In the immediate aftermath of the Deepwater Horizon oil spill many oil companies expected governments around the world to strengthen and tighten the rules applying to deepwater operations within their territorial waters. In the UK, deepwater oil and gas resources account for around 17% of remaining reserves, and already make a significant contribution to the UK’s economy. Despite having one of the strongest safety and environmental regimes in the world, following the incident in the Gulf of Mexico the UK was forced to review its own regulatory regime for deepwater drilling on the UK continental shelf (“UKCS”). In this article we look at the UK’s response to that review.
The effect of the Deepwater Horizon incident on the oil industry in the UK has been less resounding than had initially been thought. Unlike the US, the UK has not implemented an overhaul of its regulatory regime. In general there is a strong feeling in the UK that the appropriate response to the incident should not be more regulation, and that the current regulatory framework is more than sufficient.
Moratorium on Deepwater Drilling?
The immediate response of the EU was to call for a complete moratorium on all deep-sea drilling rigs in EU waters (as had been done in the US). However in January 2011, the UK parliament rejected the EU’s proposal. A report issued by the House of Commons Energy and Climate Change Committee (the “House of Commons Committee”) concluded that the measure was not justified because the UK’s “national interest” was too strong to ignore. The report stressed that there was “insufficient evidence” to support a moratorium and that imposing such a measure in the UKCS would cause drilling rigs and expertise to migrate to other parts of the world, potentially decreasing the UK’s security of supply which would result in increased dependence on imports of oil and gas. The EU has since pulled back from its initial position and instead proposed that new stricter regulations on deepwater drilling activities in the EU should be imposed. Draft proposals are expected from the EU this autumn.
In the UK, responsibility within the Government for regulating offshore safety and licensing is separate. There are two regulators: the Health and Safety Executive (HSE) regulates offshore safety, and the Department of Energy and Climate Change (DECC) regulates the offshore environment for oil and gas activity. Companies operating in the UKCS must make sure that a well is managed in such a way that there can be no unplanned escape of oil (or any other well products such as gas, condensate, etc.). The design of every well, regardless of its location, water depth, or reservoir characteristics, must go through a rigorous approval process by DECC and HSE, before being drilled.
Following the Deepwater Horizon incident, the HSE and DECC conducted a thorough review of the UK’s existing safety and environmental regulatory regime and concluded that overall it was robust and fit for purpose, a view that was shared by the House of Commons Committee and Oil & Gas UK (the representative body for the UK offshore oil and gas industry). Nevertheless since April 2010, both the HSE and DECC have been strengthening their existing rules and procedures to ensure they are up-to-date. HSE, for example, has increased levels of peer review in areas such as well design and the auditing of safety case assessments for Mobile Offshore Drilling Units. DECC, for its part has doubled the number of inspections taking place on rigs and has requested operators of UKCS wells to produce emergency plans detailing their responses to various scenarios.
Establishment of OSPRAG (Oil Spill Prevention and Response Advisory Group)
Other changes have included the establishment on 25 May 2010 of OSPRAG by Oil & Gas UK. Comprising both industry representatives and regulators, the purpose of OSPRAG is to review offshore drilling regulations and practices in the UKCS and assess the industry’s readiness to respond to a major event in the region. In particular OSPRAG monitors and reviews findings from the Deepwater Horizon incident and facilitates implementation of recommendations.
OSPRAG has also overseen the development of a well capping device which has been built to seal an uncontrolled subsea well in the event of a major well control incident. The capping device was launched on 6 September 2011 and will be handed over to Oil Spill Response Limited, who will store it in readiness at an operational base in the north east of Scotland with the appropriate deployment capabilities.
Increase in OPOL limit
Another consequence of the Deepwater Horizon incident has seen members of the Offshore Pollution Liability Association Ltd (“OPOL”) increase the OPOL limit from $120 million to $250 million. OPOL was established in 1975 to administer a voluntary industry mutual agreement requiring each operator to accept strict, ‘no fault’ liability for pollution damage and reimbursement of public authorities for remedial measures up to a pre-determined limit. It will also step-in should a member default, and will assume liability for that member up to the pre-determined limit.
It should be noted that companies also carry insurance for their own and other liabilities beyond the OPOL limit; usually covering loss or damage to property and operators’ extra expenses including controlling a well, oil spill containment, and clean-up.