IRFA for RIN 1010–AD68 December 27, 2010



### INITIAL REGULATORY FLEX IBILITY ANALYSIS, RIN 1010–AD68, SAFETY MEAS URES INTERIM FINAL RULE

Agency: Department of the Interior, Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE).

Regulatory Citations : The Safety Measures Rule is amending the drilling regulations at 30 CFR 250, subparts D, E, F, O, and Q. The rule is titled RIN 1010



### – AD68, Interim Final Rule, Increased Safety Measures for Energy Development on the Outer Continental Shelf and was published as an Interim Final Ru le (IFR). It was published in the Federal Register on October 14, 2010 ( 75 FR 63346), and comments ar e being accepted on the rule until December 13, 2010.

Regulations.gov Docket ID : BOEM-2010-0034

Summary : BOEMRE is publishing this Initial Re gulatory Flexibility Analysis (IRFA) to aid the public in commenting upon the small busin ess impact of its Safety Measures Rule which implemented drilling safety measures fo r the Outer Continental Shelf (OCS). The Bureau’s publication of the rule did not in clude a full IRFA pursu ant to the Regulatory Flexibility Act (5 U.S.C. 603). The Regulator y Flexibility Act secti on of the Procedural Matters in the Safety Measures Rule st ated that BOEMRE intends to publish a Supplementary Initial Regulatory Flexibility Analysis examining the impact of this regulation on small entities in greater detail th an provided in the preamble. This is the analysis referenced in the Safety Measures Rule preamble (75 FR 63365).

Comment Dates :

 The comment period on this IRFA is open fo r 30 days after the da te of publication of the Notice of Availability in the Federal Register.

 Comments on this IRFA will be considered and any changes to the regulation
because of these comments will be included in the RIN 1010



### – AD68, Increased Safety Measures for Energy Development on the Outer Continental Shelf when the final regulation is published.

 The Safety Measures Rule published in the Federal Register on October 14, 2010 (75 FR 63346), and comments are being accepted on the rule until December 13, 2010.

Addresses : You may submit comments on the IR FA by any of the following methods. Please use the Regulation Iden tifier Number (RIN) “1010–AD 68, IRFA” as an identifier in your message.

 Federal eRulemaking Portal: http://www.regulations.gov . In the entry titled “Enter Keyword or ID,” enter BOEM- 2010-0034 then click search. Follow the instructions to submit public comments and view other supporting and related materials available for this rulemaking. BOEMRE will post all comments for this
IRFA.

 Mail or hand-carry comments to the Depart ment of the Interior; Bureau of Ocean Energy Management, Regulation and Enfo rcement; Attention: Regulations and

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Standards B ranch (RSB); 381 Elde n Street, MS–4024, Herndon, Virginia 20170– 4817. Please reference “Increased Safety Measures for Energy Development on the Outer Continental Shelf, 1010–AD68, IRFA” in your comments and include your name and return address.

For Further Information Contact : Amy C. White, Bureau of Ocean Energy Management, Regulation and Enforcement, Office of Offshore Regulatory Programs, Regulations and Standards Branch, 703–787–1665, amy.white@boemre.gov

.



### Supplementary Information
BOEMRE has updated the estimated complian ce costs and small business impacts from the projections reported in the Regulatory Flex ibility Analysis of the Safety Measures Rule. These changes are minor and mostly result from updated categorization of companies operating on the OCS and analysis of the number of wells drilled by small and large companies rather than only by lease owne rship. Over the last few years there have been some notable trends in the Gulf of Me xico. First, several of the new companies entering the Gulf of Mexico (GOM) are large foreign companies and not small businesses. Second, the number of deepwa ter wells drilled by small companies has increased as capital and technology has become more accessible to small entities. Third, a few of the smaller companies with meaningf ul OCS acreage have either sold their OCS assets to larger companies, become wholly owned subsidiaries, or merged with larger companies. Cumulatively, these trends result in a greater share of acreage, drilling, and production attributed to large companies.

Our updated analysis shows there are curren tly about 140 Operators of Federal oil and gas OCS leases. Small entities that oper ate under the requirements of the Safety Measures Rule are coded under the Small Business NAICS codes 211111, Crude Petroleum and Natural Gas Extraction; a nd 213111, Drilling Oil and Gas Wells. For these NAICS code classifications, a sma ll company is one with fewer than 500 employees. Based on this criterion applied to the NAICS codes, approximately 90 (64 percent) of the companies operating on the OCS are considered small companies and 50 (36 percent) are considered large companies.

Much of the information in this Supplement al IRFA is covered and discussed in the preamble of the Safety Measures Rule and the Benefit-Cost Analysis for the Safety Measures Rule . These documents can be found at http://www.regulations.gov under the Docket ID: BOEM-2010-0034. This documen t is not intended to duplicate all the explanations and analysis in those documents, but rather meet the requirement and intent of the Regulatory Flexibility Act. This IRFA analyzes and consider s the impact of the Safety Measures Rule on small entities and seeks public comments on those impacts.



### Summary of Small Business Impacts
We estimate the Safety Measures Rule will impose a recurring operational cost of $183 million each year on operators drilling OCS wells. The rule will affect every new well

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drilled after October 14, 2010; som e requirements also apply to wells undergoing completion, workover, or abandonment operations on the OCS. Every operator both large and small must meet the same criteri a for these operations regardless of company size. However, the overwhelming share of the cost imposed by these regulations will fall on the operating companies drilling deepwater wells, which are predom inately the larger companies. We estimate that about 90 pe rcent of the total costs will be imposed on deepwater lessees and operators where small businesses only hold 8 percent of the leases and drill 12 percent of the wells . About 10 percent of the tota l costs will apply to shallow water leases where small companies hold 45 percent of OCS leases and also drill 45 percent of the wells.

Nonetheless, small companies as both operato rs and lease-holders will bear meaningful costs under these regulations. Of the annua l $183 million in annual cost imposed by the rule, we estimate that $19.5 million will apply to small businesses in deepwater and $7.4
million in shallow water. In total we es timate that $27 million or 14.7 percent of the regulations’ cost will be borne by small businesses.

The GOM represents 98 to 99 percent of annua l OCS oil and gas dril ling activity. Fiscal year 2009 aggregate annual GOM OCS oil and gas revenues were $31.3 billion. Using the lease ownership profiles of GOM produci ng wells, we estimate that 87 percent ($27.2 billion) of the OCS revenues are ultimately received by large companies and 13 percent ($4.1 billion) by small companies. As a shar e of fiscal year 2009 revenues, the interim final rule will cost approximately 0.57 ($0.156/ $27.2) percent of OCS revenue for large companies and 0.66 ($0.027/$4.1) percent for sma ll companies. Although the difference in these ratios is not significant, small companies may experience a somewhat greater economic impact than large companies from th e regulation primarily because they have a lower production share in deepwater relative to the number of deepwater wells they drill. The likely reason for this difference is the mi gration of smaller companies into deepwater as they have accessed the technology a nd capital required for exploration and development. It can take a decade for an economic discovery in deepwater to reach production. Additional data on lease owners hip, wells drilled, and production can be found in Table 1, Table 2, Table 3, and Table 4

.



### Description of the Reasons that Ac tion by the Agency is Being Considered
The interim final rule establishes regulati ons based on certain recommendations in the May 27, 2010, report from the Secretary of th e Interior to the President entitled, “Increased Safety Measures for Energy Development on the Outer Continental Shelf” (Safety Measures Report). The President dir ected that the Department of the Interior (DOI) develop this report as a result of the Deepwater Horizon event on April 20, 2010. This event, which involved a blowout of the BP Macondo well and an explosion on the Transocean Deepwater Horizon mobile offshor e drilling unit (MODU), resulted in the deaths of 11 workers, an oil spill of Na tional significance, an d the sinking of the Deepwater Horizon MODU. On June 2, 2010, th e Secretary of the Interior directed

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BOEMRE ( formerly the Minerals Management Service) to adopt the recommendations contained in the Safety Measur es Report and to implement them as soon as possible.

The selected measures from the Safety Measures Report being implemented initially are those in the Interim Final Rule, AD–68 Safety Measures Rule. This IRFA is for the estimated impacts on small entities from this rulemaking. Some recommendations in the Safety Measures Report require additional review by the DOI, and yet other measures will be addressed through notice and comment rulemaking, as appropriate.

The Safety Measures Rule (75 FR 63347) pr ovides a table summarizing the rulemaking provisions.



### Description of, and Where Feasible , an Estimate of the Number of Small Entities to Whic h the Rule will Apply

In order to understand the entities that will be impacted by the Safety Measures Rule, the role both operators and lessees play within the OCS oil and gas regulatory structure must be understood. While there may be multiple le ssees holding an ownership interest, there can only be a single OCS operator for dril ling or production operations on a lease.

The designated operator is the responsible party for co mplying with all regulations and ensuring the safety of drilling operations on a lease or unit. The regulations at 30 CFR 250.105 define “operator” as: Operator means the person the lessee(s) designat es as having control or management of operations on the leased area or a porti on thereof. An operator may be a lessee, the MMS-approved designated agent of the less ee(s), or the holder of operating rights under an MMS-approved operating right s assignment (30 CFR 250.105). If there are violations of laws or regulations, the operator will receive the citation or civil/criminal penalty. Consistent with the c ourt’s interpretation that the RFA applies to entities directly affected by the rulemaking 1 , the designated operator is the entity directly regulated by BOEMRE and impacted by this rulemaking.

The regulations at 30 CFR 250.105 defines “lessee” as:
Lessee means a person who has entered into a le ase with the United States to explore for, develop, and produce the leased minera ls. The term lessee also includes the MMS-approved assignee of the lease, and the owner or the MMS-approved assignee of operating rights for the lease.

While the requirements in this rulemaking appl y to drilling operations under control of the operator, lessees are the project owners and will bear the compliance costs for the increased safety measures in this rulemaki ng. This analysis considers impacts on small and large entities base d upon the lease ownership profiles for OCS activities because the lease owners will bear the cost of these regu lations. The three OCS activities analyzed are (1) lease ownership, (2) we lls drilled, and (3) production.

1 Mid-Tex Electric Cooperative, Inc., v. FERC (Mid-Tex), 773 F.2d 327 (D.C. Cir. 1985).

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Additionally, this rulem aking requires drilling contract ors to preserve certain maintenance and testing records. BOEMRE has only identified two active shallow water or platform drilling rigs operated by a small company on the GOM OCS among the approximately 50+ usually working there. Th is increased cost in curred by owners of drilling rigs is expected to be negligible compared to the added expense incurred by the Operators and Lessee owners due to the leng thened time to drill wells and additional permitting paperwork requirements.

Our updated analysis shows there are curren tly about 140 Operators of Federal oil and gas OCS leases, all of which will be impacted by the new regulations. This is an increase of 10 Operators from the 130 identified in th e RFA section of the Safety Measures Rule preamble. Approximately 90 (64 percent) of the companies operating on the OCS are considered small companies and 50 (36 pe rcent) are considered large companies



### Breakout of Small and Large Co mpanies Operating on the OCS
There are many arrangements for sharing projec t risks and expenses for OCS exploration and development projects. These include or iginal and revised ownership agreements where the risk, equity, and othe r interests may be complex. Wh en there is an assignment of lease rights among differen t parties, BOEMRE records th e OCS lease assignments in a manner similar to county court property record s. A snapshot of the OCS lease ownership profile and wells drilled on those leases for sm all and large companies’ form the basis for the Safety Measure Rule’s estimated impact on small entities.

Using the updated categorizati on of small and large operators/lessees combined with the current lease ownership profile, BOEMRE f ound that the current results differ only slightly from the estimates published in the Sa fety Measure Rule’s Re gulatory Flexibility Analysis. In the Regulatory Flex ibility Analysis, BOEMRE states: The ownership share of deepwater leases fo r small entities is es timated to only be 12 percent. While a larger percentage of the oil service industry supporting the deepwater operators are small businesses, the lessees that hire and direct these support businesses will bear the burden of this rule. Small companies hold 55 percent of shallow water leases but a smaller portion of the costs of these regulations will affect drilling operations in shallow water. The primary differences between the estimates reported in the Safety Measures Rule and those reported in this analysis are the result of a more rigorous analysis of the companies that are truly small entities. The categoriza tion of some companies as small entities in our original analysis was incorrect. Several companies originally identified as small were subsidiaries of larger companies, or had been merged with a larger company.

We analyzed OCS activity for both deepwa ter and shallow water by company size. Operating in the shallower water depths is generally less expensive and the concentration of smaller companies is greater in shallow wa ter. The most costly requirements in the Safety Measures Rule only apply to oper ations with subsea blowout preventer (BOP) stacks which are predominately used in d eepwater drilling. The following results for

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lease ownership, wells drilled, and production reflects leases with sole or fractional ownership as recorded by BOEMRE.



### Deepwater
The updated categorization of company lessees shows that large companies (greater than 500 employees) hold 92 percent of deepwater leases (greater than 500 feet) and small companies hold 8 percent. C obalt International Energy is the only small company (less than 500 employees) among the top 30 comp anies holding deepwater acreage since earlier this year when Mariner merged with Apache.

When we consider deepwater drilling activity the results are similar; of the wells spudded in deepwater during the last 3 years (2007-2009), 88 percent of deepwater wells were attributed to large company lessees and only 12 percent to small company lessees. These results include the factional ownership by some small entities that are only equity investors in projects includi ng some venture capital funds.

An even greater share of OCS deepwater hydrocarbon produc tion and corresponding revenues accrued to large companies in cal endar year 2009. While deepwater drilling activity attributed to small companies is in creasing, economic projects cannot be brought to production for several more years. We us e the most recent year for which complete data are available (2009) as a long-term proxy for the pr oduction split between small and large companies. Large companies produced 97.5 percent of oil a nd 92.1 percent of gas production in deepwater. Only 2.5 percent of deepwater oil production and 7.9 percent of deepwater gas production is from leases owned by small companies.



### Shallow water
We find that small companies hold a much great er share of acreage in shallow water (less than 500 feet) than in deepwater. The top two acreage-holding lease owners, Apache and Chevron, are not small companies, but the next four lessees in rank order are small entities: McMoRan, W & T Offshore, Stone Energy, and LLOG Exploration. In shallow water, small companies hold 45 percent of the leases while large companies hold 55 percent.

The drilling activity over the past 3 years matches the small and large companies lease ownership profile. Of the wells spudded during 2007-2009, 45 percent of the wells were spudded by small companies and 55 percent by large companies.

Hydrocarbon production in the shallow water depths shows that la rger companies hold the most productive leases. S lightly less than two-thirds of both oil and gas production accrues to large companies and slightly more th an one-third is produced by small entities.

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### Summary of Large and Smal l Company OCS Activity
The following tables 2 summarize the small and large co mpany percentage breakouts of leases, wells drilled (2007-2009), production of oil and gas and value of OCS production. The results reflect lease fractional ownership shares among different companies.

Table 1 Lease Ownership among Small and Large Companies (11/1/2010)
Leases 11/01/2010 Shallow Water
Leases Deepwater Leases All Leases

Large Co. 55% 92% 80%
Small Co. 45% 8% 20%

100% 100% 100%

Table 2 Wells Spudded among Small and Large Companies (2007-2009) (2007-2009) Shallow Water Wells Spudded Deepwater Wells Spudded All Wells Spudded

Large Co. 55% 88% 65%
Small Co. 45% 12% 35%

100% 100% 100%

Table 3 Production based on Recorded Leas e Share for Small and Large Companies (2009)
2009 Production Shallow Water Oil Production Deepwater Oil Production Shallow Water Gas Production Deepwater Gas Production All BOE Production

Large Co. 64.6% 97.5% 63.2% 92.1% 85%
Small Co. 35.4% 2.5% 36.8% 7.9% 15%

100% 100% 100% 100% 100%

Table 4 Estimated Production Value* ($millions) for Small and Large Companies (2009)
Est. 2009 Production
Value ($million) Shallow Water Oil Production Deepwater Oil Production Shallow Water Gas Production Deepwater Gas Production All BOE Production

Large Co. 2,581 17,284 3,271 4,079 27,215

Small Co. 1,415 442 1,905 351 4,113

TOTAL: 3,996 17,726 5,176 4,430 31,328
*Office of Natural Resource Revenue, http://www.mrm.boemre.gov/MRMWebStats/default.aspx



### Recurring Regulatory Costs Imposed by the Regulation

Table 5 summarizes the estimated recurring op erational cos ts categories for three subgroups of wells affected by the new regulations. Those categories are (1) deepwater wells drilled by a MODU, (2) deepwater wells dr illed from a platform and (3) all shallow water wells.

2 The categorization of companies as small or large is base d upon publically available data as measured by number of employees as of October 2010. BOEMRE collects data on lease ow nership, wells drilled and operator production in our Technical Management System Database (TIMS).

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Table 5 – Estimated Recurring Cost Summary
MODU
Wells (112/yr) Fixed Platforms

(48/yr) Shallow
Wells (186/yr) Cost Shares Regulation Recurring Costs:
Total ($MM) Total ($MM) Total ($MM)

250.416(e) Independent third party shear certification 0.4 0.2 0.6 1%

250.420(a)(6) PE certification for well design 1.3 0.5 4.2 3%

250.420(b)(3) Installation of dual mechanical barriers 4.4 1.4 4.5 6%

250.423(c) Test casing strings for proper installation 32.1 6.0 7.0 25%

250.449(j), (k) Subsea ROV function testing (drilling) 102.7 n/a n/a 56%

250.451(i) Emergency cost of activated shear rams or LMRP disconnect 2.6 n/a n/a 1%

250.516(d)(8), 250.616(h)(1) Subsea ROV function testing (workover/completions) 15.5 n/a n/a 8%

Estimated Cost per year: 158.8 8.1 16.3 $ 183.2 Estimated Cost per well: 1.42 0.17 0.09 *Numbers may not add due to rounding.

The regulations impacts well costs differently depending on the type of drilling rig and category of well being drilled. As can be observed in Table 5 , deepwater wells drilled by platf orm rigs and shallow wells drilled by jackups or platforms will incur lower incremental costs than deepwa ter wells drilled by MODUs, primarily because they use surface BOPs; while wells drilled by deepwater MODUs (drillships and semisubmersibles) will incur the greater in cremental cost due to the new subsea BOP requirements. Additional explanation about th ese costs is provided in the Benefit-Cost Analysis for the Safety Measures Rule.

For this analysis, BOEMRE estimates that 160 deepwater wells will be drilled each year, split between MODU wells (112/yr ) and platform wells (48/yr). An estimated 186 wells will be drilled each year in the shallow water depths. Using the recent drilling profiles for small and large company lessees in Table 2 , the following table estimates the number of wells to be drilled each year by large and sm all entities.

Table 6 – Estimate of Future Wells Drilled (annually)
MODU Deepwater Wells (112/yr) Fixed Platforms Deepwater Wells (48/yr) Shallow Wells (186/yr)

Large Co. 99 (88%) 42 (88%) 102 (55%)
Small Co. 13 (12%) 6 (12%) 84 (45%)
TOTAL 112 48 186

The estimated increased costs for each well drilled are taken from Table 5 to estimate the annual com pliance costs for large and small co mpanies by type of well. The calculations are shown in parentheses. Of the $183 milli on in annual cost imposed by the rule, we

8IRFA for RIN 1010–AD68 December 27, 2010

estim ate that the $19.5 million will apply to small businesses in deepwater and $7.4 million in shallow water. In total, we estimate that $26.9 million or 14.7 percent of the regulation’s costs will be borne by small businesses. The following table shows the calculations for these estimates.

Table 7 – Large/Small Company Estimated Additional Drilling Costs $millions Additional MODU Deepwater Well

Cost (112/yr) Fixed Platforms Deepwater Wells (48/yr) Shallow Wells (186/yr) Total Estimated Cost Large Co. $140.3 (99*$1.42) $7.1 (42*$0.17) $8.9 (102*$0.09) $156.3
Small Co. $18.5 (13*$1.42) $1.0 (6*$0.17) $7.4 (84*$0.09) $26.9
TOTAL $158.8 $8.1 $16.3 $183.2 *Numbers may not add due to rounding.

Determining a precise number of small entities that will be “regulated” is complicated by the fact that the actual nu mber fluctuates as OCS prope rties are bought, sold, and the designated operator changes. The same diffic ulty follows for the lease ownership profile of small and large entities. However, our best estimate of the impact on small entities when we consider how project and drilling co sts are shared among lease owners is that small entities will bear 12 percent of increased regulatory costs in deepwater, and 45 percent in shallow water. The annual small entity regulatory compliance cost imposed by this rulemaking is estimated to be $26.9 million or 14.7 percent of the total.

BOEMRE seeks additional information and comment on our estimate of the Safety Measure Rule’s impact on small entities.



### Description of the projected repor ting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that w ill be subject to the requirement and the type of professional skills necessa ry for preparation of the report or
record.
The benefit-cost analysis for the Safety Meas ures Rule identifies $183.2 million in annual operational costs; these costs are summarized in Table 5 and discussed in the previous section. Greater detail is provi ded in the benefit-cost analys is and rule pream ble. This section primarily discusses the pape rwork burden on dril ling contractors.

The Paperwork Reduction Act (PRA) section of the Safety Measures Rule preamble identifies 44,731 hours of paperwork, reporti ng, and recordkeeping required annually by the regulation. Using the Bureau of Labor Statistics estimated lo aded hourly rate of $87/hr, the paperwork cost of this rulemaking is $3.9 million. The table of the estimated paperwork cost of this rulemaking is include d in the PRA section of the rule preamble (75 FR 63368). A portion of it is reprinted below.

Reporting and recordkeeping falls primarily on the OCS lessees and operators, although drilling rig operators do have some add itional recordkeeping requirements. The frequency of response varies depending upon th e requirement but is primarily based on

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drilling activity. Responses and recordkeep ing by the drilling com panies fall primarily on the Deepwater MODUs where all the deepwater MODU operators in the GOM are large companies. Some additional recor dkeeping requirements will fall on all OCS drilling rig operators. As of early Novemb er (11/4/2010 Rigzone), there are two shallow water rigs operating in the GOM OCS owned by a small company. They are both owned by Blake International and are under contract to Apache. The estimated additional recordkeeping cost for jack-up rig surface BOP stacks is about $5,000 annually for each rig. The direct estimated paperwork burden on the single small drilling operator currently active in the GOM is about $10,000 per year. The paperwork costs impacting this small entity are found in Table 8

.

Table 8 – Selected Paperwork Burden Requirements from AD68 PRA*

Citation 30 CFR 250 Reporting & Recordkeeping Requirement Hour Burden Average No.
of Annual Responses Annual
Burden Hours

Subpart E

516(g)(l) Document the procedures used for BOP inspections; record results; maintain records for 2 years; make available to BOEMRE upon request. 7 days x 12 hrs/ day =
84 105 rigs / once every 3 years = 35 per year 2,940

516(h) Document the procedures used for BOP maintenance; record results; maintain records for 2 years; make available to BOEMRE upon request. 1 105 rigs 105

Subpart F

617(a)(l) Document the procedures used for BOP inspections; record results; maintain records for 2 years; make available to BOEMRE upon request. 7 days x 12 hrs/ day = 84 105 rigs / once every 3 years = 35 per year 2,940

617(b) Document the procedures used for BOP maintenance; record results; maintain records for 2 years; make available to BOEMRE upon request. 1 105 rigs 105

*Full table can be found at 75 FR 63368

In the Benefit-Cost Analysis for the Interim Final Rule , paperwork burden costs were not included in the compliance cost estimate becau se most of the paperwork (including the recordation and documentation costs of drilli ng rig actions on the rig) will not add a meaningful amount of actual costs. Much of the paperwork is recording the results of tests and maintenance proce dures and is expected to be completed by workers concurrently with the tests or in between other drilling tasks. Accordingly, the paperwork costs are judged to be inconse quential when compared to the added costs imposed by this rule and much more so in comp arison to the cost of drilling an OCS well. Nevertheless, we plan to revi sit the issue of paperwork costs for all entities in the Final Benefit-Cost Analysis and will include our findings in the Final Regulatory Flexibility Analysis.

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BOEMRE s eeks additional information and comment on our estimate of the paperwork burden’s impact on small entities either th rough comments on the Safety Measures Rule or this IRFA.



### Identification, to the extent practicabl e, of all relevant Federal rules that may duplicate, overlap, or conflict with the rule
The only regulations from other Federal agencies that may clos ely relate to the scope of BOEMRE regulations in this rulemaking are fr om the U.S. Coast Guard. However, for the Safety Measures Rule there is no overla p, conflict, or duplication with Coast Guard regulations. Under BOEMRE/USCG Me morandum of Understanding (MOU), BOEMRE has authority over spill abatement - which includes well control. All of the regulatory provisions in the rulemaking are focused on well control. Additionally and consistent with the MOU, BOEMRE has regul atory authority for drilling operations of MODUs on station while conduc ting drilling operations.

There are several MOUs between the agenci es that outline the di vision of duties and shared responsibilities. BOEMRE has author ity over drilling and oil and gas operations on the OCS while the Coast Guard has authority over the integrity and safety of floating vessels conducting OCS operations . The MOUs can be found at:

 http://www.uscg.mil/hq/cg5/c g522/cg5222/docs/mou/PURPOSE.pdf

 http://www.uscg.mil/hq/cg5/cg522/ cg5222/docs/mou/FLOATING_OFFSHORE_ FACILITIES.pdf

 http://uscg.mil/hq/cg5/cg522/c g5222/docs/m ou/CIVIL_PENALTIES.pdf

Even though we have not identified any provi sions of the Safety Measures Rule that overlap or conflict with ot her agencies, we welcome comments on this topic.



### Description of any significant altern atives to the rule that accomplish the stated objectives of applicable statutes and that minimize any significant economic impact of the rule on small entities, including alternatives considered, such as:

1. Establishment of differing compliance or reporting requirements or timetables that take into account th e resources available to small entities. 2. Clarification, consolidation, or simp lification of compliance and reporting requirements under the rule for such small entities. 3. Use of performance rather than design standards. 4. Any exemption from coverage of the rule , or any part thereof, for such small entities.

Under the published Safety Measures Rule, the requirements are prescriptive and lease operators submitting permits to BOEMRE or conducting drilling operations must comply with the requirements. Even though this rule may not have a significant economic impact

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on sm all businesses, BOEMRE has analyzed several alternatives for the provisions included the Safety Measures Rule.



### Alternative 1, Different Compliance Requirements for Small Entities
During the drafting of the Safety Measures Rule, BOEMRE considered lengthening the compliance deadline for both large and small companies. The primary reason for not including additional compliance time or different requirements is the overriding need to reduce the chance of a catastrophic blowout event. The risk is not lo wer for small entities and BOEMRE cannot compromise the safety of offshore personnel and the environment for any entity including small businesses. O ffshore drilling is highl y technical and can be hazardous; any delay in the implementation of Safety Measures Rule may increase the risk of OCS drilling operations.

The regulatory provisions do not require significant equipm ent or capital upgrades and can be met in short order. The rulemaking is an interim final rule and companies drilling on the OCS are required to conform with the regulatory provisions immediately. The compliance costs are mostly the increased ti me to conduct drilling operations. Thus, any additional time provided to comply with the ru le would not result in cost savings in the form of reduced short-term cash flow expend itures that might be e xpected if the rule required the installation of capital equipment.

BOEMRE is continuing to review other safe ty measures that may be appropriate for rulemaking in the near future, as well as m easures that will require further study, whether through DOI-led strike teams, inter-agency workgroups, or other means. BOEMRE determined that there is good cause for publis hing the interim final rule without prior notice and comment based on its findings, consis tent with preliminary information that is available as a result of investigations into the Deepwater Horizon event, that certain equipment, systems, and improved practices are immediately necessary for the safety of offshore oil and gas drilling operations on th e OCS, and that these improved drilling practices are either not addressed or not sufficiently deta iled by current regulations.



### Alternative 2, Testing Requirements
BOEMRE considered if the required testi ng for the two most expensive items (subsea ROV intervention and negative pressure test ) could be performed in an alternative manner. Because of the failings and lessons learned from the BP Deepwater Horizon event, BOEMRE does not believe that alte rnative testing is a viable option. No alternative testing methods have been identifi ed that will provide th e same assurance of reliability.

The subsea ROV intervention test upon insta llation of the BOP stack is required to demonstrate that the rams can be closed as required under realistic subsea conditions. The BOP ROV function test occu rs upon installation on the sea fl oor and is in addition to the “stump” tests conducted prio r to subsea installation. The only alternative to the subsea tests would be to only conduct the “stu mp test.” BOEMRE does not believe that

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the stum p test provides the same reliability as the subsea test whic h is under the actual conditions required if the BOP rams needed to be employed.

The new requirement to perform a negative pressure test after the intermediate and production casing strings are installed is necessary to verify that no fluids are entering the well and the cement is sealing the wellbore. The test is only required upon cementing each intermediate or production casing; BOEM RE is not aware of other testing methods that can provide the same level of assurance as this test.



### Alternative 3, Paperwork Consolidation
BOEMRE did not identify any provisions of the rule that could provide efficiencies through consolidation or other streamlining. So me of the regulatory provisions apply to different Subparts and are necessarily duplic ated. Most repor ting requirements are dependent on drilling activity and closely related to the number of wells drilled or Application for Permit to Drill/Application for Permit to Modify (APDs/APMs) submitted. No efficiencies would be e xpected through further simplification or consolidation.



### Alternative 4, Use Performan ce Rather than Design Standards
The provisions in the interim final rule ar e generally prescriptive design standards for well design (cementing and casing), testing dril ling equipment, and certifying the well’s integrity. BOEMRE has not identified equivalent performance standards that can provide the same level of reliability and well integrity and that can be imple mented as quickly as the provisions in this rule.

At the same time, the regulatory provision fo r dual mechanical barrier s to prevent flow in the event of a failure in the casing ceme nt does provide some flexibility to the prescriptive regulatory approach employed he re. In effect, BOEMRE provides a design choice to use dual float valves, or one fl oat valve and a mechanical barrier.

The BOEMRE is carefully evaluating how to integrate performance based systems into our regulatory regime. This includes the SEMS (Safety Environmental Management Systems) and the Safety Case. The SE MS rule was published on October 15, 2010 (75 FR 63610) and BOEMRE is considering improve ments to that regulation. The Safety Case approach to risk management cham pioned by the Internati onal Association of Drilling Contractors (IADC) is also r eceiving careful consideration and study by BOEMRE.

Implementation of a performance based solu tion requires long lead times and careful strategic and tactical implementation. Becau se of the immediate need to address well design, testing and reliability issues, BOEMRE is relying on prescripti ve standards in the Safety Measures Rule.

13IRFA for RIN 1010–AD68 December 27, 2010

Departures to the provisions in the S afety Measures Rule can be approved under the current regulations if the alternative proce dures afford an equal or greater degree of protection, safety, or performance. Departures are discussed in the next section.



### Alternative 5, Exemptions from Rule Requirements
One alternative is to exempt small businesses from the requirements of this interim final rule. The “exemption” or “no action” alternative was not adopted by BOEMRE for the interim final rule because of the overriding need to reduce the chance of a catastrophic blowout event. The risk is not lower for small entities and BOEMRE cannot compromise the safety of offshore personnel and the e nvironment for any entity including small businesses. Offshore drilling is highly t echnical and can be hazardous; any delay may increase the risk of OCS drilling operations.

BOEMRE can approve departur es to existing regulations when the departure would assure the continued safety of drilling ope rations. In 30 CFR 250.105 Departures means: Approvals granted by the appropriate MMS representative for operating requirements/procedures other than those specified in the regulations found in this part. These requirements/procedures may be necessary to control a well; properly develop a lease; conserve natural resources; or protect life, property, or the marine, coastal, or human environment.

There are several general and drilling specifi c regulatory provisions that identify the availability of departures. T hose regulatory citations are:

30 CRR Subpart A, General Information, Special Approvals § 250.142 How do I receive approval for departures? We may approve departures to the operating requirement s. You may apply for a departure by writing to the District Mana ger or Regional Supervisor.

30 CFR Subpart D, Oil and Gas Drilling Operations, General Requirements § 250.409 May I obtain departures fr om these drillin g requirements? The District Manager may approve departures from the drilling requirements specified in this subpart. You may apply for a departure from drilling requirements by writing to the District Ma nager. You should identify and discuss the departure you are requesting in your APD see §250.414(h)).

§ 250.414 What must my drilling prognosis include? (h) A list and description of all requests for using alternative procedures or departures from the requirements of this subpart in one place in the APD. You must explain how the alternative procedures afford an equal or greater degree of protection, safety, or performance, or why you need the departures;

Although not a specific provision of the Safe ty Measures Rule, departures to the requirements in this rulemaking will be considered and may be approved if the alternative

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15 proposed method does not compromise safety and environmental protection. These provisions are available to bot h large and small companies.



### Questions for Comment to Inform the Regulatory Flexibility Analysis
1. Please provide comment on any or all of the pr ovisions in the interim final rule as they impact small entities with regard to

 The impact of the provision(s) in cluding any benefits and costs.

 What other alternatives, if any, BOEMRE should consider, as well as the costs and benefits of those alternatives, paying spec ific attention to the effect of the rule on small entities in light of the above analysis.

 Magnitudes and types of costs needed to “implement and comply” with the rule including expenditures of time and money for equipment upgrades, employee training, rig time, information collection and recordkeeping.

2. Please describe ways in which the rule could be modified to reduce any costs or burdens for small entities consistent with the recommendations in the Drilling Safety Measures Report or other industry working gr oup recommendations in response to the BP Deepwater Horizon event.

3. Please identify all relevant Federal rules th at may duplicate, overl ap, or conflict with the proposed rule.

Instructions for offering comments are provide d at the beginning section of this IRFA.