The European Commission yesterday proposed a new regulation setting strict health, safety and environmental standards for offshore operations across the EU.  Contrary to earlier pronouncements, the regulation will not apply to operations of EU-headquartered companies outside the EU, though Operators will have to “endeavour” to conduct their worldwide offshore oil and gas operations in accordance with its principles.

The draft 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 national regulatory authorities, European industry will have to assess safety standards for offshore operations on a regular basis and upgrade continuously by taking into account new technology, new know-how and new risks.

The Commission claims that the regulation can deliver a baseline reduction of risk of 50%, with associated savings of €103m - 455m per year, at a cumulative cost of €134m - 140m per year. The industry will bear the brunt of that cost.

Energy Commissioner Günther Oettinger said: "Most oil and gas in Europe is produced offshore, often in harsh geographical and geological conditions. Given our growing energy demand, we will need all the oil and gas from beneath our seas. But we need to prevent accidents like Deepwater Horizon in the Gulf of Mexico from happening. Securing best industry practices in all our offshore operations is an undisputable must. Today's proposal is a crucial step forward towards safer offshore activities to the benefit of our citizens and our environment".

The major features of the regulation (which heavily reflect the UK regulatory regime) are as follows:

Licensing

The licensing authorities in the Member States will have to make sure that only those operators with the sufficient technical and financial resource 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 will need to be verified by an independent third party prior to, and periodically after, the installation commences 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.

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.

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

Existing rules on environmental damage will be extended from territorial waters to the whole continental shelf and exclusive economic zone so that oil and gas companies will be fully liable for environmental damage caused to the protected marine species and natural habitat.

Comment

Whilst most EU offshore oil and gas production is currently from the UK and Norway, exploration and production licences have now been awarded in 13 Member (UK, the Netherlands, Denmark, Germany, Ireland, Italy, Spain, Greece, Romania, Bulgaria, Poland, Malta and Cyprus).  To date EU legislation has not addressed all aspects of the offshore oil and gas industry and national legislation is very different between Member States.  To the extent that the proposed regulation brings all Member States up to UK and Norwegian standards, the industry perhaps has little to fear and much to gain from it.

However, the industry will now be reviewing the draft in detail for any departures from the UK regime that might have unintended consequences on its effectiveness.  For example, the regulation will require the competent authority of each member state to establish an anonymous whistle-blowing procedure that will enable workers to report environmental or health and safety concerns but remain anonymous throughout any subsequent investigation.  That means that the HSE’s current procedure will need to be amended. While the intention is good, it may raise the spectre of malicious reporting in the industry.

The regulation is not yet law until it is adopted by the European Council and Parliament. It is envisaged that it will come into force for existing installations by 2014, with a prior transitional period of one year for planned productions.

Please click here for the full text of the regulation