(Read this article at www.decomworld.com)
By Bob Moser, Americas correspondent
Dec. 14, 2011
Relationships between contractors and operators in the Gulf of Mexico may undergo fundamental changes in 2012, and could even make some think twice about work in the region, now that US regulators will hold contractors liable for accidents in a way not accounted for in common contracts known as Master Service Agreements (MSAs).
Twenty Incidents of Noncompliance (INC) notices have been issued since October to the “Macondo trio” of contractors involved with the 2010 well blowout. The Macondo response was the first time the Department of Interior had issued INCs directly to a contractor that wasn’t the well’s operator.
The move was long overdue, officials now say. The Bureau of Safety and Environmental Enforcement (BSEE) will regulate contractors along with operators from now on, said Michael R. Bromwich, former BSEE director who was replaced by James Watson on Dec. 1.
Contractors held accountable
“I believe in a system of legal and regulatory accountability, and the issuance of those INCs (to BP, TransOcean and Haliburton) reflects my view that such accountability is not limited to operators,” Bromwich told contractors during a speech to the International Association of Drilling Contractors in November.
“I know it is a new view for this industry, but I am convinced it is the right view”, he said.
Regulators in other industries in the US and offshore regulators from other countries found it strange the BSEE or past agencies would limit its authority to just operators, Bromwich said. The BSEE can preserve its standard of holding operators fully responsible for accidents, and in most cases solely responsible.
But there was no sound legal or logical basis for contractors to keep receiving de-facto immunity, as they have for decades, when the agency is authorized to regulate all entities involved in developing offshore leases, Bromwich added.
The ripple effect this may have on how contractors do business in the Gulf has yet to be seen, but the top priority for contractors may soon become rewrites or amendments to MSAs they have with operators.
MSAs between operators and contractors usually contain indemnities that protect the contractor from issues like pollution and third-party liability, said Rick Kuebel III, attorney with Locke Lord that specializes in deepwater operators and decommissioning.
The BSEE’s newly increased scope for which parties it will issue INCs to wasn’t foreseen in current MSA contracts, and could lead contractors to disfavor work in the Gulf of Mexico if they can’t amend MSAs with their operator partners, Kuebel said.
“If INCs are issued to a contractor with an MSA already in place, are contractors going to want to pass the cost of that fine on to the operator; or accept the penalty as a cost of doing business?” he said. “This becomes a risk allocation issue about how you do business. It will be a good discussion to have for major P&A contractors.”
Contractors can expect better inspection and regulatory effort to come from the BSEE, because for the first time the agency is actually training its offshore inspectors in environmental enforcement – something that, surprisingly, didn’t exist in a formal manner under the former MMS mantel.
The MMS never had a training program for its offshore inspectors, even though that was a key part of the agency’s responsibilities for oversight. “It was bad enough that the agency was asked to inspect more than 3,000 facilities with fewer than 60 inspectors; the problem was compounded because the agency had never developed its own training program,” said Bromwich, during his IADC speech in November.
Increased oversight
BSEE has since created a National Offshore Training and Learning Center, hired its first-ever training director, and has established for the first time, an Environmental Enforcement Division. That division will provide regular oversight of operators to ensure they’re meeting established regulations, and are in line with requirements on their leases and permits.
Greater oversight shouldn’t concern P&A contractors that already hold themselves to the highest standards and run safe operations, said Tom Rosegrant, Superior Energy’s president of well service and P&A in the Gulf of Mexico and US inland waters.
The biggest challenge companies like his have had with the BSEE is getting permits approved in a timely manner, something Rosegrant attributes to the government struggling to hire engineers in a competitive labor market. The BSEE claims it will have hired more than 40 new inspectors by Jan. 1.
Bromwich said an overhaul of how civil penalties are imposed is also long overdue, and the BSEE will pursue legislative change for this.
Currently, it can take more than a year to decide if civil penalties should be imposed after INC notices are handed out. It’s far too long to wait, Bromwich said, and the penalty, which now tops out at US$40,000 per day, per incident, is too low in an industry where operators can pay between US$500,000 and US$1 million per day for a rig.
