The UK government has commenced two consultations on its approach to implementing the EU Offshore Safety Directive (OSD). The first, led by DEFRA, concerns the extension of the EU Environmental Liability Directive (ELD) to cover liability for damage to marine waters; the second, led by DECC and HSE, concerns amendments to existing offshore safety regulation.
The European Commission first issued proposals for new offshore safety legislation in 2011 in the wake of the Macondo oil spill in the Gulf of Mexico. Throughout the legislative process, the UK government and industry have both maintained that the current UK regulatory regime is robust and fit for purpose.
While the consultation documents propose maintaining existing regulation so far as possible with legislative changes proposed only where strictly necessary, some significant changes are proposed which would affect the responsibilities and liability of offshore operators and licensees. There are concerns within industry over the administrative burden that will be imposed on operators and regulators to update existing safety policies, management systems and plans to meet the exact requirements of the OSD, and doubts as to whether these changes will have any tangible impact on day-to-day safety.
DEFRA consultation on environmental liability
Currently, the ELD is of limited application offshore as it only imposes liability on operators for damage to coastal waters (up to one nautical mile seaward) and to protected habitats and species out to 200 nautical miles.
- Extension to marine waters: The OSD extends the scope of the ELD to cover damage to marine waters as defined in the EU Marine Strategy Framework Directive. In practice, this definition will cover all waters within the UK Continental Shelf. The DEFRA consultation proposes changes to the Environmental Damage (Prevention and Remediation) Regulations 2009 to implement these requirements. The consultation does not apply to Scotland, but similar amendments are expected to be proposed by the Scottish Government that will apply to the UKCS in the North Sea.
- Licensee liability: Unusually for offshore liability purposes, and also at odds with the ELD's imposition of liability on operators, the OSD requires the licensee to be held liable for any environmental damage within the scope of the ELD. This will result in an overlay of responsibility and liability to third parties and the regulator and for restoration of environmental damage in the event of a major spill. It will require reconsideration of JOA liability provisions and of the Offshore Pollution Liability Agreement (OPOL) by which DECC requires operators (as opposed to licensees) to accept liability for pollution.
- JOA position: Under most North Sea JOAs, one co-venturer is appointed as operator on a "no gain, no loss" basis and is indemnified for losses it incurs as operator except for wilful misconduct (usually defined as "intentional or reckless disregard by senior managerial personnel of good oilfield practice") or failure to place insurance. There is, however, usually no right under the JOA for co-venturers to recover any losses from the operator. Should any co-venturer in the future incur direct liability as a co-licensee for environmental damage, it cannot be assumed that a JOA will enable any losses to be recovered from the operator even in the event of wilful misconduct or failure to place insurance.
DECC/HSE consultation on safety regulation
The most important changes proposed by the DECC/HSE consultation document are:
- Operator responsibility: The OSD definition of an "operator" as the entity appointed by the licensee or licensing authority to conduct offshore operations would be adopted under the offshore safety regime. This is consistent with the Petroleum Act 1998 under which an operator is designated for a specific licence area or sub-area. However, it is at odds with current practice under the offshore safety regime of having different operators and duty holders for specific installations, wells and pipelines.
This proposal would also seem to prevent the common practices of operators contracting out day-to-day operations and duty holder responsibility for offshore installations, and contracting out drilling and other well operations to specialist operators, or at least would leave the operator designated under the licence liable for its appointees. The consultation document adds that DECC and HSE recognise the concerns of industry that these proposals do not take due account of existing practices and contracting relationships and are open to considering alternative approaches.
- HSE/DECC competent authority: The OSD requires the UK to establish a single authority to oversee compliance. Responsibility for offshore licensing and environmental regulation currently sits with DECC, with HSE responsible for offshore health and safety regulation, and both working together under a memorandum of understanding. The consultation document proposes that the new authority will comprise both HSE and DECC members working under an enhanced memorandum. Whilst this option avoids major organisational changes, it is not clear whether it is compliant with the exact requirements of the OSD.
Other significant proposals in the consultation document affecting operators of production installations ("operators") and owners of non-production installations ("owners") include:
- Duty to undertake and report suitable emergency measures: There will be a new express duty on both operators and owners to take suitable measures when there is an "immediate danger" to human health or a "significant increase" in the risk of a major incident, with a requirement to notify the competent authority of such measures within 24 hours. The consultation document notes the need for further guidance on the meaning of these terms.
- Reporting of international accidents: Companies registered in the UK will, on request of the competent authority, have to provide details of international major oil and gas accidents that they or their subsidiaries have been involved in. The OSD does not specify what information can be requested, but HSE/DECC will provide guidance. The consultation document notes that any information provided cannot be kept confidential as it will be shared with other EU regulators, but further guidance is again promised.
- Policies, plans and management systems: Owners and operators will need to prepare a new corporate major accident plan (the consultation document suggests around 850 staff hours). Owners and operators will also have to update their existing safety management systems to meet the requirements of the OSD (the consultation document estimates around 140 to 420 staff hours will be required) and prepare new environmental management systems. Owners will need to submit an Oil Pollution Emergency Plan (OPEP) and addendums for each proposed well operation (currently, this requirement only applies to operators).
There are a significant number of other proposals which will necessitate more minor changes to operator arrangements and regulatory procedures. For example, minor changes are proposed to the current licensing system (e.g. the requirement of an approved operator will be extended to decommissioning activities; and revocation of operator approval can be initiated by the competent authority).
Both consultations run until 21 September 2014. Any new legislation will need to come into force by July 2015 in order to meet the OSD's implementation deadline.