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Insight: 'The nine most terrifying words in the English language?'

Monday, December 16, 2013

…are “I’m from the government and I’m here to help.”

And we in the oil & gas industry seem to be being promised a lot of “help”! Between our own UK government and the European Commission (EC), we face a trinity of regulators.

Let’s begin with:

The UK’s Maximising Economic Recovery regulator

In a recent review commissioned by DECC (you can find it here, Sir Ian Wood emphasized that it is essential for the future growth and prosperity of the UK that the recovery from both existing fields and new discoveries is maximized.

He has proposals regarding the role of and actions by HM Treasury, a new Regulator and Industry as a whole. The proposed new Regulator – comparable to the successful NPD in Norway – would have wide-ranging powers, and would exercise profound influence due to its knowledge, capability and experience. The UK government would enable the Regulator to exercise the following powers:

  1. Maximising economic recovery for the UK.
  2. Dispute resolution and complexity of legal and commercial process.
  3. Sanctions and incentives.
  4. Right to attemd consortia meetings.
  5. Transparency and access to data.

The Regulator would work with industry to develop strategies consisting of:

· Regional Development Plans (SNS, CNS, NNS, WoS) which would include:
o Exploration
o New Field Developments
o Asset Stewardship (including Production Efficiency, IOR, EOR)
o Infrastructure
o Carbon Capture and Storage
o Technologies
o Decommissioning
o Data Management
· Access to Finance (especially for small to medium-sized operators)

and provide technical guidance, for example to HMT, for Government policy formulation.

Now I have no idea how many folk work at the NPD in Norway – actually I do, they say it’s “just over 200”. This is a decent sized company, and let’s assume the UK Regulator is of similar size.

I think a decent question is, where are all these folk going to come from?

And then there’s:

The need to regulate the UK Onshore

Professor Andrew Hopkins recently summarized the important features of a safety case regime; it must have:
1. a risk/hazard framework,
2. workforce involvement,
3. a requirement to make the case to a regulator,
4. an engaged regulator, and
5. a requirement of duty of care.

Let’s just consider one aspect of this for the UK onshore, namely the regulations and the regulator.

The November 2011 EC commissioned report that concluded shale gas exploration is currently well regulated in Europe is usually cited as evidence that more regulation is not need but this legal review was based on four countries only – Poland, Sweden, Germany and France.

Specifically in the UK, in response to input from consultations, learned societies, and the industry, the Secretary of State for Energy & Climate Change issued a Written Ministerial Statement which concluded that:

“Having carefully reviewed the evidence with the aid of independent experts, and with the aid of an authoritative review of the scientific and engineering evidence on shale gas extraction conducted by the Royal Academy of Engineering and the Royal Society, I have concluded that appropriate controls are available to mitigate the risks of undesirable seismic activity. Those new controls will be required by my Department for all future shale gas wells. On that basis, I am in principle prepared to consent to new fracking proposals for shale gas, where all other necessary permissions and consents are in place.”
and that it was a requirement that any case be made to the regulator.

So what activity will need to be regulated?

The BGS, in a recent geological survey, intimated that there is 1,300 trillion cubic feet of shale gas in place under Bowland and that it alone could keep the country self- sufficient for decades. And then of course there’s the resource under the Weald…….

Let’s be really pessimistic and assume that only 2.5-5% of this GIIP can be produced so say somewhere in the range 25 – 60Tcf. And as far as I can tell, there seems to be some sort of consensus that a typical reservoir penetration, with ‘best technology’ applied, will do well to produce 5Bcf, meaning every Tcf will require say 200 such penetrations to produce it. This implies 5000-12000 reservoir penetrations will be required to produce the gas reserves I mentioned at the beginning of this short paragraph, perhaps drilled at the rate of a few hundred per year over 2 – 4 decades.

Note that I have focussed on ‘reservoir penetrations’ here – presumably these will lie in the domain of the Health and Safety Executive (HSE) who is presumably (going to be) charged with applying regulations concerning subsurface issues – well integrity, groundwater protection, avoidance of seismicity (although perhaps that’s DECC’s job?) and so on.

There is a completely different question as to who regulates the surface expression of all this activity – the significantly smaller number of drilling pads (“the size of a cricket pitch” to quote David Cameron) – presumably this is where the Environment Agency comes in with help from HSE?

I have been digging around the various HSE and .gov websites; there is some information there but I’m afraid I can’t find a single thing that convinces me that the human resources actually exist, or are planned for, that will enable regulations to be applied, safety cases to be received, in short……evidence for the existence of an ‘engaged regulator’……given the enormous number of well operations that are about to be undertaken.

If the regulator is not adequately resourced and, therefore, engaged, on top of the real risks is added the risk that regulation just becomes a mutual ‘box ticking’ exercise.

and, saving perhaps the very best for last, there's:

The European Commission’s proposals for regulating offshore HSE

Following the Macondo disaster, the EC proposed a much more rigorous regulatory regime for offshore HSE. This is an extract from the Commission’s own summary in the relevant press release:

“The new draft regulation sets clear rules that cover the whole lifecycle of all exploration and production activities from design to the final removal of an oil or gas installation. Under the control of the National regulatory authorities, European industry will have to assess and further improve safety standards for offshore operations on a regular basis. This new approach will lead to a European risk assessment that upgrades continuously by taking into account new technology, new know-how and new risks. It introduces requirements for effective prevention and response of a major accident:
· Licensing: The licensing authorities in the Member States will have to make sure that only operators with sufficient technical and financial capacities necessary to control the safety of offshore activities and environmental protection are allowed to explore for, and produce oil and gas in EU waters.
· Independent verifiers: The technical solutions presented by the operator that are critical for safety on the installation need to be verified by an independent third party prior to and periodically after the installation starts into operation.
· Obligatory ex ante emergency planning: Companies will have to prepare a Major Hazard Report for their installation, containing a risk assessment and an emergency response plan before exploration or production begins. These reports will need to be submitted to national authorities who will give a go-ahead if satisfied.
· Inspections: Independent national Competent Authorities responsible for the safety of installations, who will verify the provisions for safety, environmental protection and emergency preparedness of rigs and platforms and the operations conducted on them. If an operator does not respect the minimum standards, the competent authority will take enforcement action and/or impose penalties; ultimately, the operator will have to stop his drilling or production operations if he fails to comply.
· Transparency: Comparable information will be made available to citizens about the standards of performance of the industry and the activities of the national competent authorities. This will be published on their websites.
· Emergency Response: Companies will prepare emergency response plans based on their rig or platform risk assessments and keep resources at hand to be able to put them into operation when necessary. Member States will likewise take full account of these plans when they compile national emergency plans. The plans will be periodically tested by the industry and national authorities.
· Liability: Oil and gas companies will be fully liable for environmental damages caused to the protected marine species and natural habitat. For damage to waters, the geographical zone will be extended to cover all EU marine waters including the exclusive economic zone (up to about 370 km from the coast) and the continental shelf where the coastal Member State exercises jurisdiction. For water damage, the present EU legal framework for environmental liability is restricted to territorial waters (about 22 km offshore).
· International: The Commission will work with its international partners to promote the implementation of highest safety standards across the world.
· EU Offshore Authorities Group: Offshore inspectors of Member States will work together to ensure effective sharing of best practices and contribute to developing and improving safety standards.”

Less explicitly stated is the notion that the principle of ‘extra-territoriality’ will apply, meaning that oil & gas companies headquartered in the EU will be expected to follow these regulations wherever on the globe they operate.

These proposals have elicited strong opposition from the oil & gas industry in both the UK and Norway, mainly on the grounds that both these countries already have fully functioning regulatory systems and that to replace them with an EC-regulated EU-wide system is unnecessary and in addition will introduce a long period of uncertainty as regulations shift from one regime to another.

Are these proposals practical? They appear to imply a large force of qualified, experienced, inspectors and assessors who will check every aspect of every offshore installation’s operations. Absent this, the scheme has the risk of turning into a massive ‘box ticking’ exercise.

As I said to begin with, lots of “help” is promised – in fact all the help we need and then some!

Author: David Bamford
Company: Petromall

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