obligation and the Department of Transport's Maritime Coastguard Agency (MCA) is the custodian of the Plan.

66. The NCP's purpose is to ensure there is a timely and measured response to an oil pollution incident. The plan sets out the circumstances in which the MCA deploys the UK national assets in response to a marine pollution incident to protect the overriding public interest and how these resources are managed. The plan deals with a variety of issues, including:

— establishing the level of response;

— setting up the national response units; and

— at sea response and shoreline/onshore responses.

67. The NCP supports and underpins an operator's individual Oil Pollution Emergency Plan—see below.

68. To test the effectiveness of the NCP, and its interaction with other major incident plans, including OPEPs submitted by operators of offshore installations, a major oil pollution exercise involving a shipping casualty is held annually and an offshore installation exercise is held every five years.

69. The last such exercise involving the offshore industry was Exercise Unicorn, held on 10 June 2008, involving BP as the operator. The exercise was designed to test all the facets of incident response, such as key roles being identified and understood, utilising a challenging scenario which incorporated a number of foreseeable risks, all of which had the potential to occur on and/or around an offshore oil and gas production facility. The exercise's main objectives were to:

— Test the NCP for marine pollution as it effects offshore installations;

— Test the effectiveness of the operator's OPEPs;

— Ensure an integrated approach is achieved between BERR (now DECC), MCA and other stakeholders; and

— Test the powers of intervention of the SOSREP—see below.

70. Whilst the next date for a national exercise involving an offshore asset was not due until 2013, this has been brought forward to Spring 2011 and exercise planning has just commenced, through the auspices of OSPRAG which provides a focal point for the oil & gas sector's review of the industry's practices in the UK, in advance of the conclusion of investigations into the Gulf of Mexico incident.

71. The NCP has consistently been shown to be effective when it has been invoked in response to incidents in the last ten years. Where there are lessons to be learned from such incidents, they are incorporated in the NCP when it is periodically reviewed and refreshed. A review of the NCP has just started and this will take account of any lessons learned from the Gulf of Mexico incident. Part of this review will include consideration of the frequency of offshore installation oil pollution exercises, with initial views being that such exercises should be held every three years in future.

Oil Pollution Emergency Plans (OPEP)

72. Under the requirements of the Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Conventions) Regulations 1998, all operators of an offshore installation or oil handling facility must have an Oil Pollution Emergency Plan in place. The plans are reviewed by DECC, MCA and relevant environmental consultees, such as the Marine Management Organisation or relevant Devolved Authority, the Joint Nature Conservation Committee and the relevant inshore statutory nature conservation body, eg Natural England, before approval by DECC.

73. OPEPs set out the arrangements for responding to incidents with the potential to cause marine pollution by oil, with a view to preventing such pollution or reducing or minimising its effect. The plan is relevant and particular to a specific field or installation and covers activity such as drilling rigs carrying out exploration, appraisal and development drilling, production installations, pipelines, subsea tiebacks and new installations that are on site but not yet producing.

74. The OPEP covers a variety of topics for both onshore and offshore personnel, including; pollution incident scenario and hazard identification, pollution incident assessment and dispersant and aerial surveillance requirements. OPEPs focus on the worst-case scenario. Following the Gulf of Mexico incident, operators are now required to carry out additional modelling for deep water drilling operations, which includes an extended time frame for oil spill beaching predictions. The OSIS model that is used industry wide has limitations with regard to predicting long term spill and deep water predictions. The OSPRAG Oil Spill and Emergency Response Group is undertaking a review of the model and comparing oil spill scenarios with OSCAR, a model which appears better suited to deep sea oil releases.

75. To ensure the OPEP is, and remains, fit for purpose operators are expected to exercise personnel and equipment through different scenarios at different frequencies, as follows:

— In addition to the NCP exercise (see above), operators are obliged to hold an exercise with the SOSREP every five years and during the last cycle of such SOSREP exercises, the OPEPs of 22 operators were tested. The latest cycle of SOSREP exercises is presently being undertaken and to date 13 have been held since 2008.

— Under the International Convention on Oil Pollution Preparedness, Response and Co-operation Convention 1990, adopted by the UK in 1994, there is a requirement for all operators of offshore installations, drilling rigs and offshore loading terminals to have in place an oil spill response system that will include an element of pre-positioned response equipment, training and regular exercise, appropriate to the perceived risk. This includes:

1. testing their OPEP offshore with every shift at least once per year;

2. deployment of dispersant spraying equipment offshore at least once per month;

3. deployment of oil recovery equipment offshore at least once per year;

4. testing their onshore emergency response centre and associated procedures at least once per year; and

5. testing the industry deployment of oil spill response equipment at least every five years—the industry deployment of equipment will be included in the NCP exercise being planned for 2011.

Secretary of State's Representative for Maritime Salvage and Intervention (SOSREP)

76. The Offshore Installations (Emergency Pollution Control) Regulations 2002 give the Secretary of State for Energy and Climate Change the powers to intervene in an incident involving an offshore installation where there is, or there may be a risk of significant pollution. The UK created the role of the Secretary of State's Representative for Maritime Salvage and Intervention (SOSREP) in 1999, following a recommendation contained in Lord Donaldson's Review of Salvage and Intervention and their Command and Control.[53] The SOSREP acts as the single representative on behalf of the Secretaries of State for the Department for Transport (in relation to ships) and for the Department of Energy and Climate Change (in relation to offshore installations). Once oil, from a ship or an offshore oil & gas installation, enters the water the MCA lead any Government response to clean-up the spill.

77. The SOSREP will monitor the operator's response to a pollution incident and if he deems necessary, has the powers to give directions and to take such other actions as may be required to prevent or minimise pollution or the threat of pollution. The SOSREP is empowered to make crucial and often time-critical decisions, without delay and without recourse to higher authority, where such decisions are in the overriding UK public interest.

78. Operators must have facilities and personnel available to work alongside their existing Emergency Response Centre to accommodate the SOSREP and his associated team in the Operations Control Unit, which may be set up as a result of a pollution incident. It is also a requirement of the legislation that every five years each operator must conduct an exercise to test the OPEP and the involvement of the SOSREP.

The Offshore Pollution Liability Association Limited (OPOL)

79. To search for and extract petroleum requires a licence issued by DECC under the Petroleum Act 1998. Licensees are, among other things, required to comply with instructions from DECC to ensure sufficient funds are available to discharge any liability for damage attributable to any oil pollution incident.

80. The licence sets no limit to the licensee's liabilities and the licensee must demonstrate at the time of the licence application that they have sufficient funds or indemnity provisions to meet expected commitments, liabilities and obligations.

81. All offshore operators currently active in exploration and production on the UKCS are also party to a voluntary compensation agreement known as the Offshore Pollution Liability Association Ltd (OPOL), which came into being on 1 May 1975.

82. The agreement provides for each operator to provide an orderly means for compensating and reimbursing any person who sustains pollution damage and any public authority which incurs costs for taking remedial measures (clean-up) as the result of a discharge of oil from any offshore installation. As part of the process, OPOL requires every operator to provide satisfactory evidence of its ability to meet any liability under the Agreement. OPOL provides for the mutual agreement from all of its members for the settlement of claims up to US$ 250 million per incident, in the event of a default by an operator. This liability is based on worst case scenario planning.

83. As part of its work following the Deepwater Horizon incident OSPRAG has set up an Indemnity and Insurance Review Group (IIRG) to review the provisions of OPOL and the financial and cross-indemnity arrangements behind the current mutual co-operative industry mechanism (Offshore Cooperative Emergency Services). DECC has already requested that OPOL immediately revisit the modelling to review the worst case scenarios. This is being taken forward by IIRG which has commissioned modelling of alternative spill scenarios with the aim of providing a more comprehensive picture of potential oil spill costs so that discussions about the future OPOL level are better informed. It is expected that this modelling will be concluded in September 2010. The industry has already agreed to increase the limit for the settlement of claims from US$120 to US$250 million.

Aerial and Satellite Surveillance

84. Following the Torrey Canyon incident, the Bonn Agreement was signed by Belgium, Denmark, France, Germany, Ireland, Netherlands, Norway, Sweden and the UK in 1969. This was updated in 1983 with the inclusion of the European Community. In 1987 the agreement was extended to cover co operation in surveillance. The Bonn Agreement facilitates co operation and mutual support between the contracting parties in responding to large scale maritime pollution incidents by ensuring a common approach.

85. The Bonn Agreement includes procedures on mutual aerial surveillance, both aircraft and satellite, and highlights the deterrent aspect of known surveillance operations in preventing deliberate illegal discharges. To meet the UK's Bonn obligations DECC undertakes aerial surveillance flights, through a service level agreement with MCA, to monitor offshore oil and gas installation activity and identify any potential release of oil. The flights identify the extent and volume of any such spill and play a key role in directing appropriate resources to the incident. Through the MCA, the aerial surveillance contract also provides for resources to be deployed to counteract the effects of such a spill through the application of dispersants.

86. In addition, DECC has access to the satellite surveillance, provided through the European Maritime Safety Agency (EMSA). The Cleanseanet service allows for marine oil spill detection and surveillance in European waters, including certain footprints over the UKCS. DECC uses this tool to identify discharges to the marine environment, including cases where the release may not have yet been identified by the operator. The satellite surveillance facility can be used in tandem with aerial surveillance, where pre-planned flights follow the path of the satellite pass.

87. In summary, whilst the continued development of the UKCS offshore oil and gas sector is considered to be crucial to the security of the UK's energy supply, the Government is committed to ensuring that the impact of oil and gas activity on the environment continues to be minimised. Legislation adopted over the last fifteen years has resulted in the development of a comprehensive, robust and effective environmental regime, which is consistently applied, understood by industry and fully satisfies the UK's international obligations.

What are the hazards and risks of deepwater drilling to the West of Shetland?

88. Drilling for petroleum is an intrinsically hazardous activity. It involves breaking the integrity of an underground reservoir of highly flammable gases and liquids. The most immediate risk is therefore of fire and explosion with a consequential loss of heavier hydrocarbons contained in the reservoir leading to environmental pollution.

89. Most wells drilled in the UK's waters present a hazard of a blowout but there are degrees of technical difficulty with not all wells being equally hazardous or having the same risk of failing. The majority of wells are at the low difficulty end of the spectrum. Deepwater wells tend to be at the higher end of the spectrum. The factors that affect the risk profile include:

— the nature of the rock strata;

— the pressure and type of fluid expected to be encountered (eg how much gas or oil there is);

— the depth of the well beneath the seabed; and

— the depth of water in which the well is being drilled.

90. Many of these factors tend to extend over wide areas and so inevitably are better understood the more wells have been drilled in an area. For example, a condition that is exceptional in an early well can be routine in later exploration in the same area. However, even in mature exploration areas, errors or unexpected conditions can occur. For this reason, it is essential that procedures are in place for the well to be designed to contain the flow and that the drilling crew are trained to know how to avoid errors and respond to abnormal events.

91. Potentially challenging wells are already drilled in many parts of the UKCS. For example, wells drilled deep into the formations of the Central North Sea often encounter abnormally high pressures and require great care. To assist in this process the UK industry has developed detailed guidance on planning and drilling high pressure wells, with even more stringent safety requirements than for more routine wells.

92. The frequency of "kicks"[54] (an early warning that there has been an unexpected flow into the well and that action must be taken) varies widely between geographical areas, with kicks more common, although generally low risk, in the Southern North Sea, which has been explored since the 1960s. In 2009 there were 18 kicks in the UKCS.

93. Although offshore drilling operations in UK waters all carry a risk of a blowout, these risks are heightened in deepwater. This is because there is a chance of the marine pipeline, or riser, between the drilling rig and the seabed failing or disconnecting allowing drilling fluid to leak out and lighter seawater to seep in. This will cause the well to flow. In consequence of this added hazard, operators need a high level of confidence in the operability of blowout preventers.

94. To date there has been limited exploration West of Shetland, and hence the pressures and the geological hazards are less well known—it is the UK's frontier exploration area. However, from experience to date, and in contrast to the Gulf of Mexico, the geology in the UK's deepwater offshore blocks West of Shetland appears relatively benign. Since 2006, nine deep water wells have been drilled in the area with only one kick reported (a minor brine flow that did not pose a threat either to safety or the environment).

95. Other operational factors have the potential to make deepwater drilling hazardous. These relate to the high pressures encountered when drilling a well to such depths, the problems associated with stopping a flowing well and other well control risks (see background at Annex D).

Is deepwater oil and gas production necessary during the UK's transition to a low carbon economy?

To what extent would deepwater oil and gas resources contribute to the UK's security of supply?

96. Taking both of these questions together, the Government believes that UK deep water oil and gas production is necessary during the UK's transition to a low carbon economy, and that recovery of indigenous resources contributes to the UK's security of supply. The following text details the expected contribution of oil and gas to the UK energy mix and by extension security of supply.

97. The table below shows that on central projections (consistent with DECC's Updated Energy and Emissions Projections published in June 2010 at

http://www.decc.gov.uk/en/content/cms/statistics/projections/projections.aspx) oil and gas are each expected to continue to provide a third or more of total UK primary energy demand until at least 2025. Together, they are expected to continue to provide approaching three quarters of total UK energy demand. The UK is no longer self-sufficient in oil or gas but indigenous production of both is expected to be a major contributor to meeting domestic demand in the years ahead. On the basis of DECC's UK oil and gas production projections published in September 2010 (at

https://www.og.decc.gov.uk/information/bb_updates/chapters/Section4_17.htm), UK oil and gas production are each expected to provide half of UK demand in 2020 and well over a third in 2025.

SHARES OF TOTAL UK PRIMARY ENERGY DEMAND

	2010	2015	2020	2025
Oil	36%	37%	37%	38%
Gas	38%	35%	33%	36%
Oil & Gas	74%	72%	71%	74%

UK Oil Production	29%	23%	18%	14%
UK Gas Production (Gross)	25%	21%	17%	13%
UK Oil & Gas Production	54%	44%	35%	27%

UK PRODUCTION AS PROPORTION OF UK DEMAND

	2010	2015	2020	2025
Oil	80%	62%	49%	37%
Gas	66%	60%	50%	36%
Oil & Gas	73%	61%	50%	36%

98. The contribution of deepwater oil and gas, whether from the UK or elsewhere, has not been projected separately. But deepwater reserves have the potential to provide a significant share of UK production and (thus) to meet a sizeable share of UK energy demand in the years ahead.

99. As noted above it is vital for UK security of supply and the economy that the Government and industry work to ensure economic recovery of indigenous hydrocarbon reserves. Oil and gas are still a major UK resource and, although some 40 billion barrels of oil equivalent (boe) have been produced so far, there are perhaps 20 billion boe, maybe more, left to produce.

100. Currently, the main prospective oil and gas producing areas in deep water within the UKCS are considered to be in areas West of Shetland. The area West of Scotland may contain substantial hydrocarbon resources but owing to the lack of geological knowledge and distance to existing infrastructure, only very small areas have been explored and therefore much less is actually known about the potential oil and gas resources. The water depths map attached at Annex C also shows an approximate dividing line between the areas considered to be West of Scotland and West of Shetland.

101. Based on current analysis the area to the West of Shetland is estimated to hold a potential 3.5 to 4.5 billion boe, which is around 20% of the UK's remaining oil and gas reserves. This includes about 1 billion boe of gas, (which represents around 17% of remaining UK gas reserves), the majority of which lies in deep water. The remaining West of Shetland oil potential (some three billion barrels) is split approximately 50:50 in deep vs shallow water. The area West of Scotland may contain perhaps 1 billion boe, almost all of which is likely to be in deep water, although, as noted above, current resource estimates for this area are highly uncertain.

102. Overall the deepwater oil and gas resource potential (including both West of Shetland and the less well understood West of Scotland) is estimated therefore to be around 3 to 3.5 billion boe (some 15-17.5% of UK total resources) of which about a third is gas and two thirds oil. But it should be noted that this estimate includes 1 billion boe of highly uncertain resource from the West of Scotland area. The pie chart below shows the make up of UKCS reserves and elements attributable to west of Shetland and West of Scotland.

103. It can be seen that deepwater areas make a significant contribution to the future UK energy mix. Earlier this year DECC gave the go-ahead to Total's Laggan/Tormore gas development, which lies in 600 metres of water, and which is set to open up West of Shetland for wider oil and gas development with a new gas pipeline to mainland Scotland via the Shetland Islands. First gas is scheduled for 2014.

SUMMARY AND WAY AHEAD

104. As indicated in the evidence above, Government considers that the UK regulatory regime is robust but nobody in our regulatory process can afford to be complacent. Faced with the events we saw unfold in the Gulf of Mexico we must continue to do everything we can to minimise the risks so this will never happen in the UK. We have therefore instigated or contributed to a wide range of initiatives addressing all aspects of drilling operations.

105. At the domestic regulatory level HSE, DECC and MCA have undertaken rapid reviews of regulatory regimes to ensure that they are fit for purpose.

106. At the international level, the UK is a key contributor to European Commission led efforts to review the suitability of European legislation and to share best practice approaches, and will do the same with respect to G20 initiatives. The UK is also working with Norway, with both countries committed to exchanging information between them and conferring on the investigations into the Gulf of Mexico oil spill and the appropriate regulatory and industry responses to the accident.

107. At the technical and operational level, the joint industry, trades union and regulator forum, OSPRAG, is making good progress in developing new designs for well capping and containment technology as well as looking more broadly at first response and longer term remediation capability and well control and well examination guidelines. The outcomes of this OSPRAG work will be a key influence on future regulatory and response work.

108. At the operational level:

— HSE, DECC and MCA remain in close contact with BP and the US Authorities to ensure that we get the earliest feedback on Deepwater Horizon causation that we can then act upon;

— DECC's environmental inspection capacity for mobile drilling has been increased, and where appropriate and where offshore facilities allow, DECC environmental and HSE safety inspections will be made at the same time; and

— proposals for drilling in deepwater West of Shetland are being thoroughly scrutinised, including rigorous testing against the findings of BP's report into the causes of the Deepwater Horizon accident. The companies will have to provide evidence that effective arrangements are in place and tested, to secure full cooperation between all companies involved and between the companies and relevant agencies, and that these arrangements effectively provide for international cooperation where relevant.

109. With these workstreams in progress, once the causes of the Deepwater Horizon incident are known, DECC, HSE and MCA will take stock of the totality of legislative and technical barriers to similar incidents happening on the UKCS. In doing so, to ensure that an independent perspective is brought to bear on the work, we intend to involve external experts who will have relevant background knowledge of offshore oil and gas activities and/or regulatory processes but who currently sit outside of government or industry.

September 2010

Annex A

ENERGY & CLIMATE CHANGE SELECT COMMITTEE—DEEPWATER DRILLING INQUIRY: ADDITIONAL INFORMATION REQUESTED BY THE NATIONAL AUDIT OFFICE (NAO)

INTRODUCTION

Since 2000, there have been 3,002 wells drilled on the UK Continental Shelf. Of these, 145 have been drilled in depths of 300 metres or more. 87 of these were development wells on the Foinaven, Schiehallion and Loyal fields. The remainder were exploration or appraisal wells West of Shetland or West of Scotland.

RESPONSES TO NAO QUESTIONS

1. Oil spills (barrels/tonnes) resulting from UK deepwater drilling operations in each year during the last 10 years?

In the period from 1 January 1999 to 11 August 2010, there were no crude oil drilling operation spills in water depths of over 300m.

2. Number of reported incidents involving deepwater drilling operations by type in each year during the last 10 years?

Information on well control incidents reported to HSE for wells drilled at water depths of over 300m (~1,000ft) is shown in the following table. Years with no incidents are not shown.

TYPE YEAR NUMBER Investigated

Minor kick 1998-99 1 0

Minor kick 1999-2000 2 2

Minor kick 2001-02 1 1

Minor kick 2002-03 3 2

Minor kick 2004-05 1 0

Minor kick 2005-06 1 0

Minor kick 2007-08 2 0

Minor kick 2009-10 2 0

Totals 13 5

A minor kick is a small influx into the well (less than 20 barrels) which was detected in a timely manner, controlled and removed without further influx or release of hydrocarbons.

There have been no incidents reported to DECC involving deepwater drilling operations during the period from 1 January 1999 to 11 August 2010.

3. Total oil production (barrels) from deepwater drilling during last 10 years (compared to total North Sea production)?

Over the calendar years 2000 to 2009, total UKCS oil production was 6,896 million barrels, of which 552 million barrels (ie 8%) came from deep water (viz Foinaven, Schiehallion and Loyal fields).

4. Number of deepwater drilling incidents investigated; number of prosecutions; number and value of penalties (£s) in each year during the last 10 years?

There have been no deep water drilling incidents which required investigation by DECC in the last 10 years.

For investigation of safety incidents see Table in Q2 above. All of the incidents reported to HSE were minor kicks and there were no related prosecutions. A minor kick is not in itself a safety failure as the safety barriers operated effectively to control influx to the well.

5. Minimum, maximum and average length of time taken to investigate incidents/close cases?

The average length of time taken to investigate the well kick incidents was 29 days within a range from five to 53 days.

6. Number of incidents (and level of severity) by Company?

WELLS DRILLED IN WATER DEPTH OF OVER 300M (~1,000FT). 1998-2010

Severity of incident	Company	Wells drilled	Number of incidents	Investigated
Minor	BP	81	5	3
Minor	Chevron (Including Texaco)	10	2	0
Minor	ExxonMobil (as Mobil)	4	3	2
Minor	Hess	4	3	0

Seven other companies drilled a total of seventeen other wells in the same period

7. Planned and actual spending on inspection/enforcement relating to deepwater drilling operations in 2009-10, and budget for inspection/enforcement in 2010-11?

DECC has no set budget for environmental inspection & enforcement activity related to mobile drilling units as all spend is recoverable through fees paid by the offshore oil & gas operators. Actual spend on environmental inspection & enforcement activity related to mobile offshore drilling rigs in 2009-10 was approximately £190,800. This covers staff, accommodation, allowances & equipment costs.

In 2010-11 again there will be no set budget as actual spend will be recovered via fees. However, it is estimated that actual spend for environmental inspection & enforcement activity related to mobile offshore drilling rigs will increase to approximately £424,131 taking into account increased numbers of inspectors and inspections.

These figures do not include the environmental managers (see question 8 below) nor the administrative support given to both the Inspectorate and the Management Team. The overall budget for all environmental regulatory activities for 2009-10 is £5.1 million.

HSE has no separate budget for activities related to deepwater drilling operations and the level of regulatory activity is dependent on the operations which are planned or carried out by offshore operators. HSE's planned and actual spends for all offshore inspection and enforcement (including assessment and investigation) is summarised below:

Year Plan Actual

2009-10 £13,757,229 £12,742,428

2010-11 £13,704,371 -

Note: The enforcement of offshore safety law takes place under a cost recoverable permissioning regime. The above figures relate to the planned and actual cost recoverable activity and are calculated under a Memorandum Trading Account.

8. Number of staff trained in the inspection of deepwater drilling operations, and number of unfilled vacancies?

Within DECC there are six environmental inspectors and one senior environmental inspector, all of whom have been trained to carry out environmental inspections on all North Sea Installations/mobile drilling rigs, including those carrying out deep water drilling operations. Following the Gulf of Mexico incident, it was decided that an additional three inspectors should be recruited to allow us to increase the number of inspections being carried out both generally and more specifically in relation to deep water drilling. The recruitment process is well progressed with interviews being held during w/c 16 August. Following completion of this process and given the likely conditions of the applicants' current employment, we would anticipate the additional staff being in place by mid-October.

In addition to the Offshore Inspectorate, DECC also employs three senior environmental managers and six environmental managers, who are responsible for the environmental assessment of offshore oil and gas activities and for the administration of environmental legislation. The Environmental Management Team coordinates the review of applications or submissions required under various legislation, for example environmental statements, applications for chemical permits and applications to undertake seismic surveys (all of which may be required in relation to drilling operations). Most of these activities are controlled by the issue of activity specific permits, consents or authorisations. There is one vacancy in this team for which we are currently recruiting.

The Health and Safety Executive has 114.5 specialist inspectors involved in the regulation of health and safety of the UK's offshore oil and gas industry (figures as at 1 April 2010). This equates to 105.5 inspector years when factors such as part time working are taken into account. Specialist inspectors are employed in safety critical areas such as Well Engineering, Process Safety, Fire and Explosion, Marine & Structural, Evacuation and Escape, Mechanical, Electrical and Diving.

There are 10 Well Engineering inspectors who deal specifically with well control and drilling operations. Deepwater drilling is not a separate specialism within well engineering; rather the potential difficulties increase progressively with the water depth and other factors such as exposure to weather. The more experienced inspectors deal with the more complex drilling notifications.

Across all offshore disciplines there are 18 vacancies; there is one vacancy within Well Engineering.

9. Number of inspections of deepwater drilling operations planned and number completed in 2009-10; and number planned for 2010-11?

Offshore drilling activity will vary throughout the year, but currently there are approximately 24 mobile drilling operations ongoing in the UKCS. DECC's offshore environmental inspectorate use a risk based strategy to implement their offshore inspection regime. Of those rigs undertaking drilling activity in the UKCS at present, approximately 25% are working on gas reservoirs, which inherently pose less of a potential risk to the environment compared with those working on oil reservoirs. The locality of any rig also contributes to the risk assessment process. As such the Department is focused on those rigs that are undertaking exploration, appraisal and development drilling of oil reservoirs.

The Department's Offshore Inspectorate undertake a series of prioritised environmental inspections to fixed installations and drilling rigs using a risk based approach. The inspections ensure that permit holders/operators have been, or are complying with the requirements, restrictions or prohibitions imposed upon them by the relevant statutory provisions. In 2009, DECC carried out 12 drilling rig inspections of which one was in deep water. There is currently 1 deep water inspection planned for 2010-11.

The average number of drilling rig inspections by DECC in past years has been eight and at least 16 are intended during 2010. Although DECC will be focusing particularly on those drilling in deep water, this is dependent on activity actually taking place at these water depths.

2009-10 OFFSHORE DEEP WATER (+300M WATER DEPTH) DRILLING ACTIVITY INSPECTIONS BY HSE:

	All offshore specialist inspections	Inspections involving wells inspectors
Leiv Eiriksson	1	1
Paul B Lloyd Jr	1	0
Stena Carron	2	1

The inspection of well operations is not solely performed offshore but is also conducted onshore by inspection of Well Notifications. In 2009-10 HSE received some 500 offshore well operation notifications which included 20 in deep water; 275 offshore designs were inspected of which 29 were in deep water. (Some of these 29 were significant changes to design not recorded as separate notifications. Deep water West of Shetland is largely an exploration area involving a higher level of design review than mature areas.)

2010-11—To date no drilling activity in deep water.

A well notification has been received for deepwater drilling activity (Chevron Stena Carron). HSE plans to undertake an inspection of the drilling operation this year if the well goes ahead.

A safety case currently being assessed for the Seadrill West Phoenix which is capable of operating in deep water. One inspection of West Phoenix has already taken place this year with a further two pending.

10. A copy of DECC's recently completed review of the safety and environmental regulatory regimes?

In light of the Gulf of Mexico incident, and on the basis of the limited information currently available, Senior Management conducted a rapid review of the implications for DECC's offshore regulatory regime.

It was considered that in the past, drilling activity has mainly been conducted in water depths of less than 300m. The review looked at potential future levels of activity and the resources available to ensure compliance with regulations. In addition, existing regulations and controls and in particular those related to oil spills and contingency plans were reviewed. This concluded that with exploration and appraisal moving to ever deeper waters and to the particularly environmentally sensitive area to the West of Shetland it would be prudent to reinforce the level of assurance available that the regulatory processes are being adhered to. So, although the current regime was considered to be fit for purpose, it was determined that DECC should further strengthen this regime. As a result, three additional environmental inspectors are to be recruited and more environmental inspections carried out. Regulation will only work if it is applied fully by those regulated and we are determined to ensure that this is the case by carrying out increased checks on compliance.

The review activity did not result in a written report. A further much more comprehensive review of the UK regime will be undertaken as soon as the detailed analysis of the factors which caused the Gulf incident has taken place. This will look at the how the root causes of the Gulf incident can be protected against and determine what more, if anything, needs to be done to reinforce further our regulatory approach.

11. Of the North Sea platforms in operation, how many are exploration rigs and how many are production platforms, and how many are operating in deepwater (or plan to be)?

There are 289 oil and gas installations on the UKCS (270 platforms and 19 Floating Production Systems), of which two are located in deep water (the Foinaven and Schiehallion-Loyal FPSOs)

(see

https://www.og.decc.gov.uk/information/bb_updates/appendices/Appendix13.xls )

There are no approved Field Development Plans in place for new deep water installations. However there is a Floating Production System being planned for Chevron's Rosebank project. Also for the Schiehallion field, the operator is planning to build and install a replacement FPSO.

Total are developing the Laggan and Tormore gas fields in ~ 600 m water depth West of Shetland using subsea technology . This does not require a production platform, but drilling using mobile drilling rig is expected to start in 2012 to allow first production in 2014.

BP are planning to replace the Schiehallion FPSO with a new, larger, vessel in 2014. Chevron are considering options for a floating production system on Rosebank, but no decision has yet been made on whether or not to proceed to development.

Development options for three other deep water discoveries are being studied, but no decision has yet been made on whether or not to proceed or what development scheme might be adopted.

SUPPLEMENTARY QUESTIONS

A: An up to date stakeholder map of who does what in respect of the regulatory framework over environmental, health and safety framework (including whether MMO taken over the role of MCA for pollution from shipping and offshore installations)

A stakeholder map attached is attached at Annex B. The Maritime and Coastguard Agency remains responsible for pollution from shipping and offshore installations. The Marine Management Organisation does not have a role to play in this area.

B: The date of the latest DECC review on oil pollution emergency plans, and the results of this review?

Under The International Convention on Oil Pollution Preparedness, Response and Co-operation 1990 (OPRC Convention) and The Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) Regulations 1998 (OPRC), all operators of an offshore installation or oil handling facility must, to satisfy the requirements of the OPRC regulations, have in place an approved oil pollution emergency plan (OPEP). The Department of Energy and Climate Change is the competent authority for the approval of such plans and as such has also issued Guidance Notes to Operators of UK Offshore Oil and Gas Installations (including pipelines)
https://www.og.decc.gov.uk/environment/msr1998.htm to assist operators in their preparation and submission. This Guidance Note was re-issued on 3 April 2009 after a comprehensive review of the structure and format of content, including a suggested layout of the plan. The consultation process involved all DECC stakeholders, such as the Maritime and Coastguard Agency (MCA), Joint Nature Conservation Committee (JNCC), Oil and Gas UK and oil and gas operators.

The information provided in the Guidance Note allows an operator to prepare and submit a more focussed response document that sets out the arrangements for responding to incidents which cause or have the potential to cause marine pollution by oil, with a view to preventing such pollution or reducing or minimising its effect. The plan is relevant and particular to a specific field or installation and covers activity such as drilling rigs carrying out exploration, appraisal, development and production operations, production installations, pipelines, subsea tiebacks, new installations that are on site but not yet producing. All OPEPs must be resubmitted for approval every five years and operators must submit the plans at least two months prior to the end of this period to ensure an approved OPEP remains in place.

The plan covers a variety of topics for both onshore and offshore personnel, including:

1. Pollution incident scenario and hazard identification;

2. Pollution incident assessment;

3. Dispersant and aerial surveillance requirements. In this regard, there are minimum dispersant and aerial surveillance response requirements that must be met and must be detailed within the plan. The operator must specify within the plan their capability to provide such surveillance or dispersant arrangements. In addition, should a plan identify an activity taking place in any block wholly or partly within 25 miles of the coastline, additional measures must be considered, including:

— Presence at all times of a vessel with the capability to provide dispersant spraying within a shorter period (30 minutes of notification),

— Sufficient dispersant stock to deal with a pollution incident of 25 tonnes and if required have the capability of recovering oil likely to be lost under a Tier 1 scenario, and

— Submission of a Shoreline Strategy Plan. The potential for shore line contamination must be assessed and determined by the operator and must be submitted with the OPEP. The Shoreline Protection Plan must contain certain information, such as:

— Procedures for the shoreline protection, response initiation, implementation and close out;

— Arrangements with local authorities and other integrated emergency management responders for the methods to be deployed to respond and recover any oil that reaches the coastline. In this regard, local authorities and other responders will ensure the plan co-ordinates with local arrangements developed as part of the NCP and/or those through the Civil Contingencies Act 2004 ( Resilience groups);

— Details of environmental sensitivities likely to be affected; and

— Estimated resource mobilisation and deployment times.

4 Response strategy and implementation. Included within this remit are the tier levels of response, namely:

— Tier 1 is the lowest level of response and requires resources to be available on the offshore installation—dispersants may or may not be used;

— Tier 2 is for larger pollution incidents where the local resource may be insufficient. In these cases, and as detailed with the plan, the operator would call upon the resources of a third party contractor to provide assistance—again this capability must be able to be mobilised within a minimum period of time; and

— Tier 3 is where national resources are required and the NCP implemented. MCA dispersant stocks are located at various locations around the UK, including Inverness, Shetland, Northern Ireland, Southampton and Coventry, whilst Shoreline and Offshore Response Equipment are currently held at Bristol, Barnsley and Dundee.

Under the OPRC Regulations, personnel with a responsibility for oil pollution incident response must be competent, both in oil pollution incident response and in the use of their OPEP. Again, DECC has produced Oil Response Training Guidance which must be followed by industry as a minimum standard.
https://www.og.decc.gov.uk/environment/msr1998.htm

To ensure the OPEP is, and remains fit for purpose, operators are expected to exercise personnel and equipment through different scenarios at different frequencies. For example, as a minimum, the offshore OPEP must be exercised by every shift offshore at least once per year and the offshore deployment of Tier 1 dispersant spraying equipment must take place at least once per year.

Finally, The Offshore Installations (Emergency Pollution Control) Regulations 2002 (EPC) give the Secretary of State for Energy and Climate Change the powers to intervene in an incident involving an offshore installation where there is, or there may be a risk of significant pollution. The Secretary of State's Representative (SOSREP) acts as the single representative on behalf of the Secretary of State.
https://www.og.decc.gov.uk/environment/msr1998.htm

The SOSREP will monitor the operator's response to a pollution incident and if he deems necessary, has the powers to give directions and to take such other actions as may be necessary to prevent or minimise pollution or the threat of pollution.

Operators must have facilities and personnel available to work alongside their existing Emergency Response Centre to accommodate the SOSREP and his associated team in the Operations Control Unit (OCU), which may be set up as a result of a pollution incident. Within their respective OPEPs, operators must:

— include arrangements to reflect the potential involvement of the SOSREP and his team;

— demonstrate where the OCU fits into the company's emergency response management structure; and

— identify those personnel who may be deployed to the OCU as part of the SOSREP's team.

It is a requirement of the legislation that every five years each operator must conduct an exercise to test the OPEP and the involvement of the SOSREP.

C: Confirmation of whether the regulatory regime been subject to best practice review by the Better Regulation Task Force or Risk & Regulation Advisory Council and the results of that review if one has been completed

The DECC oil & gas regulatory regime has not be subject to either a best practice review by the Better Regulation Task Force or Risk & Regulation Advisory Council.

However, Action 9 of DECC's Annual Energy Statement makes a commitment to "undertake a full review of the oil & gas environmental regime following the outcome of investigation into the causes of the GoM incident." This review of the UK regime will be undertaken as soon as the detailed analysis of the factors which caused the Gulf incident has taken place. This will look at the how the root causes of the Gulf incident can be protected against and determine what more, if anything, needs to be done to reinforce further the UK's regulatory approach.

The Better Regulation Task Force undertook an enforcement review which included health and safety in its scope in 1999. This was a general study and did not specifically consider the offshore regulatory regime.

Annex B

UK OFFSHORE OIL & GAS REGULATORY LANDSCAPE—KEY

CCW	Countryside Council for Wales
CEFAS	Centre for Environment, Fisheries & Aquaculture Science
CPA 1949	Coast Protection Act 1949
DCR	Offshore Installations & Wells (Design & Construction, etc.) Regulations 1996
DECC LED	Department Energy & Climate Change—Licensing Exploration & Development
DECC OED	Department Energy & Climate Change—Offshore Environment & Decommissioning
DEFRA	Department for Environment, Food & Rural Affairs
EA	Environment Agency
EHS	Environment & Heritage Service
EPC	The Offshore Installations (Emergency Pollution Control) Regulations 2002
EU EIA Directive	Environmental Impact Assessment Directive
EU ETS	The Greenhouse Gas Emissions Trading Scheme Regulations 2005
EU SEA Directive	Strategic Environmental Assessment Directive
FEPA	Food & Environment Protection Act 1985
HSE OD	Health & Safety Executive Offshore Division
JNCC	Joint Nature Conservation Committee
MAR	Offshore Installations & Pipeline Works (Management & Administration) Regulations 1995
MCA	Maritime & Coastguard Agency
MMO	Marine Management Organisation
MOD	Ministry of Defence
MS	Marine Scotland
NE	Natural England
NFFO	National Federation of Fishermen's Organisations
NIA	Northern Ireland Assembly
NLB	Northern Lighthouse Board
OCR	Offshore Chemicals Regulations 2002
OPEPS	Oil Pollution Emergency Plans
OPPC	Offshore Petroleum Activities (Oil Pollution Prevention & Control) Regulations 2005
OPRC	The Merchant Shipping (Oil Pollution Preparedness, Response Co-operation Convention) regulations 1998
PFEER	Offshore Installations (Prevention of Fire & Explosion, & Emergency Response) Regulations 1995
PPC	Offshore Combustion Installations (Prevention & Control of Pollution) (Amendment) Regulations 2007
SCR	Offshore Installations (Safety Case) Regulations 2005
SEPA	Scottish Environment Protection Agency
SFF	Scottish Fishermen's Federation
SG	Scottish Government
SNH	Scottish Natural Heritage
SOSREP	Secretary of States Representative
SRSCR	Offshore Installations (Safety Representatives & Safety Committees) Regulations 1989
TH	Trinity House
UKHO	United Kingdom Hydrographic Office
WAG	Welsh Assembly Government

Annex D

BACKGROUND NOTE

OPERATIONAL FACTORS WHICH COMPLICATE DEEP WATER DRILLING OPERATIONS

Wells are controlled and prevented from flowing by a column of high density drilling fluid, commonly referred to as "mud." The level of risk at any given well location is determined by the particular way in which rocks have been laid down over time. However there are a number of operational factors for deepwater drilling operations that result in the wells being more difficult to control. As a rule of thumb the reservoir pressure is determined by the depth below the sea surface, while rock strength increases only with depth below seabed. As result, for a given depth below seabed deepwater wells are more highly pressured than wells in shallower water, while rock strength is unaffected by water depth.

Factors which affect well control in deep water wells include:

— Higher pressures encountered when drilling a well. There is no information about the pressure regime in the Gulf of Mexico well, but assuming a normal pressure gradient, the reservoir pressure would be in the order of 8,000 psi compared to 6,000 psi for a well in shallow water in otherwise similar circumstances.

— Lower tolerance to kicks. As deep water wells tend to be more highly pressured they require a higher density of drilling fluid to control the reservoir. However, the rock strength may be insufficient to withstand the higher density of the fluid, fracturing the rock, allowing the drilling fluid to leak away and allowing the reservoir to flow. This is countered by lining the well with steel casing and has to be done more often than in wells in shallower water.

— Temperature variations between cold sea and hot rock below the seabed can alter the density of the drilling mud. In deep water drilling, this complicates the ability to control the density of the drilling fluid, keeping it sufficient to stop the well from flowing but not too high to fracture the rock.

— Less responsive pressure control arrangements. With the long distance between rig and seabed changes in pressure in the well take longer to detect, and longer to respond to action taken at surface to control them.

— Disconnection or failure of the marine riser. The marine riser is the large diameter pipe connecting the well at seabed to the rig at surface during drilling operations. The riser will contain high density drilling fluid, but before it is disconnected the drilling fluid ("mud") will need to be replaced by seawater. In deep water the combination of seawater in the riser and drilling fluid below the seabed will be insufficient to prevent the reservoir from flowing, so for planned disconnection the density of drilling fluid below seabed is increased to compensate. For an unplanned disconnection or failure of the riser, the well must be shut in at the seabed by closing the blowout preventers at the seabed.

51 A Shallow gas event occurs where hydrocarbon gas close to the sea bed is encountered during drilling operations and, as it cannot be contained using standard well control practices, it is allowed to deplete. Eleven of these type of events have occurred in the UKCS since 1987. Back

52 DECC's enforcement policy, which is publicly available, sets out the general principles that inspectors shall follow to ensure that any enforcement action taken is proportional, consistent, transparent and targeted.
https://www.og.decc.gov.uk/environment/EIE_Policy.pdf Back

53 Lord Donaldson's Review of Salvage and Intervention and their Command and Control, published February 1999 ISBN 0 10 141932 5 Back

54 For the most part, kicks involve geological conditions (eg dolomite rafts which float in salt and compartmentalized reservoirs) that are difficult to detect before the well is drilled. Kicks are more common in the Southern North Sea and, generally, these are low risk as they involve brine and not hydrocarbon. Back



© Parliamentary copyright 2010	Prepared 6 January 2011