By aflanagan [at] hillandknowlton [dot] com (Aidan Flanagan)
Following over a year of preparatory discussions, the European Commission published at the end of October its proposed new regulation on safety standards for offshore oil & gas drilling. This represents the EU executive’s legislative response to the Gulf of Mexico spill of 2010, in order to ensure that safety standards in European waters are the strictest possible, and are applied equally across the EU. A separate proposal on allocation of financial liability is expected in 2012.
The proposal, as expected, draws heavily on the existing regime in the North Sea countries, requiring a specific Major Hazard Report for every operation, incorporating a full risk assessment and emergency response plan, to be prepared prior to drilling operations commencing, along with independent verification of safety plans before and during operations. National authorities will be required to ensure that licenses are only granted to operators with the adequate technical and financial resources to guarantee safe activities and environmental protection. The existing rules on environmental liability are tightened considerably, with environmental liability extended from the current zone of 12 nautical miles offshore to 200 nautical miles, ensuring that the entirety of EU waters is covered. Oil and gas companies will be fully liable for environmental damages caused to protected marine species and natural habitats.
The Commission views its approach as one of “EU Best Practice” whereby the level of risk management and emergency preparedness is raised to best practice level throughout the EU, ensuring consistency and greater transparency of industry and regulatory performance. The Commission believes that applying the proposed new regulation would reduce risk costs by 50%.
The proposal now passes to the Council and the Parliament for negotiation. While it echoes many of the positions set out in the Parliament’s earlier resolution calling for action on offshore safety, one element which was discussed previously but did not make it into the final proposal was a requirement for EU firms to apply these standards to their operations outwith the EU. However there may be scope for MEPs to introduce amendments containing such a requirement during the parliamentary discussions on the proposal, although it is unclear whether they would enjoy enough support to be adopted in the final text.
The proposal effectively amounts to an extension of the existing goal-setting regulatory approach in the North Sea to the entirety of the EU, something which is recognized by the Commission. As such, there will be little change for operators on the North Sea shelf, other than to create what the Commission calls a “composite North Sea benchmark” by harmonizing the existing best practices, as well as some new requirements on transparency and the development of an anonymous whistle-blowing procedure, which will be worth following to ensure proportionality.
On the other hand, standards in the Mediterranean, Baltic and Black Seas will be tightened considerably, which will be of considerable relevance as new fields are developed off Cyprus, Romania and Malta, among others, some of which are in water depths of over 1km. Given the enclosed nature of these seas, and the numerous countries whose territorial waters they include, improving safety standards to best practice level will be vital for the development of a successful oil and gas industry.
The goal-setting approach is promoted by industry and regulators as the best means of guaranteeing continuous improvement in safety, and as such industry’s partnership with regulators and the EU institutions in the legislative process should continue in order to develop without delay a modern, safety-case regulatory framework.
