1



## Oil and Gas and Sulphur Operations in the Outer Continental Shelf

–

Blowout Preventer Systems and Well Control

Initial Regulatory Impact Analysis

RIN: 1014

- AA11

NOTICE OF PROPOSED RULEMAKING
DEPARTMENT OF THE INTERIOR Bureau of Safety and Environmental Enforcement

30 CFR Part 250

April 03 , 20152



## Table of Contents 1. Introduction

................................ ................................ ................................ ................................ .... 4
2. Need for regulation

................................ ................................ ................................ ......................... 5
3. Alternatives

................................ ................................ ................................ ................................ ..... 7
4. Economic an alysis

................................ ................................ ................................ ............................ 8

a. Costs

................................ ................................ ................................ ................................ ............ 9 b. Benefits

................................ ................................ ................................ ................................ ..... 11

c. Transfers

................................ ................................ ................................ ................................ .... 12 d. Data inputs

................................ ................................ ................................ ................................ 12
i. Affected population

................................ ................................ ................................ ................ 12
ii. Wage rates and loaded wage factors

................................ ................................ ..................... 12
iii. Daily rig operating costs

................................ ................................ ................................ ......... 14
5. Section

- by

- section analysis of costs

................................ ................................ ............................... 14

a. Additional information in the description of well drilling design criteria

................................ ..... 16 b. Additional information in the drilling prognosis

................................ ................................ .......... 17

c. Prohibition of a liner as conductor casing

................................ ................................ ................... 18

e. Additional information in the APM for installed packers

................................ ............................ 19 f. Additional information in the APM for pulled and reinstalled packers

................................ ........ 20
g. Rig movement reporting

................................ ................................ ................................ ............ 22 h. Fitness requirements for MODUs and lift boats

................................ ................................ .......... 23
i. Foundation requirements for MODUs and lift boats

................................ ................................ ... 24 j. Real

- time monitoring of well operations

................................ ................................ .................... 25 l. Additional information in the APD, APM, or other submittal for BOP systems and system components

................................ ................................ ................................ ................................ ...... 28

m. Submission of a Mechanical Integrity Assessment Report

................................ ....................... 30

o. New subsea BOP system requirements

................................ ................................ ...................... 32
p. New surface accumulator system requirements

................................ ................................ ......... 33
q. Chart recorders

................................ ................................ ................................ .......................... 33

s. Alternating BOP control station function testing

................................ ................................ ........ 3 5
t. ROV intervention function testing

................................ ................................ .............................. 36

u. Autoshear, deadman, and EDS system function testing on subsea BOPs

................................ .... 363

v. Approval for well control equipment not cover ed in Subpart G

................................ .................. 37

w. Breakdown and inspection of BOP system and components

................................ ....................... 39

x. Additional recordkeeping for real

- time monitoring

................................ ................................ .... 40
y. Industry familiarization with the new rule

................................ ................................ .................. 40
6. Summary of the cost analysis

................................ ................................ ................................ ......... 41
7. Benefits Analysis

................................ ................................ ................................ ............................ 43

a. Data

................................ ................................ ................................ ................................ ........... 47 b. Methods

................................ ................................ ................................ ................................ .... 47
8. Analysis results

................................ ................................ ................................ .............................. 52
9. Sensitivity Analysis

................................ ................................ ................................ ......................... 57

a. Reduction in the Risk of Oil Spills

................................ ................................ ............................... 57 b. Reduction in the Risk of Fatalities

................................ ................................ ............................... 59

c. Value of lost hydrocarbons

................................ ................................ ................................ ........ 65 10. Probabilistic Risk Assessment

............................................................................................................ a. Overview

.......................................................................................................................................... b. Event Trees

...................................................................................................................................... c. Available Data

................................................................................................................................. d. Questions

................................................................................................................................. ........
1 1

. UMRA

................................ ................................ ................................ ................................ ............ 664

1. Introduction

Changes to F ederal regulations must undergo several types of economic analyses. First, Executive
Orders (E

. O

. ) 13563 and 12866 direct agencies to assess the costs and benefits of available regulatory
alternatives and, if regulation is necessary, select a regulatory approach that maximize s net benefits
(including potential economic, environme ntal, public health , and safety effects ; distributive impacts ; and
equity). E

. O

. 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs,
harmonizing rules, and promoting flexibility. Under E

. O

. 12866, an Agency must determ ine 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 E

. O

. 12866 defines a “significant regulatory
action” as any regulatory action t hat is likely to result in a rule that:

( a ) H as 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 safet y, or s tate, local , or tribal governments or communities (also referred to as “ economically
significant ” );

( b ) C reates serious inconsistency or otherwise interferes with an action taken or planned by another

agency;

( c ) M aterially alters the budgetary im pacts of entitlement grants, user fees, loan programs , or the
rights and obligations of recipients thereof; or

( d ) R aises novel legal or policy issues arising out of legal mandates, the President’s priorities, or the
principles set forth in E

. O

. 12866

.

The proposed rule is a “significant regulatory action” that is economically significant under section
3(f)(1) of E

. O

. 12866. Accordingly, OMB has reviewed this regulation.5

Second, the Regulatory Flexibility Act (RFA) of 1980 requires agencies to conside r the economic
impact of regulatory changes on small entities. Finally, the Unfunded Mandates Reform Act of 1995
(UMRA) (Public Law 104

- 4) requires agencies to prepare a written assessment of the costs, benefits, and
other effects of proposed or final rul es that include a F ederal mandate likely to result in the aggregate
expenditure of $100 million or more annually (adjusted for inflation) by state, local, or tribal
governments or by the private sector.

In conducting these analyses on the proposed rule , the Bureau of Safety and Environmental
Enforcement ( BSEE ) provides the following summary:

(1) BSEE has determined that th e proposed rule is a significant rulemaking within the definition of

E

. O

. 12866 because the estimated annual costs or benefits exceed $100 million in at least one

year of the 10

- year analysis period ; (2) BSEE has determined that the proposed rule would have a “ significant economic impact on a

substantial number of small entities” under section 605(b) of the RFA; and
(3) BSEE has determined that the proposed rule would not impose an unfunded mandate on S tate,
local, or tribal governments as defined by the UMRA. We have determined that the proposed
rule, if finalized, would impose a Federal mandate that may result in the expenditure by the
private sector of $100 million or more (adjusted annually for inflation) in a given year.

2. Need for regulation
BSEE identified a need to amend the existing B lowout P reventer (BOP) and well

- control regulations
to enhance the safety and environmental protection of oil and gas operations on the OCS. In particular,
BSEE considers the proposed rule necessary to reduce the likelihood of any oil or gas blowout, which can
lead to the loss of life, serious injuries, and harm to the environment. As was evidenced by

the De epwater Horizon incident (which began with a blowout at the Macondo well) on April 20, 2010,6

blowouts can result in catastrophic consequences
. 1 Government and industry conducted multiple
investigations to determine the cause of the Deepwater Horizon incident ; many of these investigations
identified BOP performance as a concern. BSEE convened F ederal decision

- makers and stakeholders

from the OCS industry, academia, and other entities at a public forum on offshore energy safety on May
22, 2012 , to disc uss ways to address this concern. The investigations and the forum resulted in a set of
recommendations to improv e BOP performance.
As the agency charged with oversight of offshore operations conducted on the OCS, BSEE seeks to
improve safety and mitiga te risks associated with such operations. After careful consideration of the
various investigations conducted after the Deepwater Horizon incident and industry’s responses to the

incident , BSEE has determined that the requirements contained in this propos ed rule are critical to
address risks associated with offshore operations. BSEE determined that the BOP regulations need to be
updated to incorporate some of the more pertinent recommendations , while others are being studied

for consideration in future ru lemakings

. The Proposed Rule would create a new S ubpart G in 30 CFR

Part 250 to consolidate the requirements for drilling, completion, workover, and decommissioning
operations. Consolidating these requirements would improve efficiency and consistency of the
regulations and allow for flexibility in future rulemaking s
. The Proposed Rule would also revise existing
provisions throughout S ubparts D, E, F, and Q to address concerns raised in the investigations, BSEE ’s

internal reviews , and the public forum. Finally, the Proposed Rule would incorporate American
Petroleum Institute (API) Standard 53 to ensure better BOP operability and more robust regulatory
oversight.

1 For example, any approximation of cost would incorporate catastrophic spills such as the Deepwater Horizon incident. The cost to BP of cleanup operations for the Deepwater Horizon incident has been estimated at more than $14 billion. In addition to clea nup costs, BP has paid over $14 billion to Federal, State, and local governments as well as private parties for economic claims and other expenses. Source: Ramseur, J.L., Hagerty, C.L. 2014. “Deepwater Horizon Oil Spill: Recent Activities and Ongoing Deve lopments,” Congressional Research Office. Available at: http://www.fas.org/sgp/crs/misc/R42942.pdf

.7

3. Alternatives

BSEE has considered t hree regulatory alternatives:

(1) Promulgate the requirements contained within the proposed rule, including increasing the BOP
testing frequency for workover and decommissioning operations from the current requirement of

once every 7 day s to the proposed requirement of once every 14 da ys . The following chart

identi fies the BOP testing changes related to A lternative 1;



## BOP Pressure Testing Operation Current Testing Frequency Proposed Testing Frequency Drilling / Completions Once every 14 days Once every 14 days Workover / Decommissioning Once every 7 days Once every 14days

(2) Promulgate the requirements contained within the proposed rule with a change to the required
frequency of BOP pressure testing from the existing regulatory requirements ( i.e., once every 7 or
14 days depending upon the type of operation) to once every 21 days for all operations . The
following chart identifies the BOP testing changes related to alternative 2;



## BOP Pressure Testing Operation Current Testing Frequency Proposed Testing

Frequency (Alternative

1) Alternative 2

T esting Frequency Drilling / Completions Once every 14 days Once every 14 days Once every 21 days Workover / Decommissioning Once every 7 days Once every 14 days Once every 21 days * * includes change from current 7 days to proposed 14 days (3) T ake no regulatory action and continue to rely on existing BOP regulations in combination with
permit conditions, Deep Water Operations Plans (DWOPs), operator prudence, and industry standards.8

By taking no regulatory action, BSEE would leave unaddressed m ost of the concerns and

recommendations that were raised 2 regarding the safety of offshore oil and gas operations and the
potential for another event with consequences similar to those of the Deepwater Horizon incident

.
Alternative 2 was not selected because BSEE is lacking critical data on testing frequency and
equipment reliability. This issue may be considered in the final rulemaking if BSEE receives sufficient
data to support alternative 2.

BSEE has elected to move forward with A lternative 1

-- the proposed rule

-- which incorporate s recommendations provided by government, industry, academia, and other stakeholders as well as API

Standard 53

. In addition to addressing concerns and aligning with industry standard s, BSEE is
functioning in a prudent capacity with this proposed rule by advancing several of the more critical
capabilities beyond current industry standards based on internal knowledge and experience. The
proposed rule would also i mprove efficiency and consistency of the regulations and allow for flexibility

in future rulemaking s
.

BSEE is requesting comment s on how long it w ould take to come into compliance with the proposed

rule as well as any other alternatives BSEE may reasonably consi der, including alternatives to the specific
provisions contained in th e N otice of Proposed Rule making (NPRM)

.

4. Economic analysis

BSEE’s economic analysis evaluated the expected impacts of the proposed rule compared with the

baseline

. The b aseline refers to current industry practice in accordance with existing regulations,

2 See t he DOI JIT report “ Report Regarding the Causes of the April 20, 2010 Macondo Well Blowout ,” September 14, 2011; t he National Commission final report, “ Deep Water, The Gulf Oil Disaster and the Future of Offshore Drilling ,” January 11, 2011; t he Chief Counsel for the National Commission report, “ Macondo The Gulf Oil Disaster ,” February 17, 2011,; the National Academy of Engineering final report, ” Macondo Well

- Deepwater Horizon Blowout ,” December 14, 2011; BSEE public offshore energy safety forum , May 22, 2012.9

industry permits, DWOPs, and industry standards with which operators already compl y
. 3 Impacts that
exist as part of the baseline were not considered costs or benefits of the proposed rule

. Specifically, the
analysis excluded activities or capital investments that are required by existing regulations or as
condition s for permit or DWOP approval. The analysis also excluded impacts resulting from the
incorporation of industry standards with which operators already compl y
. Thus, the cost analysis

evaluates o nly activities and capital investments required by the proposed rule that represent a change

from the baseline.

This section provides an overvie w of the analysis of costs , benefits, and transfer s , as well as the
assumptions used in the analysis

. The methodology for the cost s and benefits analys i s is described in

more detail in subsequent sections. BSEE requests comment on the analysis, including potential sources

of data or information on the benefits and costs of th e proposed rule

.

a. Costs

S ection 5 below outlines how we quantified and monetized the potential costs of the proposed rule

. It identifies all of the provisio ns that would result in increased labor requirements or capital investments

for industry or costs to BSEE

. In addition to the new regulatory requirements, we also consider ed the
time required o f industry staff to read and familiarize themselves with the new regulation. For th e purpose of transparency, we include footnotes presenting the information on data inputs and the
details of the cost calculations for each rule provision

.

3 BSEE considers compliance with permits, DWOPs, and industry sta ndards to be “self

- implementing,” as addressed in Section E.2 of OMB Circular A

- 4, “Regulatory Analysis” (2003), and thus includes these costs in the baseline for the economic analysis. Each industry standard comes from a committee of industry members who develop and vet each of the provisions written in the standards. We are not aware of i ndustry s tandards that some operators do not follow.10

The analysis covers 10 yea rs ( 201 5 through 202 4 ) to ensure it encompasses the significant costs and
benefits likely to result from th e p roposed rule

. A 10

- year analy sis period was used for this analysis
because of the uncertainty associated with predicting industry’s activities an d the advancement of
technical capabilities beyond 10 years. The regulated community itself finds it challenging to engage in
business modeling beyond a 10

- year time frame due to market volatility around oil pricing . Over time,

the costs associated with a particular new technology may drop because of various supply and demand

factors , causing the technol ogy to be adopted more broadly

. In other cases, an existing technology may
be replaced by a lower

- cost alternative as business needs drive technological innovation. Extrapolating
costs and benefits beyond this 10

- year time frame would produce more ambiguous results and
therefore be disadvantageous in determining actual costs and benefits likely to result from this
proposed rule. BSEE concluded that this 10

- year analysis period provides the best overall ability to
forecast costs and benefits likely to result from this proposed rule. To summarize the costs of specific
provisions, we present the estimated average annual cost as well as 10

- year discounted to tals to
estimate the present value of the costs. In accordance with OMB guidance on conducting regulatory
analysis ( OMB Circular A

- 4 , “Regulatory Analysis,” 2003), w e used discount rates of 3 and 7 percent to calculate the discounted net present value of the proposed rule

. BSEE is considering requiring operators to install technology capable of severing any components of
the drill string (excluding drill bits) within 1 0 years of the effective date of the rule. However, this
provision’s important costs ar e inherently difficult to quantify or monetize given available data. For
example , the identification of impacts potentially caused by failures to comply with this potential
provision would require highly speculative assumptions principally because the imp acts of such
compliance failures could range from record

- keeping violations to full well

- bore discharges from11

submerged OCS lands situated in deep water. 4 Additionally, to the extent such risks exist, their
magnitude is unknown. For these reasons, BSEE is unable to monetize or quantify the se costs

. BSEE is
aware of at least one candidate technology that is currently being evaluated and believes that there are
other possible innovative technologies that may be available to accomplish these objectives within the
time horizon pertinent to this provision

. As also discussed in the preamble to the proposed rule, BSEE
requests comments on associated costs related to this potential provision.

b. Benefits

S ection 6 below present s the data, methodology , and results of the benefits analysis. We quantified
and monetized the potential benefits of the proposed rule, including time savi ngs , reduction in oil spills , and reduction in fatalities

. We estimated the b enefits derived from time savi ngs associated with
proposed s ection 250.737(d)(10) of the proposed rule , which would streamline the BOP testing

. W e
also estimated time

- savings benefits associated with a change in the required frequency of BOP
pressure testing under Alternative 2, which would reduce the number of required BOP pressure tests

per year. In addition, we estimated the b enefits derived from the reduction in oil s pills and fatalities
using the incident

- reducing potential of the proposed rule as a whole.

We calculated the benefits under va rious risk

- reduction scenarios, which allowed us to determine

the cost

- effectiveness of the proposed rule ( i.e

. , whether the benefits justified the costs) depending on
the percentage of potential oil spills and number of fatalities potentially prevented

. In addition, we
conducted sensitivity analysis on the price of a barrel of oil to reflect recent price fluctua tions. Similar to

4 For example, any approximation of cost would incorporate catastrophic spills such as the Deepwater Horizon inciden t. The cost to BP of cleanup operations for the Deepwater Horizon incident has been estimated at more than $14 billion. In addition to cleanup costs, BP has paid over $14 billion to Federal, State, and local governments as well as private parties for eco nomic claims and other expenses. Source: Ramseur, J.L., Hagerty, C.L. 2014. “Deepwater Horizon Oil Spill: Recent Activities and Ongoing Developments,” Congressional Research Office. Available at: http://www.fas.org/sgp/crs/misc/R42942.pdf

.12

the costs analysis, we estimated the potential benefits over a 10

- year study period ( 201 5 through 202 4 ).
The benefits are presented as 10

- year discounted totals , that is, the present value of the benefits

.

c. Transfers

We did not identify any transfer payments associated with the proposed rule

. Transfer payments, as
defined by OMB Circular A

- 4, “Regulatory Analysis,” (2003) are payments from one group to another

that do not affect total r esources available to society.

d. Data inputs

We estimated cost s and benefit s presented in thi s document using various data inputs. Some of
these data inputs were common to many of the calculations, including the a ssumptions about affected
population , wage rate s and loaded wage factors , a nd daily rig operating costs , as explained below.

i. Affected population

We estimated that a total of 90 r igs would be affected by the proposed rule , including 40 subsea
BOP rigs and 50 surface BOP rigs , based on the current number of operational rigs on the OCS

. We also

estimated that 320 wells are drilled per year with an average of three wells per rig

. Due to the
fluctuating nature of activity on the OCS , for the purposes of analysis we assume d that the number of
operating wells and rigs w ould remain constant over the 10

- year analysis period. BSEE seeks comment

on whether these estimates are accurate

.

ii. W age rates and loaded wage factors

Many of the calculations in this analysis used wage rates for OCS oil and gas or BSEE employees. W e
estimated averag e industry wage rates for the following labor categories: mid

- level industry engineer , administrative staff , rig crew staff ( e.g ., roughneck, floorman, tool

- pusher, subsea engineer ) , and13

technician

. We estimated the average hourly wage rate of $ 62

. 24 for a mid

- level industry engineer

based on the median wage rate for a petroleum engineer in the United States as reported by the Bureau
of Labor Statistics (BLS). We based the average hourly wage rate of $21 for an administrative staff on
the wage rate fo r a clerical employee provided in BSEE’s Supporting Statement A (BSEE Production
Safety Systems). We estimated the average hourly wage rate s of $40 for a rig crew staff person and a
technician based on BSEE’s knowledge of the industry.

We also estimated t he average wage rates for BSEE personnel for a mid

- level BSEE engineer and for

clerical staff. We estimate d the average hourly wage rate for a m id

- level BSEE engineer to be $41.52
using data from the OPM : GS

- 12, step 5 average wage rate for the Houston metropolitan statistical area
and the parishes of Jefferson, Lake Charles, and Houma in Louisiana

. We estimated the average hourly
wage rate for a clerical staff to be $22.41 using OPM data by averaging the GS

- 7, step 5 wage rates for

the Houston metropolitan statistical area and for the rest of the United States.

To account for employee benefits, we multiplied average hourly wage rate s by an appropriate
loaded wage factor to generate average hourly compensation rates

. For the OCS industry, we used a
private sector loaded wage factor of 1. 42 derived from the 2012 BLS index for salary and benefits

. For

BSEE positions , we used a F ederal loaded wage factor of 1.69 derived from a U.S. Department of Labor
analysis of overhead costs (in the absence of a similar estimate for BSEE). 5 We multiplied the average
hourly wage rates by the appropriate loaded wage factor to estimate the following aver age hourly
compensation rate s:

 $ 88

. 38 for a mid

- level industry engineer ;

 $ 29

. 82 for an industry administrative staff;

5 The 1.69 index is derived by using BLS index for salary and benefits plus the Department of Labor’s analysis of overhead costs averaged over all employees of the agency.14

 $ 5 6

. 8 0 for an in dustry rig crew staff;

 $ 5 6

. 8 0 for an industry technician;

 $70.17 for a mid

- level BSEE engineer; and

 $37.87 for a BSEE clerical staff.

iii. Daily rig operating costs

Some requirements in the proposed rule affect rig operations. To monetize the impact s of these
requirements, we estimated the daily rig operating costs for affected rigs. Based on input from BSEE
and industry subject matter experts, w e assumed that subsea BOP rigs have a daily rig operating cost of $1 million and surface BOP rigs have a daily rig operating cost of $200,000. We recognize that these
figures can fluctuate and thus have chosen estimates that reflect the average daily rig operating costs

for those with surface and subsea BOPs ( i.e. , $200,000 and $1 million , respectively 6 )

. BSEE requests

comment on these values for consideration at the Final Rule stage. For the purposes of the analysis, we assumed that the daily rig operating costs remain constant over the 10

- year analysis peri od.

5. Section

- by

- section analysis of costs

The economic analysis presented in this document evaluated the expected impacts of the proposed

rule compared to the baseline ( i.e ., current practice in accordance with existing BOP regulations,
industry permits, DW OPs, and API industry standards with which industry already complies). Alternative

2 results in a time

- savings benefit to industry but no additional costs to industry, and thus the costs
presented below are the same for Alternative s 1 and 2. T he following proposed requirements would
result in a change from the baseline:

6 BSEE based the daily rig operating co sts in part upon industry listings of rig day rates ( see, e.g ., http://www.rigzone.com/data/dayrates/ ) , consultation with the Bureau of Ocean Energy Management economists, and review of previously approved rates in published rulemakings. We assume that the daily cost estimate include s both the daily operating costs of the rig and of the personnel that support those daily activities. B SEE is inviting comments on those cost estimates and assumptions.15

(a) A dditional information in the description of well drilling design criteria ;

(b) A dditional information in the drilling prognosis;

( c ) P rohibition of a liner as conductor casing ;

( d ) A dditional capping stack testing requirements;

(e) A dditional information in the Application for Permit to Modify (APM) for installed packers ;

( f ) A dditional information in the APM for pulled and reinstalled packers;

( g ) R ig movement reporting ;

( h ) F itness requirements for Mobile Offshore Drilling Units ( MODUs ) and lift boats ;

( i ) F oundation requirements for MODUs and lift boats ;

( j ) M onitoring of well operations with a subsea BOP ;

( k ) A dditional documentation and verification requirements for BOP systems and system

components;

( l ) A dditional information in the Application for Permit to Drill (APD) , APM, or other submittal for
BOP systems and system components ;

( m ) S ubmission by the operator of a Mechanical Integrity Assessme nt Report completed by a BSEE

approved verification body ; 7

( n ) N ew surface BOP system requirement s ;

7 T he approved verification organization would have to submit documentation for approval by BSEE describing the organization’s applicable qualification and experience. See discussion on Thi rd

- party Verification in the NPRM for further information.16

( o ) N ew subsea BOP system requirements ;

( p ) N ew surface accumulator system requirements ;

( q ) C hart recorders ;

( r ) N otification and procedures requirements for testing of surface BOP systems ;

( s ) A lternating BOP control station function testing ;

( t ) R emote operated vehicle (ROV) intervention function testing ;

( u ) A utoshear, deadman, and emergency disconnect system ( EDS ) function testing on subsea BOPs;

( v ) A pproval for well control equipment not covered in Subpart G ;

( w ) B reakdown and inspection of BOP system and components;

( x ) A dditional recordkeeping for real

- time monitoring ; and

( y ) I ndustry familiarization with the new rule

.

These proposed requirements and their associated costs to industry and government are presented

in the sections that follow

.

a. Additional information in the description of well drilling design criteria

Section 250.413(g) in the proposed rule would require information on the equivalent circulating
density (ECD) to be included in the description of the well drilling design criteria. The ECD is an
important paramet er in avoiding fracturing the formation or comprom ising the casing shoe integrity ,
which could lead to erratic pressures and uncontrolled flow s ( e.g ., formation kicks) emanating from a17

well reservoir during drilling. This information is necessary to better review the well drilling design and
drilling pro gram.

The requirement to include information on the ECD in the well drilling design criteria would result in
increased labor costs for industry. We calculated t he annual industry labor cost associated with this
new requirement by multiplying the time required per well to include the additional information in the
well drilling criteria by the average hourly compensation rate for the staff most likely to complete this

task. We then multiplied this product by the expected number of wells drilled per year , resulting in an

estimated annual labor cost to industry for this documentation requirement of $ 28 , 282

. 8 No additional
costs to BSEE are expected as a result of this proposed requirement

.

b. Additional information in the drilling prognosis

Section 250.414 would require industry to provide additional information in the drilling prognosis.
New paragraph (j) would require the drilling prognosis to identify the type of wellhead system to be
installed with a descriptive schematic , which should include p ressure ratings, dimensions, valves, load
shoulders, and locking mechanism, if applicable

. This information would provide BSEE with data to
reference during the approval process and would enable industry and BSEE to confirm th at th e wellhead
system is ade quate for the intended use.

The requirement to include additional information in the drilling prognosis would result in increase d

annual labor costs to industry. BSEE considers the additional information required for the drilling
prognosis ( submitted as part of the APD ) to be readily available. We calculated the a nnual labor cost for

8 We assumed that industry staff ( mid

- level engineer) would spend one hour per well to include the additional information in the well drilling design criteria

. Industry already complies with this new requirement as part of its design practice for most wells drilled

. We assumed that this requirement would result in a new cost for all wells drilled per year (320)

. We multiplied t he number of industry staff hours per well by the average hourly compe nsation rate for a mid

- level industry engineer ( $8 8

. 38) and the average number of wells drilled per year to obtain an average annual labor cost to industry of $28 , 282 (1 x $8 8

. 38 x 320)

.18

this activity by multiplying the time required to gather and document the information by the average
hourly compensation rate of the staff most likely to complete this ta sk

. We then multiplied t he product

of this calculation by the estimated number of wells drilled per year , resulting in an estimated a nnual

labor cost to industry for this documentation requirement of $ 7 , 070

. 9 No additional costs to BSEE are
expected as a result of this proposed requirement

.

c. Prohibition of a liner as conductor casing

Section 250.421(f) would be revised to no longer allow a liner to be installed as conductor casing.

This would ensure that the dr ive pipe is not exposed to wellbore pressures during drilling in subsequent

hole sections

.
This provision would result in a n annual equipment and labor cost to industry for wells that are currently allowed to use a liner as conductor casing

. We multiplied t he average cost of the casing joints
and wellhead per well by the number of affected wells in order to calculate annual equipment

installation costs

. To calculate the associated annual labor costs, we multiplied t he time required to

install t he equipment per well by the daily labor cost of rig crew time and by the number of wells on
which the equipment must be installed. We then sum med the equipment and labor costs to estimate

the average annual equipment and labor cost to industry for this requirement of $ 795 , 000

. 10 No
additional costs to BSEE are expected as a result of this proposed requirement

.

9 We assumed that industry staff ( a mid

- level engineer) would spend 0.25 hours to include the additional information in the drilling prognosis for a well. We multiplied t he number of industry staff hours per well by the average hourly compensation rate for a mid

- level industry engineer ($8 8

. 38 ) and the average number of wells drilled per year ( 320 ) to obtain the average annual labor cost to industry of $ 7,070 (0.25 x $8 8

. 38 x 320 ).
10 We estimated that approximately one percent of drilled wells currently have a liner as conductor casing (app roximately one percent of 320 wells, or three wells) , based on input provided in submittals to BSEE . In order t o calculate the average annual equipment cost s , we assumed that the average cost of the casing joints and wellhead per well would be $65,000. W e multiplied t he equipment cost per well by the number of affected wells to yield a n average equipment cost of $195,000 ($65,000 x 3). We assumed that industry staff ( rig crew ) would spend one day to install the new equipment on a well. We then multiplied t he number of industry staff days per19

d. Additional capping stack testing requirements

Section 250.462 would address source control and containment requirements. New paragraph
(e)(1) would detail requirements for testing of capping stacks. New requirements include the function
testing of all critical components on a quarterly basis and the pressure testing of pressure holding critical
components on a bi

- annual basis. Under current re gulations, there is no testing requirement for
capping stacks. These new requirements w ould help ensure that operators are able to contain a subsea

blowout.

These new testing requirements would result in new equipment and service cos ts to industry. We

es timated the cost of testing for each capping stack and multiplied this cost by the total number of
anticipated tests to be performed

. These calculations resulted in annual compliance costs to industry

associated with these requirement s of $80,000. 11 No ad ditional costs to BSEE are expected as a result of

these proposed requirements.

e. Additional information in the APM for installed packers

In Section 250.518 , proposed paragraphs ( e ) and (f) would clarif y requirements for installed packer s and bridge plug s and require additional information in the APM, including descriptions and calculations
for determining production packer setting depth. These proposed new requirements would codify
existing BSEE policy to ensure consistent permitting. It i s expected that operators already compl y with

the proposed design specifications included in this section because this is the only established industry
well by the average labor cost for a rig crew per day ($ 200,000 ) and by the number of affected wells to obtain an estimated average annual labor cost to industry of $ 600,000 ( $200,000 x 3) for this requirement. Summing the equipment and labor costs yields a total average annual cost to industry of $795,000 for this requirement

. 11 We assumed that the quarterly equipment and service costs of testing for capping stacks would be $5,000 per test

. BSEE r equests comments on the reasonableness of this estimate

. Additionally, we assumed that 4 capping stacks would be tested quarterly (or a total of 16 annual tests performed). We multiplied the costs per test by the number of annual tests in order to determ ine a total annual equipment and service cost to industry of $80,000 (16
x $5,000). We assumed that the required testing would occur at the storage site of the capping stack and we thus do not anticipate costs for time diverted from normal rig operations as a result of this requirement.20

standard

. Thus, t he depth setting calculation is the only requirement that would impose a new cost
beyond the baseline

. The required calculations would be submitted for every well that is completed
where tubing is installed.

The proposed requirement to include additional information in the APM would result in a labor cost

to industry and BSEE. To calculate the industry labor cost associated with this new requirement, we multiplied the time required to add the new descriptions and calculations to an APM by the average
hourly compensation rate of the industry staff most likely to complete this task and by the number of

wel ls with installed packers for which an APM would be submitted per year. To calculate the new

annual labor cost to BSEE, we multiplied the time that BSEE would spend reviewing the new information

in an APM by the average hourly compensation rate of the BSE E staff most likely to complete this task
and by the number of wells with installed packers for which an APM would be submitted each year. We

estimated an average annual labor cost for this proposed documentation requirement of $ 5, 745 to industry and $ 4 , 561 to BSEE. 12

f. Additional information in the APM for pulled and reinstalled packers

In Section 250.619, proposed new paragraph s ( e ) and (f) would clarif y requirements for pulled and

reinstalled packers and bridge plug s and require additional description s and calculation s in the APM
regarding production packer setting depth. These proposed new requirements would codify existing

12 We assumed that industry staff ( a mid

- level engineer) would spend 0.25 hours to include the additional information in the APM for a well. We assumed that APMs would be submitted for an average of 260 wells with installe d packers per year

. We multiplied t he number of industry staff hours per well by the average hourly compensation rate for a mid

- level industry engineer ($8 8

. 38 ) and by the estimated number of wells with installed packers for which an APM would be submitte d per year to obtain an estimated average annual labor cost to industry of $5, 745 (0 .25 x $88.38 x 260)

. We assumed that BSEE staff ( a mid

- level engineer) would spend 0.25 hours to review the additional information in the APM for a well. We multiplied t he number of BSEE staff hours per well by the average hourly compensation rate for a mid

- level BSEE engineer ($70.17) and by the estimated number of wells with installed packers for which an APM would be submitted per year to obtain an average annual labor cost to BSEE of $4,561 (0.25 x $70.17 x 260).21

BSEE policy to ensure consistent permitting. It i s expected that operators already compl y with the
design specifications include d in this section because this is the only established industry standard

. The
depth setting description and calculation is the only proposed requirement that would impose a new

cost beyond the baseline

. The required calculations would be submitted for every well that is worked
over where tubing is pulled and then reinstalled.

The proposed requirement to include additional information in the APM would result in a labor cost

to industry and BSEE. To calcul ate the industry labor cost associated with this new requirement, we multiplied the time required to add the new descriptions and calculations to an APM by the average
hourly compensation rate of the industry staff most likely to complete this task and by the number of
wells with pulled and reinstalled packers for which an APM would be submitted per year. To calculate

the new annual labor cost to BSEE, we multiplied the time that BSEE would spend to review the new

information in an APM by the average hourl y compensation rate of the BSEE staff most likely to
complete this task and by the number of wells with pulled and reinstalled packers for which an APM
would be submitted per year. These calculations resulted in average annual labor cost s for this

propose d documentation requirement of $ 2 2 , 316 to industry and $ 17 , 719 to BSEE

. 13

13 W e assumed that industry staff (a mid

- level engineer) would spend 0.25 hours to include the additional information in the APM for a well. We also assumed that APMs would be submitted for an average of 1,01 0 wells with pulled and reinstalled packers per year

. We multiplied t he number of industry staff hours per well by the average hourly compensation rate for a mid

- level industry engineer ($8 8

. 38 ) and the estimated number of wells with pulled and reinstalle d packers for which an APM would be submitted per year to obtain an average annual labor cost to industry of $2 2 , 316 (0.25 x $8 8

. 38 x 1,010 )

. We assumed that BSEE staff ( a mid

- level engineer) would spend 0.25 hours to review the additional information in the APM for a well. We multiplied t he number of BSEE staff hours per well by the average hourly compensation rate for a mid

- level BSEE engineer ($70.17) and by the estimated number of wells with pulled and reinstalled packers for which an APM would be sub mitted per year to obtain an average annual labor cost to BSEE of $17,719 (0.25 x $70.17 x 1,010).22

g. Rig movement reporting

Section 250.712 would list requirements for reporting movement of rig units to the BSEE District
Manager. Revised p aragraph (a) would extend the rig movement reporting requirements to all rig units
conducting operations covered under this subpart , including MODUs, platform rigs, snubbing units, lift
boats, and coiled tubing units

. Proposed p aragraph s (c) and ( e ) are new and would require notifica tion
if a MODU or platform rig is to be warm or cold stacked and when a drilling rig enter s OCS waters

. Paragraph ( f ) would be revised to clarify that , if the anticipated date for initially moving on or off
location changes by more than 24 hours, an updat ed Movement Notification Report would be required.
Currently, m ovement reports are only required for drilling operations, but the proposed rule would
require operators to submit movement reports for other operations as well , including when rig s are
stacked or enter OCS waters

. Th ese changes would allow BSEE to better anticipate upcoming
operations , locate MODUs and platform rigs in case of emergency , and verify rig fitness

.

The proposed requirement to notify BSEE of rig unit movement would resu lt in a labor cost to
industry and BSEE. To calculate the industry labor cost, we multiplied the time required to submit a
report by the average hourly compensation rate of the industry staff most likely to complete this task
and by the number of addition al reports expected per year. To calculate the new annual labor cost to
BSEE, we multiplied the time that BSEE would spend to process each report by the average hourly
compensation rate of the BSEE staff most likely to complete this task and by the number of additional
reports expected per year. These calculations result in average annual labor cost s for this proposed
reporting requirement of $2, 485 to industry and $ 3 , 1 5 6 to BSEE

. 14

14 W e assumed that industry staff (administrative) would spend five minutes (0.08 hours) to submit a movement report and that industry would submit an average of 1,000 movement reports per year as a result of the new requirement. We multiplied t he number of industry staff hours per report by the average hourly compensation rate for an administrative staff ($ 29

. 82 ) and the average number of reports per year to obtain an average annual23

h. Fitness requirements for MODUs and lift boats

Proposed s ection 250. 71 3 (a ) would add a requirement that operators provide fitness information

f or a MODU or lift boat for workovers, completions, and decommissioning

. Operators must provide

information and data t o demonstrate the drilling unit’ s capability to perform at the propose d drilling

location. This information must include the m ost extreme environmental and operational conditions
that the unit is designed to withstand, including the minimum air gap necessary for both hurricane and

non
- hurricane seasons. If sufficient envir onmental information and data are not available at the time

the APD or APM is submit ted , the District Manager may approve the APD or APM but require operators

to collect and report this information during operations. Under this circumstance, the District Manager

continues to have the right to revoke the approval of the APD or APM if information collected during
operations show that the drilling unit is not capable of performing at the proposed location

.

This proposed requirement would result in labor costs to industry and BSEE. To calculate the
industry labor cost, we multiplied the time required to record and submit the report by the average
hourly compensation rate of the industry staff most likely to complete this task and by the number of

APMs per year. To calculate the BSEE labor cost, we multiplied the time that BSEE would spend to

review the information by the average hourly compensation rate of the BSEE staff most likely to
complete this task and by the number of APMs per year. These calculation s resulted in average annual

labor costs for this proposed reporting requirement of $ 4 4 , 190 to industry and $ 35 , 086 to BSEE

. 15

labor cost to industry of $2, 485 (0.08 33 x $ 29

. 82 x 1,000). We assumed that BSEE staff (clerical) would spend five minutes (0.08 hours) to process a movement report. We multiplied t he number of BSEE staff hours per report by the average hourly compensation rate for a clerical staff ( $37.87 ) and by the average number of reports per year to obtain an average annual labor cost to BSEE of $ 3,156 (0.08 33 x $37.87 x 1,000 ).
15 We assumed that industry staff (a mid

- level engineer) would s pend 0.5 hours per APM to provide the additional information and that an average of 1,000 APMs would be affected per year. We multiplied t he number of industry staff hours per APM by the average hourly compensation rate for a mid

- level industry engineer ( $8 8

. 38 ) and by the estimated number of APM s affecte d per year to obtain an average annual labor cost to industry of $ 4 4 , 190 (0. 5 x24

i. Foundation requirements for MODU s and lift boats

Proposed s ection 250. 71 3 (b) would introduce a requirement for f oundation requirements for
workovers, completions, and decommissioning

. Operators must provide information to show that site

specific soil and oceanographic conditions are capable of supporting the proposed rig unit. If operators

prov ide sufficient site

- specific information in the Exploration Plan ( EP ) , Development and Production
Plan ( DPP ) , or Development Operations Coordination Document ( DOCD ) submitted to the Bur eau of
Ocean Energy Management (BOEM) , operators may reference that inf ormation. Current regulations

state that t he District Manager may require operators to conduct additional surveys and soil borings
before approving the APD , if additional information is needed to make a determination that the
conditions are capable of supp orting the rig unit or equipment installed on a subsea wellhead. For
moored rigs, operators must submit a pla n of the rigs ’ anchor pattern s approved in the EP, DPP, or

DOCD in the APD or APM.

This proposed requirement would result in labor costs to industry and BSEE. To calculate the
industry labor cost, we multiplied the time required to record and report information by the average
hourly compensation rate of the industry staff most likely to complete this task and by the number of

APMs per year. To calculate the BSEE labor cost, we multiplied the time that BSEE would spend to

review the information by the average hourly compensation rate of the BSEE staff most likely to
complete this task and by the number of APMs per year. These calculations re sulted in average annual

labor costs for this proposed reporting requirement of $ 4 4 , 190 to industry and $ 35 , 086 to BSEE

. 16

$8 8

. 38 x 1,0 00)

. We assumed that BSEE staff (a mid

- level engineer) would spend 0.5 hours to review the information. We multiplied the number of BSEE staff hours per APM by the average hourly average hourly compensation rate for a mid

- level BSEE engineer ($70.17) and by the average number of APMs affected per year to obtain an average annual labor cost to BSEE of $35,086 (0.5 x $70.17 x 1,000).
16 We assumed that industry staff ( a mid

- level engineer ) would spend 0. 5 hours per APM to provide the additional information and that an average of 1,000 APMs would be affected per year. We multiplied t he number of industry25

j. Real

- time m onitoring of well operations

Proposed s ection 250.724 is a new section that would list requirements for :

(1) M onitoring well operations on rigs that have a subsea BOP , floating facilities using surface BOPs,

and rigs operating in high pressure and high temperature (HPHT) reservoirs , and

(2) S toring data at a designated onshore location, as listed in the APD or APM.
In order to comply with this section, industry would incur annual equipment and labor costs
associated with gathering, recording, transmitting, and storing data. To calculate the costs associated
with these new requirements, we estimated the ave rage equipment and labor cost per day to perform
continuous monitoring (based on BSEE’ s interactions with the industry and review of the equipment

involved ) , and the average amount of time that a rig would engage in well operations per year ( and
would thus be subject to this monitoring requirement )

. We assumed that this type of service mostly
lends itself to a day rate, and multiplied t he cost per day to perform the monitoring by the number of
days per year that the rig would be engaged in we ll operations

. We then multiplied t he product by the
number of rigs that would incur this new cost. This calculation resulted in average annual equipment

and labor cost s for this monitoring requirement of $ 40

. 5 million to industry. 17 No additional costs to
BSEE are expected as a result of this requirement

. BSEE requests information related to the cost

associated with these proposed real

- time monitoring requirement s
.

staff h ours per APM by the average hourly compensation rate for a mid

- level industry engineer ($8 8

. 38 ) and by the estimated number of APM s affecte d per year to obtain an average annual labor cost to industry of $4 4 , 190 (0.5 x $8 8

. 38 x 1,000). We assumed that BSE E staff (a mid

- level engineer) would spend 0.5 hours to review the information. We multiplied the number of BSEE staff hours per APM by the average hourly average hourly compensation rate for a mid

- level BSEE engineer ($70.17) and by the average number of APMs affected per year to obtain an average annual labor cost to BSEE of $35,086 (0.5 x $70.17 x 1,000).
17 We assumed that the average costs per day and the average operational days per year would be the same for rigs with subsea BOPs and rigs operating in HPHT reservoirs. We assumed that a rig operates for 270 days per year (three operations per year and thre e months per operation) and that the average cost per day to perform continuous monitoring would be $5,000 , including equipment and labor. BSEE regulatory staff , in conjunction with26

k. Additional documentation and verification requirements for BOP systems and system

components

Section 250.730 would list general requirements for BOP systems and system components and add

new documentation and verification requirements. Proposed s ection 250.730(d ) would require that
quality management systems for the manufacture of BOP stacks be certified by an entity that meets the
requirements of International Organization for Standardization (ISO) 17011. Additionally, operators may
submit a request for approval of equipment manufactured under quality assurance programs other than

API Spec ification Q1, and BSEE may approve such a request provided the operator would submit
relevant information about the alternative program. In regard to new paragraph (d), we were unable to
determine the additional cost associated with the required cer tification by an entity that meets the
requirements of ISO 17011 for quality management. BSEE requests feedback from the public or industry
on estimates for this cost. Additionally, new paragraph (d) would result in labor costs to industry

associated wit h submitting requests for alternative programs.

We multiplied the hourly compensation rate for the industry staff most likely to complete this work
by the amount of time expected to submit the request and then multiplied this annual cost by the total

num ber of wells that would incur costs. These calculations resulted in an annual cost to industry of
$ 1,768 associated with these submissions. This new requirement would also result in labor costs to
BSEE associated with processing these requests. We multi plied the hourly compensation rate for the
BSEE staff most likely to complete this work by the amount of time expected to process the request and

BSEE engineers who interact with industry on a regular basis and review t he equipment, estimated this cost. BSEE requests comments on the reasonableness of this estimate

. We also estimated that half of the rigs with subsea BOPs already conduct this monitoring. Thus, only half of rigs with subsea BOPs (20 rigs) would incur a new cost to comply with these requirements. Similarly, we assumed that 10 of the rigs operating in HPHT reservoirs would incur a new cost to comply with these requirements. We multiplied the time that the rig is operational per year by the average cost p er day to perform monitoring and by the number of affected rigs to obtain an average annual equipment and labor cost to industry of $ 40 , 500 , 000 ( 270 x $ 5,000 x 30 ).27

then multiplied this annual cost by the total number of wells that would incur costs. These calculations

resu lted in an annual cost to BSEE of $ 702 associated with these submissions. 18 BSEE was unable to

estimate the cost for the requirement that a certification entity meet the requirements of ISO 17011 for
quality management systems for BOP stacks

. BSEE requests feedback related to the costs associated

with these proposed requirements for BOP systems and system components.

Proposed s ection 250.731(c) would require verification by a BSEE

- approved verification organization

of specified aspects of equipment design, equipment t ests, shear tests, and pressure integrity tests ; all

certification documentation must be made available to BSEE. The requirements laid out in section
250.731( c ) regarding certification for BOP systems and systems components would result in new
equipment and service costs to industry

. W e estimated a one
- time cost to industry for equipment and

service and multiplied the cost by the number of wells that would incur this new cost. This calculation

resulted in one
- time equipment and service costs for this proposed certification requirement of $ 12. 8

million to industry. 19

Proposed s ection 250.732(c) would require a comprehensive review by a BSEE

- approved verification
organization of BOP and related equipment being proposed for use in high tem perature and high
pressure service. The requirements in new section 250.732 ( c ) surrounding a review of BOP systems and
systems components in HPHT conditions would result in new annual costs to industry. To calculate the

18 We assumed that a mid

- level industry engineer would spend 2 hours to submit a request. W e multiplied the compensation rate for a mid

- level industry engineer ($88.38) by the number of hours to complete the submission and then multiplied this annual cost by the total number of wells (10) to determine the annual cost to industry of $1,768 (2 × $ 88.38 × 10). We assumed that a mid

- level BSEE engineer would spend 1 hour to process a request. We multiplied the compensation rate for a mid

- level BSEE engineer ($70.17) by the number of hours to complete the task and then multiplied this cost by the to tal number of wells (10) to determine the annual cost to industry of $702 (1 × $70.17 × 10).
19 We assumed that the equipment and service costs per well would be $40,000. We estimated that 320 wells would incur a new cost to comply with these requirements. We multiplied the one

- time cost of equipment and service by the number of affected wells to obtain one
- time equipment and service cost s to industry of $ 12,800, 000 ( $ 40,000 x 320 ).28

costs associated with the required verifications of BOP system and components by BSEE

- approved
verification organizations , we estimated the annual cost for performing the verification and multiplied

the annual cost by the number of wells that would incur this new cost. This ca lculation resulted in
annual equipment and labor costs for this proposed verification requirement of $ 500,000 to industry. 20

l. Additional information in the APD, APM, or other submittal for BOP systems and system

components

Section 250.731 lists the descriptions of BOP systems and system components that must be included
in the applicable APD, APM, or other submittal for a well

. Revised p aragraph (a) would require the

submittal to include descriptions of the rated capacities for the fluid

- gas separato r system, control fluid
volumes, control system pressure to achieve a seal of each ram BOP , number of accumulator bottles and
bottle banks, and control fluid volume calculatio ns for the accumulator system.

New p aragraph ( e ) would require a listing of the functions with sequences and timing of autoshear,
deadman, and EDS for subsea BOPs

. Paragraph ( b ) would add schematic drawing requirements,
including labeling for the control system alarms and set points, control stations, and riser cross section

.
For subsea BOPs , surface BOPs on floating facilit ies , and BOPs operating under HPHT conditions, new

p aragraph ( f ) would require submission of a certification that a Mechanical Integr it y Assessment report
has been submitted within the past 12 months. New parag raphs ( c ) and ( d ) would include a change in
required certification s ; the paragraphs would require submission of certification from a BSEE

- approved
verification organization (rather than a “qualified third party”) that :

(1) T est data demonstrate that the shear ram(s) will shear the drill pipe at the water depth, and

20 We assumed that the annual costs would be $50,000 , including equipment and service

. We estimated that 10 wells would incur a new cost to comply with these requirements. We multiplied the annual cost of equipment and service by the number of affected wells to obtain an avera ge annual equipment and service cost to industry of $ 5 00 , 000 ( $ 50,000 x 10 ).29

(2) T he BOP has been designed, tested, and maintained to perform at the most extreme anticipated

conditions , and

(3) T hat the accumulator systems have sufficien t fluid to function the BOP system without
assistance from the charging system.

These proposed requirements are necessary to enhance BSEE ’s review of the BOP system and its
emergency systems, which were the topic of many of the recommendations of the Deepwater Horizon

incident investigation teams

. Additionally, t hese requirements are necessary to help BSEE verify that
the accumulator system would have sufficient fluid to function the BOP system without assistance from
the charging system.

The proposed requirements to provide additional documentation about the BOP system and system
components in the APD, APM, or other submittal would result in labor costs to industry and BSEE. To
calculate the industry labor cost associated with these new requirements, we multiplied the estimated
time it would take to document the required information in an APD, APM, or other submittal by the
average hourly compensation rate of the industry staff most likely to complete this task. We then
multiplied t he product by the estimated number of wells drilled per year.

Likewise, t o calculate the new annual labor cost to BSEE, we multiplied the time that BSEE would
spend to process each submittal by the average hourly compensation rate of the BSEE staff most likely

to c omplete this task and by the estimated number of wells drilled per year. These calculations resulted

in average annual labor cost s for this documentation requirement of $ 28 , 282 to industry and $ 22 , 45 5 to

BSEE

. 21 BSEE was unable to locate any applicable data or comparative cost estimates and therefore was

21 We assumed that industry staff ( a mid

- level engineer) would spend one hour to include additional information in the APD, APM, or other submittal for a well

. We multiplied t he number of industry staff hours per well by the average hourly compensation rate for a mid

- level industry engineer ( $8 8

. 38 ) and by the average number of wells30

unable to determine a definitive cost estimate for the annual costs to industry associated with the
change in requir ing use of BSEE

- approved verification organizations referenced in new paragraph
250.732(a)

. BSEE requests information concerning costs associated with the proposed use of BSEE

approved verification organizations

.

m. Submission of a Mechanical Integrity Assessment Report

Proposed s ection 250.732 (d) would include new requirements on the submission of a Mechanical
Integrity Assess ment Report on certain BOP stack and systems. New paragraph ( d ) would outline the
requirements for this report, which must be completed by a BSEE

- approved verification organization
and submitted by the operator for operations that would require the use of a subsea BOP , a surface BOP
on a floating facility, or a BOP that is being used in HPHT operations. New section 250.731 ( f ) would
require certification stating that this report be submitted to BSEE prior to beginning any operations (to
include maintenance and repairs) involving these BOP s
. The third

- party reporting would enhance the
BSEE review and permitting process and ensure that BSEE is aware of repairs or other changes to the
operating BOPs

.

These reporting requirements would result in new capital costs to industry and new labor costs to
industry and BSEE associated with the submission and review of reports. To calculate the capital cost s to industry of submitting Mechanical Integrity Assessment reports , we multiplied the annual capital cost

of submitting the report by the estimated number of well s that would be affected

. This calculation

resulted in annual capital costs for reporting of $ 4

. 8 million to industry

. To calculate the industry labor

drilled per year ( 320 ) to obtain an average annual labor cost to industry of $ 28 , 282 (1 x $8 8

. 38 x 320 ). We assumed that BSEE staff ( a mid

- level engineer) would spend one hour to review the additional information in the APD, APM, or other submittal for a well. We multiplied the number of BSEE staff hours per submittal by the average hourly compensati on rate for a mid

- level BSEE engineer ($70.17) and by the average number of wells drilled per year to obtain an average annual labor cost to BSEE of $ 22 , 455 (1 x $70.17 x 320 ).31

cost, we multiplied the time required to submit a report by the average hourly compensation rate of the
industry staff most likely to complete this task and then multiplied this annual cost by the number of

additi onal reports expected per year

.
To calculate the new annual labor cost to BSEE, we multiplied the time that BSEE would spend to
process each report by the average hourly compensation rate of the BSEE staff most likely to complete

this task and then multiplied this annual cost by the number of additional reports expected per year.
These calculations result in average annual labor costs for this reporting requirement of $ 14 , 141 to
industry and $1 1 , 228 to BSEE. We then summed the labor and report ing costs to industry to obtain a n
annual cost to industry of $4. 8 million and annual costs to BSEE of $ 11 , 22 8

. 22

n. New surface BOP requirements

Section 250.733 would include new requirements for surface BOP s tacks

. Proposed n ew p aragraph
( e ) would require that hydraulically operated locks are installed with surface BOPs.

BSEE recognize s that the equipment and labor costs associated with the proposed su rface BOP s tack
requirements would be case

- specific. BSEE was unable to locate any applicable dat a or comparative

cost estimates and therefore was unable to determine a definitive cost estimate for the labor and
equipment costs to industry associated with the installation of hydraulically operated locks. BSEE

22 For capital costs, we assumed an annual cost of $15,000 for each well which results in an annual capital cost of $4.8 million ($15,000 x 320). For labor costs, we assumed that industry staff ( a mid

- level engineer) would spend a half hour to prepare a rep ort for each well

. We multiplied t he number of industry staff hours per well by the average hourly compensation rate for a mid

- level industry engineer ( $8 8

. 38 ) and by the average number of wells drilled per year ( 320 ) to obtain an average annual labor cos t to industry of $ 14 , 141 ( 0.5 x $8 8

. 38 x 320 ). We assumed that BSEE staff ( a mid

- level engineer) would spend a half hour to receive and review the report for e a ch well. We multiplied the number of BSEE staff hours per submittal by the average hourly comp ensation rate for a mid

- level BSEE engineer ($70.17) and by the average number of wells drilled per year to obtain an average annual labor cost to BSEE of $ 11 , 228 ( 0.5 x $70.17 x 320 ).32

requests information concerning costs associated with the se proposed new requirements for BOP

stacks. 23

o. New s ubsea BOP system requirements

Section 250.734 would include new requirements for subsea BOP systems, based on

recommendations from the Deepwater Horizon incident investigations

. Revised p aragraph (a ) would
require that BOPs be equipped with two shear rams and outlines the requirements for the shear rams.
BSEE is also considering requiring installation of technology that is capable of severing any components
of the drill string (e xcluding drill bits) within 10 years of the publication date of the rule.

BSEE recognize s that the equipment costs associated with these new subsea BOP system
requirements would be case
- specific

. For example, the costs would depend on the age of the rig and

BOP system , the BOP system type, and the size of the rig, among other factors

. In order t o estimate the
cost to industry associated with these new shear ram requirements, we multiplied the estimated cost of
compliance per rig by the estimated number of affected rigs. API Standard 53 includes the requirements

under paragraph (a) for all rigs with the exception of moored rigs. We multiplied the cost of compliance

for a moored rig by the number of moor ed rigs in order to calculate the one

- time equipment costs of $50 million for this requirement

. 24 BSEE requests comments concerning the costs of compliance with

these new requirements

.

23 BSEE subject matter experts estimate this cost to be nominal and would not significantly alter the estimate. It is BSEE’s understanding that this type of equipment usually comes standard on new orders and the costs associated within this equipment are a p art of the entire component and not a separate cost.
24 We estimated that 5 moored rigs would be affected and that the one

- time capital compliance costs associated with these shear ram requirements would be $10,000,000 per rig

. To calculate the total one

- time capital costs to industry , we multiplied the equipment cost per rig by the number of affected rigs to yield a total cost to industry of $ 50,000,000 ($ 10,000,000 x 5 ).33

p. New s urface accumulator system requirements

Section 250.735 (a) would list new requirements for the surface accumulator system of a BOP. The
surface accumulator system must operate all BOP functions against MASP with at least 200 pounds per
square inch remaining on the bottles above the precharge pressure without use of the charging system.
Revised p aragraph (a) would detail additional surface accumulator requirements regarding fluid capacity
and accumulator regulators. This revision would ensure that the BOP system is capable of operating all

critical functions.

The re quirement that the surface accumulator system operate all functions for a ll BOP systems

would result in a one
- time equipment and labor cost to industry. The equipment cost would result from
the installation of additional equipment necessary to meet the re quirement. To calculate the
equipment cost, we multiplied the average cost for equipment per rig by the total number of rigs. For
the labor cost, we multiplied the time required per rig to install the equipment by the average hourly
compensation rate of the industry staff most likely to do the work and by the total number of rigs. This

calculation resulted in a one
- time cost to industry of $2. 8 million

. 25 No additional costs to BSEE are
expected as a result of this proposed requirement.

q. C hart recorders

25 We assumed that the average cost of the additional equipment needed to meet the r equirements would be $25 ,000 per rig

. It is unknown how many rigs already comply; thus, we made a assumption that all rigs would be affected (90 rigs). We multiplied t he equipment cost per rig by the number of affected rigs to obtain a n estimated
one
- tim e equipment cost of $2.25 million ($25,000 x 90). For the one

- time labor cost to industry, it was estimated that one to three days of industry time would be required per rig to install the new equipment . We assumed that industry staff ( a mid

- level engineer) would spend 72 hours to install the new equipment on a rig. We multiplied t he number of industry staff hours per rig by the average hourly compensation rate for a mid

- level industry engineer ( $8 8

. 38 ) and by the number of affected rigs to obtain an estimated one
- time labor cost to industry of $572,70 2 (72 x $8 8

. 38 x 90). Summing the equipment and labor costs resulted in a total one

- time cost to industry of $2, 822 , 708 for this requirement.34

Section 250.737(c), which addresses BOP testing requirements, would introduce a requirement that

each test must hold the required pressure for five minut es while using a four

- hour chart. This chart

would contain sufficient detail to show if a leak occurred during the test.

This proposed testing requirement would result in a one
- time equipment and labor cost to industry.
Industry would have to purchase the equipment (a chart recorder) to be able to comply with the testing
requirement. To calculate the equipment cost, we multiplied the estimated cost of equipment per rig by

the total number of rigs. To calculate the one
- time labor cost to industry, we multiplied the time
required per rig to install the chart recorder by the average hourly compensation rate of the industry
staff most likely to complete this task and by the total number of rigs. This calculation resulted in a one
time cost to industry of $180, 42 6

. 26 No additional costs to BSEE are expected as a result o f this proposed
requirement.

r. Notification and procedures requirements for testing of surface BOP systems

Proposed s ection 250.737(d)(2) would expand notification and procedures requirements regar ding
the use of water to test a surface BOP system

. Th ese expanded notification and procedures
requirement s would result in increased labor costs to industry. To calculate the new annual labor cost

to industry , we multiplied the hourly compensation rate for the industry staff most likely to complete
this work by the amount of time expected to complete the submittals and then multiplied this annual
cost by the total number of submittal s. These calculations resulted in an annual cost to industry of
$ 5 , 303 associated with these submissions. This new requirement wo uld also result in labor costs to

26 We assumed that each rig would require a chart recorder for an average cost of $2,000 per rig

. We multiplied t he average equipment cost per rig by the total number of rigs (90) to obtain an estimated one

- time equipment cost to industry of $180,000 ($2,000 x 90). We assumed that industry staff (rig c rew) would spend five minutes (0.08 hours) per rig to install the equipment. We multiplied t he number of industry staff hours per rig by the average hourly compensation rate for a rig crew staff ( $5 6

. 8 0 ) and by the total number of rigs to obtain an estimated one

- time labor cost to industry of $42 6 (0.08 33 x $5 6

. 8 0 x 90). Summing the equipment and labor costs resulted in a total one

- time cost to industry of $180,42 6

.35

BSEE associated with processing these requests. We multiplied the hourly compensation rate for the
BSEE staff most likely to complete this work by the amount of time expected to process the submittals
and then multiplied this annual cost by the total number of submittal s. 27 These calculations resulted in
an annual cost to BSEE of $ 4 , 210 associated with these submissions. BSEE requests information related

to the costs associated with th is proposed expansion of notification and procedures requirements.

s. Alternating BOP control station function testing

Section 250.737(d)( 5 ) would expand the requirements for function testing of BOP control station s
.
It would require that the operator designate the BOP control stations as primary and secondary and

function test of each station weekly.

This proposed testing requirement would result in increased operatin g costs to industry. To
calculate the annual operations costs ass ociated with this requirement , we multiplied the time required

to conduct the test ing per rig by the daily rig operati ng cost and by the estimated number of rigs
affected per year. Because subsea and surface BOPs have different daily rig operating costs, we performed separate calculations for the costs for subsea and surface BOP rigs. We estimated an

increased annual operating cost to industry associated with this provision of $25 million

. 28 BSEE

27 We assumed that a mid

- level industry enginee r would spend 1 hour on a submittal as a result of these expanded requirements. We multiplied the compensation rate for a mid

- level industry engineer ($88.38) by the number of hours to complete the submission and then multiplied this annual cost by the to tal number of submittals (60) to determine the annual cost to industry of $5,303 (1 × $88.38 × 60). We assumed that a mid

- level BSEE engineer would spend 1 hour to process a submittal. We multiplied the compensation rate for a mid

- level BSEE engineer ($7 0.17) by the number of hours to complete the task and then multiplied this cost by the total number of submittals (60) to determine the annual cost to industry of $4,210 (1 × $70.17 × 60).
28 We assumed that testing would require 0.5 days per rig per year ( one hour every week for three months). Because subsea and surface BOPs rigs have different daily rig operating costs, we performed separate calculations for the costs for subsea and surface BOP rigs. For subsea BOP rigs, we multiplied the time required t o conduct the testing per rig by the daily rig operati ng cost for subsea BOP rigs ($1 million) and by the number of subsea BOP rigs (40) for an annual cost of $20 million for subsea BOP rigs (0.5 x $1 million x 40). For surface BOP rigs, we multiplied the time required to conduct the testing per rig by the daily rig operati ng cost for surface BOP rigs ($200,000) and by the number of surface BOP rigs (50) for an annual cost of $5 million for surface BOP rigs (0.5 x $200,000 x 50).36

requests information related to the costs associated with t he proposed expansion of the testing criteria
for BOP control station function testing

.

t. ROV intervention function testing

Proposed s ection 250.737(d)(1 2 ) would include requirements for testing ROV intervention functions
to include testing and verifying the closure of all ROV intervention functions

. The operator would have

to test and veri fy closure of the selected ram.

This testing requirement would result in increased annual operating costs to industry

. To calculate

the annual operating costs, we multiplied the time required to conduct the testing per subsea BOP rig by

the daily operating cost for a subsea BOP rig and by the estimated number of subsea BOP rigs affected

per year. We estimated t he annual increased operating cost to industry for t his requirement to be $416,667

. 29 No additional costs to BSEE are expected as a result of this proposed requirement.

u. Autoshear, deadman, and EDS system function testing on subsea BOPs

Proposed s ection 250.737(d)(1 3 ) would expand the requirements for function testing of autoshear,
deadman, and EDS s on subsea BOPs. It would require the test procedures submitted for the BSEE
District Manager ’s approval to i nclude schematics of the actual controls and circuitry of the system , the
approved schematics of the BOP control system , and a description of how the ROV w ould be used
during the operation. It also outlines the requirements for the deadman system test , including a
requirement that the testing must indicate the discharge pre ssure of the subsea accumulator system

Summing the annual costs for subsea BOP rigs and surface BOP rigs resulted in a total annual increased operating cost to industry associated with this provision of $25 million.
29 We assumed that it would take five minutes per well to conduct the testing and that each subsea BOP ri g has three wells, yielding a total time requirement of 15 minutes (0.0104 days) per rig. We multiplied t he time diverted for testing per rig by the daily operating cost per subsea BOP rig ($1,000,000) and by the estimated number of subsea BOP affected pe r year (40) to obtain an annual increased operating cost to industry of $ 416,667 (0. 0104
x 40 x $1,000,000 ).37

throughout the test

. It would require that the blind

- shear rams be tested to verify closure. The

operator must document the plan to verify closure of the casin g shear ram , if installed , as well as all test

results

.

These proposed documentation and testing requirements would result in a one
- time equipment

cost and increased annual operating costs to industry. The OCS i ndustry would incur a one

- time
equipment cost to purchase a sensing device to detect the discharge pressure during deadman system
testing. We multiplied t he average cost per rig of the sensing device by the estimated number of subsea
BOP rigs required to comply. We assumed i nstallation costs to be negligible because the sensing device
would be installed as part of routine servicing. In order t o calculate the annual operations cost, we multiplied the estimated time per subsea BOP rig required to comply with the document and t esting
requirements by the daily operating cost for a subsea BOP rig and by the estimated number of subsea
BOP rigs affected per year. These calculations resulted in a one
- time equipment cost to industry of $100,000 and an average annual increased operating cost to industry of $ 5 million

. 30 No additional costs
to BSEE are expected as a result of this proposed requirement.

v. Approval for well control equipment not covered in S ubpart G

Proposed s ection 250.738 would describe the required actions for specified situations involving BOP
equipment or systems. P aragraphs (b), (i), and ( o ) would include requirements for reports from
verification organizations . R eports previously required to be prepared by a “qualified third party” und er

30 We assumed that the average cost of the sensing device would be $2,500 per rig. We multiplied t h e equipment cost by the total number of subsea BO P rigs (40) to obtain the one

- time equipment cost to industry of $100,000 ($2,500 x 40). We assumed that it would take one hour per well to perform the testing and documentation tasks required by this provision per well and that each subsea BOP rig has th ree wells, for a total time requirement per subsea BOP of three hours (0.125 days). We also assumed that all subsea BOP rigs (40) would be affected. We multiplied t he time diverted for testing by the daily operating cost per subsea BOP rig ($1,000,000) a nd by the estimated number of subsea BOP rigs affected per year to obtain an average annual increased operating cost to industry of $5 million (0.125 x $1,000,000 x 40)

.38

these sections would be required to be prepared by a “BSEE

- approved verification organization

. ”
Paragraph ( m ) would include a similar change and introduce a requirement that an operator request
approval from the BSEE District Manager to use well control equipment not covered in S ubpart G . The

operator must s ubmit a report from a BSEE

- approved verification organization , as well as any other
information required by the District Manager.

This proposed approval request requirement would resul t in labor costs to industry and BSEE. In

order t o calculate the annual labor costs for industry, we multiplied the estimated time required to

submit a n approval request and BSEE

- approved verification organization report by the average hourly
compensation rate of the industry staff most likely to complete this task and by the estimated number
of rigs that would require approval for well control equipment per year. For BSEE, we multiplied the
estimated time to review the submissions by the average hourly c ompensation rate of the BSEE staff
most likely to complete this task , and the estimated number of rigs for which an approval request and
report would be submitted per year. These calculations resulted in average annual labor cost s of $ 8 8 to
industry and $ 70 to BSEE

. 31 BSEE was unable to locate any applicable data or comparative cost

estimates and therefore was unable to determine a definitive cost estimate for the annual costs to
industry associated with the third

- party verification

. BSEE requests informa tion concerning costs

associated with the proposed third

- party verification requirements

.

31 We assumed that industry staff ( a mid

- level engineer) would spend 0.5 hours to submit an equipment approval request and report

. We also assumed that industry would submit a request and report for an average of two deepwater rigs per year. We multiplied t he number of industry staff hours per submission by the average hourly compensa tion rate for a mid

- level industry engineer ($8 8

. 38 ) and the average number of submissions per year to obtain an average annual labor cost to industry of $8 8 (0. 5 x $8 8

. 38 x 2 ). We assumed that BSEE staff (a mid

- level engineer) would spend 0.5 hours to re view a submission. We multiplied the number of BSEE staff hours per submission by the average hourly compensation rate for a mid

- level BSEE engineer ($70.17) and by the estimated number of submissions per year to obtain an average annual labor cost to BSE E of $70 (0.5 x $70.17 x 2).39

w. Breakdown and inspection of BOP system and components

Proposed s ection 250.739(b) would introduce a requirement for a complete breakdown and
inspection of the BOP and every associated component every 5 years. During this complete breakdown
and inspection, a BSEE

- approved verification organization must document the inspection and any
problems encountered. This BSEE

- approved verification organization report must be available to BSEE
upon request. This additional requirement is necessary to ensure that the components on the BOP stack

would be regularly inspected. In the past, BSEE has , in som e cases , seen components of BOP stacks go
more than 10 years without this type of inspection.

This proposed inspection and documentation requirement would result in cost to industry
associated with generating reports by BSEE

- approved verification organization s
. To calculate th is report

cost, we multiplied the estimated report cost per rig provided by subject matter experts by the number
of reports completed per rig annually and by the estimated number of rigs in operation per year.

Because subsea and surface BOPs differ in structure, they incur different costs to break down and
inspect. In order t o reflect these differences, we performed separate calculations for the costs for
subsea and surface BOP rigs. We assume d that costs would be incurred in year 1 and year 6 of the 10

- year analysis period. These calculations resulted in a total cost to industry to obtain third

- party report s
of $ 21.5 million 32 during the year of inspection, which would occur once every 5 years or twice during

the 10

- year analysis period , for a total of $43 million

.

32 For subsea BOP rigs, based on input from subject matter experts, we assumed that equipment and labor cost would be $350,000 per rig

. We multiplied t he total number of subsea BOP rigs (40) by the equipment and labor cost to o btain an inspection

- year cost of $1 4 million (4 0 x $ 350,000) which occurs every five years for subsea BOP rigs. For surface BOP rigs, based on input from subject matter experts, we assumed that equipment and labor cost would be $150,000 per rig

. We multi plied t he total number of su rface BOP rigs ( 5 0) by the equipment and labor cost to obtain an inspection

- year cost of $ 7.5 million ( 50 x $ 150,000 ) which occurs every five years, for su rface BOP rigs.40

x. Additional recordkeeping for r eal

- t ime m onitoring

Proposed s ection s 250.740(a) and § 250.741(b) would introduce requirement s for recordkeeping of

real

- time monitoring data and other for well operation data

. Th e s e additional records w ould require

labor costs to industry. T o calculate the annual labor costs for industry, we multiplied the estimated
time required to keep real

- time monitoring records per well by the average hourly compensation rate of
the industry staff most likely to complete this task and by the estimated number of wells affected per

year. These calculations resulted in average annual labor costs of $ 1, 789 to industry

. 33 No additional
costs to BSEE are expected as a result of these requirement s
.

y. Industry familiarization with the new rule

When the new regulation take s effect, operators would need to read and interpret the rule.
Through this review, operators would familiarize themselves with the structure of the new rule and
identify any new provisions relevant to their operations. Operators would evaluate whether any new
action must be taken to achieve compliance with the rule.

Reviewing the new regulations would require staff time, imposing a one

- time labor cost on industr y.
We estimated the one

- time labor cost by multiplying the time required for an administrator at each field
office to review the rule by the total number of field offices. This calculation resulted in a total one

- time cost to industry of $28, 059

. 34

33 We assumed that industry staff ( administrative staff ) would spend 0.5 hours to keep real time monitoring records per well

. We multiplied t he number of industry staff hours per well by the average hourly compensation rate for a dministrative staff ($ 29

. 82 ) and then multiplied this cost by the number of affec ted wells (120, based on an assumption of three wells per subsea BOP rig) to obtain an average annual labor cost of $ 1,789 (0. 5 x $ 29

. 82 x 120 ).
34 W e assumed that industry staff (a professional engineer, supervisory) would spend two hours to review the new regulation. 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 multiplied this wage rate by the private sector loaded wage factor of 1.4 2 to accou nt for employee benefits, resulting in a loaded average hourly co mpensation41

6. Summa ry of the cost analysis

Exhibit 1 summarizes the estimated cost for the proposed rule by provision

. Exhibit 2 displays the

monetized costs as annual summations of the calculations described above and as a 10

- year total

. The

increase in the annual cost estimate for the year 201 9 reflects the inspection

- year costs that would

occur every 5 years , as described in section 5. w above

. S ums in Exhibit 1 and those that follow may not
add because of rounding.

rate of $107

. 92

. We assumed that an industry staff 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 resulted in an estimated one
- time labor cost of $ 28,059 ( 2 x $ 107.92 x 130 ) to industry.42 

## E XHIBIT 

## 1 : 

## C OST OF THE 

## P ROPOSED 

## R ULE BY 

## P ROVISION 1

Total 10 Year Cost Average

Annual Cost Percent

of Total Cost Industry

Share Government

Share (undiscounted) (undiscounted) (a) Additional information in the description of well drilling design criteria $282,819 $28,282 0.03% 100% 0% (b) Additional information in the drilling prognosis $70,705 $7,070 0.01% 100% 0% (c) Prohibition of a liner as conductor casing $7,950,000 $795,000 0.90% 100% 0% (d) Additional capping stack testing requirements $800,000 $80,000 0.09% 100% 0% (e) Additional information in the APM for installed packers $103,060 $10,306 0.01% 56% 44% (f) Additional information in the APM for pulled and reinstalled packers $400,347 $40,035 0.05% 56% 44% (g) Rig movement reporting $56,411 $5,641 0.01% 44% 56% (h) and (i) Information on MODUs, including lift boats $1,585,532 $158,553 0.18% 56% 44% (j) Real

- time m onitoring of well operations $405,000,000 $40,500,000 45.85% 100% 0% (k) Additional documentation and certification requirements for BOP systems and system components $17,824,693 2 $1,782,469 2 2.02% 100% 0%
(l) Additional information in the APD, APM, or other submittal for BOP systems and system components $507,370 $50,737 0.06% 56% 44%
(m) Submission of a Mechanical Integrity Assessment Report by a BSEE approved certification body $48,253,685 $4,825,369 5.46% 100% 0%
(n) New surface BOP requirements Data not available; requesting comments (o) New subsea BOP system requirements $50,000,000 2 $5,000,000 2 5.66% 100% 0% (p) New surface accumulator system requirements $2,822,708 $282,271 0.32% 100% 0% (q) C hart recorders $180,426 $18,043 0.02% 100% 0% (r) Use water to test surface BOP system $95,132 $9,513 0.01% 56% 44% (s) Alternating BOP control station function testing $250,000,000 $25,000,000 28.30% 100% 0% (t) ROV intervention function testing $4,166,667 $416,667 0.47% 100% 0% (u) Autoshear, deadman, and EDS system function testing on subsea BOPs $50,100,000 $5,010,000 5.67% 100% 0% (v) Approval for well control equipment not covered in Subpart G $1,586 $159 0.00% 100% 0% (w) Breakdown and inspection of BOP system and components $43,000,000 $4,300,000 4.87% 100% 0%43 

## E XHIBIT 

## 1 : 

## C OST OF THE 

## P ROPOSED 

## R ULE BY 

## P ROVISION 1

Total 10 Year Cost Average

Annual Cost Percent

of Total Cost Industry

Share Government

Share (undiscounted) (undiscounted) (x) Additional r ecord

- keeping for real

time monitoring $17,892 $1,789 0.00% 100% 0% (y) Industry familiarization with the new rule $28,059 $2,806 0.00% 100% 0%
TOTAL $883,247,090 $88,324,709 100.00% 99.86% 0.14%

1 Totals may not add because of rounding.
2 This is a lower

- bound estimate of the costs of this provision ; BSEE seeks comment on costs that we were unable to estimate ( s ee s ection 5 above for details)

.



## E XHIBIT 2 

## : S UMMARY OF 

## M ONETIZED 

## C OSTS 1

Year Industry Costs Government Costs Total Costs (2012 dollars/year) 1 201 5 $164,728,509 $134,273 $164,862,782 2 201 6 $77,297,317 $134,273 $77,431,590 3 201 7 $77,297,317 $134,273 $77,431,590 4 201 8 $77,297,317 $134,273 $77,431,590 5 201 9 $77,297,317 $134,273 $77,431,590 6 2020 $98,797,317 $134,273 $98,931,590 7 20 21 $77,297,317 $134,273 $77,431,590 8 202 2 $77,297,317 $134,273 $77,431,590 9 202 3 $77,297,317 $134,273 $77,431,590 10 202 4 $77,297,317 $134,273 $77,431,590 Undiscounted 10

- year total $881,904,358 $1,342,732 $883,247,090 10

- Year Total with 3% discounting $762,252,353 $1,145,377 $763,397,731 10

- Year Total with 7% discounting $638,941,758 $943,078 $639,884,837
10

- year Average $88,190,436 $134,273 $88,324,709 Annualized with 3% discounting $89,359,230 $134,273 $89,493,503 Annualized with 7% discounting $90,970,932 $134,273 $91,105,205

1 Totals may not add because of rounding.

7. Benefits Analysis

We have quantified three types of benefits that would result from t h e proposed rule ; time saving s, potential reductions in oil spills , and potential reductions in fatalities ( see Sensitivity Analysis, section
9.b, below)

. A time

- savings benefit would result from § 250.737(d)(10), which would streamline the44

testing criteria for BOP control station function and reduces the time required for th is testing. The

section would require operators to test the functionality of the blind

- shear ram

.

a. Time Savings
BSEE proposes to change the testing frequency for workover and decommissioning operations to

once every 14 days, which is consistent with the testing frequency for drilling and completion
operations. Some drilling, completion, workover, and decommissioning operations use the same rigs
and BOP systems; therefore, to ensure consistency among different operations involving the same
equipm ent, BSEE proposes to harmonize the requirements for that type of equipment. Harmoniz at i on
of the testing frequency would streamline the BOP function

- testing criteria and increase safety by
reducing the repetition of operations ( such as pulling pipe out o f the hole and running pipe back in to the

hole ) that pose operational safety issues, there by limiting the exposure of offshore personnel to
potential risks. This may also have a positive effect on overall equipment durability and reliability. 35 The

new pr oposed provisions within this rulemaking increase the level of safety and reduce risk which translates into
the operations conducted during this time

- savings benefit. When combing this provision with the rest of the
proposed provisions, the rulemaking in creases the level of safety and reducing the risk for these operations. We calculated the savings from this provision by multiplying the amount of operating time saved per
rig by the daily operating cost for a rig and by the number of affected rigs. Because subsea and surface
BOPs have different daily rig operating costs, we calculated the time savings for subsea and surface BOP
rigs separately. This calculation resulted in a total time

- savings to industry of approximately $150,000,000 per year. 36

35 Neither Alternative 1 nor Alternative 2 consider potential benefits related to extended eq uipment life and reduced well control risks arising from fewer pressure tests and fewer trips out of the hole.

36 We assumed that this requirement would save three days of operating time per rig. BSEE estimates that the pressure testing takes about 20 hours and that the trip time is about 52 hours for workover and decommissioning operations. For the 40 subsea BOP rigs, we assumed that the daily operating cost is $1,000,000, and we assumed45

With regard to potential time savings for Alternative 2 , t he change in the required BOP pressure
testing frequency under Alternative 2 would further change the frequency of BOP pressure testing from

once every 14 days to once every 21 days and c ould result in a time

- savings benefit to industry by
decreasing the number of required tests per year for operators. To estimate the time

- savings benefit

associated with this potential change, we ma d e the following assumptions:

 We assume d that operators conduct 26 tests per year ( i.e ., one test every 14 days). BSEE
recognizes that operators will not likely operate continuously, but we assume d continuous
operations as a conservative approach because this approach results in the highest number

of tests assumed to be conducted per year and thus the largest estimated costs per year

.

 We assume d that , under th is alternative, operators w ould conduct 17 tests per year ( i.e ., one test every 21 days). This result ed in a net decrease of 9 tests per year (26 tests

– 17
tests) under this alternative.

 We assume d that each BOP test takes 20 hours, based on input from subject matter experts
contacted by BSEE

.
Based on these inputs, we estimate d that each rig will save 7.5 days of operating time annually ( i.e .,
9 tests not conducted each year, with each test comprising 20 hours ) as a result of Alternative 2

. Using
the daily rig operating costs assume d above, this would result in an annual per
- rig benefit of $7.5 million for subsea BOP rigs (7.5 days x $1,000,000 per day) and $1.5 million for surface BOP rigs (7.5 days x $200,000 per day). Accounting for the number of rigs assumed to be operating on the OCS, we

estimate d an annual time

- savings benefit of $300 million to subsea rigs ($7,500,000 x 40 rigs) and $75

that the daily operating cost for the 50 surface BOP rigs is $200,000 per rig. We multiplied the time saved per rig by the daily operating cost per rig and by the number of affected rigs. Most rigs have the capability to perform multiple operations therefore we include all rig into this factor. This calculation resulted in an estimated annual time savings to industry of $150 million (3 x 50 x $200,000 + 3 x 40 x $1,000,000).46

m illion for surface rigs ($1,500,000 x 50 rigs). 37 As a result, the total benefits under Alternative 2 would

be approximately $525,000,000 annually ( see Exhibit 5 for further details of these benefits).

We did not, however, include reduced trip time in the calculations of savings for Alternative 2. 38
Drilling trip time depends on factors such as well depth, hole size, mud weight, the amount of open
hole, hole conditions, surge and swab pressure, borehole deviation, bottom hole assembly
configuration, hoisting capacity, type of rigs, and crew efficie ncy. BSEE is not aware of any analysis of
offshore operations that provides reasonable estimates of average trip time that could be used for the

purpose of this calculation. In addition, it is common practice in the Gulf of Mexico ( GOM ) to perform

BOP te sts earlier than the required interval whenever operational opportunities become available (i.e ., whenever there is no drill pipe across the BOPs due to the need to change drill bits). This practice would

reduce the overall benefit from this alternative. BSEE requests comments and data on both of these

issues to assist in the assessment of the overall benefits of this alternative.

b. Potential reductions in oil spills

T he proposed rule would result in benefits to society by reducing the probability o f incidents
involving oil spills. T o estimate the benefits associated with the potential risk reduction of oil spills, we

estimate d the costs associated with an oil spill related to natural resource damages, the value of lost
hydrocarbons, spill containme nt and cleanup, lost recreation opportunities , and impacts to commercial
fishing. The magnitude of th ese benefit s , however, is dependent on the effectiveness of the proposed

37 These estimates are based on the following calculations: for subsea rigs, (9 tests saved per year) x (20 hours per test) x (1 day/24 hours) x ($1 million/day) x 40 rigs = $300,000,000.; for surface BOP rigs, (9 tests saved per year) x (20 hours per test) x (1 day/24 hours) x ($200,000/day) x 50 rigs = $75,000,000.
38 Trip time refers to the time needed to stop drilling or workover operations, remove or raise the drill/work string from the well, and then lower the string back to the bottom of the well to r estart operations. A trip is often made to change a dull drill bit and /or to perform the pressure test or BOP test. During some deep drilling situations, the trip time may equal or exceed the on

- bottom drilling time.4 7

rule in reducing the number of incidents, which is uncertain. We t hus conducted analysis to estimate

the monetized net benefits ( the difference between total benefits and total costs ) from the reduction in
oil spills for a variety of risk reduction levels , from 1 to 20 percent, that could potentially be achieved by

the proposed rule

.
Although common in situations where regulatory benefits are highly uncertain, we did not conduct a

break

- even analysis to estimate the minimum risk reduction the proposed rule would need to achieve in

order for the rule to be cost

- beneficial

. This is be cause the rule is already cost

- beneficial from the
savings in operating costs under proposed s ection 250.737 (d)( 10 )

. In other words, the break

- even risk

reduction level of the proposed rule is 0 percent , indicating that the proposed rule would be cost

be neficial even if it does not achieve any reductions in the risk of oil spills. (The same is true of
Alternative 2, which would have even greater time

- savings benefits, as discussed above.)

In addition to the time savings and risk reduction benefits presented above, t he proposed rule also

has other benefits. Due to difficulties in measuring and monetizing these benefits, we do not offer a
quantitative assessment of them. BSEE has used a conservative approach in the valuation of a

catastrop hic oil spill, including only selected costs of such a spill. For example, although we capture the
environmental damage associated with a catastrophic oil spill, the analysis is limited because it only

considers the environmental amenities that researcher s could identify and monetize. Therefore, the
resulting benefits of avoiding such a spill should be considered a s a lower

- bound estimate of the true benefit to society that results from decreasing the risk of oil spills

. BSEE followed the approach used i n the Case Study and sought to avoid double

- counting the costs of a catastrophic event

.
i. Benefits Data

To estimate the potential benefits of the proposed rule associated with reducing the risk of
incidents, we examined historical data from the BSEE oil spill database, which contains information for48

spills greater than 10 barrels of oil for the Gulf of Mexico and Pacific regions. Based upon an analysis of
the BSEE oil spill database during the period between 1964 and 2010 , 39 BSEE identified 27 blowouts

a ssociated with oil spills greater than 10 barrels 40 and used this data within the economic analysis (see the initial RIA for details). Blowouts that resulted in uncontrolled flow of gas, damage to a rig, and/or
harm to personnel (but not oil spills over 10 barrels) are not reflected in this analysis 41

. Accordingly, the
benefits and the overall risk reduction associated with this proposed rule are likely understated. BSEE is
specifically soliciting comments on any data and costs associated with any blowout that did not result in
an oils spill greater than 10 barrels, and how to include that information within the economic analysis.

ii. Methods

We assumed that the proposed rule would reduce the likelihood of all oil spills , regardless of the size
of the spill

. We t herefore applied a uniform probability distribution to take this assumption into

account. We assume d a 1 percent risk reduction because it represents BSEE’s best judgment of the

causes of risk without the proposed rule and how those ca uses of risk would be affected by it

. 42 Thus,

39 BSEE based the analysis on the his torical oil spill database for the period between 1964 and 2010 , but recognizes that significant regulatory and technological improvements have taken place since 1964. Limiting the analysis period to 1988 (the year when the most recent comprehensive overh aul of the Department of the Interior’s offshore regulatory program took place) through 2010 , and assuming a 1 percent risk reduction , would increase 10

- year net benefits (including avoided fatalities ) by $51,230,511 and $42,182,077 ( with 3 percent and 7 p ercent discounting, respectively). The increase in the total net benefits from starting the analysis at such a later point results from the proportionately greater influence of the damages of the Deepwater Horizon incident on the estimated benefits of the proposed rule during that shorter timeframe

. 40 Source: http://www.bsee.gov/Inspection

- and

- Enforcement/Accidents

- and

- Incidents/Spills/

. 41 Previous Minerals Management Service studies indicate a total of 126 blowouts during drilling operations on the OCS between 1971 and 2006. These blowouts resulted in 26 fata lities , 63 injuries, damage to facilities and equipment, and the release of hydrocarbons.
42 Several recent studies have estimated the probabilities of blowout failures under a wide range of circumstances. See, e.g., “Blowout Preventer (BOP) Failure Even t and Maintenance, Inspection and Test (MIT) Data Analysis for the Bureau of Safety and Environmental Enforcement (BSEE) , ” American Bureau of Shipping and ABSG Consulting Inc., ( under BSEE contract M11PC00027 ) , June 2013 ; “Improved Regulatory Oversight U s ing Real

- Time Data Monitoring Technologies in the Wake of Macondo,” K. Carter , U

. of Texas at Austin, 2014, published with E

. van Oort and A

. Barendrecht , Soc ’y of Petroleum Engineers , 2014; “ Deepwater Horizon Blowout Preventer Failure Analysis Report t o t he U.S. Chemical Safety and Hazard Investigation Board,” Engineering Services, LP , 2014. Given t his accumulated knowledge of failure likelihoods under various circumstances, and analysis of how those49

the 1 percent risk reduction represents the lower bound of the potential benefits of the proposed rule.
Nevertheless, w e present a sensitivity analysis on the assumed risk reduction level in s ection 9 .a below.

To calculate the expected annual reduction in barrels of oil spilled associated with the proposed
rule, we multiplied the annual number of spilled barrels (the total number of barrels spilled in the
incident divided by 46.945 years) by 1 percent to calculate the expected annual reduction in barrels of
oil spilled associated with the proposed rule. Exhibit 3 displays the calculation of the expected annual
reductions in barrels of oil spilled assuming a 1

- percent risk reduction resulting from the proposed rule

.



## E XHIBIT 

## 3: C ALCULATIONS OF 

## N UMBER OF 

## B ARRELS 

## S PILLED (AT A 1 

## - P ERCENT 

## R ISK 

## R EDUCTION FROM THE 

## P ROPOSED 

## R ULE)
Incident Rank Barrels of Oil

Spilled Annualized

Barrels Adjusted Risk

Reduction Reduced

Barrels (a) (b) (c = b ÷ 46.945 years) (d = 1%) (e = c * d)

27 10 0.2 1.00% 0.0 27 10 0.2 1.00% 0.0 27 10 0.2 1.00% 0.0 24 11 0.2 1.00% 0.0 23 25 0.5 1.00% 0.0 22 50 1.1 1.00% 0.0 21 60 1.3 1.00% 0.0 20 62 1.3 1.00% 0.0 19 64 1.4 1.00% 0.0 18 75 1.6 1.00% 0.0 17 100 2.1 1.00% 0.0 17 100 2.1 1.00% 0.0 15 125 2.7 1.00% 0.0 14 200 4.3 1.00% 0.0

likelihoods would be reduced by the proposed rule, BSEE has determined that 1 percent is a reasonable lower

bound of risk reduction that could occur as a result of the proposed rule , although in BSEE’s expert opinion, the actual risk reduction from the proposed rule will likely be substantially higher than 1 percent.50 14 200 4.3 1.00% 0.0 12 350 7.5 1.00% 0.1 11 450 9.6 1.00% 0.1 10 774 16.5 1.00% 0.2 9 1,061 22.6 1.00% 0.2 8 1,688 36.0 1.00% 0.4 7 2,500 53.3 1.00% 0.5 6 5,100 108.6 1.00% 1.1 5 5,180 110.3 1.00% 1.1 4 53,000 1,129.0 1.00% 11.3 3 65,000 1,384.6 1.00% 13.8 2 80,000 1,704.1 1.00% 17.0 1 4,928,100 104,975.5 1.00% 1049.8 Total Annual Reduced Barrels 1,096 1

1 Totals may not add because of rounding.

A risk reduction of 1 percent le ads to an annual reduction of 1,0 9 6 spilled barrels. (See the a ppendix

for the number of spilled barrels associated with each incident.) T o estimate the benefits from a
reduction in oil sp illed, we multiplied the estimated annual reduction in spilled barrels of oil by the social
and private cost of a spilled barrel of oil, which is estimated at $ 3,599

. We derived this estimate from

the “Economic Analysis Methodology for the Five Year OCS Oil and Gas Leasing Program for 2012

- 2017”
(the “BOEM Case Study”), 43 an d this value includes costs associated with natural resource damages, the
value of lost hydrocarbons, and spill cleanup an d contain ment. 44 Natural resource damages relate to
the natural resources on the OCS that would be damaged by an oil spill. The value of the lost
hydrocarbons reflects the lost usable oil. Finally, spill containment and cleanup costs include all the
resources (ca pital and labor) needed to contain the spill and clean up the site. These costs are all

included in the social cost of a barrel of oil , as per the directive of OMB Circular A

- 4 to include costs

43 U.S. Department of the Interior. Bureau of Ocean Energy Management ( 2012 ), available at http://www.boem.gov/uploadedFiles/BOE M/Oil_and_Gas_Energy_Program/Leasing/Five_Year_Program/2012

- 2017_Five_Year_Program/PFP%20EconMethodology.pdf

. 44 The BOEM Case Study presents per

- barrel costs associated with a catastrophic event. We use this estimate because the BOEM Case Study represents a recent estimate for the costs associated with an oil spill that includes data from the Deepwater Horizon incident

.51

regardless of where, when, or to whom the costs accrue. 45 We assumed a natural resource damage cost of $642 per barrel and a cleanup and containment cost of $2,857 per barrel as estimated for the Gulf of

Mexico in the BOEM Case Study. Consistent with the BOEM Case Study, we used a value of lost
hydrocarbon per barr el of $100, which is the value applied across all regions analyzed in the BOEM Case
Study. We recognize the uncertainty associated with projecting the price of oil during the 10

- year period of analysis and present a sensitivity analysis in s ection 9 .c
.

We also accounted for one

- time costs associated with catastrophic oil spills. 46 Consistent with the

BOEM Case Study, w e assume d losses associated with recreation of $199 million per catastrophic

incident and losses for commercial fishing of $13 million per i ncident. The BOEM Case Study estimated
these costs on a per

- incident basis because these costs are not dependent on the volume of oil spilled

. 47
Historical data includes one catastrophic incident over the course of the past 46.945 years. We

estimate d an annual loss associated with recreation and commercial fishing due to catastrophic events of $4,515,899 (($212,000,000 per incident) x (1 incident/46.945 years)). We assume d a 1 percent risk
reduction associated with these per

- incident costs, resulting in an estimated annual risk reduction of $45,159.

45 Using both natural resource damages and containment and cleanup costs is consistent with the natural resource damages assessment metho ds described in the BOEM Case Study. This also accounts for any temporal or spatial distribution in the accrual of cleanup costs. For example, the cleanup on the coast may occur at a later time and different place than the initial spill. 46 The BOEM Case Study defines a catastrophic oil spill in the GOM as one ranging in size from 900,000 barrels to 7,200,000 barrels.
47 The BOEM Case Study presents seven separate cost categories to estimate the impact of a catastrophic spill , including natural resource damages , and impacts on recreation and commercial fishing. The natural resource damage cost associated with each barrel of oil spilled (expressed as a per

- barrel cost ) accounts for the damage ( e.g . to wildlife, habitats, and ecosystems ) caused by the oil itself as well as by cleanup crews. . A dditional costs associated with catastrophic oil spills that are not represented in this per

- barrel natural resource damage cost Includ e c osts to commercial fishing ( i.e., economic losses due to fish ery closures d uring a catastrophic oil spill and l ost recreational values (based on the average number of trips and the value for each recreation trip).52

T he annual benefit from the reduc tion in spilled barrels of oil and the adjusted one
- time costs of a
catastrophic event is estimated at $ 4.0 million

.

8. Analysis result s

Exhibit 4 displays the monetized costs to industry and BSEE , as well as the total costs for each year

and for the 10

- year analysis period. T he 10

- year undiscounted total cost of the proposed rule is $ 883.2 million with $ 881

. 9 million of the total cost falling on industry and $1. 3 million on BSEE . The discounted

total costs for the 10

- year period are $ 763.4 and $ 639

. 9 million at 3 and 7 percent discounting,
respectively

.

Exhibit 5 displays the monetized benefits for both time savings (under Section 250.737(d)(10) and
under Section 250.447(b) for Alternative 2) and the risk reduction of oil spills for each year and for the

10

- year analysis period. The 10

- year total benefits for Alternative 1, the proposed rule, are $ 1,31 3.6

million and $1,08 1.6 m illion at 3 and 7 percent discounting, respectively , with the majority of th e quantified benefits under Alternative 1 stemming from time

- savings benefits under Section
250.737(d)(10)

. The discounted 10

- year benefits for Alternative 2 are $4,512.4 million and $3,715.4
million at 3 and 7 percent discounting, respectively, with the majority of quantified benefits under
Alternative 2 stemming from time

- savings benefits under Section 250.477(b).



## E XHIBIT 4 

## : S UMMARY OF 

## M ONETIZED 

## C OSTS 1

Year Industry Costs Government Costs Total Costs (2012 dollars/year) 1 201 5 $164,728,509 $134,273 $164,862,782 2 201 6 $77,297,317 $134,273 $77,431,590 3 201 7 $77,297,317 $134,273 $77,431,590 4 201 8 $77,297,317 $134,273 $77,431,590 5 201 9 $77,297,317 $134,273 $77,431,59053

6 2020 $98,797,317 $134,273 $98,931,590 7 20 21 $77,297,317 $134,273 $77,431,590 8 202 2 $77,297,317 $134,273 $77,431,590 9 202 3 $77,297,317 $134,273 $77,431,590 10 202 4 $77,297,317 $134,273 $77,431,590 Undiscounted 10

- year total $881,904,358 $1,342,732 $883,247,090 10

- Year Total with 3% discounting $762,252,353 $1,145,377 $763,397,731 10

- Year Total with 7% discounting $638,941,758 $943,078 $639,884,837
10

- year Average $88,190,436 $134,273 $88,324,709 Annualized with 3% discounting $89,359,230 $134,273 $89,493,503 Annualized with 7% discounting $90,970,932 $134,273 $91,105,205

1 Totals may not add because of rounding.

Because we are not able to monetize all of the consequences of an oil spill (and con versely, the

benefits of avoiding such a spill), the risk reduction estimates we present reflect only a portion of the
total value to society from reducing the risk of a spill

. These estimates are assumed to be lower

- bound

estimates for the true benefit to society arising from a reduction in the risk of oil spills

.54



## E XHIBIT 

## 5 : S UMMARY OF 

## M ONETIZED 

## B ENEFITS (AT A 1 

## - P ERCENT 

## R ISK 

## R EDUCTION FROM THE 

## P ROPOSED 

## R ULE) 1

Year Alternative 1

-

250.737(d)(10) (subsea rigs) 2 Alternative 1

-

250.737(d)(10) (surface rigs ) 2 Alternative 2

-

250.447(b) (subsea rigs) 3 Alternative 2

-

250.447(b) (surface rigs) 3 Risk Reduction

Benefits Total Benefits

(Alternative 1) Total Benefits

(Alternative 2) (2012 dollars/year)
1 2015 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977
2 2016 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 3 2017 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 4 2018 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 5 2019 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 6 2020 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 7 2021 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 8 2022 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 9 2023 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 10 2024 $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 Undiscounted 10

- year total $1,200,000,000 $300,000,000 $3,000,000,000 $750,000,000 $39,889,771 $1,539,889,771 $5,289,889,771 10

- Year Total with 3% discounting $1,023,624,340 $255,906,085 $2,559,060,851 $639,765,213 $34,026,784 $1,313,557,210 $4,512,383,273
10

- Year Total with 7% discounting $842,829,785 $210,707,446 $2,107,074,462 $526,768,616 $28,016,906 $1,081,554,137 $3,715,397,215

10

- year Average $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 Annualized with 3% discounting $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977 Annualized with 7% discounting $120,000,000 $30,000,000 $300,000,000 $75,000,000 $3,988,977 $153,988,977 $528,988,977

1 Totals may not add because of rounding. 2 Amounts include timesaving benefits of pressure testing and trip time associated with increasing BOP testing interval for c ompletions and workovers from 7 to 14 days. 3 Amounts include timesaving benefits of pressure testing associated with increasing t esting intervals for all BOPS (drilling, completions, workovers) from 14 to 21 days. This estimate does not include trip time.55

Exhibit 6 summarizes the net benefits at a 1 percent risk reduction

. The total 10

- year net benefits

for Alternative 1 are $ 5 50.2 million and $ 44 1.7 million at 3 and 7 percent discount ing, respectively. The

10

- year net benefits for Alternative 2 are $3,749.0 m illion and $3,075.5 million at 3 and 7 percent
discounting , respectively.56 

## E XHIBIT 

## 6 : S UMMARY OF 

## N ET 

## B ENEFITS (AT A 1

- 

## P ERCENT 

## R ISK 

## R EDUCTION FROM THE 

## P ROPOSED 

## R ule) 1

Year Total Benefits (Alternative 1) Total Benefits

(Alternative 2) Total Costs 2 Net Benefits (Alternative 1) Net Benefits

(Alternative 2) (2012 dollars/year) 1 2015 $153,988,977 $528,988,977 $164,862,782 ($10,873,805) $364,126,195 2 2016 $153,988,977 $528,988,977 $77,431,590 $76,557,387 $451,557,387 3 2017 $153,988,977 $528,988,977 $77,431,590 $76,557,387 $451,557,387 4 2018 $153,988,977 $528,988,977 $77,431,590 $76,557,387 $451,557,387 5 2019 $153,988,977 $528,988,977 $77,431,590 $76,557,387 $451,557,387 6 2020 $153,988,977 $528,988,977 $98,931,590 $55,057,387 $430,057,387 7 2021 $153,988,977 $528,988,977 $77,431,590 $76,557,387 $451,557,387 8 2022 $153,988,977 $528,988,977 $77,431,590 $76,557,387 $451,557,387 9 2023 $153,988,977 $528,988,977 $77,431,590 $76,557,387 $451,557,387 10 2024 $153,988,977 $528,988,977 $77,431,590 $76,557,387 $451,557,387 Undiscounted 10

- year total $1,539,889,771 $5,289,889,771 $883,247,090 $656,642,682 $4,406,642,682 10

- Year Total with 3% discounting $1,313,557,210 $4,512,383,273 $763,397,731 $550,159,479 $3,748,985,543 10

- Year Total with 7% discounting $1,081,554,137 $3,715,397,215 $639,884,837 $441,669,301 $3,075,512,378
10

- year Average $153,988,977 $528,988,977 $88,324,709 $65,664,268 $440,664,268 Annualized with 3% discounting $153,988,977 $528,988,977 $89,493,503 $64,495,474 $439,495,474 Annualized with 7% discounting $153,988,977 $528,988,977 $91,105,205 $62,883,772 $437,883,772

1 Totals may not add because of rounding.

2 This is a lower

- bound estimate of the costs of this provision; BSEE seeks comment on costs that we were unable to estimate.57

BSEE has concluded that after consideration of the impacts of th e NPRM, the societal benefits of the
proposed rule justify the societal costs.

9. Sensitivity Analysis
This section presents sensitivity analyses of the potential benefits of the proposed rule that could

result from varying the following factors:

a. The level of risk reduction of oil spills achieved by the proposed rule

b. The level of risk reduction of fatalities achieved by the proposed rule

c. The price of a barrel of oil (i.e., the value of lost hydrocarbons)
These sensitivity analyses are presented for Alternative 1 , the proposed rule

.

a. Reduction in the Risk of Oil Spills

W e thus far have assumed a 1 percent re duction in the annual risk of oil spills resulting from this
proposed rule because it represents the lower bound estimate of the benefits of the rule based on
BSEE’s expert judgment

. The benefits, and thus net benefits, of this proposed rule would differ under

other assumed levels of reduction in the risk of oil spills

. Exhibit 7 presents the total 10

- year risk
reduction benefits, total benefits (includes cost savings from changes in testing frequency), , and net
benefits under a range of possible annual risk reduction levels for oil spills from 0 to 20 percent.58 

## E XHIBIT 

## 7 : S UMMARY OF 

## N ET 

## B ENEFITS 

## U NDER 

## D IFFERENT 

## R ISK 

## R EDUCTION 

## L EVELS 1

Annual Risk Reduction Annual

Benefits Total 10

- Year

Risk Reduction Benefits (7% Discounting) Total 10

- Year

Risk Reduction Benefit (3% Discounting) Total 10

- Year

Benefits (7% Discounting) Total 10

- Year

Benefit (3% Discounting) Total 10

- Year

Net Benefits (Undiscounted) Total 10

- Year

Net Benefit (7% Discounting) Total 10

- Year

Net Benefit (3% Discounting)

0% $0 $0 $0 $1,053,537,231 $1,279,530,426 $616,752,910 $413,652,394 $516,132,695 1% $3,988,977 $28,016,906 $34,026,784 $1,081,554,137 $1,313,557,210 $656,642,682 $441,669,301 $550,159,479 2% $7,977,954 $56,033,812 $68,053,568 $1,109,571,044 $1,347,583,994 $696,532,453 $469,686,207 $584,186,263 3% $11,966,931 $84,050,719 $102,080,353 $1,137,587,950 $1,381,610,778 $736,422,225 $497,703,113 $618,213,047 4% $15,955,909 $112,067,625 $136,107,137 $1,165,604,856 $1,415,637,562 $776,311,996 $525,720,019 $652,239,832 5% $19,944,886 $140,084,531 $170,133,921 $1,193,621,762 $1,449,664,346 $816,201,768 $553,736,926 $686,266,616 6% $23,933,863 $168,101,437 $204,160,705 $1,221,638,669 $1,483,691,131 $856,091,539 $581,753,832 $720,293,400 7% $27,922,840 $196,118,344 $238,187,489 $1,249,655,575 $1,517,717,915 $895,981,311 $609,770,738 $754,320,184 8% $31,911,817 $224,135,250 $272,214,273 $1,277,672,481 $1,551,744,699 $935,871,082 $637,787,644 $788,346,968 9% $35,900,794 $252,152,156 $306,241,058 $1,305,689,387 $1,585,771,483 $975,760,854 $665,804,551 $822,373,752 10% $39,889,771 $280,169,062 $340,267,842 $1,333,706,294 $1,619,798,267 $1,015,650,625 $693,821,457 $856,400,537 11% $43,878,749 $308,185,969 $374,294,626 $1,361,723,200 $1,653,825,051 $1,055,540,397 $721,838,363 $890,427,321 12% $47,867,726 $336,202,875 $408,321,410 $1,389,740,106 $1,687,851,836 $1,095,430,168 $749,855,269 $924,454,105 13% $51,856,703 $364,219,781 $442,348,194 $1,417,757,012 $1,721,878,620 $1,135,319,939 $777,872,176 $958,480,889 14% $55,845,680 $392,236,687 $476,374,978 $1,445,773,919 $1,755,905,404 $1,175,209,711 $805,889,082 $992,507,673 15% $59,834,657 $420,253,594 $510,401,763 $1,473,790,825 $1,789,932,188 $1,215,099,482 $833,905,988 $1,026,534,457 16% $63,823,634 $448,270,500 $544,428,547 $1,501,807,731 $1,823,958,972 $1,254,989,254 $861,922,894 $1,060,561,242 17% $67,812,611 $476,287,406 $578,455,331 $1,529,824,637 $1,857,985,756 $1,294,879,025 $889,939,801 $1,094,588,026 18% $71,801,589 $504,304,312 $612,482,115 $1,557,841,544 $1,892,012,541 $1,334,768,797 $917,956,707 $1,128,614,810 19% $75,790,566 $532,321,219 $646,508,899 $1,585,858,450 $1,926,039,325 $1,374,658,568 $945,973,613 $1,162,641,594 20% $79,779,543 $560,338,125 $680,535,683 $1,613,875,356 $1,960,066,109 $1,414,548,340 $973,990,519 $1,196,668,378

1 For Alternative 1 , the proposed rule

.59

Based on this analysis, the net benefits of the proposed rule are more sensitive to the percent
reduction in the annual risk of oil spills than the other parameters evaluated within this RIA. As can be

seen in Exhibit 7 , t he larger the risk reduction, t he larger the net benefits. For example, 10

- year total

net benefits are $441 .7 million and $550.2 million at a 1 percent risk reduction and $974.0 million and $1,196.7 million at a 20 percent risk reduction , at 7 and 3 percent discounting , respectively.

b. Reduction in the Risk of Fatalities

In addition to the time savings and the prevention of oil spills, the proposed rule is anticipated to
reduce the risk of premature death of rig workers. The oil and gas extraction industry is characterized
by a relatively small percentage of the national workforce , but with a fatality rate that is higher than for

most industries. The fatality rate for oil and gas extraction workers is 23. 9 fatalities per 100,000 full

time equivalent workers (Exhibit 8 ).



## E XHIBIT 

## 8 : 

## S ELECTED 

## O CCUPATIONAL 

## F ATALITY 

## R ATES BY 

## I NDUSTRY , 2008

Industry Fatality Rate (per 100,000 Full

- Time Equivalent

Workers) Agriculture, forestry, fishing, and hunting 30.4 Oil and gas extraction 23.9 Transportation and warehousing 14.9

Construction 9.7
Protective service occupations (includes protective service occupations such as fire fighters, and law enforcement) 9.1

Manufacturing 2.5 Management, professional, and related occupations 1.6
Finance, insurance, and real estate and leasing 1.1 Source: Bureau of Labor Statistics, 2010.60

The economic benefits of occupational risk reduction are often measured using the value of a statistical life (VSL). The VSL concept is based on individual willingness to pay for reductions in small
risks of prema ture death. In concept, the VSL measures the sum of society’s willingness to pay for one

unit of reduction in the risk of a fatality

.
A large number of VSL estimates can be found in the academic literature. P ublished literature has

included either expl icit or implicit valuation of fatality risks and generally derives VSL estimates from
studies on wage compensation for occupational hazards, on consumer product purchase and use
decisions, or from us ing stated preference approach es . These values have varied over time, geographic

location s , and worker heterogeneity. In the early 1980s, VSL estimates ranged from less than $1 million to approximately $3 million and were used to assess policies that reduced worker fatality. More recent
studies have repla ced these estimates with values as high as $9 million. However, the literature based on estimates using U.S. labor market data typically shows a VSL in the range of $4 to $9 million.

The U.S. Environmental Protection Agency ( EPA ) recommends using a VSL value of $7.4 million ($2006), updated to the base year of the analysis, in all benefits analyses that seek to quantify mortality
risk reduction regardless of the age, income, or other characteristics of the affected population. This
approach was endorsed by EPA in its 2000 Guidelines for Preparing Economic Analyses . A recent report
from the EPA’s Science Advisory Board concluded that the available literature does not support
adjustments of VSL for most factors. However, the panel did support adjustments to reflect changes in

income , 48 inflation , and time lags in the occurrence of adverse health effects.

For the purpose this analysis, BSEE used a VSL of $ 8.4 million to estimate the avoided costs
associated with a reduction in the fatality rate. This is th e EPA

- recommended estimate of $7.4 milli on

48 EPA allows the adjustment of VSL based on increases in future income but not on cross

- sectional dif ferences in income.61

updated to 2012 dollars. The EPA

- recommended VSL was chosen for this analysis because of the lack of
consensus in previous research on adjusting VSL values for occupational risk.

There are a number of ways to use the concept of VSL when estimating risk reduction benefits.
Dividing the number of fatalities by the number of years provides the average number of fatalities per

year. Dividing the number of fatalities by the number of barrels spilled over the analysis time period
gives the average number of fatalities per barrel of oil spilled.

Between 1964 and 2010 , there have been 27 blowouts with oils spills greater than 10 barrels. O nly

two of these events resulted in injuries or fatalities. Those two events are a 1984 blowout and the 2010
Deepwater Horizon incident that resulted in 4 and 11 fatalities, respectively. Based on the 46.945

- year period from 1964 to 2010 , th e average number of fatalities wa s 0. 320 annually (15 / 46.945 ). Using a

VSL of $8,423,301 , the average cost of fatalities is $ 2,691,423 per year (0.320 x $ 8,423,301 ). Therefore,

each 1 percent reduction in the risk of a fatality results in a risk reduction benefit of $ 26,914 (1% x
$ 2,691,423 ). 49 Exhibit 9 presents the resulting fatality risk reduction benefit across a range of risk

reduction values from 0 to 20 percent as both annual and total 10

- year (undiscounted and discounted)

values.

Next, E xhibit 1 0 presents the effect on the net benefits of the proposed rule if the additional benefit
of fatality risk reduction is considered. The exhibit presents the undiscounted and discounted 10

- year total net benefits when fatality risk reduction is considered in addition to the benefits of the rule
included in the economic analysis presented above. For example, at a 1 percent fatality risk reduction
level, the 10

- year total benefits are $229,584 and $189,034 at 3 and 7 percent discounting, respectively.

49 Note that this calculation likely understates the benefits associated with fatality risk reduction because blowouts that did not result in an oil spill greater than 10 barrels were not part of the database used for this analysis. Pre vious MMS studies indicate a total of 126 blowouts during drilling operations on the OCS between 1971 and 2006. These blowouts resulted in 26 fatalities, 63 injuries, damage to facilities and equipment, and the release of hydrocarbons. Accounting for any additional fatalities would increase the fatality risk reduction benefits.62

Assuming a higher fatality risk reduction of 20 percent , 10

- year total benefits are $4.59 and $3.78

million ( at 3 and 7 percent discounting , respectively )

.63



## E XHIBIT 

## 9 : 

## S UMMARY OF 

## M ONETIZED 

## B ENEFITS FROM 

## A VERTED 

## F ATALITIES

Fatality Risk Reduction Fatalities

Averted Annual Value 10

- year T otal

U ndiscounted 3% D iscount ing 7% D iscount ing

0% 0.000 $0 $0 $0 $0

1% 0.003 $26,914 $269,142 $229,584 $189,034

2% 0.006 $53,828 $538,285 $459,168 $378,069

3% 0.010 $80,743 $807,427 $688,752 $567,103

4% 0.013 $107,657 $1,076,569 $918,335 $756,137

5% 0.016 $134,571 $1,345,712 $1,147,919 $945,171

6% 0.019 $161,485 $1,614,854 $1,377,503 $1,134,206

7% 0.022 $188,400 $1,883,996 $1,607,087 $1,323,240

8% 0.026 $215,314 $2,153,139 $1,836,671 $1,512,274

9% 0.029 $242,228 $2,422,281 $2,066,255 $1,701,309

10% 0.032 $269,142 $2,691,423 $2,295,839 $1,890,343

11% 0.035 $296,057 $2,960,565 $2,525,422 $2,079,377

12% 0.038 $322,971 $3,229,708 $2,755,006 $2,268,412

13% 0.042 $349,885 $3,498,850 $2,984,590 $2,457,446

14% 0.045 $376,799 $3,767,992 $3,214,174 $2,646,480

15% 0.048 $403,713 $4,037,135 $3,443,758 $2,835,514

16% 0.051 $430,628 $4,306,277 $3,673,342 $3,024,549

17% 0.054 $457,542 $4,575,419 $3,902,926 $3,213,583

18% 0.058 $484,456 $4,844,562 $4,132,509 $3,402,617

19% 0.061 $511,370 $5,113,704 $4,362,093 $3,591,652

20% 0.064 $538,285 $5,382,846 $4,591,677 $3,780,68664



## E XHIBIT 

## 1 0 : 

## S UMMARY OF 

## M ONETIZED 

## B ENEFITS FROM 

## A VERTED 

## F ATALITIES w/ 

## N ET 

## B ENEFITS 1

Fatality Risk Reduction Fatality Risk

Reduction Benefit Net Benefits of

Proposed Rule Without Fatality Risk Reduction (at a 1

- Percent Risk Reduction from the Proposed Rule) Net Benefits of Proposed Rule With Fatality Risk Reduction

(at a 1

- Percent Risk Reduction from the Proposed Rule)

(Total 10

- year) (Total 10

- year) (Total 10

- year)

Undiscounted Undiscounted Undiscounted 3% Discounting 7% Discounting
0% $0 $656,642,682 $656,642,682 $550,159,479 $441,669,301 1% $269,142 $656,642,682 $656,911,824 $550,389,063 $441,858,335 2% $538,285 $656,642,682 $657,180,967 $550,618,647 $442,047,369 3% $807,427 $656,642,682 $657,450,109 $550,848,231 $442,236,403 4% $1,076,569 $656,642,682 $657,719,251 $551,077,814 $442,425,438 5% $1,345,712 $656,642,682 $657,988,393 $551,307,398 $442,614,472 6% $1,614,854 $656,642,682 $658,257,536 $551,536,982 $442,803,506 7% $1,883,996 $656,642,682 $658,526,678 $551,766,566 $442,992,541 8% $2,153,139 $656,642,682 $658,795,820 $551,996,150 $443,181,575 9% $2,422,281 $656,642,682 $659,064,963 $552,225,734 $443,370,609 10% $2,691,423 $656,642,682 $659,334,105 $552,455,318 $443,559,644 11% $2,960,565 $656,642,682 $659,603,247 $552,684,901 $443,748,678 12% $3,229,708 $656,642,682 $659,872,390 $552,914,485 $443,937,712 13% $3,498,850 $656,642,682 $660,141,532 $553,144,069 $444,126,746 14% $3,767,992 $656,642,682 $660,410,674 $553,373,653 $444,315,781 15% $4,037,135 $656,642,682 $660,679,817 $553,603,237 $444,504,815 16% $4,306,277 $656,642,682 $660,948,959 $553,832,821 $444,693,849 17% $4,575,419 $656,642,682 $661,218,101 $554,062,405 $444,882,884 18% $4,844,562 $656,642,682 $661,487,244 $554,291,988 $445,071,918 19% $5,113,704 $656,642,682 $661,756,386 $554,521,572 $445,260,952 20% $5,382,846 $656,642,682 $662,025,528 $554,751,156 $445,449,986

1 For Alternative 1 , the proposed rule

.65

c. V alue of lost hydrocarbons
As an additional sensitivity analysis, BSEE estimated the net benefits of the p roposed r ule for
different assumptions on the value of lost hydrocarbons. In the analysis presented above, BSEE use d
$100 as the per

- barrel value of lost hydrocarbons in the event of a spill

. To reflect recent fluctuations in
the price of a barrel of oil, BSEE al so estimated the net benefits of the proposed rule under two alternative price scenarios during the 10

- year analysis period : $50/barrel and $130/barrel. These prices

reflect what BSEE currently anticipates using for planning purposes

. Comparing the results of these two scenarios with the net benefit estimates presented above in
Exhibit 6 demonstrates the sensitivity of the analysis results to changes in the assumed per

- barrel value
of lost hydrocarbons. Exhibit 1 1 pr esents the net bene fits of the proposed rule under three scenarios
for the value of lost hydrocarbons : $50/barrel, $100/barrel, and $130/barrel. As shown in Exhibit 11,
with 3 percent discounting, the 10

- year total net benefits range from $549.7 to $550.4 million at per

bar rel values of lost hydrocarbons of $50 and $130, respectively

. This range can be compared to the net

benefits estimated above in Exhibit 6 of $550.2 million when the per

- barrel value of lost hydrocarbons is
assumed to be $100.

Because the value of lost hydrocarbons is a small component of the costs of an oil spill, fluctuations
in this value per barrel of oil result in very small changes to the net benefits of the proposed rule . A 50
percent decrease in the per

- barrel value of lost hydrocarbons (from $10 0 to $50) results in a decrease in

the net benefits of the proposed rule of only 0.08 percent. Alternately, a 30 percent increase in the per

barrel value of lost hydrocarbons (from $100 to $130) results in an increas e in the net benefits of the
proposed ru le of only 0.05 percent.66 

## E XHIBIT 

## 11 : S UMMARY OF 

## N ET 

## B ENEFITS UNDER 

## T HREE 

## O IL 

## P RICE 

## S CENARIOS (AT A 1

- 

## P ERCENT 

## R ISK 

## R EDUCTION FROM THE 

## P ROPOSED 

## R ULE) 1

Year 

### $50/Barrel $100/Barrel $130/Barrel (2012 dollars/year) 1 2015 ($10,928,596) ($10,873,805) ($10,840,931) 2 2016 $76,502,597 $76,557,387 $76,590,262 3 2017 $76,502,597 $76,557,387 $76,590,262 4 2018 $76,502,597 $76,557,387 $76,590,262 5 2019 $76,502,597 $76,557,387 $76,590,262 6 2020 $55,002,597 $55,057,387 $55,090,262 7 2021 $76,502,597 $76,557,387 $76,590,262 8 2022 $76,502,597 $76,557,387 $76,590,262 9 2023 $76,502,597 $76,557,387 $76,590,262 10 2024 $76,502,597 $76,557,387 $76,590,262 Undiscounted 10

- year total $656,094,777 $656,642,682 $656,971,425 10

- Year Total with 3% discounting $549,692,105 $550,159,479 $550,439,903 10

- Year Total with 7% discounting $441,284,475 $441,669,301 $441,900,196
10

- year Average $65,609,478 $65,664,268 $65,697,142 Annualized with 3% discounting $64,440,684 $64,495,474 $64,528,349 Annualized with 7% discounting $62,828,982 $62,883,772 $62,916,646

1 For Alternative 1 , the proposed rule

.

10. Probabilistic Risk Assessment

a. Overview

BSEE is considering various alternative approaches to estimating the potential benefits of the
proposed rule. The benefits (and costs) of a proposed regulation are based on the difference between
the baseline ( i.e ., status quo) and the proposed regulation. In r elation to safety, environmental, and
security benefits, one approach to estimating the benefit s is based on the amount of risk reduction (as
previously discussed)

. In general, r isk can be reduced in two distinct ways ; by decreasing the probability

of the event , and /or by decreasing the consequences of the event. The evaluation of the reduction in

risk typically can be performed in either a deterministic or probabilistic approach.67

Historically, BSEE has evaluated the reduction of risk based on a det erministic approach. However,
as statistical models and information become more available, BSEE is evaluating other possibilities,
including whether to move toward a probabilistic approach , in this regulation . A probabilistic approach
may enhance and ex tends more traditional, approach es by: (1) allowing consideration of a broader set
of potential challenges ; (2) providing a logical means for prioritizing these challenges based on risk
significance ; and (3) allowing consideration of a broader set of resou rces to address these challenges.

Probabilistic risk assessments have been used by some federal agencies including the U.S. Nuclear
Regulatory Commission, Department of Homeland Security, and the National Aeronautics and Space

Administration.

For this proposed regulation, BSEE is requesting comment on whether or not BSEE should use a probabilistic risk assessment (PRA), including statistical information ( e.g ., failure rates of valves),
probabilities, uncertainties, and assumptions that potentia lly could help inform BSEE’s final decision on
the proposed regulation. It is important to note that th e basic PRA approach described below has not
been peer

- reviewed ( as PRAs should be ) and is being provided at this time for transparency and

informationa l purposes and not as the basis for a decision.

The basic modeling tools of PRA are event trees and fault trees. Event trees describe initiating
events that threaten the system ( e.g ., a loss of well control) and map the progression of events as successive layers of safeguards are engaged. Fault trees can model the response of subsystems down to
the component level. The modeling of PRA fault trees affords many insights into risk and reliability of
the system, including how failures propagate through the system.

b. Event Tree s

Offshore well drilling typically proceeds in a sequence of repetitive steps: drilling ahead with suitably
dense mud to prevent fluid influx from the formations being penetrated; setting casing to enclose and68

reinforce the well segment just drilled before proceeding to drill a further segment with denser mud;
cementing the casing that has just been set to secure it to the well wall and prevent any openings that
could allow hydrocarbons to migrate upward in the well; setting various plugs to ensure wellbore stability, provide zonal isolation, and/or create a barrier to potential well kicks or losses of well control ; and continually testing and monitoring parameters , such as pressure readings and flow volumes, to

confirm that w ell integrity is maintained.

By c onsolidating this often complex sequence of steps into a few events, one could draw a very
simple event tree

. 50 For example, a failure of one or more barriers ( e.g ., mud, casing, cement, plugs ) if
not recognized through in tegrity testing and rectified, and if the blowout preventer fails, could result in
a complete loss of well control. It is important to note that such an event tree would not model actions
after the significant uncontrolled escape of hydrocarbons (SUEH) to mitigate the consequences of the
accident, even though the mitigation would affect the overall risk. Therefore, the consequence s of the
accident may differ depending on the accident progression both before and after SUEH.

c. Available Data

BSEE currently co llects a variety of data that could be useful in modeling some risks

. BSEE requires
operators to report incidents under 30 CFR 250.188, and may subsequently investigate the incident
according to the procedures specified at 30 CFR 250.191. BSEE also conducts scheduled and

unscheduled on

- site inspections of oil and gas oper ations at least once a year, documenting any

50 For more information on how to deve l op and use event trees and fault tees in PRAs , see generally U.S. Nuclear Regulatory Commission, “Probabilistic Risk Assessment (PRA),” Jul y 17, 2013, available at http://tinyurl.com/mefe7om ; National Offshore Petroleum Safety and Environmental Management Authority , "Guidance Note: Hazardous I dentification, N

- 04300

- GN0107, Revision 5" ( 2012 ), available at http://www.nopsema.gov.au/assets/Guidance

- notes/N

- 04300

- GN0107

- Hazard

- Identification.pdf ; . "Optimising Hazard Managemen t by Workforce Engagement and Supervision , " V. Trbojevic, Health and Safety Executive, United Kingdom Government ( 2008 ), available at http://www.hse.gov.uk/research/rrpdf/rr637.pdf

.69

Potential Incidents of Non

- Compliance (PINC). PINCs help to determine whether a facility is operating
up to standards, though the majority of PINCs are not precursors to a loss in well control and therefore

wou ld not be relevant for a risk model.

However, BSEE does not currently collect data that provides a comprehensive basis for a
probabilistic risk model . In addition, B SEE is not aware of any current industry

- wide efforts to collect
data for such a purpose , although BSEE has requested that the Ocean Energy Safety Institute (OESI)
develop a database related to equipment reliability that might provide useful information for the future
development of a PRA. BSEE welcomes comments and suggestions on all potentia l sources of data that

could be useful in developing probabilistic risk models for offshore oil and gas operations.

d. Questions

BSEE is interested in the public’s views on the potential advantages and disadvantages to
developing a PRA model for this rulema king . We specifically seek comment s on the following issues :

1) What would be the potential advantages and disadvantages if BSEE were to move to risk

informed decisions in this proposed rule through the use of methods such as PRAs and event

trees?
2) Given that there are a significant number of offshore drilling operations with different types of
rig construction and drilling plans , if BSEE were to use event trees in risk reduction assessments,

how much detail would such event trees need so that they would b e representative of the
affected operators and best inform stakeholders and decision makers? Provide examples of
benefits and costs of any suggested level of detail and explain why that detail would be
appropriate.
3) Describe any completed, ongoing or plann ed activities , not associated with BSEE , that c ould
provide information useful to the potential development of a PRA approach applicable to this70

proposed rule s , including any analyses identifying areas of significant risk or uncertainties. If so,
provide timelines for the activity, if not already completed ; indicate whether the activity will be

peer
- reviewed ; and explain how it could be used in the potential development of a PRA
approach

. 4) In addition to the request already made by BSEE to OESI mentioned above , please describe
any other planned or ongoing data collection efforts that could provide relevant information

useful in the potential deve l o pment of PRAs for offshore oil and gas activities ? If there are no
such efforts at this time, how c ould such a data collection program be developed?
5) What challenges and concerns would there be to industry providing data to inform and help

BSEE decide whether to engage in PRA modeling? What are ways that the challenges and

concerns could be mitigated?
Please provide data and studies, if possible, to support any comments.

11. UMRA

This proposed rule would not impose an unfunded Federal mandate on State, local, or tribal
governments but would, if finalized, create a private

- sector mandate that could require expenditures exceeding $100 million in a single year by offshore oil and gas companies operating on the OCS. The
Initial RIA, the initial Regulatory Flexibility Act analysis for this proposed rule, and the proposed rule
itself address appli cable requirements of the UMRA, 2 U.S.C. 1501 et seq

.
Among other things, the proposed rule, the Initial RIA, or the initial RFA must :

(1) Identify the provisions of the Federal law (OCSLA and OPA) under which this rule is being
proposed;71

(2) Includes a quantitative assessment of the anticipated costs to the private sector (i.e.,
expenditures on labor and equipment) of the proposed rule ( s ections 5 and 6 above); and
(3) Include qualitative and quantitative assessments of the anticipated benefits of the proposed
rule ( see s ection 7 above).

In addition, because all anticipated expenditures by the private sector analyzed in the Initial RIA and
the initial RFA analysis would be borne by the offshore oil and gas industry, the Initial RIA and initial RFA

anal ysis satisfy the UMRA requirement to estimate any disproportionate budgetary effects of the
proposed rule on a particular segment of the private sector.

In addition, the Initial RIA describes BSEE’s consideration of three major regulatory alternatives
( s e ction 3 ). BSEE has decided to move forward with this proposed rule, in lieu of the other alternatives,
because those alternatives would not as efficiently or effectively address the concerns and
recommendations that were raised regarding the safety of off shore oil and gas operations and the
potential for another event with consequences similar to those of the Deepwater Horizon incident or achieve the objectives of this proposed rule

.

BSEE has determined that the proposed rule would not impose any unfunded mandates or any
other requirements on State, local, or tribal governments; thus, the proposed rule would not have
disproportionate budgetary effects on these governments. Assuming, however, that the proposed rule

result s in budgetary effects, BSEE has det ermined that accurately estimating such effects is not
reasonably feasible. Because the proposed rule would not impose any requirements on any entities,

other than operators engaged in OCS offshore oil and gas activities, any budgetary effects would be at
least secondary results of actions or decisions taken by regulated (or unregulated) entities, based on a
variety of circumstances (such as the price of oil and each entities’ overall financial health) at the time.

Because each of those factors is variabl e and unpredictable, it is not feasible to estimate how those72

factors would affect an entity’s future decisions, or what impacts, if any, such decisions could have on
future regional budgets.

Similarly, BSEE has determined that accurately estimating the po tential effects, if any, of the
proposed rule on the national economy (e.g., productivity, economic growth, employment, international
competitiveness) is not reasonably feasible. Any potential impact on the national economy would
depend on individual busi ness decisions made by regulated entities (e.g., whether or not to hire new
employees).73



## A PPENDIX : 

## L ist of 

## I ncidents 

## U sed in 

## B enefits 

## A nalysis

Exhibit A

- 1 lists the oil spills used in the benefits analysis, including t he date, total volume spilled (in
barrels), and the number of fatalities for each incident . Spills presented in Exhibit A

- 1 include only

incident s caused by blowouts from 1964 to 2010 that resulted in spills of 10 barrels of more. These d ata

wer e obtained from the BOEMRE OCS Spill Database.



## E XHIBIT 

## A

- 1 : 

## I NCIDENTS 

## U SED IN 

## B ENEFITS



## A NALYSIS

Date Total Spilled

(Barrels) Fatalities

1964

- 01

- 20 100 0 1964

- 10

- 03 5,100 0 1964

- 10

- 03 5,180 0 1965

- 07

- 19 1,688 0 1969

- 01

- 28 80,000 0 1969

- 03

- 16 2,500 0 1970

- 02

- 10 65,000 0 1970

- 12

- 01 53,000 0 1971

- 05

- 16 10 0 1971

- 10

- 16 450 0 1974

- 09

- 07 75 0 1974

- 12

- 22 200 0 1981

- 11

- 28 64 0 1985

- 02

- 23 50 4 1987

- 03

- 20 60 0 1992

- 12

- 26 100 0 1999

- 09

- 09 125 0 2000

- 02

- 28 774 0 2002

- 10

- 03 350 0 2003

- 03

- 08 10 0 2004

- 10

- 21 11 0 2006

- 02

- 20 10 0 2006

- 11

- 18 25 0 2007

- 10

- 21 1,061 0 2009

- 04

- 19 200 0 2009

- 12

- 30 62 0 2010

- 04

- 20 4,928,100 11 Source: BOEMRE OCS Spill Database, June 2011

.