Appendix Three: Response from Oil &
Gas UK |
When the Energy and Climate Change Select Committee
published its report on the inquiry into deepwater drilling in
the UK continental shelf, we welcomed its top-line conclusion
that the UK has high offshore regulatory standards, based on flexible,
goal-setting principles superior to those operated in the Gulf
Likewise, we also welcomed your recommendation that
there should not be a moratorium on deepwater drilling in our
waters, and the recognition you gave to the negative impact this
would have on UK oil and gas production, the country's security
of energy supply, and the economies of Scottish communities who
rely upon the activities of our industry as well as the wider
Nevertheless, Oil & Gas UK felt that there were
some aspects of the report that called for a direct response and
further explanation. With this in mind, my colleagues have drafted
the attached document, which I hope the Committee will find both
useful and informative.
22 February 2011
Oil & Gas UK Response to House of Commons
ECC Committee Report Recommendations
1. In the light of recent drilling activity in
the waters around the Falkland Islands, we asked witnesses from
OSPRAG and Oil & 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.
As Oil & Gas UK's membership and remit only extends
to operations within the UK Continental Shelf (UKCS), we would
respectfully suggest that the Committee seek clarification on
this issue from the Government.
2. 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.
Oil & Gas UK agrees with the Committee that environmental
experience is important within senior level management. In our
view, most oil companies do have Board members with such experience
as well as experienced senior management who oversee environmental
and safety issues. For its part, Oil & Gas UK has an experienced
Environmental Issues Director heading up a dedicated Environmental
Directorate and this reflects the importance which is attached
to such matters in our Industry.
3. 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 1988. The UK regulatory
framework is based on flexible, goal-setting principles that are
superior to those under which the Deepwater Horizon operated.
Oil & Gas UK agrees with this finding and thanks
the Select Committee for acknowledging the strength of the UK's
offshore regulatory regime.
4. 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.
The UK's offshore Safety Case regime requires the
industry to conduct its operations so that the risk to people
and the environment are reduced "as low as reasonably practicable"
(the "ALARP principle"). This by its nature requires
the industry as a whole to be forward-looking with regard to safety
and also to learn from incidents as they occur. We do not see
these as alternatives. Both are, essential and we are somewhat
concerned that in reaching this conclusion the Committee seems
to imply otherwise.
Within the UK offshore oil and gas sector, companies
are required to demonstrate they have considered all possible
eventualities within each installation's Safety Case and OPEP
(Oil Pollution Emergency Plan). The view of what constitutes a
'worst case' for that purpose shifted in the light of Macondo.
Furthermore we would also accept that, as an industry, we have
perhaps been overly, if understandably, focused on preventing
such incidents occurring in the first place, and as such may not
have given enough focus to our immediate preparedness to respond
to very low probability, high consequence incidents.
The industry is working to remedy this and through
the OSPRAG Technical Review Group the UK offshore industry has
now developed a capping device, an industry first, which is designed
to seal a leaking well within 10-30 days of a blowout occurring.
Alongside this, the OSPRAG Oil Spill and Emergency Response Review
Group has also conducted a thorough review of the UK's available
spill response 'tool kit' which includes dispersants, shoreline
responders and oil spill equipment. Plans are also underway for
an exercise of the UK's response to such an incident in May 2011.
We accept that such planning and preparedness needs to be kept
under constant review. Oil & Gas UK has been charged with
ensuring that this occurs through the work of its Well Life Cycle
practices Forum and its Oil Spill Response Forum.
5. 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.
We agree entirely with the Committee that it is imperative
that someone offshore must have the authority to halt drilling
operations without recourse to onshore management, and would advise
that there are at least two individuals offshore with this authority,
the first of which is Offshore Installation Manager (OIM).
Regulation 6 of the Offshore Installations and Pipeline
Works (Management and Administration) Regulations 1995 (MAR) requires
that an installation operator shall at all times ensure the installation
is under the charge of a competent person; the person in charge
is generally known as the OIM. The installation operator has also
to ensure that the OIM is provided with appropriate resources
to be able to carry out his functions. The OIM plays a key role
in the offshore installation's safety management system. The OIM
is responsible for day-to-day management of the offshore installation
and the health, safety and welfare of all people working on the
A key requirement of the regulations is the need
for an installation operator to ensure that the person appointed
as OIM is competent. Thus the OIM must be a person who has sufficient
training and experience or knowledge and other qualities (such
as leadership or sound judgment under pressure) to manage health
and safety measures on the installation
The primary duty and focus of every OIM is the safety
of those onboard their installation.
In addition to the OIM, the driller on the rig or
platform is also equipped with the authority to halt drilling
operations should they believe the safety of the drilling operation
is in doubt. The driller has both a legal and professional obligation
to check for well flow and close in a well if he or she has indications
of potential well flow. No higher authority (including the OIM)
is required in this event.
6. 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.
Oil & Gas UK notes the Committee's comments but
must urge caution with this recommendation.
We believe that building in the additional redundancy
of two blind shear rams across the entire UKCS is unnecessary
and may actually impede both operational capabilities and the
safe operation of some installations.
The Committee's recommendation here could be taken
to imply a desire to move towards prescriptive, equipment-based
regulation- something which has demonstrably failed to work in
the USA's regulatory regime and which goes against the goal setting
principles of the existing UK regime. The UK regime centres upon
the mitigation of risks associated with the drilling of a particular
well, in a particular location and using the best available solutions
to respond to those risks using ALARP principles. This is a flexible
and dynamic system which allows for advancements in technology
and good practice to be implemented swiftly.
We also fear this could imply an over-reliance on
one barrier or piece of equipment. Whilst the BOP is of course
an essential safety component, it is but one of several safety
barriers which should be in place. A focus on one barrier in the
manner suggested by the Committee risks detracting from the importance
of the others and again risks the creation of a prescriptive regime
with an over-reliance on an individual physical barriers rather
than an emphasis on the entire system of risk management.
OSPRAG has established a Well Life Cycle Practices
Forum (WLCPF) as part of its technical review work. A sub team
of this forum will address issues around the BOP, including this
recommendation from the Committee, and will be inviting the HSE
to discuss this matter and report. The WLCPF is also developing
a mechanism for reporting and sharing information on failures
of Safety Critical Equipment during testing, to heighten awareness,
enable trend analysis of failures and provide cross-Industry learning.
7. 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.
Oil & Gas UK support the Committee's emphasis
on the importance of ensuring critical safety equipment such as
the BOP meets certain standards. However, we fear that a move
towards an overly prescriptive approach, could undermine certain
of the important principles within the UK's world-leading Safety
In the UK regime, the BOP is classified as a "safety-critical"
system. This means that it must already meet certain criteria
following a goal setting approach. In addition to the legal requirement
placed on operators to ensure such equipment is maintained, the
BOP must be included in the operator's verification scheme. This
is a scheme for ensuring that safety-critical systems remain in
good repair and condition through independent checks to confirm
continuing suitability throughout the installation lifecycle.
As we have previously stated, a prescriptive focus
on minimum safety standards can have a significant detrimental
effect on safety and we therefore believe that the goal selling
approach already in place and outlined above is the correct one
8. 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.
Oil & Gas UK agrees that competent and robust
inspections both within companies and by the regulator are essential.
Within the UKCS, safety-critical systems (systems whose function
is to prevent or limit the consequences of a major accident) are
also subject to additional operation and functionality checks
by independent competent organisations.
Operating companies must have inspection regimes
that provide assurance of legal compliance and that safety equipment
is maintained and remains fit-for-purpose and will operate on
demand. A strong, goal-setting regime which guards against complacency
or a 'box ticking' mentality is vital to this.
The Macondo incident has demonstrated that high standards
of health and safety are best promoted where a strong challenge
is provided by competent and, importantly, well-resourced national
regulators. Regulators must have the high level of competence
to challenge companies, and operate confidently within a robust
and demanding goal-setting regime. In that regard, the industry
trusts that the Government will maintain resource and competence
at the HSE, DECC and the MCA.
9. 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.
Oil & Gas UK also has no such evidence and is
committed to the importance of preserving the vital role of these
independent verifiers (or Well Examiners as they are more commonly
known within the industry).
10. 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.
Oil & Gas UK acknowledges that there appears
to be some conflict in reports received by the Committee, but
would caution against broad extrapolations of observations regarding
bullying and harassment from one report relating to one rig. Whilst
we appreciate that this report's findings are understandably concerning
we would like to strongly emphasise that we do not believe they
typify the UK offshore industry.
As evidence to support the above statement, the HSE
Offshore workforce survey (May 2009 - based on a survey of 3,813
offshore workers) showed that:
- 90% of respondents reported
that they felt (very or fairly) well involved in health and safety
in their workplace.
- The overwhelming majority (96%) agreed that they
were fully aware of the major hazards in the workplace, and 97%
fully aware of the measures in place to prevent major accidents
in the workplace, with 99% understanding their role in the prevention
of major accidents.
- The HSE survey went on to show that 60% strongly
agreed that they were encouraged to raise health and safety concerns
in their workplace; a further 35% tended to agree.
- 91% agreed to some extent that they were confident
their health and safety concerns would be dealt with appropriately.
- 58% agreed strongly that their job security would
not be threatened if they stopped a job they thought was unsafe,
while a further 32% tended to agree.
- 79% would raise concerns over health and safety
management with their supervisor, 58% would go to their safety
representative, or to the OIM (55%).
However, the UK offshore oil and gas industry fully
recognizes the importance of a strong offshore safety culture,
free of any perceived intimidation. We are not complacent and
acknowledge that whilst even a perception of harassment or intimidation
remains there is still room for improvement.
This is why Oil & Gas UK, in partnership with
the offshore unions, developed the Guidelines for Removal of Offshore
Contractor Personnel in 2008, to address the so-called 'Not Required
Back' or NRB issue in a transparent way. Oil & Gas UK has
committed to an annual review of the Guidelines with the unions
and any alleged incidents of unjustified personnel removal linked
to safety claims are brought to the Board's attention.
11. 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
Oil & Gas UK agrees with this statement. Indeed
it was to address this very issue that the industry established
Step Change in Safety in 1997.
Step Change in Safety has the vision to make the
UK the safest place to work in the worldwide oil and gas industry.
Step Change in Safety members include installation operators,
the regulator, trades unions and supply chain companies. The members
of Step Change in Safety share a common set of beliefs that serve
to drive everything that they do to help work together to achieve
the vision. This includes:
1. All workers have a fundamental right to work
in an environment where risks to their health and safety are properly
2. Everyone has a contribution to make
3. We each have an individual personal responsibility
for health and safety
4. We have a moral duty to learn from the past
and share our learning
Industry cooperation is key to achieving the vision,
as is a workforce that is fully engaged in health and safety.
Step Change has a number of dedicated work groups, reviewed annually,
who work towards addressing safety issues including asset integrity,
occupational health, and hydrocarbon releases. These work groups
are populated with a mixture of senior industry leaders, key stakeholders
and experts from across the industry and its supply chain.
12. 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
The industry welcomes the sharing of any lessons
or best practice, and already has a wide number of forums to do
this (including IRF, NOIAs, NSOAF, OGP).
We would however caution that any such sharing must
be done with a view to maintaining the ALARP principle and the
protection of a goal setting regime.
13. 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.
We agree with the Committee that the Sly Report is
but one of a number of sources of information regarding the Macondo
incident, and that all available reports should be studied closely.
Oil & Gas UK and OSPRAG will be studying all related reports
to ensure that the findings are appropriately shared across the
industry in the UK.
14. 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.
We believe that this is currently the case, and the
DECC's recent communication on OPEPs evidences this view. We attach
a copy of this communication for the Committee's reference.
15. 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.
As above, we believe this is already the case and
there is no need to introduce any further requirements.
16. Given the high costs of the incident in the
Gulf of Mexico, we believe that the OPOL (Offshore Pollution Liability
Association) limit of $250 million is insufficient. We are concerned
that the OPOL provisions only cover direct damage and also that
the precise definition of "direct damage" is unclear.
While membership of OPOL remains voluntary-despite it being a
pre-requisite for a licence-its voluntary nature weakens its legality
and the control and deployment of its funds. We believe this lack
of legal control will allow polluters to claim that damages to
biodiversity and ecosystems are indirect, and therefore do not
qualify for compensation.
Within the UKCS there is no legal limit to the liability
and all licensees are (jointly and severally) responsible for
the consequences for their activities. In addition, we would also
highlight that DECC, through the UK licensing regime, has the
power to request that operators provide evidence of their ability
to meet liabilities which are not covered by OPOL. Companies typically
purchase a programme of insurances that embrace:
- Physical 1055 and damages to
- Control of well expenses (including drilling
relief well(s)); and
- Third party liabilities, including ring-fenced
cover at least commensurate with OPOL membership requirements
OPOL is an agreement between operating companies
- Each individual operator will
reimburse the costs of remedial measures incurred by public authorities
and pay compensation on direct costs on a strict liability basis
to third parties for pollution damage, providing claims are made
within a year of the event, up to the OPOL limit. Members are
required to submit evidence of financial responsibility (ability
to payout) to OPOL to confirm these liabilities can be met. Beyond
that limit claimants still have redress, but at law.
- In the event of an individual operator defaulting,
they will provide a mutual industry guarantee, up to the OPOL
The purpose of OPOL is to ensure that claimants can
recover quickly and efficiently without having to go to court.
The reference to "direct" 1055 or damage was made with
this in mind 50 that both claimants and operators have clarity
on the nature of the 1055 and damage covered by OPOL and was made
with a view to avoiding lengthy legal debate which would delay
payment/recovery. The concept of "direct" 1055 and damage
is one commonly used in English law agreements and there is plenty
of precedent to give clarity to its meaning.
OPOL provides an effective, safety-net mechanism
to assure government. However, it does not provide a physical
fund or weaken or limit the legal liability of licensees/operators.
OPOL is legally binding on its members and, in practice, is not
voluntary, as it is a DECC requirement for all Operators to be
bound into membership before they can conduct activities on the
The OPOL limit of $250 million per incident is considered,
based on previous independent oil spill studies, to be more than
sufficient for the vast majority of wells in the North Sea. As
the majority of well activities are adequately covered by the
current limit, raising the universal limit further to address
the few higher-risk (but low probability) wells would unnecessarily
burden and could even jeopardise normal UKCS operations.
We can see the case for potentially high impact wells
in the West of Shetland to have an additional 'top up' cover in
addition to OPOL. DECC already has the power to request such a
top up under existing regulations. DECC could therefore set the
requirement for this additional level of coverage for this small
number of wells.
Finally, the issue of compensation for damage to
eco-systems is a very complex issue that requires careful consideration.
An attempt to address damage to biodiversity has been made through
the EU Environmental Liability Directive.
17. We conclude there needs to be clarity on the
identity and hierarchy of liable parties to ensure that the Government,
and hence the taxpayer, do not have to pay for the
consequences of offshore incidents.
We conclude that any lack of clarity on liability will inhibit
the payment of compensation to those affected by an offshore incident.
We recommend that it should be a requirement of the licensing
process that the licensee prove their ability to pay for the consequences
of any incident that could occur. We recognise that these measures
could add to the cost of investing in new UK oil and gas production
and urge the Treasury to reflect this when considering incentives
to such investments.
Oil & Gas UK believes that the identification
of liable parties is an issue which is clearly set out in the
model clauses which provide the terms and conditions of operations
under petroleum production licences within the UKCS. The primary
liability rests clearly with the licensee, joint and severally
with their co-venturers.
It is also already the case that licensees can be
required to prove their ability to pay for any incident as part
of the licence granting process. DECC undertakes financial viability
assessment and financial capability assessment prior to awarding
a licence. Furthermore all operators (that act on behalf of these
co-venture licensees) have to become members of OPOL before they
get consent to undertake any operations.
18. We recommend that the Government consider
whether compulsory third-party insurance should become a necessary
requirement for small exploration and production companies.
Oil & Gas UK would urge the Select Committee
to reconsider this recommendation. We believe it is a mistake
to introduce compulsory layers of third party insurance. DECC
already has the powers to do so on a case-by-case basis under
the existing regulations, and have procedures in place. Compulsory
layers of insurance will be a very blunt instrument and insufficiently
focused on the requirements of each case -with an attendant risk
of insufficient cover being taken in a few cases whilst at the
same time running the risk of resulting in considerable surplus
and hence unnecessary cover and cost in many cases.
As part of its work, OSPRAG is considering how the
existing arrangements might be complemented to further enhance
Government assurance on the adequacy and applicability of financial
responsibilities for companies conducting drilling operations
on the UKCS.
19. We acknowledge that oil spill response plans
often share procedures for dealing with oil spills. There is some
concern that in the past this may have led to a culture of copying-and-pasting
rather than the production of site-specific plans which recognise
the drilling environment and the risk of high-consequence, low-probability
events. We recommend the Government re-examine oil spill response
plans to ensure that this is not the case.
Oil & Gas UK is not aware of any evidence to
suggest that 'copying and pasting' takes place within the UK sector.
Certain elements of a Safety Case or OPEP may be similar for different
platforms/rigs, given similarities in operations, but all plans
given will have to be justified to the regulator in order to meet
the requirements of the UK's goal setting regime under the ALARP
principle. This means that simply cutting and pasting would not
be sufficient to gain approval from the regulator.
Again, this highlights the vital importance of a
strong, competent regulator operating within a goal setting regime.
20. We recommend that the Government draw up clear
guidelines on the sub-sea use of dispersants in tackling oil spills,
based on the best available evidence of both their effectiveness
and their environmental impact. We also recommend the Government
monitor the effects of sub-sea dispersants in the Gulf of Mexico
to inform these guidelines.
Oil & Gas UK agrees with this suggestion as the
industry would find clarity on this point most helpful. We also
agree that the lessons from the Gulf of Mexico should inform the
Government's decision on this matter.
21. We recognise that the UK's oil spill response
system is robust and rightly focuses on prevention, followed by
containment and then clean-up. We welcome the development of new
capping and containment systems capable of dealing with a sub-sea
blowout. However, we feel that the absence of these devices before
the Macondo incident is indicative of the industry's and the regulator's
flawed approach to high-consequence, low-probability events. Prevention
is better than cure, and we recommend once again the Government
recognise that in its regulatory regime these systems are not
a substitute for fully functioning blowout preventers.
Oil & Gas UK does not believe that the UK has
a flawed approach to this issue. As outlined above, the industry
works under a goal setting regime which follows the principles
of ALARP. The industry works continuously to improve safety and
demonstrate that it can mitigate against events of all probability
and consequence. Macondo changed the understanding of 'worst case'
scenario for both industry and regulator, and as such the systems
in place are being adapted as appropriate to address this new
The BOP is an important part of the safety system
alongside many other barriers (including well design, independent
inspection, well management, strong regulators). However we caution
against a move towards a Il)ore prescriptive approach, or one
which focuses too much on single elements of a wider system. A
focus on one barrier only risks distracting attention from the
system as a whole. We agree with the Committee's emphasis on prevention
as the key focus, and therefore wish to make clear that, in order
to achieve this, the system as a whole must be robust.
However, we accept that the Industry has previously
tended to focus its efforts primarily on prevention, and that
Macondo has demonstrated the need for increased effort on response.
This is why OSPRAG established a specific Pollution Response Review
Group to review the UK's response plans and available and to look
for ways to improve upon the current arrangements in place.
22. There are serious doubts about the ability
of oil spill response equipment to function in the harsh environment
of the open Atlantic in the West of Shetland. We recommend that
the Government ensures that any capping, containment and cleanup
systems are designed to take full account of the harsh and challenging
environment West of Shetland.
The OSPRAG cap has been specifically designed for
the West of Shetland environment and a full exercise of the National
Contingency Plan is taking place in May 2011. This will be followed
by a physical deployment exercise which will demonstrate our ability
to deploy oil spill response equipment (including the cap) in
the harsh environment found West of Shetland.
23. We conclude that-as it stands-the EU Environmental
Liability Directive is unlikely to bring to account those responsible
for environmental damage caused by an offshore incident such as
happened in the Gulf of Mexico. We recommend that the Government
works with the EU to ensure a new directive is drawn up that follows
the polluter-pays principle and unambiguously identifies who is
responsible for the remediation of any environmental damage.
The EU Environmental Liability Directive is a complex
piece of legislation. Before any changes are proposed, it would
be useful to establish the shortfalls of the Directive and to
consider the pros and cons of possible remedies. Oil & Gas
UK is ready to work with Government to achieve this
24. We utterly reject calls for increased regulatory
oversight from the European Commission. We recommend that EU countries
without a North Sea coastline should not be involved with discussions
on regulation of the offshore industry on the UK Continental Shelf.
We welcome the Committee's finding.
25. We conclude that a moratorium on offshore
drilling in the UK Continental Shelf
would cause drilling rigs and expertise to migrate
to other parts of the globe. A moratorium on deepwater drilling
would decrease the UK's security of supply and increase the UK's
reliance upon imports of oil and gas. A moratorium could also
harm the economies of communities in Scotland who rely upon the
UK offshore oil and gas industry as well as the wider British
economy to which the industry makes a major contribution. There
is insufficient evidence of danger to support such a moratorium.
We conclude that there should not be a moratorium on deepwater
drilling in the UK Continental Shelf.
Again, Oil & Gas UK welcomes and supports the
Committee's conclusion on this matter.
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