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Vol. 16, No. 20 Week of May 15, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

A risky business

Panel discusses how to handle dangers of Arctic offshore oil development

Alan Bailey

Petroleum News

The Deepwater Horizon disaster in the Gulf of Mexico has heightened everyone’s consciousness of the risks involved in offshore oil exploration, while also adding a few decibels to the volume of the contentious debate over the advisability or otherwise of searching for oil in the Arctic offshore. And on May 3, in a panel discussion organized by the University of Alaska Anchorage, four people who have been involved in different aspects of industry safety management reflected on how offshore oil and gas risks might be managed in the future.

Needs safety system

Panel member Fran Ulmer, chair of the U.S. Arctic Research Commission and an erstwhile member of the President Obama’s National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, reiterated the general findings of the presidential commission, saying that the Deepwater Horizon, a result of a litany of errors and safety failures by industry, and a corresponding failure of government regulatory oversight, had been both foreseeable and preventable. The lack of an overarching system for protecting against mistakes increased the risks to a catastrophic level, she said.

Pointing out that the U.S. oil industry safety record lags behind that of Europe, Ulmer compared the regulatory regime in Norway with that of the United States. The Norwegians use a safety-case approach that focuses on assessing the safety risks associated with each specific drilling operation, rather than using the prescriptive set of one-size-fits-all safety standards that have become the norm for safety regulation in America, Ulmer said.

The problem with the prescriptive approach is that a company that meets all of the regulatory requirements may become complacent about the safety of its operations, Ulmer said. The best system would probably entail some combination of a safety-case approach and the use of some prescriptive regulations, she said.

In addition, the Petroleum Safety Authority Norway, the Norwegian government agency tasked with oversight of oil and gas industry safety, is a completely separate organization from those sections of the Norwegian government administration responsible for dealing with oil leasing or oil revenue collection, Ulmer said.

Independent agency

In its post-Deepwater Horizon internal reorganization, disbanding the old U.S. Minerals Management Service, the agency that came out with a less than stellar reputation after the Gulf of Mexico disaster, the Department of the Interior has split off regulatory oversight from other oil and gas-related functions, along the lines of the Norwegian model. Panel member Jeffrey Loman, deputy regional director in Alaska of the Bureau of Ocean Energy Management, Regulation and Enforcement, said that he hopes that the new Interior regulatory agency would be both feared and respected by industry.

Prior to Deepwater Horizon MMS had come to a belief that it had a gold-plated safety system, a belief that had led to dangerous levels of complacency, Loman said. Equally, industry must never be lulled into a situation where it feels satisfied with its safety protocols — concern with the adequacy of safety arrangements drives out complacency, he said.

At the same time, BOEMRE needs to address the concerns of all stakeholders in outer continental shelf oil development, including those people worried about employment and those whose overriding priority is environmental protection, Loman said.

The biggest single issue facing society is the decision on what to do about future energy needs, with that decision also being linked to decisions about what to do about global climate change, he said. And even if the United States cuts back on fossil fuel usage as much as possible, the rapidly growing use of cars in India and China will continue to create a huge demand for hydrocarbon-based fuels. Although that compelling near-term demand for fossil fuels can push people into taking risks in the search for new resources, people not involved with the oil industry can tend to overestimate the risks involved in industry activities over which they have no control, Loman said.

Evaluation needed

On the other hand, every regulatory agency has to make decisions involving an evaluation of costs, benefits and the likelihood of a successful outcome.

Shell’s drilling plans for the Arctic outer continental shelf include a comprehensive oil spill response capability. But it is also necessary to realize that during a worst-weather day in the Arctic offshore people will struggle and probably not be able to clean up anything, Loman said.

Offshore oil exploration is a risky business. BOEMRE is investigating how to plug any gaps in Arctic spill response capabilities, such as the difficulty of deploying spill responders into the region. Among other things, BOEMRE is analyzing the potential impacts of a very large oil spill in the Chukchi Sea, to fully inform regulatory decision makers, Loman said.

The agency is looking under every stone to make sure that industry will do a realistic spill estimate for every well drilled, Loman said.

Panel member Cathy Foerster, a commissioner on the Alaska Oil and Gas Conservation Commission, explained how AOGCC oversees drilling safety in Alaska. AOGCC has jurisdiction over oil and gas drilling throughout the state, including in-state waters within the three-mile limit. All wells require permits, with professional engineers and geologists from AOGCC reviewing individual well plans. The agency also has a robust field inspection program, to ensure compliance with AOGCC regulations and permit stipulations, Foerster said. Changes to a well plan during a drilling operation also require AOGCC approval, she said.

There are fines and other penalties for failure to comply with regulations.

Test requirements

AOGCC requires well blowout preventers to be tested every seven days for an exploration well and every 14 days for a development well. There have been seven well blowouts in Alaska since 1968, all except one resulting from a well hitting a shallow gas zone, and with no blowouts resulting in injury or oil spills, Foerster said. Improvements in seismic data acquisition and improved regulation in recent years have reduced the risks posed by shallow gas, she said.

AOGCC has stringent regulations to ensure that operators do not take unacceptable safety risks but, following the Deepwater Horizon disaster, the agency is conducting a comprehensive review of its regulations for offshore and extended reach drilling, Foerster said. AOGCC is fully funded out of industry regulatory cost fees, independent from other state funding, she said.

Loman commented on the issue of company size when it comes to capabilities to deal with an offshore incident. Who are you going to let do business in the Arctic, Loman asked. It has to be a company with “tremendous financial viability,” he said.

Foerster said she feels concerned that some of the smaller companies entering the Alaska oil and gas industry need to progress through a learning curve of how to do business in the state.

Ulmer emphasized the importance to offshore safety of encouraging a safety culture for all involved, a theme that panel member Karlene Roberts, director of the Center for Catastrophic Risk Management, University of California, Berkeley, picked up in an overview of the characteristics of what she termed “high-reliability organizations.”

High reliability organizations

High-reliability organizations have exemplary safety records when conducting potentially high-risk activities through, for example, effective process safety auditing; reward systems that do not fall into the trap of rewarding some undesirable behavior; and systems that recognize and address risks, Roberts said.

And senior management in these organizations focus on strategic issues. By resisting the temptation to micromanage, these managers ensure that people with the appropriate expertise can make critical decisions, Roberts said.

Roberts cited a major drop in U.S. Navy aviation accident rates over the years and the increasing reliability of U.S. nuclear power stations as two examples of situations where a high-reliability approach to management had yielded demonstrable success, primarily through changes in the way people behave.

The Arctic has a whole array of new and rather challenging conditions that have to be considered in the planning and funding of industry and government involvement in exploration of the region, with these challenges requiring the international sharing of best practices and the setting of high standards for doing business, Ulmer said.

“Clearly as we move forward in the United States to find more oil and gas in the outer continental shelf, offshore in deeper waters and in frontier areas, it becomes increasingly important for us to concentrate on managing risk and improving safety,” she said.

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