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1 Introduction The Outer Continental Shelf Lands Act provides for the jurisdiction of the United States over the submerged lands of the Outer Continental Shelf (OCS) and assigns the authority to lease such lands for certain purposes, such as mineral development, to the Secretary of the Interior. In 1982, after almost 30 years of divided agency responsibility in administering the Outer Continental Shelf Lands Act within the Department of the Interior (DOI), the secretary established the Minerals Management Service (MMS) from parts of the Bureau of Land Management and the U.S. Geological Survey to consolidate and carry out the department’s authority for the nation’s offshore oil and gas program. In the aftermath of the Deepwater Horizon explosion, blowout, and oil spill in April 2010, DOI restructured MMS by transferring its rev­ enue management functions to a new office and renaming the nonfiscal responsibilities of the agency the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE).1 On October 1, 2011, BOEMRE was further divided into two separate bureaus: the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE). This report is most directly concerned with BSEE because of its delegated authority for safety and environmental over­ sight of OCS oil and gas operations, including permitting; inspections; On May 19, 2010, Secretary Salazar started the process of dividing MMS into three distinct parts 1 through the issuance of Secretary Order 3299. On October 1, 2010, the royalty and revenue management functions of MMS, including, but not limited to, royalty and revenue collection, distribution, auditing and compliance, investigation and enforcement, and asset management for both onshore and offshore activities, were officially transferred to the new Office of Natural Resources Revenue. 11

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12 Evaluating the Effectiveness of Offshore Safety and Environmental Management Systems enforcement of safety and environmental regulations; and oil spill response, training, and environmental compliance programs.2 BSEE’s regulatory authority includes oversight responsibility with respect to the offshore platforms involved in drilling and production of oil and natural gas. Before November 2011, BSEE’s oversight authority included the responsibility to conduct safety inspections of each platform at least annually as well as periodic unannounced “spot” inspections, the intent of which was to make offshore facilities safer. The belief was that the inspection process would encourage owners and operators to develop a healthy and viable safety culture on offshore facilities and that, if potential problems existed, they would be identified during the inspection process and subsequently addressed, thereby reducing the likelihood of a major incident. Study Context In 1990, the Committee on Alternatives for Inspection of Outer Continen­ tal Shelf Operations, under the auspices of the Marine Board, reviewed the MMS OCS inspection program and made several recommendations for improvement (NRC 1990). At that time, the inspection program mostly focused on facilities and whether they met certain standards. At each visit, inspectors worked through a checklist of potential incidents of noncompliance (PINCs). Among other determinations, the committee found the following: 1. The emphasis on compliance with hardware­oriented PINCs fostered an attitude of “compliance equals safety” that can actually “dimin­ ish the operator’s recognition of his primary responsibility for safety” (NRC 1990, p. 80). In general, BOEM exercises the conventional (e.g., oil and gas) and renewable energy–related 2 management functions of DOI and is responsible for the functions of DOI’s offshore energy program related to leasing, environmental studies, National Environmental Policy Act analysis, resource evaluation, and economic analysis. BSEE oversees the safety and environmental enforce­ ment functions of such programs including, but not limited to, the authority to inspect; investigate; summon witnesses and produce evidence; levy penalties; cancel or suspend activities; and oversee safety, response, and removal preparedness (http://www.boemre.gov/ooc/newweb/frequentlyasked questions/frequentlyaskedquestions.htm).

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Introduction 13 2. The “majority of accident events occurring on the OCS in a representa­ tive year (1982) were related to operational and maintenance procedures or human error that are not addressed directly by the hardware­oriented PINC list” (NRC 1990, p. 81). 3. “Third­party inspection by private sector contractors (alternative 4) would not diminish and would probably increase the tendency of oper­ ators to abdicate safety responsibility to the inspecting organization” (NRC 1990, p. 81). 4. “Self inspection (alternative 5), while it would pinpoint the operator’s responsibility, would be unsuitable because the MMS oversight function would be too tenuous” (NRC 1990, p. 82). The report recommended that inspections instead focus on a sample of PINCs and devote greater resources to unannounced inspections as well as increased analysis of incidents and accidents and data collected by inspectors. MMS should “place its primary emphasis on detection of potential accident­producing situations—particularly those involving human factors, operational procedures, and modifications of equipment and facilities” (NRC 1990, p. 83). To make the detection of potential accident­producing situations more useful, the committee recommended that the quality and quantity of inspection data be considerably enhanced to allow MMS to take a more risk­assessment approach to inspections. Ultimately, the committee hoped that MMS would collect sufficient information about each platform to allow for development of risk indices that MMS could use to allocate more of its resources to platforms at higher risk. In the main, however, the committee stressed that the private operator was the primary agent responsible for ensuring safe operations and that MMS should structure its program to reinforce that awareness among operators. MMS adopted some of the recommendations made in the 1990 report and spurred the offshore oil and gas industry to develop American Petroleum Institute (API) Recommended Practice (RP) 75, Recommended Practice for Development of a Safety and Environmental Management Program for Offshore Operations and Facilities (API 1993, 2004). This document recommends that the industry adopt management principles of planning, organizing, implementing, and measuring in managing safety in the same way that companies manage the remainder of their operations.

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14 Evaluating the Effectiveness of Offshore Safety and Environmental Management Systems It includes specific guidance on elements required to carry out these management functions. The industry was encouraged to adopt safety and environmental man­ agement programs voluntarily. In mid­2009, MMS proposed a rule that would have required offshore operators to adopt four of the 12 elements of API RP 75. In April 2009, MMS again approached the Marine Board to request that the present study be conducted to review the MMS inspection program for offshore facilities to assess its effectiveness in protecting human safety and the environment. The committee was appointed in November 2009 and held its first meeting the following month. In March 2010, a subgroup of the committee made site visits to the MMS Pacific OCS Region and to the California State Lands Commission. The committee also scheduled a site visit in May of that year to the MMS Gulf of Mexico Region. The visit, however, was overtaken by the unfolding events and ensuing investiga­ tions of the Deepwater Horizon disaster (BOEMRE 2011b; NAE­NRC 2011; National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling 2011; USCG 2011) and subsequent reorganization of MMS into the Office of Natural Resources Revenue and BOEMRE. During this process, agency officials asked that this project be put on hold while the agency reevaluated its approach to safety. In October 2010, BOEMRE issued a final rule requiring adoption of API RP 75 with minor revisions as defined in the rule and retitled “Oil and Gas and Sulphur Operations in the Outer Continental Shelf—Safety and Environmental Management Systems” (SEMS) (BOEMRE 2010). The SEMS rule became effective on November 15, 2011 (30 CFR 250, Subpart S). It lays out multiple requirements for safe and environmental operations, including requiring specific written plans for operating prac­ tices, hazards analysis, management of change, safe work practices, train­ ing, mechanical integrity, emergency response, and incident reporting. API RP 75 recommends that practices be audited by a qualified party, which could include individuals employed by the same company, on a regular schedule. As stated in the rulemaking, The ultimate goal of SEMS is to promote safety and environmental protection during OCS activities. The protection of human life and the environment are the top priorities and objectives of this rule. While it is

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Introduction 15 difficult to provide absolute quantification of the benefits of the lives saved and risks avoided due to this regulation, the BOEMRE believes that implementation of a comprehensive SEMS program will avoid accidents that could result in injuries, fatalities, and serious environmental damage based upon BOEMRE’s incident analysis. In addition, an increase in a system’s level of safety leads to reduced material losses and enhanced productivity. (BOEMRE 2010, p. 63644) In the SEMS rule, BOEMRE recognized that its inspection program was too focused on mechanical failures and that such failures represent a small minority of incidents. With issuance of the final rule, BOEMRE’s approach to safety and environmental protection shifted from reliance solely on inspections of hardware­oriented PINC items to also requiring operators to specify how they will manage safety holistically to avoid injury and spills. After the SEMS rule, BOEMRE officials recognized that additional provisions were needed; thus, they issued a notice of proposed rule­ making, “Oil and Gas and Sulphur Operations in the Outer Continental Shelf—Revisions to Safety and Environmental Management Systems,” referred to as “SEMS II,” on September 14, 2011 (BOEMRE 2011a).3 The revisions in the proposed rule pertain to • Developing and implementing stop work authority and ultimate work authority, • Requiring employee participation in the development and implementa­ tion of SEMS programs, • Establishing requirements for reporting unsafe working conditions, • Requiring independent third parties to conduct audits of operators’ SEMS programs, and • Establishing further requirements relating to conducting job safety analysis for activities identified in an operator’s SEMS program. Because SEMS II has not yet been adopted and is subject to modification, the committee did not specifically evaluate the audit requirements for each of these issues in this study. See also http://www.gpo.gov/fdsys/pkg/FR­2011­09­14/pdf/2011­23537.pdf#page=1. 3

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16 Evaluating the Effectiveness of Offshore Safety and Environmental Management Systems Study objeCtive and Charge In late 2010, following restructuring of MMS, BOEMRE requested that the scope of the committee’s study be changed from a review of the agency’s previous offshore platform safety and environmental inspection program to one that provided guidance on how the agency should evaluate and ensure the effectiveness of the implementation of the new SEMS prac­ tices that were required of offshore operators as of November 15, 2011. As a result, this project was refocused, and the committee resumed its work in late January 2011. Under the new agreement with BOEMRE, the committee was renamed the Committee on the Effectiveness of Safety and Environmental Man­ agement Systems for Outer Continental Shelf Oil and Gas Operations, and its charge was revised. The following charge, as modified in late January 2011, was presented to the committee: This project will recommend a method for assessing the effectiveness of an operator’s Safety and Environmental Management System (SEMS) on any given offshore drilling or production facility. In addition, the committee will prepare a brief interim report in April 2011 that will provide a listing of potential methods for assessing effectiveness along with the pros and cons of each method as they are known to that point. The committee will address methods to maximize the implementation effectiveness of indi­ vidual SEMS rather than the adequacy of the Final Rule of October 2010 requiring SEMS to mitigate safety and environmental risk of offshore platform operations. The committee’s assessment of effective methods will focus on the safety and environmental risks of offshore production until after the release of the report of the NAE/NRC Committee for the Analysis of Causes of the Deepwater Horizon Explosion, Fire, and Oil Spill to Identify Measures to Prevent Similar Accidents in the Future, which is expected in June 2011 [but was actually released in December 2011]. The committee’s assessment of effective methods for safety and environmental risks of drilling will take into account the findings and recommendations of the NAE/NRC committee. The interim report was released in June 2011. The present final report, which was developed through open­ and closed­session meetings, pre­ sentations, discussions, and subsequent correspondence, presents an

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Introduction 17 assessment of different methods for assuring the adequacy of offshore operators’ SEMS programs and recommends what it considers to be the best approach. The report also takes into consideration the findings and recommendations of the National Academy of Engineering–National Research Council Committee for the Analysis of Causes of the Deep­ water Horizon Explosion, Fire, and Oil Spill to Identify Measures to Prevent Similar Accidents in the Future, which released its final report on December 14, 2011 (NAE­NRC 2011). organization of the report Chapter 2 presents an assessment of the role of SEMS, its goals, and its potential impact on an operator’s culture of safety. Chapter 3 contains a description of nine different methods that could be used to evaluate the effectiveness of an operator’s SEMS program and discusses some of the advantages and disadvantages of these methods. Chapter 4 presents currently used approaches for assessing safety management in other regulatory agencies in the United States, as well as in the offshore oil and gas industry in a few other countries that have a charge similar to that of BSEE. The chapter also includes a brief description of the potential role of the newly created Center for Offshore Safety. Chapter 5 discusses the role of BSEE in evaluating SEMS programs, including the use of inspections and audits, the training and qualifications of auditors, audit criteria and procedures, and the competence of inspectors and auditors in ensuring effectiveness. Chapter 6 presents the committee’s conclusions and recom­ mended approach.