Friday, September 23, 2011

Finding a safe approach; AOGCC seeks view on the future of Alaska offshore oil & gas drilling regulation

Alan Bailey
Petroleum News

Following the Deepwater Horizon disaster in the Gulf of Mexico, in June 2010 the Alaska Oil and Gas Conservation Commission opened an investigation into whether the state needs to overhaul its regulations for offshore drilling in state waters. The commission, which has primary responsibility for drilling safety in Alaska, decided to wait until after publication of some Deepwater Horizon investigative reports before holding a hearing to seek public comments as input to its investigation. And on Sept. 15 and 16, immediately after the Bureau of Ocean Management, Regulation and Enforcement issued its Deepwater Horizon report, that public hearing took place.

When initiating its investigation, AOGCC had asked for comments on various safety-related stipulations that the commission requires of drilling operations. Those stipulations mandate, for example, the use of specific safety equipment and well design features. However, opinions offered during the hearing often also delved into some broader and more fundamental questions about the most appropriate ways to oversee and regulate the oil industry, and about how to maximize drilling safety.

Safety culture

Consultant Elmer Danenberger, an erstwhile regulator with decades of experience working for the U.S. Minerals Management Service, emphasized the importance of a “safety culture,” and the need to move away from the “it can’t happen to me mentality” that leads to complacency over operational risk.

Danenberger talked about the relative merits of regulating through the prescription of specific safety measures versus the setting of safety performance goals, goals that spell out the safety requirements while allowing a well operator the latitude to determine how best to meet those requirements. He said that Norway, with an exemplary safety record in recent years, uses a goal-oriented, safety management approach to regulation, compelling companies to take ownership of potential problems and to find solutions to those problems, with regulators determining whether the solutions are acceptable.

In the context of Deepwater Horizon the imposition of an immediate drilling moratorium, while understandable, might not have been the best strategy in response to the disaster, Danenberger said. Instead, why not require companies to find a way of preventing a similar disaster in future, while threatening a moratorium if a solution is not forthcoming, he asked.

Bad operators love command-and-control, prescriptive regulatory regimes because the regulator, by approving everything that the operator does and then carrying out safety inspections, becomes in effect accountable for any problems that occur, Danenberger said. Not only that, but prescriptive regulators tend to play a constant game of trying to keep regulations in step with evolving industry practices, with new rules taking a long time to enact.

“You can never catch up,” Danenberger said. “You are always going to be chasing the next regulation. You never entirely eliminate the gaps.”

Adjusting to circumstances

Fran Ulmer, chair of the U.S. Arctic Research Commission and previously a member of President Obama’s National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, picked up on the same theme, saying that Norway’s goal-oriented “safety case” approach to drilling regulation not only puts responsibility for safety firmly in the hands of operators but also readily enables safety measures to be adjusted to fit the circumstances of a particular drilling operation.

“It really emphasizes the responsibility of industry to be primarily focused on the appropriate safety procedures, given the conditions of any particular well and the technology and techniques to use to develop that well,” Ulmer said.

On the other hand, any regulatory regime requires some level of prescriptive rules, Danenberger said. There is normally, for example, a need for plan approval for drilling operations, and there is always going to be a use for operational standards, especially industry standards, he said.

“There always has to be some inspection and enforcement,” Danenberger said. “There always has to be comprehensive accident investigation and there is always a role for government in that.”

Regs have some latitude

Kara Moriarty, deputy director of the Alaska Oil and Gas Association, representing the Alaska oil and gas industry, said that AOGCC regulations do give operators some latitude in the selection of specific well design parameters, allowing a well design to be appropriate to a particular drilling situation while also ensuring that appropriate safety measures are in place.

Accident prevention through risk management should be a primary focus of drilling safety, Moriarty said. AOGCC regulations effectively spell out the state’s well control requirements and the requirements for well blowout preventers, including requirements for blowout preventer testing and the pressure testing of well piping, she said. Those regulations require operators to allow AOGCC to witness the testing, an arrangement that the industry welcomes, she said.

However, Moriarty presented some AOGA recommendations for improvements to the current regulations.

Bowen Roberts from ConocoPhillips Alaska said that his company agrees that current AOGCC regulations strike about the correct balance between being prescriptive and being flexible.

“The commission’s current regulatory structure is not overly prescriptive and allows for flexibility in oil and gas operations, to accommodate situations not necessarily contemplated by the regulations,” Roberts said.

Roberts said that following the Deepwater Horizon disaster ConocoPhillips has developed new drilling guidelines, including a 16-point wells management policy that all of the company’s drilling operations must comply with.

Relief wells

The issue of relief well drilling as a means of stopping a well blowout came up several times during the hearing. Hal Shepherd, oil and gas coordinator for the Kachemak Bay Conservation Society, argued for mandating the drilling of a relief well in parallel with the drilling of the primary well, to enable a near immediate relief-well response to a blowout. However, several other people commented that the concurrent drilling of a relief well would in itself introduce additional drilling risks.

Roberts said that concurrent relief well drilling would add substantial cost with little apparent benefit, given the risks involved. ConocoPhillips supports the specification of a plan for relief well drilling as part of drilling contingency arrangements. However, the use of a blowout preventer or of well capping technology are alternative approaches to bringing a well back under control, with capping technology having proved its worth in many situations.

“Well capping technology has been effectively utilized in re-establishing well control in hundreds of wells in hundreds of well control incidents worldwide,” Roberts said.

Tighten enforcement

Lois Epstein, Arctic program director for the Wilderness Society, said that she agrees in general with new drilling safety rules recommended by Deepwater Horizon investigations.

However, she emphasized the need for effective deterrents to unsafe practices, saying that in her view the State of Alaska has a poor track record on regulatory enforcement. Enforcement needs to focus on regulatory violations that result in human or environmental harm, and on especially egregious and repeated violations, she said. Penalties need to gain public attention, with press releases perhaps being issued for major violations, she said.

Epstein also argued for the establishment of an expert independent agency, along the lines of the National Transportation Safety Board, to investigate oil industry accidents. She said that there is a need for more detailed incident reporting, including the public reporting of accident near misses.

In fact, a general lack of historic incident data was another issue raised in Deepwater Horizon investigations and was mentioned by several people at the AOGCC hearing. Danenberger, for example, said that there are optimistic signs from the oil industry and government regarding initiatives for incident data collection, but that accident trend analysis tends to be pushed into the background by other priorities.

“We still don’t have a proper international database of incidents, of complete, accurate, verified data,” Danenberger said. “It doesn’t exist and that’s inexcusable.”

“Unfortunately in this country our ability to collect the kind of data you need about accidents, about fires, about unintended loss of well control has not been adequate to really be able to answer some of the fundamental questions about how would you change business practices to really reduce risk,” Ulmer said.

Overlapping jurisdictions

Another recurring theme in the hearing was confusion arising from the overlapping jurisdictions of multiple regulatory agencies. In Alaska, AOGCC; Alaska’s Division of Oil and Gas; and the Alaska Department of Environmental Conservation all play roles in the regulation of drilling safety.

Ulmer commented that Norway has addressed jurisdictional confusion within its oil and gas regulatory environment by simplifying to just two agencies, one that oversees safety and another that oversees leasing and resource management. At the federal level in the United States, change of this magnitude would require Congressional action, and there would be a question of how individual states should conduct their regulation. But simplification of the regulatory environment would cut costs for both the regulators and the industry, Ulmer said.

Mark Myers, vice chancellor of research at the University of Alaska Fairbanks, a previous director of Alaska’s Division of Oil and Gas and of the U.S. Geological Survey, said that in Alaska there are significant jurisdictional overlaps between different agencies but that the statutory rewrite to clean this up would be far from simple — the simpler solution would be improved collaboration between agencies.

With risk being inherent in everything people do, including oil and gas development, the regulatory focus should be on risk assessment, with the improved flow of risk-related information between different agencies being a key component of inter-agency cooperation, Myers said.

Michael Munger, executive director of the Cook Inlet Regional Citizen’s Advisory Council, said that, with AOGCC having the necessary technical expertise in issues such as well control, the citizen’s advisory council recommends transferring the oversight of well blowout contingency planning from ADEC to AOGCC.

“AOGCC is responsible for the approval of normal drilling operations and it only makes sense that they should be responsible for the approval of emergency response plans for blowouts,” Munger said.

At the end of the hearing the AOGCC commissioners announced a continuation of the public comment period for its investigation, allowing 30 days beyond the date of issue of a final National Academies Deepwater Horizon report due out this year. The commission may also schedule a further hearing if necessary.

Commissioner John Norman, while thanking AOGA and ConocoPhillips for their participation in the hearing, expressed his disappointment that more experts from industry had not provided comments. Industry has been given the opportunity to provide input to the commission’s findings, Norman said.

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Republished with the permission of the Petroleum News