On 25 February 2013 we reported that the European Parliament and the Council (representing EU Governments) had reached political agreement on the proposed regulation of the safety of offshore oil and gas operations in the European Union.

The European Parliament has now considered the Commission’s proposal and this week (21 May 2013) adopted draft text for the Directive. The draft text passed this first reading on a clear majority: with 572 voting in favour and 103 against.

Under the proposed Directive, all operators will need to ensure that they have sufficient resources to minimise the risk of, and thereafter rectify, a major accident. Decisions on granting or transferring licences will have to take account of the technical and financial capability of an applicant and in so doing must also consider the risk to the licensed area concerned. In respect of evidence on capability, there is a requirement for the provision of a major accident prevention policy and safety and environmental management systems. In addition, Member States are to facilitate the deployment of sustainable financial instruments and other arrangements in order to assist licence applicants. The licensing authority may in certain circumstances object to the appointment of an operator, on grounds of these requirements.

Licensees generally will in the future be held financially liable for the prevention and remediation of environmental damage caused by offshore operations “carried out by, or on behalf of, the licensee or the operator”. This extends the current position in the UK, where environmental liability is imposed on operators rather than all licence holders. The term ‘offshore’ is also broadly defined and includes territorial waters, the Exclusive Economic Zone (extending to around 370km from the coastline) and the continental shelf over which the Member States exercises jurisdiction. Environmental liability under the current EU framework is restricted to territorial waters (approx. 22km offshore).

In this regard, the Commission is to conduct an ongoing analysis of the appropriate measures to ensure an adequately robust liability regime and the requirements for demonstrating financial capacity itself (including the availability of financial security instruments). In particular, the draft text places ongoing obligations on the Commission to report to the European Parliament and the Council: including that the Commission will have to (a) report on the availability of financial security instruments/the handling of compensation claims, along with any appropriate proposals, by 31 December 2014; and (b) submit its assessment of the effectiveness of the liability regimes in place within the EU, again accompanied by any suggested amendments, within a specified window after the Directive comes into force (previously suggested to be within the first 2 years).

A further obligation will be the requirement for Member States to ensure that operators, both prior to commencement of operations and on a continuing basis, report on major hazards. Such reports will subsequently need to be reviewed and accepted by the competent authority. This reporting obligation is analogous to the safety case regime presently in place in the UK. However, safety cases focus on major accident hazards to workforce health and safety on the respective installation. They do not require dutyholders to report on the management of environmental risks, which will need to be covered within a major hazard report.

The draft text makes clear that Member States must ensure the independence and objectivity of the competent authority. In order to prevent conflicts of interest, the functions required under the Directive (i.e. safety and environmental) must be carried out by an authority which is independent of any functions regarding economic development (including licensing and collection/management of revenues from oil & gas activities). This requirement may demand restructuring of DECC’s oil and gas division, whose ambit currently includes regulation of environmental matters.

On a wider level the Commission, in conjunction with Member States, aspires to promote the implementation of high safety standards on an international scale. The recital to the draft Directive therefore includes a statement noting the desirability of operators in Member States applying major accident prevention policies in relation to their operations outside EU waters. Notably however, there is no corresponding enforcement mechanism or capacity. Separately, as part of the body of the draft Directive, Member States are given the ability to require companies registered in their territory and conducting, directly or indirectly, offshore oil and gas operations outside the European Union (as licence holders or operators) to, on request, report to them about the circumstances of any major accidents in which they have been involved. It is suggested that operators and owners of non-production installations should also consider the applicability of EU policy documents to non-EU operations.

The Commission now has to notify the European Parliament if it intends to substantially amend or replace the draft Directive. The Directive will then, unless rejected by the European Parliament by an absolute majority, be adopted definitively by the Council.

Once in force, Member States will have 2 years in which to adopt the required provisions of the Directive into national laws and for existing installations the transposition period will be 5 years. Member States with “offshore waters that have no offshore oil and gas operations under their jurisdiction, and landlocked countries with companies registered in their territories” will be required to transpose only limited parts of the Directive.

The fact that the underlying political agreement has proceeded by way of a Directive, rather than a Regulation (which would have seen EU-wide rules being directly imposed on all Member States), affords valuable flexibility and discretion to Member States as to how they implement its terms. This is an important point for the UK and means that the underlying safety regime, which is now well-developed, can remain in place.

A number of aspects within the draft Directive relate to standards and risks already regulated under UK domestic laws. Indeed Günther Oettinger, EU Commissioner for Energy, recognised that: “these rules will make sure that the highest safety standards already mostly in place in some Member States will be followed at every oil and gas platform across Europe”. At the same time however, it is anticipated that some provisions – e.g. major hazard reports, independence of competent authorities and the extension of environmental liability to licensees – will, as highlighted above, necessitate amendments at a UK level.

To view the adopted text please click here.