As multiple federal agencies release final investigation reports in connection with the Deepwater Horizon accident, the offshore oil and gas industry is braced for a new wave of health, safety and environmental regulations in response to the findings. Looking forward, these rules could significantly impact the regulatory scheme for onshore facilities as well. It also is clear that managing safety compliance will become more resource-intensive if recent proposed regulations from the Bureau of Ocean Energy Management, Regulation and Enforcement are any indication. This alert looks at the key provisions of recently proposed regulations and attempts to answer the question: What will safety management systems look like in the post-Deepwater Horizon world?

Proposed Safety Regulations for Outer Continental Shelf Facilities

In connection with the release of its final investigation report into the Deepwater Horizon accident, the Department of Interior’s Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) has proposed additional regulations related to its Safety and Environmental Management Systems (SEMS) program for oil, gas, and sulphur operations in the Outer Continental Shelf. 76 Fed. Reg. 56,683 (September 14, 2011). The proposed regulations amend and add to safety rules that were finalized in October 2010, which incorporated and made mandatory American Petroleum Institute Recommended Practice 75 (API RP 75) (to be codified at 30 C.F.R. Part 250). 75 Fed. Reg. 63,610 (October 15, 2010). API RP 75 was issued in 2004 as a “fit-for-purpose tool for integrating safety management into a variety of offshore operations.” The recommended practice includes many of the same elements of safety risk analysis and prevention as the Occupational Safety and Health Administration’s Process Safety Management (PSM) standard, including periodic hazard analyses, management of change procedures, and compliance audits.

The newly proposed regulations would include the following six requirements:

  1. Procedures to endow all employees with Stop Work Authority;
  2. A determination of who has the Ultimate Work Authority on the facility for operational safety at any given time;
  3. A plan for employee participation in API 75 implementation;
  4. Guidelines for employees reporting unsafe work conditions and requesting a BOEMRE inspection if they believe there is a serious threat of danger;
  5. Independent third-party audits of SEMS programs; and
  6. Additional instructions for conducting a job safety analysis.

Stop Work Authority and Ultimate Work Authority

The proposed Stop Work Authority regulations would allow any employee to stop others from performing a task within BOEMRE’s jurisdiction, as well as refuse to do the work themselves, without fear of reprisal. Unfortunately, the standard for using such authority is convoluted. First, Stop Work Authority only applies to activities on the Outer Continental Shelf (OCS) that are under BOEMRE’s jurisdiction. Second, the activity that is being stopped must pose an “imminent risk or danger to the health or safety of an individual, the public, or to the environment.” Third, that risk is defined as being one of two things: 1) death or serious physical harm immediately or before the risk or danger can be eliminated through enforcement procedures; or 2) significant imminent harm to land, air, aquatic, marine or subsea environments or resources.

The Ultimate Work Authority regulations would require operators to specify the single person that has final responsibility for making decisions on a facility in the OCS. The specifications also would have to include the manner in which that authority shifts to a different person and rules related to accessibility of that person. The person with Ultimate Work Authority would be the only person who could make the decision to resume operations after another employee has invoked the Stop Work Authority.

These proposed regulations attempt to address a central issue that has been raised in multiple investigations into the Deepwater Horizon accident: because it was not clear to the government investigators who ultimately was accountable for the decisions being made on the rig, the investigators concluded that no one ended up being accountable. Certainly, having a designated person with Ultimate Work Authority on the rig potentially could solve the problem of having a lack of accountability. However, BOEMRE’s final report indicated that “BP, Transocean and Halliburton each had ‘stop work’ programs.” It is therefore uncertain what practical difference the proposed regulation concerning Stop Work Authority will make.

Employee Participation and Reporting Unsafe Work Practices

The proposed regulations also will require operators to involve employees in the development and implementation of their SEMS program. This requirement is quite similar to the employee participation requirement found in OSHA’s Process Safety Management standard. Although the proposed regulation itself does not offer specifics on the degree of employee participation necessary to comply with the standard, OSHA has stated in the past that the purpose of its employee participation standard is to “provide for a co-operative participatory environment and necessary flow of information from management to employees and from employees to management.”

The proposed regulations also include rules for reporting of unsafe work conditions and other employee complaints. BOEMRE’s proposed regulations would require operators in the OCS to ensure that all employees and contractors will be able to confidentially report any unsafe work condition, regardless of whether it is related to a violation of a BOEMRE order or regulation. Further, operators must give employees cards with a toll-free number to report such conditions.

Independent Third-Party Audits

The most significant departure from the previously finalized regulations is the removal of a provision that would have allowed operators to designate qualified operator personnel to perform audits of the SEMS program. The original rules required a SEMS program compliance audit within the first two years of the program’s initial implementation and every three years thereafter. While the timelines would not change, the proposed regulations would disallow any internal personnel, regardless of their qualifications, from completing the required audits. Rather, operators would need to submit a proposed third-party auditor, who must be approved by BOEMRE. Considering that the previously finalized rules also included provisions for BOEMRE to request additional compliance audits, this proposed regulation could result in significant expenses to companies operating in the OCS.

The Future of Safety Management Systems?

While it is unclear to what degree these proposed regulations represent the new standard for safety management systems, we consider it likely that they will at least influence the future regulation of onshore facilities. While BOEMRE currently seems content to mandate for offshore facilities many of the safety practices that onshore facilities currently employ, the regulations concerning Stop Work Authority and Ultimate Work Authority are not currently part of either OSHA or the Environmental Protection Agency’s rules on health, safety and the environment for onshore facilities. Both OSHA and EPA may consider adopting a similar rule in order to promote consistency. These agencies may also take a hard look at whether they too should mandate the use of third parties to perform compliance audits.

Those impacts aside, one forthcoming report could greatly influence the safety regulatory scheme in the United States. The U.S. Chemical Safety and Hazard Investigation Board (CSB) is also investigating the Deepwater Horizon. CSB’s report is expected within the next six months. Although CSB does not have regulatory authority, it is tasked with developing and issuing recommendations to both regulators and the regulated community that could help prevent future industrial accidents. In the past, CSB has not shied away from harshly criticizing sister agencies and regulatory systems it views as inadequate. The agency will have the opportunity to review these proposed regulations and may voice its approval or disapproval of BOEMRE’s attempts to strengthen offshore regulations. As part of its investigation, CSB has solicited testimony from safety regulators in other countries. It is conceivable, for example, that CSB may make recommendations to BOEMRE that call for the introduction of the “safety case,” which is currently used in the United Kingdom and elsewhere.

Under the safety case regulatory model, the facility owner or operator must evaluate the potential hazards of a specific project or facility and then demonstrate the adequacy of the resulting safety management and risk mitigation systems. The safety case must also identify strategies for reducing the effects of a major incident if one does occur. In developing the safety case, the owner or operator must meaningfully involve employees and their health and safety representatives from all of the different workgroups and functional areas at the site.

Although similar in some ways to the management of risks under OSHA PSM, safety case advocates believe the methodology drives a more holistic view of hazards and safety management, and compels the owner or operator to demonstrate that risks will be properly managed. Of all the impacts from the Deepwater Horizon, this one may prove to be the most far-reaching with respect to safety regulation in the United States.