UK Deepwater Drilling-Implications of the Gulf of Mexico Oil Spill: Government Response to the Committee's Second Report of Session 2010-11 - Energy and Climate Change Contents

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 of Mexico.

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 UK economy.

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.

Malcolm Webb
Chief Executive

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 installation.

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 Case regime

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 to take.

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 Continental Shelf

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 controlled

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 lessons.

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[3].

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 property
  • 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 that:

  • 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 limit.

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 UKCS.

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 understanding.

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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