US regulators zoom in on offshore operators deemed high risk

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A new inspection program targeting high-risk oil and gas operations in the Gulf of Mexico is designed to be more instructive than punitive, the US government official responsible for its implementation has revealed to Upstream Intelligence.

The Bureau of Safety and Environmental Enforcement (BSEE) typically assesses about 2,500 offshore facilities on operational safety each year. In a pilot program slated for the first half of 2016, the agency will take an additional step and inspect a handful of rigs, drilling operations and production facilities flagged for a history of incidents or near misses.

Doug Morris, the BSEE’s head of offshore regulatory programs, said the goal was to encourage operators to become more pro-active about ensuring a higher level of safety on their facilities. However, the BSEE retains the right to take action where it discovers safety violations, he said.

The agency plans to eventually roll out a full-scale risk-based inspection program. As in the pilot, this would be supplementary to the existing annual inspections and target a small number of GoM facilities identified as having an unusually high risk profile.

“We are not looking to replicate what we are already doing on an annual basis,” Morris said, explaining that the inspections may target specific equipment, safety-management plans or a combination of elements with the ultimate goal of improving a facility’s safety performance.

Identifying the targets

To assist the BSEE in choosing who to inspect, an American laboratory has designed a quantitative model that ranks facilities on their relative risk. The model analyzes reportable incidents and compiles a historical analysis of the platform’s safety performance; it looks at the complexity of the facility and the number of components that go into production.

About 500 facilities were flagged using this method, a number the BSEE has trimmed by checking for other indicators such as the records of the specific operators and the types of security violations they may have committed in the past.

The number of injuries in the Gulf of Mexico in 2014 topped the figure of 273 from the year 2010, which included the Macondo blowout and explosion (Source: BSEE)

The BSEE will also examine intelligence gathered from previous inspections of the facilities. A final step before deciding whether to inspect a facility will be to check its proximity to environmentally sensitive areas.

“We factor also positive issues such as a company having a real-time monitoring capacity and a good safety culture. A somewhat subjective analysis will allow us to adjust the selection process at the very end,” Morris said.

The BSEE plans to notify the five operators selected for the pilot inspection in the coming weeks. Upon completion of an inspection, the BSEE team will discuss with the operator the areas that need attention and will ask them to develop an action plan to address risk areas.

Selection does not necessarily mean the facility has a bad safety record or is a poor safety performer, BSEE Director Brian Salerno said when the agency announced the program in December, but only that certain risk factors are present that must be managed.

Questions to address

Industry groups have mostly refrained from commenting on the plan, perhaps because they are waiting for more detail to be made public.

Randall Luthi, President of the National Ocean Industry Association, told Upstream Intelligence: “If the pilot program improves and increases the efficiency of BSEE’s inspection process, operators and service companies can continue to focus on safe operations without repetitive and sometimes overlapping inspections.

Andrew Stakelum, a senior associate in King & Spalding’s energy practice, warned in an article on his firm’s website that the program would increase insurance costs of those operators selected for inspection – and would likely have a disproportionate effect on smaller operators.

“BSEE may well focus on older facilities with a history of incidents of non-compliance. Such facilities may have older designs and been constructed using methods acceptable for their time, utilize older equipment, and be approaching their end-of-life,” he wrote.

“An oilfield’s traditional life-cycle suggests that the larger operators are more likely to divest these older assets to smaller operators, which can more economically produce the assets. Inclusion in this risk-based program may render an economical facility compliant with regulations into a non-economical asset with higher operating costs, decreased marketability, and accelerated decommissioning liabilities.

“The unintended – or potentially intended – consequence of this program could be to incentivize the decommissioning of these higher-risk facilities and drive the smaller operators from the Outer Continental Shelf. The cost of deepwater exploration has largely foreclosed these plays from smaller operators. Increased operating costs and liabilities in the shallower waters, where the older facilities and oilfields predominate, may result in the same effect.”

For his part, Morris acknowledged that the initial set of inspections would be a learning process for industry and agency alike. The BSEE will review the pilot program to ensure it has put the right procedures and practices in place, he said.

Kick-off for the full program is slated for the end of 2016, with inspections to take place annually at the same time as the usual round of offshore assessments. The breadth of the full program will depend largely on budget and manpower. As Salerno said in December: “By focusing on facilities based upon their risk factors, BSEE can more efficiently and effectively manage limited inspection and audit resources.”

Article written by HEI contributor Vanya Dragomanovich of Upstream Intel.

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