New Developments in Regulation of U.S. Offshore Oil and Gas Operations

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1 New Developments in Regulation of U.S. Offshore Oil and Gas Operations Peking University Law School and The University of Texas School of Law Carol Dinkins Partner Vinson & Elkins, LLP August 21, 2012

2 Offshore Development Changes Post-Deepwater Horizon Immediate drilling moratorium Re-organization of regulatory agencies New safety and permitting requirements Adjusted industry practices Compensation fund to compensate for damages The Deepwater Horizon site. Credit: NOAA. 2

3 Drilling Moratorium May 6, 2010: MMS ceased issuing permits to drill new shallow- and deep-water wells pending a 30 day review. May 28, 2010: 6 month deepwater drilling moratorium imposed; shallow water moratorium lifted. June 22, 2010: Federal court lifted deepwater moratorium. July 12, 2010: DOI imposed new moratorium through Nov. 30, 2010 for all operations using subsea BOPs and floating facilities using surface BOPs. Oct. 12, 2010: DOI lifted the moratorium but operators had to certify compliance with new rules before resuming drilling. 3

4 Department of the Interior Regulatory Agency Restructuring MMS BOEMRE ONRR BOEM BSEE 4

5 Significant Regulatory Requirements Include: Establishment of new well design, casing and cementing parameters, well bore integrity, and types of well control equipment for all drilling projects. Mandating API Recommended Practice (RP) 75 requiring development, implementation, and maintenance of Safety and Environmental Management Systems (SEMS). Demonstration by operators using Blow out Preventers (BOPs) that they can deploy adequate containment resources for a blowout or loss of well control. 5

6 Drilling Safety Regulation Well Bore Integrity Isolation of Potential Flow Zones During Well Construction Engineer certification of casing and cementing Two independent test barriers across each flow path during well completion activities Proper installation, sealing and locking of casing or liner BOEM approval before replacing heavier drilling fluid with a lighter one Enhanced deepwater well control training for rig personnel Well Control Equipment Requirements Specify types of Blowout Preventer (BOP) equipment and control systems; must submit documentation and schematics for control systems 3 rd party verification of blind-shear rams Subsea BOP stack with ROV intervention capability Auto shear and deadman systems for dynamically-positioned rigs Minimum capabilities of personnel operating BOP equipment Documentation of subsea BOP inspection and maintenance Testing of control systems 6

7 Workplace Safety Rule on Safety and Environmental Management Systems (SEMS) 13 Elements of RP 75 and the Workplace Safety Rule: Issued in October 2010 Codifies the 13 elements of API s RP 75 Requires all offshore oil and gas operators to develop and maintain a SEMS 1. General provisions 2. Safety and environmental information 3. Hazards analysis and JSAs 4. Management of change 5. Operating procedures 6. Safe work practices 7. Training 8. Mechanical integrity 9. Pre-startup review 10.Emergency response and control 11.Investigation of incidents 12.Audits 13.Records and documentation 7

8 Additional New Requirements NTL-06: Blowout Scenario NTL Operators must demonstrate that they are prepared to deal with the potential for a blowout and worst-case discharge. Must submit information such as: Estimated flow rate, total volume, and maximum duration of potential blowout; Specific discussion of the worst case scenarios, availability of a rig to drill a relief well, and rig package constraints; Estimates of time to move rig onsite and drill a relief well; and NTL-10 Requires that an operator applying to drill in deep water certify that it has complied with all regulations, including the new drilling safety rule. Confirms the requirement to review subsea blowout containment resources for deepwater drilling. Descriptions of the assumptions and calculations used to determine the volume of a worst case discharge scenario. 8

9 Industry Adjusting to New Requirements Marine Well Containment Company and Helix Well Containment Company Established to develop systems that can contain a blowout or loss of well control. Center for Offshore Safety Established in response API RP 75 SEMS development being mandatory. Requires SEMS for drilling contractors as well as operators. MWCC s containment cap 9

10 BP Making Safety Changes and Building its own Capping System Created a new safety and operational risk organization that reports directly to CEO Is upgrading platforms Enhanced requirements for contractors rigs Instituted voluntary drilling standards in the Gulf of Mexico Built a capping system that can be flown for global deployment (pictured, BP photo) 10

11 MWCC Conducted Successful Test with BSEE MWCC and BSEE successfully tested MWCC s current containment system in 7,000 ft. of water three weeks ago. MWCC is developing an expanded system for use in up to 10,000 ft. of water. [Diagram shows expanded system] 11

12 Gulf Coast Compensation Fund Gulf Coast Claims Facility (GCCF) Established to administer claims and BP s $20 billion trust fund Fulfilled BP s responsibilities under the Oil Pollution Act Paid out $6.5 billion in claims Court Supervised Settlement Program Following settlement, amended GCCF claims process Separate settlement and claims program for economic loss/property damage claims and medical claims Eligibility requirements vary from GCCF s 12

13 Conclusion Many changes occurred and they are quite significant Industry responded vigorously New practices can be replicated elsewhere 13