In a case of first impression with significant implications for the offshore marine and energy industry, the U.S. Department of the Interior’s Board of Land Appeals recently issued a decision affirming the U.S. Bureau of Safety and Environmental Enforcement (“BSEE”) issuance of an Incident of Non-Compliance (“INC”) to Island Operating Co., Inc. for violation of BSEE safety regulations even though Apache Corporation, and not Island Operating, was the lessee of a platform located at South Pelto area, Block 11, Gulf of Mexico, off the coast of Louisiana, within the Outer Continental Shelf.

BSEE issued the INC to Island Operating under Interim Policy Document (“IPD”) No. 12-07, dated August 15, 2012, that was implemented in the wake of the BP Macondo Well pollution incident to provide general policy guidelines as to when BSEE should exercise enforcement authority over a lessee’s contractor. The IPD set forth four factors to decide whether to issue an INC to a contractor:

  1. the type of violation, i.e. whether the act or failure to act violated health, safety and environmental requirements;
  2. the “harm resulting in the violation,” i.e. whether the violation directly resulted or could have directly resulted in a serious injury or environmental damage;
  3. the “foreseeability of the harm (or threat of harm),” i.e. whether it was reasonably foreseeable that the violation could directly result in serious environmental damage; and
  4. the “extent of the contractor’s involvement in the violation,” i.e. whether the contractor had control over activities that resulted in the violation, whether the contractor’s act or failure to act played a significant role in the violation and whether the contractor knew or should have known that its activity might result in a violation.

Judge Kalavritinos examined the Outer Continental Shelf Land Act (“OCSLA”) and its legislative history and opined that he thought it was clear that OCLSA imposes a duty to comply with regulations promulgated under the statute not only on the lessee but also on all parties who perform work on the OCS. Specifically, the Island Operating court reasoned that the Department of Interior Secretary is afforded by Section 5(a) of OCSLA, 43 U.S.C. § 1334(a) (2012), the authority generally to “administer” OCSLA and to prescribe such rules and regulations as necessary to carry out provisions of OCSLA. The Board of Land Appeals further noted that the Secretary is authorized to prescribe regulations “necessary” to ensure that “operations” on the OCS are “conducted in a safe manner … sufficient to prevent or minimize … [any] occurrences which may cause damage to the environment or to property, or endanger life or health.” 43 U.S.C. §§ 1332 and 1348(a) (2012).

Based upon this general statutory charge and authority, the Board of Land Appeals stated that the Secretary has authority to hold any person actually performing any activity, in connection with any operations, on OCS lease, accountable for failure to prevent or minimize the likelihood of fire or any other occurrence that might cause damage to the environment or property or endanger life or health. As a consequence, the Board of Land Appeals held that the BSEE is authorized by OCSLA to exact a civil penalty from “any person” who has committed a violation of the statute or its implementing regulations.

The Island Operating decision has serious ramifications to the offshore marine and energy industry because it means any party that is deemed to have violated OCSLA’s broad mandate for offshore operations to protect the environment and properly to prevent the endangerment of life is subject to its jurisdiction and potential civil and related penalties. In other words, any contractor, whether an oilfield contractor or subcontractor or vessel operator working for a lessee such as Chevron, BP or Fieldwood, can be subject to BSEE Incidents of Non-Compliance even though that party may also be subject to Coast Guard jurisdiction. The impact of this potential overlap between BSEE and the Coast Guard regulation is unclear. To date, there appears to be no Memorandum of Understanding between BSEE and the Coast Guard regarding the boundaries of their jurisdiction to enforce safety and environmental concerns raised by BSEE’s efforts to expand its enforcement authority.

Marine and energy contractors and their underwriters should consider the impact of this decision because although the lessee remains responsible for Safety and Environmental Management Systems requirements, operators continue to revise their contractual and insurance requirements to obtain broad coverage against such BSEE enforcement actions where the contractor or subcontractor is involved.

The decision is Island Operating Co., Inc., IBLA 2013-137 (September 25, 2015). A link to a copy of the decision is here.