On November 12, 2014 the Bureau of Safety and Environmental Enforcement (BSEE) strongly signaled a forthcoming review of its offshore facility decommissioning regulations and regulatory authority over contactors. While the domestic offshore energy industry has grown accustomed to a fluid regulatory environment, this action would represent the one of the most significant reviews of offshore worker safety and operations since the Deepwater Horizon disaster in 2010.
Regulators repeatedly cited what they perceived to be a poor safety culture as a leading cause of the Deepwater Horizon disaster. This finding ultimately gave rise to the Work Place Safety Rule in October 2010 and its regulations concerning Safety and Environmental Management Systems (SEMS). The SEMS regulations require operators to, among others, design and implement safe work practices, conduct facility wide hazard analyses, identify necessary safety and environmental information, and implement worker training programs. In June 2013, the SEMS II rule imposed additional safety requirements including the development of stop work authority and ultimate work authority programs, and the development of guidelines for incident reporting.
Currently, only operators are required to possess a SEMS program—a point that BSEE clarified in a 2011 Notice to Lessees. [1] Contractors are under no regulatory obligation to maintain a SEMS program. Notwithstanding this, an operator is required to ensure that its contractors comply with the safe work policies and procedures set forth in the operator's SEMS program. This process is often accomplished by the operator and contractor executing a bridging agreement requiring the contractor to adopt and adhere to an operator's SEMS program, including its safe work practices. In practice, most contractors have developed at least an informal SEMS program to demonstrate their commitment to safe work practices and to satisfy the contractor vetting process that SEMS requires operators perform.
This top down regulatory approach where BSEE regulates the operator/mineral lessee who in turn bears the responsibility to regulate its contractors is a hallmark of the pre-Deepwater Horizon regulatory scheme under BSEE's precursor, the Mineral Management Services. BSEE has taken several steps to abandon this top down approach in favor of direct authority over all Outer Continental Shelf (OCS) operations, regardless of who is actually performing them. BSEE's first step was to re-interpret its own regulations unilaterally in such a manner that allows for the direct regulation of contractors and, more recently, by enacting regulations that expressly provide for BSEE's direct regulation of contractors who perform certain operations such as drilling. This regulatory "creep" over parties who have not signed an offshore lease has been the focus of much debate within the industry.
BSEE's latest move towards complete regulatory authority stems from a 2014 BSEE panel investigation into a fatality that occurred during prep work in advance of the decommissioning of a shallow water Gulf of Mexico facility. The panel concluded that the contractor performing and overseeing the work failed to plan adequately for the prep activities leading up to actual decommissioning activities. While BSEE determined the appropriate SEMS program and bridging agreement existed at the "corporate level", the documented policies, procedures, and safety systems were not translated into adequate work practices and implemented at the job site.
In response, BSEE's Director issued a letter [2] accepting the panel's findings and instructing the Office of Offshore Regulatory Programs (ORP) to review the adequacy of current decommissioning regulations. Most importantly, BSEE has also sought a review of whether its current SEMS regulations should be modified to provide for direct oversight of contractors, including a requirement that certain contractors maintain their own accredited and audited SEMS program.
The potential expansion of SEMS just four years after it was implemented marks a significant step in BSEE's attempts to regulate all contractors operating on the OCS. As previously noted, the SEMS regulations are very broad, touching upon worker training, incident response, and safe work operations. If BSEE attains direct oversight of contractors through their SEMS compliance, BSEE may attempt to exert direct oversight over other aspects of the contractors' operations on the OCS. In addition to increased regulatory scrutiny and potential penalties, a series of SEMS violations could cause BSEE to disqualify a contractor from working on the OCS. This is a harsh sanction that BSEE has recently demonstrated it is willing to impose on operators with a history of regulatory non-compliance.
Just who will be classified as a contractor is also an important issue that remains unclear. While a contractor physically performing the work on a facility may clearly be a contractor under the regulations, it is less clear whether a manufacturer of specialty chemicals or a manufacturer of key safety equipment that is used on the OCS, but manufactured onshore, would fall under BSEE's direct oversight. While this and many other questions remain, BSEE is clearly continuing its push for direct oversight over contractor operations on the OCS. Ultimately, this direct oversight of contractors will create new risks and regulatory obligations that both operators and contractors will need to assess carefully and address in their contracts or through the insurance market.
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