6

Regulatory Reform

Offshore oil and gas exploration and production are inherently hazardous activities requiring the coordinated utilization of many complex systems by hundreds of people working for dozens of companies. Hazards associated with offshore drilling operations arise from a variety of activities and factors. As indicated in Chapter 5, some hazards can lead to accidents on the scale of individual workers and are in the realm of occupational safety. In contrast, system safety1 refers to offshore drilling hazards that can lead to accidents on a much larger scale, involving multiple fatalities, substantial property loss, and extensive environmental damage. Given the charge to the committee, this chapter focuses on regulatory reform related to improving system safety.

The Minerals Management Service (MMS) of the U.S. Department of the Interior (DOI) was the federal agency primarily responsible for regulating the safety of offshore drilling at the time of the Macondo well–Deepwater Horizon incident. After the incident, the newly formed Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE)2 was assigned responsibility for regulating the safety of offshore drilling operations previously assigned to MMS. As reorganizations continued within DOI, BOEMRE split into two entities on October 1, 2011. Currently, the Bureau of Safety and Environmental Enforcement (BSEE) is the federal entity responsible for safety and environmental oversight of offshore oil and gas operations. Several other agencies, such as the U.S. Coast Guard, also play important regulatory roles. The regulatory authorities sometimes overlap, and specific agreements between agencies are used in some cases to define regulatory jurisdictions.

Since the Macondo well–Deepwater Horizon incident, DOI has undertaken several actions to improve the safety of and reduce risks associated with offshore oil and gas activities. This chapter considers efforts intended to shift the

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1In some industries (e.g., chemical) the term process safety is also used.

2On May 19, 2010, Interior Secretary Salazar issued Secretarial Order No. 3299, which restructured MMS by reassigning its responsibilities to two newly formed bureaus. The bureau eventually named the Bureau of Ocean Energy Management, Regulation, and Enforcement was assigned responsibility for regulating the safety of offshore drilling operations.



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6 Regulatory Reform Offshore oil and gas exploration and production are inherently hazardous activities requiring the coordinated utilization of many complex systems by hundreds of people working for dozens of companies. Hazards associated with offshore drilling operations arise from a variety of activities and factors. As in- dicated in Chapter 5, some hazards can lead to accidents on the scale of individ- ual workers and are in the realm of occupational safety. In contrast, system safety1 refers to offshore drilling hazards that can lead to accidents on a much larger scale, involving multiple fatalities, substantial property loss, and extensive environmental damage. Given the charge to the committee, this chapter focuses on regulatory reform related to improving system safety. The Minerals Management Service (MMS) of the U.S. Department of the Interior (DOI) was the federal agency primarily responsible for regulating the safety of offshore drilling at the time of the Macondo well–Deepwater Horizon incident. After the incident, the newly formed Bureau of Ocean Energy Man- agement, Regulation, and Enforcement (BOEMRE)2 was assigned responsibility for regulating the safety of offshore drilling operations previously assigned to MMS. As reorganizations continued within DOI, BOEMRE split into two enti- ties on October 1, 2011. Currently, the Bureau of Safety and Environmental En- forcement (BSEE) is the federal entity responsible for safety and environmental oversight of offshore oil and gas operations. Several other agencies, such as the U.S. Coast Guard, also play important regulatory roles. The regulatory authori- ties sometimes overlap, and specific agreements between agencies are used in some cases to define regulatory jurisdictions. Since the Macondo well–Deepwater Horizon incident, DOI has under- taken several actions to improve the safety of and reduce risks associated with offshore oil and gas activities. This chapter considers efforts intended to shift the 1 In some industries (e.g., chemical) the term process safety is also used. 2 On May 19, 2010, Interior Secretary Salazar issued Secretarial Order No. 3299, which restructured MMS by reassigning its responsibilities to two newly formed bureaus. The bureau eventually named the Bureau of Ocean Energy Management, Regulation, and Enforcement was assigned responsibility for regulating the safety of offshore drilling operations. 111

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112 Macondo Well Deepwater Horizon Blowout regulatory system for deepwater drilling from reliance on mainly prescriptive regulations to performance-based regulations that specify safety goals to be achieved by the regulated organizations, as discussed below. The chapter also provides recommendations for enhancing the regulatory reform that is now un- der way. The recommendations were developed to address needs identified dur- ing presentations to the committee, in previously published reports (such as Presidential Commission 2011), and the committee’s evaluation of regulatory systems for offshore drilling in the Gulf of Mexico and other locations (e.g., the North Sea). REGULATION OF U.S. OFFSHORE DRILLING BEFORE THE MACONDO WELL BLOWOUT MMS had relied on a primarily prescriptive approach for regulation of off- shore drilling. Under that approach, specific requirements for equipment and operations were developed, and then compliance with the regulations was moni- tored through auditing. Prescriptive regulations are often developed through a multiyear process in response to events or observed trends. As a result, the regu- lations invariably are neither timely nor complete and lag behind the develop- ment of new technologies.3 Over the past few decades, exploration and production companies within the oil and gas industry developed advanced technology that led to a marked increase in deepwater drilling in the Gulf of Mexico. During that period, the predominantly prescriptive regulatory system for deepwater drilling used by MMS did not keep up with these technological advances. It became more prob- lematic because its level of funding and technical staffing remained static or decreased as industry’s offshore drilling activity increased. Furthermore, the distribution of those limited resources among MMS regions was not aligned with the relative amounts of offshore industrial activity in the regions. The Pa- cific region, with about one MMS inspector for every five offshore facilities, was more fully staffed and equipped than were the Gulf of Mexico regions, which employed about one inspector for every 54 facilities (DOI 2010b). As discussed previously in this report, the Macondo well blowout was precipitated by multiple flawed decisions involving the operator, drilling con- tractor, and service companies as they moved toward temporary abandonment of the well despite indications of increasing hazard. The net effect of these deci- sions made by the rig personnel was to reduce the available margins of safety that take into account complexities of the hydrocarbon reservoirs and well geol- ogy discovered through drilling and the subsequent changes in the execution of the well plan. Critical aspects of drilling operations were left to industry to de- 3 A general discussion of federal regulation of offshore drilling in the United States with a focus on regulatory oversight of deepwater drilling in the Gulf of Mexico is pro- vided by Presidential Commission (2011).

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113 Regulatory Reform cide without MMS review of the effects of the changes on the overall risk with regard to the temporary abandonment procedures. For example, no person in authority from a regulatory agency was required to review critical test data from Macondo, such as the results of the negative pressure test. Had this been a re- quirement before operations could continue, it is possible that the test data would have exposed the fact that the hydrocarbon-producing formations had not been adequately isolated and were in communication with the well (see Chapter 2). Also, prior to the Macondo well blowout, there were numerous warnings to both the industry and regulators about potential failures of blowout preventer (BOP) systems widely in use. While the inadequacies were identified and docu- mented in various reports over the years, it appears that there was a misplaced trust by both industry and responsible government authorities in the ability of the BOP to act as a fail-safe mechanism (see Chapter 3). The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling found that MMS regulations were inadequate to address the risks of deepwater drilling and did not assess the full set of risks presented by the temporary abandonment procedure used at the Macondo well. The commis- sion’s report also noted that MMS lacked sufficient personnel with the expertise and training needed to enforce those regulations effectively and to supplement the regulations by appropriately assessing the procedure’s safety (Presidential Commission 2011). In its report concerning the causes of the Deepwater Hori- zon–Macondo well incident, BOEMRE concluded that at the time of the blow- out, MMS did not have a comprehensive set of regulations specifically address- ing deepwater technology, drilling, or well design. Had improved regulations been in effect at the time, they may have decreased the likelihood of the Macondo blowout (BOEMRE 2011).4,5 On the basis of its review of the regulatory scheme in place at the time of the Macondo well blowout and the chronology of events leading up to the inci- dent, the committee presents the following observations: Summary Observation 6.1: The regulatory regime was ineffective in addressing the risks of the Macondo well. The actions of the regula- tors did not display an awareness of the risks or the very narrow margins of safety. Summary Observation 6.2: The extent of training of key personnel and decision makers in regulatory agencies has been inconsistent with the complexities and risks of deepwater drilling. 4 The BOEMRE report describes various regulatory approvals provided by MMS prior to the blowout. 5 The BOEMRE report also indicates that the BOEMRE panel found evidence that par- ties involved in drilling the Macondo well violated federal regulations in place at the time of the blowout.

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114 Macondo Well Deepwater Horizon Blowout Summary Observation 6.3: Overall, the regulatory community has not made effective use of real-time data analysis, information on precur- sor incidents or near misses, or lessons learned in the Gulf of Mexico and worldwide to adjust practices and standards appropriately. For example, MMS last produced an analysis of offshore incidents for cal- endar year 2000 (Presidential Commission 2011). DOI’S SAFETY AND ENVIRONMENTAL MANAGEMENT SYSTEMS The Deepwater Horizon–Macondo well incident, like major offshore acci- dents in other countries, demonstrated the need for a proactive systems safety approach integrating all aspects of drilling operations that could affect occupa- tional and system safety. In this regard, the committee commends DOI for insti- tuting Safety and Environmental Management Systems (SEMS) in 30 CFR 250 (Federal Register, Vol. 75, No. 199, Oct. 15, 2010). Implementation of SEMS began on November 15, 2011. SEMS is a proactive, goal-oriented risk management system similar in many ways to the systems used in the North Sea by the United Kingdom and Norway and on the outer continental shelves of Canada and Australia. SEMS requires companies to develop, implement, and manage a safety and environ- mental management system in accordance with the American Petroleum Insti- tute’s (API’s) Recommended Practice 75 for Development of a Safety and Envi- ronmental Management Program for Offshore Operations and Facilities. The committee sees this development as an important step toward achieving com- prehensive reform of the regulatory processes governing offshore drilling activi- ties in U.S. waters. The following are advantages of goal-setting risk management systems over prescriptive regulatory systems:  Putting the focus on achieving clearly stated health, safety, and envi- ronmental objectives;  Requiring operators, drilling contractors, and service companies to document their approach to safety, in contrast to basing safety on compliance with prescriptive regulations;  Requiring operators, drilling contractors, and service companies to work together to meet safety objectives;  Formalizing and documenting the risk management procedures and responsibilities of all parties;  Providing a context for effective communication on health, safety, and environmental issues as they arise;  Providing for checks and balances for well planning and operations, especially with regard to management of change;

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115 Regulatory Reform  Allowing for the health, safety, and environmental procedures and policies of all participating companies to be incorporated into a unified health, safety, and environmental plan;  Providing the opportunity for independent assessment of well plan- ning, drilling, and related operations and overall conformance to stated goals for health, safety, and environmental protection;  Providing a cost–effective approach to regulating the evolving tech- nology employed by the offshore oil and gas industry, enabling a reduction in prescriptive regulations, and  Potentially reducing the cost of compliance for companies already familiar with similar approaches used elsewhere in the world. While the committee strongly endorses the actions of DOI in establishing the SEMS requirements, it sees this as a first step in a long process toward achieving the capabilities required of an appropriate regulatory system for off- shore drilling in the United States. An appropriate regulatory system should have the following characteristics:  Be effective in regulating both high-risk, high-consequence wells, such as those in deep water or those likely to encounter very high pore pressures, and relatively low-risk wells, such as infill wells in relatively shallow water.6 Provide a mechanism allowing the government to assess the risks (and the measures proposed for managing those risks) associated with the proposed well plan and a way for the government to assess the competence of the companies and individuals to be involved in carrying out the proposed drilling activities.  Incorporate a formal management of change process that would allow well plans and procedures to adapt to uncertainties in geology and pore pressure, to changing weather conditions, and to other factors, while keeping parties in- formed of ongoing changes.  Work effectively with the structure of the U.S. offshore oil and gas industry. Encourage the development and integration of a strong safety culture and safety management systems among operating companies (and joint venture partner companies), drilling contractors, and service companies.  Ensure that all drilling activities are conducted with risks reduced as low as reasonably practical.  Motivate industry to invest in technologies and processes that will further minimize risk. No regulatory system will, by itself, ensure safe drilling operations. What is most important is that every company involved—including operators and 6 Infill wells are new wells that are drilled within the original well pattern of a devel- opment area. Because a number of wells have already been drilled in the area, a great deal is known about optimal drilling procedures.

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116 Macondo Well Deepwater Horizon Blowout partner companies, drilling contractors, and equipment and service providers— develop, promote, and operate in a system safety culture embraced by top man- agement and implemented in every phase of drilling operations. No matter what regulatory system is used, safe operations ultimately depend on the commitment to system safety by the people involved at all levels within the organization. GOAL-ORIENTED RISK MANAGEMENT REGULATORY SYSTEMS Until recently, the United States depended on a primarily prescriptive regulatory system in which operators were required to demonstrate conformance with established regulations. Other countries used similar prescriptive regulatory systems until a series of accidents indicated the need to adopt a proactive, goal- oriented risk management system similar to the one recommended here. The precipitating events for a major change of the Norwegian regulatory system were several serious accidents over an 11-year period. Among them were the blowout on the Bravo platform in the Ekofisk field in 1977 and the capsizing of the Alexander L. Kielland, a ship used as a floating hotel for Ekofisk workers, in 1980 (killing 123 of 212 people on board). Similarly, the United Kingdom and Canada were led to abandon their prescriptive regulatory approach and adopt a more proactive, goal-oriented approach to system safety by, respectively, the explosions and fire aboard the Piper Alpha production platform off Scotland in 1988 (killing 167 workers) and the sinking of the Ocean Ranger semisubmersi- ble drilling platform off Newfoundland in 1982 (killing all 84 crew members). An important attribute of goal-oriented risk management systems is that they provide a greater opportunity for the adoption of new technology as it becomes available. For example, both in U.S. waters and abroad, several of the operating companies are using shore-based real-time operations centers to monitor off- shore drilling operations continuously, although there is no explicit requirement to do so. Goal-oriented risk-management systems require that companies responsi- ble for compliance demonstrate to regulators that procedures for health, safety, and environmental protection are in place to achieve explicitly stated safety goals to prevent and respond effectively to all conceivable accidents. Considera- tion is given to elements such as redundant barriers (designed to minimize the likelihood of accidents) and controls (designed to provide detailed plans, proce- dures, and facilities for responding to accidents should they occur). In addition, industry demonstrates that its management system ensures that its personnel always have the qualifications and training necessary for performing their duties in a safe manner. Three fundamental strategies are employed in goal-oriented risk manage- ment systems to deal with drilling and safety systems: reduce the likelihood of malfunctions in system components, reduce the effects of malfunctions should they occur, and increase the detection and correction of malfunctions in system components. Different methods can be employed in the context of these three

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117 Regulatory Reform strategies to enable the designated “acceptable risks” (the explicit goals) to be realized. Implementation Aspects of a Goal-Oriented Risk Management System Consideration of some specifics will help in understanding how goal- oriented risk management systems work. First, instead of listing explicit regula- tions, such systems principally rely on meeting functional safety requirements through utilization of equipment and procedures that conform with explicit stan- dards, guidelines, and best practice documents. In Norway, the Petroleum Safety Authority (PSA) retains a limited number of explicit regulations but primarily relies on guidelines associated with international codes and standards (including some specific to the European Union) and specially developed national (NORSOK) standards to define best practices as applied to different systems. For example, NORSOK D-010 lists standards for well integrity, BOP testing, cementing, and so forth, whereas NORSOK 001 applies to drilling equipment. In addition, the drilling contractor must obtain an “acknowledgment of compli- ance” (AoC) covering its equipment, personnel, and safety management systems. In Norway these codes and standards are considered “living documents” with frequent reviews and updates resulting from consultation between industry and regulators. Finally, while a fundamental aspect of the Norwegian regulatory system is a high degree of dialogue, consensus, and trust between operating companies and regulators, PSA carries out drop-in audits of offshore operations utilizing its own personnel, experts from SINTEF (Stiftelsen for Industriell og Teknisk Forskning, an independent research organization), and other outside experts. If it determines that the company does not have sufficient expertise to carry out the proposed drilling plan, PSA withholds consent for an operator’s plan. Drilling operations are not allowed to proceed until PSA consents. The regulatory ap- proaches used by the United Kingdom and Norway in the North Sea have been tailored to the structure of their governments, local industry, and labor. Applying the concept of goal-oriented risk management to the Gulf of Mexico will require similar tailoring. However, many of the concepts and documents used for the North Sea can provide valuable templates for a system structured for the United States. In addition, both the United Kingdom (HSE 2011) and Norway (PSA 2011a) have extensive, long-term R&D efforts that help industry and govern- ment regulators advance technology, management, and governance to meet cur- rent operational requirements. Tools for Clarifying the Roles Among Companies Within a Goal-Oriented Risk Management System The basic planning documents of a goal-oriented risk management system are the risk management plans of the drilling contractor, operator, and service

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118 Macondo Well Deepwater Horizon Blowout companies. The committee supports the concept of a project-specific bridging document for use in the United States that integrates the risk management plans of all parties involved in a given project. API and the International Association of Drilling Contractors are developing a Well Construction Interface Document that could be a model for such a bridging document. Several advantages of using a bridging document as part of a goal-oriented risk management system are that it could help  Unify the risk management systems of the operator, drilling contrac- tor, and service companies in a way that clearly defines the roles and responsi- bilities of all parties for health, safety, and environmental protection;  Provide detailed project-specific information to be shared by key per- sonnel regardless of whether they are employed by the operator, the drilling con- tractor, or a service company; and  Facilitate the management of change process and serve as a mecha- nism to communicate the implications of program changes to all key personnel. Offshore drilling in U.S. waters is frequently done by a group of partner companies, who jointly own the lease. Through a joint operating agreement, the partner companies stipulate who the operating company will be (usually this is the company with majority interest) and the financial terms and responsibilities that govern the partnership. The operating company is recognized to have the principal responsibility for compliance with rules and regulations governing offshore operations, but the partner companies (as co-lease holders) should have a “see to” responsibility to ensure that the operator conducts activities in such a manner that risk is as low as reasonably practicable, which has a legislative and legal base and provides the strength for regulatory–governance enforcement. Such shared responsibilities should be clearly spelled out in the oil and gas lease agreements administered by DOI as well as in the joint operating agreement among the partner companies. A Hybrid Goal-Oriented Risk Management System Well construction and abandonment operations include safety-critical points at which faulty decisions would likely result in a substantial increase in hazard. Examples are casing and cementing operations (which would encompass reviewing cement bond logs and formation integrity tests) and the establishment and testing of multiple barriers to flow before temporary or permanent well abandonment. A hybrid regulatory approach—expanding on the SEMS goal- oriented safety system with requirements for explicit regulatory review and ap- proval of the safety-critical points before operations can proceed—would help guard against faulty decisions being made. This expansion of SEMS is analo- gous to adding the inspection and sign-off process associated with routine con-

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119 Regulatory Reform struction projects and is the standard practice of the Bureau of Land Manage- ment during its regulation of onshore drilling for oil and gas on federal lands. Similarly, when operating conditions are hazardous, regulatory approval for operations to proceed should be required. This could occur, for example when the difference between the equivalent circulating density and the fracture gradient is not greater than a predefined minimum value either during drilling or cementing. Offshore drilling operations will face increasing complexity as they move into ever-greater water depths and more challenging environments. In some cases, complex operations may require a process of continual problem-solving. For operations to proceed safely and efficiently in challenging environments, it is essential for private industry and BSEE to collaborate in developing a list of safety-critical points and in establishing safe operating limits. It is also critical that BSEE have knowledgeable personnel in place to provide meaningful re- views. The requirements for regulatory review and approval should not deter operating companies from developing comprehensive risk assessment systems with clearly stated goals. Barriers to Implementation A number of the companies operating in the Gulf of Mexico use proactive risk management systems in foreign countries where they have been operating for many years. These systems address operational safety through the full life cycle of drilling and well completion activities. Some oil and gas companies already use risk management systems similar to SEMS when they carry out deepwater drilling in the Gulf of Mexico for internal project management. How- ever, the committee recognizes that use of a new regulatory system for offshore drilling risk management will place new demands on both private industry and BSEE. In the long term the costs of compliance under the system would likely be less than those of complying with increasing amounts of prescriptive regula- tions. More important, an effective regulatory system has the potential to reduce the extraordinary costs associated with catastrophic accidents such as those as- sociated with the Macondo well. Given that the disaster might have been avoided had improved regulations been in place, the potential benefits of an ef- fective regulatory system are self-evident. Offshore drilling in U.S. waters has a unique history, culture, and suite of business practices. SEMS will require new ways of thinking (and a new mode of interaction) between the oil and gas industry companies, contractors, and service companies on the one hand and BSEE and other U.S. regulatory agencies on the other. SEMS will require companies to adopt both a top-down and a bottom-up safety culture. Safe drilling operations cannot be achieved solely through regula- tions, inspections, or mandates. They will only be realized when there is a full commitment to system safety, from the board room to the rig floor, and through recognition that a focus only on occupational safety will not ensure system

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120 Macondo Well Deepwater Horizon Blowout safety. Compliance with either prescriptive regulations or standards related to achieving specific safety goals need to be considered a minimum requirement and not necessarily a way to meet duty of care obligations. The use of SEMS will require increased competence of everyone involved in offshore drilling operations—from the engineers developing technical plans and the workers and technicians carrying them out to the regulators overseeing such operations. As discussed in Chapter 5, there is a need for a better-educated and better-trained work force in the United States to avoid catastrophic system failures and meet the challenges of the future. This need includes a better- educated and better-trained regulatory workforce. RECOMMENDATIONS Regulatory Development and Implementation Summary Recommendation 6.1: The United States should fully imple- ment a hybrid regulatory system that incorporates a limited number of prescriptive elements into a proactive, goal-oriented risk manage- ment system for health, safety, and the environment. Recommendation 6.2: BSEE should continue to work closely with pri- vate industry and other agencies in adopting and developing compre- hensive goals and standards to govern the many processes and sys- tems involved in offshore drilling. The emphasis of these goals and standards should not be to develop new regulations and requirements. Instead, they should provide a foundation for im- plementation of a proactive, interactive, and reactive risk management system by BSEE for drilling in U.S. waters. Recommendation 6.3: BSEE should make effective use of existing in- dustry standards, well-established international standards, and best practice guidelines used by other countries, but it should recognize that standards need to be updated and revised continually. The standards should be forward looking and not only incorporate the many lessons learned from the Macondo well–Deepwater Horizon accident but also strive to identify potential problems in future drilling projects. Recommendation 6.4: As the SEMS program moves forward in the United States, BSEE should incorporate the steps already taken by private industry (and industry associations and consortia) to improve offshore drilling safety after the Deepwater Horizon accident.

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121 Regulatory Reform As discussed in Chapter 5, these steps include the development of several well containment corporations to enable member companies to access a wide array of equipment and personnel to minimize the environmental impact of drill- ing-related accidents and oil spills, should they occur. Another industry-led ad- vance has been the Center for Offshore Safety. This center has the potential to engage the CEOs of oil and gas companies, drilling contractors, and service companies in risk management; set standards for training and certification; de- velop accreditation systems for industry training programs; and facilitate indus- try participation in safety audits and inspections. Ideally, the center should rep- resent a collaboration of industry and government. Recommendation 6.5: Quantitative risk analysis should be an essential part of goal-oriented risk management systems. This formalism achieves several purposes. First, it provides a check that the risk (defined in quantitative terms) is tolerable. If the risk cannot be toler- ated, it will define the adoption of measures, in the right order of priorities, to lower the risk. Second, it can be used to support decisions based on risk man- agement models that individual companies currently use. Several oil companies already have sophistication in this area; quantitative risk analysis is used in ex- ploration, portfolio management, and well design. It also important to ensure that caution and expert judgment are exercised to guard against the use of flawed data. In addition, those who perform the analyses should be able to communicate the results effectively for operational and management implemen- tation. Summary Recommendation 6.6: BSEE and other regulators should identify and enforce safety-critical points during well construction and abandonment that warrant explicit regulatory review and ap- proval before operations can proceed. Recommendation 6.7: To augment SEMS, BSEE should work closely with private industry to develop a list of safety-critical points during well construction and abandonment that will require explicit regula- tory review and approval before operations can proceed. Examples are casing and cementing operations (which would encompass reviewing cement bond logs and formation integrity tests) and the establishment and testing of multiple barriers to flow before temporary or permanent well abandonment. Recommendation 6.8: As part of a hybrid risk management system, BSEE should establish safe operating limits, which, when exceeded, would require regulatory approval for operations to proceed.

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122 Macondo Well Deepwater Horizon Blowout Operating limits and checks should be established as part of the operator’s management program, which will be reviewed and audited by the regulator. Ex- amples of safe operating limits are the functionality of safety-critical systems such as the BOP (see Chapter 3) and the difference between the equivalent cir- culating density and the fracture gradient not being greater than a certain mini- mum (either during drilling or cementing) (see Chapter 2). These operating lim- its should be established in collaboration with industry. Recommendation 6.9: BSEE should incorporate requirements for ap- proval and certification of key steps during well construction into codes and standards. Recommendation 6.10: BSEE should review existing codes and stan- dards to determine which should be improved regarding require- ments for (a) use of state-of-the-art technologies, especially in areas related to well construction, cementing, BOP functionality, and alarm and evacuation systems, among others, and (b) approval and certifica- tion incumbent to management of changes in original plans for well construction. Recommendation 6.11: The manner in which the above-mentioned codes and standards will be enforced should be specified by BSEE in the well plan submitted by operating companies for approval. Recommendation 6.12: BSEE should adopt a system of precertification of operators, contractors, and service companies before granting a drilling permit for especially challenging projects. The precertification process would evaluate the technical sophistication and capabilities of both equipment and personnel tasked with carrying out drill- ing-related activities in the severe conditions of the deepwater environment. Specific criteria should be developed for conducting the evaluation. Recommendation 6.13: BSEE should consider the use of independent well examiners to help in reviewing well plans and in regularly moni- toring ongoing activities during drilling, completion, and abandon- ment. Independent well examiners are currently used in the United Kingdom (HSE 2008) and can play a productive role in reviewing the design of the well and in regularly monitoring ongoing activities during drilling, completion, and abandonment. Independent well examiners and third-party classification socie- ties, working under contract to BSEE, could be especially helpful in conducting independent audits. Ideally, the independent well examiners or classification societies should be involved in a given project from its inception, including re- view of the well plan, through final well completion or abandonment activities.

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123 Regulatory Reform In using these entities, BSEE should take care not to abrogate its primary ulti- mate responsibility for regulation of offshore drilling. In the United Kingdom, the regulator periodically audits the well examination arrangements. In addition, BSEE should develop requirements for determining the competence of examin- ers and their independence from the operating company. BSEE should also iden- tify responsibilities for developing well examination schemes, ensuring scheme effectiveness, and ensuring that appropriate actions are taken on recommenda- tions made by the well examiner. Near-Miss Reporting Summary Recommendation 6.14: Industry, BSEE, and other regula- tors should improve corporate and industrywide systems for report- ing safety-related incidents. Reporting should be facilitated by ena- bling anonymous or “safety privileged” inputs. Corporations should investigate all such reports and disseminate their lessons-learned find- ings in a timely manner to all their operating and decision-making personnel and to the industry as a whole. A comprehensive lessons- learned repository should be maintained for industrywide use. This information can be used for training in accident prevention and con- tinually improving standards.7 As part of this process, near misses and accident precursors should be tracked as a way of supporting a proactive risk management system. Such a da- tabase would be invaluable in enabling regulators, companies, and employees to learn from these occurrences. Integration of Regulatory Approaches Summary Recommendation 6.15: A single U.S. government agency should be designated with responsibility for ensuring an integrated approach for system safety for all offshore drilling activities. Recommendation 6.16: As a first step, DOI should work with other departments and agencies with jurisdiction over some aspect of off- shore drilling activities to simplify and streamline the regulatory process for drilling on the U.S. outer continental shelf. Offshore drilling operations are currently governed by a number of agen- cies with complementary and in some cases overlapping areas of statutory re- sponsibility. Table 6-1 lists a number of the principal agencies that have juris- diction over regulating various potential hazards related to offshore drilling. 7 This recommendation is also presented in Chapter 5 as Recommendation 5.4.

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124 Macondo Well Deepwater Horizon Blowout As part of the process of regulatory reform that led Norway to change from a prescriptive to a risk management system (and that separated PSA from the Norwegian Petroleum Directorate), a concerted effort was made to stream- line, simplify, and centralize regulatory authority. Modifying the regulatory system governing drilling operations will be most effective as part of an inte- grated system of reforms that involve many of the hazards and agencies shown in Table 6-1. TABLE 6-1 Offshore Drilling Operations and Relevant Federal Agencies Agencies exercising some jurisdiction over preventive control measuresa Hazard Attack or terrorist activity FAA, FBI, FS, TSA, USCG Blowout (loss of well control) EPA, BOEMRE, USCG Explosion FS, BOEMRE, USCG Events from adjacent installations BOEMRE Epidemic or pandemic CDC, USCG Fire FS, BOEMRE, USCG Diving operations BOEMRE, USCG Dropped objects FS, BOEMRE, USCG Helicopter crash FAA, USCG Loss of stability FS, USCG Major mechanical failure FS, USCG Mooring or station keeping failure FS, BOEMRE, USCG Seismic activity FS, BOEMRE, USCG Ship collision FS, USCG Structural failure FS, BOEMRE, USCG Toxic release EPA, FAA, FS, BOEMRE, USCG Weather and storms FS, BOEMRE, NOAA, USCG a Does not include possible jurisdiction to conduct an investigation following incident. Abbreviations: CDC, Centers for Disease Control and Prevention; EPA, Environmental Protection Agency; FAA, Federal Aviation Administration; FBI, Federal Bureau of In- vestigation; FS, Flag-State maritime authority; BOEMRE, Bureau of Ocean Energy Man- agement, Regulation, and Enforcement; NOAA, National Oceanic and Atmospheric Ad- ministration; TSA, Transportation Security Administration; USCG, United States Coast Guard. NOTE: As a result of the recent reorganization of BOEMRE, the Bureau of Safety and Environmental Enforcement is the successor organization with responsibility for enforc- ing safety and environmental regulations. Source: International Association of Drilling Contractors (IADC)8. Reprinted with per- mission, IADC. 8 Responses of IADC to questions from the committee, March 2011.

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125 Regulatory Reform Recommendation 6.17: BSEE should work with other federal agencies to delegate supporting regulatory responsibilities and accountabilities for ensuring system safety, integrating all aspects of system safety for the parts of offshore drilling operations in which a particular agency is involved (Table 6-1). BSEE should strive to involve the domain ex- pertise and core competencies of the other relevant agencies. BSEE should have purview over integrating regulation, inspection, and monitoring enforcement for all aspects of system safety for offshore drilling operations. Recommendation 6.18: BSEE should work with other federal agencies to develop efficient and effective mechanisms for investigating future accidents and incidents. Net Assessment of Risk Recommendation 6.19: DOI should require BSEE to provide the Sec- retary of the Interior with a net assessment of the risks of future drill- ing activities so that such risks can be factored into decisions with re- gard to new leases. Focusing on system safety, the assessment should be a formal probabilistic risk analysis that evaluates risks associated with all operations having the potential for significant harm to indi- viduals, environmental damage, or economic loss. The operations ad- dressed by the assessment should include drilling and well construc- tion, temporary well abandonment, oil and gas production, and eventual well abandonment. Responsibility and Accountability Summary Recommendation 6.20: Operating companies should have ul- timate responsibility and accountability for well integrity, because only they are in a position to have visibility into all its aspects. Operat- ing companies should be held responsible and accountable for well de- sign, well construction, and the suitability of the rig and associated safety equipment. Notwithstanding the above, the drilling contractor should be held responsible and accountable for the operation and safety of the offshore equipment (see Chapter 5).9 Recommendation 6.21: In carrying out its regulatory responsibilities, BSEE should view operating companies as taking full responsibility for the safety of offshore equipment and its use. 9 This recommendation is also presented in Chapter 5 as Recommendation 5.1.

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126 Macondo Well Deepwater Horizon Blowout This responsibility also encompasses the subsea equipment, including the BOP, used as critical control barriers. As part of the proactive risk management system recommended here, BSEE should ensure that drilling contractors are required to obtain an AoC covering their equipment, personnel, and safety man- agement system. The AoC process is used by Norway’s PSA to decide whether the agency has confidence that drilling activities can be carried out by using a particular mobile offshore drilling unit within the framework of the regulations (PSA, 2011b). Recommendation 6.22: While the operating company is recognized to have the principal responsibility for compliance with rules and regu- lations governing offshore operations, BSEE should require the part- ner companies (as co-lease holders) to have a “see to” responsibility to ensure that the operator conducts activities in such a manner that risk is as low as reasonably practicable. Regulatory Personnel Summary Recommendation 6.23: BSEE and other regulators should undertake efforts to expand significantly the formal education and training of regulatory personnel engaged in offshore drilling roles to support proper implementation of system safety. Recommendation 6.24: BSEE should exert every effort to recruit, de- velop, and retain experienced and capable technical experts with criti- cal domain competencies. This is especially important in the context of the recently enacted SEMS risk management system and the recognition that drilling on the outer continen- tal shelf will grow in complexity. BSEE should strive to increase its technical competencies across the wide spectrum of expertise involved in offshore oil and gas exploration, including areas such as well design, cementing, BOPs, and re- motely operated underwater vehicles. Safety Culture Summary Recommendation 6.25: BSEE and other regulators should foster an effective safety culture through consistent training, adher- ence to principles of human factors, system safety, and continued measurement through leading indicators.10 10 As discussed in Chapter 5, leading indicators provide ongoing assurance that risks are being adequately controlled.

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127 Regulatory Reform Recommendation 6.26: As a regulator, BSEE should enhance its inter- nal safety culture to provide a positive example to the drilling indus- try through its own actions and the priorities it establishes.