After Deepwater Horizon:The New Offshore Regulatory

Regime

66th annual Oil and Gas Law Conference

Houston, TexasFebruary 20, 2015

Copyright © 2015 by Michael R. Bromwich

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A shock to the offshore community and the country

Blowout of the

Macondo well

Sinking of the

Deepwater Horizon 

drilling rig

11 workers dead

Spill of 4.9 million

barrels of oil into the

Gulf of Mexico

The Accident

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Accident Triggered Prompt and Comprehensive Reexamination of Offshore

Regulation

• April 30, 2010 – President Obama commissioned 30-day report from Secretary of the Interior on “what, if any, additional precautions and technologies should be required to improve the safety of oil and gas exploration and production operations on the outer continental shelf.”

• Recommendations included:– Immediate new prescriptive requirements– Longer-term performance-based safety measures– Working groups to explore long-term safety issues

• Temporary deepwater drilling moratorium – originally 6 months

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Deepwater Drilling Moratorium

• Provided breathing space for implementation of measures recommended in 30-day report

• Provided time to gather information on three central issues implicated by Deepwater Horizon:– Prevention of blowouts and spills through new

regulations– Address need for capabilities to contain subsea blowout– Enhance oil spill response

• Lifted moratorium after less than five months (October 2010)– But no drilling permits issued until February 2011

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Results of Comprehensive Reexamination of Offshore Regulation

• Reviews highlighted major weaknesses in industry and government attempts to adequately address prevention, containment and spill response

• Accident served as wake-up call for industry, government and public

• Prompted comprehensive, critical reviews of existing safety technologies, practices, risk management, and regulations

• Goal: make immediate – and lasting – improvements

• Fresh assessments of prevention, containment and spill response

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Initial Regulatory Steps

• Use of Notices to Lessees (NTLs) – interpretation and application of existing rules

• NTL-2010-NO5 (June 8, 2010)– Incorporated many recommendations of 30-day report– Required certification of compliance from company CEOs– Required certification by professional engineer of well-

casing and well-cementing– Required 3rd party verification and certification of

blowout preventer (BOP)

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Initial Regulatory Steps (2)

• NTL-2010-N06 (June 18, 2010)

– Addressed need for more detailed information on blowout scenarios and worst case discharge scenarios

– Required companies to provide information on worst case spill

– Required specifics on drilling relief well– Focused on sharing all assumptions and calculations of

worst case discharge– Provided information on additional steps to prevent

blowout, and methods to intervene in possible blowout

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The Drilling Safety Rule

• Enacted on emergency basis – eliminated notice and comment process– Announced: September 30, 2010– Effective on publication: October 14, 2010– Revised and slightly modified as Final Rule: August 15,

2012

• Implemented many recommendations from 30-day report

• New requirements for: – Well-bore integrity– Well-control equipment

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Containment: The Missing Element

• Absence of containment capabilities to deal with subsea blowout

• Failure by industry and government to anticipate need for capability

• Series of techniques were tried and failed – Containment dome– “Top Kill” and “Junk Shot”

• Capping stack was successfully installed: July 12, 2010– Oil stopped flowing: July 15, 2010

• New requirement that operators demonstrate capability to deal with subsea blowout – NTL-2010-N10

• Capabilities developed by two industry consortia in February 2011, allowing deepwater permits to be approved

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The SEMS Rule (Workplace Safety Rule)

• Proposed in 2009, before Deepwater Horizon

• Safety and Environmental Management Systems (SEMS) Rule makes mandatory previously voluntary practices contained in API’s Recommended Practice 75 (RP 75)

• Published as final rule: October 15, 2010

• Industry was given until November 2011 before government would consider enforcement actions for failure to develop and implement SEMS program

• Companies required to submit first completed SEMS audit to BSEE by November 15, 2013

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SEMS II

• September 2011: Proposed enhancement to SEMS (SEMS II) announced– Safety audits required by 3rd party auditors– Enhancement of Stop Work authority– Employee participation for program implementation

• Published as final rule: April 2013

• SEMS II became effective on June 4, 2013

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Development of Hybrid Regulatory Model

• 30-day report and President’s Commission recommended adoption of Safety Case

• Recommendation was fully considered and its immediate adoption rejected – Deference to realities of wholesale transformation of

regulatory model – Dominance and acceptance of prescriptive model in U.S.– Lack of public confidence in industry to effectively

perform the types of analyses required by Safety Case• Implementation of SEMS is 1st step towards hybrid

regulatory model in U.S. • Future may see additional performance-based regulations

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Reorganization of the Former MMS

• Effectiveness of Minerals Management Service (MMS) diminished by conflicting missions: promoting resource development, enforcing safety regulations, and maximizing revenues from offshore operations.

• MMS was unable to keep pace with the challenges of overseeing industry

 

• In place of MMS, new independent agencies eliminated conflicts by clarifying and separating missions across new agencies.

Bureau of Ocean Energy Management (BOEM) 

Responsible for managing development of the nation’s

offshore resources in an environmentally and

economically responsible way

The Bureau of Safety and Environmental Enforcement

(BSEE) Responsible for developing, implementing, and enforcing

safety and environmental regulations

Reorganization of the Former MMS

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Summing Up

• Offshore drilling far safer now than in April 2010• Risks of offshore accident have been reduced but

not eliminated• Neither industry nor government can afford to

ignore or minimize risks • Collaboration between industry and government

not only necessary but desirable to enhance safety

• Government regulators need to master the difficult art of working with industry but remaining aggressive– Developing new regulations– Enforcing existing rules

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Michael R. BromwichFounder and Managing Principal

The Bromwich Group202-682-4267

www.bromwichgroup.com