1 

AA-10 Subpart H Production Safety Systems

Economic Analysis

June 27, 2013
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Outline

A. EXECUTIVE ORDER 12866

1. Need for regulation

2. Alternatives

3. Economic analysis

4. Section-by-section analysis of costs

a. Reporting after a failure of SPPE equipment 

b. Notifying BSEE of specified production safety issues

c. Certification for designs of mechanical and electrical systems

d. Certification letter for mechanical and electrical systems installed in accordance with 

approved designs; 

e. Certification of as-built diagrams of schematic piping and instrumentation diagrams 

and the safety analysis flow diagram

f. As-built piping and instrumentation diagrams to be maintained at a secure onshore 

location

g. Inspection, testing, and certification of foam firefighting systems

h. Inspection of fired and exhaust heated components

i. Submission of a contact list for OCS platforms

j. Industry familiarization with the new rule

5. Summary of the cost analysis

6. Benefits analysis

a. Data

b. Methods

c. Analysis results 

B. REGULATORY FLEXIBILITY ANALYSIS

1. Description of the Reasons That Action by the Agency Is Being Considered

2. Description and Estimated Number of Small Entities Regulated

3. Description and Estimate of Compliance Requirements
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a. Reporting after a failure of SPPE equipment

b. Notifying BSEE about production technical issues

c. Certification, submission, and maintenance of designs and diagrams

d. Inspection, testing, and certification of foam firefighting systems

e. Inspection of fired and exhaust heated components

f. Submission of contact list for OCS platforms

g. Industry familiarization with the new regulations

4. Total cost burden for small entities

5. Description of Significant Alternatives to the Proposed Rule
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A. EXECUTIVE ORDER 12866

Under Executive Order 12866 (E.O.), BSEE must determine whether a regulatory action is 

significant and, therefore, subject to the requirements of the E.O. and review by the Office of 

Management and Budget (OMB). Section 3(f) of the E.O. defines a “significant regulatory

action” as any regulatory action that is likely to result in a rule that: (1) has an annual effect on 

the economy of $100 million or more, or adversely affects in a material way the economy, a 

sector of the economy, productivity, competition, jobs, the environment, public health or safety, 

or State, local, or tribal governments or communities (also referred to as “economically

significant”); (2) creates serious inconsistency or otherwise interferes with an action taken or 

planned by another agency; (3) materially alters the budgetary impacts of entitlement grants, user 

fees, or loan programs or the rights and obligations of recipients thereof; or (4) raises novel legal 

or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth 

in the E.O.

The BSEE has determined that this proposed rule, which would amend and update the 30 

CFR Subpart H, Oil and Gas Production Safety Systems, does not constitute an economically

significant regulatory action under Section 3(f)(1) of the E.O. The rule is not expected to impose 

an annual cost of $100 million or more and it will not adversely affect the economy, a sector of 

the economy, productivity, competition, jobs, the environment, or public health or safety in a 

material way. In fact, this proposed rule is intended primarily to codify standard industry

practice and clarify existing BSEE regulations and guidance. The requirements for oil and 

natural gas production facilities under the proposed rule align with those under the 1988 Final 

Rule and other existing documents that regulate and guide the industry (e.g., Deepwater 

Operations Plans (DWOPs), Notices to Lessees (NTLs), and American Petroleum Institute (API) 
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industry standards). Thus, the Proposed Rule does not qualify as an economically significant 

regulatory action per Section 3(f)(1) of the E.O.

1. Need for regulation

The BSEE identified a need to rewrite and revise the regulation regarding oil and natural gas 

production on the Outer Continental Shelf (OCS). The regulation addresses issues such as 

production safety systems, subsurface safety devices, and safety device testing. These systems 

play a critical role in protecting workers and the environment. The protection of human life and 

the environment is a major objective of this proposed rule.

The BSEE has not revised the production regulations since its first publication on April 1, 

1988 (53 FR 10690). Since that time, much of the oil and gas production on the OCS has moved 

into deeper waters, which has introduced new issues for industry and BSEE. For example, 

industry has shown interest in employing new technologies, including foam firefighting systems; 

subsea pumping, water flooding, and gas lift; and new alloys and equipment for high temperature 

and high pressure wells. However, the regulation has not kept pace with technological advances 

in the industry. Many of the new provisions in the proposed rule serve to incorporate and codify

current industry practice.

In addition, the wording and structure of the 1988 Final Rule creates confusion about the 

requirements. The BSEE has rewritten and reorganized the rule to clarify the existing 

requirements and highlight important information for regulated entities. The proposed rule 

would greatly improve readability of the production regulations.
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2. Alternatives

We have considered two alternatives: (1) make the policy changes contained within this 

proposed rule; and (2) take no regulatory action and continue to rely on the 1988 final rule in 

combination with the DWOPS, COAs, and NTLs issued since 1988. These guidance documents, 

however, do not provide for predictability in BSEE requirements. They can also be lengthy and 

complex. For example, one of the NTLs that BSEE proposes to incorporate in this rule (NTL No. 

2009-G36, “Using Alternate Compliance in Safety Systems for Subsea Production Operations”) 

consists of 22 pages of detailed text. The proposed rule captures the basic guidance provided by 

this NTL regarding underwater safety valves but does not include the same level of detail.

The BSEE has elected to move forward with alternative 1, the proposed rule, which captures 

high-level requirements included in existing regulatory documents without excessive detail. This 

approach clarifies BSEE’s basic expectations, providing industry with a balance of predictability

and flexibility to address concerns related to offshore oil and natural gas production.

The BSEE is requesting comment on other possible alternatives to consider, including 

alternatives on the specific provisions contained in this NPRM, with the goal of ensuring a 

discussion at the final rule stage.

3. Economic analysis

The economic analysis presented below covers the offshore oil and natural gas production 

industry. The BSEE derived its estimates by comparing the costs and benefits of the new 

provisions in the NPRM to the baseline. Impacts that already existed as a result of the 1988 final 

rule, BSEE regulations, and API standards with which industry already complies were not 

considered as costs and benefits of this proposed rule because they are part of the baseline. 
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The following section outlines how we quantified and monetized the costs of the proposed 

rule for all provisions requiring new activities for industry or BSEE. The cost analysis also 

considers the time required for industry staff to read and familiarize themselves with the new 

regulation. Footnotes present the assumptions and data inputs used to calculate each cost 

estimate. The analysis covers 10 years (2012 through 2021) to ensure it captures all major costs 

that could result from this proposed rule. 

In a separate section below, we present the data, methodology, and results for the benefits 

analysis. We quantified and monetized the maximum potential benefits of the proposed rule two 

ways, reduction in oil spills and injuries as a whole, and then the provision of increasing the 

allowable leakage rate of certain safety valves. For oil spills and injuries, the magnitude of these 

benefits, however, is uncertain and highly dependent on the actual reduction in the probability of 

oil spills and injuries the proposed rule would achieve. Due to this uncertainty, BSEE was not 

able to perform a standard cost-benefit analysis estimating the net benefits of the proposed rule. 

As is common in situations where regulatory benefits are highly uncertain, we conducted a 

break-even analysis, which estimates the minimum risk reduction the proposed rule would need 

to achieve for the rule to be cost-beneficial. This allowed BSEE to determine the costeffectiveness of the proposed rule depending on the percentage of potential oil spills or injuries

prevented and benefits of increasing the allowable leakage rate of certain safety valves. As with 

the costs analysis, we estimated the benefits over a 10-year time horizon (2012 through 2021).

When summarizing the benefits and costs of specific provisions of this proposed rule, we

present the typical annual effect, as well as the 10-year discounted totals to estimate the present 

value of the benefits and costs. We used discount rates of 3 and 7 percent, per OMB Circular A4, “Regulatory Analysis.” 
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We did not identify any transfer payments associated with the proposed rule. Transfer 

payments, as defined by OMB Circular A-4, are payments from one group to another that do not 

affect total resources available to society. Transfer payments are associated with a distributional 

effect but do not result in additional costs or benefits to society. 

The BSEE welcomes comments on this analysis, including potential sources of data or 

information on the benefits and costs of this proposed rule. 

4. Section-by-section analysis of costs

The BSEE’s cost analysis evaluated the expected impacts of the proposed rule, as compared 

to the baseline (i.e., current practice in accordance with the 1988 final rule, existing guidance

documents, and industry standards). 

If a provision is not expected to result in a change from the baseline, it was not reflected in 

the analysis. Specifically, the analysis did not address impacts of provisions that were also 

included in the 1988 final rule and those associated with activities required by guidance

documents (e.g., DWOPs, NTLs). For example, Section 250.800(c) of the Proposed Rule no 

longer allows operators to install single bore risers from a floating production system. Although 

this would be a new provision in the rule, it would not result in a new cost compared to the 

baseline because installation of multi-bore risers is now standard industry policy (under

DWOPs). The BSEE has not approved single bore risers in several years and none have been 

installed in the past five years. Finally, the analysis excluded impacts resulting from codification 

of industry standards (i.e., API standards) with which industry already complies. 

The analysis identified the provisions determined to result in a change from baseline: (a) 

reporting after a failure of SPPE equipment; (b) notifying BSEE of specified production safety
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issues; (c) certification for designs of mechanical and electrical systems; (d) certification letter 

for mechanical and electrical systems installed in accordance with approved designs; (e) 

certification of as-built diagrams of schematic piping and instrumentation diagrams and the 

safety analysis flow diagram; (f) as-built piping and instrumentation diagrams to be maintained 

at a secure onshore location; (g) inspection, testing, and certification of foam firefighting 

systems; (h) inspection of fired and exhaust heated components; (i) submission of a contact list 

for OCS platforms; and (j) industry familiarization with the new rule. These provisions and their 

associated costs to industry and government are discussed below.

a. Reporting after a failure of SPPE equipment

Section 250.803(c) requires operators to report failure of any SPPE equipment to BSEE.

Specifically, if an equipment manufacturer notifies an operator that it has changed the design of 

the equipment that failed, or if the operator has changed operating or repair procedures as a result 

of a failure, the operator must submit the design change or modified procedures in writing to 

BSEE within 30 days of the change.

Industry already generally shares failure information with manufacturers per API standards. 

This Proposed Rule specifies that industry must also share the more critical equipment failure 

information with BSEE so that BSEE is able to track these occurrences and improve quality

control.

The requirement to report design changes or modified procedures to BSEE would result in 

increased annual labor costs for industry and BSEE.

1

To calculate the industry labor cost 

associated with this new provision, we multiplied the time required to report the change or 

 

1

This requirement to report failure of SPPE equipment to BSEE, as other several reporting requirements in this 

Proposed Rule, is expected to be conducted electronically. Thus, this provision involves no materials cost.
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modification by the average hourly compensation rate for the staff most likely to complete the 

task. We then multiplied this result by the expected number of changes or modifications per 

year. We estimated that the annual labor cost for this failure reporting requirement would be 

$168 to industry and $68 to BSEE.2,3

b. Notifying BSEE of specified production safety issues

Sections 250.825(b), 250.831, 250.833, 250.837(c)(5), 250.838(c), 250.874(f), and

250.874(g)(2) introduce new notification requirements for industry. The provisions require

industry to notify BSEE of occurrences in which: (1) an operator is unable to test valves and 

sensors; (2) the ability to monitor casing pressure is affected; (3) an underwater safety valve

(USV1 type) fails to operate properly and an operator designates a USV2 or qualified valve as 

the USV1; (4) an operator resumes production after an event in which wells were secured; or (5) 

an operator experiences loss of communication. These requirements are intended to ensure that 

 

2 We assumed that industry staff (mid-level petroleum engineer) would spend 2 hours to prepare a submittal of 

design changes or modified procedures. We determined the average hourly wage rate for a petroleum engineer 

($58.79) by taking the median wage rate for a petroleum engineer in the United States according to the Bureau of 

Labor Statistics (BLS) (http://www.bls.gov/oes/current/oes172171.htm). We then multiplied this rate by a privatesector loaded wage factor of 1.43 from the BLS index to account for employee benefits, resulting in an hourly 

compensation rate of $84.07. We assumed that one submittal would be prepared each year. We then multiplied 

the number of hours per submittal by the average hourly compensation rate and by the estimated number of 

submittals per year to obtain an estimated total annual labor cost of $168.14 (2 x $84.07 x 1) to industry for this 

provision.

3 We assumed that BSEE staff (petroleum engineer, GS-12, step 5) would spend 1 hour to receive and review each 

submittal of design changes or modified procedures. We determined the average hourly wage rate for a GS-12, 

step 5 employee ($41.52) by averaging the GS-12, step 5 wage rates for the Houston metropolitan area and the 

temporary wage rate in effect until 2013 for Jefferson, Lake Charles, and Houma, Louisiana ($41.91) for 2012 and 

2013, and the average of the GS-12, step 5 wage rates for the Houston metropolitan area and the of rest of the 

United States for 2014 through 2021. We then multiplied this rate by a federal loaded wage factor of 1.69 derived 

from the U.S. Department of Labor’s analysis of overhead costs averaged over employees of the Department (we 

used this loaded wage factor of 1.69 in the absence of a similar estimate for BSEE). This results in an average 

hourly compensation rate of $70.17 for 2012 and 2013, and $67.18 for 2014 through 2021. We multiplied the 

number of BSEE staff hours per submittal by the average hourly compensation rate and the estimated number of 

submittals per year (1) to obtain an estimated total annual labor cost to BSEE for this provision of $70.17 (1 x 

$70.17 x 1) for 2012 and 2013, and $67.18 (1 x $67.18 x 1) for 2014 through 2021.
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industry and BSEE remain informed of issues related to equipment testing, monitoring, and 

operation. 

These new notification requirements would result in minimal increases in industry and 

BSEE staff time. We estimated labor costs for industry by multiplying the time required to 

notify BSEE for each type of occurrence by the average hourly compensation rate for the staff 

most likely to complete the task, and by the number of expected occurrences each year. The 

BSEE anticipates few (10 in total) occurrences warranting notifications under these provisions 

per year. For industry, we estimated the annual labor costs for the notification requirements 

related to these five categories of occurrences to be: (1) $252; (2) $168; (3) $84; (4) $42; and (5) 

$42.4 We then summed these costs, resulting in an estimated total annual labor cost of $588

($252 + $168 + $84 + $42 + $42) to industry. Similarly, we estimated the labor costs of this 

provision to BSEE by multiplying the time required to receive and respond to a notification by

the average hourly compensation rate of BSEE clerical staff and by the number of expected 

occurrences. We estimated the annual labor cost for this provision to be $95 to BSEE.

5

 

4 We assumed that the time required for industry staff (mid-level petroleum engineer) to notify BSEE of an

occurrence in the five categories identified above would be: (1) 0.5 hours; (2) 2 hours; (3) 1 hour; (4) 0.5 hours; and 

(5) 0.5 hours. We determined the average hourly wage rate for a petroleum engineer ($58.79) by taking the 

median wage rate for a petroleum engineer in the United States according to the BLS

(http://www.bls.gov/oes/current/oes172171.htm). We then multiplied this rate by a private-sector loaded wage 

factor of 1.43 from the U.S. Bureau of Labor Statistics’ index for salary and benefits to account for employee 

benefits, resulting in an hourly compensation rate of $84.07. We assumed that, for the five categories, the annual 

number of notifications would be: (1) 6; (2) 1; (3) 1; (4) 1; and (5) 1. We multiplied the number of staff hours per 

notification by the average hourly compensation rate and by the estimated number of notifications per year to 

obtain an estimated total annual labor cost to industry for each category identified in these provisions. The 

resulting industry costs are as follows: (1) 0.5 x $84.07 x 6 = $252.21; (2) 2 x $84.07 x 1 = $168.14; (3) 1 x $84.07 x 1 

= $84.07; (4) 0.5 x $84.07 x 1 = $42.03; and (5) 0.5 x $84.07 x 1 = $42.03. We then summed these costs to obtain a 

total annual labor cost to industry of $588.49 ($252.21 + $168.14 + $84.07+ $42.03 + $42.03). 

5 We assumed that BSEE staff (a clerical worker, GS-7, step 5) would spend 0.25 hours to receive and respond to 

each notification, regardless of the category of incident requiring the notification. We determined the average 

hourly wage rate for a GS-7, step 5 employee ($22.41) by averaging the GS-7, step 5 wage rates for the Houston 

metropolitan area and for the rest of the United States. We then multiplied this rate by a federal loaded wage 

factor of 1.69, resulting in a loaded average hourly compensation rate of $37.87. Using the same number of 
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c. Certification for designs of mechanical and electrical systems

Section 250.842(b) introduces a requirement stating that, in its production safety system 

application, an operator must include certification(s) that the designs for mechanical and 

electrical systems were reviewed, approved, and stamped by a registered professional engineer.

The engineers used for this certification must be registered in a State or Territory in the United 

States and have sufficient expertise and experience to perform the duties.

The requirement to include certification(s) of mechanical and electrical system designs in 

the production safety system application would result in an increase in industry staff time. 

Although these certification requirements would be consolidated into the application process

upon rule promulgation, they were broken out in this analysis to capture potential costs that 

could result from this proposed rule. We calculated the labor cost by multiplying the time 

required to certify the designs by the average hourly compensation rate of the staff most likely to 

complete the certification and by the number of certifications per year. We estimated the annual 

labor costs for this certification requirement to be $16,141 to industry.

6

The BSEE does not 

expect to incur any costs as a result of this provision.

 

expected occurrences as identified for industry, we assumed a total of 10 notifications per year to which BSEE staff 

would need to respond. We multiplied the number of BSEE staff hours by the average hourly compensation rate 

and the estimated number of notifications per year to obtain an estimated total annual labor cost to BSEE of 

$94.68 (0.25 x $37.87 x 10).

6 We assumed that industry staff (mid-level petroleum engineer) would spend 6 hours to certify designs of 

mechanical and electrical systems and include the certifications in the application. We determined the average 

hourly wage rate for a petroleum engineer ($58.79) by taking the median wage rate for a petroleum engineer in 

the United States according to the BLS (http://www.bls.gov/oes/current/oes172171.htm). We then multiplied this 

rate by a private-sector loaded wage factor of 1.43 from the BLS index to account for employee benefits, resulting 

in an hourly compensation rate of $84.07. We estimated that 32 certifications would be conducted each year. We 

multiplied the number of hours per certification by the average hourly compensation rate and by the estimated 

annual number of certifications to obtain an estimated total annual labor cost of $16,141.38 (6 x $84.07 x 32) to 

industry for this provision.
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d. Certification letter for mechanical and electrical systems installed in accordance with 

approved designs

Section 250.842(c) requires operators to submit a certification letter to the BSEE District 

Manager stating that mechanical and electrical systems were installed in accordance with 

approved designs, before starting production.

The requirement to send a letter to the District Manager to certify the installation of 

mechanical and electrical systems would result in increased annual labor costs for industry and 

BSEE. We assumed that industry staff would spend 6 hours to certify the installation, with an 

estimated 32 certifications being conducted each year. We estimated the labor cost of this 

provision by multiplying the staff time by the number of certifications and by the average hourly 

compensation rate of the staff most likely to perform this task. We assumed that BSEE staff time 

to receive and process the certification letters would be minimal (approximately 0.5 hours per 

letter). We estimated the annual labor cost for this certification requirement to be $16,141 to

industry and $606 to BSEE.

7,8

 

7 We assumed that industry staff (mid-level petroleum engineer) would spend 6 hours to certify designs of 

mechanical and electrical systems and include the certifications in the application. We determined the average

hourly wage rate for a petroleum engineer ($58.79) by taking the median wage rate for a petroleum engineer in 

the United States according to the BLS (http://www.bls.gov/oes/current/oes172171.htm). We then multiplied this 

rate by a private-sector loaded wage factor of 1.43 from the BLS index to account for employee benefits, resulting 

in an hourly compensation rate of $84.07. We estimated that 32 certifications would be conducted each year. We 

multiplied the number of hours per certification by the average hourly compensation rate and by the estimated 

annual number of certifications to obtain an estimated total annual labor cost of $16,141.38 (6 x $84.07 x 32) to 

industry for this provision.

8 We assumed that BSEE staff (clerical worker, GS-7, step 5) would spend 0.5 hours to receive and process each 

certification letter. We determined the average hourly wage rate for a GS-7, step 5 employee ($22.41) by 

averaging the GS-7, step 5 wage rates for the Houston metropolitan area and for the rest of the United States. We 

then multiplied this rate by a federal loaded wage factor of 1.69, resulting in a loaded average hourly 

compensation rate of $37.87. We assumed that 32 certification letters would be submitted each year (These 

estimates are based on historical submittals and projections from regional offices). We multiplied the number of 

hours per certification letter by the average hourly compensation rate and by the estimated number of letters per 

year (0.5 x $37.87 x 32) to obtain an estimated total annual labor cost of $605.97 to BSEE for this provision.
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e. Certification of as-built diagrams of schematic piping and instrumentation diagram and 

the safety analysis flow diagram

Section 250.842(d) requires the as-built schematic piping and instrumentation diagrams and 

the safety analysis flow diagram to be certified and stamped by a registered professional 

engineer. The engineer used by operators for this task must be registered in a State or Territory

in the United States and have sufficient expertise and experience to perform the duties. A 

certification letter must be sent to the District Manager within 60 days after production. Per 

Section 250.842(e), the as-built diagrams must also be submitted to the District Manager within 

60 days after production.

The requirements to certify the as-built diagrams and submit the certification letter and 

diagrams to the District Manager would result in increased labor costs to industry and BSEE.

We calculated industry labor costs by multiplying the time spent certifying and submitting the 

diagrams by the hourly compensation rate of the staff most likely to complete the task, and by

the number of submissions expected each year. We calculated BSEE’s labor costs using a 

similar method, with time required to receive and process the submissions multiplied by the 

BSEE District Manager’s hourly compensation, and by the number of expected submissions. 

We estimated the annual labor cost for these certification requirements to be $22,605 to industry

and $1,510 to BSEE.

9,10

 

9 We assumed that industry staff (professional engineer, supervisory) would spend 6.5 hours for each certification 

and submittal of as-built diagrams. The average hourly wage rate for a professional engineer, supervisory is 

$76.00, based on BSEE’s Supporting Statement A (BSEE Production Safety Systems). We then multiplied this rate by 

a private sector loaded wage factor of 1.43 from the BLS index to account for employee benefits, resulting in a 

loaded average hourly compensation rate of $108.68. We assumed that 32 certifications would be conducted each 

year. We then multiplied the number of hours per certification and submittal by the average hourly compensation 

rate and by the estimated number of certifications and submittals per year to obtain an estimated total annual 

labor cost of $22,605.44 (6.5 x $108.68 x 32) to industry for this provision.
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f. As-built piping and instrumentation diagrams must be maintained at a secure onshore 

location

Section 250.842(f) introduces a new requirement for operators to maintain as-built piping 

and instrumentation diagrams at a secure onshore location. The provision indicates that the 

records must be readily available to BSEE upon request, for the life of the OCS facility. 

The requirement to maintain documentation of the piping and instrumentation designs 

would result in a minimal increase in industry staff time (estimated at 0.5 hours per record). We

estimated labor costs for industry by multiplying this time estimate by the average hourly 

compensation rate for the staff most likely to complete this task, and by the number of records 

expected per year (approximately 32). We estimated the annual labor costs for these information 

maintenance requirements to be $480 to industry.

11 The BSEE does not expect to incur any 

costs as a result of this provision.

 

10 We assumed that BSEE staff (District Manager, GS-14, step 5) would spend 0.5 hours to receive and process each 

submittal of as-built diagrams. We determined the average hourly wage rate for a GS-14, step 5 employee ($55.86)

by averaging the GS-14, step 5 wage rates for the Houston metropolitan area and for the rest of the United States. 

We then multiplied this rate by a federal loaded wage factor of 1.69 to obtain a loaded average hourly 

compensation rate of $94.39. We assumed that 32 submittals would be received each year. We multiplied the 

number of hours per submittal by the average hourly compensation rate and by the estimated number of 

submittals per year to obtain an estimated total annual labor cost of $1,510.32 (0.5 x $94.39 x 32) to BSEE for this 

provision.

11 We assumed that industry staff (field office administrator, clerical) would spend 0.5 hours to maintain each 

record of as-built diagrams. The average hourly wage rate for a professional engineer, supervisory is $21.00, based 

on BSEE’s Supporting Statement A (BSEE Production Safety Systems). We then multiplied this rate by a private 

sector loaded wage factor of 1.43 from the BLS index to account for employee benefits, resulting in a loaded 

average hourly compensation rate of $30.03. We estimated that 32 records would be maintained each year. We 

multiplied the number of hours per record by the average hourly compensation rate and by the estimated number 

of records per year to obtain an estimated total annual labor cost of $480.48 (0.5 x $30.03 x 32) to industry for this 

provision.
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g. Inspection, testing, and certification of foam firefighting systems

Section 250.861 addresses the use of foam firefighting systems. This provision requires 

operators that install foam firefighting systems, to inspect the foam concentrates, and their 

storage containers and send samples to the manufacturer or authorized representative for quality 

condition testing and certification, on an annual basis. This provision also requires operators to 

maintain the certification documentation so that it is available for field inspections. As an 

alternative to testing and certification, the operator could replace the total inventory.

The requirements to inspect, test, and certify foam firefighting systems would result in

increased annual labor costs for industry (an estimated 2 hours per system) and annual materials 

costs to ship the foam samples. To calculate industry labor costs, we multiplied this 2-hour time 

estimate by the average hourly compensation rate of the appropriate industry staff and the 

estimated number of systems subject to this provision for each year. We estimated the cost for 

materials by assuming the cost would be that of a small flat rate shipping box from the U.S. 

Postal Service, and multiplying this cost by the total number of foam samples per year. By

summing the labor and materials costs, we determined that the average annual cost for these 

requirements would be an estimated $98,434 to industry ($94,195 in the first year, increasing by

$942 each year due to the expected installation of five new foam firefighting systems per year).

12

The BSEE does not expect to incur any costs as a result of this provision.

 

12 We assumed that industry staff (drilling operator, management) would spend 2 hours for the inspection, testing, 

and certification of each foam firefighting system. The hourly wage rate used for a drilling operator (management) 

is $64.00, based on BSEE’s Supporting Statement A (BSEE Production Safety Systems). This rate is multiplied by a 

private sector loaded wage factor of 1.43 from the BLS index to account for employee benefits. The calculation 

yields a loaded hourly compensation of $91.52. We estimate that there are currently 500 foam firefighting systems 

installed and that 5 new systems would be installed each year (These estimates are based on historical submittals 

and projections from regional offices). Multiplying the number of hours per system, the hourly compensation, and 

the estimated number of systems per year (2 x $91.52 x 500 in first year) generates an estimated total annual labor 
17 

h. inspection of fired and exhaust heated components

Section 250.876 would require certain tube-type heaters to be removed, inspected, repaired, 

or replaced every 5 years by a qualified third party. 

The requirement to inspect certain fired and exhaust heated components would result in 

additional inspection costs. There are approximately 1500 fired and exhaust heated components 

on the OCS that would need to be inspected every 5 years. The cost associated with each 

component inspection is approximately $5,000. Because every component would not need to be 

inspected at the effective date of the rule we averaged the annual number of inspections over the 

10 year period, resulting in an average of 300 component inspections per year. This estimate 

does not take into account the fact that operators might already be performing some of these 

inspections. We estimated the annual cost for inspection of fired and exhaust heated 

components to be $1.5 million (300 components x $5,000 per component = $1,500,000).

i. Submission of contact list for OCS platforms

Section 250.890(c) introduces a new requirement for each operator to submit a contact list 

for all OCS platforms to the BSEE District Manager. Operators also would be required to

resubmit the information whenever it is revised. 

 

cost to industry of $91,520.00 in the first year. We repeat this calculation for each year using the number of 

systems expected for the given year, and average the results to obtain an estimated average annual labor cost of 

$95,638.40 for this provision. We then added to the labor cost the materials cost, assuming a small flat rate 

shipping box ($5.35) from the United States Postal Service would be used. Multiplying the cost for shipping by the 

total number of samples per year yields a total materials cost of $2,675.00 (500 in the first year x $5.35). We 

repeated this calculation for each year using the number of systems expected for the given year, and averaged the

results to obtain an estimated average annual materials cost of $2,795.38 for this provision. We estimated the 

total costs for labor and materials at $94,195.00 for the first year of rule implementation.
18 

The requirement to compile and submit contact information would result in a minimal 

increase in industry labor time (an estimated 0.5 hours per contact list). We calculated the 

industry labor cost by multiplying the time estimate per list by the average hourly compensation 

rate of a field office administrator, and by the number of lists submitted each year. The number 

of lists submitted includes both new submissions (approximately 1,000) and a limited number of 

revised lists (an estimated 100) each year. We estimated the annual labor costs for this reporting 

requirement to be $16,517 to industry and $10,415 to BSEE.

13, 14

j. Industry familiarization with new regulations

When the new regulation takes effect, industry will need to read and interpret the rule. 

Through this review, operators will familiarize themselves with the new structure of the rule and 

identify any new provisions relevant to their operations. Operators will evaluate whether any 

new action must be taken to achieve compliance with the rule. This review will be facilitated by 

the plain language and improved structure of the proposed rule.

Reviewing the new regulations require staff time, imposing a one-time labor cost on industry. 

We estimated the one-time labor cost by multiplying the time required for an administrator at 

 

13 We assumed that industry staff (field office administrator, clerical) would spend 0.5 hours to submit a new or 

revised contact list. The average hourly wage rate for a field office administrator (clerical) is $21.00, based on 

BSEE’s Supporting Statement A (BSEE Production Safety Systems). We then multiplied this rate by a private sector 

loaded wage factor of 1.43 from the BLS index to account for employee benefits, resulting in a loaded average 

hourly compensation rate of $30.03. We assumed that 1,000 new contact lists and 100 revised lists would be 

submitted each year. We multiplied the number of hours per list by the average hourly compensation rate and by 

the number of lists per year to obtain an estimated total annual labor cost of $16,516.50 (0.5 x $30.03 x 1,100) to 

industry for this provision.

14 We assumed that BSEE staff (clerical worker, GS-7, step 5) would spend 0.25 hours to receive and process each 

contact list submitted by industry. We determined the average hourly wage rate for a GS-7, step 5 employee 

($22.41) by averaging the GS-14, step 5 wage rates for the Houston metropolitan area and for the rest of the 

United States. We then multiplied this rate by a federal loaded wage factor of 1.69 to obtain a loaded average 

hourly compensation rate of $37.87. We assumed a total of 1,100 contact list submissions per year. We multiplied

the number of hours per list by the average hourly compensation rate and by the number of lists submitted per 

year to obtain an estimated total annual labor cost of $10,415.05 (0.25 x $37.87 x 1,100) to BSEE for this provision.
19 

each field office to review the rule by the total number of field offices. This calculation yielded 

a total one-time cost to industry of $28,257.15

5. Summary of the cost analysis

Exhibit 1 summarizes the cost for the proposed rule by provision. Exhibit 2 displays the 

monetized costs as annual summations of the calculations described above. 

EXHIBIT 1: COST OF THE PROPOSED RULE BY PROVISION

Average Annual Cost

(undiscounted)

Percent Industry 

Share

Government 

Share

Reporting after a failure of SPPE 

equipment $236 0% 71% 29%

Notifying BSEE of production safety 

issues $683 0% 86% 14%

Certification, submission, and 

maintenance of designs and diagrams $57,485 3% 96% 4%

Inspection, testing, and certification of 

foam firefighting systems $98,433.78 6% 100% 0%

Inspection of fired and exhaust heated 

components $1,500,000.00 89% 100% 0%

Submission of contact list for OCS 

platforms $26,932 2% 61% 39%

Industry familiarization with new

regulations (one time cost) $28,257 2% 100% 0%

TOTAL $1,686,595.06 100% 99% 1%

 

15 We assumed that industry staff (professional engineer, supervisory) would spend 2 hours to review the new 

regulations. The average hourly wage rate for a professional engineer (supervisory) is $76.00, based on BSEE’s 

Supporting Statement A (BSEE Production Safety Systems). We then multiplied this rate by a private sector loaded 

wage factor of 1.43 from the BLS index to account for employee benefits, resulting in a loaded average hourly 

compensation rate of $108.68. We assumed that a staff person at each field office would review the new 

regulation at each of the 130 field offices. Multiplying the number of hours per review by the average hourly 

compensation rate and by the number of field offices produced an estimated total one-time labor cost of 

$28,256.80 (2 x $108.68 x 130) to industry.
20 

EXHIBIT 2: SUMMARY OF MONETIZED COSTS

Year Monetized Costs

(2011 dollars/year)

1 2012 $1,707,790

2 2013 $1,680,475

3 2014 $1,681,414

4 2015 $1,682,356

5 2016 $1,683,298

6 2017 $1,684,240

7 2018 $1,685,182

8 2019 $1,686,124

9 2020 $1,687,066

10 2021 $1,688,008

Undiscounted 10-year Total $16,865,951

10-Year Total with 3% discounting $14,388,372

10-Year Total with 7% discounting $11,848,836

6. Benefits Analysis

The proposed rule would result in benefits to society in two ways, 1) by reducing the 

probability of incidents resulting in oil spills and worker injuries and 2) by evaluating the 

increase of the allowable leakage rates for certain safety valves to address the unnecessary repair 

or replacement of certain safety valves. For oil spills and injuries, the magnitude of these 

benefits, however, is uncertain and highly dependent on the actual reduction in the probability of 

oil spills and injuries the proposed rule would achieve. Due to this uncertainty, BSEE was not 

able to perform a standard cost-benefit analysis estimating the net benefits of the proposed rule. 

As is common in situations where regulatory benefits are highly uncertain, we conducted a 

break-even analysis, which estimates the minimum risk reduction the proposed rule would need 

to achieve for the rule to be cost-beneficial. In the form of a sensitivity analysis, we also applied 

a risk-based approach to cost-benefit analysis by calculating net benefits of the proposed rule 
21 

over a range of possible risk reduction levels that could be achieved by the proposed rule. In this 

section, we describe the data, methods, and results of the benefits analysis. 

a. Data

To estimate the maximum amount of potential costs from oil spills that the proposed rule 

could potentially prevent, we used spill data to estimate the damages from incidents on OCS 

facilities affected by the rule.16 We used disaggregated spill data to quantify the total amount of 

oil spilled and number of spills over the 10-year period from 2001 to 2010. 17 The BSEE 

database collects information for all spills greater than 10 barrels. 

We estimated the annual number of barrels of oil spilled by multiplying the average number 

of spills per year from affected facilities (22.1) by the average amount of oil spilled per spill 

(183.8).18 This calculation resulted in an average of 4,063 (22.1 x 183.8) barrels of oil spilled 

per year. To estimate the cost of oil spills, we multiplied the annual amount of oil spilled (4,063) 

by the value of a barrel of oil spilled ($2,373), as estimated in previous BSEE regulatory

analyses.19 This calculation resulted in a maximum potential avoided cost of $9,640,019 (4,063 

x $2,373) from the proposed rule for preventing oil spills. 

 

16 We focused the analysis on incidents associated with the following types of operations, expected to be affected 

by the Proposed Rule: completion; completion/workover; completion/workover/motor vessel; construction; 

deactivation; decommissioning; decommissioning and PA; hurricane; hurricane repair; hurricane salvage; 

offloading; pipeline; pipeline/motor vessel; pipeline/barge; plugging and abandonment; production; 

production/barge; production/construction; production/motor vessel; production/workover; workover; and 

workover/motor vessel.

17 Source: http://www.bsee.gov/Inspection-and-Enforcement/Accidents-and-Incidents/Spills----Statistics-andSummaries-1996-2011.aspx

18 Over the 10-year period, 221 spills greater than 10 barrels were recorded in the data for an average rate of 22.1 

spills per year. These spills accounted for 40,629 barrels of oil spilled, for an average of 183.8 (40,629 / 221) barrels 

of oil spilled per incident. The average amount of oil spilled per year was thus 40,629/10 = 183.8 x 22.1 = 4,062.9

19 The value of a barrel of oil spill was obtained from the Regulatory Impact Analysis for the Increased Safety 

Measures for Energy Development on the Outer Continental Shelf rule, $2,300, adjusted for inflation from 2009 to 

2011 using the BLS inflation index of 1.0316 (http://www.bls.gov/data/inflation_calculator.htm). 
22 

We then used a similar procedure to estimate the maximum level of benefits of the proposed 

rule resulting from potentially avoided injuries and fatalities. One complicating factor of this 

analysis, however, was that BSEE does not collect data on injuries and fatalities by facility; so it 

was not possible to determine how many of the reported injuries and fatalities occurred on 

facilities affected by the proposed rule. We first aggregated data for injuries and fatalities from 

incidents on all OCS facilities from 2007 to 2011.20 For fatalities, there was more available data 

on each incident and we were able to better evaluate. Upon further review of fatalities, it was 

determined that none of the fatalities were directly connected to the provisions of the proposed 

rule; therefore we excluded the potential reduction of fatalities from the analysis. To estimate 

the rate of injuries occurring only on those facilities affected by the proposed rule, we used the 

ratio of oil spills on affected facilities to oil spills on all facilities to approximate the proportion 

of all injuries that might have occurred on affected facilities. As presented in Exhibit 3, we

multiplied the reported annual number of injuries and fatalities by the ratio discussed above (oil 

spills on affected facilities divided by oil spills on all facilities) to obtain the estimated number of 

injuries on facilities affected by the proposed rule (As shown in column 5 of Exhibit 3).

21 We

then calculated the average annual rates of potentially avoided injuries by dividing the total 

counts of injuries by the number of years (5). 

 

20 Source: http://www.bsee.gov/Inspection-and-Enforcement/Accidents-and-Incidents/Listing-and-Status-ofAccident-Investigations.aspx

21 The ratio of oil spills on affected facilities divided by oil spills on all facilities was (221 / 335) = 0.6597 over the 10-

year period.
23 

EXHIBIT 3: ESTIMATION OF FATALITIES AND INJURIES 

ON AFFECTED FACILITIES

Year Location

Reported OCS Incidents Estimated OCS 

Incidents*

Fatalities Injuries Injuries

2007

Gulf of 

Mexico 5 423 279

Pacific 0 17 11

2008

Gulf of 

Mexico 11 318 210

Pacific 0 14 9

2009

Gulf of 

Mexico 4 285 188

Pacific 0 16 11

2010

Gulf of 

Mexico 12 273 180

Pacific 0 12 8

2011

Gulf of 

Mexico 3 213 141

Pacific 0 18 12

Total 35 1,589 1,048

Average Annual Total 7 318 210

*Estimated fatalities and injuries are rounded to the nearest whole number.

We then estimated the maximum level of benefits arising from potentially avoided injuries 

by multiplying the average annual number of avoided injuries by the values ascribed to injuries 

in previous BSEE regulatory analyses.22 These calculations resulted in an annual average 

avoided cost of injuries of $9.7 million (210 x $46,422). We then summed the avoided costs 

from spills and injuries to obtain a maximum total annual cost of roughly $19.4 million that 

could potentially be avoided by the proposed rule. 

To estimate the potential costs from the unnecessary repair or replacement of certain safety 

valves due to a higher allowable leakage rate that the proposed rule could potentially prevent, we 

 

22 We used values taken from the Regulatory Impact Analysis for the Increased Safety Measures for Energy 

Development on the Outer Continental Shelf to monetize injuries. In this regulatory analysis, we monetized injuries 

at $46,422 ($45,000 adjusted for inflation from 2009 to 2011 using the BLS inflation index of 1.0316) per non-fatal 

injury. We obtained the inflation index at http://www.bls.gov/data/inflation_calculator.htm.
24 

used data from inspection records from OCS facilities affected by the rule. Of the active wells 

on the OCS, there have been 57 incidents associated with the leakage rates that could be affected 

by the rule. The potential costs from the unnecessary repair or replacement of certain safety

valves consists of $22,000 labor costs and an additional $5,000 equipment replacement costs. 

We estimated the potential annual avoided costs for increasing the allowable leakage rate to be 

approximately $1.54 million (57 incidents avoided x ($22,000 labor cost + $5,000 equipment 

cost) = $1,539,000).

We then calculated the maximum total 10-year costs due to damages that the proposed rule 

could potentially prevent under 3 and 7 percent discounting, as presented in Exhibit 4. 

EXHIBIT 4: ESTIMATION OF MAXIMUM POTENTIAL ANNUAL 

AVOIDED COSTS OF PROPOSED RULE

Number

(A)

Unit Cost

(B)

Avoided Cost

(C = A x B)

Average Annual Barrels of Oil Spilled 4,093 $2,373 $9,640,019

Average Annual Injuries 210 $46,422 $9,732,518

Average Annual unnecessary repair 

or replacement of certain safety valves 

due to a higher allowable leakage rate

57 $27,000 $1,539,000

Total Potential Annual Avoided Cost $20,911,536

Total 10-year Potential Avoided Cost (Undiscounted) $209,115,363

Total 10-year Potential Avoided Cost (3% Discounting) $178,379,646

Total 10-year Potential Avoided Cost (7% Discounting) $146,873,880

b. Methods

The results from the analysis of incident data show an annual average of $20.9 million 

dollars annually on affected OCS facilities due to unnecessary repair or replacement of certain 

safety valves due to a higher allowable leakage rate, oil spills, and injuries. While the proposed 

rule is aimed at preventing these incidents, the actual reduction in risk of incidents that the 

proposed rule would achieve is unknown. As recommend by OMB Circular A-4 for situations 
25 

where regulatory benefits are highly uncertain, we conducted a break-even analysis of the 

proposed rule. Break-even analysis is a widely-used method to estimate the minimum risk 

reduction needed for a regulation to result in benefits that are at least equal to its costs. This 

minimum risk reduction is calculated by dividing the total net costs (costs minus cost savings) of 

a regulation by the costs of incidents the regulation is expected to potentially avoid. 

In addition to estimating the break-even risk reduction level, we used a risk-based approach 

to cost-benefit analysis to estimate the potential net benefits of the proposed rule over a range of 

possible risk reduction levels. Risk-based cost-benefit analysis involves estimating net benefits

over a range of risk reduction levels that the regulation could achieve. 

c. Analysis results

Using the estimated costs and the potential benefits (in terms of avoided costs of incidents) 

of the Proposed Rule as estimated above, we calculated the break-even risk reduction level of the 

proposed rule under discount rates of 3 and 7 percent. As presented in Exhibit 5, the break-even 

risk reduction level is less than 9 percent under both discount rates. This result demonstrates that 

only a small reduction in the risk of incidents on affected OCS facilities would be needed for the 

proposed rule to be cost-beneficial. 

EXHIBIT 5: ESTIMATION OF BREAK-EVEN RISK REDUCTION LEVEL

Undiscounted 3% Discount Rate 7% Discount Rate

Total 10-year Cost of Proposed Rule $16,865,951 $14,388,372 $11,848,836 

Annualized Cost of Proposed Rule $1,686,756 $1,687,008 

Potential 10-year Benefit of Proposed Rule $209,115,363 $178,379,646 $146,873,880 

Potential Annualized Benefit of Proposed Rule $20,911,536 $20,911,536 

Break-Even Risk Reduction Level 8.065% 8.066% 8.067%
26 

Exhibit 6 presents the results of the risk-based cost-benefit analysis for a range of risk reduction 

levels between 0 and 20 percent. For each possible risk reduction level, we first estimated total 

benefits by multiplying the maximum 10-year potential avoided costs from incidents on affected 

OCS facilities by the assumed risk reduction level. We then subtracted the total costs of the 

proposed rule from the estimated benefits for each risk reduction level to obtain the estimated net 

benefits. As presented in Exhibit 6, net benefits of the proposed rule are positive for risk 

reduction levels of 8 percent or greater.

EXHIBIT 6: RISK-BASED COST-BENEFIT ANALYSIS OF PROPOSED RULE

Risk Reduction Level

Annual Net Benefits 10-Year Total Net Benefits

3% Discounting 7% Discounting 3% Discounting 7% Discounting

0.0% -$1,686,756 -$1,687,008 -$14,388,372 -$11,848,836

1.0% -$1,477,641 -$1,477,892 -$12,604,576 -$10,380,097

2.0% -$1,268,525 -$1,268,777 -$10,820,779 -$8,911,359

3.0% -$1,059,410 -$1,059,662 -$9,036,983 -$7,442,620

4.0% -$850,295 -$850,546 -$7,253,186 -$5,973,881

5.0% -$641,179 -$641,431 -$5,469,390 -$4,505,142

6.0% -$432,064 -$432,316 -$3,685,593 -$3,036,403

7.0% -$222,949 -$223,200 -$1,901,797 -$1,567,665

8.0% -$13,833 -$14,085 -$118,000 -$98,926

9.0% $195,282 $195,031 $1,665,796 $1,369,813

10.0% $404,397 $404,146 $3,449,592 $2,838,552

11.0% $613,513 $613,261 $5,233,389 $4,307,291

12.0% $822,628 $822,377 $7,017,185 $5,776,029

13.0% $1,031,744 $1,031,492 $8,800,982 $7,244,768

14.0% $1,240,859 $1,240,607 $10,584,778 $8,713,507

15.0% $1,449,974 $1,449,723 $12,368,575 $10,182,246

16.0% $1,659,090 $1,658,838 $14,152,371 $11,650,985

17.0% $1,868,205 $1,867,953 $15,936,168 $13,119,723

18.0% $2,077,320 $2,077,069 $17,719,964 $14,588,462

19.0% $2,286,436 $2,286,184 $19,503,761 $16,057,201

20.0% $2,495,551 $2,495,300 $21,287,557 $17,525,940

 

The BSEE has concluded that after consideration of the impacts of this NPRM, the societal 

benefits of the proposed rule justify the societal costs.
27 

B. REGULATORY FLEXIBILITY ANALYSIS 

The Regulatory Flexibility Act (RFA) at 5 U.S.C. 603 requires agencies to prepare a 

regulatory flexibility analysis to determine whether a regulation will have a significant economic 

impact on a substantial number of small entities. Section 605 of the RFA allows an agency to 

certify a rule in lieu of preparing an analysis if the regulation is not expected to have a significant 

economic impact on a substantial number of small entities. Further, under the Small Business 

Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 801 (SBREFA), an agency is required to 

produce compliance guidance for small entities if the rule has a significant economic impact. 

For the reasons explained in this section, BSEE believes this rule is not likely to have a 

significant economic impact and, therefore, an initial regulatory flexibility analysis is not 

required by the RFA. However, in the interest of transparency, we have prepared the following 

Initial Regulatory Flexibility Analysis (IRFA) to assess the impact of this proposed rule on small 

entities, as defined by the applicable Small Business Administration (SBA) size standards.

1. Description of the Reasons That Action by the Agency Is Being Considered

The BSEE identified a need to revise Subpart H, Oil and Gas Production Safety Systems, 

which addresses production safety systems, subsurface safety devices, and safety device testing 

used in oil and natural gas production on the OCS, among other issues. These systems play a 

critical role in protecting workers and the environment. However, BSEE has not revised the 

regulation since its publication in 1988 (53 FR 10690). Since that time, oil and gas production 

on the OCS has moved into deeper waters, introducing new challenges for industry and BSEE. 

Many of the new provisions in the proposed rule would codify BSEE guidance and incorporate 

current industry practice. In addition, the wording and structure of the 1988 rule creates 

confusion about the requirements. The BSEE has rewritten and reorganized the rule to clarify

existing requirements and highlight important information. These revisions would significantly 

improve the readability of the regulation.
28 

2. Description and Estimated Number of Small Entities Regulated

A small entity is one that is “independently owned and operated and which is not dominant in 

its field of operation.” The definition of small business varies from industry to industry in order 

to properly reflect industry size differences. 

The proposed rule would affect operators and holders of Federal oil and gas leases, as well as 

pipeline right-of-way holders, on the OCS. The BSEE’s analysis shows that this includes about 

130 companies with active operations. Entities that operate under this rule fall under the SBA’s

North American Industry Classification System (NAICS) codes 211111 (Crude Petroleum and 

Natural Gas Extraction) and 213111 (Drilling Oil and Gas Wells). For these NAICS 

classifications, a small company is defined as one with fewer than 500 employees. Based on this 

criterion, approximately 90 (69 percent) of the companies operating on the OCS are considered 

small and the rest are considered large businesses. Therefore, BSEE estimates that the proposed 

rule would affect a substantial number of small entities.

3. Description and Estimate of Compliance Requirements

The BSEE has estimated the incremental costs for small operators, lease holders, and rightof-way holders in the offshore oil and natural gas production industry. Costs that already existed 

as a result of the 1988 rule, DWOPs, and currently-incorporated API standards were not 

considered as costs of this rule because they are part of the baseline. We have estimated the 

costs of the following provisions of the proposed rule: (a) reporting after a failure of SPPE 

equipment; (b) notifying BSEE about production technical issues; (c) certification, submission, 

and maintenance of designs and diagrams; (d) inspection, testing, and certification of foam 

firefighting systems; (e) inspection of fired and exhaust heated components; (f) submission of 

contact list for OCS platforms; and (g) familiarization with the new regulation.
29 

a. Reporting after a failure of SPPE equipment

The proposed rule requires operators to report failure that results in a design change of SPPE 

equipment to BSEE. Specifically, if an equipment manufacturer notifies an operator that it has 

changed the design of the equipment that failed, or if the operator has changed operating or 

repair procedures as a result of a failure, the operator must submit the design change or modified 

procedures in writing to BSEE within 30 days of the change. Because BSEE only expects about 

1 operator per year to incur this cost, most small businesses would be unaffected. The BSEE

estimates that the average cost would be $168 to a business who reports failure of SPPE 

equipment as a result of the proposed rule.23

b. Notifying BSEE about production and technical issues

The proposed rule introduces new notification requirements for industry, specifically 

notifying BSEE of occurrences in which: (1) an operator is unable to test valves and sensors; (2) 

the ability to monitor casing pressure is affected; (3) a underwater safety valves (USV)1 fails to 

operate properly and an operator designates a USV2 or qualified valve as the USV1; (4) an 

operator resumes production after an event in which wells were secured; or (5) an operator 

experiences loss of communication. These requirements are intended to ensure that industry and 

BSEE remain informed of issues related to equipment testing, monitoring, and operation. 

Because BSEE only expects 10 occurrences of these issues per year, most small businesses 

would be unaffected by this provision. The BSEE estimates that the average cost would be $59 

 

23 We assumed that industry staff (mid-level petroleum engineer) would spend 2 hours to prepare a submittal of 

design changes or modified procedures. We determined the average hourly wage rate for a petroleum engineer 

($58.79) by taking the median wage rate for a petroleum engineer in the United States according to the BLS 

(http://www.bls.gov/oes/current/oes172171.htm). We then multiplied this rate by a private-sector loaded wage 

factor of 1.43 from the BLS to account for employee benefits, resulting in an average hourly compensation rate of 

$84.07. We then multiplied the number of hours per submittal by the average hourly compensation rate to obtain 

an estimated total annual labor cost of $168.14 (2 x $84.07) to industry for this provision.
30 

per notification for a business that must notify BSEE of the technical issues as a result of the 

proposed rule.24

c. Certification, submission, and maintenance of designs and diagrams

The proposed rule requires the inclusion of certification(s) of mechanical and electrical 

system designs in the production safety system. It also requires sending a letter to the BSEE 

District Manager to certify the installation of mechanical and electrical systems would result in 

increased annual labor. In addition, it requires certifying the as-built diagrams and submitting 

the certification letter and diagrams to the District Manager. Finally, the proposed rule requires 

maintaining documentation of the piping and instrumentation designs. Because BSEE only 

expects approximately 32 occurrences per year of the certification, submission, and maintenance 

process, most small businesses would be unaffected by these provisions. The BSEE estimates 

that the average cost would be $1,730 per occurrence to a business that must go through the 

certification, submission, and maintenance process as a result of the proposed rule.25

 

24 We assumed that the time required for industry staff (mid-level petroleum engineer) to notify BSEE of an 

occurrence in the five categories identified above would be: (1) 0.5 hours; (2) 2 hours; (3) 1 hour; (4) 0.5 hours; and 

(5) 0.5 hours. We assumed that, for the five categories, the annual number of notifications would be: (1) 6; (2) 1; 

(3) 1; (4) 1; and (5) 1. We multiplied the number of staff hours per notification by the average hourly compensation 

rate for a petroleum engineer (as calculated above) and by the estimated number of notifications per year to 

obtain an estimated total annual labor cost for each category identified in these provisions. The resulting costs are 

as follows: (1) 0.5 x $84.07 x 6 = $252.21; (2) 2 x $84.07 x 1 = $168.14; (3) 1 x $84.07 x 1 = $84.07; (4) 0.5 x $84.07 x 

1 = $42.03; and (5) 0.5 x $84.07 x 1 = $42.03. We then summed these costs to obtain a total annual labor cost to 

industry of $588.49 ($252.21 + $168.14 + $84.07+ $42.03 + $42.03). The average cost, $58.85, is the total cost 

divided by the number of notifications ($588.49 / 10). 

25 We assumed that industry staff (mid-level petroleum engineer) would spend 12 hours to certify designs of 

mechanical and electrical systems and include the certifications in the application. We multiplied the number of 

hours per certification by the average hourly compensation rate for a petroleum engineer (as calculated above) to 

obtain an estimated total annual labor cost of $1,008.84 (12 x $84.07) for the certification part of the provision. 

Additionally, we assumed that industry staff (professional engineer, supervisory) would spend 6.5 hours for each 

certification and submittal of as-built diagrams. The average hourly wage rate for a professional engineer

(supervisory) is $76.00, based on BSEE’s Supporting Statement A (BSEE Production Safety Systems). We then 

multiplied this rate by a private sector loaded wage factor of 1.43 from the BLS to account for employee benefits, 

resulting in a loaded average hourly compensation rate of $108.68. We then multiplied the number of hours per 
31 

d. Inspection, testing, and certification of foam firefighting systems

This proposed rule requires operators that install foam firefighting systems to inspect the 

foam concentrates and their storage containers and send samples to the manufacturer or 

authorized representative for quality condition testing and certification, on an annual basis. It 

also requires operators to maintain the certification documentation so that it is available for field 

inspections. The BSEE estimates that the average small business would incur annual costs of 

$757 related to this inspection, testing, and certification requirement.26

e. Inspection of fired and exhaust heated components

 

certification and submittal by the average hourly compensation rate to obtain an estimated total annual labor cost 

of $706.42 (6.5 x $108.68) additionally for the submission part of this provision. Finally, we assumed that industry 

staff (field office administrator, clerical) would spend 0.5 hours to maintain each record of as-built diagrams. The 

average hourly wage rate for a field office administrator is $21.00, based on BSEE’s Supporting Statement A (BSEE 

Production Safety Systems). We then multiplied this rate by a private sector loaded wage factor of 1.43 from the 

BLS index to account for employee benefits, resulting in a loaded average hourly compensation rate of $30.03. We 

multiplied the number of hours per record by the average hourly compensation rate to obtain an estimated total 

annual labor cost of $15.02 (0.5 x $30.03) to industry for this provision. We then summed all parts of the provision 

to obtain a total average cost of $1,730.27 ($1,008.84 + $706.42 + $15.02).

26 We assumed that industry staff (drilling operator, management) would spend 2 hours for the inspection, testing, 

and certification of each foam firefighting system. The average hourly wage rate used for a drilling operator 

(management) is $64.00, based on BSEE’s Supporting Statement A (BSEE Production Safety Systems). We then 

multiplied this rate by a private sector loaded wage factor of 1.43 from the BLS index to account for employee 

benefits, resulting in an average hourly compensation rate of $91.52. We assumed that there are currently 500 

foam firefighting systems installed and that 5 new systems would be installed each year. Multiplying the number of 

hours per system by the average hourly compensation rate and by the estimated number of systems per year (2 x 

$91.52 x 500 in first year) resulted in an estimated total annual labor cost to industry of $91,520.00 in the first 

year. We repeated this calculation for each year of the analysis period using the number of systems expected for 

the given year. We then averaged the results to obtain an estimated average annual labor cost of $95,638.40 for 

this provision for the entire industry. We then divided this average annual labor cost by the number of operators 

to obtain an average annual labor cost of $735.68 ($95,638.40 / 130) per operator for this provision. We then 

added to the labor cost the materials cost, assuming a small flat rate shipping box ($5.35) from the United States 

Postal Service would be used by operators. We then multiplied the per-sample shipping cost by the assumed total 

number of samples per year to obtain a total materials cost to industry of $2,675.00 (500 in the first year x $5.35). 

We repeated this calculation for each year of the analysis period using the number of systems expected for the 

given year and averaged the results to obtain an average annual materials cost of $2,795.38 to the entire industry 

for this provision. We then divided the average annual materials cost by the number of operators to obtain an 

average annual materials cost of $21.50 ($2,795.38 / 130). We then summed the labor cost plus the materials cost 

to obtain a total average annual cost for this provision of $757.18 per operator.
32 

This proposed rule would require certain tube-type heaters to be removed, inspected, 

repaired, or replaced every 5 years by a qualified third party. The requirement to inspect certain 

fired and exhaust heated components would result in additional inspection costs. There are 

approximately 1500 fired and exhaust heated components on the OCS that would need to be 

inspected every 5 years. The cost associated with each component inspection is approximately

$5,000. Because every component would not need to be inspected at the effective date of the 

rule we averaged the annual number of inspections over the 10 year period, resulting in an 

average of 300 component inspections per year. This estimate does not take into account any 

inspections that already are being performed by operators. The BSEE estimates that the average 

small business would incur annual costs of $11,538 related to this inspection of certain fired and 

exhaust heated components requirement.27

f. Submission of contact list for OCS platforms

This proposed rule introduces a new requirement for each operator to submit a contact list for 

all OCS platforms to the BSEE District Manager. Operators also would be required to resubmit 

the information whenever it is revised. The BSEE estimates that the average small business 

would incur annual costs of $127 related to this submission requirement.28

 

27 Multiplying the number of components for inspection by the cost per inspection (300 x $5,000) resulted in an 

estimated total annual labor cost to industry of $1,500,000. We repeated this calculation for each year of the 

analysis period using the number of systems expected for the given year. We then averaged the results to obtain 

an estimated average annual labor cost of $1,500,000 for this provision for the entire industry. We then divided 

this average annual labor cost by the number of operators to obtain an average annual labor cost of $11,538 

($1,500,000 / 130) per operator for this provision.

28 We assumed that industry staff (field office administrator, clerical) would spend 0.5 hours to submit a new or 

revised contact list. We assumed that 1,000 new contact lists and 100 revised lists would be submitted each year. 

We multiplied the number of hours per list by the average hourly compensation rate for a field office administrator

(as calculated above) and by the number of lists per year to obtain an estimated total annual labor cost to industry 

of $16,516.50 (0.5 x $30.03 x 1,100). We then divided the total annual labor cost by the number of operators to 

obtain an average annual labor cost of $127.05 ($16,516.50 / 130) per operator.
33 

g. Industry familiarization with new regulations

During the first year that this proposed rule would be in effect, operators and lease holders 

would need to read and interpret the rule. Through this review, they will familiarize themselves 

with the new structure of the rule and identify any new provisions relevant to their operations. In 

the first year of the Proposed Rule, BSEE estimates that the average small business will spend 

approximately 2 hours of staff time to read and review the new requirements, which amounts to 

approximately $217 in a one-time labor cost for the first year.29 

4. Total Cost Burden for Small Entities

Because most small entities would not be subject to all of the rule provisions, we also 

calculated the most likely impact on small entities, or the impact associated with only incurring 

the cost for the provisions described in parts d, e, f, and g above. This calculation resulted in a 

most likely average annual cost per affected small entity of $12,444, as shown in Exhibit 6. In 

addition, we calculated a “worst case scenario” impact for an entity that would incur the costs of 

all of the rule provisions. As shown in Exhibit 6, this worst case scenario impact is $1472 per 

affected entity. 

We then calculated the impact on small entities for these three scenarios as a percentage of 

the average revenues for small entities in the affected industries.30 As shown in Exhibit 7, the 

 

29 We assumed that industry staff (professional engineer, supervisory) would spend 2 hours to review the new 

regulation. We then multiplied the number of hours per review by the average hourly compensation rate for a 

professional engineer (as calculated above) to obtain a total one-time labor cost of $217.36 (2 x $108.68) per 

operator.

30 The Office of Natural Resource Revenue, http://www.onrr.gov/ONRRWebStats/default.aspx, reports the total 

2009 small company revenue to be $4,113,000,000. We calculated the average revenue per small business by 

dividing the total small business revenue by the number of small businesses subject to the rule ($4,113,000,000 / 

90) to obtain an average of $45,700,000 per operator.
34 

average costs of the three scenarios represent far less than 1 percent of average annual revenues 

for small entities in the affected industries.

Based on this analysis, BSEE believes that this NPRM is expected to have a limited net 

direct cost impact on small operators, lease holders, and pipeline right-of-way holders beyond 

the baseline costs currently imposed by the 1988 final rule, DWOPs, NTLs, and API standards 

with which industry already complies. The BSEE thus concludes that this proposed rule would 

not have a significant economic impact on a substantial number of small entities.

EXHIBIT 6: ANNUAL COST PER ENTITY (TEN-YEAR AVERAGE)

Ten-Year Average

a) Reporting after a failure of SPPE equipment $168

b) Notifying BSEE about technical issues $59

c) Certification, submission, and maintenance of designs and diagrams $1,730

d) Inspection, testing, and certification of foam firefighting systems $757

e) Inspection of fired and exhaust heated components $11,538

f) Submission of contact list for OCS platforms $127

g) Familiarization with new regulation $22

Most likely average annual cost per small entity (d + e + f + g) $12,444

Worst-case scenario average annual cost per small entity31 $14,721

EXHIBIT 7: COST AS A PERCENTAGE OF REVENUE

Average revenue of a small business $45,700,000

 

31 We estimated the worst-case scenario cost by calculating the total cost for a business that incurs the cost of 

each provision in the Proposed Rule for a total cost of $14,721 ($168.14 + [$42.03 + $168.14 + 84.07 + 42.03 + 

42.03] + $1,730.27 + $757.18 + $11,538 + $127.05 + $21.70).
35 

Cost Cost / Revenue

Most likely total (d + e + f + g) $12,444 0.027%

Worst-case scenario cost total $14,721 0.032%

5. Description of Significant Alternatives to the Proposed Rule

The operating risk for small companies to incur safety or environmental accidents is not 

necessarily lower than it is for larger companies. Offshore operations are highly technical and 

can be hazardous. Adverse consequences in the event of incidents are the same regardless of the 

operator’s size. The proposed rule aims to reduce risk for entities of all sizes. 

Nonetheless, BSEE is requesting comment on the costs of these proposed policies on small 

entities, with the goal of ensuring a thorough consideration and discussion at the final rule stage. 

We specifically request comments on the burden estimates discussed above as well as 

information on regulatory alternatives that would reduce the burden on small entities.