The Offshore Safety Directive and the Future of the Offshore UK EHS Regime by CRA Europe

The Offshore Safety Directive Directive 2013/30/EU and the Future of the Offshore Environmental, Health and Safety Regime in the UK

July 2014

The Offshore Safety Directive The Future of the Offshore EHS Regime in the UK

Contents Click the page name to navigate through the document.

1.0

Introduction ........................................................................................................................ 2 1.1 Background ............................................................................................................. 2 1.2 Where can I find out more? .................................................................................... 2

2.0

Implementation of EU directive on the safety of offshore oil and gas operations in the UK ................................................................................................................................. 3

3.0

The future of the UK offshore competent authority following the Wood Review and the requirements of the Offshore Safety Directive ........................................................ 5

4.0

Offshore Safety Directive - Prevention of major accidents and reporting on major hazards ............................................................................................................................... 7

5.0

Offshore Directive â&#x20AC;&#x201C; Liability for environmental damage ........................................... 10

6.0

Offshore Directive â&#x20AC;&#x201C; Financial responsibility .............................................................. 11

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1.0

Introduction

1.1 Background

1.2

The Council of the European Union adopted Directive 2013/30/EU on the safety of offshore oil and gas operations in June 2013. The Directive sets out the minimum requirements for preventing major accidents at offshore oil and gas facilities and for limiting the consequences of any such accident.

If you would like to know more, please contact Helen Mitcheson at hmitcheson@cra.co.uk or on 0151 207 7846. Alternatively, visit our Oil and Gas webpage for more information about the services we provide to the sector.

Where Can I Find Out More?

The full text of the Directive can be found on the EUR-lex website here. CRA will provide regular updates throughout the implementation of the Directive into the UK offshore regulatory regime via our website news feed www.cra.co.uk/news, and in our bimonthly newsletters. You can sign up to receive our newsletter via our homepage www.cra.co.uk.

This short series of articles gives an overview of various developments surrounding the directive, including:  The implementation of the Directive  The future of the offshore Competent Authority  Reporting and prevention of major hazards under the Directive  Liability for financial damage under the Directive  Financial responsibility under the Directive

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2.0

Implementation of EU Directive on the Safety of Offshore Oil and Gas Operations in the UK

 The introduction of independent verification of safety and environmental critical elements.  New requirements for the production of emergency response plans. Operators must: -

Prepare and submit emergency response plans - taking into account the risk assessments undertaken as part of the major hazards reporting, including an analysis of the oil spill response effectiveness.

Notify Member States without delay if a major accident occurs, or may be about to occur.

In the event of a major accident, take ‘all suitable measures’ to prevent escalation and to limit its consequences upon human health and the environment. ‘All suitable measures’ is not defined in the Directive, however, it does state that ‘Operators should reduce the risk of a major accident as low as reasonably practicable, to the point where the cost of further risk reduction would be grossly disproportionate to the benefits of such reduction.’ In addition, the Directive provides that Operators are not to be relieved of their duties under the Directive due to actions or omissions leading or contributing to major accidents by their contractors.

The Directive will apply to future offshore oil and gas installations and operations, and, subject to relevant transitional arrangements, to existing installations. The UK’s Department of Energy and Climate Change (DECC) and the Health and Safety Executive (HSE) will jointly lead the transposition of the Directive since it contains requirements relating to licensing, environmental protection, emergency response, liability and safety. Both DECC and HSE’s implementation teams are currently working towards drafting new regulations. Meeting the Key Objectives of the Directive To achieve the key objectives, several changes will be made to the current offshore safety and environmental regime. These include:  The creation of an independent offshore competent authority, independent from those with interests in the economic development of offshore resources. The new competent authority will have safety AND environmental regulatory functions.  The integration of the management of safety and environmental risks. This will impact on the safety case, well notification, independent verification scheme and well examination requirements.

 New requirements on liability for environmental damage. The Directive amends the 2004 Environmental Liability Directive (2004/35/EC). The licensee will be financially liable for the prevention and remediation of environmental damage caused by offshore oil and gas operations.

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The Offshore Safety Directive The Future of the Offshore EHS Regime in the UK

 The reporting on major hazards for installations prior to commencement of operations and ensure that this is updated when appropriate or when required by the competent authority. The report must consider both safety and the environment. This requirement is likely to be transposed into new Offshore Installation (Safety Case) Regulations, to amend the Offshore Installations (Safety Case) Regulations 2005.

 January to February 2015 - Ministers agree new legislative package

 Duties on operators registered in EU member states to report major accidents that occur outside of Europe.

 19 July 2016 - Laws, regulations and administrative provisions applied to owners and operators of planned production installations and operators planning or executing well operations;

 Transitional arrangements installations and wells.

for

 March 2015 - New guidance to be published th

 19 July 2015 - Member States must bring into force the laws, regulations and administrative provisions necessary to comply with the Directive; th

existing

Key Dates

 19 July 2018 - Member States are to apply the laws, regulations and administrative provisions to existing installations.

 June to September 2014 - Formal Consultation

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3.0

The Future of the UK Offshore Competent Authority Following the Wood Review, and the Requirements of the Offshore Safety Directive

In the UK at present, the Health and Safety Executive (HSE) assumes responsibility for offshore oil and gas health and safety and the Department of Energy and Climate Change (DECC) regulates both the economic and environmental aspects of oil and gas developments.

and capability, thus making it far more involved and influential in the UKCS industry’s challenges and helping to ensure maximum economic recovery from the industry.

Calls for Change from the Wood Review

The offshore directive prescribes that Member States must appoint a Competent Authority responsible for the following safety and environmental regulatory functions:

In February 2014, Sir Ian Wood launched the Final Report of his UK Continental Shelf (UKCS) Maximising Recovery Review. This called for a new Regulator to oversee the UK’s offshore operations. This new Regulator would be an ‘arm’s length’ regulatory body charged with effective stewardship and regulation of UKCS hydrocarbon recovery and maximising collaboration in exploration, development and production across the industry. th On 11 June 2014 at the Oil and Gas Industry Conference, Chief Secretary to the Treasury the Rt Hon Danny Alexander MP announced the name for the new industry regulator- the Oil and Gas Authority- and confirmed Aberdeen as its headquarters. The Oil and Gas Authority will be designed to encourage economic production in the UK and provide sustainable long-term support for the industry. The Wood Review has highlighted a number of issues with the current regulatory system in place for the UKCS. In particular, the review highlights that DECC (formerly DTI) has decreased in size over the years and is struggling to perform a more demanding stewardship role, which includes economic and environmental regulatory aspects. At present, the DECC must compete for resources within a body that is balancing licensing, economic and environmental aspects. Wood states that the new Regulator must have a significant degree of independence and enhanced autonomy, resources

Calls for Change from the Offshore Directive

 Assessing and accepting reports on major hazards;  Handling notifications of well operations, design notifications and combined operations;  Determining intervals between inspection of major hazard risk control measures, including to the environment, for a given installation or activity;  Overseeing compliance by operators and owners with the Directive, including inspections, investigations and enforcement actions;  Advising other authorities or bodies, including the licensing authority; and  Cooperating with other competent authorities or contact points. Member States are at all times to ensure the independence and objectivity of the Competent Authority in carrying out its regulatory functions. In order to ensure that there is no conflict of interest, these competent authorities must be independent from those who deal with the economic development of offshore natural resources and licensing of offshore oil and gas operations, including the collection and management of revenues from those operations.

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The Offshore Safety Directive The Future of the Offshore EHS Regime in the UK

How Will These Requirements Shape the New Competent Authority(s)? In February 2014, at two industry briefing sessions, the HSE and DECC provided some insight into how the safety and environmental Competent Authority may look. It is proposed that it will be a partnership between HSE and DECC, based on a Memorandum of Understanding (MoU) that will define the Competent Authority arrangements. Both the HSE and DECC will concentrate on their own existing expertise, with day-to-day functions delivered by the respective parts of the DECC Oil and Gas Environment and Decommissioning (OGED) and the HSE’s Energy Division. There will however be a single, consistent regulatory face for industry and stakeholders, with a single set of processes and procedures and single enforcement model for matters covered by the Directive. It includes major hazard safety and offshore environmental events. This will be achieved, in part, by a single on-line portal through which submissions and notifications on major safety hazards or environmental issues can be made.

There will be a single intervention plan for each duty holder covering all planned inspection activities by the Competent Authority. Offshore inspections will be fully coordinated and planned between DECC and HSE, acting as a joint venture where appropriate, but a having a lead regulatory partner. The independence of DECC will be assured through changes to the Licensing and economic regime, in accordance with the proposals outlined by Wood, for an ‘arm’s length’ regulator, the Oil and Gas Authority, whose role it will be to ensure delivery of maximum economic benefits for the industry and the UK from the UKCS over the coming years. What is the Timeframe? According to information on the UK government’s website, DECC officials are undertaking detailed planning work around establishing the new Oil and Gas Authority. The Oil and Gas Authority will begin to take shape over the coming weeks and months. Under the Offshore Safety Directive, the new Competent Authority will be finalised by July 2015.

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4.0

Offshore Safety Directive - Prevention of Major Accidents and Reporting on Major Hazards

The objective of the Offshore Safety Directive (Directive) is to reduce, as far as possible, the occurrence of major accidents relating to offshore oil and gas operations and to limit their consequences. As part of their major accident prevention procedures, the Directive requires operators and owners to identify all major accident scenarios relating to all hazardous activities that may be carried out on an installation. This includes impacts on the environment that could arise as a result of a major accident. In the event of a major accident, the operator or owners must take ‘all suitable measures’ to prevent its escalation and to limit its consequences, both from a health and safety perspective and in respect of potential environmental damage. Operators or owners will be obliged to notify relevant authorities if a major accident occurs, or if there is an immediate risk of one occurring. The risk assessments and arrangements for major accident prevention should be clearly described and compiled into a Report on Major Hazards. The report must be amended in respect of any significant aspect of the lifecycle of a production or non-production installation. No installation will be able to operate in offshore waters of Member States unless the competent authority has accepted the report on major hazards submitted by the operator or owner. The report on major hazards will be required to include:  A description of the installation and any association with other installations or connected infrastructure;

 A demonstration that all major hazards have been identified, their likelihood and consequences assessed and their control measures put into place to reduce risks of a major hazard event to human safety and the environment to an acceptable level. This demonstration must include an assessment of oil spill response effectiveness;  Details of equipment and arrangements to ensure well control, process safety, containment of hazardous substances, prevention of fire and explosion, protection of workers from hazardous substances and protection of the environment from a major event;  A description of the arrangements to protect persons on the installation from major hazards, and to ensure their safe escape, evacuation and rescue. The report on major hazards will also be required to include the following documents:  The Internal Emergency Response Plan;  The Safety and Environmental Management System Applicable to the Installation;  The Corporate Policy; and

Major

Accident

Prevention

 A Description of the Scheme of Independent Verification. Currently in the UK, operators are required to submit an Oil Pollution Emergency Plan (OPEP) to DECC, and a separate Safety Case to the HSE prior to the commencement of operations. The major hazards report will require both safety and the environment to be considered in the same report.

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The Offshore Safety Directive The Future of the Offshore EHS Regime in the UK

Internal Emergency Response Plan

 Organisational arrangements for control of major hazards;

Operators or owners must prepare and submit an internal emergency response plan to the competent authority. This must take into account the risk assessments undertaken as part of the major hazards reporting and include analysis of oil spill response effectiveness.

 Identification and evaluation of major hazards, their likelihood and potential consequences;

In addition, Member States are to prepare (in cooperation with operators) emergency response plans covering all offshore oil and gas installations or connected infrastructure within their jurisdiction. The internal emergency response plan shall contain the following information:  Description of all foreseeable conditions or events which could cause a major accident;  Description of the actions that will be taken to control these conditions or events and to limit their potential consequences;  Description of the equipment and resources available;  Arrangements for limiting risks to persons on the installation and the environment;  An estimate of oil spill response effectiveness, which considers environmental conditions;  Arrangements for providing early warning of a major accident to the competent authority;  Evidence of prior assessments of any chemicals used as dispersants that have been carried out to minimise public health implications and any further environmental damage. Safety and Environmental Management System Applicable to the Installation The Safety and Environmental Management System (SEMS) will be required to be integrated within the overall management system of the operator or owner and must include the following information:

 Integration of environmental impact into major accident risk assessments in the report on major hazards;  Emergency planning and response;  Monitoring of performance;  Arrangements for preparing and submitting reports on major hazards; and  Schemes for independent verification of major hazard prevention procedures. Within the current UK offshore legislation, there is a requirement to have a safety management system. DECC also has in place a voluntary agreement for operators to produce an environmental management system. To fully implement the Directive, operators and owners will have to set out their safety and environmental management measures in a single, comprehensive document. Corporate Major Accident Prevention Policy The Corporate Major Accident Prevention Policy establishes the overall aims and arrangements for controlling the risk of a major accident, and how those aims are to be achieved and arrangements in place at corporate level. Operators and owners will be required to ensure that their corporate major accident prevention policy also cover their production and non-production installations outside of the EU. Independent Verification Member States will ensure that operators and owners establish schemes for independent verification of their major accident prevention procedures and that a description of such schemes is prepared. These are to be included in the SEMS and submitted as part of the report on major hazards.

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The Offshore Safety Directive The Future of the Offshore EHS Regime in the UK

The independent contain:

verification

document

must

ď&#x201A;§ A statement by the operator or owner, made after considering the report of the independent verifier, that the record of safety critical elements and their scheme of maintenance as specified in the report on major hazards is suitable; ď&#x201A;§ A description of the verification scheme, including the selection of independent verifiers, the means of verification of safety and

environmental critical elements (SECEs) and any maintenance requirements to ensure specified plant in the scheme remain in good repair and condition. From a safety perspective, the industry already establishes an independent verification scheme for safety critical elements. However, there are new requirements for SECEs to be included.

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5.0 Offshore Directive – Liability for Environmental Damage The Environmental Liability Directive 2004/35/EC (ELD) establishes a framework based on the ‘polluter pays principle’ to prevent and remedy environmental damage. Although the ELD excludes oil pollution beyond territorial waters (i.e. up to 12 nautical miles) from its scope, it has recently been amended by the 2013 offshore safety directive. The Offshore Directive also amends the definition of ‘water damage’ in the ELD to ensure that the liability of licensees under that directive applies to marine waters of Member States as defined in the Marine Waters Framework Directive (2008/56/EC). The purpose of the updated definition of ‘water damage’ is to support the export of the ELD regime offshore, and to plug a perceived gap in the Water Policy Framework Regime, by ensuring that an oil spill which causes any degradation in the environmental status of marine waters is considered as ‘water damage.’

The extension of liability to the whole UKCS through the change to the definition of ‘water damage’ has the potential to expose oil and gas companies to a greater level of liability for remediation costs arising from an offshore incident resulting in environmental damage. Member States th must put this into effect by 19 July 2015. A further change is the requirement for licensees to be financially liable for the prevention and remediation of environmental damage. The States will also be obligated to ensure that the licensees have adequate provision in place to cover all potential liabilities. This decreases the risk that, in the event of environmental damage occurring, noone will be in a position to finance the remedial measures required. Imposing this duty upon licensees, rather than on the operator, means that all of the parties who stand to gain from a development, also stand to share in this potential liability.

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6.0 Offshore Directive – Financial Responsibility Following the Macondo incident in 2010, it became apparent that covering the ultimate costs and losses of an extreme major accident was beyond the capabilities of even the largest energy companies. The offshore directive aims to look at financial capacity of license holders before the commencement of the offshore operation under consideration. The Directive aims to ensure that financial responsibility is dealt with robustly at the licensing stages, that the full costs of emergency response and environmental remediation are considered and that sufficient financial capacity will be available throughout the lifecycle of the project. Financial Responsibility Requirements of the Offshore Safety Directive Member States shall ensure that decisions on granting or transferring licenses to carry out offshore oil and gas operations take into account the applicant’s capability to meet a number of requirements. This includes the applicant’s financial security to deal with any major accident, including liability for potential economic damages deriving from the operation. The licensing authority will not grant a license unless it is satisfied with evidence from the applicant that the applicant has made adequate provision to cover their potential liabilities deriving from the operation. This provision must be valid and effective throughout the complete lifecycle of the project. Applicants must provide evidence of their financial capacity.

It is not yet decided how licensees will demonstrate that they have sufficient financial capacity cover any potential liabilities as required by the Directive. However, in January 2013, DECC issued a guidance note titled ‘Guidance Note to UK Offshore Oil and Gas Operators on the Demonstration of Financial Responsibility Before Consent May be Granted for Exploration and Appraisal Wells on the UKCS’. This guidance note prescribed that the level of financial responsibility that companies need to demonstrate for any particular well should be calculated by establishing the combined cost of well control and cost of financial remediation and compensation from pollution. This information should accompany the relevant OPEP at the time it is submitted to DECC for approval. The guidance note states that financial responsibility can be verified by means of:    

Reliance on credit/financial strength rating of the operator or co-venturer; Insurance; Parent company guarantee/affiliate undertaking; and Any combination of the above.

Although these guidelines are not law, DECC is unlikely to issue consent without sufficient evidence being provided. However, with the requirements for financial responsibility for dealing with liability under the Offshore Directive, Member States will be required to ensure that an adequate liability regime is in place in the event of an accident, and in addition, what requirements in respect of financial capability may be appropriate for the licensee to provide.

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