# EUR-Lex - 52011PC0688 - EN

*|*

# 52011PC0688

**Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on safety of offshore oil and gas prospection, exploration and production activities /* COM/2011/0688 final - 2011/0309 (COD) */**

			*

			*

EXPLANATORY MEMORANDUM

1.
CONTEXT OF THE PROPOSAL

Grounds for and objectives of the
Proposal

Oil and gas exploration and production is
taking place increasingly offshore, also in complex geographical and geological
environments such as deep waters. The scale and characteristics of recent
offshore oil and gas accidents[1] and 'near misses'[2]
reported worldwide, including the Union, demand action. They expose the
disparity between the increasing complexity of operations and the inadequacies
in the current risk-management practices. Amongst individual companies there
are reported wide disparities in safety performance and attitudes. Moreover,
the incidents have highlighted the challenges that regulators face in ensuring
adequate oversight of offshore activities, and a lack of transparency and data
sharing regarding the safety performance of the offshore industry.

In Europe, most oil and gas is produced
offshore. A major accident at any one of Europe's offshore installations is
likely to entail material losses, damage to the environment, the economy, local
communities and society, while the lives and health of workers may be put at
risk. The likelihood of a major accident in Union waters needs to be reduced.

Studies, stakeholder consultations and risk
analyses conducted since 2010 have identified the main problems for the Union
as:

1. The risk of a major offshore oil or gas accident occurring in Union
waters is significant and the existing fragmented legislation and diverse
regulatory and industry practices do not provide for all achievable reductions
in the risks throughout the Union.

2. The existing regulatory framework and operating arrangements do not
provide for the most effective emergency response to accidents wherever they
occur in Union waters, and the liabilities for clean-up and conventional
damages are not fully clear.

Therefore, the general objectives of
this proposal are to (i) reduce the risks of a major accident in Union waters,
and (ii) to limit the consequences should such an accident nonetheless occur.

General context for a regulatory
initiative

The Commission responded to the disaster in
the Gulf of Mexico already last year by a gap analysis on offshore practices
and the legislative framework in the Union and the subsequent Communication
"Facing the challenge of the safety of offshore oil and gas
activities"[3] (adopted in October
2010). It gave a first indication of areas for action in the Union.

There are considerable disparities and
fragmentation amongst Member States' laws and practices applying to offshore
activities (e.g. licensing, liability provisions, equipment safety standards,
public transparency and information sharing). This reflects the virtual absence
of international law instruments and gaps in relevant Union law.

Whereas some Member States have offshore
regulatory systems considered world class, all have room for improvement.
Importantly, the control of major hazard risks in the offshore industry needs
to be raised to consistently high standards throughout the Union.

Based on frequency analysis of industry performance in Europe to date and on documented costs of past accidents, the estimated average annual economic losses and damage from offshore oil and gas accidents in the Union range from €205M to €915m. This range is used as the empirical basis of baseline risk in the impact assessment.

It is estimated that the benefits accruing
to the Union and Member States significantly outweigh the costs of introducing
higher standards. The greater part of any additional costs will be met by the
industry, which will benefit from risk reduction. However, experience shows
that robust regulation and clear liability are needed to bring about the
culture change in industry that will deliver the reduction in risk this
regulation intends to achieve.

The general objectives mentioned earlier
are developed into four specific objectives:

1.
Ensure a consistent use of best practices for
major hazards control by oil and gas industry offshore operations potentially
affecting Union waters or shores;

2.
Implement best regulatory practices in all
European jurisdictions with offshore oil and gas activities;

3.
Strengthen Union's preparedness and response
capacity to deal with emergencies potentially affecting Union citizens, economy
or environment;

4.
Improve and clarify existing Union liability and
compensation provisions.

Based on Commission research and
consultations with stakeholders, practical delivery measures are derived. In
addition, policy options have been identified grouping the measures in
different combinations and means of implementation. These policy options are
described in Chapter 2.

Existing Union law provisions in the
area of the proposal

The Union has no sector specific offshore
oil and gas legislation; however there is broader Union acquis that, often only
partially, applies to the offshore sector. This proposal complements primarily
the following pieces of Union legislation:

i.             Environmental liability. Environmental Liability Directive (ELD) 2004/35/EC addresses
liability for damages to the environment also in connection with offshore oil
and gas. The operator of activities causing significant environmental damage to
protected species, natural habitats or water is strictly liable to prevent and
remedy the damage and to bear the full costs of it. This
proposal aims to expand the current territorial applicability of ELD, currently
limited to the coastal strip and territorial sea in relation to water damage to
cover also all marine waters
under the jurisdiction of the Member States.

ii.            Environmental Impact Assessment:
Directive 85/337/EEC[4], as amended by Directives
97/11/EC[5], 2003/35/EC[6]
and 2009/31/EC[7], on the assessment of the
effects of certain public and private projects on the environment, has
harmonised the principles of the environmental impact assessments of projects
by introducing general minimum requirements. In addition, the UN/ECE Espoo Convention on EIA in a transboundary context, which is
part of the environmental acquis, is relevant as regards the assessment of
projects likely to have transboundary effects. Its
application is, however, discretionary for some drilling operations.

iii.           Waste law: Directive 2008/98/EC
on waste (Waste Framework Directive). This Directive
applies fully to oil spills, as upheld by the Court of Justice of the EU. Thus,
oil escaping from an offshore installation is covered by the EU definition of
waste, thus imposing the obligation to the polluter of cleaning up.

iv.           Health and safety of workers at
work: - Directive 92/91/EEC (complementing the Framework Directive 89/391/EEC)
is the principal piece of Union legislation relevant for protection of offshore
workers and working environment. This proposal reinforces the regime of the
Directive 92/91/EEC to include, inter alia, environmental assessment, to
require the risk assessment to be submitted to the regulator for consent, to
establish notification scheme for well operations and to require independent
verification of critical risk control elements.

v.            Major hazards: The Seveso
Directive 96/82/EC does not apply to the offshore sector but some of its
elements served as a good practice example for this proposal. However this
proposal goes beyond Seveso, notably in requiring regulator's consent for risk
assessment, stronger verification of technical and financial capability at licensing
stages or provisions for evacuation escape and rescue of workforce.

v.            Granting hydrocarbon
prospection, exploration and production authorisations: Directive 94/22/EC is a
principal legal framework for granting licences for exploration and production.
This proposal does not change the Directive itself but strengthens obligations
of relevant authorities during the licensing process in order to improve
assessment of technical and financial capacity of the applicants.

vi.           Emergency response: The proposal
introduces new requirements on emergency response for the Member States and the
industry to be complemented by existing Union capacities both inside and
outside the Union. The EU Civil Protection Mechanism (Council Decision
2007/779/EC), the Monitoring and Information Centre (MIC)[8]
and the European Maritime Safety Agency[9] (EMSA) are principal Union
tools for emergency response. Steps were already taken to expand EMSA's
competence to cover also accidents of offshore installation (beyond its primary
focus on maritime shipping).

Consistency with other policies and
objectives of the Union

This regulation is consistent with the
Energy Strategy for 2020[10], viz Priority 3,
the element for sustainable, secure and competitive energy in Europe.

In addition, this regulation is consistent
with the Union's environmental legislation and policy and its main tenets such
as pollution prevention, control and the polluter pays and precautionary
principles. It is fully coherent also with marine policy, notably the goal of
achieving by 2020 the Good Environmental Status of the marine environment (Marine Strategy Framework Directive 2008/56/EC).

2.
RESULTS OF CONSULTATION WITH INTERESTED PARTIES IN
THE REGULATION, AND THE IMPACT ASSESSMENTS OF POLICY OPTIONS

Consultation of interested parties

An on-line public consultation was carried
out between 16 March and 20 May 2011 to ascertain the views of interested
parties on the need for Union action in various policy fields.

The Commission received a total of 64
contributions, encompassing well over 350 disaggregated replies from
stakeholders

Summary of responses and how they
have been taken into account

The consultation produced broad support for
tightening measures for prevention of, and responding to, offshore major
incidents, however, the means to this end varied. National authorities in the
North Sea Region felt that changes at Union level should not put in question
their current goal setting regulatory approaches, which the proposal indeed
intends to promote. While acknowledging improvement needs in general terms, the
industry was the most conservative towards regulatory changes while preferring goal
setting approaches and industry initiatives. On the other hand NGOs and the
specialised companies (e.g. classification societies) were the most active in
calling for changes at Union level).

The main aspects were as follows.

Authorisations

Licensees should be held liable for any
damages they cause. Most national regulators and industry consider the
licensing and permitting currently applied in certain Member States sound but
that the Union should work with others to improve their standards. They feel
that decisions on awards must remain exclusively with the Member State
concerned, however, information could be shared with neighbouring states where
there is potential for transboundary pollution. Various recommendations were
made by individual companies (e.g. harmonising and simplifying authorisation
procedures and separating regulators for licensing and safety. Some NGOs and
citizens are in favour of obligatory consultation or consent of a neighbouring
state in case of cross-border pollution potential.

The legislative instrument foresees
stronger and risk based assessment of technical and financial capacity. It
introduces also environmental element in the control and prevention of major
hazards in addition to the safety element.

Prevention of accidents

The industry needs to be challenged to do
even better in major incident prevention, whilst not risking a reduction in
accident prevention standards where Member States already have a strong
offshore regulatory regime. Industry maintains generally that it can improve
the situation by self regulation and industry initiatives. NGOs and, to varying
degrees, some regulators feel that existing regulations should be strengthened
and extended to cover all offshore operations in Union waters.

Verification of compliance and liability
for damages

High levels of compliance with robust and
sensible requirements are essential. Whereas industry argues that compliance is
always a high corporate priority, many stakeholders see an overarching need to
adopt a stronger safety culture across the industry. Compliance and the
achievement of a reliable and strong safety culture are addressed in the
regulation.

Stronger physical inspections were called
for by NGOs and some classification societies. National regulators and industry
were generally opposed to this citing potential resource shortages or risks of
destabilising current systems. Requirements for independent third party
verifications received some support also among the two latter groups.

Extension of
the scope of environmental liability was most favoured by NGOs while the
regulators and the industry did not take clear positions... Industry and
insurers tended to be against changes such as obligatory insurance without
capping liability internationally while the NGOs would strongly require it.

Transparency, sharing of information and
state-of-the-art practices

NGOs first but also industry and regulators
felt that a higher level of transparency would enable the industry and public
authorities to demonstrate that offshore oil and gas activities are
appropriately managed and controlled. All National Authorities should work
closely together, building on the example set by the North Sea Offshore
Authorities Forum (NSOAF) and the informal meetings of the EU-NSOAF group.

Emergency response

Emergency response is the primary
responsibility of the operator and the Member State concerned, but the
effectiveness and efficiency of oil spill response capacities existing in
Europe can be further enhanced by cooperation and sharing of expertise and
other assets. EMSA have a role in clean-up if requested via the EU Civil
Protection Mechanism by the Member States concerned.

International activities

Union based companies should endeavour, and
are expected, to follow the policies outlined in this regualtion and not lower
standards when operating outside the Union

Collection and use of expertise

Engagement with international and Union stakeholders
(offshore industry, NGOs) and Member States representing, regulating or
administering the offshore sector began in April 2010, culminating in the
October 2010 Communication.

Both written and meeting-based stakeholder
consultations have been expanded further since then. Apart from the public
consultation, national regulatory/supervisory authorities have met on eight
occasions hosted jointly by the Commission and the NSOAF. Offshore safety has
been raised also in the meetings of the Berlin Forum Indigenous Fossil Fuels
Working Group[11]. In addition, numerous
meetings have taken place with international and national industry
associations, individual enterprises, NGOs and independent verification
companies and insurers. Furthermore, the Commission has regularly attended
national (e.g. the Oil Spill Prevention and Response Advisory Group in the UK)
and international initiatives (e.g. GMEP working group in G-20). These meetings
have been maintained until the present time. Similarly, other Commission services
(e.g. JRC) with relevant transferrable experience and expertise have been
consulted on a continuous basis. Two national experts were hired by the
Commission from national offshore safety authorities. The expert inputs have
been fully considered in the formulation of this Regulation.

Policy options and assessment of their
impacts

Distinct policy options are derived from
the general and specific objectives described in Chapter 1. There are four
policy options in addition to the do-nothing baseline option (option 0) as
follows.

Option 0 would preserve the status quo.

It has no
additional cost nor impact on the baseline cost range €205-915m.

Option 1
("North Sea basic") is the basic level for meaningful Union
intervention. It introduces in Union law the Major Hazards Report (MHR) based
upon the safety and health document required by Directive 92/91/EC but goes
further in requiring the regulator to be satisfied with it prior to starting
operations. An inspections and penalties regime would be required to underpin
the measures described in the MHR. Option 1 would be implemented through new
law.

Option 1 introduces additional running
costs on industry of ca €36m/year and a reduction in risk expressed
against the baseline cost at ca €7 – 30m/yr, an average 3%
decrease in baseline risk.

Option 1+
("North Sea +") goes further by introducing soft law guidelines for:
tightening consideration of the technical capacity of applicants for offshore
oil and gas licenses; converging national emergency response plans; developing
compatible national and industry owned response assets and making them
available to other countries at need; and clarifying the scope of the environmental
provisions relevant to the liability of operators (e.g. applicability of waste
legislation) as regards the offshore oil and gas accident . The Union would
propose to Union based companies voluntary agreements on using EU standards
beyond EU waters.

Option 1+ introduces additional running
costs on Member States of ca. €3m and compliance costs on industry
(cumulative with option 1) of ca €52m. The cumulative effect of Options
1 and 1+ is €25 - €109m/yr, an average 12% reduction in
baseline risk.

Option 2
("Union Best practice") develops further the reforms of option 1+ in
a comprehensive package. Recognised global best practice in major hazard risk
control would be mandated, and environmental risk assessment would be
incorporated into the MHR. Also, best regulatory practice and required
organisational standards would be introduced in arrangements for national
competent authorities. This holistic risk assessment for safety and
environment, would integrate emergency preparedness and response inventory
management into law. A Union-wide Offshore Authorities Group would be created
and the Licensing and ELD directives reinforced by regulation.

Option 2 introduces cumulative operating
costs on industry of ca €122m (from €52m) and ca €12-18m (from
€3m) on Member States, plus one-off administration costs of ca €18-€44m. The
costs for the Commission to establish and run the EUOAG would be ca €1m.
The additional measures cuts the baseline risk costs by between €103 – 455m/year
- a 50% reduction in baseline risk.

Option 3 ("EU Agency") further reinforces the impact of Option 2 by introducing an Union
agency to institutionalise and thereby consolidate the reforms achieved by
option 2. It would undertake inspections and investigations, monitor and
enforce consistency in performance, develop intervention capacity and assist
capacity building in adjacent non Union countries.

Option 3 introduces cumulative annual
running costs on the Commission of ca. €35m/yr (from €1m) and €18-44m
one-off start-up costs plus €10's million for purchase of essential response
assets. There would be no further costs to industry.

The options are compared for the extent to
which they address the measures in Table 1

No. || Measure || Option 0 || Option 1 || Option 1+ || Option 2 || Option 3

1 || Detailed verification of the technical capacity of potential operator || 0 || 0 || G || L || Union

2 || Establishing regular inspections and a penalties regime || 0 || L || L || L || Union

3 || Submission of formal safety assessments for acceptance by the regulator || 0 || L || L || L || Union

4 || Extension of MHR into a comprehensive risk management model || 0 || 0 || 0 || L || L

5 || Extending Union practices to overseas operations || 0 || 0 || G || G || Union

6 || Establishing a Competent Authority || 0 || 0 || 0 || L || Union

7 || Establishing a platform for regulatory dialogue || 0 || 0 || 0 || L || Union

8 || Comprehensive information sharing and transparency || 0 || 0 || 0 || L || L

9 || Preparedness for effective emergency response to major offshore accidents || 0 || 0 || G || L || Union

10 || Ensuring cross-border availability and compatibility of intervention assets || 0 || 0 || G || L || Union

11 || Clarifying the scope of environmental liability || 0 || 0 || G || L || L

Table 1

0 = not implemented in this option; G =
guidelines/soft law; L = law; Union = Union agency responsible

A measure can be implemented by different means,
often offering a trade-off between effectiveness and practicality. As result,
each of the policy options is characterized on one hand by the set of measures
retained in the option and by the preferred implementation means for each
measure under that option.

The preferred policy option is
Option 2, i.e. a comprehensive offshore reform raising throughout Union,
through new law, the level of risk management and emergency preparedness in the
offshore industry. Apart from consistency, this option provides for greater
transparency of industry and regulator performance.

This option can reduce the baseline risk by
50% through enhanced prevention and mitigation should an incident nonetheless
occur. The risk reduction in average monetary terms (ca. €103m - 455m/year)
compares favourably with the estimated cumulative costs of its implementation
(€134 – 140m/year). It is more affordable administratively and
economically as the additional running costs of Option 3 (ca €34M p.a.) fail to
bring corresponding decrease in risks. Option 1+ is a choice with modest
positive impact (12%) and enforcement possibilities while the benefits of
Option 1 are insufficient to justify the (albeit small) costs.

3.
LEGAL ELEMENTS OF THE REGULATION

The proposed regulation creates duties for
operators, Member States and the Commission as follows.

Operator

The Operator is to organise his activities
around a best practice model; prepare a major hazards report (MHR) and to
submit this to the competent authority for assessment. In addition the Operator
is to submit a notification for each well operation to the regulator. For both
MHR's and well notifications, independent verification of the safety critical
elements is required. Operators will prepare internal emergency response plans;
promote interoperability and compatibility of response assets and report
incidents and other specified information to the relevant Member State in a
standard format. Union-based major companies would commit to demonstrating Union
offshore safety standards wherever they work overseas.

Member States

Member States licensing authorities would assess
in an appropriate manner the potential safety and environmental performance
(and financial capacity to deal with safety failures) of applicants when
considering awards for exploration or production licenses. Member States would
establish competent authorities for supervision of safety, environmental
protection and emergency preparedness and introduce robust standards for
inspection and investigation, underpinned with appropriate penalties for
breaches of duty by operators. Member States will make information routinely
available concerning their offshore sectors, and report all major incidents and
lessons learned to the Commission. External emergency response plans would be
prepared by Member States, collaborative with adjacent MS. Measures will be
taken to ensure interoperability of expertise and physical assets to support
cross Union intervention including by EMSA. Member States and the industry will
prepare and periodically test emergency response plans...

Commission

The Commission is to establish an EU
Offshore Authorities Group with representatives from the competent authorities
responsible for offshore oil and gas activities in Union Member States. The
Commission is to amend Environmental Liability Directive (2004/35/EC) within
the regulation.

Legal basis

The draft Regulation is based on TFEU
Article(s) 192 (Environment) for its environmental protection purposes and 194
(Energy) for minimising adverse effects on Union security of energy supply and
the functioning of the internal energy market.

Subsidiarity principle

Union action has been considered only where
it can achieve the objective more effectively than the Member States or where
actions by Member States alone may not deliver optimal improvements.

Companies operate and drilling rigs like
Deepwater Horizon are being moved across borders but face very different
regulatory regimes along the lines of national jurisdictions. Recent reactions
of the Member States suggest, that without Union action these differences are
going to exacerbate as countries mainly only in the most advanced regions
individually plan improvements while international initiatives make very slow
progress. Moreover, without Union action, existing difficulties for comparing
industry performance and sharing of intelligence and incident data will remain.

Action by Member States alone would be
inadequate to achieve consistent protection (including liability for pollution)
of the environment, a common good, a commitment of the Union and its Member
States as per the Marine Strategy Framework Directive.

The likelihood and consequences of major
offshore incidents remain significant everywhere in the Union based on national
reports, and risk analysis conducted by the Commission in 2011. Offshore
production occurs increasingly also in the Mediterranean, the Black and even
the Baltic Seas where some countries in some of these marine regions have less
experience in regulating offshore operations. Still, even in the advanced
regions (mainly North Sea) national action has failed to achieve common
standards and comparability of data.

Overall, despite the measures already
foreseen by Union legislation, such as in the field of health and safety at
work, a failure to take action at Union level is likely to deprive Member
States of the most suitable means to reduce risks of major offshore major
incidents in a consistent and timely manner.

Proportionality principle

Article 5 of the Treaty requires "Any
action by the Community shall not go beyond what is necessary to achieve the
objectives of this Treaty". In achieving the requisite balance between the
objectives and the means proposed to achieve them this Regulation takes into
account:

i.             The costs from the Deepwater
Horizon incident were estimated by BP to be in excess of $40bn; costs of a
similar event in Union waters could be of this magnitude

ii.            Incidents of the magnitude of
Deepwater Horizon occur in the offshore industry at a frequency of decades
which is high for extreme major accident hazards

iii.           The value of the Union offshore
sector is very high in terms of national economies (revenues and employment)
and its contribution to security of supply

iv.           The offshore sector generates
relatively high revenues for the companies involved

v.            The public has developed an
aversion to further major incidents risks

The cost of the measures proposed in this
regulation (ca €134-140m/year) is modest in comparison to the risk reduction
they will secure (ca €103 – 455m/year). Therefore they are proposed as enabling
measures.

Choice of instrument

A Regulation
is proposed to implement Option 2. It has advantages over a Directive due to
its clarity, consistency and speed of implementation through direct application[12].
By acting directly on the industry, the Regulation would also provide for a
more level playing field. It would also cater well for emergency planning to
combat transboundary pollution.

With regard to
the interinstitutional agreements concerning the Commission advisory and expert
groups, the EU Offshore Authorities Group should be established by a standalone
Commission Decision.

4.
BUDGETARY IMPLICATION

The budgetary implication of the proposal
is approx 2.5 m€ in the period 2013-2016, including compensations for committee
participation. EMSA's assistance is primarily related to a) use of its
satellite surveillance system which is active regardless of offshore accidents
b) use of emergency vessels organised by EMSA. The emergency vessels are only
contracted for the purpose and the operational costs are covered by the
affected coastal State that requests the intervention. Regulation (EC)
2038/2006 puts in place a multi-annual financial framework for pollution
response for the years 2007-2013. The Commission does not foresee any changes
to this framework. In conclusion: no increase of costs for EMSA is foreseen for
the period 2007-2013. Should any additional costs arise for EMSA during the
period 2014-2020 they should primarily be covered by redeployment of the
already agreed resources.

5.
ADDITIONAL INFORMATION

Amendment of existing legislation

Adoption of the regulation includes an
amendment to Directive 2004/35/EC (Environmental liability)

Delegation

The Regulation foresees the development of
technical details of a common reporting format through a delegated act and
potential updates to technical annexes via an implementing act.

European Economic Area and Energy
Community

The
proposal has potential relevance for the EEA and the Energy Community.

2011/0309 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL

on safety of offshore oil and gas prospection,
exploration and production activities

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 192 (1) thereof,

Having regard to the proposal from the
European Commission,

After transmission of the draft legislative
act to the national Parliaments,

Having regard to the opinion of the
European Economic and Social Committee[13],

Having regard to the opinion of the
Committee of the Regions[14],

Acting in accordance with the ordinary
legislative procedure,

Whereas:

(1)
Article 191 of the TFEU establishes the
objectives of preserving, protecting and improving the quality of the
environment and creates an obligation for all Union action to be supported by a
high level of protection based on the precautionary principle and preventive
action and to prudent and rational utilisation of natural resources.

(2)
The objective of this Regulation is to reduce
the occurrence of major accidents related to offshore oil and gas activities
and to limit their consequences, thus increasing the protection of the marine
environment and coastal economies against pollution as well as establishing
minimum conditions for safe offshore prospection, exploration and exploitation
of oil and gas and limiting possible disruptions to Union indigenous energy
production and to improve the response mechanisms in case of an accident.

(3)
This Regulation should apply not only to future
installations and operations but, subject to transitional arrangements, also to
existing installations

(4)
The accidents related to offshore oil and gas
activities in 2010, notably the Gulf of Mexico, have sparked a review of
policies aimed at ensuring the safety of offshore activities. The Commission
launched a review of and expressed its initial views on the safety of offshore
oil and gas operations in its Communication "Facing the challenge of the
safety of offshore oil and gas activities" on 13 October 2010. The
European Parliament adopted resolutions on the topic on 7 October 2010 and 13
September 2011. Energy Ministers of the Member States expressed their views in
Energy Council Conclusions on 3 December 2010.

(5)
The risks of a major offshore oil or gas
accident are significant. By reducing the risk of pollution of marine waters,
this initiative should therefore contribute to the
protection of the marine
environment and in particular to the achievement of
good environmental status by 2020 at the latest, as set out in Article 1(1) of
Directive 2008/56/EC of the European Parliament and the Council of 17 June 2008
establishing a framework for community action in the field of marine
environmental policy (Marine Strategy Framework Directive)[15].

(6)
The Marine Strategy Framework Directive, which
requires addressing the cumulative impacts from all activities on the marine
environment, is the environmental pillar of the Integrated Maritime Policy.
This Policy is relevant to offshore oil and gas operations as it requires
linking the particular concerns from each economic sector with the general aim of
a comprehensive understanding of the oceans, seas and coastal areas, with the
objective to develop a coherent approach to the seas taking into account all
economic, environmental and social aspects through the use of Maritime spatial
planning and Marine knowledge.

(7)
Offshore oil and gas industries are established
in a number of regions of the Union, and there are prospects for new regional
developments in Union waters. Production of offshore oil and gas is a
significant element in EU security of energy supply.

(8)
The existing fragmented regulatory framework
applying to safety of offshore activities in Europe and current industry safety
practices do not provide an adequate assurance that risks from offshore
accidents are minimised throughout the Union, and that in the event of accident
occurring in Union waters, the most effective response would be timely
deployed. Under existing liability regimes, the responsible party may not
always be clearly identifiable and/or may not be able, or liable, to pay all
the costs to remedy the damage it has caused.

(9)
Pursuant to Directive 1994/22/EC of the European
Parliament and of the Council of 30 May 1994 on the conditions for granting and
using authorizations for the prospection, exploration and production of
hydrocarbons[1] offshore oil and gas activities in the Union may be performed
subject to the obtainment of an authorisation. In this context the competent authority
is required to consider the technical and financial risks, and where appropriate,
the previous record of responsibility, of applicants seeking exclusive
exploration and production licenses. There is the need to ensure that when
examining the technical and financial capability of the licensee the competent
authorities thoroughly examine also its capability for ensuring continued safe
and effective operations under all foreseeable conditions.

(10)
There is a need to clarify that holders of
authorisations for offshore activities pursuant to Directive 94/22/EC are also
potential liable 'operators' within the meaning of Directive 2004/35/EC of the
European Parliament and the Council of 21 April 2004 on environmental liability
with regard to the prevention and remedying of environmental damage[16],
and may not be entitled to delegate their responsibilities in this regard to
third parties contracted by them.

(11)
While general authorisation pursuant to
Directive 94/22/EC guarantees to the licensees exclusive rights for exploring
for or producing oil and/or gas within a given area, actual operations within
that area need to be subject to continuous expert regulatory oversight by
Member States in order to ensure there are effective controls in place for
preventing major accidents, and limiting their impacts to persons, the
environment, and security of energy supply.

(12)
In accordance with Directive 85/337/EEC, as
amended, which applies to exploration and exploitation of oil and gas
activities, projects likely to have significant effects on the environment by
virtue, inter alia, of their nature, size or location are made subject to an
assessment with regard to their effects and a requirement for development
consent. In line with Directive 85/337/EEC when an activity is subject to
development consent an effective public participation should be provided in
accordance with the United Nations Economic Commission for Europe (UNECE) Convention
on Access to Information, Public Participation in Decision-Making and Access to
Justice in Environmental Matters

(13)
Within the Union, there are already examples of
good standards in national regulatory practices related to offshore oil and gas
activities. However, these are inconsistently applied throughout the Union and
no Member State has yet incorporated all of the best regulatory practices in
their legislation for preventing major offshore accidents or limiting their
consequences to persons and the environment. Best regulatory practices are to
secure effective regulation on safety and environment by integrating related functions
into a joint competent authority ("the competent authority") that may
draw resources from one or more national agencies.

(14)
After the licensed operator is granted rights to
explore for, or extract oil and gas, the competent authority should be legally
empowered and adequately resourced by the Member State to take enforcement
action, including cessation of operations in order to attain suitable workers
and environment protection.

(15)
The effectiveness of the competent authority in
verifying adequacy of major hazard controls by the licensee or operator is
directly related to the major hazard regulatory policy, systems, and expertise
of the competent authority. Notwithstanding the licensed operators' rights to
explore for, or extract oil and gas, the competent authority should be
empowered to take enforcement action, including cessation of operations in
order to attain suitable workers and environment protection. In order to
perform these functions the competent authority needs adequate resources to be
provided by the Member State.

(16)
To maintain an appropriate distinction between
economic development and environmental and safety regulation the competent
authority should be demonstrably independent from national economic sponsorship.

(17)
The complex major hazards relating to the
offshore oil and gas industry, specifically in process safety, safe containment
of hydrocarbons, structural integrity, prevention of fire and explosion,
evacuation, escape and rescue, and limiting environmental impact following a
major accident require targeted and tailor made regulation addressing the
specific hazards of the offshore oil and gas sector.

(18)
This Regulation should apply without prejudice
to any requirements under any other Union legislation, notably in the field of
health and safety of workers at work, in particular Council Directive
89/391/EC of 12 June 1989 on the introduction of measures to encourage
improvements in the safety and health of workers at work [17]
and Council Directive 92/91/EEC of 3 November 1992
concerning the minimum requirements for improving the safety and health
protection of workers in the mineral- extracting industries through drilling
(eleventh individual Directive within the meaning of Article 16 (1) of
Directive 89/391/EEC) [18].

(19)
An offshore regime needs to apply to operations carried
out on both fixed and mobile installations, and apply to the lifecycle of
exploration and production activities from design to decommissioning and
permanent abandonment.

(20)
The best operational practices currently
available for major accident prevention in offshore oil and gas operations are
based on achieving desirable outcomes through thorough risk assessment and
reliable management systems.

(21)
Union best operating practices require owners
and/or operators of installations, including mobile drilling rigs, to establish
effective corporate policy and suitable arrangements for major accident
prevention and to comprehensively and systematically identify all major hazard
scenarios relating to all hazardous activities that may be carried out on that
installation. These best practices require also assessing the likelihood and
consequences and the necessary controls of such scenarios, within a
comprehensive safety management system. Such policy and arrangements should be
clearly described in a document ("the Major Hazard Report – MHR").
The MHR should be comparable and complementary to the safety and health
document referred to in Directive 92/91/EC and it should also include
provisions on environmental risk assessment, emergency plans.The MHR should be
required to be submitted the competent authority for consenting procedure.

(22)
In order to maintain the effectiveness of major
accident risk controls in Union waters, Major Hazard Reports need to be
prepared in respect of any significant aspect of the lifecycle of a production
installation, including design, operation, operations when combined with other
installations, major modifications, and final abandonment. The report needs to
be submitted to the competent authority so that the operations may not proceed
unless the competent authority has accepted the Major Hazards Report be means of
an appropriate consenting procedure.

(23)
Drilling and repairing oil and gas wells should
only be undertaken by an installation technically capable of controlling all
the foreseeable hazards at the well location, and which has an accepted MHR.

(24)
In addition to utilising a suitable
installation, the well operator should prepare detailed plans pertinent to the
particular circumstances and hazards of each well operation and in accordance
with best practices in the Union provide for independent expert examination of
the well design. The well operator should send a notification of his well plans
to the competent authority in sufficient time for the competent authority to
take any necessary action in respect of the planned well operation.

(25)
To ensure safety in design and continuous safe
operations, the industry is required to follow the best available practices
defined in authoritative standards and guidance, and these require to be
updated with new knowledge and invention and pursuant to continuous improvement
so that operators and competent authorities should collaborate to establish
priorities for the creation of new or improved standards and guidance in the
light of the Deepwater Horizon accident experience and other significant
offshore accidents, and should commission the preparation of the highest
priority guidance and standards without delay.

(26)
In view of the complexity of offshore oil and
gas operations, the implementation of the best practices by the operators requires
a scheme of independent  third party verification of safety critical elements.

(27)
Best practices that are required to be applied in
the Union are to meet the requirements of Regulation 391/2009/EC on common
rules and standards for inspections and survey organisations in relation to
mobile non-production installations, and its equivalent standard adopted by the
International Maritime Organisation[19],

(28)
Risk assessment in the MHR should take into
account risk to the environment, including the impacts climatic conditions and
climate change have on the long term resilience of the installations; and given
that offshore oil and gas activities in one Member State can have significant
adverse environmental effects in another Member State, it is necessary to
establish and apply specific provisions in accordance with the Convention on
Environmental Impact Assessment in a Transboundary Context.

(29)
In order to ensure effective response to
emergency situations, operators should prepare site-specific emergency response
plans based on risks and hazard scenarios identified in the MHR, submit them to
competent authorities, and maintain such resources as are necessary for prompt
execution of those plans when needed.

(30)
To ensure that no relevant safety concerns are
overlooked or ignored, it is important to establish and encourage adequate
means for the reporting of those concerns and the protection of whistleblowers.

(31)
The sharing of comparable data between Member States
is rendered difficult and unreliable due to the lack of a common data reporting
format across all Member States. A common data reporting format for reporting
by operators to the Member State would provide transparency of the safety and
environmental performance of operators and would provide public access to
relevant and Union-wide comparable information on safety of offshore oil and
gas activities and assist in disseminating lessons learned from major accidents
and near misses.

(32)
In order to ensure uniform conditions for
sharing information and encouraging transparency of performance of the offshore
sector, implementing powers should be conferred on the Commission. Those powers
should be exercised in accordance with Regulation (EU) No 182/2011 of the European
Parliament and of the Council of 16 February 2011 laying down the rules and
general principles concerning mechanisms for control by the Member States of
the Commission's exercise of implementing powers[20].

(33)
The advisory procedure should be used for the
adoption of relevant implementing acts in order to ensure consistent exchange
of relevant data across the Union.

(34)
To facilitate public confidence in the authority
and integrity of EU wide offshore activity, Member States should provide
reports of activity and incidents and shall inform the Commission of major
accidents without delay, and the Commission should publish reports periodically
on levels of EU activity and trends in safety and environment performance of
the offshore sector.

(35)
Experience shows that ensuring the
confidentiality of sensitive data is necessary to foster an open dialogue
between the competent authority and the operator. To that effect the dialogue
between offshore operators and all Member States should be based on relevant
existing international instruments and EU acquis on access to environmentally
relevant information subject to any overriding requirement for safety and
environment protection.

(36)
The value of collaborations between offshore
authorities has been clearly established by the activities of the North Sea
Offshore Authorities Forum and the International Regulators Forum. Similar
collaboration should be formally established across the Union to promote
efficient collaboration between national representatives and the Commission at the
working level.

(37)
Emergency response and the contingency planning
for major offshore disasters will be made more effective by a systematic and
planned cooperation between Member States and between Member States and
industry, as well as by the sharing of compatible assets including expertise.
Where appropriate, those arrangements should also make use of the existing
resources and assistance available from within the Union, in particular through
the European Maritime Safety Agency and the EU Civil Protection Mechanism.

(38)
The implementation of the obligations under this
Regulation should consider that marine waters covered by the sovereignty or
jurisdiction of Member States form an integral part of the four marine regions
identified in the Article 4(1) of Directive 2008/56, namely the Baltic Sea, the
North-east Atlantic Ocean, the Mediterranean Sea and the Black Sea. For this
reason, coordination should be strengthened with third countries having
sovereignty or jurisdiction over waters in such marine regions. Appropriate
cooperation frameworks include regional sea conventions, as defined in Article
3(10) of Directive 2008/56.

(39)
In relation to the Mediterranean Sea, in
conjunction to the current Regulation, the necessary actions are being
undertaken for the accession of the European Union to the Protocol for the
Protection of the Mediterranean Sea against Pollution Resulting from
Exploration and Exploitation of the Continental Shelf and the Seabed and its
Subsoil ('the Offshore Protocol') to the Convention for the Protection of the
Marine Environment and the Coastal Region of the Mediterranean ('the Barcelona
Convention'), which was approved by Council Decision 77/585/EEC[21].

(40)
The serious environmental concerns relating to
the Arctic waters, a neighbouring marine environment of particular importance
for the Community, require special attention to ensure the environmental
protection of the Arctic in relation to any offshore activities, including
exploration.

(41)
National external emergency plans should be
based on risk assessments carried out with a view to preparing the MHR. Related
site specific emergency plans for the containment of accidents should take into
account the most up to date Risk Assessment and Mapping Guidelines for Disaster
Management (Commission Staff Working Paper SEC(2010) 1626 final of 21.12.2010
).

(42)
Effective response to emergencies requires
immediate action by the operator and close cooperation with competent
authorities which coordinate the introduction of additional emergency response
resources as the situation develops. It also includes a thorough investigation
of the emergency which should commence without delay so as to ensure minimum
loss of relevant information and evidence. Following the incident, competent
authorities should draw appropriate conclusions and take any necessary
measures.

(43)
In order to ensure effective implementation of
the requirements of this Regulation, effective and proportionate sanctions
should be put in place.

(44)
In order to adjust the proposed minimum
requirements to the latest development in technology and relevant practices,
the Commission should be empowered to amend the requirements in the Annexes to
this Regulation in accordance with the procedure referred to in  Article 4 of
the Regulation (EU) No 182/2011.

(45)
Consequently, in order to prevent major
accidents related to offshore oil and gas activities and to limit their
consequences, the power to adopt acts in accordance
with Article 4 of the Regulation (EU) No 182/2011should be delegated to the
Commission in respect of the definition of the minimum basic requirements
related to those operations according to the principles stated by this
Regulation, notably in its Annexes. It is of particular importance that
the Commission carry out appropriate consultations during its preparatory work,
including at expert level.

(46)
The Commission, when preparing and drawing-up
delegated acts, should ensure a simultaneous, timely and appropriate
transmission of relevant documents to the European Parliament and Council.

(47)
Apart from the measures introduced in this
Regulation, the Commission should explore other appropriate means of improving
the prevention of offshore oil and gas accidents and mitigation of their
effects.

(48)
As no existing financial security instruments,
including risk pooling arrangements, can accommodate all possible consequences
of extreme accidents, the Commission should proceed with further analysis and
studies of the appropriate measures to ensure adequately robust liability
regime for damages related to offshore oil and gas operations, requirements on
financial capacity including availability of appropriated financial security instruments
or other arrangements .

(49)
At Union level, it is important that technical
standards are complemented by a corresponding legal framework of product safety
legislation that apply to all offshore installations in Union waters, and not
just non-mobile production installations. The Commission should therefore
proceed with further analysis of the product safety standards applicable to
offshore oil and gas operations

HAVE ADOPTED THIS REGULATION:

Chapter I
Introductory provisions

Article 1
Subject and Scope

1.
This Regulation establishes minimum requirements
for industry and national authorities involved in offshore oil and gas operations
performed following the award of an authorisation pursuant to Directive
94/22/EC.

2.
This Regulation applies to all offshore oil and
gas operations defined in Article 2.

3.
This Regulation applies to all related
installations, subsea installations and connected infrastructure in the waters
of Member States including their exclusive economic zones and on their
continental shelves within the meaning of the United Nations Convention on the
Law of the Sea (UNCLOS).

4.
This Regulation aims to contribute to the
achievement of the objectives of Directive 2008/56/EC of the European
Parliament and the Council establishing a framework for community action in the
field of marine environment policy.

5.
The provisions of this Regulation shall apply
without prejudice to relevant Union legislation, in particular concerning
health and safety of workers at work, notably Council Directives
89/391/EEC and 92/91/EEC.

6.
This Regulation shall apply without prejudice to
Directives 85/337/EC, 2008/1/EC and Directive 2003/4/EC.

Article 2
Definitions

For the purpose of this Regulation:

1.
'acceptable' shall mean: rendering a risk of a major
accident tolerable to the furthest extent beyond which no significant reduction
of the risk is derived from the input of further time, resources or cost;

2.
'acceptance' shall mean: the conveyance in
writing to the operator by the competent authority of the positive conclusions
of its examination of the operator's Major Hazards Report pursuant to the
requirements of this Regulation;

3.
'authorisation' shall mean: an authorisation
pursuant to Directive 94/22/EC;

4.
'combined operation' shall mean: an operation
carried out from a non-production installation with another installation or
installations for purposes related to the other installation(s) which thereby
materially affects the risks to the safety of persons or the protection of the
environment on any or all of the installations;

5.
'commencement of operations' shall mean: the
point in time when the installation for is involved the first time in the
operations for which it is designed for.

6.
'competent authority' shall mean: the authority appointed
pursuant to this Regulation and responsible for duties related to its scope;

7.
'connected infrastructure' shall mean: an
offshore equipment, pipeline or some other installation above or below the
water surface used for transporting oil and gas to another installation nearby,
onshore processing or storage facility or for transporting and loading oil to a
shuttle tanker;

8.
'consenting procedure' shall mean: a procedure
of thorough assessment of all relevant information concerning planned offshore
oil and gas operation by the competent authority, concluded by acceptance of the
major hazard report by the competent authority and absence of objections to well
or combined operations notifications submitted by operators;

9.
'exclusion zone' shall mean: area surrounding
the installation established by the Member State in which unrelated activities
are prohibited;

10.
'exploration license' shall mean: an
authorisation granted by the Member State to explore for oil and gas in the
underground strata of the licensed area, but not to produce oil and gas for
commercial purposes;

11.
'external emergency response plan' shall mean:
local, national or regional strategy to prevent escalation or limit
consequences of an accident related to offshore oil and gas operations using
all available resources in addition to those described in internal emergency
response plans;

12.
'independent third party verification' shall
mean: an assessment and confirmation of the validity of particular written
statements by a natural or legal person that is not under the control or
influence by the author of the statements;

13.
'industry' shall mean: private companies that
are directly involved in offshore oil and gas activities pursuant to this
regulation or whose activities are closely related to those operations;

14.
'installation' shall mean: either a production
or a non-production installation;

15.
'internal emergency response plan' shall mean: an
overview prepared by operators pursuant to requirements of this Regulation of the
measures to prevent escalation or limit consequences of an accident related to
offshore oil and gas operations within an exclusion zone around the
installation;

16.
'licensed area' shall mean: the geographical
area covered by the authorisation pursuant to Directive 94/22/EC;

17.
'licensee' shall mean: the holder of
authorisation to carry out offshore operation pursuant to Directive 94/22/EC;

18.
'major accident' shall mean: an occurrence such
as fire or explosion, significant loss of well control or significant escape of
hydrocarbons to the environment, significant damage to the installation or equipment
thereon, loss of structural integrity of the installation, and any other event
involving death or major injury to five or more persons on or working in
connection with the installation;

19.
'major hazard' shall mean: a situation with a
potential for resulting in a major accident;

20.
'non-production installation' shall mean: an
installation other than a production installation used both for exploratory
drilling and as a support installation for production ;

21.
'offshore oil and gas operations' shall mean:
all activities related to exploring for, producing or processing of oil and gas
offshore. This includes transport of oil and gas through offshore
infrastructure connected to an installation or subsea installation;

22.
'operator' shall mean: the operator of a production
installation or the owner of a non-production installation and the well
operator of a well operation. Operator and licensee both come under the
definition of Article 2(6) of Directive 2004/35/EC ;

23.
'operator of production installation' shall
mean: a person appointed by the licensee to manage and control the main
functions of a production installation;

24.
'owner' shall mean: a person legally entitled to
control the operation of a non-production installation;

25.
'production of oil and gas' shall mean:
extraction, for commercial purposes, of oil and gas from the underground strata
of the licensed area including offshore processing of oil and gas and its
transportation through connected infrastructure including pipes and structures
and well heads on the sea bed and/or storing gas in subsurface formations for
the purposes of recovering the gas;

26.
'production installation' shall mean: an
installation used for production of oil and gas; ;

27.
'production license': shall mean: an
authorisation granted by the Member State for production of oil and gas. .

28.
'public' shall mean: one or more natural or
legal persons and, in accordance with national legislation or practice, their
associations, organisations or groups;

29.
'relevant authority' shall mean (in the context
of emergency response to an offshore accident): primary emergency responder
organisation of a Member State, responsible for initiating the emergency
response to a major offshore oil and gas accident;

30.
'risk' shall mean: the likelihood of a specific
effect occurring within a specific period or in specified circumstances;

31.
'suitable' shall mean: fully appropriate for a
given requirement or situation and based on objective evidence and demonstrated
by an analysis, comparison with appropriate standards or other solutions used
in comparable situations by other authorities or industry;

32.
'well operation' shall mean: the drilling of a
well for exploration or production purposes, including suspension of
operations, repairing or modifying wells, permanent abandonment, or any
operation concerning a well that can result in the accidental release of fluids
or risk of major accident;

33.
'well operator' shall mean: the person appointed
by the licensee to plan and execute a well operation.

Chapter II
Prevention of major hazards related to offshore oil and gas activities

Article 3
General principles of risk management in offshore oil and gas activities

1.
Operators shall take all suitable measures to
prevent major accidents from offshore oil and gas operations. Competent
authorities shall oversee that operators meet this obligation.

2.
Operators shall ensure that all entities , that
are contracted to carry out specific tasks at the installations concerned, will
likewise act in accordance with the requirements set out in this Regulation, in
particular with its Annexes IV and V. Operators shall not be exonerated from
their responsibilities under this Regulation by the fact that actions or
omissions leading or contributing to major accidents, were carried out by such entities
or their personnel.

3.
Should a major accident nonetheless occur,
operators and competent authorities shall take all suitable measures to limit
their consequences for human health and the environment and where possible to avoid
serious disruptions of oil and gas production withing the Union.

4.
Offshore oil and gas activities covered by this
Regulation shall be performed on the basis of a systematic assessment of the
likelihood of hazardous events and their consequences, and the implementation
of control measures so that the risks of major accidents to people, the
environment, and offshore assets are acceptable.

Article 4
Safety considerations within authorisation of offshore oil and gas activities
pursuant to Directive 94/22/EC

1.
Decisions on granting authorisations for
offshore oil and gas activities pursuant to Directive 94/22/EC shall take into
account the capacity of applicants to meet requirements for specific activities
within the framework of that authorisation as required by the relevant
provisions of Union law, notably in this Regulation.

2.
In particular, when assessing the technical and financial
capacity of the entities that apply for authorisation for offshore oil and gas
activities, due account shall be taken of the risk, hazards and any other
relevant information related to the area concerned and the particular stage of
exploration and production operations and also of the applicants' financial capacities,
including any financial security and capacity to cover liabilities potentially
deriving from offshore oil and gas activities in question, in particular
liability for environmental damages.

3.
Authorisations for for offshore oil and gas
exploration operations, and for production operations shall be granted
separately.

4.
Licensing authorities pursuant to Directive
94/22/EC shall, when assessing the technical and financial capacity of the
entities that apply for authorisation for offshore oil and gas activities, take
into account the risks, hazards and any other relevant information related to
the location concerned and the particular stage of exploration and production operations.

Article 5
Public participation in licensing procedures

1.
Member States shall ensure that the public shall
be given early and effective opportunities to participate in procedures concerning
licensing procedures in their jurisdiction in accordance with the requirements of
Annex I to this Regulation. The procedures shall be those laid down in Annex II
of Directive 2003/35/EC.

2.
The Member States may lay down more detailed
arrangements for informing the public and for consulting the public concerned.

3.
Public participation shall be organised so as to
ensure that disclosure of information and involvement of the public shall not
pose risks to safety and security of offshore oil and gas installations and
their operation.

Article 6
Consenting to offshore oil and gas operations within licensed areas

1.
Installations shall only be operated in licensed
areas by licensees, or entities they contract and appoint for that purpose and that
are approved by Member States.

2.
Where the competent authority considers that the
person appointed by the licensee is not competent to act as operator of an
installation or as a well operator, the licensee shall be notified thereof and
shall assume all responsibilities of an operator pursuant to this Regulation.

3.
Installations pursuant to paragraph 1 may not commence
or continue operations without submission of a Major Hazards Report pursuant to
conditions and deadlines specified in Articles 10 and 11 and its acceptance by the
competent authority pursuant to this Regulation.

4.
Well and combined operations may not be
undertaken unless the Major Hazards Report for the installation has been
accepted pursuant to paragraph 3 of this Article. Furthermore, operations may
not be commenced and conducted without submission of a well or combined
operations notification pursuant to conditions and deadlines specified in Articles
13 and 14 to the competent authority or if the competent authority expresses
objections to the content of the notification.

Article 7
Liability for environmental damage

1.
The licensee is liable for the prevention and
remediation of environmental damage , pursuant to Directive 2004/35/EC, caused
by offshore oil and gas activities carried out by the licensee or any entity participating
in the offshore oil and gas operations on the basis of a contract with the
licensee. The consenting procedure for operations pursuant to this Regulation
shall not prejudice the liability of the licensee.

Article 8
National competent authority

1.
Member States with offshore oil and gas
activities under their jurisdiction shall appoint a competent authority
responsible for duties laid down in this Regulation.

2.
The competent authorities appointed pursuant to paragraph
1 shall be responsible for the following tasks:

(a)     assessing and accepting Major Hazards
Reports, assessing design notifications, and assessing notifications of wells or
combined operations, and other such documents that are submitted to it;

(b)     performing inspections, conducting
investigations and taking enforcement action;

(c)     producing reports pursuant to this
Regulation.

3.
The competent authority shall be organised in
accordance with the provisions of Article 19 so as to ensure independent
performance of potentially conflicting tasks, expertise and general
effectiveness in regulating offshore oil and gas activities.

4.
Member States shall ensure that competent
authority have adequate resources to perform its tasks according to this Regulation.

5.
The competent authority shall endeavour to
prepare and implement coordinated or joint procedures as required to undertake the
functions pursuant to this Regulation and to fulfill the requirements under any
other appliable Union legislation. Where several agencies comprise the
competent authority, they should avoid duplication of regulatory functions.

Chapter III
Preparation for and conduct of offshore oil and gas activities based on risk
assessment

Article 9
Conditions for operating offshore installations

1.
Subject to the transitional provisions in
Article 39, the operator of a production or a non-production installation shall
submit to the competent authority the following documents:

(a)     in the case of a planned production
installation, a design notification in accordance with the requirements of
Annex II, part 1;

(b)     a Major Hazard Report containing the
details specified in Article 10 or Article 11;

(c)     an internal emergency response plan
pursuant to Article 12, integrated into the Major Hazards Report;

(d)     an overview of operator's major
accident prevention policy pursuant to Article 18, integrated into the Major
Hazards Report.

2.
The competent authority shall receive the design
notification no later than 24 weeks before the intended submission of a Major
Hazards Report for the planned operation.

3.
The Major Hazard Report shall be notified to the
competent authority within a deadline set out by the competent authority and no
later than 12 weeks before the planned commencement of operation .

Article 10
Major Hazard Report for a production installation

1.
The Major Hazard Report for a production
installation shall contain the details specified in Annex II, parts 2 and 5.

2.
A Major Hazard Report for a production
installation may be prepared in relation to a group of installations subject to
the agreement of the competent authority.

3.
Where significant modifications are made to the production
installation, or it is intended to dismantle the installation, the Major Hazard
Report for a production installation shall be amended in accordance with Annex
II, part 6 and submitted to the competent authority.

4.
Where further information is necessary before a
Major Hazard Report can be accepted, the competent authority shall request
further information or changes to the documents submitted.

5.
The amended Major Hazard Report for a production
installation pursuant to paragraph 3 shall be submitted to the competent
authority within a deadline specified by the competent authority and no later
than 6 weeks before the planned works are commenced. The planned works shall
not be commenced until the competent authority has accepted the amended Major Hazard
Report for the production installation.

6.
The Major Hazard Report for a production
installation shall be subject to periodic review by the operator at least every
5 years or more frequently as required by the competent authority, and the
results of the review shall be notified to the competent authority.

Article 11
Major Hazard Report for a non-production installation

1.
The Major Hazard report for a non-production
installation shall contain the details specified in Annex II, parts 3 and 5.

2.
Where significant modifications are made to the
non-production installation, or it is intended to dismantle the installation, the
Major Hazard Report for a non-production installation shall be amended in
accordance with Annex II, part 6 (excluding paragraph 4) and submitted to the competent
authority.

3.
For a fixed non-production installation, an amended
Major Hazard Report pursuant to paragraph 2 shall be submitted to competent
authority within a deadline specified by competent authority and no later than
2 weeks before the planned works are to be commenced. The planned works shall
not be commenced until the competent authority has accepted the amended Major
Hazard Report for a non-production installation.

4.
For a mobile non-production installation, an amended
Major Hazard Report pursuant to paragraph 2 shall be submitted to the competent
authority within a deadline specified by competent authority and in no case
later than 2 weeks before the installation is due to commence operations. The installation
may not be operated until the competent authority has accepted the amended
Major Hazard Report for a non-production installation.

5.
Where further information is necessary before a Major
Hazard Report can be accepted, the competent authority shall request further
information or changes to the documents submitted.

6.
The Major Hazard Report for a non-production
installation shall be subject to periodic review by the operator at least every
5 years or more frequently as required by the competent authority. The results
of the review shall be notified to the competent authority.

Article 12
Internal emergency response plans

1.
Operators shall prepare internal emergency
response plans taking into account the major accident risk assessments
undertaken during preparation of the most recent major hazard report. In the
case of drilling a well from a mobile non-production installation, the risk
assessment pursuant to the well notification should be incorporated into the
emergency response plan for the installation.

2.
For production and non-production installations,
the internal emergency response plan shall be submitted to the competent
authority as part of the Major Hazard Report.

3.
Non-production installations undertaking well
operations where the internal emergency response plan is amended due to the
particular nature of the well location, should notify the competent authority
of said amendment to the internal emergency response plan when submitting the
well notification.

Article 13
Notification of well operations

1.
No less than 21 days prior to the start of a
well operation, the well operator shall send to the competent authority a
notification containing details of the design of the well and its operation in
accordance with the requirements of Annex II, part 4.

2.
The competent authority shall consider the
notification and take action it considers necessary before the well operation
may commence.

3.
The well operator shall immediately notify the
competent authority of any significant change to the details of the well
notification and simultaneously inform the independent well examiner pursuant
to Article 15(3b).

Article 14
Notification of combined operations

1.
An operator of an installation which is to be
involved in a combined operation shall send to the competent authority a
notification containing details of the combined operation in accordance with
the requirements of Annex II, part 7. The operators of concerned installations may
agree for one of them to prepare the notification of combined operations on
their behalf. The notification shall be submitted no later than 21 days before
combined operations commence.

2.
The competent authority shall consider the
notification and take action it considers necessary before combined operation may
commence.

3.
The operator who prepared the notification shall
without delay inform the competent authority of any significant change to the details
of thereof.

Article 15
Independent third party verification

1.
Operators shall establish a scheme for
independent third party verification and well examination and shall describe
such schemes within the major accident policy integrated into the Major Hazards
Reports pursuant to Article 18.

2.
The selction of the independent third party verifier
and the design of schemes for independent third party verification and for
independent well examination shall meet the criteria of Annex II, part 5.

3.
The scheme for independent third party
verification in respect of production and non-production installations shall be
established:

(a)     in respect of installations to give independent
assurance that the specified systems and safety critical elements identified in
the risk assessments and safety management system for the installation are suitable
and up to date, and the schedule of examination and testing of the major
hazards control system is suitable, up to date and operating as intended;

(b)     in respect of well plans to give independent
assurance that the well design andwell control measures are suitable to the
anticipated well conditions and kept as the basis if the wel design changes for
whatever reason.

4.
Operators shall ensure that outcomes of the
independent third party verification scheme pursuant to this Article under
paragraph 3(a) are available to the competent authority upon its request.

5.
Operators shall ensure that the findings and
comments of the independent well examiner pursuant to this Article under
paragraph 3(b) are included in the well notification pursuant to Article 13.

6.
For production installations, the verification
scheme shall be in place prior to submission of the Major Hazards Report to the
competent authority. In the case of a non-production installation, the scheme
shall be in place prior to the non-production installation being brought into a
particular operation.

7.
Non-production installations operated in Union waters
shall meet the requirements of relevant international conventions as defined in
Regulation 391/2009/EC of the European Parliament and of the Council of 23
April 2009[22] or the equivalent
standards of the Code for the construction and equipment of mobile offshore
drilling units (2009 MODU CODE). They shall be certified by an organisation
that is recognised by the Union in accordance with the aforementioned
Regulation.

Article 16
Power to prohibit activity

1.
The competent authority shall prohibit the operation
or bringing into operation of any installation or any part thereof where the
measures proposed by the operator for the prevention and mitigation of major
accidents pursuant to Articles 10, 11, 13 and 14 are considered seriously
deficient.

2.
Where the Major Hazards Report pursuant to
Articles 10 and 11, or notifications pursuant to Articles 13 and 14 are not
submitted on time, the competent authority may, in exceptional situations and
where it considers safety and environmental protection are not compromised,
agree a reduction in the time limit for submission of the Major Hazards Report
or notification.

3.
The competent authority shall require the
operator to take any suitable complementary measures that the competent
authority considers necessary to restore compliance pursuant to Article 3
paragraph 1.

4.
The competent authority shall prohibit the use
of any installation or any part thereof where the outcome of an inspection,
periodic review of Major Hazards Report pursuant to Article 10 and 11 or
changes to notifications pursuant to Articles 13 and 14 show that the
requirements of this Regulation are not met or there are reasonable concerns
about the safety of operations or installations.

Article 17
Transboundary effects

1.
Where a Member State considers that a well operation
or the operation of an installation may have significant negative effects on
waters of another Member State in the case of an accident, or where a Member
State likely to be significantly affected so requests, the Member State in
whose jurisdiction the operations are to take place, shall forward to the affected
Member State the relevant information and shall endeavour to adopt joint preventive
measures to prevent damages.

2.
Application of paragraph 1 is without prejudice
to other relevant provisions of Union Law, in particular Council Directive
85/337/EEC of 27 June 1985 on the assessment of the effects of certain public
and private projects on the environment[23] and the
Convention on Environmental Impact Assessment in a Transboundary Context.

Chapter IV
Best practice for control of major hazards

Article 18
Major accident prevention by operators

1.
Operators shall prepare a document setting out
their major accident prevention policy, and ensure that it is implemented
throughout the organisation of their offshore operations, including by setting
up appropriate monitoring arrangements to assure effectiveness of the policy.

2.
The document pursuant paragraph 1 shall be
submitted to competent authorities as a part of the Major Hazard Report
pursuant to Articles 10 and 11 or as the notification of well operations
pursuant to Article 13.

3.
Operators shall describe their organisational
arrangements for control of major  hazards in a safety management system,
including the arrangements for preparing and submitting major hazard reports,
and well notifications as appropriate, pursuant to Articles 10, 11 and 13 and
their schemes for independent third party verification of their major hazard
controls pursuant to Article 15, and Annex II part 5.

4.
The policy and safety management systems shall
be prepared in accordance with the requirements set out in Annex IV and shall
make clear the operator's primary responsibility for control of major hazard
risks, which are a result of its activities.

5.
Operators shall establish, and regularly consult
with the representatives of the relevant Member States pursuant to Article 27, the
industry priorities for preparing and/or revising standards and guidance for
best practice in control of offshore major accident hazards throughout the
design and operation lifecycle of offshore operations, and as a minimum shall follow
the outline in Annex IV.

6.
Licensees, operators and major contractors based
in the Union shall endeavour to conduct their offshore oil and gas operations when
outside the Union in accordance with the principles set out in this Regulation.

Article 19
Requirements for the competent authorities

1.
The competent authority shall make suitable arrangements
to ensure its independence from conflicts of interest between regulation of
safety and environmental protection, and functions relating to economic
development of the Member State, in particular licensing of offshore oil and
gas activities, and policy for and collection of related revenues.

2.
The competent authority shall make clear the
extent of its responsibilities and functions so as to not confer on itself
primary responsibility for control of major hazard risks, pursuant to Article 18,
paragraph 3.

3.
The competent authority shall establish a policy
for thorough assessment of Major Hazard Reports and notifications pursuant to
Articles 10,11, 13 and 14, inspection, investigation and enforcement of the
major hazard aspects of the offshore oil and gas operations in its
jurisdiction.

4.
The competent authority shall base its
organisation and operational procedures on the principles set out in Annex III.

Article 20
Securing compliance with the regulatory framework for major accident prevention

1.
Operators shall comply with this Regulation, and
with the measures established in the Major Hazards Report for production and
non-production installations and in the plans referred to in the well
notification and combined operations notification prepared, pursuant to
Articles 10, 11, 13 and 14.

2.
Where non compliance with the provisions of
paragraph 1 to this Article poses an immediate danger to human health or
threatens to cause an immediate significant adverse effect upon safety and/or the
environment, the operation of the installation or operation of relevant part
thereof shall be suspended by the operator, until compliance is restored.

3.
Where measures are taken as referred in
paragraph 2 to this Article, the operator shall, without delay, notify the
competent authority accordingly.

4.
The competent authority shall develop annual
plans for effective oversight, including inspections, of major hazard
activities based on risk and paying particular regard to, and verifying, compliance
with the documents submitted to it pursuant to Article 9, and shall monitor its
effectiveness and shall take any necessary measures to effect improvements
thereto.

Article 21
Anonymous reporting of safety concerns

1.
Competent authorities shall establish procedures
for allowing anonymous reporting of safety and/or environmental concerns
related to offshore oil and gas operations. Competent authorities shall also
establish procedures to investigate these reports while maintaining anonymity
of the individuals concerned.

2.
Operators shall communicate details of the national
arrangements pursuant to paragraph 1 to their employees, and to employees to
relevant subcontractors, and ensure that reference to anonymous reporting is
included in relevant training and notices.

Chapter V
Transparency and Sharing of information

Article 22
Sharing of information

1.
Operators and competent authorities shall share,
as a minimum, the information described in Annex VI.

2.
The Commission shall determine by means of
an implementing act a common data reporting format and the details of
information to be shared. This implementing act shall be adopted in accordance
with the advisory procedure referred to in Article 4 of Regulation (EU) No 182/2011.

3.
Member States shall keep updated records of
emergency response resources available in their jurisdiction by both public and
private entities. Those records shall be made available to other Member States
or potentially affected third countries and to the Commission.

Article 23
Transparency

1.
The information pursuant Annex VI shall be made
publicly available without a need for request pursuant to applicable provisions
of Union legislation on access to environmental information.

2.
The Commission shall by means of an implementing
measure also determine a common publication format that shall enable easy
cross-border comparison of data. This implementing act shall be adopted in
accordance with the advisory procedure referred to in Article 4 of the Regulation
(EU) No 182/2011. While remaining accessible to general public, the common
publication format shall be developed in view of the allowing for a reliable comparison
of national operations and regulatory practices pursuant to this Article and
Article 24.

3.
When publishing  their national emergency
response plans pursuant to Article 30 the Member States shall  ensure that
disclosed information does not pose risks to safety and security of offshore
oil and gas installations and their operation.

Article 24
Reporting on safety and environmental impact of offshore oil and gas activities

1.
The Member States shall prepare an annual report
concerning:

(a)     the number, age and location of
installations in their jurisdiction;

(b)     the number and type of inspections and
investigations performed, any enforcement actions, decided prosecutions;

(c)     incident data pursuant to the common
reporting system required in Article 22;

(d)     any major change in the offshore regulatory
framework;

(e)     the safety and environmental
performance of offshore oil and gas operations in their jurisdiction.

2.
Member States shall designate an authority to be
responsible for exchanging information pursuant to Article 22 and publication
of information pursuant to Article 23 and shall inform the Commission
accordingly.

3.
Every two years, the Commission shall publish
reports on the safety of offshore operations across the Union based on the
information reported to it by Member States and the European Maritime Safety
Agency. The Commission shall be assisted in this task by relevant Member States
pursuant Article 26.

Article 25
Investigation following a major accident

1.
Immediately following a major accident, the
operator shall notify the competent authority of relevant information,
including the circumstances of the accident, and its consequences.

2.
Member States shall conduct thorough
investigations of major accidents involving significant damage (to persons and
environment) or involving major loss of assets. The report of the investigation
shall include an assessment of the effectiveness of the competent authority's
regulation of the installation concerned in the time preceding the accident and
recommendations for adequate changes to the relevant regulatory practices where
needed.

3.
A summary of the investigation report prepared
pursuant to paragraph 2 of this Article shall be made available to the Commission
at the conclusion of the investigation or at the conclusion of legal
proceedings, whichever is the later. A specific version of the report, that
takes into account possible legal limitations, shall be made available publicly
with regard to Articles 22 and 23.

4.
Following its investigations pursuant to
paragraph 2, the competent authority shall implement any recommendations of the
investigation that are within its powers to act.

Article 26
Confidentiality

1.
Competent authorities shall make information received
pursuant to this Regulation available to any natural or legal person who so
requests.

2.
Requests for information obtained by the
competent authority under this Regulation may be refused where the conditions
laid down in Article 4(2) of Directive 2003/4/EC of the European Parliament and
of the Council[24] are fulfilled.

3.
Pursuant to paragraph 2, or for the purposes of
public participation pursuant to Article 5, the operator shall supply to the competent
authority, and make available to the public, a version of the document that excludes
confidential information.

Chapter IV
Coordination and cooperation

Article 27
Cooperation between Member States

1.
The competent authorities shall regularly exchange
knowledge, information and experience between themselves and shall engage in consultations
on the application of relevant national and Union legal framework with the
industry, other stakeholders and the Commission.

2.
Information exchanged pursuant to paragraph 1
shall concern, in particular, the functioning of the measures for risk
assessment, accident prevention, compliance verification and emergency response
related to offshore oil and gas operations within the Union, as well as beyond
its borders where appropriate.

3.
Clear priorities and procedures should be
established for the preparation and updating of guidance documents in order to identify
and facilitate the implementation of the best practices in areas pursuant to paragraph
2.

4.
A Member State may seek the opinion of other
Member States participating in the exchange of information pursuant to
paragraph 1 regarding any decision of another Member State that has potential
negative cross border impact.

Article 28
Coordinated approach towards the safety in adjacent regions and international
activities

1.
The Commission, in close cooperation with the
Member States, shall promote cooperation with third countries that undertake offshore
oil and gas operations in the same marine regions as Member States including,
where appropriate, within the framework of regional sea conventions.

2.
The Commission shall assess the safety of oil
and gas operations in the waters of the third countries adjacent to waters of
Member States and support a coordinated approach to mutual exchange of
experience and promotion of preventive measures and regional emergency response
plans.

3.
The Commission shall promote high safety
standards for offshore oil and gas operations at international level at
appropriate global and regional fora, including those related to Arctic waters.

Chapter VII
Emergency preparedness and response

Article 29
Requirements for internal emergency response plans

1.
Internal emergency response plans shall be prepared
by the operator so as to:

(a)     be initiated to contain an incipient
major accident within the installation, or within the exclusion zone
established by the Member State around the perimeter of the installation, or
subsea wellhead;

(b)     be operated in line with the external
emergency plan where the accident has escalated beyond the installation .

2.
The operator shall maintain equipment and
expertise relevant to the plan to be available at all times, and shared as
necessary with the Member State in the execution of the external emergency
response plan.

3.
The internal emergency plan shall be prepared in
accordance with the provisions of Annex V, and updated in line with any change
to the major hazard risk assessment in the well plan or Major Hazards Report as
appropriate. Any such updates shall be advised to the authority responsible for
preparing the external emergency response plans for the area concerned.

4.
Internal emergency response plan shall be
integrated with other provisions relating to protection and rescue of personnel
from the stricken installation so as to secure a good prospect of survival.

5.
The operator shall periodically test the
effectiveness of the internal emergency response plans.

Article 30
External emergency response plans and emergency preparedness

1.
Member States shall prepare external emergency
plans covering all offshore oil and gas installations and potentially affected
areas within their jurisdiction.

2.
External emergency response plans shall be
prepared with the cooperation of relevant operators and, as appropriate,
licensees, and aligned with the internal emergency response plans of the
installations stationed or planned in the subject area. Any update to the
internal plans advised by an operator should be taken into account.

3.
External emergency response plans shall be
prepared in accordance with the provisions of Annex I and V, and made available
to the Commission., and to the public as appropriate.

4.
Member States shall take all suitable measures
to achieve a high level of compatibility and interoperability of response
equipment and expertise between all Member States in a geographical region, and
further afield where appropriate. Member States shall encourage industry to
develop compatible response instruments in the spirit of this paragraph.

5.
Operators shall cooperate with Member States in
implementing the provisions of paragraph 4 of this Article.

6.
Member States shall keep updated records of
emergency response resources available in their territory or jurisdiction by
both public and private entities. Those records shall be made available to the
other Member States and, on a reciprocal basis, with neighbouring third countries,
and to the Commission.

7.
Member States and the operators shall regularly
test their preparedness to respond effectively to offshore oil and gas
accidents.

Article 31
Emergency response

1.
The operator shall immediately notify the relevant authorities
of a major accident or of a situation with immediate risk of major accident.
Where necessary, relevant authorities shall assist the operator concerned with
a view to preventing escalation of the risk or accident.

2.
In the event of an accident, the relevant authorities,
in cooperation with operators concerned, shall take all measures necessary to
prevent escalation of the accident and to mitigate its consequences.

3.
In the event of a major accident overwhelming
the national response capacities, an affected Member State may request
additional assistance from Member States and the European Maritime Safety
Agency through the EU Civil Protection Mechanism established by the Council
Decision 2007/779/EC.

4.
In the course of the emergency response, the Member
State shall collect the information necessary for a full analysis of the
accident.

Article 32
Transboundary emergency preparedness and response

1.
Where transboundary effects of offshore oil and
gas accidents are foreseeable, Member States shall make information available
to the Commission and potentially affected Member States or third countries on a
reciprocity basis and take identified risks into account when preparing the
external emergency plan. The Member States in question shall coordinate their
emergency plans to facilitate joint response to an accident.

2.
Member States shall coordinate measures related to
areas beyond the boundaries of the Union in order to prevent potential negative
affects of offshore oil and gas operations.

3.
Member States shall regularly test their
preparedness to respond effectively to accidents in cooperation with
potentially affected Member States, relevant EU Agencies or third countries. The
Commission may contribute to exercises focused on the test of cross-border and Union
emergency mechanisms.

4.
In the event
of a major accident, or of an imminent threat thereof, which causes or is
capable of causing transboundary effects, the Member State under whose
jurisdiction the emergency has occurred shall, without delay, notify the
Commission and those Member States which may be affected by the emergency.

Chapter VIII
Closing provisions

Article 33
Penalties

Member States shall establish penalties
applicable to infringements of this Regulation by the industry and shall take
all measures necessary to ensure that they are implemented. The penalties
provided for must be effective, proportionate and dissuasive.

Article 34
Delegated powers of the Commission

1.
The Commission shall be empowered to adopt
delegated acts in accordance with Article 35 of this Regulation to adapt the
requirements to the latest development of relevant technologies and procedures
in Annex I-VI.

2.
The Commission may also adopt delegated acts in
accordance with Article 35 of this Regulation to precise application of the
requirements of Regulation in relation to:

(a)     details to be submitted in a Design
notificaton or a Major Hazard Report as specified in Annex II points 1, 2, 3, 6;

(b)     notification of well/combined operations
as specified in Annex II, point 4 and 7;

(c)     requirements related to verification
by independent third party verification as specified in Annex II, point 5 (d)        requirements
for functioning and organisation of competent authorities as specified in Annex
III and;

(d)     requirements related to the prevention
of major hazards by operators as specified in Annex IV .

Article 35
Exercise of the delegation

1.
The power to adopt delegated acts is conferred
on the Commission subject to the conditions laid down in this Article.

2.
The delegation of power referred to in Article 34
shall be conferred on the Commission for an indeterminate period of time from
the date of the entry of this Regulation into force.

3.
The delegation of power referred to in Article 34
may be revoked at any time by the European Parliament or by the Council. A
decision of revocation shall put an end to the delegation of the power
specified in that decision. It shall take effect the day following the
publication of the decision in the Official Journal of the European Union or at
a later date specified therein. It shall not affect the validity of any
delegated acts already in force.

4.
As soon as it adopts a delegated act, the
Commission shall notify simultaneously the European Parliament and to the
Council.

5.
A delegated act adopted pursuant to Article 34
shall enter into force only if no objection has been expressed either by the
European Parliament or the Council within a period of 2 months of notification
of that act to the European Parliament and the Council or if, before the expiry of that period, the
European Parliament and the Council have both informed the Commission that they
will not object. That period shall be extended by 2 months at the
initiative of the European Parliament or the Council.

Article 36
Committee procedure

1.
The Commission shall be assisted by a committee.
The committee shall be a committee within the meaning of Regulation (EU) No
182/2011.

2.
Where reference is made to this paragraph,
Article 5 of Regulation (EU) No 182/2011 shall apply.

Article 37
Amendment to Directive 2004/35/EC of the European Parliament and of the Council
of 21 April 2004 on environmental liability with regard to the prevention and
remedying of environmental damage[25]

1.
Article 2(1)(b) of that Directive shall be
replaced by the following:

'(b) water damage,
which is any damage that significantly adversely affects

(i) the ecological, chemical and/or quantitative
status and/or ecological potential, as defined in Directive 2000/60/EC, of the
waters concerned, with the exception of adverse effects where Article 4(7) of
that Directive applies, or

(ii) the environmental
status of the marine waters concerned, as defined in Directive 2008/56/EC, in
so far as particular aspects of the environmental status of the marine
environment are not already addressed through Directive 2000/60/EC;'

2.
Member States shall bring into force the laws,
regulations and administrative provisions necessary to comply with the above
paragraph within one year of the entry into force of this Regulation. They
shall forthwith inform the Commission thereof.

Article 38
Transitional provisions

Operators of installations shall comply in
full with this Regulation within two years of it coming into effect, with the following
exceptions:

(a)     Operators for non-production
installations that are under contract but not yet established on location shall
comply in full with this Regulation within 1 year of it coming into effect, or
earlier by agreement with the competent authority.

(b)     Operators of planned installations
shall comply in full with this regulation unless otherwise agreed with the
competent authority, and in any case no later than within 1 year of it coming
into effect.

(c)     Well operators shall comply in full
with this Regulation within 3 months of it coming into effect, or earlier by
agreement with the competent authority.

Article 39
Entry into force

1.
This Regulation shall enter into force on the
day following that of its publication in the Official Journal of the European
Union.

2.
This Regulation shall be binding in its entirety
and directly applicable in all Member States.

Done at Brussels [......]

For the European Parliament                       For
the Council

The President                                                 The
President

ANNEX I
Public participation linked to authorisations under Directive 94/22/EC

1.
Member States shall ensure that:

(a)     the public is informed, whether by
public notices or other appropriate means such as electronic media where
available, about submission of licensing applications to Member States, and
that relevant information about such proposals is made available to the public
including inter alia information about the right to participate, and to whom
comments or questions may be submitted;

(b)     the public is entitled to express
comments and opinions when all options are open before decisions on the licensing
applications are made;

(c)     in making those decisions, due account
shall be taken of the results of the public participation;

(d)     having examined the comments and
opinions expressed by the public, the Member State makes reasonable efforts to
inform the public about the decisions taken and the reasons and considerations
upon which those decisions are based, including information about the public
participation process.

2.
Reasonable time-frames shall be provided
allowing sufficient time for each of the different stages of public
participation. The Member State shall identify the public entitled to
participate for the purposes of paragraph 1, including relevant
non-governmental organisations meeting any requirements imposed under national
law, such as those promoting environmental protection, or offshore safety.

ANNEX II
Requirements on documents related to consenting procedure

1.
Information to be submitted in a design notification
for a production installation

Design notification for a production
installation pursuant to Article 9 shall contain at least following information:

(1)          the name and address of the
operator of the installation;

(2)          a description of the process
applied to the design activity, the relevant standards used, and the design
options produced by this process;

(3)          a description of the selected
design concept in relation to the major hazard scenarios for the particular
installation and its location, and the primary risk control features;

(4)          a demonstration that the concept
reduces major hazard risks to an acceptable extent;

(5)          a description of the installation
and the conditions at its intended location;

(6)          a description of the types of
major hazard operations to be carried out;

(7)          a general description of the
safety management system by which the intended major hazard risk control
measures will be maintained in good effect, including the scheme of independent
verification to be selected.

2.
Information to be submitted in a Major Hazard Report
for operation of a production installation

Major Hazard Report for a production
installation pursuant to Article 10 shall contain at least following
information:

(1)          a description of the account
taken of the competent authority's response to the design notification;

(2)          a summary of any worker
involvement in the preparation of the major hazards report;

(3)          a description of the installation
and connected infrastructure and any other structures including wells connected
to it;

(4)          demonstration that all the major
hazards have been identified, their likelihood and consequences assessed, and
that their control measures are suitable so as to reduce risks of a major
hazard event to persons and the environment to an acceptable extent;

(5)          details of the types of
operations with major hazard potential to be carried out, and the maximum
number of persons that can be on the installation at any time;

(6)          details of plant and arrangements
to ensure well control, process safety, containment of hazardous substances,
prevention of fire and explosion, protection of the workforce from hazardous
substances, and protection of the environment from an incipient major hazard
event (in line with the internal emergency plan pursuant to Annex V);

(7)          details of the arrangements to
protect persons on the platform from major hazards, and to ensure their safe
evacuation and recovery and for the maintenance of control systems to prevent
damage to the installation and the environment in the event all personnel are
evacuated;

(8)          relevant codes, standards and
guidance used in the construction and commissioning of the installation;

(9)          information on the safety
management system for operations, maintenance, modification, and verification
schemes, including the main operational limitations of the installation to be
controlled by the management system;

(10)        information relating to the
verification scheme pursuant to section 5(2) to this Annex;

(11)        any other relevant details, for
example where two or more installations operate in combination in a way which
affects the major hazard potential of either or all installations;

(12)        the information relevant to ther requirements
under this regulation obtained pursuant to other applicable Union legislation
notably Directives 92/91/EC and 85/337/EEC;

(13)        a description of the aspects of
the environment likely to be significantly affected, an assessment of the
identified potential environmental effets, in particular releases of pollutants
to the environment, and a description of the technical and non-technical
measures envisaged to prevent, reduce or offset them, including monitoring.

3.
Information to be submitted in a major hazards report
for a non-production installation

Major Hazards Report for a non-production
installation pursuant to Article 11 shall contain at least following
information:

(1)          the name and address of the
operator of the installation;

(2)          a summary of any worker
involvement in the preparation of the major hazards report;

(3)          a description of the installation
and, in the case of a mobile installation, details of its means of transfer
between locations, and its stationing system;

(4)          details of the types of
operations with major hazard potential that the installation is capable of
performing, and the maximum number of persons that can be on the installation
at any time;

(5)          demonstration that all the major
hazards have been identified, their likelihood and consequences assessed, and
that their control measures are suitable so as to reduce risks of a major
hazard event to persons and the environment to an acceptable extent;

(6)          details of plant and arrangements
to ensure well control, process safety, containment of hazardous substances,
prevention of fire and explosion, protection of the workforce from hazardous
substances, and protection of the environment from an incipient major hazard
event (in line with the internal emergency plan pursuant to Annex V);

(7)          details of the arrangements to
protect persons on the platform from major hazards, and to ensure their safe
evacuation and recovery, and for the maintenance of control systems to prevent
damage to the installation and the environment in the event all personnel are
evacuated;

(8)          relevant codes, standards and
guidance used in the construction and commissioning of the installation;

(9)          demonstration that all the major
hazards have been identified for all activities the installation is capable of
performing, and that the risks of a major hazard event to persons and the
environment are reduced to an acceptable extent;

(10)        details of the environmental,
meteorological and sea-bed limitations on safe operations, and the arrangements
for identifying risks from sea-bed and marine hazards such as pipelines and
moorings of adjacent installations;

(11)        information on the safety
management system for operations, maintenance, and modification;

(12)        information relating to the
verification scheme pursuant to section 5(2) to this Annex;

(13)        any other relevant details, for
example where two or more installations operate in combination in a way which
affects the major hazard potential of either or all installations;

(14)        a description of the aspects of the environment likely to
be significantly affected, an assessment of the identified potential
environmental effets, in particular releases of pollutants to the environment,
and a description of the technical and non-technical measures envisaged to
prevent, reduce or offset them, including monitoring.

4.
Information to be submitted in a notification of well
operations

Well notification pursuant to Article 13
shall contain at least the following information:

(1)          the name and address of the well
operator;

(2)          the name of the installation to
be used and the owner;

(3)          details that identify the well
and any association with other wells or developments;

(4)          information on the well work
programme, including the period of its operation, verification of barriers
against loss of well control, and the intended status of the well at completion
of the operation;

(5)          any details concerning safety
equipment to be deployed that are not described in the current major hazards
report for the installation;

(6)          a risk assessment incorporating a
description of:

(a)     the particular hazards associated with
the well operation;

(b)     the subsurface hazards;

(c)     any surface or subsea activities which
introduce simultaneous major hazard potential;

(d)     suitable control measures;

(7)          details of well design, including
barriers to loss of well control (equipment, drilling fluids, and cement etc),
directional control of the well path, and limitations on safe operation in
keeping with the risk assessment;

(8)          details of the well configuration
at the end of operations – i.e. permanently or temporarily abandoned; and where
completed for future use;

(9)          in the case of an existing well,
pertinent information of its history, and conditionl

(10)        in the case of a modification to a
previously submitted well notification, sufficient details to fully update the
notification;

(11)        where a well is to be carried out
by means of a non-production installation additional information as follows:

(a)     details of the meteorological, marine
and sea-bed conditions at the location, including any physical obstructions
such as pipelines;

(b)     details of environmental conditions
that have been taken into account within the internal emergency plan for the
installation;

(c)     details of the provisions for
emergency response including in the case of a major accident to the environment
that are not described in the major hazards report, and;

(d)     a description of how the management
systems of the well operator and installation owner are to be coordinated to
ensure effective control of major hazards at all times.

(12)        a statement of independent ell
examination pursuant to part 5 (1) of this Annex;

(2)          the information relevant to ther
requirements under this regulation obtained pursuant to other applicable Union
legislation notably Directives 92/91/EC and 85/337/EEC.

5.
Matters relating to a verification scheme

1.
The independent third party shall meet the following
requirements with regard to its independence from the operator of the
installation, or the well operator:

(a)
his function does not require him to consider
any aspect of a safety critical element or specified plant in which he has had
prior involvement or where his objectivity might be compromised;

(b)
he is sufficiently independent of a management
system which has, or has had, any responsibility for any aspect of a component
in the independent scheme of verification or well examination so as to ensure
he will be objective in carrying out his functions within the scheme;

2.
The independent third party shall meet the
following requirements with regard to its competence:

(a)
technical competence, including suitably
qualified staff in adequate numbers and with sufficient experience;

(b)
suitable allocation of tasks by the operator to
staff qualified to undertake them;

(c)
suitable arrangements for the flow of
information between the operator and the independent third party;

(d)
sufficient authority given by the operator to
the independent third party to be able to perform his functions adequately;

3.
For the purposes of Article 13 paragraph 3, a
significant change to a well notification will include:

(a)     any change having potential to
infringe the original design intent of the well plan particularly in regard to
well control and other barriers to flow and their verification;

(b)     any material change to the plant or
equipment, or management system or well operator notified pursuant to Annex II
part 4;

(c)     any change to the risk assessment,
including where caused by conditions encountered during well operations.

Significant changes should be referred to the
independent well examiner for his further verification, and the outcomes of
further verification should be advised to the competent authority.

4.
In the case of a well notification, a statement shall
be included from an independent well examiner that the risk assessment relating
to well design and its barriers to loss of control are suitable for all
anticipated conditions and circumstances.

5.
In the case of operation of an installation, the
Major Hazards Report shall include:

(a)     a statement from the independent third
party verifier that the record of safety critical elements and the scheme of
maintenance of them as specified in the major hazards report are or will be suitable;

(b)     a description of the verification
scheme including the selection of independent third party verifiers, the means
of verification that safety critical elements and any specified plant in the
scheme remain in good repair and condition;

(c)     the means referred in subparagraph 5(b)
shall include examination and testing as necessary of the safety critical
elements by independent and competent persons, verification of the design,
standard, certification or other system of conformance of the safety critical
elements, examination of work in progress, the reporting of any non-compliances,
and remedial actions taken by the operator;

6.
Information to be provided in respect of a major
change to an installation, including removal of a fixed installation

Where major changes are to be made on the
installation, the information provided to competent authority pursuant to
Articles 10 and 11 shall contain at least following information:

1.
the name and address of the operator of the
installation;

2.
a summary of any worker involvement in the
preparation of the revised Major Hazards Report;

3.
in the case of a major modification, sufficient details
to fully update the earlier Major Hazard Report and associated internal
emergency plan for the installation and to demonstrate major hazard risks are reduced
to an acceptable extent;

4.
in the case of taking a fixed production
installation out of use:

(a)     means of isolating all hazardous
substances and in the case of wells connected to the installation, the
permanent sealing of the wells from the installation and the environment;

(b)     a description of major hazard risks
associated with the dismantlement of the installation, the total exposed
population, and the risk control measures;

(c)     emergency response arrangements to
secure safe evacuation and recovery of personnel and to prevent a major
accident to the environment.

7.
Information to be submitted in a notification for
combined operations

The notification for combined operations
pursuant to Article 14 shall contain at least following information:

(1)          the name and address of the
operator preparing the notification;

(2)          in the event that other operators
are involved in the combined operations their names and addresses, including a
confirmation that they agree with the contents of the notification;

(3)          a description of how the
management systems for the installations involved in the combined operation
will be coordinated so as to reduce the risks from a major accident;

(4)          details of any equipment to be
used in connection with the combined operation but which is not described in
the current Major Hazards Report for any of the installations involved in the
combined operations;

(5)          a summary of the risk assessment
performed by all operators involved in the combined operations, which shall
include:

(a)     a description of any activities during
the combined operation which may involve hazards with the potential to cause a
major accident on or in connection with an installation;

(b)     a description of any risk control
measures introduced as a result of the risk assessment.

(6)          a description of the combined
operation and a programme of work, which shall include the dates on which the
combined operation is expected to commence and finish and a copy of an
agreement between the operators involved in the combined operations;

ANNEX III
Provisions by competent authorities for regulation of major hazards operations

1.
For the purposes of appointing a competent
authority responsible for the regulatory functions in this regulation relating
to safety and environmental protection, Member States shall address the
following minimum criteria:

(a)     organisational arrangements which
allow all duties in this regulation to be effectively discharged, including
arrangements for regulating safety and environmental protection in an equitable
manner;

(b)     A policy statement addressing the aims
of oversight and enforcement, and how the competent authority will achieve
transparency, consistency, proportionality and objectivity in its regulation of
offshore oil and gas activities. The competent authority should also make clear
to the public the division of responsibilities of the regulator from the
operator, the latter having primary responsibility for controlling risks, the
former responsible for verifying that the operator has adequate measures in
place that are likely to be effective in controlling major hazard risks;

(c)     a strategy statement that describes
the functions of the competent authority, its priorities for action (for
example in design and operation of installations, integrity management and in
emergency preparedness and response), and how it is organised;

(d)     operating procedures that describe how
the competent authority will inspect and enforce against the duties of
operators under this regulation, including how it will handle, assess and
accept major hazard reports, handle well notifications and how the intervals
between inspection of major hazard risk control measures (including to the
environment) for a given installation or activity are to be determined;

(e)     procedures for discharging the
functions of the competent authority under this regulation without prejudice to
other responsibilities, for example onshore oil and gas operations, and
arrangements pursuant to Directive 92/91/EC;

(f)      where the competent authority
comprises two or more agencies, a formal agreement establishing the necessary
mechanisms for joint operation of the competent authority, including senior
management oversight and monitoring and reviews, joint planning and inspection,
division of responsibilities for handling major hazards reports, joint
investigation, internal communications, and external reporting.

2.
Member States should make the necessary
provisions to bring the above arrangements into effect, including:

(a)     sufficient specialist expertise
available internally or by an external arrangement to inspect and investigate
activities, take enforcement action, and to handle major hazard reports
andnotifications;

(b)     where there is reliance on external
sources of expertise, sufficient written guidance and oversight to maintain
consistency of approach and to ensure the legally appointed competent authority
retains full responsibility under this regulation;

(c)     adequate resources for essential
training, communication, access to technology, travel and subsistence of
competent authority staff in their regulatory functions, and so as to permit
the active cooperation between competent authorities pursuant to Article 27;

(d)     where appropriate, to require
operators and/or installation owners to indemnify the competent authority for
the cost of its functions carried out pursuant to this regulation;

(e)     to undertake or instigate research
pursuant to the competent authority's functions under this regulation;

(f)      for the competent authority to make
reports.

3.
Procedures for the assessment of the Major
Hazards Report and notifications, internal emergency plans and other relevant
documents shall include:

(a)
a quantitative risk assessment analysis;

(b)
an assessment of operator's judgement on the
relevant details of the location of operations;

(c)
an assessment of the technical and
organisational standards used;

(d)
an assessment of engineering solutions;

(e)
an assessment of operator's arrangements for
management of changes to operational plans;

(f)
a comparison of the solutions used with the
solutions used in other comparable situations;

(g)
an assessment of the consistency of the
emergency plans with the risks identified;

(h)
an assessment of the operator's arrangements for
halting the operations in cased of imminent risk;

(i)
an assessment of the availability of emergency
response equipment and adequacy of procedures to effectively put it in use;

4.
Competent authorities should be clearly
independent of any government organisation for industry sponsorship, or for
licensing or revenue collection. The competent authority should not adopt any
political stance regarding the oil and gas sector.

ANNEX IV
Provisions by operators for prevention of major accidents

1.
For the purposes of implementing the operator's
major accident prevention policy and safety management system pursuant to
Article 18, account should be taken of the following:

(a)     the major accident prevention policy
should be established in writing and shall establish the overall aims and
organisation for control of major accident hazards, and how these arrangements
are put into effect at corporate level;

(b)     the safety management system should be
integrated within the overall management system for the operator and shall
include organisational structure, responsibilities, practices, procedures,
processes and resources for determining and implementing the major hazards
policy.

2.
The safety management system shall include but
not be limited to:

(a)     organisation structure and personnel
roles and responsibilities;

(b)     identification and evaluation of major
hazards – their likelihood and consequences;

(c)     integration of environmental impact
into major hazard assessments in the major hazards report;

(d)     controls of the major hazards during
normal operations;

(e)     management of change;

(f)      emergency planning and response;

(g)     limitation of damage to the
environment;

(h)     monitoring of performance;

(i)      audit and review arrangements.

3.
Operators shall pay particular attention to
evaluation of the reliability and integrity requirements of all safety critical
systems and base their inspection and maintenance systems on achieving this
level of safety integrity.

4.
Operators shall ensure that hazardous substances
are at all times contained within the pipelines, vessels and systems intended
for their safe confinement. In addition, operators shall ensure that no single
failure of a barrier to loss of containment can lead to a major hazard
incident.

5.
Operators shall ensure they have a suitable
framework for monitoring compliance with all relevant statutory provisions by
incorporating their statutory duties in respect of major hazards safety and
environmental protection into their standard operating procedures.

6.
Operators shall pay particular attention to
building and maintaining a strong safety culture with a high likelihood of
continuous safe operation including but not limited to:

(a)     extensive process auditing;

(b)     rewarding and recognising desired
behaviours;

(c)     regular evaluation of the
organisations capabilities and goals;

(d)     maintaining high standards as a corporate
core value;

(e)     formal command and control systems
that include involving senior management and workforce, and;

(f)      competency at all levels of the
operation.

7.
Industry shall cooperate with the competent
authority to establish and implement a priority plan for the development of
standards, guidance and rules which will give effect to best practice in major
hazards prevention and limitation of consequences of major hazards should they
nonetheless occur. The matters to be considered should include:

(a)     improving well integrity, well control
equipment and barriers and monitoring their effectiveness;

(b)     improving primary containment in
process safety systems;

(c)     improving secondary containment that
restricts escalation of an incipient major accident, including well blow-outs;

(d)     reliable decision making in high
pressure environments;

(e)     management and supervision of major
hazard activities;

(f)      competency of key post holders;

(g)     effective risk assessment for
evaluating changing conditions;

(h)     reliability assessment for safety
critical systems;

(i)      key performance indicators of safety
system integrity;

(j)      effectively integrating safety
management systems between operators, well operators, rig owners and others involved
in combined operations.

ANNEX V
Requirements related to emergency preparedness and response

1.
Internal emergency plans

1.
Internal emergency plans should include but not
be limited to:

(a)     names or positions of persons
authorized to initiate emergency procedures and the person directing the
internal emergency response;

(b)     name or position of the person with
responsibility for liaising with the authority responsible for the external emergency
plan;

(c)     for all foreseeable conditions or
events which could cause a major accident, as described in the major hazards
report to which the plan is attached;

(d)     a description of the actions which
should be taken to control the conditions or events and to limit their
consequences to within the installation and its exclusion zone;

(e)     a description of the equipment and the
resources available;

(f)      arrangements for limiting the risks
to persons on the installation, including how warnings are to be given and the
actions persons are expected to take on receipt of a warning;

(g)     arrangements that coordinate with the
recovery arrangements described in the major hazards report for example as
described in Annex II, part (2) (7), and part (3) (7) to secure a good prospect
of survival for persons on the installation during a major accident;

(h)     arrangements for providing early
warning of the accident to the authorities responsible for initiating the
external emergency plan, the type of information which should be contained in
an initial warning and the arrangements for the provision of more detailed
information as it becomes available;

(i)      arrangements for training staff in
the duties they will be expected to perform, and where necessary coordinating
this with external emergency responders;

(j)      arrangements for coordinating
internal emergency response with external emergency response.

2.
Operators should prepare an inventory of
available equipment, its ownership, location, transport to and mode of
deployment at the installation. The inventory should identify measures in place
to ensure equipment and procedures are maintained in operable condition.

2.
External emergency plans

1.
External emergency plans shall include but not
be limited to:

(a)     names or positions of persons
authorized to initiate emergency procedures, and of persons authorized to
direct the external emergency response;

(b)     arrangements for receiving early
warning of accidents, and the associated alert and callout procedures;

(c)     arrangements for coordinating
resources necessary to implement the external emergency plan;

(d)     arrangements for providing assistance
to the internal emergency plan which deals with events on the installation and
in the exclusion zone around it;

(e)     a detailed description of the offsite
emergency response arrangements;

(f)      arrangements for providing persons
and organisations that may be affected by the accident with suitable
information and advice relating to the accident;

(g)     arrangements for the provision of
information to the emergency services of other Member States and the Commission
in the event of a major accident with possible transboundary consequences;

(h)     arrangements for the mitigation of the
negative impacts on wildlife both onshore and offshore including the situations
where oiled animals reach shore earlier than the actual spill.

2.
The authority primarily responsible for
emergency respnse should make the following provisions available:

(a)     an inventory of available equipment,
its ownership, location, transport to and mode of deployment at the
installation;

(b)     a description of the measures in place
to ensure equipment and procedures are maintained in operable condition;

(c)     an inventory of industry owned
equipment that can be made available in an emergency;

(d)     a description of the general
arrangements for offshore oil and gas emergencies, including competencies and
responsibilities of all involved parties and the bodies responsible for
maintaining such arrangements;

(e)     measures to ensure that equipment,
staff and procedures are ready to operate and up to date at all times.

3.
External emergency response plans shall clearly
explain the role of relevant authorities, emergency responders, coordinators
and other subjects active in emergency response, so that cooperation is ensured
in all emergencies.

4.
Arrangements should include provisions for a
major accident that potentially overwhelms the Member State or exceeds its
boundaries by:

(a)     sharing plans with adjacent Member
States and the Commission;

(b)     compiling cross-border inventories of
response assets, both industry and nationally owned and all necessary
adaptations to make equipment and procedures compatible between adjacent
countries and Member States;

(c)     procedures for invoking the EU Civil
Protection Mechanism (as established by Council Decision 2007/779/EC);

(d)     arranging cross boundary exercises of
external emergency response exercises.

ANNEX VI
Sharing of information and transparency

1.
A common data reporting format for major hazard
indicators to be developed by the Commission pursuant to Articles 22 and 23
shall allow for comparing information between Member States and individual
operators.

2.
The defining reporting requirements referred to
in paragraph 1 shall contain as a minimum the following information and data:

(a)     information relating to unintended
release of hydrocarbons or other hazardous substances, whether or not ignited;

(b)     information related to loss of well
control requiring actuation of well control equipment, or failure of a well
barrier requiring its replacement or repair;

(c)     failure of a main component of the
installation's process safety system;

(d)     significant loss of structural
integrity, or loss of protection against the effects of fire or explosion, or
loss of station keeping in a floating installation;

(e)     vessels on collision course and actual
vessel collisions with an offshore installation;

(f)      helicopter accidents, on or near
offshore installations or en route to offshore installations;

(g)     any fatal accident;

(h)     any serious injuries to 5 or more people
in the same accident;

(i)      any evacuation of non essential
personnel;

(j)      a major accident to the environment.

3.
The information referred to in paragraph 2 shall
consist of both factual information and analytical data regarding oil and gas
operations, and shall be unambiguous. The information and data provided shall
be such that the performance of individual operators can be compared, not only
within the Member State but also among the industry as a whole between Member
States.

4.
The aim of collecting and assembling the
information referred to in paragraph 2 is to provide advanced warning for
(further) deterioration of safety and environmentally critical barriers, in
order to take proactive corrective measures. The information should also
establish the overall effectiveness of measures and controls implemented by
individual operators and industry as a whole, in particular to prevent major
accident hazards and to minimize risks for the environment.

5.
In order to meet the requirements of Article 23,
a simplified format shall be developed to facilitate publication of relevant
data pursuant to paragraph 2 and preparation of Reports pursuant to Article 24
in a way that is easily accessible to public and facilitates cross border
comparison of data.

[1]               Examples: Deepwater Horizon in the US in 2010 (11
killed), Montara in Australia 2009, Usumacinta in Mexico in 2007 (22 killed)

[2]               Such as oil & gas leaks, failures of production
process safety and drilling well control; failure due to invalid design change;
high number of maintenance backlogs of safety critical elements. Recent
incidents examples: Gullfaks C in May 2010, Gannet F, 2011; both in the North
Sea

[3]               COM(2010) 560 final

[4]               OJ L 175, 5.7. 85, p. 40.

[5]               OJ L 73, 14.3. 97, p.5.

[6]               OJ L 156, 25.6.03, p.17.

[7]               OJ L 140, 5.6.2009, p.114.

[8]               The operational center of the Civil Protection
Mechanism.

[9]               EMSA was established in the aftermath of the Erika
(1999) and Prestige (2002) tanker disasters for the purpose of ensuring a high,
uniform and effective level of safety, security, prevention of pollution and
response to pollution at sea.

[10]             SEC (2010) 1346: Energy 2020, A strategy for
competitive, sustainable and secure energy.

[11]             The Berlin Forum (aka. Fossil Fuels Forum) is an annual
stakeholder meeting convened by the Commission. Between the annual plenary
sessions, three working groups hold regular meetings to discuss topical issues.

[12]             In other legal acts covering
high risk/ high value industries, there has been a past preference for
Directives e.g. IPPC or SEVESO II Directive), whereas narrower high risk
sectors, such as civil aviation, often use Regulation for their legal
framework.

[13]             OJ C , , p. .

[14]             OJ C , , p. .

[15]             OJ L 164, 25.6.2008, p. 19.

[16]             OJ L 143, 30.4.2004, p. 56

[17]             OJ L 183, 29.6.1989, p. 1

[18]             OJ L 348, 28.11.1992, p. 9

[19]             Code for the construction and equipment of mobile
offshore drilling units, 2 December 2009 (2009 MODU Code)

[20]             OJ L 55, 28.2.2011, p. 13

[21]             OJ L 240, 19.9.1977, p. 1.

[22]             OJ L 131, 28.5.2009, p. 11

[23]             OJ L 175, 5.7.1985, p. 40

[24]             OJ L 41, 14.2.2003, p. 26

[25]             OJ L 154, 30.4.2004, p. 56

ANNEXES

Annex I || Additional analytical background to baseline scenario

Annex II || List of main meetings with stakeholders

Annex III || Underlying drivers of the problem

Annex IV || Additional analysis of economic, social and environmental impacts

Annex V || Summary of EU acquis applicable to offshore oil and gas activities

Annex VI || Public Consultation questionnaire

Annex VII || Results of the public consultation on improving on Improving offshore safety, health and environment

Annex VIII || Questionnaire to offshore industry

Annex IX || List of studies taken into account

Annex X || Issues amending current legislation (Directives 2004/35/EC, 92/91/EEC and 96/82/EC)

Annex XI || Description and evaluation of the implementation options for individual measures

Annex XII || Overview of industry initiatives (GIRG and OSPRAG)

Annex XIII || Benchmarking between industry sectors and countries

Annex
I:      Additional
analytical background to baseline scenario

This annex addresses the baseline scenario
which corresponds to Option 0. It evaluates semi-quantitatively the
annualized economic cost of offshore accidents in the EU-27, assuming that no
additional EU action/intervention takes place. Because only part of the costs of offshore accidents can be
quantified and/or monetised, the purpose of this annex
is to define a baseline scenario against which a partial
cost-benefit analysis[1]
of proposed policy options can later be performed. As such, this annex aims to
quantify expected costs where reliable data is available, but it also highlights
important qualitative evidence as well as indicative figures that policymakers
should also incorporate into their analysis of costs
and benefits.

1. Potential costs of an offshore
accident

The negative impacts of an accident are
hard to quantify precisely; they will of course depend on the type, the scale,
the time and the location of the event. In the case of an oil spill, its
duration and the type of the oil will also have a major impact. The costs of an
offshore accident will include costs to the operator(s) (damage to the
installation, lost oil, containment, cleanup, litigation etc.) and third-party
costs to victims, to natural resources, the government and the affected
individuals/businesses (incl. lost income).

This section will focus on quantifying the
two largest directly quantifiable categories of cost incurred as a result of
major offshore accidents:

·
infrastructure losses; and

·
losses associated with oil spills.

The indirect impacts of offshore accidents
– their effects on oil prices, the health of the oil industry, or security of
energy supply, for example – are not rigorously addressed in this section.
These costs may be very substantial, although they are difficult to reliably quantify. For instance, because the price of oil influences the cost
of many goods and services in the European economy, oil production shortfalls
resulting from major accidents can have a profound economic cost, albeit one
that is impossible to measure. In addition, the large revenues in the offshore
sector mean that government imposed drilling moratoria may result in
significant economic losses. Some have argued that the moratorium on
exploratory drilling in the Gulf of Mexico following Deepwater Horizon may have
cost billions of dollars and tens of thousands of jobs.[2] Although an in-depth analysis
of indirect factors such as those above goes beyond the scope of this report,
policymakers should attempt to qualitatively include such factors in any
cost-benefit analysis of policies aimed at improving offshore safety.

Furthermore, this section restricts itself
to addressing the property losses of ‘major accidents’, defined[3] as accidents resulting in at
least one of the following:

·
multiple fatalities;

·
total loss[4]
or severe damage[5]
to offshore units;

·
a minimum of 1000 barrels, or 136 tonnes, of oil
spilt.

Non-major accidents, such as trips, slips
and falls, result in less economic loss per incident, but are much more common.
Although they are not included in the analysis, these may also decrease as a
result of the policies proposed.

Finally, this report does address the costs
related the loss of human life (the statistical value of a life is put at €1-2
million by the European Commission[6]
and at £1.5 million by the UK HSE[7]).
The monetization of human life can pose ethical difficulties, and loss-of-life
costs are not estimated to be significant when put into the context of the very
large costs this report focuses on.

In light of the difficulties in
quantifying the true economic cost of offshore accidents in Europe, this annex
aims to use to present policymakers with a broad, but reliable, cost range that
is based on the best available data as well as notable case studies.

The Deepwater Horizon disaster demonstrated
how huge and far-reaching the consequences of a single accident can be, particularly as regards maritime and coastal pollution. 11 people lost their lives, an estimated 4.9 million barrels
(660,000 tonnes) of oil were spilled into the sea and a state-of-the-art
drilling rig, valued at US$560 million, was written off as a total loss in the
disaster[8].
The oil spill occasioned a response effort involving 48,000 people, 6,500
vessels and 125 aircraft at its peak.[9]
Total damages are estimated to reach tens of billions of dollars. In early
2011, BP estimated its costs related to the accident (including costs incurred
by the end of 2010 and estimated obligations for future costs) at 40.9 billion
dollars.[10]
The company committed to pay US$20 billion over a three and a half year period
into a Trust Fund out of which legitimate claims are met.

Even a company like BP, one of the largest
multinational oil companies, has been shaken by such an accident. In two
months, its shares lost more than half their value and still trade well below
the pre-accident level. In order to be able to pay the related costs
(containment and cleanup, claims from affected businesses and individuals,
potential fines/penalties[11]
etc.) the company suspended the payment of dividends and initiated a US$30
billion asset divestment program.

Whilst this accident provides one important
indication of the potential costs of a similar incident in European waters,
significant juridical differences between the US and EU limit the scope for
direct comparison. Additionally, the cost of an oil
spill depends on a number of variables other than just the simple volume of
spillage (see Table 1: Factors affecting the cost of oil spills other than
spill volume), and the conditions in much of Europe are unique. For
example, a spill in a closed sea with limited natural
circulation of water – such as the Mediterranean, the
Black or Baltic Seas – will present a different set of challenges than a spill
in the Gulf of Mexico. For these reasons, it is important to draw on previous
European case histories as much as possible.

Table 1: Factors affecting the cost of oil spills other than spill volume[12]

Location: The costs incurred per unit of spilled oil vary greatly depending on the spill’s location. For example, the extent to which the oil reaches the shoreline is a significant factor boosting the costs of a spill. Moreover, the temperature of the water can make a large difference to its dispersal. Finally, spills can variably reach environmentally or economically sensitive areas, fishing zones or areas with other maritime activities, enhancing the litigation and clean-up costs.

Type of oil: Oil grades vary in terms of gravity, viscosity, volatility, toxicity and other properties, making them more or less difficult and costly to clean up.

Season/weather: In some cases, natural forces serve to either decrease or increase the potential financial impact of an oil spillage. For example, wind speed and cloudiness can respectively affect the dispersal and evaporation of oil spills on the water’s surface. Weather conditions can obviously influence the response efforts as well.

Clean up response/method: In addition to the above variables, the chosen mode of response depends on the legal and regulatory regime governing pollution of the environment. When clean-up methods are required (i.e. when natural clean-up is deemed deficient), the cost of dispersants, in-situ burning and the use of tools such as booms, as well as total labour costs need to be taken into account.

Statistically, the vast majority of
reported major accidents in Europe do not result in significant spillages of
oil, certainly not at a scale similar to the Gulf of Mexico disaster.[13] In spite of this, the loss of
life and/or damage to infrastructure resulting from the most common major
accidents – helicopter crashes, explosions, collisions and capsizes – can be
very significant. In these cases, the costs are borne by the operator and its
insurer, and principally include asset loss, salvage and repair operations and
compensation claims. Case histories of such accidents indicate that these costs
sometimes run into hundreds of millions of euros, and may exceed €1 billion
depending on their severity and the extent of damage, as demonstrated by the
Piper Alpha accident (see Table 2: Major property damage losses to North Sea
offshore facilities).

Table 2:
Major property damage losses to North Sea offshore facilities[14]

Installation || Location || Type || Date || Cause || Cost || Loss of Human Life

Piper Alpha || UK – North Sea || Platform || 6/7/1988 || Explosion || $1.6 billion || 167

Ekofisk || Norway – Continental Shelf || Unmanned platform || 4/6/2009 || Collision || $750 million || 0

Sleipner A || Norway – Continental Shelf || Concrete deepwater structure || 23/8/1991 || Structural failure || $720 million || 0

Ocean Odyssey || UK – North Sea – Shearwater Field || Semi-sub drilling rig || 22/9/1988 || Blowout || $98 million || 1

In cases where there is a significant
release of oil and/or gas, additional major costs derive from clean-up and
removal costs, impairment of natural resources and correlated economic
activities, potential fines or penalties, as well as legal liabilities to third
parties, e.g. for loss of earnings in the fishing and tourism sectors. The
Deepwater Horizon disaster has demonstrated that these costs can be many times
that of the loss of infrastructure, particularly in the case of incidents known
as blowouts[15],
where formation fluid flows out of the well or between formation layers after
all the predefined technical well barriers or the activation of the same have
failed.[16]

Insurance
companies consider that, in the offshore sector, blowouts carry the biggest risk
in terms of the extent of damage. This is because of the potentially great
spill volumes involved in such incidents – one significant reference point for
assessing the costs of an offshore incident. While oil spills can also occur as
a result of other types of incidents (e.g. collisions, pipeline ruptures), the
overall amount of oil released in those cases is likely to be limited. In the
case of a blowout, however, oil may be released at a high rate for weeks, or
even months, until either successful intervention stops the flow of oil or
pressure within the oil reservoir diminishes sufficiently. Because of this, the
reinsurer Munich RE proposed in September 2010 a mechanism that would allow the
global insurance and reinsurance industry to provide Gulf of Mexico operators
with up to a US$20 billion cushion for specialized drilling operations;
significantly more than the US$1-1.5 billion limit that covers on the
international insurance market are generally subject to.[17]
Historical data show that the two largest accidental oil spills at sea have
been caused by blowouts (see Table 3: The 10 largest accidental oil spills in the last 50 years).

Table 3:
The 10 largest accidental oil spills in the last 50 years[18]

Tanker/installation || Location || Type || Date || Spill volume (tonnes)

Deepwater Horizon || United States || Blowout || 2010 || 666,400

Ixtoc 1 || Mexico || Blowout || 1979 || 476,000

Atlantic Empress || Trinidad and Tobago, Barbados || Tanker || 1979 || 287,000

Nowruz Oil Field || Iran || Blowout[19] || 1983 || 272,000

ABT Summer || Angola || Tanker || 1991 || 260,000

Castillo de Bellver || South Africa || Tanker || 1983 || 252,000

Amoco Cadiz || France || Tanker || 1978 || 223,000

Haven || Italy || Tanker || 1991 || 144,000

Odyssey || Canada || Tanker || 1988 || 132,000

Torrey Canyon || UK || Tanker || 1967 || 119,000

The largest oil
spill in Europe resulting from offshore oil activities probably occurred on the
Ekofisk Bravo platform in Norwegian waters. As a result of a blowout in April
1977, an estimated 80,000–126,000 barrels of oil (about 2% of the Deepwater
Horizon spill) was discharged during the course of a week before the leak was
stopped.[20]
Rough seas and higher than average air temperatures aided the break up of much
of the spilled oil, and as a result no major ecological damage resulted.[21]

Given the low frequency of major oil
spillages from offshore facilities in Europe, another way of estimating
the financial cost of potential spills is to use figures from tanker
spills as a proxy for such accidents, mindful of some qualifications.[22] There have been several such
disasters in the European maritime transport sector which demonstrated the
potential consequences of an oil spill. The sinking of the Erika and the
Prestige tankers in 1999 and in 2002, respectively, triggered new
EU-legislation as regard to maritime transport.

Although the
volumes spilled were much lower than in the case of the Deepwater Horizon, the Erika and Prestige accidents are considered the greatest
environmental disasters to ever hit France and Spain, respectively. In case of the Erika, about 19,000 tonnes of the 30,000 tonnes of
heavy fuel it was carrying were spilled. About 400 kilometres of coastline were
polluted, causing serious damage to marine and bird
life, fisheries and tourism. In 2000, these damages
were valued at € 400 million.[23] In case of the Prestige tanker, it is
thought that more than 80% of its 77,000 tonne load of fuel oil was released
into the sea. The oil spill polluted thousands of kilometres of Spanish and
French coastline, as well as causing great harm to the local fishing industry.
According to some estimates, the damages amounted to over € 5 billion.[24]

Because more comprehensive data exist for
tanker spills, studies have used these data to propose an indicative cost per
unit of oil spilled – an exercise that addresses the analysis-skewing effects
of concentrating on a select few high-profile cases. In March 2010, the
International Maritime Organization’s Marine Environment Protection Committee
considered independent statistical studies by Greece, Japan and Norway on
global oil spill compensation data. These studies showed very similar
non-linear functions of total spill cost versus spill weight, obtained by
regression (see Table 4: Non-linear functions of total spill costs (obtained
by regression)). The body decided to use the formula proposed by Greece as
its basis for their volume-dependent calculations of spill costs.

Table 4: Non-linear functions of total spill costs (obtained by
regression)[25]

Reference || Total spill cost function, V = spill weight (tonnes) || Data source

Japan: Yamada 2009 (MEPC 59/17/1) || 38,735V0.66 || IOPCF[26]

Norway: Psarros et al. 2009 (MEPC 59/INF.21) || 60,515V0.647 || IOPCF, Safeco project

Greece: Kontovas et al. 2009 (MEPC 60/17, annex 2) || 51,432V0.728 || IOPCF

Care must be taken when
using compensation costs as a proxy for the true economic cost of an oil spill
because the scope of the compensation regimes and the admissible claims are not
all-inclusive (for example, they may exclude long-term damage to ecosystems),
and the total amount of compensation is capped. Formulae derived from such data
therefore underestimate true spill costs. Using the IMO formula 51,432V0.728,
the costs of the Deepwater Horizon oil spill would be just over US$893 million,
a figure around 45 times smaller than the costs estimated by BP.

The above
illustrates how the experience of previous tanker oil spills can lead to the
underestimation of the costs associated with the Deepwater Horizon disaster.
This is because existing conventions stipulate that compensation is only
payable for the costs of “reasonable” measures taken to combat oil at sea and
to protect resources vulnerable to oil. However, major and long-lasting oil
spills often give rise to strong public reactions putting the government and
other public authorities responsible for spill response under considerable
pressure to intervene. Offshore blowouts pose the greatest risk in terms of
sheer spill volume, and influences such as the above were unquestionably in
operation during the months the Deepwater Horizon disaster lasted. The
Commission believes that should a comparable blowout occur in European waters,
it can be expected that similar public sentiments and political pressures would
drive up the ultimate costs of cleanup and compensation. This view is
reinforced by the UK House of Commons conclusion that: “Given the high costs of
the incident in the Gulf of Mexico, we believe that the OPOL (Offshore Pollution
Liability Association) limit of $250 million is insufficient.”[27]

Given the shortcomings of the IMO formula,
an alternative source on spill costs can be found in a study by Dagmar Etkin.
This sought to approximate per-unit marine oil spill clean-up costs in different
geographic locations by examining historical data.[28] In general, spills in
more-developed nations with high labour costs, complex regulations for spill
response and high standards for environmental protection were found to be more
expensive. Some of the data from this study are presented in Table 5:
Average Per-Tonne Marine Oil Spill Clean-up Costs by Country (1999 US$). It
should be noted that these figures are for clean-up costs alone, and do not include
third-party damage claims or natural resource damage costs which may be
incurred in addition. The drawback of a fixed per-unit scale such as this is
that smaller spills are more expensive on a per-unit basis than larger ones,
and therefore this analysis may overestimate the clean-up cost of very large
spills. According to the figures in this table, the clean-up costs of the
Deepwater Horizon oil spill would be US$18.8 billion – an amount around 38% above
BP’s own spill-response figures of US$13.6 billion.[29] Nevertheless, this figure is
much more in line with the Deepwater Horizon experience than the figures for
tanker spills used by the IMO, and as such will be used as a basis for
calculations further on in this annex.

Table 5: Average Per-Tonne Marine Oil Spill Clean-up Costs by
Country (1999 US$)

Denmark || 12,324.29

Estonia || 7,518.45

Finland || 2,331.71

France || 2,537.06

Germany || 11,797.67

Greece || 9,403.04

Ireland || 5,299.35

Italy || 7,210.43

Latvia || 10,154.88

Lithuania || 86.11

Netherlands || 7,336.29

Norway || 25,483.32

Spain || 483.56

Sweden || 17,242.75

UK || 3,398.21

United States || 28,235.30

A final source
on the potential costs of a blowout in Europe is environmental reports from the
offshore industry itself. In February 2011, the environmental statement[30] of the US oil company Hess, seeking to drill a deepwater well off
Shetland, received much publicity. In the worst case scenario identified by the
document, more than 4 million barrels (550,000 tonnes) of oil could spill into
the sea over a period of just over 2.5 months and spread as far as Iceland,
Ireland, Norway, the Netherlands and the northeast coast of England. The
document also suggests that because of the weather conditions (wind, waves,
currents) "surface containment and recovery equipment are unlikely to be
effective". We can combine the spill volumes in this scenario with the per-unit
marine oil spill clean-up costs to estimate the costs of an accident in Europe.

In the event of
a subsea blowout whereby the blowout preventer has failed and oil is freely
flowing into the sea, Hess estimates it may take “considerably longer than 1
week” to install a cap that would stop the flow from the well. Assuming this
intervention takes 10 days, is successful, and a steady release rate of 88,000
barrels (12,005 tonnes) of oil per day is maintained until the spill is capped,
the figures from the Etkin study presented in Table 5: Average Per-Tonne
Marine Oil Spill Clean-up Costs by Country (1999 US$) estimate that the
spill would result in US$ 1.4 billion in clean-up costs. In Hess' worst case
scenario of a 2.5 month, 550,000 tonne release, the spill would cost US$ 6.6
billion to clean-up, according to this same formula. This supposes that the
spill affects the UK, Norway and the Netherlands equally. It is to be emphasized,
again, that these figures are only for clean-up costs and do not include third
party liabilities nor other potentially substantial economic costs. In the case
of Deepwater Horizon, BP estimated such additional costs to be around twice the
clean-up costs incurred.

In
conclusion, the evidence shows that it is very difficult to generalize about
the economic costs of offshore accidents. Nevertheless, for the purposes of
this study we can assume that the average property damage cost of a major
accident is €50 million. In the case of large blowouts in European waters (over
500,000 tonnes), we can assume that directly quantifiable costs for cleanup and
compensation will be between €5 billion and €30 billion. This range is
estimated using the cleanup-only cost calculations in the paragraph above as a
lower bound, and BP-estimated Deepwater Horizon costs as an upper bound. It
does not include indirect costs such as the effect on oil prices, the health of
the oil industry, or security of energy supply. Although unquantifiable, these
costs could also be very significant. They should, therefore, also be factored
into any cost-benefit analysis of policies aimed at improving offshore safety,
albeit qualitatively.

2. The probability of an offshore
accident

Risk is the product of frequency and
consequence. Accordingly, high consequence events which occur infrequently may
contribute as much risk as frequent events which have smaller consequences. Estimating
the frequency with which events occur is as important to overall risk as
accurately predicting the consequences. One way of estimating frequency is to
look at historical records.

The OGP risk assessment data directory for
major accidents was compiled to serve as an industry reference for quantitative
risk assessments.[31]
It identifies 98 major accidents that have occurred in the North Sea in the
years 1970-2007, including helicopter accidents. Whilst this gives an
aggregated rate of 2.6 per year, it should be noted that there has been a
steady and impressive reduction in the number of offshore accidents in the
North Sea throughout this time period.[32]

Figure 1: Fatal, Major and Over-3-Day Injury Rates to Offshore Workers on
the UK Continental Shelf, 1995/1996 – 2009/2010 (provisional)[33]

Assuming the major accident rate is now
half what is was during the time period of the OGP report, and assuming that
the average property damage cost of each major accident is €50 million, this
gives an annual figure of €65 in major accident costs, not including costs
related to oil spills or the loss of human life (the value of statistical life
is put at €1-2 million by the European Commission[34] and at £1.5 million by the UK
HSE[35]).

As previously mentioned, blowouts are the
category of accident that have the greatest magnitude of potential loss in the
offshore sector because of the large oil spills that may result from them.
Historical records indicate that very large spills resulting from blowouts are
comparatively rare.

The SINTEF Offshore Blowout Database[36]
includes 573 offshore blowouts/well releases that have occurred worldwide since
1955, suggesting that such incidents are not uncommon. SINTEF states that most
blowouts occurring in the US Gulf of Mexico, Norway and the UK since 1 January
1980 have been included in the database. The database is an industry reference
for blowout risk, its data serving as the basis for numerous notable benchmark
studies for risk assessment.

According to this database, 64 well
releases[37] or blowouts occurred in UK and Norwegian waters between 1 January
1980 and 1 January 2008, i.e. on the average 2.3 per year. For comparison, in
the same period 8,283 wells were drilled in the UK, including 1,690 exploration
wells, 1,339 appraisal wells and 5,254 development wells.[38]  In Norway, 1,036 exploration wells and 2,801 development wells
have been drilled in this period.[39]

A recent annual
Scandpower report[40] based on SINTEF data compares the risk of
different offshore activities. The report reveals that, among the various phases
of offshore operations, exploration drilling entails the highest risk of
blowout. In case of deepwater, high-pressure/high-temperature (HPHT) wells[41], the blowout frequency is 1.9×10-3 per drilled well “for
offshore operations of North Sea standard”. In case of deepwater, but “normal”
wells, the frequency is only 3.1×10-4, i.e. one order of magnitude
smaller. The reason the blowout frequency of HPHT wells is significantly higher
is not believed to be the high pressure itself, but rather the small margin between
pore pressure and fracture pressure in such wells. The probability of a blowout
during other activities, like development drilling, completion or production is
well below that of exploration drilling, typically in the order of 10-4 or
10-6 per operation or well year.

According to the UK Health and Safety
executive, an individual risk of death of 10-3 per year has
typically been used within the offshore industry as the maximum tolerable risk.[42] For
comparison, acceptable annual failure probabilities in the nuclear industry are
typically in the order of or 10-6 or better.

In order to use the Scandpower figures to
calculate the overall likelihood of an offshore blowout in EU waters, we also
need to know the number of active production wells and the annual frequency of
different operations that may result in a blowout – necessary because
probabilities are expressed in either a per well year or per operation format.
Whilst regulators have supplied reliable figures for former, to the best of our
knowledge no comprehensive EU-wide source exists providing the latter. We can,
however, estimate the frequency of operations that may result in a blowout in
Europe by looking at their respective frequencies per well year in the SINTEF
database[43], and scaling these proportions by the number of active wells in
Europe (see Table 6: Annual
Probability of at least 1 Blowout for Offshore Operations in Europe). This method assumes that: a) the proportion of different
operations per well year in the SINTEF database does not significantly differ
from that in the North Sea at present; and b) that the sampling bias in this
data is within acceptable tolerances.

Table 6: Annual Probability of at least 1 Blowout for Offshore
Operations in Europe[44]

Operation || Blowout Probability / Unit || Unit || Annual No. Units in European Waters || Annual Probability of at least one Blowout in European Waters

Drilling || Exploration Drilling, deep (normal wells) || 3.1×10-4 || per drilled well || 383 (estimated) || 1.1×10-1

Exploration Drilling, deep (HPHT wells) || 1.9×10-3 || per drilled well || 29 (estimated) || 5.3×10-2

Development Drilling, deep (normal wells) || 6.0×10-5 || per drilled well || 635 (estimated) || 3.7×10-2

Development Drilling, deep (HPHT wells) || 3.7×10-4 || per drilled well || 48 (estimated) || 1.8×10-2

Well Intervention || Completion || 9.7×10-5 || per operation || 608 (estimated) || 5.7×10-2

Wirelining || 6.5×10-6 || per operation || 10735 (estimated) || 6.7×10-2

Coiled Tubing || 1.4×10-4 || per operation || 505 (estimated) || 6.8×10-2

Snubbing || 3.4×10-4 || per operation || 316 (estimated) || 1.0×10-1

Workover || 1.8×10-4 || per operation || 1074 (estimated) || 1.8×10-1

Producing Wells (excluding external causes) || 9.7×10-6 || per well year || 6315 || 5.9×10-2

Producing Wells (external causes) || 3.9×10-5 || per well year || 6315 || 2.2×10-1

|| || || || Total: || 6.45×10-1

The last column of Table 6: Annual
Probability of at least 1 Blowout for Offshore Operations in Europe shows
the annual probability of occurrence of at least one blowout because of any of
the potential causes. These probabilities are calculated as follows:

Let’s call  the
probability of occurrence (per drilled well, operation or well year, depending
on the case – probabilities shown in column 3) of a blowout because of any of
the 11 possible causes considered (11 rows in Table 6: Annual Probability of
at least 1 Blowout for Offshore Operations in Europe). In order to get no
blowout a given year because of a given possible cause, there should not occur
any blowout in any of the individual trials (operation or well year). For an
arbitrary possible cause ,
the probability of occurrence of no blowout, ,
is the probability of not experiencing a blowout in each single attempt:

.

In this expression  represents
the number of operations or well years. The hypothesis of independence between
events has been adopted (what happens in one operation or well does not affect
what happens in any other one).Thus, the probability of occurrence per year of
at least one blowout for each possible cause is (last column):

By means of a similar rationale, calling to
the probability per year of occurrence of no single blowout from any possible
source, it may be deduced that the probability of occurrence of at least one
blowout is:

Table 6: Annual Probability of at least
1 Blowout for Offshore Operations in Europe thus
indicates that the annual probability of at least one blowout in European
waters is around 6.5×10-1, or 65%. Other reliable studies corroborate this figure. A report
presenting the results of projects undertaken by Det Norske Veritas on behalf
of the UK Health & Safety Executive[45]
assesses the annual probability of a blowout to be 5.6×10-4 for every fixed offshore
installation on the UK continental shelf and 4.7×10-3 for every floating installation.[46] Given
that there were 272 fixed and 42 floating installations deployed in UK waters in early 2011, this suggests a total annual
probability of 3.0×10-1 for at least one blowout – a 30% chance each year in the UK alone.[47]

This is not to suggest that Europe can
expect an event on the scale of the Deepwater Horizon disaster every one to two
years. First, the blowout probabilities presented in Table 6: Annual Probability of at least 1 Blowout for Offshore Operations
in Europe are for both oil and gas wells in Europe
combined, but Scandpower calculates that the blowout frequency for gas wells is
2.6 times that for oil wells.[48] Assuming an equal number of oil and gas wells in Europe[49], the annual Scandpower-based probability of at least one oil well
blowout in Europe is therefore 1.8×10-1, i.e. 18% per year.

Secondly, history tells us that only a
fraction of blowouts have lasted long enough to result in major spills. More
work needs to be done to quantify the probability of a massive spill given a
blowout, however Det Norske Veritas has used the SINTEF database to calculate
expected blowout duration figures for a hypothetical conventional well drilled
in 337 metres of water in the Norwegian Sea using state-of-the-art technology
and modern procedures. These figures reveal that should a blowout occur, there
is a 56% chance of it lasting 2 days or less, and only a 15% chance of it
lasting more than 2 weeks.

Table 7:
Probability distribution of blowout durations[50]

Duration range (days) || < 0.5 || 0.5-2 || 2-5 || 5-14 || > 14

Representative duration (days) || 0.5 || 2 || 5 || 14 || 50

Probability || Topside (20%) || 0.49 || 0.19 || 0.12 || 0.13 || 0.07

Subsea (80%) || 0.33 || 0.2 || 0.14 || 0.16 || 0.17

Assuming that these conditions represent
the typical conditions for drilling in Europe, we can calculate that the annual probability of Europe experiencing at
least one oil well blowout lasting for over 14 days (with a representative
duration of ca. 50 days) is 2.7×10-2 – an expected recurrence rate of
around 37 years.

In summary, historical figures suggest
that the recurrence rate for a major oil spill from an offshore blowout in
Europe is more likely to be in the order of decades rather than centuries.
Assuming a recurrence rate of 35 years and an average economic cost of €5 to
€30 billion, this amounts to costs of €140 to 850 million per year. Add to this
an annual figure of €65 million in property losses
resulting from less costly, but more common, major accidents, and we can
estimate a total annual figure of €205 to €915 million in direct, tangible
costs for offshore accidents in Europe. These figures
do not include indirect costs such as the effect on oil prices, the health of
the oil industry, or security of energy supply. Although unquantifiable, these
costs must also be factored into any cost-benefit analysis of policies aimed at
improving offshore safety, albeit qualitatively.

Policymakers should bear in mind a number
of caveats when interpreting the above conclusions.

On the one hand, these conclusions can be
considered to be conservative estimates (i.e. on the high side) because
although the blowout probabilities from Scandpower are stated as being “for
offshore operations of North Sea standard”, some probabilities are derived from
data that includes operations in the US Gulf of Mexico where two barriers
against formation fluids are also required. Nevertheless, Det Norske Veritas
notes that the blowout frequency for the Gulf of Mexico is approximately 9
times higher than in the North Sea, and that the Scandpower probabilities
overestimate the chance of a blowout when used in the European context.

Also, Det Norske Veritas notes that
successive annual Scandpower reports suggest that the
blowout frequency from an exploration well has been reduced by a factor of more
than 3.5 over the last 10 years, from 5.5×10-4 to 1.54×10-4. While the frequency of a blowout
has been reduced, probability figures are based on information collected over a
20 year period in the past, meaning that they should be considered lagging
indicators. Historical blowout data reflects neither regulatory improvements
nor the latest improvements in the industry related to state-of-the-art
drilling technology, barriers with improved technical integrity and better
operating procedures.

On the other hand, the abovementioned
conclusions do not attempt to anticipate trends in European offshore drilling
operations. Although drilling expertise may be improving, the Norwegian and UK
regulators have indicated that deeper wells are being planned in their waters,
and that high temperature, high pressure and more challenging wells will
continue to be drilled. Operators are attempting increasingly technically
ambitious operations, and they are expanding their operations to new, often
environmentally sensitive areas. Additionally, an increased number of smaller
companies are entering the market as the major oil companies sell off older,
non-cost effective assets. These smaller companies aim to remain profitable by
having a smaller cost base and extending production from these ageing
installations and mature fields.

Additionally, the Scandpower probabilities
have a great uncertainty in light of the small number of blowouts upon which
they are based. This is to say that where incidents are
infrequent, just one additional incident may significantly increase the
statistical frequency. This uncertainty has not been
quantified by Scandpower; however, some consider that well blowouts resulting
in the uncontrolled release of hydrocarbons have happened too infrequently in
Europe for a reliable analysis of the historic frequency to be carried out.[51]

Moreover, there are limits as to what
historical frequencies are able to reveal. Qualitative information can provide
an early warning of an increase in risk so that
relevant and effective preventive measures can be put in place in time. In
connection with this, reported “near-misses”, in which slightly changed
circumstances could have developed into a major accident, suggest the risk of a
blowout in Europe is not remote. Just one month after the Deepwater Horizon
disaster, on 19 May 2010, well control was lost on the Gullfaks C installation
in Norway; according to the Norwegian Petroleum Safety Authority (PSA): “Only
chance averted a sub-surface blowout and/or explosion, and prevented the
incident from developing into a major accident”.[52] The PSA’s investigation of the
incident identified serious deficiencies in the operator’s planning of the drilling
and completion operation in this well. Management checks that activities were
being conducted satisfactorily were also inadequate.

In light of the above, policymakers should
bear in mind the precautionary principle[53],
stating that in the face of scientific uncertainty it is preferable to err on
the side of caution, until a thorough data analysis
along the lines sketched in this annex is able to clarify the unknowns.

Annex II:     List of main meetings with stakeholders

Date || Meeting/Interlocutors

Meetings with industry

11/05/2010 || Commissioner Oettinger and Commissioner Georgieva meeting with high level representatives of the industry

14/07/2010 || Commissioner Oettinger, Commissioner Georgieva, Commissioner Damanaki and Commissioner Potočnik meeting with high level representatives of the industry

29/03/2011 || The International Association of Oil and Gas Producers (OGP) reported to Commissioner Oettinger on industry measures to improve the safety of offshore operations

15/11/2010 || Meeting with the EU Committee of the International Association of Oil and Gas Producers (OGP)

16/05/2011 || Meeting with members of the International Association of Oil and Gas Producers (OGP), working under the GIRG/WEC remit.

03/08/2011 || Meeting with members of the Subsea Well Response Project, working on the development of well capping and containment equipment.

Meetings with regulators

14/07/2010 || Commissioner Oettinger meeting with high level representatives of national regulators

25/06/2010 || Working level meeting with national regulators

15/09/2010 || 1st NSOAF-EU joint workshop with national regulators

10/12/2010 || 2nd NSOAF-EU joint workshop with national regulators

01/03/2011 || 3rd NSOAF-EU joint workshop with national regulators

29/03/2011 || 4th NSOAF-EU joint workshop with national regulators

29/06/2011 || 5th NSOAF-EU joint workshop with national regulators

18/07/2011 || 6th NSOAF-EU joint workshop with national regulators

Meetings with stakeholders within the Berlin Forum process

18-19/10/2010 || Berlin Fossil Fuels Forum plenary meeting with a session dedicated to offshore safety

06/07/2010 || Meeting of the Berlin Fossil Fuels Forum Indigenous Fossil Fuels working group

21/09/2010 || Meeting of the Berlin Fossil Fuels Forum Indigenous Fossil Fuels working group

20/01/2011 || Meeting of the Berlin Fossil Fuels Forum Indigenous Fossil Fuels working group

07/04/2011 || Meeting of the Berlin Fossil Fuels Forum Indigenous Fossil Fuels working group

Meetings with international partners

28/06/2010 || EU-OPEC Ministerial Meeting

19/11/2010 || EU-US Energy Council

23/02/2011 || EU-US Workshop on the progress and outcome of the Deepwater Horizon investigation

07/06/2010 || EC-Norway Energy Cooperation Working Group meeting

20-24/09/2010 || OSPAR Commission / Ministerial Meeting

7-11/03/2011 || OSPAR Offshore Industry Committee meeting

In addition to the above meetings, several
bilateral meetings have been held with international and national industry
associations, individual companies, national authorities, NGOs and independent
verification companies. Furthermore, the Commission has regularly attended the
meetings of the G-20 Global Marine Environment Protection (GMEP) group and the Oil
Spill Prevention and Response Advisory Group (OSPRAG) established in the UK.

Annex
III:   Underlying
drivers of the problem

1. Drivers related
to industry evolution

The offshore oil and gas industry in the
EU, and globally, has recently been facing significant changes in its
operational environment. These are partly driven by the maturity of many of its
traditional operations and they partly stem from discoveries of new hydrocarbon
reserves in complex environments, which have been enabled by rapidly evolving
technologies. These factors are described below.

1.1 Ageing infrastructure and maturing
industrial environment

The industry is increasingly reliant on
ageing installations, often in service well beyond their original design
lifetime. One reason is that new technology has enabled mature installations to
continue to access oil reserves that would otherwise have long been stranded.

In Norway, roughly half of the offshore
fields have already exceeded the original field life[54]. In
the UK, more than half of the fixed platforms have exceeded the original design
life of the field or will do so shortly[55]. The
situation is similar for Italy in the Mediterranean. The
consequence of the passage of time on the integrity of structures and process
equipment is that challenges accrue for the maintenance of reliability. The costs
of these challenges are compounded by declining profit margins as production
rates in these fields decline.

1.2 Structural shift of the industry
towards diversification

The initial operators of ageing platform
and declining reservoirs are often led to divest them to smaller, specialist
oil companies who have low overheads and are in the business specifically for
these low yielding operations. This can lead to a loss of corporate memory
concerning the operation of the installation, thus posing a potential safety
risk.

The involvement of smaller companies is, however,
not inherently undesirable as they generally operate with a shorter decision
chain for expenditure (including safety-related). On the other hand, smaller
companies often have limited in-house resources, e.g. for well design, and
their emergency response capabilities are usually less than those of the larger,
original operators who developed the installation.

1.3 Shift to "frontier"
operations and new technologies

The scarcity of new discoveries of large, conventional
reservoirs has, in recent years, directed the industry to explore more
challenging frontier environments. These include high-temperature and high-pressure
(HPHT) reservoirs and reservoirs in hostile climatic conditions, in deep water,
or in geographically remote locations. For example, in the North Sea the majority
of operations have been at depths of 200 to 300 metres, whereas new projects operate
as deep as 1,700 metres[56]. There is also a movement towards increasing oil and gas production
in the Arctic regions[57]. Similarly,
in the Mediterranean and the Black Sea, there is a trend towards expansion
offshore activities into more distant areas, partly in deepwater.

In contrast to the Gulf of Mexico, deep-water
and HPHT reservoirs in North-Western Europe generally have to contend with more
extreme weather and sea conditions. A study of HPHT well performance standards
by the UK HSE[58] reported that HTHP operations are set to continue expanding together
with a relatively high rate of well control problems – between 1998 and 2003, about
1 such well in 6 experienced some instability[59].

2. Drivers related
to company-specific corporate practice

Besides the drivers that are common to the
industry as a whole, levels of risks in the offshore sector are impacted by the
practices and behaviours of individual companies. Two main types of drivers can
be distinguished here: one type related to the level of use of best available
technology and practices, the other reflecting the degree of compliance with
the regulatory framework. The latter is often related to the existence of a
strong safety culture within a company (or absence thereof). These factors are
described in the three sections below.

2.1 Inconsistent use of state of the art
practices and technology

Regimes for control of risks in all major
accident hazard (MAH) are identified in both the Seveso and Extractive
Industries Directives[60] and aim
for desirable outcomes[61] rather than specific inputs. Inconsistencies are found in the
degree to which companies focus on MAH preventive systems and systemic
corporate responsibility (and not solely on individual responsibility, and
occupational safety compliance). Despite progress having been made in this
area, in the absence of a consistent template for industry (and regulators),
greater divergence of practices can in fact be expected. The reason for this is
that a greater number of players are expected to engage in offshore exploration
and production, brining their own corporate approaches.

2.2 Failures of compliance with rules
and standards

Investigations of offshore incidents have
frequently found that whilst the planned measures were indeed appropriate to
prevent critical events, operators did not maintain or follow them. According
to available reports, this seems to have been at least partly evident in the
Deepwater Horizon and Montara accidents. Achieving consistency between plans
and actual performance is dependent on the degree of compliance with the
national regulatory framework and also the internal operating rules and
procedures within a company that are designed to comply with the regulatory
requirements and which often go further than is legally necessary.

2.3 Inadequate safety culture

Within an
organisation, the degree of compliance with external and internal safety rules
is directly related to the degree to which safety is prioritised as a standalone
corporate value and an integral part of the business model. This is often
characterised as a strong "safety culture"[62].
Available reports from the USA suggest that gaps in safety culture
significantly contributed to the accident of the Deepwater Horizon. Reports by
Member States and professional bodies active in offshore operations in the EU
agree that those concerns have global impact, including in other European
companies[63] . Analysis shows that levels of enforcement in the strongest EU
regimes has been broadly constant for the last 10 years[64]. In
the most recent report shared between Norway and the UK regulators, Norway
reports an upward trend in major hazard potential indicators and finds that
companies active in Norwegian waters show lack of consistency in safety
performance.

3. Drivers related
to the regulatory framework

The level of safety and existence of
residual risks in the offshore sector is determined not only by industry
practices but also by the quality of the regulatory environment and the oversight
enforced by the competent public authorities. Several aspects of the existing
EU regulatory environment may affect the industry's management of risk in
offshore oil and gas operations. These are described in three sections below.

3.1 Uneven technical expertise amongst
regulators

Various Member States responded to the
Deepwater Horizon accident by evaluating national regulatory systems[65]. Their initiatives have shown that national regulatory practices
vary. While this inconsistency does not necessarily mean that the regimes are
ineffective, the variable degree to which national regulators balance the
attention given to major hazards and to occupational safety factors in their
assessments and inspections influences the behaviour of industry accordingly.

National regulators play a role in verifying
that operators correctly account for the safety and long term integrity of their
undertakings. It is the regulators that need to provide adequate supervision
and guidance to the industry in all relevant EU waters. To achieve this, regulators
need to have access to expertise to underpin their interventions and
judgements. This can be problematic, especially in cases where Member States
have only a handful of offshore installations.

3.2 Suboptimal transparency and sharing
of information

Reports on industry performance are most
authoritative when prepared by the regulator. Good initiatives exist between
some Member States and in some regions for information and experience sharing
between regulators. However, there are differences in the
extents to which key safety information is acquired and shared across EU
borders and to which adequate public assurance concerning the integrity of
offshore activities is provided. At present, there are
no EU-wide mechanisms for sharing intelligence or for convening regulatory
forums, including relevant adjacent regions[66]. Gaps
exist in the quality of data in terms of regional coverage (no EU-wide/global
data), in terms of comparability (different formats,
indicators etc), and in terms of lack of precision (e.g. data from some
industry databases are fully anonymised and narrowly focused[67]). These shortcomings appear conspicuous in
contrast to arrangements in other high risk industries such as aviation or the
chemical industry[68].

There is also a notable inconsistency in
the way relevant information is made accessible to the public. Most national regulators
make available information concerning breaches of law (prosecutions, the issue
of enforcement notices) either through publishing lists, or having registers
that can be viewed by the public. Such enforcement reports give an incomplete
picture, however, and are not comparable between jurisdictions. In addition,
some regulators publish annual reports of safety performance in their offshore
jurisdictions. Taking the EU as a whole, there is no system to provide the
public with easily accessible and comparable information on the offshore
activities of companies and their regulators in all EU regions.

To summarise, benefits of transparency in encouraging key learning and continuous improvement
across the EU are being missed. Complex procedures for accessing
information are hindering the development of new research and reducing peer
pressure for the use of state of the art safety practices.

3.3 Fragmented regulatory framework

International law covering offshore
exploration and production is much less comprehensive than in maritime
transport and mainly deals with rights of access to reserves in adjacent seas[69]. Not surprisingly therefore wide
differences exist in how the sector is regulated around the world. European and
some other states – Canada, Brazil, Australia and New Zealand – have adopted a goal
setting regime[70]. Some countries have a more prescriptive regulatory regime while
others have de facto no discernible safety regulation.

Discrepancies between different regulatory
regimes lead to considerable variations in costs for the industry. In countries
that rely on self-regulation, industry can deploy rigs and equipment that would
not be tolerated in the North Sea. The EU has an interest in seeing a global
level playing field with suitable standards of performance. One clear example
of this interest is that Member States can be directly affected by incidents in
adjacent, non-EU waters. Achieving a consistent EU approach to offshore safety
and environmental protection will greatly assist the EU to promote higher
standards beyond the EU.

In addition, no Member State has developed
a holistic, independent, single offshore regime that encompasses major hazards
to both humans and the environment and that takes account of civil liabilities.
Whilst the risks arising from oil and gas activities are broadly similar
everywhere, the national organisations in the EU Member States vary
considerably.

The differences in the regulation of
offshore activities are even more marked when moving from the North Sea to
other EU regions. Whilst there are similarities in offshore hazards, the
regulation of them outside the North Sea is less clearly related to the global
model[71].

Expressed in terms of safety and
reliability, the engineering and product selection options for design and
operation would be better supported by the availability of a comprehensive
syllabus of EU-suitable standards as an accompaniment to quantitative risk
assessment. At the moment, offshore product safety is not comprehensive because
existing EU product safety legislation doesn't apply to MODUs, which are
considered to be 'ships'. Therefore consistent and high safety requirements for
MODUs are only assured in countries where a formal safety assessment regime
exists (e.g. the UK, Netherlands and Denmark, who use a risk based approach to
regulation).

4 Drivers related to the state of
risk-based planning

Whilst it is entirely
proper that most emphasis needs to be paid to preventing major incidents, the
risk can never be entirely discounted and so provisions need to be present for
suitable and sufficient preparedness and response. The factors that make
escalation a higher risk than necessary are inadequate risk assessment in
emergency plans, lack of joined-up responsibility for response (failure to
maximise the resources available), and incompatibility of physical assets and
expertise of an incident.

The current regional
arrangements for risk based maritime response planning across the EU are not
optimal vis a vis ensuring oil and gas activity is properly considered. In the
Baltic region, the BRISK project has demonstrated an effective model for such
risk based planning for maritime vessels. Other regions such as the
Mediterranean and the North Sea are also developing a similar approach. At
present, there are EU-wide coordination schemes and EU-level instruments like
the Civil Protection Mechanism which play an important role in the coordination
of emergency response and provide information on the availability of public
resources for emergency response.

The two underlying
drivers for this issue are further highlighted below.

4.1 Inconsistencies in emergency
planning between MS

The external emergency
plans – those pertaining to a national emergency – also depend on the adequacy
of the initial risk assessment by the operator so the same concerns must apply
to preparedness for a national scale offshore incident as for a localised
'internal' incident in some regions. In addition, a national scale emergency
will require the deployment of national assets, coordination by national
representatives, consideration to adjoining Member States and others, and the
support of EU marine contingency organisations such as EMSA. Some Member States
do cooperate with neighbours on emergency planning – particularly so where risk
based regimes facilitate the development of site specific risk based scenario
planning.

It is also essential to coordinate the
essential environmental sensitivity data relating to the state of the water
column and the seabed so that the correct response can be planned if an
emergency arises. At present, these data are not consistently collected and
collated throughout the EU.

Finally, there are few
current initiatives for building capacity amongst non EU countries with which
the EU shares marine assets. Without specific attention to this, emergency
planning will be less holistic and reliable in those regions than where EU has
full jurisdiction.

4.2 Cross-border incompatibility of
response assets

Companies operating in the Gulf of Mexico (which
also operate in EU waters) clearly failed to assess all the possible scenarios
of a major incident in a routine and systemic fashion. Therefore the emergency
response to Deepwater Horizon had to be conducted as the incident unfolded
which is entirely in contradiction of the conventions for civil contingencies.
The operator – BP – commanded great resources and expertise. Equally the national
contingency resources of the USA exceed those of any nation on earth. Clearly
neither attribute may be present in some EU offshore emergency scenarios.

Industry has responded with resolve to the
Deepwater Horizon incident and is actively researching multi functional devices
for capping damaged wellheads and for solutions for containing and dispersing
major spills. This is commendable and must be encouraged to continue. But we
have seen that whatever the state of technology, a major offshore emergency
response requires all that the industry can furnish, plus that which national
civil contingency can provide, with all adjoining countries contributing.

On the matter of compatibility of the
response equipment and services, only the immediate response tools need to be
available at the site of the accident, or in close proximity. Other necessary
equipment may be available at a distance, even if it is in a different
continent. The identified need is for the rapid transportation of equipment
that can be connected to locally available equipment and which may be handled
using available lifting and transport systems. This applies also to human
expertise.

5 Drivers related to the integration of
public and industry emergency plans and assets

The maritime safety and
response arrangements in the EU provide for joined up planning and intervention
in a maritime emergency including for pollution incidents. Compared to this
benchmark it is clear that the offshore oil and gas sector – which has the
capacity to cause pollution many times greater than any single shipping
incident – can attain a greater degree of joined up planning between Member
States than at present, taking the EU as a whole. Given the specialised nature
of the offshore sector – which is a sea based factory environment not shipping,
maritime standards are not fully adequate and therefore the risk of a major
incident escalating further than necessary remains. The specific drivers for
this category are discussed below.

5.1 Lack of information on industry emergency
response inventories

In order that the national emergency response
plan (in Seveso terms the 'external' emergency plan) is effective for the
scenario of a major incident in the oil and gas industry, it is essential that
the plan accounts for all emergency response assets and inventories that the
industry or operator himself can supply or make available at the start of and
during the incident. As such, this would ensure coordination of assets and
inventories required for the incident, to make effective and efficient use of
available resources. Before the Deepwater Horizon incident, there are
indications that the coordination of available assets between industry and
national authorities was not commonplace and ad hoc at best. After the
Deepwater Horizon incident, the oil and gas industry has reviewed and in
certain cases extended and increased their response inventories. National
authorities dealing with emergency response of some of the MS (mainly the countries
around the North Sea) have since been involved in this process, which rectifies
the coordination issue to some extend. However, this will not remedy similar
issues around the Mediterranean and Black Seas. In addition, although it is
likely that current good practices around the North Sea on this issue will
continue as all parties involved realise this to be the best approach, there is
no guarantee that this will continue once initial focus on the Deepwater
Horizon initiatives have diminished.

5.2 Consistency in the quality of
company emergency plans

Analysis of the deepwater Horizon incident
revealed shortcomings in the preparedness of the companies involved, both in
the initial response and in the race to cap the well and contain the spilled
oil. The recent report of the US Coastguard has been instructive that in spite
of the obvious potential scale of the pollution and the challenges of ensuring
a good prospect of survival of the personnel, the risk assessments and response
plans were relatively modest. We also find that major operators in the Gulf of
Mexico were prone to copy-out similar emergency response plans rather than
develop site specific plans based on proper risk assessments.

We believe the
situation in EU is different particularly where a risk based or goal setting
regime is deployed – such as the North Sea. Also, the EU has a long tradition
of maritime response against which the provisions for the offshore oil and gas
sector may be tested. However, emergency planning can only be as good as the
risk assessment undertaken for the activity as a whole. The first
responsibility is to limit the consequences of an incident once it has occurred
to the area under the control of the operator – i.e. the immediate vicinity of
the rig or platform or subsea facility. Because such 'internal emergency plans'
(in the Seveso terminology) are a natural derivative of an effective risk
assessment of the entire undertaking, and because only some Member States have
a risk based offshore regulatory regime it follows that emergency planning
will, in some regions, be inadequate to ensure rapid and effective response in
all regions of the EU.

6 Drivers related to clarity and
comprehensiveness of liability provisions

The operator of the
Macondo license, BP (drilled by the Deepwater Horizon), estimates the outcome
costs of the incident at $40bn. Very few companies could accommodate such a
sum, which would leave the host country exposed to unwarranted public financial
risk. The insurance market cannot furnish an instrument that guarantees
unlimited financial indemnity. In order to prevent liability transferring to
the citizens of Member States in which the incident occurs some form of
financial instrument would be required. In the UK the OPOL scheme is a risk
pooling instrument amongst licensees, but as the limit is set at £250m the
arrangement is not sufficient in the adjusted economic consciousness following
Deepwater Horizon. This is a complex issue, and it is accompanied by the issue
of how to make compensation available quickly to businesses and communities
stricken by the effects of a major offshore incident such that they are
prevented from failing – compensation that is paid too late to a community that
is permanently damaged is not reasonable. The three drivers for this problem
are discussed below.

6.1 Clarity and scope of EU legislation
on environmental liability

ELD 2004 does not extend beyond territorial
waters (20km/12miles). This is in line with the waste framework Directive (WFD)
2000. However the marine strategic framework Directive (MSFD) 2008 extended
protection to all marine waters in MS jurisdiction and therefore a problem is
created viz under applicable law "water damage" only applies
to inner and coastal waters, whereas current EU policy is to treat all EU
waters as common good. Therefore this issue needs to be determined in the light
of the review of offshore major incidents in the EU.

The status quo would perpetuate the
consequences of a marine accident being internalised to the Member State, in
contradiction to the polluter pays principle. Also, during an extreme emergency
the current framework makes unclear whether Member States could enforce
compensation from the polluter for the deployment of national contingency
assets.

6.2 Lack of financial capacity
guarantees

It is evident that not
all Member States licensing authorities take fully into account the capacity of
applicants (who may be consortia, or joint ventures) to deal with the financial
challenges of responding to a major incident. This is a missed opportunity to
provide assurance of capacity and to reinforce to operators that their
responsibility for the adverse consequences of offshore activity is without
limitation.

6.3 Inadequate compensation schemes for
traditional damages

Even with the financial capacity of an
applicant established, there is no assurance that sufficient funds will be
available in time to settle third party claims. The funds made available in the
event of a major incident will most likely be initially required for this
incident itself, e.g. capping and containing the flow from a well. Without clear
and unambiguous provisions to swiftly settle third party claims, this could
negatively affect local business and communities which would suffer the
consequences from the major incident.

Annex IV:    Additional analysis of economic, social and environmental impacts

This annex complements Chapter 5 on
the assessment of impacts by elaborating inter alia on the analytical process
used for the assessment. Because the costs and benefits
of the proposed policy options aimed at reducing losses from offshore accidents
can only partially be quantified and/or monetised, this annex uses a partial
cost-benefit analysis[72]
to evaluate their merit. Expected costs and benefits are quantified where reliable
data is available, but important qualitative evidence is also highlighted for policymakers
to incorporate into their analysis where impacts are reliably unquantifiable.

The foremost objective
of any policy action in this field is to reduce the risk of accidents and thereby to avoid human, environmental and economic losses.
Therefore, the first criterion to be evaluated will be
the proposed policy’s impact on mitigating the risks/costs of offshore
accidents to the EU-27; in other words, the economic benefits they
would bring. Quantifying the
extent to which proposed policy actions would improve offshore safety is
problematical because no comprehensive international legislation specifically
addressing the subject has ever been put in place
before.[73]
Little data therefore exist that could serve as a direct benchmark for this
report.

In spite of this, qualitative
analysis and statistics suggestive of the effectiveness of policies implemented
at the national level may serve as a basis for informed policy-making. Since many proposed policies have been
derived from requirements already implemented in one or more national
jurisdictions, this annex examines national offshore safety indicators to
demonstrate the likely benefits of introducing similar policies throughout
Europe. As well as looking at how the introduction of new regulatory
requirements has impacted offshore safety statistics, it also contrasts safety
indicators from countries with different regulatory approaches, combining these
figures with qualitative sources to provide an indication of the likely effectiveness
of the collection of policies proposed.

Following the policies’ safety benefits,
the additional financial and administrative costs of implementing the
proposed policies in the EU-27 will then be highlighted; in other words,
their economic costs. Member
States, the industry and the Commission may all face changes to levels of
financial and administrative burden in implementing the proposed policies. In
addition to the impact on the risk of future accidents, these impacts have to
be taken into account as well. Any additional benefits the policy provides in
terms of lower risks and/or improved emergency response should be weighed
against additional burden imposed.

Financial and
administrative impacts can be roughly divided into
regulatory costs (the costs incurred by public authorities in providing the
oversight necessary to effectively implement the policies) and compliance costs
(the costs incurred by industry). All cost elements can further be divided into
one-off costs (the initial investment needed to update practices with the
regulation) and running costs (the on-going operational cost).

Regarding regulatory costs, the cost to the
regulator of enforcing regulations is primarily the opportunity cost of the
time taken to enforce and provide support to the operators as required. This
was gauged by means of two questionnaires presented to European offshore
regulators in combination with calculations from the EU Administrative Burden
Calculator. It should be noted that many regulators bill the industry for their
services, but include these revenues as part of their overall budget. For the
sake of simplicity, this study counts these revenues as part of the regulatory
costs and not as part of the compliance cost to industry.

It is important to capture all the costs
and benefits to society, thus, costs to both the regulators and industry are
relevant.  The compliance cost that industry bears can be divided into three
categories following the EU Standard Cost Model as defined in Annex 10 of the
Impact Assessment Guidelines.[74]

1) Administrative burdens are the costs on
businesses of complying with the information obligations resulting from
legislation and regulations. An example of administrative burdens in the
offshore sector may be the notification of dangerous occurrences, inspections,
and reading guidance material. For the purposes of this report, the preparation
of safety and health documents have also been classed as an administrative
burden. Many of the costs associated with regulatory compliance arise from the
time it takes for the duties to be completed.  This time could have been spent
on something else in the company (productive work).  Thus, when calculating
administrative burden, we want to capture the opportunity cost of undertaking
the compliance activities instead of the productive work.

2) Substantive compliance costs are the
costs that businesses incur in order to comply with the content obligations
that legislation and regulations require of a production process or a product.
In the offshore sector these include the costs of additional equipment or
machinery to ensure compliance, or the costs of hiring consultants to help with
compliance. In the offshore sector, and especially in objective-based regimes,
it may be difficult to estimate the substantive costs of safety compliance –
that is to say safety expenditures that companies would
not have otherwise judged necessary or worthwhile if not for the formal or
informal requirements of the offshore authorities – as
these are difficult to separate from what can be considered ‘business as usual’
operational costs.

3) Financial costs are the result of a
concrete and direct obligation to transfer a sum of money to the Government or
the competent authority. An example of a financial cost in the offshore sector
is the fee for notification charged by national regulators.

In this annex, each of these categories of
compliance cost was gauged by means of a questionnaire presented to industry,
and supplemented with calculations from the EU Administrative Burden
Calculator. To simplify the analysis and to save multinational companies from
having to complete several, possibly duplicative, surveys for their operations
in Europe, this report intended to use a case study approach to get an
indication of likely compliance costs in two contrasting jurisdictions; the UK,
which has an objective-based regime, and Italy, which currently has a more
prescriptive regime. Unfortunately, a lack of suitable questionnaire responses
meant that such an analysis was not possible. Gaps in the data have been duly
highlighted in the appropriate sections.

For the purposes of calculating some
regulatory costs and administrative burdens to industry, the opportunity cost
was assumed to be equal to the wage rate of the relevant member of staff,
inflated by 30%. This 30% adjustment is to reflect the true economic cost of
employing that member of staff and includes employer taxes and pension
contributions, as well as so-called ‘overhead-costs’ such as premises,
telephone, heating, electricity and IT equipment. As an example, if a worker’s
gross wage rate was €20, then we can assume that the true economic cost of
employing that person would be €26. The principle behind using the wage rate as
a proxy for lost productivity is that it must only be worth employing someone
if they are at least as productive as the costs of employing them.

The one-off administrative costs to public
authorities in drafting and amending legislation were not judged to be
significant in comparison with the overall scale of costs associated with
offshore accidents, and therefore left out of this analysis for the purposes of
simplification.

As in the case of quantifying the benefits
of proposed policy actions, quantifying their financial and administrative impacts is also problematical because no comprehensive
international legislation specifically addressing offshore safety has ever been
put in place. Nevertheless, since many of the proposed
policies have been derived from existing practice, the approach taken in this
report is to extrapolate figures from Member States that currently already meet
the standards of the proposed policies in order to estimate the additional
costs of implementing the proposed policy throughout the EU-27, where possible.

Another methodological challenge this
exercise faced was data collection. With a handful of very notable exceptions,
it was difficult to get reliable and exhaustive data on the current operating
costs of regulatory bodies, and even harder to get the equivalent figures from
industry. For the regulatory authorities, significant differences in national
legislation and accounting conventions posed challenges to the analysis,
whereas the problematical task of disambiguating ‘safety’ expenditures from
‘business as usual’ expenditures may have prevented
many industry stakeholders from providing meaningful data. The net result was
that the quality of data was patchy with often incommensurable responses from
different stakeholders, hindering the quantitative comparison of groups and the
identification of possible trends. Any gaps in the data have accordingly been
highlighted, where relevant.

Table 1: National Authority Questionnaire Responses Received

|| Questionnaire 1 (Installations and Operations) || Questionnaire 2 (Wells and Regulatory Costs)

BG || ||

DE || × ||

DK || × || ×

ES || × || ×

FAR || × || ×

FR || ||

GR || ||

IE || × || ×

IT || × || ×

MT || × || ×

NL || × || ×

NO || × || ×

RO || ||

UK || × || ×

The impact analysis of the policies is
further complicated by the fact that, as described in Chapter 2, there are substantial differences between the scales of
operations in different Member States and also between the current national
regulatory regimes. Member States have opted for different regimes and have
dedicated unequal resources and efforts to them. As a result, the impacts of
the individual policies will be inevitably different across Member States.

Finally, after the impact on reducing the
costs of offshore accidents and financial and administrative impacts have been
addressed, any other relevant environmental, social, economic or external
impacts of the combined policies will be highlighted in a separate section
of this annex.

1.
Policy Option 1: Levelling all EU up to current
common denominator in risk based prevention and preparedness regimes in North
Sea (North Sea basic standard)

This policy option consists of two discrete
measures to be implemented throughout the EU-27: Establishing a goal setting (Major
Hazard Report/"safety case") regime; and establishing a regular
inspections and penalties regime. First, the option would see the goal-setting
approach to offshore safety implemented throughout the EU-27 and not just in
the North Sea, as is the case at present. Secondly, it would also ensure that
all EU offshore authorities level-up to at least North Sea standards on compliance-related
tasks, such as the assessment of Major Hazard Reports (MHRs), site inspection,
and the enforcement of defects. This would create a consistently high standard
of regulatory assurance that adequate controls to prevent major offshore
incidents are put in place by industry in EU waters. As the two measures are
closely related, the following subsections address their impact jointly.

It should be noted that, because this
option aims to level-up all European offshore regimes to currently existing best
practice, some Member States will be more affected by it than others. The
calculations presented in the current section specifically address this. By
contrast, because every subsequent Policy Option (1+, 2 and 3) proposed in this
report is premised on the implementation of the present one, this report
assumes Member States will be equally affected by these subsequent Policy
Options.

1.1.
Impact on reducing the costs of offshore
accidents

The UK Health and Safety Executive’s
Offshore Division has collated statistics on offshore accidents and ill health
from 1995/96 to 2009/10. During or just before this period, several key pieces
of legislation were introduced mandating the goal setting approach to offshore
regulation on the UK continental shelf. Concurrently, significant changes took
place within UK offshore industry in order to effectively adapt to the demands
of the new offshore safety regime. Safety indicators from the UK experience
suggest the effectiveness of implementing analogous policies throughout the
EU-27.

Following the recommendations of the public
enquiry into the Piper Alpha disaster led by Lord Cullen, Safety Case
Regulations 1992 (SCR92) came into force in November 1993, requiring a
demonstration that risks to people from major accident hazards had been reduced
to the lowest reasonably practicable level. SCR92 was the key instrument of the
new goal setting regime for the UK offshore industry. Prior to this, the UK
regime was prescriptive in nature. The tables below plot several offshore
safety indicators for the UK continental shelf between 1995 and 2010,
indicating when SCR92 came into force, along with other key legislation
supporting and/or developing further the UK’s objective-based regime.[75]

Figure 2: Fatal Injury Rate for Offshore Operations on the UK Continental Shelf[76]

Figure 1
shows that there has been a downward trend in the fatality rate for offshore
workers since the introduction of the 1992 Safety Case Regulations, a trend
that the UK authorities believe the new regime has played a considerable part
in.[77]

Figure 3: Three Year Rolling Average of Injury Rates for Offshore Operations on
the UK Continental Shelf[78]

Figure 2
shows that the downward trend in fatalities is echoed by the injury rates for
the UK continental shelf in the same period.

Policymakers should note that while several
safety indicators for the oil and gas industry on the UK continental shelf show
improvement over time, it is difficult to wholly attribute these improvements to regulatory changes for a number of reasons.
Industry practices may improve over time and some regulatory changes may
reflect an already widely implemented industry practice. The tangible positive
effects of improved regulations may only present themselves in the longer term,
after initial challenges adapting to them have passed. And compliance levels
may significantly vary over time.

Because of the limitations in only using a
longitudinal approach to gauge the effectiveness of offshore regulations, as
above, it is important to also look at comparative figures to strengthen the
analysis. In particular, we can start by looking at global trends to see if
improvements to offshore safety in the UK were part of a broader, industry-wide
tendency that was also seen elsewhere around the globe.

Figure 4: Breakdown of Worldwide Fatalities
in the Offshore Sector by Year Period, 1970 - 2007[79]

Figure 3
shows that there was a sharp reduction in both fatalities and fatal incidents worldwide
between the 1980s and the 1990s. Nevertheless the 1990s onwards have seen these
figures gradually creep up again. This was exactly the period when the
objective-based offshore safety paradigm was being implemented in the UK, and
safety indicators from the UK Continental Shelf were strongly improving.

Because the offshore workforce has varied
over time, this chart cannot be directly compared with other charts in this section
presenting fatality and injury rates on the UK continental shelf. However,
assuming that there have not been major fluctuations in the size of the global
offshore workforce, the chart is suggestive that the general trend of improved
offshore safety in the UK from the 1990s onwards was not experienced globally.
Since most offshore oil and gas operators are multinational entities, we would
expect to see any advances in industry best practice reflected in global safety
indicators during this period. Improving offshore safety in the UK is therefore
not likely to have been due to advances in industry best practice, supporting
the UK Health and Safety Executive’s belief that improved safety in the UK can be credited to changes to
the UK’s offshore regulatory regime that were implemented during the 1990s.

A recent OGP publication[80] comparing the risk of different offshore activities also found that
offshore operations "of North Sea standard" (in terms of equipment
used) are safer than operations "not of North Sea standards", at
least in terms of the frequency of blowouts.

In 2010, Det Norske Veritas released a
study contrasting the Norwegian offshore safety regime with that of the United
States.[81] The study found that whereas the Norwegian
regulations are primarily performance- and risk-based, the US regulations are
dominantly prescriptive and do not require the application of systematic risk
management practices. Differences in safety indicators
between these countries may therefore also hint at the effectiveness of
mandating the goal setting approach to offshore regulation throughout the
EU-27.

Table 8: Global
Offshore Safety Indicators gathered by the International Regulator's Forum[82]

|| || Total || Derived Rate || Derived Rate Unit

|| || Norway || US || Norway || US

Fatalities and Injuries || Fatalities || 2 || 19 || 1.68×10-2 || 4.43×10-2 || Per Million Hours Worked

Major injuries || 96 || 179 || 8.06×10-1 || 4.18×10-1 || Per Million Hours Worked

Injuries > 3 days LTI & RWI || 147 || 313 || 1.23 || 7.30×10-1 || Per Million Hours Worked

Injuries 1 > and <= 3 days || 273 || 160 || 2.29 || 3.73×10-1 || Per Million Hours Worked

Collisions and Fires || Major Collisions || 1 || 32 || 3.60×10-3 || 2.77×10-3 || Per Installation

Less than major Collisions || 0 || 29 || 0 || 2.51×10-3 || Per Installation

Major fires || 0 || 17 || 0 || 1.47×10-3 || Per Installation

Less than major Fires || 0 || 32 || 0 || 2.77×10-3 || Per Installation

Well Control || Major Loss of Well Control || 0 || 7 || 0 || 1.25×10-3 || Per Well-Related Activity

Less than major Loss of Well Control || 0 || 13 || 0 || 2.31×10-3 || Per Well-Related Activity

The International Regulators’ Forum
collected and compared offshore safety incident data from different countries
based on a common set of criteria for the years 2007 to 2009.[83] The results of this exercise are presented in the table above. It
indicates that whilst reported injury rates were higher in Norway than in the
United States, fatalities were around three times higher in the United States
than in Norway even though many of the same companies operate in both
countries. Loss of well control was also more common in the United States than
in Norway. These well control statistics are supported by the SINTEF blowout
database, which reveals that the blowout frequency for the Gulf of Mexico is
approximately 9 times higher than in the North Sea[84], and
that the proportions of blowouts resulting in large spills are almost 4 times
greater in the Gulf of Mexico (0.23) than in Norway (0.088).[85]

In considering the comparative statistics
presented above, the policymaker should bear in mind that different countries
and regions have contextual, cultural and historical differences that may
affect offshore safety. Nevertheless, given that both longitudinal and comparative
statistics suggest that objective-based regulation in the offshore sector leads
to improved safety, we can conclude that moving from a prescriptive to an
objective-based offshore safety regime results in a significant reduction in
accident-related costs.

Italy and Spain are the largest offshore
oil and gas producing nations in the European Economic Area who do not already
have what is recognized as an objective-based regulatory regime in place,
accounting for 408 out of a total of 6315 active wells in Europe (6.5%).[86] They are the Member States most likely to strongly benefit from the
package of proposed measures in terms of improved safety. Assuming that Italy
and Spain currently have similar offshore accident costs as other European
countries on an annualized per-well basis[87], and
conservatively assuming that the economic costs caused by major offshore
accidents in Italy and Spain halve as a result of their adoption of
objective-based offshore safety regimes, then implementing Policy Option 1 can
be expected to result in between €6.66 and €29.7 million in annual savings when
compared with the baseline scenario.

In estimating the likely benefits of the proposed policy option, it is also important to take into
consideration its future economic benefits in the Mediterranean and Black Sea,
where there are several countries in the early stages of the development of
their offshore extractive industries. Should these countries follow the
regional trend, there is a good chance that they would adopt the less-effective
prescriptive regimes hitherto dominant in these regions. EU regulatory action
would prevent this. Whilst these putative benefits are impossible to quantify,
they should be qualitatively factored into any cost/benefit analysis of
proposed policies.

1.2.
Financial and administrative impacts

In gauging the financial and administrative impact of mandating
the goal-setting approach in the EU offshore sector, the resources of national
authorities and compliance costs borne by industry were compared in European
Economic Area Member States with objective-based regimes and Member States with
more prescriptive regimes.

Lapses in compliance – either with
regulations or good oilfield practice – have been identified in many audits and
inspections, as well as official investigations into recent offshore accidents
and near misses.[88] Compliance is the ultimate responsibility of the operator, but
regulators play an important, indirect role in verifying compliance through
inspection and enforcement regimes, and by holding operators to account when
failures to comply occur. In this way, regulators have a responsibility to
provide assurance to the public that regulated entities are meeting mandated
requirements.

Figure 5: National Offshore Authority Staffing Resources[89]

Regarding the regulatory costs to public
authorities, Figure 4
shows that there are only moderate differences between the staffing levels of
European regulators with objective-based regimes (Denmark, the Netherlands,
Norway and the UK) and the staffing levels of the Italian regulator – the
largest European regulator currently employing a prescriptive regime.[90] This remains true regardless of whether viewing staffing levels in
either per well or per installation format. Although the further comparison of
other indicators of regulatory costs (such as annual budgets) was not possible
because of shortcomings in the collected data, the chart above suggests that
mandating the goal-setting approach in the EU offshore sector would not lead to
any change in the annual running costs of national offshore authorities. One-off
retraining costs to the staff of the Italian and Spanish Authorities, however,
can be expected.

The Spanish offshore authority – a
sub-directorate of the Ministry of Industry, Tourism and Trade – has been
excluded from the above analysis because economies of scale disproportionately
seem to affect the resourcing indicators of smaller regulators. Figure 5 illustrates that the Spanish
authority has disproportionately high staffing levels compared to other
regulators, regardless of whether these regulators follow a prescriptive
regime, as Spain does, or whether they use objective-based regimes. Spain has
limited offshore operations at present, with only 13 active wells and 3
production installations. However, it staffs an office of 5 personnel – likely
the minimum number of individuals the Spanish authority feels is necessary to
maintain the technical competences to provide effective oversight. Other very
small regulators, such as the Faroe Islands and Ireland, maintain similar
regulator staff levels (6 and 3 respectively, although the latter all part
time).[91]

Figure
6: Regulator's Staffing Resources by Number of Wells
Overseen[92]

The Spanish authority’s operating budget in
proportion to the number of wells or installations it oversees is also many
times greater than those of larger regulators (see table below).

Table 2: Select Offshore Authorities' Operating Budgets (€)[93], (Corrected for National Wage Differences)[94]

|| DK || ES || NL || NO || UK

Operating Budget Per Active Well || 5,400 (4,283) || 310,427 (512,120) || 6,401 (5,724) || 13,500 || 9,115 (8,981)

Operating Budget Per Installation || 24,923 (19,767) || 1,345,185 (2,219,190) || 15,655 (13,999) || 67,084 || 43,849 (43,209)

Whilst the proposed policy option is not
anticipated to entail significant increased costs to public authorities,
compliance costs to industry are likely to increase. One company (Company A)
responding to a European Commission questionnaire on compliance costs on the UK
continental shelf last year estimates that the largest share (42%) of these
costs came in the category of significant one-off expenses for equipment such
as lifeboats, and a capping device for use in case of a blowout. Running
substantive costs, such as for independent verification and consultancy
services, made up 33% of compliance expenditures. Running administrative
burdens made up 18% of compliance costs, and running financial costs, including
fixed fees charged by different offshore regulators, 7%. These expenditures are
shown in Figure 6,
below.

Figure 7: Breakdown of Compliance Costs for Offshore Operator Company A on
the UK Continental Shelf[95]

Another company, presented in Figure 7,
below, estimates that administrative burdens made up 42% of its running
compliance costs; substantive costs 35%; and financial costs 16%. It lists as
its miscellaneous costs, mandatory training and offshore medicals.

Figure 8: Breakdown of Compliance Costs for Offshore Operator Company B on
the UK Continental Shelf[96]

A lack
of any other detailed questionnaire responses, and potential differences over
how companies define ‘safety’ costs and separate these from ‘business as usual’
expenditures, mean that it is not possible to say how representative these
company’s compliance cost estimates are of other operators’ costs.
Nevertheless, being sensitive to the above limitation, we can use the detailed
figures provided by Company A to get a rough indication of the compliance
burden borne by companies operating in the UK: around €100,000
per well per year.[97]

A comparison of the compliance costs of
operating in the UK (objective based safety regime) and Italy (prescriptive
safety regime) was made possible by a questionnaire respondent operating on the
Italian continental shelf. Figure 8 shows that 57% of this operator’s
compliance expenditures when towards administrative burden; 32% was allocated
to substantive costs; less than 1% of expenditures were financial costs; and
16% went towards miscellaneous expenses in the form of information technology
safety aids.

Figure 9: Breakdown of Compliance Costs for Offshore Operator on the Italian Continental
Shelf[98]

We can use the figures provided by this
operator to get a rough indication of the compliance burden borne by companies
operating under the prescriptive Italian offshore safety regime: around €13,000 per well per year or roughly 7.7 times less than the
reported compliance costs in the UK.[99] This suggests that changes to offshore regulation have the
potential to significantly increase the compliance costs of offshore oil and
gas operations to industry. Mindful of the limitations of the data provided, we
can use reported compliance cost differences between offshore jurisdictions to
estimate the possible scale of the impact to industry of mandating the
goal-setting approach in the EU offshore sector.

Text box: Some Industry Views on the Costs Offshore Safety One of the objectives of the impact assessment process is to give decision makers the opportunity to perform an evidence-based cost-benefit analysis of potential policies. In the case of offshore safety, however, some industry voices have expressed their unease with certain aspects of this process – particularly the quantification of the costs of compliance with safety regulations. They have done so on the grounds that: a) these costs are practically inseparable from ‘business as usual’ operation, being profoundly embedded in company management structures; and b) the emphasis would be better placed on the value that effective regulation can add, rather than the burden it places. At least one industry representative has voiced strong support for objective based legislation, stating that: “the goal setting regulation structure should to the highest possible extent be allowed to continue.”

As Policy Option 1 involves levelling-up
all EU offshore operations to current North Sea standards, Italy and Spain –
the largest Member States still operating more prescriptive regimes – would be
the Member States most greatly affected by the proposed policy. Assuming that
the compliance costs of operating in the UK are representative of the
compliance costs of operating under an objective-based regime in Europe, and assuming
that the compliance costs of operating in Italy (13% of operating in the UK, according
to EU questionnaire data) are similar to the compliance costs borne by all
companies currently operating under prescriptive regimes in Europe, then the
additional industry costs of Italy and Spain levelling-up to objective-based
regimes would be €87,000 per
well, or €35.50 million annually for their combined 408 wells when compared with
the baseline scenario.

As before, it is
also important to take into consideration higher safety compliance costs to
possible future operations in the Mediterranean and Black Sea, where offshore
extraction can be expected to increase in the coming years. These putative
costs are impossible to quantify, but should be qualitatively factored into any
cost/benefit analysis of proposed policies.

1.3.
Option 1 Summary

Benefits: €6.66-29.7 million annually in reduced losses from offshore accidents in Italy and
Spain when compared with the baseline scenario; putative reduced losses from future operations in the Mediterranean and Black Sea.

Costs: €35.50
million annually in
additional compliance costs to industry when compared with the baseline
scenario; significant one-off retraining costs for the Italian and Spanish
authorities; putative additional costs to future
operators in the Mediterranean and Black Sea.

2.
Policy Option 1+: Option 1 combined with initial
EU-wide  improvements to undesirable inconsistencies by clarifying existing EU
law through soft law (North Sea+ standard)

This policy
option consists of five discrete measures: 1) Verifying technical capacity
during authorizations; 2) clarifying the scope of the environmental liability
directive; 3) ensuring the cross-border availability of compatible assets; 4) ensuring
preparedness for responding to major offshore accidents; and 5) extending EU
standards overseas.

2.1.
Measure: Verifying technical capacity during
authorizations.

This measure would see an EU licensing
requirement that operators demonstrate their technical capacity to both carry
out the activity in question (seismic survey, exploratory drilling, production,
etc) and take all appropriate measures to prevent and respond to critical
events.

2.1.1.
Impact on reducing the costs of offshore
accidents

It is not possible to quantify the
potential benefits of this measure could bring because companies often share
safety data with third parties on the condition of anonymity, making it
impossible to exhaustively examine the relationship between company technical
capacity and these indicators. That being said, ensuring that oil and gas
companies have the technical capability to both carry out their operations and
address any potential accident resulting from these operations can be expected
to reduce economic losses resulting from offshore accidents for self-evident
reasons. Accordingly, such requirements already form an integral, albeit implicit,
part of the licensing process in many Member States.

2.1.2.
Financial and administrative impacts

Although the additional burden to public
authorities is not expected to be significant, legislation mandating that
operators demonstrate minimum levels of technical capacity as a prerequisite
for the authorization or licensing of offshore operations may impose
disproportionately high costs, in terms of lost earnings, on smaller companies
unable to meet such standards. In this way, legislation to this end may skew
competition in favour of larger companies with broader competencies and more
specialized assets. Given that smaller operators play an increasingly important
role in developing/exploiting resources that may not be profitable for
companies with larger overhead costs, losses resulting from unexploited
resources may also be incurred by Member States in terms of lost tax revenues.
Correspondingly, communities who rely on the offshore industry for jobs may
also be disproportionately impacted. These impacts are difficult to quantify
and depend heavily on the specifics of the technical requirements imposed.

2.2.
Measure: Clarifying the scope of the
environmental liability directive

This measure would clarify the scope of the
Environmental Liability Directive relating to oil and gas exploration and
production within and outside of the 20km/12 miles territorial seas line,
effectively strengthening the ‘polluter pays principle’ in the waters where
much of the EU’s offshore oil and gas operations take place. This is achieved
through soft law recommendations to national regulatory authorities to extend
liability provisions to the 200 nm Exclusive Economic Zones. It could involve
also a clarification on the applicability of the Waste Framework Directive to
maritime oil spill as demonstrated by jurisprudence from the Court of Justice
of the EU.

2.2.1.
Impact on reducing the costs of offshore
accidents

Any gaps in covering legislation may lead
to externalities that encourage operators to under-spend on safety and take on
too much risk in the anticipation that they will not be held accountable for
all costs incurred as a result of an offshore accident. The measure aims to
minimize the possible negative externalities of offshore activities and
therefore incentivize greater attention to safety issues by offshore operators.
Although it is not possible to quantify the extent to which this would reduce
losses form offshore accidents, ensuring that oil and gas companies are more liable
for the potential consequences of their offshore activities can be expected to
reduce the risks of offshore accidents by incentivizing the allocation of adequate
industry resources to safety. Accordingly, strengthening the polluter pays
principle has been a key recommendation of the official reports into both the
Deepwater Horizon and Montara blowouts.[100]

2.2.2.
Financial and administrative impacts

The financial and
administrative impact of any legislative change to
strengthen the ‘polluter pays principle’ in the liability regimes of Member
States is not likely to come in terms of any net change in overall economic
costs. Rather, in the event of an accident, any legislation in this vein would
re-assign to industry potentially large substantive costs that may otherwise be
incurred by citizens and national authorities. Any such policy is therefore
likely to significantly increase the financial and administrative impact on
industry stakeholders involved in a major accident, but benefit other affected
groups at least to a comparable degree. This would result in little overall net
change in financial costs and economic burdens, but a more equitable
distribution of costs in the long-term.

2.3.
Measure: Ensuring the cross-border availability
of compatible assets

This measure motivates Member States to develop interoperable assets for sharing
across boundaries and, when required, lend assistance to other Member States’
emergency responses. It additionally motivates Member
States to share available intervention assets – both public assets and those
owned by industry – through Guidelines encouraging the collation of inventories
of such assets and stimulating their interoperability.

2.3.1.
Impact on reducing the costs of offshore
accidents

This measure
will not reduce the probability of offshore accidents but may help to reduce
the costs of those that occur in the EU by improved and coordinated emergency
response. Due to the varied and unpredictable nature of offshore accidents, as
well as the extent to and speed with which Member States follow the proposed
guidelines, the extent to which financial losses are mitigated by the proposed
measure is unquantifiable.

2.3.2.
Financial and administrative impacts

The option is likely to only entail moderate
additional costs to public authorities. Indeed, there is a possibility that by reducing the need for additional
investments in new response capacities at Member State level, the sharing of
national assets might actually result in cost savings. Member States,
especially those with comparatively small-scale offshore operations, may rely,
at least partly, on the assets of neighbouring member States in times of need.
Therefore, economies of scale could be pursued and savings secured. Cost
efficiencies could be also secured when deploying the assets, particularly with
regards to transport.

The costs to industry, however, may be very
significant and manifest primarily in terms of the operating cost of
substantial well-capping and containment equipment
(further examined in Section 4.1.2 of this annex)

2.4.
Measure: Ensuring preparedness for responding to
major offshore accidents

This would establish Guidelines setting out
a framework for emergency response preparedness that is
compatible across Member States and facilitates regional cooperation. It entails
the creation and maintenance of up-to-date emergency plans for all relevant
installations as well as external emergency plans that are compatible between
different national authorities. The plans would need to be tested to facilitate
cross-border cooperation.

Along with the measure ensuring the
cross-border availability of compatible assets, it is in line with the conclusions of the Commission communication "Towards a stronger European disaster response: the role of civil
protection and humanitarian assistance"[101] which
proposes the creation of a European Emergency Response Capacity based on
pre-committed Member States' assets and pre-agreed contingency plans.

2.4.1.
Impact on reducing the costs of offshore
accidents

Better response capabilities will help to
mitigate the consequences of accidents (e.g. by collecting the spilt oil at sea,
before it reaches the coast) and may reduce their duration of a blowout.
Accordingly, this policy measure will not reduce the probability of offshore
accidents but may help to reduce their costs by improved and coordinated
emergency response.

With hindsight, a number of sources have
highlighted that the emergency response to the Deepwater Horizon disaster could
have been improved. The US national spill plan wasn’t aligned with the natural
disaster response arrangements with which key State and local politicians were
more familiar, and local officials complained that they
were not adequately consulted[102].
However, it is not possible to quantify expected costs savings as a result of
the measure due to the varied and unpredictable nature
of offshore accidents, as well as the extent to and speed with which Member
States follow the proposed guidelines.

2.4.2.
Financial and administrative impacts

This option focuses on the compatibility of
the emergency response plans, rather than on the assets. Therefore, it is unlikely
to have significant impacts on capital costs. The cost of preparing and
updating an emergency plan is relatively modest. Based on data from the sectors
covered by the Seveso Directive, a recent study estimates that the updating of
the internal emergency plans of an establishment (to be carried out at least
every three years) cost around €9,300[103]. In the light this, as well as the considerable activity being taken
jointly by some MS and industry on improving emergency response assets
following lessons learned from the Deepwater Horizon disaster, no significant additional costs are anticipated in implementing this
measure.

2.5.
Measure: Extending EU standards overseas

This measure would see the EU
seeking to secure agreements on good practice standards e.g. with IMO,
neighbouring states, and the governments of IRF countries. It also proposes the
creation of a voluntary code of conduct in which European companies commit to applying the same safety standards to their operations abroad as they do in Europe.

2.5.1.
Impact on reducing the costs of offshore
accidents

Given the difficulties inherent in
negotiating and implementing international agreements, the benefits of
propagating of good practice standards externally are uncertain and certainly unquantifiable. Regarding the voluntary code
of conduct, the strong public reaction to recent offshore incidents suggests
that the increased attention such a code would bring could result in tangible
improvements in offshore safety, even though of compliance with the code would
be difficult to verify outside the EU.

2.5.2.
Financial and administrative impacts

Although it is difficult to estimate, any
increase in running administrative burden to public authorities as a result of
this measure can be assumed to be moderate. With regards to industry, however,
strict adherence to a code committing European
companies to applying the same safety standards to their operations abroad as they do in Europe may make a significant impact on their compliance costs abroad,
possibly resulting in a competitive disadvantage.

2.6.
Option 1+ Summary

Note: The benefits and costs of the
measures in this policy option have been especially difficult to quantify in
light of both the substance of the measures proposed and their implementation
primarily by means of soft-law. In spite of this, the passage below presents
certain estimations as a tool for the decision making process. Readers should
remain cognizant of the great uncertainty surrounding these estimations if
choosing to include them in their evaluation of the present option.

Benefits:
Unquantifiable and uncertain benefits in requiring that EU operators
demonstrate their technical capacity; clarifying the scope of the Environmental
Liability Directive; motivating Member States to share available intervention
assets and coordinate emergency response plans; and
striving to extend EU standards overseas. For the sake of argument, if we assume
that losses from offshore accidents would be reduced by a further 8.7% (€17.85-79.3
million) when compared with Option 1 as a result of both reduced major accident
probability and improved emergency response offered by Option 1+, then total levelized
annual losses from offshore accidents would be reduced by €24.5-109.0 million
(11.9%) as a result of the measures in both Option 1+ and Option 1 when
compared with the baseline scenario.

Costs: Uncertain
costs to smaller companies unable to meet proposed technical capacity requirements in terms of
lost earnings. Also regarding proposed technical
capacity requirements, possible lost tax revenues to Member
States as a result of non-development of resources, and possible losses to communities
reliant on the offshore sector for jobs. Modest additional administrative
burdens associated with motivating Member States to
share available intervention assets, coordinating emergency
response plans and striving to extend EU standards overseas. For the sake of
argument, if we assume that offshore authorities have to increase their overall
budgets by 3% to account for increased assessment and inspection burdens
imposed by the present option, then this would result in an additional €2.53
million in running costs. If annual compliance costs to industry are increased
by 2.5% as a result of measures introduced, this would result in an additional
€15.79 million in running costs[104],
giving a total figure of €18.32 of additional running costs to implement Option
1+. Combined with the €35.50 million in running costs for Option 1, this brings
us to a total figure of €53.82 million in additional running costs to
implement Option 1 and Option 1+ when compared with the baseline scenario.

3.
Policy Option 2: Comprehensive offshore reform improving
through new law the North Sea standard up to current
best practices and providing greater transparency of perfornce of industry and
regulators ("EU best practice")

For the purposes of this exercise, this
policy option can be broken down into four discrete measures 1) Extending MHRs
to cover environmental risk; 2) establishing a competent authority; 3) establishing
an EU-wide regulatory dialogue; and 4) ensuring information sharing and
transparency.

3.1.
Measure: Extending major accident hazard reports to cover environmental risk

In most North Sea authorities currently,
the formal risk assessment performed for MHRs tends to be focused on human
health and safety. The proposed measure would see the risk assessment performed
for offshore operations in Europe expanded to more rigorously address
environment damage and the limitation of major accidents in light of recent
events. As such, this section builds on the analysis in Section 1.1 of
this Annex examining the impact of implementing the goal-setting approach to
offshore safety throughout Europe. The proposed measure would also allow the
development of more effective internal (industry) emergency plans that must be
approved by public authorities within the envelope of the MHR. This would
effectively enhance emergency response beyond what is proposed in Option 1+ by
improving coherence between industry countermeasures national arrangements.

3.1.1.
Impact on reducing the costs of offshore
accidents

Section 1.1
of this Annex demonstrated that regulatory changes may benefit safety
performance over time, and that the introduction of systematic risk management
can bring significant improvements to offshore safety levels. Whilst the reader
will recall that the UK has experienced clear reductions in death and major
injury rates since the introduction of the ‘safety case’ regime, the figure
below shows that for hydrocarbon releases – an indicator closely linked to
environmental risk and major incidents – the downward trend has been less
consistent.

Figure 10: Reported Hydrocarbon Releases on the UK Continental Shelf by Severity

Hydrocarbon releases can be regarded as
potential precursors to major incidents.[105] Figure
9 illustrates that there has been no consistent trend in the number of
‘minor’ hydrocarbon releases since the introduction of the UK’s objective-based
regime, and that the fall in the number of ‘major’ and ‘significant’
hydrocarbon releases seems to have plateaued as of 2006/2007, and may even be
creeping up again.[106] This is consistent with systematic risk management efforts being
predominantly focused on human health and safety: More commonly occurring
trips, slips and falls are effectively addressed, but it becomes difficult for
operators to justify outlays on effective measures to reduce well-control
incidents because their potential costs in terms of human health and safety are
comparable to other types of offshore accident, such as capsizes and helicopter
crashes, even though they can potentially result in the most severe
environmental costs.

Other evidence from the North Sea suggests that
there is still a clear potential for improvement in well-control, and hence
major accident risk. The figure below shows average frequency of hydrocarbon
releases per installation per year for 10 anonymous operators on the Norwegian
continental shelf between 2006 and 2010. The frequency of releases shows
considerable variation between operators. If the 5 worst performing operators
on this chart reduced their release frequency to the average level of the 5
best performing operators, then the total number of releases would fall by
around 95%.

Figure 11: Average
frequency of hydrocarbon releases over 0.1kgs, per installation year, 2006-10[107]

Because of its unprecedented nature, little
data exist that can be used as a direct benchmark for the effectiveness of the
policy measure addressed here. Nevertheless, based on
the above data illustrating where safety can be still be significantly improved
in Europe, and building on the conclusions of Section 1.1 of this Annex
highlighting the strength of the objective-based approach, the Commission
estimates that implementing the proposed measure may reduce economic losses
from major offshore accidents in EU waters by a further 37.5% – an additional
€76.9-343.1 million in savings – beyond the benefits offered by Option 1 and
Option 1+ combined. Taking all options together, this would effectively halve
major accident losses from €205-915 million annually in the baseline scenario,
to €101.4-452.1 million annually.

To this figure must be added the gains of further improving emergency response beyond Option 1+
that come through mandating the approval of industry plans within the envelope
of the MHR. Whilst these gains are unquantifiable with certainty, the
practice of linking the preparation of national emergency plans to the risk
assessments performed by the operators will lead to a greater level of
coherence between industry and public authority response. Such consistency has
been found lacking in recent major accidents (see Section 2.3 and Section
2.4 of this Annex).

3.1.2.
Financial and administrative impacts

In order to estimate the additional
regulatory costs of any new EU legislation covering systematic risk management
for major accidents, it is important to have an idea of the way different EU
regulators currently allocate their resources. Figure 11 shows that
European offshore authorities currently allocate between 40-75% of their
resources to the compliance-related activities of inspection, enforcement, and
investigation. The assessment of health and safety documents (MHRs) takes up
between 25-40% of their resources.

Figure 12: Allocation of Regulators' Resources[108]

Although
it is widely acknowledged that effective oversight plays an essential part in
offshore safety, regulators typically find it difficult to “prove” or quantify
this fact due to the influence of external factors. Nevertheless, some national
offshore authorities have pledged to increase inspections in the wake of the
Deepwater Horizon disaster. If national offshore authorities increase certain activities
without a reduction in competing activities, this almost inevitably entails
increases in running regulatory costs.

For national authorities, the Commission
estimates that the proposed policy measure will result in a 15% increase in the
resourcing of the compliance-related activities of inspection, enforcement, and
investigation, and a 10% increase in the assessment of MHRs. This is to account
for evaluating and verifying the more complete MHRs that are proposed, as well
as the updated internal response plans. Given that the annual budgets of EEA
offshore regulators come in at around €85 million in total, the proposed
measure would result in an estimated €7.21-12.93 million in additional running
costs to public authorities annually, if fully implemented by all EEA
regulators.[109]

Estimating the impact on industry is
considerably more difficult, given the poverty of the collected industry data
(already discussed in Section 1.2 of this annex) and the potentially
large differences in industry compliance highlighted in Figure 10. After levelling-up to North Sea standards, the running safety
compliance costs to industry are estimated at €100,000
per well per year, as the reader will recall from Section 1.2 of this
annex. The Commission estimates
that the proposed policy measure will result in a 10% increase in these
compliance costs (administrative costs, financial costs
and substantive costs, equally), resulting in an
estimated €63.2 million in additional running costs to industry annually for
all the EEA’s 6,315 reported offshore wells.

Finally, this policy measure would likely see
expert group(s) convened to develop operational models for industry and for
regulators. Member States, industry and the Commission can all be expected to
incur additional administrative burdens associated with the development of such
models and in order to attend meetings to exchange ideas. Assuming that the expert
group consist of 30 individuals, that these individuals have an average wage
rate of €150 per hour, and that this wage rate is inflated by 50% rather than
30% to reflect travel and accommodation costs for these participants, the EU
Standard Cost Model estimates one-off costs of just over €250,000 for a 5 day
(37.5 hour) programme of meetings held to draft and agree an initial document,
and then running costs of just over €100,000 per year for 2 day (15 hour)
annual meetings to keep this document up to date with state-of-the-art
developments.

3.2.
Measure: Establishing a competent authority

In order to more effectively and
efficiently incorporate environmental damage into the formal risk assessment
process, a number of Member States’ authorities may have to reorganize into a
single national competent authority.

3.2.1.
Impact on reducing the costs of offshore
accidents

Establishing a competent authority is an
essential component of more thoroughly incorporating environmental risk into
the systematic risk management performed for offshore
operations. As such, this proposed policy measure’s impact on reducing the cost
of major accidents is principally addressed in Section 3.1.1 above. However, the measure would also result
in other benefits that must also be added to the abovementioned savings, most
notably, the benefits associated with the institutional
principles of independence that national supervisory bodies would adhere to
under the proposed measure.

Institutionally separating offshore
regulators from the resource management and/or revenue collection functions in
national governments would strengthen the regulators by ensuring they are free
from conflicts of interest in their oversight functions, thereby improving
their performance and reducing losses from offshore accidents. Similar
principles of bureaucratic separation accordingly form the basis of
internationally agreed nuclear safety standards,[110] as
well as a Directive proposed by the Commission in 2010 addressing the nuclear
sector in the EU-27.[111] On top of this, many organizations, including the International
Regulators’ Forum, have argued that regulatory regimes function most
effectively when a single entity has broad safety and pollution prevention
responsibility, as regulatory gaps and overlap reduce both safety and
efficiency.[112]

Whilst it is impossible to quantify the
benefits brought in terms of more effective regulation, policymakers should
qualitatively include this factor in any cost-benefit analysis of the proposed
measure.

3.2.2.
Financial and administrative impacts

Although the European Economic Area’s two
largest offshore regulators – the UK Health and Safety Executive’s Offshore
Division, and the Norwegian Petroleum Safety Authority – both already fulfil
the proposed requirements of functional separation, several others may not do.
In particular, relevant elements of Italy’s National Office for Mining,
Hydrocarbons and Geothermal Resources, the Netherlands’ State Supervision of
Mines, the UK’s Department of Energy and Climate Change, and Denmark’s Energy
Agency may have to reorganize in order to fulfil the proposed requirements. Moreover,
most EEA Member States divide, to a certain degree, their core regulatory
activities between two or more authorities.

Depending on how Member States choose to
implement the proposed measure, significant one-off administrative burdens can
be expected to public authorities in meeting the proposed requirements. There
are currently over a dozen national authorities involved in offshore regulation
in the European Economic Area with over 500 staff, and significant change may
affect up to a dozen of these authorities and a total of around 170 staff.[113] This is assuming that these bodies have to merge with larger
independent authorities, or enact significant managerial changes to meet
independence criteria themselves. Together with the adjustment necessary to
adapt to the strengthened risk assessment regimen examined in Section 3.1 and
new data sharing requirements that will be examined in Section 3.4, the
Commission estimates that proposed measure will result in an additional one-off
costs amounting to 20-50% of EEA regulators’ usual annual budgets in the first
year of implementation i.e. €17.5-43.9 million.[114]

Following this initial outlay, however,
national authorities may experience modest gains in operating efficiency, as
moving regulatory activities ‘under one roof’ allows managers to streamline
operations and better capitalize on economies of scale in compliance-related
activities, and the assessment of applications. If a modest 1.5-3% in
regulatory cost savings at the European level can be achieved through the
exercise, the measure would result in economic benefits of around €1.3-2.6 million annually.

3.3.
Measure: Establishing an EU-wide regulatory
dialogue

Supporting the inculcation and maintenance
of regulatory best practices would be the setting up of a Commission-led EU
Offshore Operators Group that would also enhance the efficacy of existing
regional groups such as NSOAF and the fledgling Mediterranean MS forum. Along
with EMSA and other EU resources, this group would additionally play an important
role facilitating periodical cross border exercises to verify the effectiveness
of internal (industry) response plans approved within
the envelope of the MHR.

3.3.1.
Impact on reducing the costs of offshore
accidents

An EU-wide regulatory dialogue is key to
realizing the benefits of the new major accident hazard regime introduced in Section
3.1 of this annex. The impacts of the proposed measure are therefore
examined in 3.1.1. The economic benefits of
periodical cross border exercises to verify the effectiveness of internal (industry) response plans are also covered in Section
3.1.1.

3.3.2.
Financial and administrative impacts

In order to estimate the additional costs
of the creation of a Commission-led EU Offshore
Operators Group, we can start by looking at the
resources that current NSOAF members allocate to international cooperation. The Danish offshore health and safety authority indicates that it
currently spends around €60,000 on international and other cooperation
annually. Assuming that the Bulgaria, Romania and Malta begin programmes of
comparable cost, this would entail additional running public authority
expenditures of €180,000 annually.

With a staff of 22, the Danish offshore
health and safety authority’s expenditure on international cooperation works out at around €2,730 per staff member per year.
Further assuming that the remaining EEA Member States with offshore operations
– Germany, Denmark, Spain, the Faroe Islands, Ireland, Italy, the Netherlands,
Norway and the UK – have similar international cooperation budgets to Denmark’s
on a per staff member basis, and have to increase these
resources by 30% in order to fully participate in the activities of the EU
Offshore Operators Group, then this would result in an additional €414,000 in
annual running costs to public authorities at the European level.[115]

This gives a total estimated €594,000 in
annual running costs to implement the recommended policy measure.

3.4.
Measure: Ensuring information sharing and
transparency

Legislation mandating increased
transparency can be expected to address the current shortcomings in the
information-sharing practices of European regulators, and add further value to
the EU-wide regulatory dialogue.

3.4.1.
Impact on reducing the costs of offshore
accidents

On top of freedom of information requests,
many regulators already provide the public with significant amounts of easily
accessible information, including facts about their programmes, initiatives
relating to the Deepwater Horizon accident, the results of inspection projects,
and industry targeted health and safety bulletins. They do so as part of their
strategy to improve offshore safety in their jurisdictions. Resources devoted
to information sharing are justified by the benefits the exercise can be
expected to bring.

Over and above this, however, it may be
difficult for regulators to justify the collection and compilation of further
data if this imposes significant additional costs, or if this data may be
important to others but does not have a direct bearing on the conditions in
their jurisdiction. The publication of some information may not be welcome
because of concerns that this may result in increased public pressure to
address issues that regulators feel would not be the best use of their limited
resources. Certain national institutions may judge that the “naming and
shaming” of non-compliant companies may unnecessarily strain relations with a
sector that provides a significant source of employment and tax revenue. And
finally, it is understandable that some regulators may be reluctant to disclose
data that could reveal shortcomings in their own work.

The abovementioned policy proposal would
address the limits of purely voluntary information sharing, and thereby ensure
that the added-value of sharing comparable information at the transnational
level is realized to the full extent within the EU. Although it is difficult to
quantify the extent of these benefits in terms of reduced losses from offshore
accidents, the Commission believes that the availability of reliable and
directly comparable data on offshore safety is key to identifying and
understanding hazard trends in this technologically fast-moving sector. They
will also make it possible to benchmark and monitor the effectiveness of any
proposed policy changes enacted. These significant but unquantifiable benefits
must be included in any cost-benefit analysis of the proposed measure.

3.4.2.
Financial and administrative impacts

Currently, Norway’s offshore regulators
devote the greatest resources to collecting, compiling and making offshore
safety data publicly available in the European Economic Area in total term. However,
the Netherlands devotes greater resources to this end as a proportion of its
operating budget.

Table 3: Regulator resources allocated to collecting,
compiling and making offshore safety data publicly available[116]

|| ES || NL || NO || UK

Total Amount (€) || Less than 20,000 || 260,000-300,000 || 700,000 || 220,000-340,000

As Percentage of Operating Budget || Less than 0.5% || 4.5-5.2% || 2.46% || 0.79-1.22%

Both the Norwegian and UK regulators
collect and publish offshore safety statistics on hydrocarbon releases,
accidents, incidents, and near misses. Much of this data is directly and easily
accessible from their websites, which are the mainstays of both the Norwegian
Petroleum Safety Authority and the UK Health and Safety Executive’s information
dissemination programmes. Trend monitoring is carried out on this data, either
in-house or by a third-party, and the resulting publications are also made
available online. The current indicators monitored in Norway and the UK are
focused mainly on the human health aspect of offshore safety.

Assuming that the Netherlands, Norway and
the UK currently collect and share adequate levels of information on the human
health aspects of offshore safety, but need to increase their information
sharing resources by 75% in order to meet EU requirements to compile and
publish new indicators covering major accident hazard in order to safeguard the
environment, this would result in additional costs of €195,000-225,000
to the Netherlands, €525,000 to Norway and €165,000-€255,000 to the UK. Further
assuming that the remaining offshore authorities in Europe have to increase
their total annual operating budgets by 3.5% in order meet new information
sharing requirements (conservatively estimated from Norwegian and UK figures in
Table 3), this would result in an additional €900,000, roughly. This
comes to a total increase of around €1.8-€1.9 million in annual running
administrative burdens to public authorities at the European level.[117]

Additional one-off administrative costs may
be incurred as public authorities and industry align themselves with
obligations aimed at streamlining information sharing (for example though a
new, commonly agreed accident reporting format). Decision-makers should bear in mind, however, that certain measures
introduced by the process may result in decreasing financial costs and
administrative burdens over the long run, as the introduction of a common
European format for collected safety data, for example, may allow regulators to
collectively perform data analysis and thereby save costs.

Regarding increases in the costs to
industry, one company responding to a European Commission survey on safety
compliance costs in the UK estimates its administrative burden for safety (in
terms of man hours of its offshore installation managers and management teams)
to be €2,762 (£2,350) per well
per year. Adjusting this figure by 30% to represent overheads, this gives a
figure of €3,591 per well per
year. Assuming this is a representative figure for all of Europe’s 6,315 active
wells (including Norway), and that the workload of offshore installation
managers and management teams is increased by 30% as a result of new EU
reporting requirements, then the policy would entail €6,802,392 of additional administrative burdens to industry each year
at the European level. To this
figure must be added the initial one-off administrative burden to companies in
terms of reading and understanding new requirements, and adjusting reporting
practices as necessary

3.5.
Option 2 Summary

Benefits: €76.9-343.1
million in additional savings annually in extending MHRs to cover environmental
risk as well as the creation of competent authorities free
from conflicts of interest; and €1.3-2.6 million in efficiency gains to regulators in the creation of a single authority for offshore safety. Implementing Policy
Option 2 is thus estimated to provide a total of €102.7-454.7 million (49.8%)
in benefits annually together with Option 1 and Option 1+ when compared with
the baseline scenario.

To this figure should be added
unquantifiable benefits to emergency response that are anticipated to come
through mandating the approval of industry plans within the envelope of the
MHR; the benefits of more
effective oversight through the creation of competent authorities free from conflicts of interest; and the benefits that come with a
greater awareness of hazard trends through improved transparency and information-sharing
practices.

Costs: €7.21-12.93
million in additional running costs to public authorities annually and €63.2
million to industry to extend MHRs to cover environmental risk; one-off costs of just over €250,000 and then
running costs of €100,000 per year to Member States,
industry and the Commission for the expert group meetings necessary to
incorporate environmental risk into the MHRs; one-off costs of €17.5-43.9
million for the creation of competent authorities free from
conflicts of interest; €594,000 in annual running costs to set up a
Commission-led EU Offshore Operators Group; and €1.8-€1.9
million in running administrative burdens to public authorities and €6,802,392 in
compliance costs to industry annually to improve transparency and information-sharing
practices. This gives a total of €17.75-44.15 million in one-off costs and €79.61-85.33 million in annual running costs
to implement Policy Option 2. Combined with the costs of implementing Option 1
and Option 1+, this makes a cumulative €17.75-44.15
million in one-off costs and €133.43-139.15 million in running costs when compared with the
baseline scenario.

4.
Policy Option 3: Consolidating offshore reform by
establishing an EU intervention and oversight capability through EU offshore
safety agency

This policy option consists of two measures:
1) Establishing an EU intervention capacity; and 2) establishing an EU
regulatory body for offshore oil and gas operations.

4.1.
Measure: Establishing an EU intervention
capacity
4.1.1.
Impact on reducing the costs of offshore
accidents

This Option adds to the intervention
capacities currently available by industry and Member States. Although improved
emergency response is likely to reduce the cost of major offshore accidents
that occur, it is uncertain as to whether an EU intervention capacity would
represent the best use of resources to this end. Establishing
an EU intervention capacity would most likely involve
an expansion of the mandate of the European Maritime Safety Agency (EMSA),
which already has significant expertise and equipment, and whose assets –
particularly satellite imagery – are already drawn upon by national offshore
authorities. EMSA has the capacity to respond to oil spills, but for it to also
tackle offshore safety, it would likely also have to acquire a well-capping and
containment capability. Because this has been the strong focus of industry
since the Deepwater Horizon disaster, this may result in EMSA’s expanded assets
may result in little overall impact in practice, and a wasteful duplication of
resources.

4.1.2.
Financial and administrative impacts

In order to estimate the additional costs
of the creation of an EU
intervention capacity it is instructive to look at the extent of well-capping
and containment equipment for the equipment costs necessary (industry has so
far not fully-specified the costs of a capping and containment system), and
EMSA staffing resources to get an idea of building the expertise required.

A recent OGP report illustrated the
equipment necessary for a flexible capping and containment system that could be
deployed in most scenarios[118]. This includes capture devices (hard seal, soft seal, or no seal)
with diverter spools that fit over a subsea well, the subsea systems and
relevant surface systems and/or vessels for handling, flaring, storing, and
shipping to facilities that can effectively dispose of the liquid hydrocarbons
and associated contaminated water. Given the amount of equipment necessary, it
can be estimated that one-off costs to acquire a similar system may run into
many tens of millions of euros, and that the annual costs of maintaining the
equipment may run into the millions. Furthermore, it is likely that more than
one such system would have to be acquired in order to have response resources
within proximity of operations in both the North Sea and the Mediterranean.

The staffing budget of EMSA stood at roughly €20 million.[119] Assuming this needs to be increased by 50% in order to bring in the
necessary expertise, this would entail €10 million in additional running costs
annually. To this should be added increased operational running costs resulting
from the expanded mandate of EMSA, and the maintenance and storage of well
control and containment equipment. Assuming EMSA’s
current operating expenditures
of €32 million have to be increased by 30%, this would
result in an additional €9.6 million, giving a total of €19.6 million in
running costs to implement the policy measure examined here.

4.2.
Measure: Establishing EU regulatory body for
offshore oil and gas operations
4.2.1.
Impact on reducing the costs of offshore accidents

Rather than introducing any new policy
action per se, this option would consolidate benefits of Option 2 by
seeing a European body created to perform, in addition to national competent
authorities, certain policy measures in Option 2, such as assessing, the technical
capacity of operators, assessing certain MHRs, offshore inspections, and the
management of a database of safety indicators. By adding an specific EU wide
oversight function of national regulators, 3rd party verifiers it
would to a certain degree improve the coherent implementation of and compliance
with EU legislation.

Although it is impossible to quantify the
extent to which this would reduce the losses from offshore accidents, a single
EU regulatory body can be expected to allow the EU to better extend its practices to overseas operations as a result of enhanced
collective bargaining it affords. The assessment of license applications by a
single EU body, completely independent of Member States, would also ensure
EU-wide coherence and a level playing field across European jurisdictions.
Similar but less significant converging impact could be expected where the EU
body would provide technical assistance, coordination, training or information
sharing services to new or evolving national regimes.

On other dimensions, however, 
consultations show that regulatory authorities in mature offshore regions fear
that  the creation of an EU regulatory body could risk destabilising their
existing regimes and lead to fewer benefits than in Options 1 to 2 by
introducing standards based on the lowest common denominator in the EU and
aggravating staffing shortage of qualified personnel such as inspectors. In
case of unclear roles, the quality of regulatory
oversight in Europe could suffer, either as a result of a unnecessary
duplication of measures already taken by national authorities or as a result of
uncertainty about the effectiveness of  the EU body in the extreme case that it
would have sole responsibility for them. Specifically, the
EU body could turn to the Member States for non-compliance with EU law but
would not be able to effectively enforce sanctions given MS jurisdictions for
criminal investigation and prosecution. This limitation could potentially undermine
the effectiveness of existing regimes and the EU goal-setting approach.

Other anticipated challenges include, cost
recovery mechanisms: the relationship between MS and the agency in respect of
non major hazard regulation (eg under the Drilling Extractive Industries and
the Safety and Health of workers Directives); the relationship with licensing
authorities; the handling of MHRs by the regulator, leading to consents; and
the agreement of emergency plans. The new organisation will have to build up
the required expertise for assessment of license applications; and local
circumstances (language and geology, for example) may mean that many
responsibilities are better performed at the national level.

Moreover, the scope of action of the body
could be limited by the guarantees given to Member States in existing EU
legislation in respect of sovereign assets (Art 194 of TFEU and Directive
94/22).

4.2.2.
Financial and administrative impacts

Existing European agencies, such as EMSA
and EURATOM, are not entirely suitable for the nature of the offshore oil and gas
industry, which is essentially non-maritime and has very different risk
profiles to the nuclear sector. As such, an EU regulatory body would have to be
established from scratch and not as an extension of a pre-existing institution.
In spite of this, the running costs of such agencies can give us a benchmark
against which the additional costs of an EU regulator can be estimated.

The total operating budget of EMSA, with over 200 staff at its offices in Lisbon,
stood at just over €56 million in 2011: roughly €20
million for staffing costs; just over €4 million for buildings, equipment and
miscellaneous expenditure; and just over €32 million for operating expenditure.[120] Assuming that the size of the EU regulatory
agency in terms of total staffing resources is 1/5th of the current 506 staff working in all national offshore authorities combined,[121] then the EMSA budget figures would indicate roughly €10 million for
staffing costs. As offshore regulators do not require the purchase, maintenance
or storage of equipment, other categories of cost in the EMSA budget would not
reliably apply to an EU offshore regulator. Instead, we can add an additional
40% onto staffing costs to account for overhead costs, such as buildings,
heating, etc., as well as an international travel allowance. This gives an
estimated total of €14 million in additional running costs to public
authorities to implement the policy measure.

Compliance costs to industry would not be
increased.

4.3.
Option 3 Summary

Benefits: Uncertain
benefits to emergency response resulting from an EU intervention capacity; reduced losses from offshore accidents as a result of more effective
extension of EU practices to overseas operations, and
better assessment of license applications by an EU regulatory body.

Costs: Tens
of millions of euros for the purchase of well capping and control equipment and
€19.6 million in additional annual running costs to expand EMSA’s mandate and
establish an EU intervention capacity; and €14 million in additional running
costs in establishing an EU regulatory body. This comes to tens of millions of
euros in on-off costs and €33.6 million of running costs to implement Policy
Option 3. Combined with the costs of implementing Option 1, Option 1+ and
Option 2, this makes a cumulative €167.03-172.75
million in running costs
when compared with the baseline scenario, and well over €17.75-44.15 million in one-off costs.

To this must be added the unquantifiable
costs in terms of an increase in the likelihood of an offshore accident
associated with a possible degradation in the quality
of regulatory oversight in Europe caused by the shift of competencies away from
national authorities to an EU regulatory body.

5.
Other environmental, social, economic and external
impacts
5.1.
Environmental impacts

Offshore
accidents obviously can have a profound impact on the environment and the
environmental impacts of the policy options have been
already analysed in the previous sections of this annex.

5.2.
Social impacts

Considering the multifaceted role that
offshore oil and gas operations play in the European economy, the impacts of the various policy options are not restricted to
particular social groups although some of those, e.g. workers of the offshore
oil and gas sector will be obviously more affected than others.

Reducing the risk of offshore accidents
will lead to improvements in the health and safety of the workers employed in
the sector. As already demonstrated in this annex, countries which already
adopted some of the measures proposed above have experienced decreasing
fatality and injury rates.

A serious accident would have a direct
impact on those working on the installation but may also have repercussions to
the whole sector. If the safety of offshore operations in general was
questioned, this would set back new explorations and even ongoing operations
could be hampered, probably leading to a decreasing employment in the offshore
sector (as seen in the Gulf of Mexico since April 2010). Therefore, an option
reducing the risks of offshore accidents will also contribute to the sustained
employment in the sector. The same can be said about other sectors like
fisheries and tourism which would be also negatively affected by a large-scale
oil spill, or for communities, such as some in Scotland, who rely on the
offshore oil and gas industry.

5.3.
Economic impacts

Some economic impacts have been presented in the previous sections of
this annex; this section will cover various additional relevant aspects.

As many sections of this annex have already
highlighted, a harmonization of the rules, standards and best practices
applicable to the offshore sector in different Member States will help the
functioning of the internal market and enhance competition. Companies operating
in multiple jurisdictions will have to conform to more homogenous regulatory
requirements, leading to lower compliance costs.

A serious accident could check the
exploitation of offshore resources. As a result of the growing significance of
offshore oil production, shortfalls in supply may have an impact on oil prices.
Therefore, any policy reducing the risks of offshore accidents will also
contribute – indirectly – to the reduced risk of such price developments.

5.4.
External impacts

Apart from the direct external impact of
proposed policies, it should be noted that several countries in the European
Economic Area are recognized as being world leaders in offshore safety. By
virtue of this, European leadership in initiatives such as the codification of
best practices, the development of product and safety standards, and the
conception of a common reporting format for offshore safety statistics all have
the potential to set a precedent for other regions and, thereby, to generate
ancillary benefits to offshore safety globally.

Annex
V: Summary
of EU Acquis Applicable to Offshore Oil and Gas Activities

EU treaties and general policies

The Treaty on the Functioning of the
European Union (TFEU) establishes a new provision on energy policy[122].
The Treaty contains provisions for the protection of workers' safety and
health, allowing the adoption of minimum requirements in this field[123]
and for the protection of the environment, including the precautionary
principle and the polluter pays principle[124].

Besides primary legislation, the EU's Integrated
Maritime Policy (IMP) sets the objective for the EU to develop a coherent
policy approach to the oceans, seas and coastal areas, aiming at a
comprehensive understanding and taking into account economic, environmental and
social aspects. One of the tools developed in the context of the IMP is Maritime
Spatial Planning (MSP)[125]
which is a key tool with regard to good governance of the marine space and its
resources. Another relevant policy instrument developed under the IMP is Marine
Knowledge 2020[126]
which aims at improving the quality of public decision-making at all levels by
providing wider access to quality-checked, rapidly available coherent marine
data.

EU legislation on the authorization of
offshore activities

In line with the provision of the TFEU about Member States’ right to determine the conditions for
exploiting their energy resources, their choice between different energy
sources and the general structure of their energy supply, it is up to each
Member State to issue licences and other approvals necessary for the
exploration and production of hydrocarbon resources within its territory and in
waters falling under its jurisdiction. Each Member States sets its own
conditions and requirements to be met for license awards. In fact, Member States have adopted a diverse set of national
licensing/permitting requirements on key issues like financial and technical
capacity of applicants.

Directive 94/22/EC of the European
Parliament and of the Council of 30 May 1994 on the conditions for granting and
using authorizations for the prospection, exploration and production of
hydrocarbons does not
impose specific requirements on the applicants as it was designed to deal only with competitive aspects of Member States' licensing
procedures, ensuring equal access to national bidding rounds for entities from
the entire EU.

EU legislation on equipment

EU product safety legislation has been making
already for many years an important contribution to the safety of equipment
used in the oil and gas sector. Several product safety directives have a
bearing on the sector, namely Directive 2006/42/EC of the European
Parliament and of the Council of 17 May 2006 on machinery, and amending
Directive 95/16/EC (Machinery Directive), Directive 97/23/EC of the
European Parliament and of the Council of 29 May 1997 on the approximation of
the laws of the Member States concerning pressure equipment (Pressure Equipment
Directive) and
Directive 94/9/EC of the European Parliament and the Council of 23 March
1994 on the approximation of the laws of the Member States concerning equipment
and protective systems intended for use in potentially explosive atmospheres
(ATEX Directive).

The legislation sets out the essential
requirements applicable to the equipment concerned and the conformity
assessment procedures to be followed by manufacturers before the equipment in
placed on the market and put into service. Detailed technical specifications
are provided by harmonized European standards developed by the European
Committee for Standardization (CEN) and the European Committee for
Electrotechnical Standardization (CENELEC). In addition to general standards,
there is currently a harmonized standard for some specific equipment (offshore
cranes) and other specific standards are being developed for casing elevators
and other offshore drilling equipment.

It should be noted that this EU legislation
excludes from its scope mobile offshore units and equipment installed thereon.
Mobile offshore units are considered as seagoing vessels and their safety is
subject to rules established by the International Maritime Organization (IMO)
in the IMO Code for the Construction and Equipment of Mobile Offshore Drilling
Units (MODU Code). However, the MODU Code does not cover drilling operations.

This situation leads to fragmented
regulation where at present the same equipment can fall within or outside the
scope of EU product safety legislation depending whether it is used on fixed or
mobile installation. Some of the EU and EEA Coastal
States consider that it would be useful to apply EU legislation to equipment
installed and used on mobile offshore units. The distinction between mobile and
fixed units has indeed been overtaken by current technology, since mobile units
nowadays frequently remain in place for the lifetime of a well and the
equipment of these units is often the same as that used on fixed offshore
units.

Further action may be appropriate as
regards the standards for well control equipment. At present, the Pressure
Equipment Directive excludes blow-out preventers from its scope as its provisions
are not considered appropriate or adequate for equipment designed for specific
applications in particularly severe environments, including undersea wells.
Consequently, the design, construction, use and inspections of well control
equipments are currently covered by the national regulations of EU and EEA
Coastal States.

EU legislation on the health and safety
of workers

In the field of the protection of the
health and safety of workers, there exists an extensive body of EU legislation laying down minimum requirements. Currently,
nineteen EU Directives relate to workers' safety and health protection in all
areas including offshore drilling platforms. The Framework Council Directive
89/391/EEC of 12 June 1989 on the introduction of measures to encourage improvements
in the safety and health of workers at work is complemented by the
sector-specific individual Council Directive 92/91/EEC of 3 November 1992
concerning the minimum requirements for improving the safety and health
protection of workers in the mineral-extracting industries through drilling.

Council Directive 92/91/EEC outlines a number of minimum requirements in the area of health and
safety, including some basic well control requirements. In its annex, Part C of
the directive sets special minimum requirements applicable to the offshore
sector. The Directive was last reviewed in 2009. It should be noted however
that occupational safety and health defects are not the primary consideration
from the Deepwater Horizon disaster where the lack of control of the major
accident risks is the key concern. Where countries introduce regulations
specifically against major hazard events, the regulations will focus on the
major hazards aspects (blow-outs, platform loss, process safety failures).

Specific provisions regarding work
equipment used at work are laid down in Directive 2009/104/EC of the
European Parliament and of the Council of 16 September 2009 concerning the
minimum safety and health requirements for the use of work equipment by workers
at work. Other directives in the field of workers' safety and health
protection also apply to workers in the offshore sector, such as those
addressing noise, vibration, electromagnetic fields, chemical agents,
carcinogens, manual handling of loads, safety signs, personal protective
equipment etc. The directives in the field of health and safety at work contain
minimum requirements and Member States are allowed to adopt or maintain more
stringent protective measures.

EU legislation on environmental
protection

There is at present a whole system of
legislative measures within the EU environmental legislation aimed at pollution
prevention. Built on the precautionary principle enshrined in the primary
legislation, it consists mainly of Directive 2008/1/EC of the European Parliament
and of the Council of 15 January 2008 concerning integrated pollution
prevention and control (IPPC Directive) and Council Directive 85/337/EEC
of 27 June 1985 on the assessment of the effects of certain public and private
projects on the environment (Environmental Impact Assessment Directive), as
amended by Directive 97/11/EC, 2003/35/EC and 2009/31/EC.

The IPPC Directive requires industrial and
agricultural activities with a high pollution potential to have a permit. This
permit needs to include conditions, based on the application of the Best
Available Techniques (BAT), to prevent and reduce the pollution they may cause
and to achieve a high level of protection for the environment as a whole. The
extraction of petroleum and natural gas does not fall under the scope of the
directive, except where it involves the operation of combustion plants with a
rated thermal input exceeding 50 MW. Under the Environmental Impact Assessment
Directive, proposed projects' likely significant effects on the environment have
to be assessed and the necessary measures to prevent, reduce and – where
possible – offset any significant adverse effects identified prior to
authorisation. The extraction of petroleum and natural gas falls under the
scope of the directive.

In addition, Directive 2008/56/EC of the
European Parliament and of the Council of 17 June 2008 establishing a framework
for community action in the field of marine environmental policy (Marine
Strategy Framework Directive) establishes a process through which Member States
have to develop strategies to reach the objective of Good Environmental Status
in 2020. The assessment of the present situation by each Member State is
required in 2012; the necessary measures for reaching the objective must be in
place by 2015. Measures are expected to address the cumulative impacts of
specific sectors offshore (including fisheries, shipping, dredging, offshore
renewables, bio-prospecting) and land-based (agriculture, industry, waste
management, wastewater treatment) that may have an impact on the marine
environment.

EU legislation on waste and on
environmental liability

As regards the responsibility for the
clean-up of any oil spill and the liability for damages caused by it, EU
legislation is based on the "polluter pays" principle. This principle
is reflected in secondary legislation that may apply to offshore accidents,
mainly in Directive 2008/98/EC of the European Parliament and of the Council
of 19 November 2008 on waste and repealing certain Directives (Waste
Framework Directive) and in Directive 2004/35/EC of the European Parliament
and of the Council of 21 April 2004 on environmental liability with regard to
the prevention and remedying of environmental damage (Environmental
Liability Directive).

The Waste Framework Directive applies fully
to oil spills, as upheld by the Court of Justice of the European Union. Thus, oil
escaping from an offshore installation is covered by the EU definition of waste
and the qualification of oil spilled into sea as waste suffices for imposing the
obligation to the polluter of cleaning up. No demonstration of fault is needed;
the mere fact that oil has been released into the marine environment may lead
to imposing obligations on the producer of the waste. In case of oil escaping
from offshore installations, the operator would be regarded as the producer or
holder of waste and would, in accordance with the polluter pays principle, bear
the costs of waste management. The applicability of the
Waste Framework Directive to the maritime oil spills is not explicit in EU
legislation and is based, as mentioned, on the jurisprudence from the Court of Justice
of the EU[127]. According to case law, the legal qualification of "producer
of waste or holder of waste" also relates to mother companies, i.e.
subcontracting would not constitute a mean to escape liability.[128]

Besides the obligations of waste
management, including the clean-up of oil spills, EU environmental legislation
also addresses the issue of liability for damages to the environment that can
result from an accident or other critical events in offshore activities. The
basic legal instrument governing environmental liability at EU level is the
Environmental Liability Directive.

The main objective of the Environmental
Liability Directive is the prevention and remediation of environmental damage.
As such, it aims at restoring the environmental damage to the baseline
conditions which would have existed had the damage to the environment not
occurred. The scope of environmental damage under the directive is defined as
(a) damage to protected species and natural habitats (under the Habitat and
Bird Directives), (b) damage to water (under the Water Framework Directive),
and (c) damage to land.

The Environmental Liability Directive
contains a scope of strict liability for operators who carry out specific
activities and a scope of fault-based liability (i.e. requiring a proof of
intent or negligence) for damage caused to protected species and natural
habitats (but not for damage to water or to land) by any other occupational
activity. The regime which will apply to offshore hydrocarbon installations and
rigs in case of an accident is the strict liability regime, i.e. without the
need of the proof of fault.

While the Environmental Liability Directive
applies to all the marine waters under the jurisdiction of Member States for
the specific purpose of environmental damage to the "protected species and
natural habitats" under Directive 2009/147/EC of the European
Parliament and of the Council of 30 November 2009 on the conservation of wild
birds (Birds Directive) and Council Directive 92/43/EEC of 21 May 1992
on the conservation of natural habitats and of wild fauna and flora
(Habitats Directive), its coverage of the damage to water only applies to the
waters covered by Directive 2000/60/EC of the European Parliament and of the
Council of 23 October 2000 establishing a framework for Community action in the
field of water policy (Water Framework Directive) and therefore does not
extend beyond a narrow scope of coastal waters. This gap in the applicability in the Environmental Liability
Directive as regards damage to water is worrying in light of the recent
experience in the Gulf of Mexico, where environmental damage to marine waters
was clearly not limited to the coastal strip and the territorial sea. The gap
should hence be closed to address all the marine waters as defined in the Marine
Strategy Framework Directive.

EU legislation on emergency intervention

The EU disposes of various instruments to
complement the emergency response/civil protection mechanisms of Member States
and industry. The Community Civil Protection Mechanism was established by Council
Decision 2001/792/EC of 23 October 2001 establishing a Community
mechanism to facilitate reinforced cooperation in civil protection assistance
interventions. It provides support, on request, in the event of a major
emergency and facilitates improved co-ordination of assistance intervention. It
covers both civil protection and marine pollution and allows responding to any
major disaster inside and outside the EU.

The Civil Protection
Mechanism's Monitoring and Information Centre (MIC) is
operated by the European Commission and is available on a 24/7 basis. The MIC has 24/7 contact points in both the civil
protection and the marine pollution authorities in all the Participating States and coordinates requests and offers for assistance from 31
Participating States: the EU 27, Croatia and the three European Economic Area
(EEA) countries - Norway, Iceland and Liechtenstein. During marine
pollution emergencies, the MIC coordinates national marine pollution and civil
protection authorities and cooperates with the European Maritime Safety Agency
(EMSA).

EMSA was established in the aftermath of
the Erika (1999) and Prestige (2002) tanker disasters by Regulation
1406/2002/EC of the European Parliament and of the Council of 27 June 2002
establishing a European Maritime Safety Agency for the purpose of ensuring
a high, uniform and effective level of maritime safety, maritime security,
prevention of pollution and response to pollution by ships.

EMSA focuses on marine pollution and emergency
preparedness activities related to vessels. EMSA can already meaningfully
intervene in case of oil spills from offshore oil facilities as its capacities
can cope with an oil spill irrespective of its source (see Commission proposal
COM(2010)611 dated 28/10/2010).

EMSA operates a state-of-the-art maritime
transport monitoring centre around the clock. The agency's CleanSeaNet service
is a satellite based monitoring system for marine oil spill detection and
surveillance in European waters. EMSA has also built a network of stand-by oil
pollution response vessels that covers the whole of the European coastline.

Some of EMSA's pollution response
capabilities are applicable to the offshore industry without major adjustments
(such as the response vessels or the satellite systems). However, operating
response vessels close to platforms with spills of oil and gas mixture requires
additional safety conditions for crew and equipment. The location of response
vessels in Europe should take into consideration also the location of offshore
installations and the time requirements of response operations. Other
activities would necessitate significant changes for EMSA as they would require
a new legal basis as well as additional staff, expertise, procedures and
equipment. These increased requirements concern especially any potential
expansion of EMSA's preventive activities to offshore oil and gas activities.

Annex VI:    Public Consultation questionnaire

PUBLIC
CONSULTATION

Improving offshore safety, health and environment in Europe

Questions
for the public

Please use
this response form for your replies. Thank you for respecting the maximum
length for the replies as indicated after each question. This will ensure that
your responses are taken into account in their entirety.

Please send
the filled response form to the ENER-CONSULT-OFFSHORE mailbox

Authorisations

As described in the consultation document,
the competent authorities of the EU Member States define the concrete
regulatory requirements and conditions for starting, pursuing and terminating
offshore activities within the broader boundaries of EU legislation. These
authorities govern also the authorisations for offshore activities in a given
area (both in terms of access to exploit a certain geographical area, and in
terms of approval to perform concrete activities), regulatory requirements on
ongoing activities and closing of operations.

1. Which changes, if any, would you recommend to the authorisation
conditions for offshore prospection or exploration or production
activities? Please specify which authorisations your recommendations concern
(all authorisations, those in a specific country, those authorising only a
certain stage(s) such as prospection, exploration or production etc)         (Please
limit your response to maximum 1000 words)

2. European law [129]foresees
that the competent national authorities shall ensure that authorisations are
granted on the basis of selection criteria which consider, among other things,
the financial and technical capability of the companies wishing to carry out offshore
oil or gas operations. a) What key elements[130]
should this technical capacity requirement include in your view? (Please
limit your response to maximum 500 words.) b) Similarly, what key elements
should the financial capability requirement include in your view? (Please
limit your response to maximum 500 words)

3. How (such as through legislation or voluntary measures at
international, EU or national levels or by industry) should the adoption of
state-of-the-art authorisation practices be best achieved throughout the EU?
Should neighbouring EU Member States be consulted on the award of authorisations?         (Please
limit your response to maximum 1000 words)

Prevention of accidents

4. Please describe here any recommendations or changes (to the current
regulatory framework or practices) - if any - that  you consider important to
improve the prevention of accidents affecting the health or safety of
workers on offshore oil and gas installations in the EU:  (Please limit
your response to maximum 1000 words)

5. Please describe here any recommendations or changes (to the current
regulatory framework or practices) – if any – that you consider important in
order to better prevent damage to the natural environment from accidents
on offshore oil and gas installations: (Please limit your response to maximum
1000 words)

Verification of compliance and
liability for damages

The
enforcement of offshore health and safety regulations is the general
responsibility of national public authorities. The enforcement measures include
various activities such as on-site inspections, safety audits and reporting
requirements for companies. The organisation, scope and frequency of these
measures vary in the different Member States depending on national practices,
laws and the local conditions.

While focus on compliance should prevent
accidents, a robust liability regime needs also to be in place as accidents
resulting in major oil spills may cause extensive environmental, economic and
social damage. The financial consequences on the entities found liable for the
accident may be significant. EU legislation defines the common principles (e.g.
'polluter pays - principle') and goals for ensuring liability for environmental
damages while national laws and courts put them in practice. Concerning
environmental liability, the applicable EU law (Directive 2004/35/EC) addresses
pure ecological damage in terms of protected species and natural habitats
(biodiversity damage), water pollution damage and land damage. As regards
affected waters, the ELD covers the territorial waters (up to 12 nautical miles
off the shoreline), but not all marine waters under the jurisdiction of EU
Member States (up to 200 or 370 nautical miles).

Responsibilities for traditional damage
(such as loss of life; personal injury, health defects; damage to property and
economic loss affecting for example fishermen) are usually determined by civil
courts or tribunals in accordance with national laws and/or case law following
goals and principles defined at national level.

Closely linked with the liability is the
competence of the liable parties to actually stand up to their obligations.
Insurance coverage in the offshore oil and gas sector is partial, with some
companies insuring risks to a certain degree and others not. The insurance
market does not currently provide products sufficient to cover damages of the
magnitude seen in the Deepwater Horizon accident.

Moreover, there are no international or
EU-wide funds similar to those in maritime transport that would cover
environmental or traditional liability.

6.  Please describe here any recommendations you would like to make on
how to improve compliance of the offshore oil and gas industry with
applicable offshore safety legislation and other regulatory measures in the EU.
(Please limit your response to maximum 1000 words)

7. In your view, which are the key measures to supervise and verify
compliance of the industry with offshore health, safety and
environmental rules and who should do the supervision and verification? (Please limit your response to maximum 1000 words)

8. In your view, should the existing environmental liability
legislation (Directive 2004/35/EC) be extended to cover environmental damage to
all marine waters under the jurisdiction of the EU Member States? (Please limit your response to maximum 1000 words)

9. In your view, is the current legislative framework sufficient for
treating compensation or remedial claims for traditional damage caused
by accidents on offshore installations? If not, how would you recommend
improving it?   (Please limit your response to maximum
1000 words)

10. In
your view what would be the best way(s) to make sure that the costs for
remedying and compensating for the environmental damages of an oil spill are
paid even if those costs exceed the financial capacity of the
responsible party? (Please limit your response to maximum 1000 words)

Transparency, sharing of information
and state-of-the-art practices

Transparency
of an offshore regulatory regime means the policy and practices on how the
regulatory authorities and offshore industry share information with each other,
between peers or with the civil society. The degree of transparency affects the
awareness of the public authorities, the industry and the civil society, i.e.
on offshore oil and gas activities and the way they are managed and
controlled. It may also affect the nature of communication, commercial
interests of companies, spreading of technologies, lessons learned and
cross-border cooperation. An example of transparency in the offshore sector is
the practice of some EU national regulatory authorities to publish information
such as accident statistics and license award decisions concerning offshore
operations.

11. What
information on offshore oil and gas activities do you consider most important
to make available to citizens and how? (Please limit your response to
maximum 1000 words)

12. What
is the most relevant information on offshore oil and
gas activities that the offshore companies should
in your view share with each other and/or with the regulators in order to
improve offshore safety across the EU? How should it best be shared?     (Please limit your response to maximum 1000 words)

13. What
information should the national regulators share with each other and how
to improve offshore safety across the EU? (Please limit
your response to maximum 1000 words)

14. Which
means, if any, would you recommend using to promote, across the EU, the use of
state of the art practices to protect occupational health and safety
during offshore oil and gas operations?    (Please
limit your response to maximum 1000 words)

15. Which
means, if any, would you recommend using to promote, across the EU, the use of
state of the art practices to protect the environment against accidents
caused by offshore oil and gas operations?     (Please
limit your response to maximum 1000 words)

Emergency response and International
activities

The emergency response capacity at present
consists of resources and contingency plans on the level of the industry,
national administrations and of the EU. In general, contingency plans are
required for all offshore installations and are complemented by national and EU
contingency plans to respond to large scale accidents. Adequacy of resources
and their coordination, both affect the effectiveness of response to offshore
accident. In response to recent accidents, particularly the one of the
Deepwater Horizon drilling rig in the Gulf of Mexico, the emergency capacities
are being strengthened. For instance, new response devices are being developed
for use in deepwater conditions.

In the Mediterranean and the Black Sea
offshore, oil and gas activities are underway both on EU and adjacent non-EU
waters. This causes a risk for cross-border environmental damages from a
possible offshore accident, not only across internal EU borders, but also
across EU's external border. Apart from an interest in promoting high offshore
safety practices also in adjacent regions, the EU participates in international
activities to increase safety of offshore activities.

In response to the differing regulatory
requirements both within the EU and internationally, some oil and gas companies
have adopted company practices or standards that they apply to their activities
in the EU and outside. Others adjust their practices more substantially to suit
local conditions in the given country.

16. In
your view what should be the role of the EU in emergency response to
offshore oil and gas accidents within the EU?        (Please limit your
response to maximum 1000 words)

17. Please
describe any recommendations you may have concerning cooperation with non-EU
countries to increase occupational safety and/or environmental protection in
offshore oil and gas operations internationally? (Please limit your
response to maximum 1000 words)

18. Please
describe here any recommendations you may have on how to incentivise oil and
gas companies with headquarters in the EU to apply European offshore safety
standards and practices in all their operations worldwide: (Please limit your
response to maximum 1000 words)

Annex VII: Results of the Public Consultation
on Improving offshore safety, health and environment

COMMISSION STAFF WORKING PAPER

Improving offshore safety, health and
environment
results of public consultation

Accompanying the document

Regulation (EU) No .../..

of the European Parliament and of
the Council of [...] on [safety of offshore oil and gas prospection,
exploration and production activities]

In spring 2011, between
16 March and 20 May 2011, the Commission organised an on-line public
consultation on the possible improvement of offshore safety in Europe,
providing stakeholders with the opportunity to submit their views before the
Commission develops any legislative or non-legislative proposals in the various
policy fields. The consultation was based on a document that gave the
background to the regulatory framework for offshore safety in the EU. The
consultation outlined the key issues that need to be addressed and included 18
open questions, arranged in the following five topics:

1.
Authorisations.
Under this topic, the public was requested to give
their views on the authorisation practices and conditions for offshore
prospection, exploration or production activities.

2.
Prevention of accidents.
This section requested the public's opinion on prevention of accidents,
affecting both the health and safety of workers as well as damage to the
environment.

3.
Verification of compliance and liability for
damages.
In this section the public was presented with
questions regarding compliance by industry with applicable offshore
legislation, regarding the supervision and compliance verification of the
industry by competent authorities and on liability for environmental and
traditional damage caused by offshore accidents.

4.
Transparency, sharing of information and
state-of-the-art practices.
This section requested the public's opinion on what
information on offshore oil and gas activities should be made available to the
public, what information should be shared amongst the industry and amongst
regulators and on the use of state of the art practices to protect health and
safety of offshore oil and gas operations and damage to the environment cause
by these operations.

5.
Emergency response and international
activities.
This section presented questions on emergency
response to offshore oil and gas accidents, cooperation with non-EU countries
regarding oil and gas operations and on the application of EU standards by oil
and gas companies in their activities outside the EU.

In total, 64 contributions were received
from all segments of the stakeholder community: Member State authorities,
industry, NGOs, insurers and citizens. In addition to the oil and gas industry,
companies and industry associations from other, related sectors (e.g. shipping,
classification societies) also submitted replies. Taking into account the
member companies that each industry body/association represents, the Commission
has received well over 350 disaggregated replies from stakeholders. The table
below shows the composition of the direct respondents.

Oil and gas industry || 17

Other industry || 11

Public authorities || 11

NGOs || 14

Insurers || 4

Citizens || 5

Others || 2

In the following paragraphs, an analysis is
provided of the contributions received. All responses were carefully reviewed
by the Commission, which included an assessment whether the content of the
responses reflected the actual questions and/or had a bearing on the policy
topic of the question. During this process, similar responses were combined and
some of the responses – although valuable in a broader context – were regarded
as having limited bearing on the specific policy topic; these responses were
either re-allocated to the appropriate policy topic and combined with other
responses or otherwise set aside. The analysis below shows the responses for
each of the policy topic listed in the consultation document, for each of the
respondents category listed above. If a category of respondents did not have
any comments on one of the policy topics, these respondents are not included
under the specific policy topic.

Authorisations

Oil and gas industry

The industry is of the opinion that the authorisation
processes currently applied in certain Member States are considered to be
sound, ensuring the application of state-of-the-art technology and procedures.
It was mentioned that Directive 94/22/EC already requires the demonstration of
technical and financial capability before a licence can be obtained. Most
respondents in this category do not recommend any changes to the authorisation
conditions for offshore prospection, exploration and production activities,
citing stringent licensing procedures and safety case legislation in place in
most member states. The safety case approach must however be combined with
robust inspections and auditing of those cases, combined with an independent
review by an external party or independent function within the company. It is
however recognised that in countries with less experience in offshore oil and
gas operations, there could be less solid safety case regulations in place. The
EU should work with those countries individually, to bring standards up to
those of the best performing countries. Most respondents also agree that the EU
should promote setting up a consultative and advisory body of national
regulators, e.g. modelled on NSOAF, in which best practises are shared and to
ensure MS with less experience in offshore oil and gas activities apply same
high standards as more experienced ones. An industry association stated that,
while authorisation should account for full liability for damages, it should
also balance particular MS needs e.g. to not discourage smaller players. It as
also emphasised as essential to secure independence of expert safety regulation
from the licensing function. Whilst in favour of financial capability criteria,
industry and industry associations stated emphatically that these should not
preclude companies of different sizes from entering the market. There is also
broad agreement amongst industry respondents that neighbouring Member States
should be informed of any authorisation decisions, however there is no need to
actively consult those countries during the authorisation process. It is also
felt that most legislation is best placed at the national level, as national
authorities are best placed to judge applications for permits based on local
conditions.

There were two industry respondents that
mentioned areas where current legislation/ practises could be improved: 1) some
national licensing systems are extremely cumbersome and should be simplified,
2) there is a benefit in a more standardised approach in the EU which should be
promoted, i.e. the harmonisation of procedures and standards and equipment
taking into account current best practises. For example a drilling contractor
should then be granted a certificate to operate in all EU waters. There are
also still different local certification and authorisation processes for use of
equipment and machineries, making it difficult to employ them cross border. The
definition of a general EU framework could be useful to assess and ensure both
technically and organisationally relevant HSE standards. Another company
highlighted that a licensing process that separates responsibility for
authorising drilling permits from rig safety and well operations oversight
should be viewed as best practise and where not yet the case, separate
regulators for licensing and safety should be established.

Other industry

There is a general view, that the current
system for licensing is adequate, with sufficient information publicly
available on operational techniques. Respondents were of the opinion that other
criteria of the technical assessment of a licensee were e.g. the implementation
of a safety management system, the field development plan, contingency
measures, primary measures on accident prevention and asset integrity and
environmental assessments. Another respondent recommended considering other
parameters in the licensing process, e.g. location (of the installation),
lifecycle stage (prospection/ exploration/ production), type of company/
operation/ asset. The respondent also suggested considering limitations on
license, e.g. duration and scope of the license, options to revoke a license
and options for a temporary license.

On the consultation of other MS during the
licensing process, opinions in this category varied. Some respondents felt that
with consistent high standards applied in the authorisation processes, there
was limited benefit of international consultations on authorisations with such
a requirement introducing additional bureaucratic burden. Another respondent
was of the opinion that existing arrangements and contacts between neighbouring
states would already ensure effective authorisation structures.

Public authorities

Two regulators state that more information
is available once programmes have started than at the time of applying for
exploration licences, so it would be best to assess information at a later
stage too. In addition, companies should undergo regulator checks (including
financial provisions) before key activities start at each stage of the
operation. These checks should include safety, environmental control, and
technical and financial capability. Two regulators feel that authorisations
should be approved by two different regulators e.g. environment and health. One
regulator requested that there should not be an additional layer of EU
regulation as this could divert scarce human resources away from core tasks. A
blanket approach to all MS is not advisable due to different national circumstances e.g. cultural, legal
and geological. National regulators especially argued
that the international global framework which is applicable now and any new EU
legislation must be compatible. There is concern that the EU, through its
actions, might inadvertently undermine the effectiveness of the existing
regulatory and supervisory regimes in the oil-producing countries, especially
around the North Sea. Their view is that safety regulations will continue to be
handled most effectively on a national state level.

For technical capacity, the main comments
concerned staff qualifications and experience (especially that of management),
lines of responsibility, company experience, management of contractors, and
staff audits. Additionally, health and safety, equipment certificates, and
environmental protection were mentioned. For financial capability, balance
sheets for three years should be provided, along with guarantees, warranties,
and proof of sufficient funds or indemnity provisions to meet any kind of
incident. With regard to state-of-the-art authorisation practices, best
practice, health and safety, and environmental concerns should be advised to
the EU with a view to modifying legislation. Many regulators stated that
neighbouring MS should be informed but not involved in authorisation decisions.
Regulators expressed concern with respect to Member States that are just
beginning to develop offshore oil and gas activities. A permanent working group
of national regulators could be established, based on the North Sea Offshore
Authorities Forum (NSOAF).

NGOs

Several NGOs commented that loopholes in
regulatory regimes need to be closed. Whilst UK legislation is held up as a
good example, it is considered by some that it is not robust enough.
Authorisation processes should be transparent, including environmental impact
assessment with possibility of public consultation. One NGO specifically stated
that adoption of safety case legislation as a possible minimum standard for the
EU is in itself not sufficient, citing various incidents in the UK sector of
the North Sea. One NGO requested that the regulator should be separate from any
authority that handles energy development/security of supply. All NGOs
requested that companies be required to cover all accident costs, without which
no licence would be given. The majority of NGOs respondents would only like
authorisations to go to companies that can carry full financial liability for
any incident, including future decommissioning of systems. Failing that, there
were suggestions to replicate the Offshore Pollution Liability Association
(OPOL) agreement, or to have an industry-led mutualisation scheme or an EU-wide
compensation fund. Licences should comply with EU-monitored minimum binding
standards; it was suggested by many that the remit of European Maritime Safety
Agency (EMSA) could be extended in this respect. Several NGOs felt that
neighbouring countries should be consulted and should also be involved in the
authorisation. Some NGOs requested the implementation of best available
techniques (BAT) e.g. regular maintenance including requirements for upgrading
installations as technology evolves.

Citizens

Citizens in general felt that if a company
can't afford to clean up after an accident, it shouldn't be drilling. All
citizen respondents would only like authorisations to go to companies that can
carry full financial liability for any incident. Strong legislation should ensure
that companies are held liable, with mandatory requirements to provide
necessary financial security in the event of an accident. One respondent felt
that on granting authorisations, a company's past record on health and safety
and environmental impacts, both within and outside the EU, should be taken into
account. Oil and gas projects should follow public deliberations on permit
application. Citizen stakeholders generally suggested that there is a need to
involve other countries in authorisation, where cross-border issues are at
stake.

Others

One respondent urged that there should be a
clear separation between the authority that grants and issues granting
instruments and the authority that regulates the operations of those
instruments, in view of conflicting demands on officials charged with those
separate tasks. However, the respondent cautions that there should not be
multiple separations of those authorities. On the issue of the financial
capability, the respondent felt that the current system is functioning well,
albeit guidance from the Commission could be appropriate and useful on criteria
for assessment of financial capability. The respondent also feels that any
consultation provisions of other neighbouring MS on authorisations would
require careful consideration.

Prevention of accidents

Oil and gas industry

The good historical record of the sector
was highlighted in this respect; nevertheless, even industry stakeholders admit
that there is a need to challenge the industry to do better. Companies in
general support the Commission's review of the current EU framework governing
offshore operations. They are equally supportive of the Commission's
recommendations for reviews of current safety cases by operators and MS and
updates as necessary. Most companies agree that for the protection of the
environment a robust and interlocking network of international, EU and national
rules is in place, e.g. SEA Directive, EIA Directive, ESPOO Convention,
Barcelona Convention, Black Sea convention etc. Any changes to this system risk
being sub-optimal and creating a gap in currently applied legislation. Furthermore,
such a change should not result in reduced safety standards in those Member
States which already have a strong offshore regulatory regime. Most respondents
urge the Commission to avoid adopting detailed prescriptive legislation or
regulation at EU level, but instead promote the implementation of a
goal-setting regime, including dissemination of relevant international
standards. One industry association suggested a 'safety case' regime that is
goal-setting and includes formal acceptance by the regulator. On product
safety, industry is of the opinion that any proposals for action need to be
done in close cooperation between the Commission, individual MS/national
regulators, industry and the relevant standardisation bodies. Most respondents
are against setting-up a centralised EU enforcement/control authority. In order
to make improvements in this area at least 2 companies clearly stated that this
will not be achieved by new regulations, but by better application of existing
standards and best practise. It is felt by most operators that the ‘ALARP’[131] concept represents a robust
regulatory tool to ensure that adequate prevention measures are in place. One
suggestion made was that drilling equipment and other safety critical
infrastructure be inspected by insurance providers. Also, the performance of
the national regulator should in turn be assessed by another national auditing
body.

Other Industry

Some respondents recommended the
application of goal-setting regulations combined with the Safety Case regime
(including third party verification), identical to the one used in the UK and
Norway, to all jurisdictions. This would include approval or acceptance of the
safety case by the regulator. Respondents are of the opinion that the Safety
Case approach can provide a useful tool in addressing some of the areas of
weakness in offshore regulation identified by the Commission. In this context
it was recommended that future European regulations should require all offshore
installations (including rigs) to develop and have approved an EU compliant
integrated Safety & Environment Case (which would include IPPC
requirements) prior to commencing operations in EU waters. On approval of a
safety & environmental case, the respondent suggested that strict regulator
guidance should be made available, aiming to deliver harmonisation between
regulators so that a safety & environmental case approved in one state
would likely receive approval in another MS, should the installation move
across borders. Respondents highlighted the requirement for awareness
structures and for training in all levels in organisations, to focus on
prevention of accidents. Health and safety issues should become a natural
element of the offshore industry and must not be perceived as being overbearing
or unnecessary. One respondent mentioned the requirement that not only
companies that purchase and apply equipment to ensure that environmental damage
is prevented (e.g. BOP systems) is subject to a regulatory framework, but also
the companies that are manufacturing and selling the components are subject to
a similar framework. This should prevent companies from buying cheaper and more
unsafe components. Another respondent suggested that the EU may enhance or
propose directives which the industry can use as basis of their performance
standards, on pressure equipment, electrical devices used in explosive
environments, lifting equipment and well control equipment.

Public authorities

For health or safety of workers, there
should be a rigorous safety culture with robust training for disaster
management involving all staff/subcontractors. It was recommended that
legislation proposals should include elements on well design, well construction
well and control, as these issues are not or only very limited addressed in
Directive 92/91/EC. In addition, it was suggested to introduce goal-setting
elements on safety culture in legislation. EU legislation should be based on
best practice in NSOAF countries. Others expressed the view that there is a
need to take steps to improve the safety culture offshore and ensure that the
knowledge and experience of the offshore workforce is effectively used by
operators when addressing health and safety. One stakeholder cautioned against
a rush to adopt new legislation before lessons emerge from the investigations
into the Deepwater Horizon incident that indicate a need for change. Another
stated that using worldwide standards in the EU would make it easier for
multinationals. With regard to the equipment, this should be certified by the
manufacturer or another body, as should safety systems. The UK system includes
Safety Cases which are submitted before operations start, and Notifications are
sent to the regulator at various operational stages. Finally, there was a
request to implement ILO guidelines on occupational safety and health
management systems (OSH). In terms of the natural environment, best practice,
incident reporting and lessons learned in other industrial activities could be
replicated.

NGO's

Additional training is considered necessary
by several NGOs, and worker rights should be strengthened to avoid harassment
in the event of whistle blowing. Respondent mentioned the need to raise standards
in the EU, with the highest safety and environmental standards applied to
industrial activities. One respondent feels that industry should invest more on
research and development for preventing oil spills. Sanctions could be taken by
competent authorities were worker rights are not respected. There could also be
an independent regulator to examine and approve well design etc, while some
NGOs recommended stress tests of installations, equipment and procedures.
Ratification of the Barcelona Convention was mentioned by a few NGOs, as was
the extension of Seveso II and the Industrial Emissions Directive (IED) to
cover offshore drilling. Two NGOs requested specific funding for R&D, and
the EU should monitor abandoned wells.

Citizens

Citizens commented that existing
regulations should be strengthened and extended to cover all drilling operations
in EU waters. A respondent mentioned that the track record of industry on
incidents did not show any improvement in recent years and felt that EU
standards should be established to prevent environmental disasters like
Deepwater Horizon. Respondents felt that the use of highest standards for
equipment should be made mandatory in EU legislation. Old platforms must be
updated to the best environmental standards or stop production. A respondent
recommended that when drilling a well, a back-up rig should be available within
1 – 2 days travel of the exploration time, should a relief well be required. The
respondent also suggested that abandoned wells should be regularly monitored by
national and/or EU regulators, and that companies be required to reduce their
discharges and spills of hydrocarbons.

Others

One respondent is of the opinion that the
most appropriate approach for the offshore industry is a goal-setting approach
and the safety case. It is precisely this approach that makes best use of the
expertise within the industry and that significantly frees up the regulator to
see the bigger picture and emerging problems. Based on experiences in the UK,
the respondent cautions for any move toward greater prescription in either EC
Directive 92/91/EEC or in entirely new EU legislation. Any greater specificity
driven by the Deepwater Horizon disaster may be solely applicable to that
incident and thus reduce the openness of the industry and regulators to the
need for vigilance with respect to other scenarios. On the prevention of damage
to the environment, the respondent feels that the best approach is to continue
to work to reduce accidents on a safety case basis.

Verification of compliance and
liability for damages

Oil and gas industry

Industry representatives argued that
compliance is an issue to which companies devote significant efforts and
resources and constantly strive to improve. They are also of the opinion that
the current system of inspections is working well. Any proposed changes to the
current system should demonstrate how they would ensure the necessary
competence and coordination to the rigorous and proven systems that are in
place today. Industry cites strong, expert regulators with adequate resources
as essential for securing compliance. Regarding potential liability, most
respondents do not support a mandated industry-wide pre-loss mutual fund, but
rather allow companies to make their own differentiated decisions how to meet
their financial obligations. Voluntary compensation schemes like OPOL should be
taken as a model. This and similar schemes should be promoted by the
Commission. Any EU initiative seeking to improve on national verification
systems must demonstrate thoroughly how this would be achieved. The industry
stresses that a voluntary financial security scheme is more appropriate for the
development of market-driven solutions in which a certain level of insurance
capacity can be maintained and developed. The industry also pointed out that
the creation of a further liability regime could create unnecessary duplication
and legal uncertainty over which regime is immediately applicable. It was
highlighted by one respondent that in order to assess any damage caused by an
oil spill incident, a baseline condition must first be established against
which changes can then be measured. Such baseline metrics are currently not
available to all marine waters. Any extension of the current ELD is thus
difficult to envisage. One of the companies suggested that a supranational EU
safety agency with directive functions, similar to EMSA, could be a useful step
forward. A very useful measure would be to ensure there are consistent methods
for calculating compensation awards across Europe.

Other industry

Respondents are of the opinion that the
current goal-setting regime including the safety case mechanism, as is the
current practice in the UK, is the desired framework and best suited for the
future. Respondents further mention that the framework should be supported by
inspections and assessments by regulators and by third party verification
against performance standards, and recommend that the EU establish such a
process incorporating the fundamental elements of the UK process for major
accident hazards and extends this to health and environmental issues. One
respondent felt there should also be a qualification process in place for the
independent third parties. In the context of performance standards, one
respondent felt that these should also include standards on behavioural
aspects; this would require additional competencies of the independent
verification bodies in human factors, management of change and organisational
behaviour. It was also suggested that the verification process included the
possibility for direct feedback from the verification body to the regulator, in
stead of only to the owner / operator of the installation. One respondent is in
favour of one regulatory body for offshore oil and gas activities in MS; in
countries where more regulatory bodies are involved the respondent feels that a
single 'umbrella' body for offshore E&P activities should be established,
which would draw on expertise from the existing regulatory bodies. Respondents
further urge that regulators have adequate enforcement methods and authority to
ensure compliance of legislation or permit conditions.

Respondents feel that responsible parties
should be able to meet the costs of an incident, as part of their initial
license application. Some respondents commented that the current application of
the ELD (in the UK) is appropriate to its intended role and should only be
extended if robustly justified; others felt that environmental liability should
cover environmental damage to all marine waters. Some respondents in this
category cautioned that, when extending the ELD, the current exceptions in this
Directive on pollution damage arising from ships should remain unchanged, as it
would otherwise cause serious disruption in the international regime and create
legal uncertainty. On liability for traditional damage, one respondent is of
the opinion that a more stringent legal framework is required owing to the
increased risk (in the UK) as a result of smaller operators with limited
financial strength buying and operating mature assets than the larger
operators. In this context, it was recommended that a system like OPOL is
developed within the EU to ensure that operators have access to adequate funds
to cover remedial damages as a result of an accident. Other suggestions
included establishing an EU Emergency Response Fund, in which all operators
should contribute.

Public authorities

With regard to compliance, minimum
standards and best practice should be shared in the EU with strong cooperation
between trade associations and operators. There are requests for greater
sharing of information between the different stakeholder groups (regulators,
companies, works councils). Respondents mentioned the need to improve safety
culture offshore and ensure that worker knowledge and experience of health and
safety must be used by the companies, while internal audits and reporting
should be part of an environmental management system. One MS requires companies
to provide annual public statements on operations and environmental performance.
Respondents also stressed the need to ensure that an appropriate regulator is
in place, with sufficient resources, well trained and competent staff and with
adequate powers to intervene. Key measures proposed to monitor compliance
include an independent, regular inspection system with sharing of well-educated
inspectors between MS. One respondent mentioned that regulators should also
focus on a company's implementation and adherence to its own management system.
It was also suggested that there could be a dedicated and qualified company
employee working on site with close supervision from the authorities. One
regulator suggested that individual MS regulators should be introduced that
would share information with the EU. MS with considerable experience of
offshore operations should support those that are now starting to develop these
activities.

One respondent suggested that costs for
environmental assessments and inspections could be borne by the applicants. If
environmental liability legislation is to be extended to cover all marine
waters under EU jurisdiction, the polluter pays principle could be extended to
offshore oil and gas industry. Yet this might encourage some companies to move
away from the EU. With regard to handling claims for traditional damage, the
legislative framework could be improved according to one regulator, while
another says that it is sufficient. It is important, however, to ensure that
small companies with a skilled workforce are not discouraged from operating in
the market. Costs for covering the environmental damages of an oil spill should
include mandatory insurance linked to risk of operation. There could also be a
communal fund like the Offshore Pollution Liability Organisation (OPOL), which
could be extended to cover other seas.

NGO's

On compliance with regulations, one
respondent suggested that MS consider adopting of strengthening disincentives
for negligence such as fines, removal of licenses and individual criminal
liability. Respondents felt that companies must be liable for all damages, both
environmental and traditional damages. EU-wide compliance should be mandatory,
and the Environmental Liability Directive should be extended to cover
environmental damage to all marine waters under MS' jurisdiction. One respondent
recommended exploring arrangements for compulsory third party insurance, to
ensure financial guarantees. In this context, the respondent expressed doubts
if the current insurance level under OPOL would be sufficient to compensate for
the full range of environmental damage and remediation costs. Some respondents
recommended a supra-national regulator to oversee national regulators, with
powers to ban operators temporarily. Inspections should be regular and
unannounced. In terms of individuals, criminal liability is considered
essential, as is the need to strengthen the rights of victims impacted by an
incident. Finally, finances should be mobilised quickly after a disaster to
assist those affected.

Insurers

One respondent felt that when extending the
scope of the Environmental Liability Directive (ELD), the current exceptions
with respect to maritime transport/shipping should not be affected in any way,
and that the proposed extension of the ELD to cover all marine waters under
jurisdiction of EU Member States should be concerned only with the offshore oil
and gas sector. The insurance industry further stated that oil and gas
companies are in the best position to assess their own needs for insurance. The
insurers alone cannot provide the sole solution to protect the EU against
offshore oil spills. Insurance companies do not feel that the Environmental
Liability Directive should be modified to cover all EU waters. Instead, the
geographical scope of the guarantee system for offshore oil spills should be
worldwide and not resolved through EU law. Respondents point out that several
international liability regimes are already in place for losses caused by oil
pollution. It is considered more appropriate to focus on these existing
treaties and international legislation before introducing an EU-wide mandatory
insurance scheme or revising the ELD. One respondent pointed out that European
insurance solvency law requires insurance companies to charge adequate premiums
to build up sufficient capital reserves. In the context of offshore oil/gas
insurance, a small and specialised insurance market, it is very difficult for
the industry to build up sufficient capital reserves. This is already very
challenging to achieve in a worldwide context, and even more so if the geographical
scope is Europe only. Moreover, many offshore oil companies have as much, if
not more, financial capacity than insurers due to the amount of capital they
regularly generate through their businesses. Their own ability to cover these
risks independently of any financial security instruments should be one of the
options considered. In this context, respondents refer to OPOL developed by the
industry, from which claims for pollution damage are met and the cost of
remedial measures are reimbursed.

Citizens

A respondent felt that regulators should be
adequate resourced and staffed, to ensure adequate monitoring to guarantee
compliance with health, safety and environmental rules by industry. If EU
countries cannot ensure this, EU monitors should assist. Citizens feel that
legislation should cover all EU waters, not only within the 12 mile zone as
most platforms are outside this zone, thus including all platforms and
pipelines. Polluters should also pay for (methane) gas leaks which might occur
when a well is not properly abandoned. To compensate for traditional damages, a
respondent suggested that industry be required to make contributions and
commitments to a Joint Fund as a condition for drilling in the region.
Additional costs for recovery and compensation beyond the financial capability
of the responsible party should then be covered by the Fund. The joint Fund
should encourage the collective improvement of best practice and efforts to
minimise damage.

Others

One respondent feels that regulatory
regimes should provide for both the reward and the punishment of operators in
the offshore environment. This would encourage good operators to continually
implement best practices and would discourage bad operators from unsafe
practices. Operators should be required to demonstrate that it is implementing
industry best practices in conjunction with an on-going inspection regime
administered by the regulator. It should be done on a safety case basis rather
than use a prescriptive formula. The respondent also feels that consistent
environmental liability is required in all marine waters under the jurisdiction
of EU Member States, so that operators have clear standards to meet. The
respondent cautions against a strict liability system which would only allow
companies with the balance sheets to pay for any potential risk. Smaller and
less financially strong companies should still be allowed to operate in
existing areas of operation where the risks are well known and more easily
managed.

Transparency, sharing of information
and state-of-the-art practices

Oil and gas industry

Industry feels it is not in their remit to
judge what information would be most important to citizens. However, the
majority of respondents from the oil and gas industry have expressed an
interest to work with national authorities and the EU to examine the most
appropriate ways of sharing information provided that this does not impose
requirements on companies to disclose commercially sensitive information.
Industry is pointing to the exchange of information that is currently taking
place in forums like NSOAF and IRF. Via SEA and EIA Directives, Espoo etc. a
lot of data is already shared today. One respondent mentioned that the
information most relevant to be shared is standards applied by operators to prevent
major accidents and lessons learned from previous accidents and near misses.
One respondent believed the reporting should also include positive aspects,
e.g. industry's contribution to research, technology and economy in the EU.
Industry supports establishing an advisory body of national experts, to
exchange information between regulators and to promote the state-of-the-art
practices across all MS to protect health and safety of workers and the
environment.

Other industry

Respondents suggested that information like
incident statistics, near misses and hazardous observations should become
public. One respondent suggested that operators should be obliged to produce an
annual HSE Public Statement which should communicate key elements of an
operator's activities to the public in clear layman's terms. Complete
transparency should be particularly the case in the event of an environmental
disaster or a genuine public fear of one. Respondents from the UK pointed out
that an industry network for sharing statistics and best practices was already
in place. Respondents also referred to NSOAF and IRF as good platforms for
sharing information to improve safety across the EU and worldwide, which could
also be useful for countries with an emerging oil and gas sector. Others
recommended that there should also be cross-referencing between the oil and gas
industry and other industries, on safety issues (e.g. pressure equipment,
lifting equipment etc.) and environmental issues (usage of chemical and effect
on water etc.). Respondents are also of the opinion that national regulators
should share the emergency response plans, to enable coordination of
international response plans. One respondent suggested establishing industry
state-of the-art practices in a publicly available register. On environmental
protection, one respondent recommended that EMSA's role should be extended to
cover water pollution in general, air pollution, soil pollution and utilisation
of chemicals.

Public authorities

Citizens should be provided with information
including, inter alia, pollution detection, emergency plans, risks, common
indicators, operators, and timing. Views were split as to whether these data
should be published by the EU or by individual MS. One respondent suggested the
EU should take the initiative to define a common set of indicators, to be used
by all MS, giving information on the outcome of safety and environmental effort
in a particular MS. It was suggested that companies should be sharing
information on, inter alia, emergency operating technologies, occurrence of
H2S, best practice, lessons learned from incidents and equipment failure. This
information should also be shared with regulators and trade and industry
associations to encourage industry buy-in. Workers should have access to occupational
and safety-related documentation (OSH, responsibilities, hazards, risks,
work-related injuries, health, incidents etc.). In addition, regulators should
share best practice (regulation, standards, procedures and incidents),
company-related HSE statistics and critical equipment failure. Forums like
NSOAF, the International Regulators Forum, OSPAR, the Offshore Industries
Committee and those that exist for Baltic and Mediterranean states could be
used for sharing details of accidents, incidents, updates, national legislation
etc.

For protecting occupational health and
safety, best practice (regulation, standards, procedures, incidents) should be
introduced, and information shared via a web-based EU database.  Forums like
NSOAF could be used, but its scope would need widening to allow new entrants.

Goal-setting regimes are best suited to
state-of-the-art practices, while an effective regulator should support a
robust regulatory framework. Comments on protecting the environment are
identical to those for health and safety; in addition the Regional Seas
Conventions could collect data etc. as currently done by OSPAR.

NGOs

NGOs requested that citizens be advised of,
inter alia, all offshore rig incidents, environmental impact assessments (EIA),
inspection reports, payments to governments and officials, and accident
records. Companies should share information on accidents, safety measures,
equipment, and conduct affecting health and safety. Regulators are asked to
share details of EIA criteria, inspection processes, regulatory initiatives,
training, sanctions, accidents, risks etc. Health and safety recommendations
included comparison with other sectors, while environmental support included,
inter alia, monitoring of the sea-bed and sub-surface waters.

Citizens

A respondent suggested that a wide variety
of information be made available to the public by oil and gas companies, e.g.
plans for any offshore infrastructure, volume of oil and gas extracted, reports
on environmental monitoring, health and safety records, accident statistics,
number of wells (active and abandoned), emergency response plans, demonstration
of the companies technical ability etc. The respondent was also of the opinion
that offshore workers should be able to raise concerns about dangerous
practices or safety failures, without fear of intimidation.

Others

A respondent cautions that the need of the
public to access information needs to be balanced against the need to ensure
security of the facilities. Public information should thus focus on knowing
what developments will impact the public and what measures have been taken to
ensure the safety and protection of the environment, the workers and the
public. The respondent is of the opinion that companies should share
information in on on-going, consistent and uniform manner, on e.g.
safety-related incidents, measures taken to prevent recurrence and best
practice developed by companies. In the context the respondents refers to
current practice of sharing information by OGP, on sharing of information in
industry, and IRF and OSPAR, on sharing of information between regulators.

Emergency response and international
activities

Oil and gas industry

Industry responded by highlighting that the
Operators Co-operative Emergency Services (OCES) Agreement is the
organisational framework employed in the North Sea and adjacent waters and that
it works very well. Together with the Global Response Network (GRN), the OPRC
convention of 1990, and the capping device currently being developed by OSPRAG,
all critical elements are being covered by industry. Most respondents feel that
rather than fundamentally changing the scope of EMSA, the EU could focus on
strengthening the existing network of Regional Seas Conventions, to which
non-EU countries are also contracting parties. Two companies stated that what
is missing currently at EU level is a coordinated EU emergency response
strategy that integrates different technologies and strategies adopted by
individual countries. In this process it would be important to harmonise the
authorisation procedures for use of product and technologies required to combat
oil spills (especially for use of dispersants and in-situ burning). One
respondent saw value in the EU promoting the creation of an integrated
Emergency Agency at EU level, making participation of oil and gas companies
mandatory. An industry association agreed that EMSA could help clean up but that
its remit should not be formally extended.

On the issue of international activities,
numerous operators in the oil and gas industry highlighted that they use the
same high standards of safety and accident prevention worldwide. However, it is
important to note that host governments may require changes in line with
natural, legal or other local circumstances. One respondent saw this as an
unattainable goal of the EU.

Other industry

Some respondents felt that emergency
response is the primary responsibility of operators and national governments.
Local knowledge and expertise, as well as understanding response capabilities
are most relevant at this level and will be far more conducive to swift,
decisive and effective mitigation of the consequences of an incident. Others
suggested that initiatives like OSPRAG in the UK are extended to other areas in
the EU. On transboundary response, some respondent feel that joint working and
coordination arrangement between neighbouring countries already exist. Other
respondents were of the opinion that the EU should have a more active role on
emergency response e.g. on planning, coordination and funding for managing
emergency responses, and have agreements in place with EU countries and also
non-EU countries. In this context it was also suggested to extend the remit for
EMSA to also include offshore installations. Some recommend that EU response
arrangements are reviewed (including onshore response) to ensure that they are
adequate to protect to environment in light of a serious environmental
incident.

Some respondents are of the opinion that
the oil and gas industry already apply EU standards elsewhere in the world.
They stress that any fiscal or punitive measure which might seek to ensure this
would disadvantage EU-based companies when attempting to operate outside the
EU. A more appropriate approach would be to ensure the existence of high
quality standards within Europe, the core principle of these are then likely to
be taken up by operators where possible without the need for coercion. Others
feel that when a company applies for a license in the EU, that company's
worldwide experience, asset integrity management and track record in safety and
environmental protection should be taken into account.

Public authorities

EMSA was mentioned by various regulators
for (i) keeping inventories of response resources in each EU sea area, and (ii)
helping to clean up pollution if asked for help by a MS. One regulator
considers that emergency response is the responsibility of the operator and MS
concerned. An emergency response centre could be financed by MS and companies
working in EU waters; neighbouring countries could be invited to participate.
For cooperation with non-EU countries, forums such as NSOAF would be useful,
especially for MS with limited offshore experience. The International
Regulators Forum was also mentioned as good for sharing experience. One comment
was that EU law should promote exchange of best practice on offshore health and
safety with international organisations, especially the ILO. Legislation should
be standardised using best practice from MS that have robust regulatory regimes
e.g. North Sea area. Any new EU legislation must be compatible with United
Nations Convention on the Law of the Sea. For companies operating worldwide, it
will be difficult but advisable to make them apply EU offshore safety standards
and practices elsewhere, but perhaps API standards could be used. Alternatively
global state-of-the-art standards could be introduced.

NGOs

One NGO requested that there should be
economic incentives to operators to act rationally with regard to emergency
response, and another requested that the EU should have a co-ordinating role.
One respondent was of the opinion, that the public should be given the
opportunity to participate in the decision-making process concerning prevention
and preparedness measures. The respondent also cautioned against the use of
dispersants for oil spills and urged that more study on their environment and
health impacts should be done. NGOs see potential in the significant experience
of EMSA for also dealing with prevention. Most NGOs require that EU standards
be applied wherever a company operates outside the EU, in transgression of
which the EU could take sanctions e.g. revoking of licences. NGOs often
mentioned that company structure should be changed so parent companies are
liable for activities of subsidiaries and/or subcontractors. One NGO stresses the role of the Regional Seas
Convention to foster cooperation emergency situations, in particular OSPAR which
is well advanced in this regard.

Citizens

A respondent felt that oil and gas
companies should be compelled to produce site-specific response plans to deal
with oil spills and other major incident, taking specific local conditions into
account (temperature, winds, sea state etc.), in stead of the current generic
response plans. Some citizens expressed the view that EU should sign agreements
ensuring that no oil and gas operations are conducted at weaker-than-EU
standards in bodies of water shared with non-EU countries. Oil and gas
companies registered in the EU should apply EU standards when they operate
abroad. Any party should be able to raise violations of EU standards by such
companies in EU courts. Companies that do not adhere to EU standards outside
the EU should not be awarded exploration or extraction licences within the EU.
In other words, companies that apply one set of principles extra-EU and another
set within the EU are not implementing comprehensive best practice.

Others

A respondent mentioned that oil and gas
companies must first comply with laws and regulations in which they operate.
The respondent feels that when companies have operations in another
jurisdiction, they will naturally gravitate to applying the standards and
practices of their originating jurisdiction since this are the one with which
they are most familiar. However, in the event of a conflict between the
standards and practices in their originating jurisdiction and their operating
jurisdiction, the companies are obliged to apply the latter. The respondent
urges that offshore jurisdiction should harmonise as much of their standards and
practices as possible.

Annex VIII: Questionnaire to offshore safety

European Commission

Industry

Offshore
Safety Cost of Compliance Questionnaire

United
Kingdom

Version 1.0

[Date published]

Presented by:

Directorate-General for Energy, Unit B3 Coal and Oil

Cost of Compliance Questionnaire

Introduction

This questionnaire aims at gathering
information from industry for the purposes of calculating the potential cost of
proposed EU policies. Please fill it out as comprehensively and as accurately
as practicable.

If you feel that the format of a
question counterproductively restricts your response, please use the comments
section to provide a more complete response in accordance with what you believe
the question’s intended objective is.

Name

Name of company ||

Country of origin ||

Size of your operations in the UK

[In the table below, list the following
information relating to the scale of your operations in the UK.]

Number of active wells in the UK with an indication of type (oil or gas, etc). ||

Number of fixed offshore installations in the UK with an indication of type(exploration or production), size etc. ||

Number of floatable or floating offshore installations in the UK with an indication of type (exploration or production), size etc. ||

Number of other offshore installations in the UK including subsea installations with an indication of type (exploration or production), size etc. ||

Annual production in the UK, either in barrels or tonnes of oil equivalent. ||

Comments:

Responsibility
for costs

[Indicate the extent to which you bear
the ultimate costs of safety compliance for your operations in the UK. If you
do not ultimately bear all costs, indicate the extent to which sub-contractors
or partners in your joint venture bear these costs.

Example: ‘All compliance costs are ultimately
billed to us, except for the costs related to the inspection of leased
equipment. We currently lease 2 MODUs in the UK.’]

Administrative burden

[In the following table, list the main
administrative burdens of compliance for your operations in the waters of the
UK on a per annum basis, as well as the resources you allocate to these
burdens. If you are unable to provide figures for all your operations in the UK
at the national level, then kindly estimate these costs per well or other unit,
appropriately indicating this in the comments section below.

Administrative burdens are the costs on
businesses of complying with the information obligations resulting from
legislation and regulations. An example of administrative burdens in the
offshore sector may be the preparation of safety and health documents,     the
notification of dangerous occurrences, inspections, and reading guidance
material.

Use either finances or man-hours. If
using man-hours, please indicate the wage rate of the personnel used to carry
out the work.]

Category of work || Finances/man-hours || Wage rate

|| ||

|| ||

|| ||

|| ||

|| ||

|| ||

Comments:

Substantive costs

[In the following table, list main
substantive compliance costs of your operations in the waters of the UK. If you
are unable to provide figures for all your operations in the UK at the national
level, then kindly estimate these costs per well or other unit, appropriately
indicating this in the comments section below.

Substantive compliance costs are the
costs that businesses incur in order to comply with the content obligations
that legislation and regulations require of a production process or a product.
In the offshore sector these include the costs of additional equipment or
machinery to ensure compliance, or the costs of hiring consultants to help with
compliance.

It is important to only include expenses
over and above ‘business as usual’ operating costs: that means to say safety
expenditures you would not have otherwise judged necessary or worthwhile if not
for the formal or informal requirements of the offshore authorities in the UK.]

Category of expense || Cost

||

||

||

||

||

||

Comments:

Financial costs of compliance

[In the following table, list the main financial
costs of compliance of your operations in the waters of the UK. If you are
unable to provide figures for all your operations in the UK at the national
level, then kindly estimate these costs per well or other unit, appropriately
indicating this in the comments section below.

Financial costs are the result of a
concrete and direct obligation to transfer a sum of money to the Government or
the competent authority. An example of a financial cost in the offshore sector
is the fee for notification charged by national regulators.]

Category of expense || Cost

||

||

||

||

||

||

Comments:

Other compliance costs

[In the following table, list any other
compliance costs associated with your operations in the waters of the UK that
you feel do not fall into the categories mentioned above i.e. that are neither
administrative burdens, substantive costs, nor financial costs. If you are
unable to provide figures for all your operations in the UK at the national
level, then kindly estimate these costs per well or other unit, appropriately
indicating this in the comments section below.]

Category of expense || Cost

||

||

||

||

||

||

Comments:

International comparison

[In the following table, indicate how
your compliance costs in the UK compare with compliance costs in other
countries you operate in.

If possible, use a percentage scale to
indicate.]

Name of country 1 ||

Administrative burden ||

Substantive costs ||

Financial costs ||

Other costs ||

Comments:

Name of country 2 ||

Administrative burden ||

Substantive costs ||

Financial costs ||

Other costs ||

Comments:

Name of country 3 ||

Administrative burden ||

Substantive costs ||

Financial costs ||

Other costs ||

Comments:

Scaling

[In order to scale the costs of
compliance of your operations, list the following information in the table
below.]

Annual revenue of your offshore operations in the UK ||

Annual operating expenditure in the UK ||

Annual pre-tax profits of your offshore operations in the UK ||

Comments:

Annex IX:    List of studies taken
into account

The disaster of Deepwater Horizon oil rig
triggered a wave of reviews and studies aimed at assessment and review of
various regulatory frameworks applicable to the offshore oil and gas
activities. Many of the reports took strong advantage of the resources that
were recently put forward to respond to accident and present a very solid,
labour intensive, argumentation, pooling together contributions form various
relevant areas. The considerable efforts by independent experts, national
regulators and the industry provided for valuable sources of data and
recommendations for change of practice that served as a crucial input for the Impact
Assessment report.

As the conclusions of many studies show
strong similarities, there is a solid basis for proposals for policy action. In
this context, the range of reports listed in this annex, along with targeted
consultations with stakeholders and the public consultations, made it possible
for Commission services to identify crucial areas where improvements should be
made to ensure that EU's regulatory framework and practices are based on the
available state of the art practices. It is worth noting, that despite that up
to date studies and reports are directly connected with the event in the Gulf
of Mexico, they often present much wider analysis of relevant regulation and
practices in general context of offshore oil and gas.

1.
US studies and reports following the events in the
Gulf of Mexico

1.1. Final Report of the National Commission on the Deepwater Horizon Oil
Spill and Offshore Drilling (January 2011)

1.2.
Staff Working Papers of the National Commission
on the Deepwater Horizon Oil Spill and Offshore Drilling (about 30 papers, e.
g. Economists' Perspectives on Liability Insurance, Ishan Nath, March 2011)

1.3.
Deepwater Horizon Joint Investigation Team
preliminary report covering issues under  Coast Guard jurisdiction (April 2011,
Final report scheduled for July 2011, but publication has been delayed)

1.4.
Report of the National Academy of Engineering
and National Research Council commissioned by UK Department of the Interior
(November 2010)

2.
Activities of the Member States and third countries

2.1.
UK House of Commons
Energy and Climate Change Select Committee: Special Report "UK Deepwater
Drilling—Implications of the Gulf of Mexico Oil Spill" (January 2011), UK
government response to the report
2.2.
UK Oil Spill
Prevention and Response Advisory Group progress reports (last, Second Interim
Report, August 2011)
2.3.
Dutch State
Supervision of the Mines (SSM) conclusions on the review of the drilling
practises and procedures (September 2010)
2.4.
Norway: The Deepwater
Horizon accident – Assessments and recommendations for the Norwegian petroleum industry
(Petroleum Safety Authority, June 2011)
2.5.
Australia's Report of
the Montara Commission of Inquiry and a draft Government response (November
2010)

3.
Report by international organisations

3.1.
G-20 Global Marine
Environment Protection Working Group Draft report: "Review of
International Regulation of Offshore Oil and Gas Exploration, Production and
Transport with Respect to Marine Environmental Protection" (March 2011)
3.2.
OSPAR Draft internal
Draft report on national legal framework and practices of contracting parties
("Drillex" activity) (March 2011)

4.
Reports by the industry
4.1.
BP's Deepwater
Horizon Accident Investigation Report ("Bly report", September 2010)
4.2.
UK Oil Spill
Prevention and Response Advisory Group (OSPRAG) – OSPRAG Second Interim Report
(April 2011)
4.3.
Global Industry
Response Group (GIRG, established by International Association of Oil and Gas
Producers – OGP) report: International recommendations on well incident
prevention, intervention and response (May 2011)
4.4.
Transocean: Macondo
Well Incident – Transocean Investigation Report (June 2011)

5.
Studies and reports by independent parties

5.1.
The forensic
examination of the Deepwater Horizon blowout preventer (BOP) by Det Norske
Veritas (DNV) (March 2011)
5.2.
DNV Position paper on
Effective Offshore Regulatory Regime (July 2010)
5.3.
DNV Report
commissioned by OLF/NOFO - Summary of differences between offshore drilling
regulations in Norway and U.S. Gulf of Mexico (August 2010)
5.4.
ClientEarth (an NGO)
report: International and EU regulation of offshore drilling Analysis and proposals
for reform (September 2010)

Annex
X:     Issues
amending current legislation (Directives 2004/35/EC, 92/91/EEC and 96/82/EC)

This Annex provides
supporting information for the reason amending the Environmental Liability
Directive 2004/35/EC as proposed in this Impact Assessment, as well as the
rationale for not amending Directive 92/91/EEC on the minimum safety and health
requirements for workers in the mineral extracting industry and Directive 96/82/EC on the control of major-accident hazards involving
dangerous substances ('Seveso 2 Directive 1996'). The following sections have
been developed in close corporation with DG ENV and DG EMPL.

A.        Amending Environmental
Liability Directive 2004/35/EC

Problem definition

·
The ELD (2004) was adopted after the entry into
force of the Waste Framework Directive (WFD 2000), which applies in coastal and
territorial waters, but before the adoption of the Marine Strategy Framework
Directive (MSFD 2008), which covered then all marine waters under sovereignty
or jurisdiction of EU MS.

·
As a consequence, the ELD used the water
definition applicable at time of its adoption, i.e. the WFD definition. Thus,
one specific problem identified is that, under the currently applicable EU law,
"water damage" only applies to waters defined under the WFD, but not
to all EU marine waters.

·
Since the common goods to be protected under EU
law have been extended as from 2008, this situation raises a question of
whether there is a need for updating the ELD to the progress and to the gradual
extension of the EU environmental acquis.

·
This specific problem, which relates to the
problem of an overall fragmented legislative framework that may not be adjusted
to the concerns identified by the Deepwater Horizon incident, requires the
identification of options and a decision on the best way forward.

Options

In relation to the geographical scope of
the ELD, there are basically two options:

·
The first option is maintaining the status quo.
The consequence of this baseline option is that the EU law on environmental
liability would not be adapted to the gradual extension of EU environmental
policy, which since 2008 moved on to protect all marine waters under MSFD and
not just coastal/territorial waters under WFD. This option may be maintained,
but raises a question on the legislative coherence of EU policy, to the extent
that the ELD was designed to protect the common goods under EU law
(biodiversity, water, etc.), which are now more comprehensive.

·
The second option relates to adjusting the ELD,
in terms of geographical scope, to the objectives of EU law, as gradually
developed. The 6th Environmental Action Plan (2002-2010), adopted by
co-decision by Parliament and Council, requested a thematic strategy be
developed for the protection of European seas, having identified a gap in the
common goods to be protected at EU level. This request led to a Commission
proposal in 2005 for a Marine Strategy Framework Directive, adopted by
legislators in 2008. To the extent that EU policy evolves in accordance with
the directions by Parliament and Council, the question is raised on whether it
is appropriate to partially adjust partially existing instruments (such as the
ELD) to such a gradual policy evolution, or whether it is preferable to keep
them in their original form, irrespective from overall progress in policy.

Impacts

·
Now that the problem of the limited geographical
scope of the ELD for marine waters has been specifically identified by the
European Parliament resolution, one question to be considered is whether keeping
the status quo would be acceptable, having regard to the experience from
Deepwater Horizon.

·
The status quo would perpetuate a framework
where some of the consequences of accidents on marine waters from operations
are not adequately internalised (which is a major purpose of the environmental
liability framework), in accordance with the polluter pays principle.

·
One specific case at stake is the remedial
action that may be taken by MS to control on the spot the possible consequences
of a major accident once it occurs. After the Deepwater horizon incident, the
US carried out a major deployment of US military and civil means of contention,
which prevented a serious aggravation of the environmental disaster.

·
However, in the EU, in the current legislative situation,
the water damage at the place of origin of the accident would not be covered by
the ELD, and therefore it is not certain that some of the key consequences
sought by the ELD would apply either (e.g. ensuring that the operator remains
responsible for the containment costs by public authorities and/or third
parties to prevent the spread of the oil spill at the source of the offshore
accident).

·
In terms of impacts, any partial adjustments of
existing instruments (such as ELD) to policy progress (such as MSFD) need to
take into consideration potential impacts, including distributional impacts.
One important question is whether the potential impacts from the adjustment
would be of a separate nature of those considered by legislators at the time of
the adoption of the ELD, or whether there is a logical policy continuation of
the intervention logic decided at the time, which aims at making the polluter
pays principle in terms of prevention and reaction.

·
The adjustment of the geographical coverage of
the ELD to cover all the waters currently subject to environmental protection
under EU law (i.e. not only the waters under the WFD from 2000, which predated
the ELD from 2004, but also the MSFD from 2008) could potentially affect a
number of operators as well as the public.

·
In distributional terms, having regard to
specific economic sectors, the shipping industry would not be affected by any
change in the geographical coverage of the ELD, since the sector is currently
subject to a broad sectoral derogation "ratione materiae" contained
in the ELD itself (it is a sector already subject to sectoral international
regimes, under IMO agreements). There is no proposal to address this issue now.

·
The specific sector that would be affected by an
extension of the definition of "water damage" would be the offshore
hydrocarbons industry. The basic consequence of a legislative adjustment would
be to promote the internationalisation of costs, not only in case that an
accident occurs (polluter pays), but also in terms of preventive measures to
reduce such risk. The operators would be made more explicitly responsible for
any damage of the public goods currently identified by EU law, and notably all
marine waters since the MSFD came into force in 2008.

·
By contrast, one consequence of the legislative
adjustment is that there would be positive impacts on other sectors potentially
affected negatively by any offshore accident. This applies to fisheries,
coastal tourism (and recreation) and possibly shipping (since major accidents affect
navigation routes, as shown by the Deepwater horizon incident), as well as the
European public in general.

·
In other terms, the consequences of an amendment
in geographical scope of the ELD to address marine waters would be above all
distributional, as opposed to incremental. In accordance with the polluter pays
principle, the sector in charge of potential damage to the common goods
identified in current EU law (marine waters) would take expressly enhanced
responsibility.

·
Therefore, any geographical extension of the ELD
to address water damage for marine waters would be after all a direct extension
of the intervention logic inherent of the existing ELD, as already agreed by
the legislators, updating it to the current geographical coverage of EU environmental
law.

·
It should be further noted that the extension of
the scope of "water damage" to marine waters would concern the water
quality in case of significant damage. By contrast, significant damage to
protected species and natural habitats is already covered at present by another
provision of the ELD, reaching out to all marine waters (the exclusive economic
zone and the continental shelf, where Member States may exercise jurisdiction).
Thus, the significance of any geographical adjustment would only address water
damage and not damage to protected habitats and species (already covered).

·
In addition, experience on the application of
the ELD shows that very few cases have occurred so far across the EU where
Member States had to apply their legislation transposing the ELD. This is
mainly due to the fact that ELD is applicable in the case of a significant
environmental damage and it is a general perception by Member States' experts
that the ELD brings in fact a positive change to business attitude, by forcing
operators to take a more environmentally precautionary attitude to their
activities. This is the preventive effect of the Directive. In other terms, the
main consequence of any geographical extension of the ELD to water damage at
sea is above all a matter of prevention, which is coherent with the overall
logic of intervention on this issue, and would in fact close a gap in an
otherwise comprehensive consistent structure.

B.        Issues
regarding Directive 92/91/EEC and Directive 96/82/EC

As discussed in chapter
4 of this Impact Assessment document, options for implementing measures
proposed in this document concerned the amendment of the following EU
Directives:

(1)
Directive 92/91/EEC on the minimum safety and
health requirements for workers in the mineral extracting industries through
drilling.

In
order to improve the prevention of major hazards accidents and minimize risks
for the environment in the oil and gas industry, amendments to 92/91/EEC have
been considered. These amendments would concern the following issues:

·
Incorporating environmental risks in the risk
assessment and in the report documenting the results of this risk assessment
performed on installations (in 92/91/EEC this report is referred to as the
'safety and health document')

·
Submission of the report to the Competent
Authority in Member States.

·
Competent Authority in Member States to conduct
a verification of the report.

(2)
Directive 96/82/EC on the control of
major-accident hazards involving dangerous substances ('Seveso 2 Directive
1996')

The
amendment considered was to extend the scope of the Seveso 2 Directive to
include offshore installations.

After
consultation with representatives from DG EMPL and DG ENV respectively, it was
concluded that amendments to these Directives was not considered possible or
advisable. The preferred method for implementing of the measures suggested is
by a separate legislative proposal, which is consequently reviewed and endorsed
in this Impact Assessment.

The
following paragraphs provide a further clarification on the problems and
difficulties that would be encountered when amending the respective Directives.
The text of these paragraphs has been drafted with the support of
representatives from DG EMPL and DG ENV.

1     The Minimum
safety and health requirements for workers at work Directive 89/391/EEC (the
Framework Directive) and the Mineral extraction by drilling Directive 92/91/EEC
(the Directive)

The Framework
Directive and the Directive derive from Article 153 of TFEU. The Directive
provides a number of key provisions that are relevant to the aims arising from
the Commission's review of offshore major hazard prevention. The Directive is
an established, widely respected and comprehensive instrument concerning the
minimum requirements for improving the safety and health protection of workers
in the mineral extracting industries through drilling, pursuant to Art.16 of
the Framework Directive; as such it potentially provides the following model
clauses for some key aspects of offshore safety and environment protection:

·
General obligations, especially the requirement
for making and updating a safety and health document

·
Well control

·
Prevention of risks of explosion

·
Special minimum requirements applicable to the
offshore sector, particularly: special hazards; management system; remote
control in emergencies; means of evacuation and escape; helicopter operations;
and installations stability.

In considering
the application of the Directive to offshore oil and gas operations it was seen
that a new provision - aside from, but building on the Directive- could satisfy
the objectives of Article153 2.(a) TFEU should the aim be limited to
implementing a risk assessment report system similar in effect to that utilised
in various forms by North Sea Member States. This would need a separate
provision from the Directive to require the safety and health document prepared
by the operator pursuant to the Directive to be sent to Member States for
verification. In addition, for the system to be workable, the form of the
submitted document and the regulatory procedures would need to be specified in
detail as it is in the North Sea (safety and health document in NL; safety case
in the UK). In this region, Member States put into national regulation detailed
specifications which focus on assessment of major hazard potential, and publish
detailed guidance on their verification procedures).

Going beyond
the minimum standards defined in the Directive for Member States to adopt a
fully risk based safety regime for offshore major hazards would entail three
further provisions to complement the Directive. First a requirement for Member
States to develop a system of inspection, investigation and penalties that
supports such a regime and focuses on the offshore major hazards measures
described in the safety and health document. Second, clarification that the
revised requirements apply to certain installations and significant
infrastructure where there could be doubt as to the scope of the Directive
(e.g. subsea facilities and connecting pipelines).  Third, a requirement for
the operator to send pre-drilling well notifications to the regulator
specifying well design and operating plans.

These
additional requirements could also be achieved by amendments to national law
without infringing the original design intent of the Directive.

Difficulties
arise from this point if it is intended to develop a holistic system centred on
the Directive that includes: environmental risk and prevention assessments; an
integrated process incorporating risk assessment verification, inspection and
enforcement by safety and environment regulators; stable reporting requirements
by operators to Member States; and preparation of  internal and external
emergency plans (the former being required within the safety and health
document to minimise escalation of an incipient major hazard event, the latter
being the planned national response to a major event should the internal
emergency plan not work).

It was
concluded that separate provisions are necessary to implement comprehensive
safeguards in EU offshore operations because it is not feasible to develop an
offshore major hazards and response regime centred on the Directive whilst
remaining within its original design intent. There are currently no plans to
amend the Directive but a review of the Directive has been set up and this is
welcomed. That review will not be completed before the current overhaul of offshore
safety is finished.

2          Seveso
2 Directive 1996 (Seveso)

Seveso provides a number of solutions to
achieving desired regulatory outcomes for preventing major offshore incidents
and limiting the consequences should nonetheless an incident occur. The Seveso
model is a respected system for joined up regulation by EU major hazards safety
and environment inspectors, a quality mostly lacking offshore notwithstanding
the potential major impact on the environment arising from safety-related
events. The applicable model clauses are found in Seveso Articles relating to:

·
Notifications

·
Major accident prevention policy

·
Safety report

·
Modification of an installation...

·
Emergency plans

·
Information on safety measures

·
Information (major hazards) to be supplied by
operators

·
Information supplied by EUMS to the COM

·
Competent authority

·
Prohibition of use

·
Inspections

·
Information system and exchanges

Because the measures arising from the
review of offshore safety bear close association to to the objectives of Seveso
, the possibility, advantages and disadvantages of applying Seveso to offshore
installations needs to be assessed.

Seveso covers already around 10.000 high-risk
establishments onshore. The inclusion of a further 1.000 offshore installations
would extend but not dominate Seveso's scope. Seveso is a goal setting
directive, meaning that most of the Seveso provisions are designed for
different industrial sectors and are therefore sufficiently flexible to fit
offshore installations. A good portion of the Seveso provisions could be
applied, as the list above clearly shows.

However, offshore oil and gas is a unique
industrial sector – essentially comprising large industrial sites set into the
sea - with very different stages of exploration and exploitation for which more
specific provisions should and more detailed provisions could be designed.
Offshore installations have relatively minor inventories of hydrocarbons on the
facilities themselves, therefore the Seveso approach - "high quantities =
major hazards" - does not fit.  More precisely, the Seveso scope is
defined by amounts of dangerous substances above specified threshold
quantities, which is not a feasible criterion for offshore installations.
Therefore the design of Seveso does not allow an easy inclusion of offshore
installations without introducing changes that may create difficulties in other
sectors for which Seveso was designed (for example by lowering threshold
quantities of flammable substances).

In terms of specific legal duties, Seveso
provisions that arise from having residential populations and other hazardous
installations adjacent to the Seveso site are irrelevant to offshore oil and
gas. Further Seveso, by its nature, does not provide for consideration of the
evacuation, escape and rescue of a marooned offshore workforce, which is a
primary consideration in offshore risk assessments. Finally and importantly,
Seveso does not provide for formal acceptance of Seveso safety reports
(referred to in the offshore impact assessment as major hazard reports) by the
regulator. This function has been identified in recent EU legislation
addressing safety and pollution control as a key requirement (e.g. in the
Directives for Waste from Extractive Industries, and CCS), and has been
assessed, equally, as a key requirement in the overhaul of offshore safety.
Therefore it is undesirable to rule out such a provision for offshore at this
stage.

Therefore
it is concluded that whereas substantial aspects of Seveso can and should be
incorporated into the draft offshore legal instrument, amending Seveso to bring
offshore installations into scope is unlikely to be effective, and moreover
risks damaging Seveso's coherence with the sectors to which it currently
applies.

Annex
XI:    Description
and evaluation of the implementation options for individual measures

Each of the 11 measures retained for further
analysis in Chapter 3 has several possible means of implementation ("implementation
options"). These are summarised in the following
table and described in details in the individual tables attached at the end of
this Annex.

Table

How measures may be differently implemented within the
policy options

No. || Measure || Sub options for implementation of the measures

A || B || C || D

1 || Detailed verification of the technical capacity of potential operator || Guidelines to Directive 94/22/EC (Option 1+) || Setting criteria in EU legislation for verification by MS (Option 2) || Assessing technical capacity by an EU body (agency) (Option 3) || N/A

2 || Establishing regular inspections and a penalties regime || Guidelines on inspections/ sanctions || Setting minimum requirements in EU legislation (Options 1, 1+, 2) || Inspections by EU body (agency) (Option 3) || N/A

3 || Submission of formal safety assessments for acceptance by the regulator || Guidelines to Directive 92/91/EEC || Utilising 92/91 for inclusion of MAH + acceptance by regulator || EU legislation separate from 92/91 to cover MAH (Option 1, 1+, 2) || Assessing MHRs by EU body (agency) (Option 3)

4 || Extension of MHR into a comprehensive risk management model || Guidelines to Directive 92/91/EEC || Amending 92/91 to MAH + environment || EU legislation separate from 92/91 to cover MAH + environment (Options 2,3) || Include offshore oil and gas under Seveso Directive

5 || Extending EU practices to overseas operations || Positive incentives (voluntary) (Options 1+, 2) || Negative incentives: publication || Mandate global industry practice || Enforce consistency x-EU (Option 3)

6 || Establishing a Competent Authority || Adopting EU recommendations or guidelines || Amending existing EU legislation || Adopting new/ specific EU legislation (Option 2) || Establishing EU body (agency) (Option 3)

7 || Establishing a platform for regulatory dialogue || Promoting voluntary arrangements || Mandating Commission- led regulatory dialogue (Option 2) || Establishing EU-wide regulatory agency (Option 3) || N/A

9 || Comprehensive information sharing and transparency || Voluntary information sharing/ publication || EU mandating sharing / publishing of information (Options 2, 3) || Establish EU database (Commission or agency) || N/A

10 || Preparedness for effective emergency response to major offshore accidents || Industry to provide suitable / sufficient emergency plans || Enhance cross-border preparedness through MS agreement (Option 1+) || EU mandating requirements and coordinate exercises (Options 2,3) || N/A

11 || Ensuring cross-border availability and compatibility of intervention assets || Industry ensuring availability and sharing of assets || Voluntary agreement by MS to share assets and expertise (Option 1+) || EU mandating option B (Options 2, 3) || N/A

12 || Clarifying the scope of environmental liability || Guidance on the applications of the Waste Directive || Extending scope of 2004/35/CE (ELD) (Options 1+, 2, 3) || Sector-specific EU liability legislation for environmental damage || International/ global solution

The table distinguishes
between implementation options that are considered feasible (the un-shaded
options), options that are feasible but with some disadvantages or negative
consequences (mainly some of the institutionalising options, the yellow
shading) and finally those that are not considered feasible (the grey-shaded
options). As can be seen, some measures can be implemented through alternative
means which often differ by the degree of their complexity or policy ambition.
The measures alone also differ in the degree of change to the present rules and
practices which they would entail. The rest of this annex sets out the detailed
analysis which the table above summarises.

Analysis of possible
implementation means for individual measures

1. Detailed
verification of the technical capacity of potential operator

Option A || Adopting EU guidelines for Art. 5.1a of Directive 94/22/EC

Option B || Defining detailed binding criteria in EU legislation (amending 94/22/EC or separately)

Option C || Assessing technical capacity at EU level (e.g. through a dedicated body such as EMSA)

Even if the preparation of the guidelines
envisaged under Option A achieved setting more than just basic and
low-level common standards for the licensing process in the EU, the guidelines
would not be mandatory for both the applicant and the licensing authorities,
potentially resulting in little change in the licensing processes of Member
States. This would to a large extent not fulfil the purpose of the objective,
as it gives insufficient possibilities for a comprehensive strengthening of the
licensing process of all Member States. Based on this analysis, A is not
supported.

Option B is
endorsed as it provides the highest likelihood of ensuring changes to the
licensing processes of Member States. It will provide for clear criteria,
targeted at the critical operations of license applicants. This option is
regarded as the minimum requirement for ensuring that the licensing process is
conducted professionally, with equal screening criteria for all applicants.
Authorisation is a key provision to guarantee that all measures to prevent
accidents and to limit their consequences are taken, and best available techniques
are applied.  Further measures like the risk assessment, safety management
systems or internal emergency response to be provided by an applicant are
prerequisites for granting an authorisation.

Option C has
the advantage that assessment of license applications is performed by a single
EU body, completely independent of Member States, issuing some form of
clearance ("health check") to companies wishing to operate in any
European jurisdiction. This would ensure EU-wide coherence and level playing
field across European jurisdictions. It is not, however, evident that it would
necessarily lead to a more robust assessment than under B as it also presents
several drawbacks: (1) the new organisation will have to build up the required
expertise for assessment of license applications; (2) Member States may have
specific requirements for screening criteria (because of local circumstances)
which could complicate the work processes of the new organisation. The scope of
action of the body could be limited by consideration of the guarantees given to
Member States in existing EU legislation in respect of sovereign assets (Art
194 of TFEU and Directive 94/22/EC).

2. Establishing
regular inspections and a penalties regime

Option A || Guidelines on inspections/sanctions and support to regulatory cooperation

Option B || Mandating minimum requirements for inspections/sanctions

Option C || Inspections to be carried out by an EU agency

Non-mandatory guidance under Option A
could only be high level due to the wide differences in EU civil and criminal
regimes. Experience in the EU shows that, where Member States already have
major hazard regimes involving some kind of approval system, non-statutory
approaches are not sufficient to ensure that regulatory authority contains the
necessary costly resources and expertise. Voluntary mechanisms are also
unreliable for securing high performance from the industry, particularly where
the industry is rapidly evolving, which is the case in the offshore industry
where the shift towards diversification amongst both contractors and operators
is set to continue. It is unlikely that Member States can achieve effective
intervention approaches that will bring the least capable regimes to the level
of the best performing ones without a firm EU mandate on the minimum
requirements. In addition, the absence of an EU mandate is unlikely to deliver
a consistent enforcement and sanction regime that would act effectively across
the EU in a similar and effective way. Overall, we therefore discard Option A.

Option B is
endorsed as the most likely means to achieve consistent and effective
regulatory oversight across the EU by:

·
Enabling Member States to identify and pursue
the resources necessary to establish a high performance regulatory agency

·
Clarifying and mandating the key priorities for
EU regulators' practical interventions

·
Having minimum requirements for enforcement and
sanctions to drive consistent performance by industry throughout EU waters

This option would allow for the key
principles that an effective oversight system should comprise be spelled out in
a legislative text already now while the detailed parameters of the key
priorities could be adopted subsequently through delegated or implementing acts
prepared in cooperation with an expert committee of Member States'
representatives.

Option C
could deliver a consistency of inspection regimes but the EU body would not be
able to extend its action to the enforcement of sanctions; this would have to
remain reserved to Member States in view of the interlink with national
criminal regimes and frameworks for the pursuit of legal enforcement. This
limitation could potentially undermine the effectiveness of existing regimes in
some Member States; its implementation would thus require safeguards that the
efficacy of current EU goal-setting regimes would not be diminished.

3. Submission
of formal safety assessments for acceptance by the regulator prior to
operations with major hazards potential

Option A || Adopting EU guidelines to Directive 92/91/EEC

Option B || Utilising Directive 92/91/EEC for the inclusion of major accident hazard (MAH) aspects and submission to/acceptance by the regulator

Option C || Adopting a specific legislative instrument separate from Directive 92/91/EEC for issues not related to health and safety of workers, extending the goal-setting approach to cover major hazard impacts

Option D || Assessing major hazards reports at EU level (e.g. through a dedicated body such as EMSA)

A drawback of Option A is that the
guidelines are not mandatory. This gives insufficient assurance that the
required change in control of major accident hazards is indeed established.

For Option B, the planned review of
the effectiveness of Directive 92/91/EEC in consultation with social partners
could provide an opportunity for an improved and better focused legal framework
on major hazard risk prevention, with minimum disturbance to current good
practices and endorsement of the provisions already available for risk
assessments in the Directive.

Option C
would be suitable should a solution complementary, but entirely legally
separate, to Directive 92/91/EEC would need to be sought.

For Option D, the analysis of
strengths and weaknesses outlined for Option C under the previous measure can
be applied by analogy.

4. Extension
of the major hazards report into a comprehensive risk management model for EU
offshore

Option A || Adopting EU guidelines to Directive 92/91/EEC

Option B || Amending Directive 92/91/EEC to extend its scope to MAH and environmental risks

Option C || Adopting a specific legislative instrument separate from Directive 92/91/EEC for issues not related to health and safety of workers, extending the goal-setting approach to cover major hazard impacts and environmental risks

Option D || Including offshore oil and gas industry in the Seveso regime

The main drawback of Option A is the
likely and undesirable infringement of the original design intent of Directive
92/91/EEC, thus risking undermining the efficacy of the instrument. The planned
review of the effectiveness of the Directive in consultation with social
partners is, however, supported and encouraged as we say above.

Option B, although
appealing at an intuitive level, is not within the scope of the Directive,
which is to set minimum requirements for the protection for safety and health
of workers, pursuant to the framework Directive. This renders unfeasible the
introduction of different sectoral requirements into Directive 92/91/EEC
irrespective of the outcome of the pending review.

Option C is
endorsed as providing an effective framework for better preventing a major
accident. The extension of the existing formal safety assessment process to
focus on the controls necessary to prevent a major hazard, combined with the
actions to be taken following a major accident and the resulting impacts are
complementary to Directive 92/91/EEC. This would enable important reforms to
proceed without disturbing existing legislation. This specific framework
regulation guarantees the same level of safety as provided by Seveso for human Extending EU practices to overseas operations health and the
environment for on-shore installations and is preferred to an amendment of the
Seveso legislation to extend its scope, which would not be appropriate given
the specific characteristics of offshore oil and gas installations.

Option D is
not recommendable because the design of Seveso does not
allow an easy inclusion of offshore installations without introducing changes
that may create difficulties in other sectors for which Seveso was designed
(for example by lowering threshold quantities of flammable substances).
Offshore installations have relatively minor inventories of hydrocarbons on the
facilities themselves, therefore the Seveso approach - "high quantities =
major hazards" - does not fit.  The Seveso scope is defined by amounts of
dangerous substances above specified threshold quantities, which is not a
feasible criterion for offshore installations.

In view of the necessary special
consideration given to both the Drilling Extractive Industries and Seveso
Directives, we provide at Annex X more detailed considerations.

5. Extending
EU practices to overseas operations

Option A || Positive incentives (voluntary code of conduct)

Option B || Negative incentives - publicise lax standards of EU companies' operations outside EU

Option C || Mandate global industry practice for companies headquartered in EU

Option A is
endorsed as the likely most suitable means by which the EU would gain a
reputation for high standards through the conduct of its flagship companies. EU
companies are unlikely to refrain from signing up to an appropriate code of
responsible conduct to convincingly establish their commitment to international
best practices.

EU and Member States have no statutory
insight beyond the EU it would be very difficult to identify industry practices
which are not in line with the European legislative framework. The policy of
pursuing EU level intervention in EU companies' lax performance overseas is not
supported. Where a company is already in a poor public light (e.g. as was BP
after Deepwater Horizon), an expression of EU disapproval is considered to add
little value in those circumstances. Option B is rejected in view of its
difficulties and uncertain value (and potential legal complications).

In Option C, there would be
foreseeable difficulty in setting up the legal framework to enforce the
obligation. Questions such as who would enforce it, how should 'EU company' be
defined, what would be the requisite level of evidence and where is the
rationale for public interest are all potentially insoluble challenges. These
measures at worse could drive companies to establish their status outside the
EU. Option C is rejected as unlikely to achieve.

6. Establishing
a Competent Authority in each jurisdiction

Option A || Adopting EU recommendation or guidelines to Member States

Option B || Amending existing EU legislation

Option C || Adopting a new/specific legislative instrument

Option D || Establishing EU-wide competent authority (through existing or new EU body)

The main drawback of Options A and B
is the absence of suitable EU legislation at present. Using any of the relevant
existing pieces of legislation (e.g. Directives 94/22/EC or 92/91/EEC) would
inevitably limited the scope of action of the Competent Authorities only to the
field covered by the respective legislative text. Alas, as outlined in chapter
3, the Competent Authorities should be in the position to act on a full range
of issues related to the management of risks in the offshore sector.

Option C
appears best suited for the purpose. As the need for Competent Authority[132] is directly linked to the
creation of a comprehensive risk management model for the offshore sector,
which in turn would be most effectively achieved through a specific new
legislative initiative (see 4.1.3), the provisions on Competent Authorities
could and should be an integral part of such an initiative.

Option D
would be hampered by the same considerations as similar options considered in
4.1.1 and 4.1.2. The arguments against this option provided in those parts, and
notably related to guarantees given to Member States in existing EU legislation
in respect of sovereign assets (Art 194 of TFEU and Directive 94/22/EC), would
apply by analogy.

7. Establishing a platform for
regulatory dialogue and information sharing amongst jurisdictions

Option A || Promoting voluntary arrangements amongst regulators (extend NSOAF[133] model)

Option B || Mandating regulatory dialogue led by the Commission

Option C || Creating an EU wide regulatory agency

Option A
carries the weakness that the aim of levelling up the effectiveness of all EU
Member States intervention programmes to the level of the most effective
regimes in the North Sea cannot be expected through voluntary means. Whereas an
expanded NSOAF would bring benefits to less resourced regimes, it can be argued
there is little gain evident for existing NSOAF members. Further, NSOAF works
well precisely because it is comprises members who already have high
performance regulatory regimes, although with some disparities and weaknesses
amongst them. Therefore it is not coincidence that an equivalent to NSOAF has
not started up in other EU regions (nor that NSOAF members UK and Norway were
the founder members of IRF). Therefore we discard this option of having no
likelihood of achieving a benefit that outweighs the cost of it.

Option B means
setting up a Commission-led group of all EU offshore
regulators and shaping for this group an agenda that supports the inculcation
and maintenance of regulatory best practices and that would also enhance the
efficacy of existing regional groups such as NSOAF, and the fledgling
Mediterranean MS forum. In order to establish such an EU-wide platform, the
SLIC Directive[134]
provides an obvious and well tried model.  Overall, this option is endorsed as
the most effective and efficient means to support MS' adoption of a consistent
approach to best regulatory practice.

Option C
would be meaningful to consider alongside other strong options for implementing
the measures that, in effect, institutionalise the offshore reform package,
particularly:

·
Assessing technical capacity at EU level (e.g.
through a dedicated body such as EMSA) (4.1.1)

·
Inspections to be carried out by an EU agency
(4.1.2)

·
Assessing major hazards reports at EU level
(e.g. through a dedicated body such as EMSA) (4.1.3)

·
Establishing EU-wide competent authority
(through existing or new EU body) (4.1.6)

·
A database managed at EU level (Commission or an
agency) with centralized publication of information (4.1.8 – below)

Option C would be the implementing option for this measure should
the listed options come to be the preferred means for implementing those
measures to which they relate.

8. Achieving consistency of product
safety standards across the sector

Not develop[ped further in this impact
assessment.

9. Comprehensive
information sharing and transparency

Option A || Encouraging information sharing and voluntary publication of relevant information

Option B || An obligation on Member States to publish information in a common format

Option C || A database managed at EU level (Commission or an agency) with centralized publication of information

Option A is discarded because it is unlikely to attain the goal of
consistency and hence comparability of performance data. It would fail to
remedy existing problems of comparing data between all EU jurisdictions. Even
in more evolved regimes such as the UK and Norway, the comparison of data is
costly and time consuming because of differences in reporting criteria and
classifications.

Option B provides for an EU level solution, thus it will avoid inconsistency
of requirements and unnecessary burdens on industry. It presents the best and
least burdensome means to:

·
Extract data from industry

·
Share information that is reliably consistent

·
Improve the metrics available to Member States
to better position regulators' interventions and give better public assurance
of validity

·
Encourage transparency by replacing voluntary
systems with formal data collection

·
Incorporate environmental impact reporting

·
Cover accident reporting and lessons learned

This approach
would enshrine better regulation principles by levelling up the requirements
between the EU national systems, without the imposition of an additional layer
of reporting. While the general principles and obligations could be spelled in
a general legislative text, the metrics to be collected and data formats would
be specified through implementing or delegated acts. It would be helpful to
involve Norway in the formulation of any such acts as Norway has an outstanding
record for data publication.

Option C is
discarded for a lack of evidence that all relevant Member States could not
reach a similar level of transparency based on common requirements and common
data format, thus attaining high levels of collaboration without EU control
over the process. It would be overly burdensome on Member States and
unnecessarily costly to the EU. Data verification would become more complex and
costly, and may result in delayed publication, rendering the information of
diminishing value. This option could be reviewed in due course if the
collective output of Member States were shown to be unreliable.

10. Preparedness for effective emergency
response to major offshore accidents

Option A || Industry to demonstrate the existence of suitable and sufficient emergency response plans

Option B || Securing MS agreement to enhance cross border preparedness for responding to offshore major accidents

Option C || EU to mandate the minimum requirements for offshore emergency response plans amongst Member States and to coordinate periodic multi-agency emergency exercises to test the plans

In Option A, operators would have to
take responsibility as the lead providers of plans and resources. However, the
Deepwater Horizon disaster showed that amongst even the super-major oil
companies operating in the Gulf of Mexico (all of whom also operate in EU
waters), there was a tendency to replicate between themselves the same
inadequate environmental risk assessments for the purposes of planned response.
Option 1 is discarded as it is considered that this level of EU action for
emergency response would be both unlikely to gain public confidence and would
only partly achieve the objective. The important part currently played by
industry in emergency preparedness and response should, however, be emphasised,
especially as it is envisaged that it will not only continue but further
develop.

Option B
builds on Option A. It establishes the basis of emergency
preparedness for MS – in effect sets a planning template for national emergency
response plans - such that plans can be shared and resources allocated on a
collaborative basis between MS in the same region, but also to open up the
potential for helping other regions combat extreme emergencies. It also
motivates MS to develop interoperable assets for sharing across boundaries when
it is required to lend assistance to other MS emergency responses. As a natural
corollary to this measure, MS would collate industry inventories and stimulate
interoperability of industry and national assets, which then opens up the whole
of the EU to transferring equipment and expertise should this be necessary to
bring a major incident under control.On balance Option
B could go a long way towards meeting the aim of consistent preparedness across
all EU areas, but recognising that  it does not give assurance that other
Member States would be in a position to lend all assistance to the affected
country. Depending on the package of measures that are preferred (see below,
under Option C), Option B may be suitable.

Option C goes
further than Option B and provides for EU level minimum requirements for
offshore emergency response plans and the preparation of standard operating
procedures for Member States to put into practice in collaboration with the oil
and gas operators and other Member States in their region. The minimum
requirements would be formulated in cooperation with Member State experts.
Among other things, they would establish the principle of Member States sharing
assets, and therefore of sharing planning. Emergency plans should always be
tested, therefore under this option periodic transboundary exercises would be
conducted with EU oversight and the lessons learned would be used to review the
standard operating procedures generally. We propose this option as being the
best available means to:

·
Ensure consistent and meaningful contributions
to emergency response by industry across the EU

·
Facilitate sharing of emergency plans between
neighbouring Member States

·
Securing all necessary assistance to the affected
Member State(s)

·
Ensuring compatibility of coordinated response,
and

·
Continually improving knowledge and provision of
effective emergency response in EU waters by periodic exercises

However this implementation is only
feasible should environment impact and emergency preparedness be included in
the major hazards report (see 4.1.4). Otherwise this option for implementing
the measure would be unworkable.

11. Ensuring
cross-border availability and compatibility of intervention assets

Option A || Industry to ensure availability of their emergency response equipment and materials, sharing as necessary and possible

Option B || Member States to enter voluntary agreements to make available national assets for emergency response, including expertise

Option C || In addition to Option 2, the EU to mandate transboundary sharing of emergency response assets and expertise, and from other EU areas where appropriate

Option A is
necessary but does not go far enough to ensure that compatible assets can be
made available at the time and point of need. The work to date by the industry[135] should certainly not be
dismissed, rather they should be commended, built upon and extended.

Provisions under Option B go further
than Option A and would be expected to work best in local regions of the EU
because, under such an agreement, and subject to EU minimum requirements for
offshore emergency plans (under the previous objective), all regions would make
the necessary provisions based on local risk assessments[136] and marine environmental data
from monitoring.  In addition, under this option Member States would be
expected to ensure inventories are formally collated and periodically updated.

It follows that an interdependency of
assets requires interoperability of equipment and compatibility of fittings and
couplings etc. This provision would support that objective, particularly over
time, as response equipment is replaced. Going further, more consistent
expertise would be expected to develop in response to greater standardisation
that would facilitate the transfer of expert personnel across the EU. Possible
links with the EU Civil Protection Mechanism should be explored. The EU itself
also offers, through EMSA and on request from the affected State, additional
marine pollution response assets.

It is considered that these desirable
outcomes are achievable by suitable arrangements between Member States under
broad guidance that could be prepared at EU level with Member States'
agreement.

A combination of Options A and B are most likely to secure the best available emergency response to
offshore major incidents through:

·
Building on the technical progress made by
industry and its experience gained in responding to challenging offshore
incidents

·
Facilitating the sharing of compatible resources
at both industry and national level where a Member State may be overwhelmed by
the scale of the incident and ensuring the local inventories are accurately
recorded and available

·
Concentrating expertise and inventories on a
regional basis, suitable to regional risks

·
Agreeing interoperability of hardware

·
Agreeing the transferability of key dispersants
and other materials between Member States

·
Collating key environmental data for all EU
areas to make full assessment of the most effective responses feasible

·
Deploying current EU resources in broad
support of regional responses.

Option C is not endorsed. Currently, most Member
States have well-established and apparently effective arrangements for offshore
emergency response that are being reviewed and probably upgraded. There is no
indication that Member States would not readily lend all assistance to other
Member States stricken by an emergency as is the case in the framework of the EU
Civil Protection Mechanism. Furthermore, the EU level framework for sharing
plans and for coordination of periodic exercises (proposed in 10.) will
give assurance or otherwise test that voluntary agreements will suffice.

12. Clarifying
the scope of environmental liability

Option A || Issuing guidance on the applications of the Waste Directive to oil and gas accidents

Option B || Extending the scope of the Environmental Liability Directive[137] to water damage in all marine waters

Option C || EU to develop sector-specific liability legislation for environmen11tal damage

Option D || International/global solution (e.g. IMO liability convention)

Option A
assuming the provision of EU guidance to help disseminate actively the
interpretation by the Court of Justice of the European Union and national
courts of existing waste legislation is discarded because it would address only
some of the present problems arising in the analysis of liability regimes in
offshore oil and gas operations. While it could clarify the assignation of environmental liability to the polluter for all
water damage to all marine waters of Member States, with the corresponding
obligation to remedy all environmental damage, and provide clarity regarding
the unconditional consideration of oil or gas leaked from an offshore operation
as waste, it cannot close the gap which exists with
regard to primary, complementary and compensatory remediation of damage to
marine waters beyond coastal and territorial waters.

Option B is endorsed as providing the necessary change to the regulatory
regime. The change of the scope to the Environmental Liability Directive, by
extending the current scope of water damage based on the Water Framework
Directive (WFD)[138]
to include also the Marine Strategy Framework Directive (MSFD)[139] would make all significant
damage (including immediate threat of significant damage, thus launching
preventive action) to marine waters in Member States' jurisdiction beyond
territorial waters (exclusive economic zone and the continental shelf where
applicable) subject to the EU framework for full environmental liability.

Option C is discarded because it would have far-reaching effects that would
undermine the general policy of broadly applicable frameworks for various types
of liabilities, without achieving significant additional benefits over and
above those resulting from Option 1. Such an approach would further fragment
the existing EU-wide environmental liability framework and be at odds with the
broad aims of the Commission (and duty holders) towards joined-up systems of
regulation and liability.

A drawback of Option D is that it
would likely be a very long time in gestation and would bring no immediate
remedy to the observed limitations in current EU legislation. An obvious
benefit would be the global nature of this solution.

13. Ensuring financial capacity of
operators to cover liability

Not developed further in this impact
assessment.

14. Establishing compensation regimes
for traditional damage

Not developed further in this impact
assessment.

Annex XI – table 1

Measure 1: Detailed verification of the technical capacity of potential operator

Option || Description

Option A: Adopting EU guidelines for Art. 5.1a of Directive 94/22 || Under Option A, the EU would provide guidelines for Article 5.1a of Directive 94/22/EC on hydrocarbon licensing. These guidelines would specify the (minimum) required information that an applicant for a license should provide to the licensing authority of the Member State. This should assist the licensing authorities of the Member State in designing their model (criteria, procedures) for assessment of the adequacy of the technical capacity of the applicant and the operating procedures for the implementation of the model.

Option B: Defining detailed binding criteria in EU legislation (amending Directive 94/22 or separately) || Option B takes a step beyond Option A. Under Option B the EU would specify in legislation the criteria for the licensing process in sufficient detail to secure the goal of a consistent level of technical capability amongst all companies operating offshore license in the EU. This could be done by amending Directive 94/22/EC or through separate legislation. It would be important to ensure the involvement of industry and Member State authorities in the process of the designing of the criteria and also allow for their dynamic evolution over time. The latter point in particular points to the inclusion of comitology provisions in any legislative solution. In any case, the criteria should include a specification of the critical operations for which demonstration of technical capacity is required. The types of critical operations covered should include well design, drilling, well control and process safety engineering. In addition, a demonstration of adequate provision for response to emergency scenarios should be provided. Consideration could be given to a requirement that the information provided by an applicant is verified and assessed by a third party. Such legislation should also define criteria for the licensing authorities on how information provided by the applicant to demonstrate its fulfilment of the required technical capacity should be assessed.

Option C: Assessing technical capacity at EU level (e.g. through a dedicated body such as EMSA) || Option C makes provision for the assessment of the technical capacity of license applicants at EU level through a dedicated body, e.g. EMSA.

Annex XI – table 2

Measure 2: Establishing regular inspections and a penalties regime

Option || Description

Option A: Guidelines on inspections/sanctions and support to regulatory cooperation || Option A deals with the concern that the approach to assessment of safety reports, site inspection and enforcement of defects is variable between all countries that practice such regimes. . In terms of achieving consistency of enforcement and sanction, non mandatory guidance would need to acknowledge there are wide differences in EU civil and criminal regimes. Guidelines would comprise a broad generic framework of necessary measures, leaving Member States to determine the appropriate level of detail. Measures would include verification of: issues raised in the operator's safety report; well design; safety critical elements relating to major hazards prevention (e.g. well control and production systems); maintenance of safety integrity levels; management of change of major hazards systems; mitigation systems against incident escalation, evacuation and rescue, and environmental impact; appropriate enforcement measures to deal with any failure by operators to maintain suitable standards.  Preparing the guidelines would be an opportunity for exploring gaps in the framework of EU responses to Deepwater Horizon where an EU level coordination function would be helpful. For example in coordinating lessons learned from some major incident investigations (but subordinate to any criminal investigation being conducted by the national authority); providing leadership and/or secretariat functions to regional groups (based on the NSOAF model); publication of EU reports into performance of the offshore sector based on EU Member State submissions could also be considered.

Option B: Mandating minimum requirements for inspections/sanctions || Option B effectively places the development of guidance under Option A into a mandatory framework. Experience in the EU shows that where Member States already have major hazard regimes involving some kind of approval system, non-statutory approaches are not sufficient to ensure that regulatory authority contains the necessary costly resources and expertise. Voluntary mechanisms are also unreliable for securing high performance from the industry, particularly where the industry is rapidly evolving, which is the case in the offshore industry where the shift towards diversification amongst both contractors and operators is set to continue. It is unlikely that Member States can achieve effective intervention approaches that will bring the least capable regimes to the level of the best performing ones without a firm EU mandate on the minimum requirements. Whereas all aspects of safety and environmental protection offshore are important, an EU mandate will give focus to the major hazard priorities.

Option C: Inspections to be carried out by an EU agency || Option C makes provision for an EU-level supervisory body. This is a logical consideration for the establishment of absolute consistency in the oversight and supervision of a modified regime across the EU, including in the application of sanctions. EU-level supervision of national jurisdictions is likely to require the creation of new major hazards instruments (as discussed under measure 4.1.1, 'Detailed verification of the technical capacity of potential operator, Section 4.1.1 of the Impact Assessment report). There are a number of models that could be adopted for EU level intervention. The model of the International Atomic Energy Authority (IAEA) is an example where there is an obvious public mandate for a UN-based intervention policy. International air safety. The International Civil Aviation Organisation (ICAO) is another model which has safety as a key strategic objective and gives oversight to national civil aviation regulators. Within the EU, the European Maritime Safety Agency (EMSA) monitors over 20,000 vessels across Europe and inspects classification societies etc. On the environment side, EMSA provides pollution response vessels to help Europe better respond to major oil spills. EMSA has no current expertise in drilling and production operations.

Annex XI – table 1.3

Measure 3: Submission of formal safety assessments for acceptance by the regulator prior to operations with major hazards potential

Option || Description

Option 1: Drafting of EU guidelines to Directive 92/91/EEC || Option A makes provision for the specification of guidelines, for the application of measures for occupational safety and health, and for measures for the control of major accident hazards (MAH), presented in a major hazards report (MHR), including submission of the report to and acceptance of the report by the regulator. The guidelines should specify how and when they should be applied during the various stages and operations during the life cycle of the installation[140].

Option B: Utilising Directive 92/91 for inclusion of MAH aspects and submission to / acceptance by the regulator || Option B builds on option A by extending Directive 92/91/EEC, mandating the elements of major hazards control including the requirement to submit the major hazard report (MHR) to the regulator for acceptance. This would retain the authority of the well understood Directive but at the same time would extend it beyond its present scope. The option proposes a potential strengthening of the measures for offshore safety through the forthcoming review of Directive 92/91/EEC and update of the safety and health documents, in line with the Commission's communication on this subject in October 2010.

Option C: Adopting a specific legislative instrument separate from Directive 92/91 for issues not related to health and safety of workers, extending the goal-setting approach to cover major hazard impacts || In Option C new measures are proposed to secure better regulation of major accident prevention. Whilst it is recognised that existing legislation (particularly in the provisions of Annex C to Directive 92/91/EEC) acknowledges the stringency of provisions needed for major accident prevention and response, Option C proposes separate but aligned legislative provisions that place specific duties on industry and the regulator to take the measures necessary to cover the impact of major offshore accidents in EU waters that can lead to a large number of casualties and/or total loss of the installation. This also includes submission of the major hazard report (MHR) to and acceptance by the regulator. Any resulting reforms across the EU would be those that are specifically necessary for major offshore hazard control and would be complementary to Directive 92/91/EEC, which adopts the goal setting approach.

Option D: Assessing major hazards report at EU level (e.g. through a dedicated body such as EMSA) || As in the previous measure, Option C makes provision for an EU-level body for assessments of the major hazard reports (MHR) submitted by industry. This is a logical consideration for the establishment of absolute consistency in the review and acceptance process of MHR's, including in the application of sanctions.

Annex XI – table 1.4

Measure 4: Extension of the major hazards report into a comprehensive risk management model for EU offshore

Option || Description

Option A: Adopting EU guidelines to Directive 92/91/EEC || Option A makes provision for the specification of guidelines, for the application of measures for occupational safety and health, and for measures for the control of major accident hazards (MAH) including to the environment, presentation of these measures and the emergency plans in a major hazard report (MHR) and submission of the report to and acceptance of the report by the regulator. The guidelines[141] should specify how and when they should be applied during the various stages and operations during the life cycle of the installation.

Option B: Amending Directive 92/91 to include MAH and environmental risks || Option B builds on option A by extending Directive 92/91/EEC mandating the elements of major hazards control and to incorporate environmental aspects and emergency plans in the major hazards report (MHR). It would follow the globally recognised model for major hazard risk control and apply to the lifecycle of the project[142]: Identification of major hazard scenarios for specific operations, Derivation of the risks arising from the scenarios by evaluating consequence and likelihoods of occurrence, Development of suitable control measures according to the risks, including to the environment, and that will secure a good prospect of recovery of stranded workers, Development of appropriate management systems to ensure that control measures are functional and subject to continuous improvement, Independent verification of the critical safety elements, specifically including well design. This would retain the authority of the well understood Directive but at the same time would extend it beyond its present scope. The option proposes a potential strengthening of the measures for offshore safety through the forthcoming review of Directive 92/91/EEC and update of the safety and health documents, in line with the Commission's communication on this subject in October 2010.

Option C: Adopting a specific legislative instrument separate from Directive 92/91 for issues not related to health and safety of workers, extending the goal-setting approach to cover major hazard impacts and environmental risks || In Option C new measures are proposed to secure better regulation of major accident prevention and the impacts for e.g. the environment. Whilst it is recognised that existing legislation (particularly in the provisions of Annex C to Directive 92/91/EEC) acknowledges the stringency of provisions needed for major accident prevention and response, Option C proposes separate but aligned legislative provisions that place specific duties on industry and the regulator to take the measures necessary to cover the impact of major offshore accidents in EU waters that can lead to total loss of the installation and major damage to the environment. This also includes submission of the major hazard report (MHR) to and acceptance by the regulator. Any resulting reforms across the EU would be those that are specifically necessary for major offshore hazard control, including environmental impact prevention, and would be complementary to Directive 92/91/EEC, which adopts the goal setting approach. The priority areas where detailed rules would be set out at EU level include inherent safety, maintaining primary containment of the oil and gas (process safety), emergency plant and equipment to mitigate and contain drilling and production incidents, and wider-scale emergency response in the event of an incident escalating into a full emergency. Because of the complex nature of major hazard prevention in the offshore context, and because of the need to tackle environmental as well as safety issues, it is not reasonable to anticipate the development of new or amended standards and guidance by existing standards bodies (such as CEN) or authorities (such as IPPC) acting alone. A coordinated approach by industry, regulators, standards bodies and other key stakeholders would be essential under this option. It would require the adoption of a legal instrument laying down the main principles and themes while making recourse to comitology and expert groups to elaborate detailed implementing provisions for individual themes/principles. Option C would set an agenda, preferably with a clear timeline, for improvements in safety critical areas in line with the development of necessary standards and guidance that could be incorporated forthwith into the inspection and enforcement programmes of Member States. This would ensure that objective focus is maintained, and would reduce the chance of a drift in industry and regulatory attention from the top priority improvements, some of which will be challenging to deliver.

Option D: Include offshore oil and gas industry in the Seveso regime || Option D is introduced to extend the scope of Directive 96/82/EC (Seveso II Directive 1996) to incorporate offshore oil and gas installations. This would ensure that provision for the control of major-accident hazards under this Directive would also be required for the oil and gas facilities offshore. The Directive specifies requirements for: a written and implemented major accident prevention policy; a safety management system; a safety report for the facility; establishment of a Competent Authority; inspections to be conducted by the Competent Authority; reporting by the operator of relevant information regarding the facility and availability of emergency plans for the facility. Extending the scope of the Seveso Directive would be a considerable change, as the current scope is defined by the inventory of dangerous substances (which determine the major hazard scenarios) and currently limited to facilities on land (with prominent issues regarding external safety and land-use planning).

Annex XI – table 1.5

Measure 5: Extending EU practices to overseas operations

Option || Description

Option A: Positive incentives (voluntary code of conduct) || Option A would encourage European companies to make a voluntary commitment (code of conduct) to apply the same standards and procedures which are used in EU waters. The majority of relevant EU companies claim that they already follow strict EU standards during their global operations, yet information from stakeholders suggests that there is still significant inconsistency in this approach.  There are "softer" options that could effectively contribute to the use of EU standards in third countries, especially in connection with the importance that offshore companies typically attach to their good reputation. For example, this opens up opportunities for measures built on increased transparency and publication of relevant data. Ultimately, companies would not want it to become apparent, following an incident or criminal prosecution in a non-EU country, that they disregard their EU commitments to maintaining high standards worldwide.

Option B: Negative incentives - publicise lax standards of EU companies' operations outside EU || Option B would report on those companies which demonstrably apply laxer standards outside Europe. The EU would have to carefully verify what it publishes as it may have the potential to damage the reputation of the company concerned. The effort required to verify the legality of any potentially harmful reporting would need to be tested against the value of the diluted report that may result. Obvious lapses, such as BP's Deepwater Horizon disaster, result in losses of shareholder value with severe consequences for the company.

Option C: Mandate global industry practice for companies headquartered in EU || Option C would mandate global industry practices for companies headquartered in the EU. The challenge of effectively overseeing extra-EU operations would still exist. There are examples of similar obligations, for example in the legislation restricting the shipment of waste to third countries[143].

Annex XI – table 6

Measure 6: Establishing a Competent Authority in each jurisdiction

Option || Description

Option A: Adopting EU  recommendations or guidelines to MS || Option A must recognize that even in the absence of policy action at EU level, some changes in the industry will take place because industry organisations, individual companies and a number of member states are already examining necessary changes to operational practices and technical standards in the light of the latest developments and events in the sector. Under this option, the EU could support such processes by issuing guidelines or other non-legislative supporting instruments. Company and industry actions, self-initiated or incentivised/required by national authorities, have indicated areas and directions in which improvements are, will be, or could be forthcoming[144].

Option B: Amending existing EU legislation || Option B would seek to amend existing EU legislation to establish Competent Authorities for the oil and gas industry in Member States. The existing legislation relevant for the oil and gas industry are e.g. Directives 94/22/EC or 92/91/EEC. The amendments would also need to specify minimum requirements and/or best practices for Competent Authorities, thus extending the current scope of the Directives.

Option C: Adopting a new/specific legislative instrument || Option C makes provision for an EU mandate to achieve throughout the region the best regulatory arrangements for delivery of the key elements of this measure. In major hazards industries – e.g. hazardous chemicals and nuclear – industry-wide conformity has been accepted as vital to the integrity and continued operation of the industry, giving it a legitimate social license to operate. Where environmental regulation is separated from safety, the Seveso Directive, for example, has established jointly competent authorities. It is realistic to assume that only under the encouragement and protection of an EU mandate could Member States introduce relatively quickly the statutory requirements that would act effectively on the industry and equally on themselves.

Option D: Establishing EU-wide competent authority (through existing or new EU body) || Option D assumes the establishment of a new regulatory body at European level. An EU-level supervisory body is a logical consideration for establishing absolute consistency in the oversight and supervision of a modified regime across the EU. However, the concept could not, however, replace all the activities of the national regulators because of the differences in legal regimes. There are a number of models that could be adopted for an EU-level regulatory body. The European Nuclear Safety Regulator's Group is an example but may not suit the type of risk inherent to the offshore oil sector, and has not been designed for the large number of companies in the industry. Another example is the European Maritime Safety Agency (EMSA), which inspects classification societies, safeguards the standards of on-board equipment and provides pollution response vessels to help Europe to respond better to major oil spills, and more. EMSA has no acquired expertise in drilling and production operations. However, EMSA is fully involved in oil spill response arrangements and will therefore have a role to play in any development of EU safety standards for offshore oil and gas.

Annex XI – table 7

Measure 7: Establishing a platform for regulatory dialogue and information sharing amongst jurisdictions

Option || Description

Option A: Promoting voluntary arrangements amongst regulators || Option A aims for the voluntary establishment of a platform (or platforms) for exchange of information between regulators in Member States with offshore oil and gas operations. This exchange could include discussions on topics like best practices (both in industry as well as for regulators), lessons learned from incident and accident investigations, industry performance statistics, transboundary issues, development in regulation etc. As such, these voluntary arrangements could draw on the experience gained by NSOAF (and IRF) and could even be extended to include other offshore areas than the North Sea.

Option B: Mandating regulatory dialogue led by the Commission || Option B would build on Option A, by mandating the (voluntary) arrangements for exchange between regulators in EU legislation. A similar body already exists for the Senior Labour Inspectors Committee (SLIC), which is well established and authorised by EU acquis.[145] The SLIC-model could serve as a template for establishing the corresponding body of regulators for the oil and gas industry.

Option C: Creating an EU wide regulatory agency || Option C is in fact identical to option D in the previous measure (4.1.6), to establish an EU-wide Competent Authority. Such a Competent Authority would also serve as a platform for information exchange between Member States.

Annex XI – table 8

Measure 8.: Comprehensive information sharing and transparency

Option || Description

Option A: Encouraging information sharing and voluntary publication of relevant information || Option A relies on soft measures to promote information sharing and public disclosure. It encourages voluntary publication of relevant information. Currently, EU members collect data and some (e.g. UK, Norway and other members of NSOAF) share data and perform approximations to produce comparative reports on safety performance.

Option B: An obligation on Member States to publish information in a common format || Option B aims to reconcile differences in EU national classifications by introducing an EU reporting template and a standardised EU reporting system for incidents which would capture most of the currently collected data. Securing agreement for the scope of such a database amongst Member States and the involvement of MS experts (via comitology) in the preparation of the data template provides an added opportunity to adopt some performance measures – or metrics – that could provide more information than is currently collected on the global databases of IADC or OGP. To date, such information has only been available when researchers have been given access to data held by national regulators and oil companies.  In addition to current standard reporting criteria (incidents and accidents), consideration could be given to capturing other important data. For example: well instability; hydrocarbon leaks; total platform shutdowns; environmental infringements; and personnel musters. It is envisaged that the system could go further than some Member State systems but be at the level of reporting of some of the more rigorous regimes. It would be the responsibility of Member States to collect the data under this option and to prepare national reports. Having established the system it would be straightforward for groups of countries to publish regional reports of performance and to collate this into an EU report in due course once the system is proven. There would be further scope for countries to attach to their websites, or otherwise publish, more detailed reports on investigations of the more serious and instructive incidents and to provide links to further information as the system develops. Interaction in this manner would facilitate Member States collaboration, following the example of NSOAF.

Option C: A database managed at EU level with centralized publication of information || Option C envisages a database managed at EU level (by the European Commission, or an agency of the European Commission) with centralised publication of information; this option would bring the highest level of reliability and consistency attainable. This option would shift the responsibility for management of data – its quality, and consistency - from the Member States to the Commission. There would be added reliability in data quality and consistency compared to the sum of national approaches to data verification.

Annex XI – table 9

Measure 9: Preparedness for effective emergency response to major offshore accidents

Option || Description

Option A: Industry to demonstrate the existence of suitable and sufficient emergency response plans || Option A takes as its point of departure the fact that industry activity provides both the benefit and the risk in exploiting the offshore reservoirs. In Option 1, operators would act as the sole providers of plans and resources which would have to be demonstrated to Member State authorities.

Option B: Securing Member States agreement to enhance cross border preparedness for responding to offshore major incidents || Option B notes that onshore, under the Seveso Directive, operators must prepare internal (on-site) emergency response plans within the formal safety report that is assessed by the regulator. These on-site plans generally form the basis of external (off-site) emergency response plans used by local planning authorities to coordinate response to a major and escalating incident. This may include drawing on the national civil contingencies provision. Under this option, EU Member States take the lead in formulating national (external) emergency response plans in collaboration with industry, whilst retaining the emergency command and control function. Such plans would include the rescue of large populations, potentially exceeding 200 people, and the prevention of marine pollution. In doing so, Member States should formulate the external emergency plans in cooperation with neighbouring states, to align their respective plans, assets and procedures to the best possible extend. This would ensure efficient corporation between Member States in the event of a major accident. In addition, the external emergency plan should be thoroughly tested through exercises, include cross-border ones.

Option C: EU to mandate the minimum requirements for offshore emergency response plans amongst Member States and to coordinate periodic multi-agency emergency exercises to test the plans || Option C goes a step beyond Option B by mandating a framework for emergency response preparedness that is compatible across EU Member States, and particularly in a regional context. An example would be the Northwest European deep water environments, which pose significantly different emergency scenarios to the Mediterranean or Black Sea areas. Such a framework would set out the necessary components of an emergency response plan but emphasising the transboundary cooperation and the necessary level of obligations to ensure that Member States do indeed lend all assistance where this is necessary to avert catastrophe. Seveso offers a useful model for emergency planning guidelines. EU surveys of the functioning of the Seveso requirement for off- and on-site emergency response plans have shown significant lapses amongst Member States, despite the provisions being mandatory. This suggests that an EU legal requirement for Member States to review and periodically test offshore emergency response plans is the minimum necessary to secure consistency. To be fully effective, testing of plans should be transboundary; such exercises enable several exercises to be condensed into one multinational activity, adding value to all the Member States concerned.

Annex XI – table 10

Measure 10.: Ensuring cross-border availability and compatibility of intervention assets

Option || Description

Option A: Industry to ensure availability of their emergency response equipment and materials, sharing as necessary and possible || Option A involves endorsing the industry and Member States to develop the expertise and hardware, and site it conveniently in relation to the assessed risks.

Option B: Member States to enter voluntary agreements to make available national assets for emergency response, including expertise || Option B provides for an understanding between Member States to share all available assets, both national and privately owned by industry, with other Member States at the time and point of need. As stated, offshore emergency response requires all that the industry can furnish, plus that which national civil contingency can provide. The current regional arrangements for risk based response planning across the EU may need improving to ensure oil and gas activity is properly considered. In the Baltic region, the BRISK project has demonstrated an effective model for such risk based planning. Other regions such as the Mediterranean and the North Sea are also developing a similar approach. At present, there are EU-wide coordination schemes and EU-level instruments like the Civil Protection Mechanism which play an important role in the coordination of emergency response and provide information on the availability of public resources for emergency response. A similar overview is missing for industrial resources at the transboundary level. It is also essential to coordinate the essential environmental sensitivity data relating to the state of the water column and the seabed so that the correct response can be planned if an emergency arises. At present, these data are not consistently collected and collated throughout the EU. On the matter of compatibility of the response equipment and services, only the immediate response tools need to be available at the site of the accident, or in close proximity. Other necessary equipment may be available at a distance, even if it is in a different continent. The identified need is for the rapid transportation of equipment that can be connected to locally available equipment and which may be handled using available lifting and transport systems.

Option C: In addition to Option 2, EU to mandate transboundary sharing of emergency response assets and expertise, and from other EU areas where appropriate || Option C assumes that major incidents need to be addressed by a coordinated response led by the EU. In its communication of October 2010, the Commission outlined its vision of how to transform the EU's current ad hoc response into one that is pre-planned, predictable and immediate. This relates, in particular, to oil spills that may overwhelm a single jurisdiction and may, in addition, seriously affect adjacent Member States' waters. Option C proposes that the EU takes the lead in coordinating major incident responses, deploying mainly national assets supplemented by other resources as necessary, either at a national or EU (e.g. EMSA) level.

Annex XI – table 1.11

Measure 11.: Clarifying the scope of environmental liability

Option || Description

Option A: Issuing guidance on the application of the Waste Directive to oil and gas accidents || Option A seeks to build on existing legislation without making radical changes. It aims to simultaneously circumvent some common problems relating to a lack of clarity of what is covered by law, but without making new law. It is envisaged this would be particularly beneficial in applying the General Waste Directive to offshore oil spills, where currently some EU case law exists but definitive clarification has not been made.

Option B: Extending the scope of ELD to water damage in all marine waters || Option B involved change to the scope of the Environmental Liability Directive which for water damage is currently limited by reference to the definition of EU waters under the Water Framework Directive. It is acknowledged amongst key stakeholders, and supported by resolution of the European Parliament, that this is not helpful or logical. Accordingly, this option seeks the extension of the scope of the Environmental Liability Directive to address geographical gaps, and to cover all marine waters under Member States' jurisdiction.

Option C: EU to develop sector-specific liability legislation for environmental damage || Under Option C, the EU would develop sector-specific liability legislation to bring complete clarity to a relatively self-contained corporate community. This solution could additionally be expanded to cover traditional damage (such as damage to economic activities, such as fishing or tourism, and the resources needed to support them) but related specifically to offshore accidents.

Option D: International/global solution (e.g. IMO liability convention) || Option D represents the international solution, in which an international body such as IMO would develop a convention on off-shore accidents and pollution and to address remedy of environmental damages. This would apply equally within the EU and to shared jurisdictions where offshore oil and gas activity can be intensive.

Annex
XII Overview
of industry initiatives: GIRG and OSPRAG

This Annex provides
information on two important initiatives, which have been developed by the oil
and gas industry shortly after the accident on the Macondo well in the Gulf of
Mexico in April 2010. Although both initiatives diverged to a certain degree
during their development, both had the common goal to improve well incident
prevention and intervention, and to improve response capability in the event a
well incident does occur. The initiatives are:

(1)
Establishment of the Global Industry Response
Group (GIRG) by OGP[146];

(2)
Establishment of the Oil Spill Prevention and
Response Advisory Group (OSPRAG) in the UK.

Both initiatives will
be discussed in more detail in the following paragraphs.

1          Global
Industry Response Group (OGP)

The International Association of Oil & Gas Producers
(OGP) encompasses most of the world’s oil & gas companies, associations and
upstream service companies. An essential part of OGP’s mission is to represent
the interests of the upstream industry before international regulators and
legislators. OGP also helps members achieve continuous improvements in safety,
health and environmental performance and in the engineering and operation of
upstream ventures.

In July 2010, OGP established
the Global Industry Response Group (GIRG). The initial purpose of this group
was to identify, learn and implement lessons learned from the Macondo, Montara
en similar well incidents. Furthermore, the work of the group was divided into
three core areas, with a dedicated team assigned to each of these areas to identify
possible actions for OGP and the industry. These areas are:

(a)
Prevention: to reduce the likelihood of well
incidents, by development of better capabilities and practice in well
engineering design and well operations management.

(b)
Intervention: to improve well capping response
readiness and to investigate containment solutions.

(c)
Response: to deliver effective and
fit-for-purpose oil spill response preparedness and capability.

During the course of
2010 and 2011, work in each of these areas has progressed with results,
conclusions and recommendations for each area communicated in May 2011[147]. In addition, OGP briefed the
Commission on their progress regarding the initiatives in May, June and August
2011. The initiatives are summarized in the following paragraphs.

1.1       Well
engineering design / well operations management (prevention)

To reduce the
likelihood of well control incidents and share lessons learned, the well
engineering team working under the GIRG remit has recommended creating a new
and permanent Wells Expert Committee (WEC). Under the governance of OGP, it is
intended that the WEC take forward the following actions:

·
Introduction of a three-tier review process on
well design and operations management, encouraging companies (1) to execute
meaningful self-audits, (2) to incorporate independent technical oversight and
(3) to comply with local regulatory framework.

·
Encourage companies to share data and lessons
learned from all well incidents and establish a database for this information.

·
Promotion of a human competence management
system to ensure staff and management teams have the required skills (e.g. on
well control).

·
Identify new and improved technical and
operational practices for the overall governance of well construction.

·
Recommend to industry that a 'two (independent
and physical) barrier' policy is in place during the life of the well.

·
Recognition of existing internationally and
nationally agreed standards as a baseline for industry improvements.

OGP has reported that
the Well Expert Committee (WEC) is now operational, with a Chairman nominated.
The committee members have met, addressing the key issues on which the WEC will
be working during the coming months. Work in the WEC has been allocated into
five work streams, concerning several issues e.g. development of a well control
incident database, BOP's, training and competency, international standards and
dissemination across industry of the recommendations in the GIRG report.

1.2       Capping
and containment (intervention)

The primary tasks of
the group working on the intervention issue, was to determine whether a single,
worldwide, standardised capping and/or containment system for deepwater wells
could and should be designed and deployed. To take this initiative forward, the
group recommended the establishment of a consortium, to further investigate and
deliver improved capping response. At the time of reporting, eight major
companies in the oil and gas industry have signed the Interim Joint Development
Agreement (IJDA) to create the consortium. The aim of the response consortium
is to address the following issues:

·
Manage the selection and design of caps and
associated equipment.

·
Manage the selection and design of subsea
dispersant hardware.

·
Study the need for and feasibility of global
containment solutions.

·
Investigate and develop procedures for specific
operational issues related to the capping and containment of hydrocarbons
released during a blowout.

The activities of the
consortium will be coordinated with other, similar initiatives that are
currently underway in this field, e.g. by the Oil Spill Prevention and Response
Advisory Group (OSPRAG, see further) in the UK. OGP has reported that the
efforts of the consortium are well underway. The consortium expects to have
identified possible capping and containment designs and the need for and
feasibility of containment solutions by the third quarter of 2011.

1.3       Oil spill
preparedness and response

Regarding effective and
fit-for-purpose oil spill response preparedness and capability, the group
working in this issue recommended that OGP and IPIECA[148] form a joint industry project
(JIP, funded by industry). The aim of this project is to improve coordination
between key international stakeholders, e.g. response organisations,
governments and companies. The following list provides a summary of the issues
on which the project will conduct work:

·
Establish principles on dispersants use with key
stakeholders.

·
Promote research that advances understanding and
response methodologies and risk assessment models.

·
Enhance or develop recommended practices on e.g.
in-situ burning, response exercise, surveillance methods and technologies for
tracking oil spills.

Funds and resources have been allocated for
the project, which is estimated to cover a three year period. A total of 19
work streams have been identified, which will be allocated to five workgroups.

2          Oil Spill
Prevention and Response Advisory Group (UK)

The Oil Spill
Prevention and Response Advisory Group was established in the UK in May 2010 to
identify and address emerging cross industry issues arising from the Macondo
well incident in the Gulf of Mexico. The group is formed of senior
representatives from operator and contractor companies as well as participants
from government agencies (e.g. regulators) and oil spill response companies.
Technical, administrative and secretariat support is provided by Oil & Gas
UK, the trade organisation of the UK oil & gas industry. OSPRAG's work has
been structured according to four priorities:

(1)
Preventing the possibility of an escape of
hydrocarbons from a well.

(2)
Minimising the length of time and volume of any
escape of well hydrocarbons.

(3)
Ensuring effective spill response strategies.

(4)
Ensuring sufficient financial arrangements are
in place to cover the response to any spill.

The work in OSPRAG has
been carried out through four subsidiary review groups: the Technical Review
Group, the Oil Spill and Emergency Response Review Group, the Indemnity and
Insurance Review Group and the European and International Issues Group.

In the following
paragraphs, the results of each of the review groups will be summarised[149].

2.1       Technical
Review Group

This group consists of
representatives from the industry, contractors, regulators and offshore unions
and its role is to review key processes for well control and containment
provision. Sub-group are formed to review specific areas, including:

·
Well capping and containment options.

·
Well examination, verification and well control.

·
Competency, behaviours and human factors.

·
BOP[150]
inventory en recommendations for improvement.

·
Flowing well status.

The work of the
Technical Review Group led to two key industry initiatives which are
corresponding to and carrying forward the group's recommendations. These are:

(1)
Development of a new Well Life Cycle Practices
Forum (WLCPF).

(2)
Design and manufacture of the OSPRAG well cap.

2.1.1    The Well
Life Cycle Practices Forum (WLCPF)

The WLCPF has been
established in December 2010, under the stewardship and governance of Oil &
Gas UK. The forum meets every two months and will serve as the permanent forum
for the UK upstream oil and gas industry to address well life-cycle related
issues. The WLCPF consist of members and observers from oil and gas operators
and the forum interfaces with drilling and well services contractors and
regulators in the UK. The purpose of the forum is to provide an active body
through which its members can:

·
Implement the recommendations from the Technical
Review Group.

·
Indentify and review well life cycle cross
industry issues.

·
Share best practices.

·
Create and resource workgroup to work through
well-related issues.

·
Interface with other industry stakeholders.

·
Prepare a series of recommendations and
guidelines for consideration.

(3)
Workgroups have been created under the forum
dealing with specific topics, like: BOP issues, relief well planning, well life
cycle integrity, competency and well examination. It is anticipated that work
of the Technical Review Group will be taken forward by the WLCPF, when OSPRAG's
work will come to a natural conclusion in the summer of 2011 and the group is disbanded.

(4)
2.1.2       The OSPRAG cap

(5)
The primary solution identified by OSPRAG is a
capping device in order to seal off or 'cap' the flow of oil and prevent is
from entering into the marine environment. The device can be deployed from a
multi service vessel of drilling rig and can be attached to various parts of
the subsea BOP stack. Manufacture of the OSPRAG cap is now in progress and is
designed to become a key element of the UK industry's oil spill response
contingency plans. Completion of the device is due in summer 2011.

2.2       Oil
Spill Emergency Response Review Group

The Oil Spill Emergency
Review Group was established to deliver an assessment of the capability of the
UK to respond to a significant and ongoing release of oil from exploration or
production operations on the UK Continental Shelf. To this effect, a systematic
review was undertaken, consisting of the following elements:

·
Assessment of the threat (e.g. geographical,
quantities).

·
Assessment of the UK response strategy and an
assessment of the ability to deliver the response.

·
An exercise of the response capability.

·
Confirmation that the response capability is fit
for purpose.

·
Reflection of the strategy in individual
operator Oil Pollution Emergency Plans (OPEP) and the National Contingency
Plan.

In order for the
industry to be fully prepared in its response capability, ten work streams have
been initiated by OSPRAG under this review group. Some of these work streams
are: development of a counter pollution 'toolkit', subsea dispersant injection
and dispersant stockpile, integrated shoreline response, OPEP work group and
response exercises.

Work under this review
group will probably not be completely resolved before OSPRAG concludes, which
is anticipated in the summer of 2011. OSPRAG has agreed to recommend that an
Oil Spill Forum be established under Oil & Gas UK governance, to ensure
that an effective, robust and sustainable spill response capability is
maintained for upstream operations on the UK Continental Shelf. Draft Terms of
Reference and potential membership for this forum are in preparation.

2.3       Indemnity
and Insurance Review Group

This group was
established to assess the potential remediation and compensation costs associated
with a large oil spill in the UK Continental Shelf, determine how these are
provided for and if these provision require improving. Work in the group began
with an understanding of the provisions currently in place in the UK, such as
OPOL[151],
the financial checks carried out by the regulator (DECC) and operators' own
insurance provisions. This phase is now complete and work now focuses on five
areas:

·
Reviewing protection for third party costs above
the OPOL limit.

·
Oil Spill Modelling.

·
Reviewing OPOL processes.

·
Wider financial responsibility.

·
OCES[152]
arrangement and exercise.

2.4       European
and International Issues Review Group

This group acts as a
communications focal point to ensure other relevant bodies are informed about
the work of OSPRAG, and visa versa. The group does not act as a decision making
body or seek to work technical issues. The group ensures that work in OSPRAG is
coordinated with activities taking place elsewhere in the world. As such, the
group has links with European National Oil Industry Associations as well as
OGP, IPIECA, API and UK regulatory authorities (DECC, HSE and MCA).

3          GIRG and OSPRAG initiatives vs. the Commissions' proposals

When the initiatives under
the GIRG and OSPRAG remits are matured and implemented by the oil and gas companies,
they should result in enhanced prevention of blow-outs and better provision for
containment and emergency response in the event a blow-out did occur. As such,
the initiatives are welcomed by the Commission.

When viewed in the
traditional qualitative risk analysis method ('BowTie' method, see figure
below), the initiatives will result in barriers for prevention of an incident
(in this case the uncontrolled release of hydrocarbons from a well) and barriers
for limitation after an incident did occur:

The majority of the
initiatives however will impact on the right hand side of the bow-tie model,
i.e. to limit the consequences of an incident and to aid recovery after the
incident. These include the initiatives for e.g. well capping and containment
of hydrocarbon releases, the use and deployment of dispersants etc.

In all, the initiatives
developed by OGP and in the UK are in line with the following measures
discussed in chapters 3 en 4 of this Impact Assessment document:

·
Establishing a goal setting (MHR) regime
(measure under options 1 & 1+).

·
Establishing a comprehensive risk management
model of EU offshore (measure under option 2).

·
Ensuring information sharing and transparency
(measure under option 2).

·
Ensuring preparedness for responding to major
offshore accident (measure under option 1+)

·
Ensuring financial capacity of operators to
cover liability (stand-alone case II)

·
Establishing compensation regimes for
traditional damage (stand-alone case II).

It should however be
noted, that the measures proposed under the OSPRAG initiative in the UK have a
regional or even a national drive. The results and outcome of the proposals (e.g.
capping and containment equipment) may not be (made) available outside the North
Sea area or even UK waters. As such, the option packages proposed by the
Commission should have the effect that results and lessons learned from the UK
initiatives will be disseminated throughout the EU, which could also benefit regions
bordering the EU. In addition, the measures proposed in this Impact Assessment
document should serve to retain the momentum in the development of the proposals
both in OGP and in the UK. Of particular note in this respect is that the
capping and containment equipment proposed is currently being designed and
constructed. Field test and exercises will be required to demonstrate
suitability and adequacy, for deployment and operation of the equipment.

The option packages
proposed by the Commission in this Impact Assessment document should have the
effect that the initiatives underway in both OGP and the UK are further
developed and executed, in order to ensure:

·
The proposals and measures will be completed,
with a reasonable timeframe.

·
New equipment designed and constructed as a
result of the proposals is field tested.

·
Measures resulting from the proposals are
implemented in the oil and gas companies.

·
Regular exercises to be conducted with all
stakeholders involved, to test effectiveness of equipment, plans and
procedures.

Annex
XIII: BENCHMARKING BETWEEN INDUSTRY SECTORS
AND COUNTRIES

1.         In the context of this report,
benchmarking relates to comparative safety performance of the oil and gas
sector. Indicators of industry safety performance are commonly regarded as
either leading or lagging.

Lagging indicators

2.         Lagging indicators are data that
are most likely to be compared; they  are normally related to accidents that
have occurred, and in EU mostly characterised as fatal, major injury (e.g.
amputation, loss of an eye), lost time injury or LTI (absent from work for over
3 or 4 days), occupational diseases (legionella, occupational cancer) or
dangerous occurrence (explosion, well blowout). Member States have their own
comprehensive provisions (in the UK the Reporting of Injuries, Disease and
Dangerous Occurrences Regulations[153]);
and DG Sanco also publishes injury statistics periodically for the EU[154] .

3.         With the exception of
hydrocarbon releases, data of this kind do not show up the incidents that are
related to major hazard near misses, compared to occupational situations that
are localised to the work-site and mainly affect individuals (slips and trips,
and manual handling injuries). The International Association of Oil and Gas
Producers (OGP: the independent oil companies trade association) publishes in
its annual safety report[155]
a catalogue of 'high potential incidents', some of which are clearly major
hazards related (like well barrier failures), some are less clearly so, but
otherwise potentially serious (like falls to the sea, and electrical burns)

4.         Nevertheless there is a value in
the relationship of injury rates between countries and sectors as a crude
indicator of control of workplace safety because there is a linear if
unquantifiable relationship between these data and reliability of control
systems (i.e. it would not be expected that a worst-in-class occupational
safety performance would be accompanied by a best-in-class major hazard control
performance). However, it is definitely not the case that an upward trend in
occupational safety performance indicates a similar trend in major hazard
precursors. We return to this below under 'leading indicators'.

4.         All Member states have their own
classification systems for lagging indicators of injury and occupational types
which make it infamously difficult to compare injury rates between countries.
Also, most systems do not facilitate comparing offshore oil and gas industry
performance with onshore industries due to different ways of counting data. The
latest EU report on injuries advises that statistics are not completely
comparable[156].
Visiting country websites for national comparative injury data is a challenging
– often fruitless – exercise.

5.         Cross EU benchmarking for the
oil sector between MS or between sectors cannot be taken beyond saying that the
offshore sector compares favourably with construction and agriculture, is on a
par with manufacturing and chemicals manufacturing, and is less favourable than
refining and nuclear power generation.

6.         However there is apparent
significant variation between different industry sectors in different EU
countries, but the extent to which this is caused by the way data is collected
is a matter for conjecture. For example, NL reports 4,100 lost time
injuries/100,000 workers in construction compared to UK's 792/100k. However NL
collects lost time reports for >24hours off-work, and the UK for >72
hours. The NL chemicals sector is reported to have 493 lost time injuries/100k
workers, compared to the UK's 543/100k – which is comparable.

7.         Some countries – Norway and the
Netherlands - are taking steps to normalise their data against other
regulators. For example Norway has indicated it may harmonise its
classification for 'serious injury' to bring it into line with the IRF
classification of 'major injury'. Regulator groups – IRF and NSOAF – are
putting renewed efforts into the work of comparing incident data. Whereas NSOAF
do not publish comparative data, IRF[157] 
compare Europe members (UK, NL, Nor) unfavourably with the USA for major injury
and time-off-work incidents, but the USA has a higher fatal incident rate.
Europe compares favourably with Australia for major and time-off-work rates.

Country illustration

Incident data

8.         The UK's HSE is the independent
national regulator for health and safety in all industries and hence has a rare
capability amongst regulators to compare incident data across sectors[158]. In some sectors, special
analysis is made of performance trends, including the upstream oil and gas
sector[159]
which, unlike the Netherlands, is largely offshore. The following table is
based on HSE data compiled under the 2003 standard industry classifications
(SIC codes)

UK 3 year average 2007/08-2009/10 (/100,000 workers/yr)

Industry (SIC 2003) || Fatal injury rate (a) || Major injury rate (b) || Over-3-day injury rate (c) || Total non-fatal injury rate (b) + (c)

Offshore (sector report) || 0 || 150 || 479 || 629

Construction (SIC 45) || 2.7 || 242 || 550 || 792*

Agriculture (SIC 01-05) || 8.0 || 213 || 442 || 655*

Manufacturing (SIC 15-37) || 1.0 || 173 || 677 || 850

Chemicals (SIC 24) || 0.4 || 143 || 543 || 686

Coke mfr Refining petrol/ Nuclear (SIC 23) || 2 || 72 || 307 || 379

Table 1

9.         Using green shading to define the offshore data and other sectors of
roughly comparable accident performance, red
to illustrate worse and yellow the
better performing sectors, we can make rough comparisons between sectors in
occupational injury and ill health. It must be remembered however that these
data do not compare major hazard precursors except in the very loose sense we
allude to in paragraph 3. Finally, construction and agriculture are surveyed
annually for an anonymised full-reporting check. Results suggest there may be
as much as 65% under-reporting of non-fatal accidents in agriculture, and 50%
in construction (both marked with * on the table).

Enforcement data – compliance with duties

10.       It is relatively straightforward
to obtain enforcement data from the UK databases held by HSE. These show a
broadly consistent record of enforcement since 2001/02. Whereas the annual
number of prosecutions shows a marked decline since 2004/05, the total
enforcement data for breaches of offshore duty including statutory improvement
and prohibition notices has been relatively steady since the start of table 2
below:

Year || Improvement Notices || Prohibition Notices || Prosecutions || Total

2001/02 || 33 || 11 || 11 || 55

2002/03 || 46 || 7 || 6 || 59

2003/04 || 42 || 6 || 13 || 61

2004/05 || 27 || 2 || 5 || 34

2005/06 || 37 || 9 || 3 || 49

2006/07 || 53 || 8 || 3 || 64

2007/08 || 28 || 5 || 2 || 35

2008/09 || 48 || 4 || 4 || 56

2009/10 || 30 || 2 || 0 || 32

20010/11 || 41 || 3 || 3 || 47

Average/yr || 38.5 || 5.7 || 5 || 49.2

Table 2 – offshore enforcement in the UK

Green: average enforcement benchmark; red years above average; yellow years below average.

Improvement notices are statutory instructions to
remedy serious identified defects within a stated period

Prohibition notices are statutory instructions to
cease a specified activity immediately on grounds of clear, imminent danger

Prosecutions are for criminal breaches of duty under
UK safety law

All enforcement action may be appealed by the
recipient. The 2009/10 and 2011 data exclude actions which are under legal
appeal.

11.       Whilst care is needed in
ascribing meaning to the record of enforcement for a given sector, it can be
assumed that enforcement is taken only after considerable reflection, and (in
the case of most if not all EU countries that undertake enforcement) with due
regard to enforcement policy. In the UK enforcement action is subject to public
accountability tests that the action by the regulator is, in response to the
risk or consequences created by initial breach of duty, proportionate,
targeted, transparent and consistent. Therefore enforcement data trends are a
guide to the general levels of significant breaches of compliance, over time,
by duty holders in a given industrial sector in a given country.

North Sea

12.       Norway and the UK make special
reports to compare occupational and major hazards data twice yearly (under the
auspices of the UK/Norway Special Working Group. This is particularly useful
because both countries share particular risk potential in the northern North
Sea (north of 59o) – large, heavily manned, deepwater platforms
(>100m sea depth) producing oil, gas and condensate, some at very high
pressures and temperatures. Exploration drilling is mostly carried out by
floating type rigs. The Netherlands and Denmark both have large numbers of production
platforms, but in contrast to Norway and the northern UK, they are sited in
relatively shallow water (<20m sea depth), lightly manned, and producing
mainly dry gas at normal  pressures. Drilling is by jack-up rigs that stand on
the sea floor. Therefore the major hazard risk profiles are significantly lower
in the southern North Sea region than farther north.

13.       The UK and Norway data show
broadly comparable injury performance in each country. In terms of results, the
injury rates are more or less flat over the period 2007 – 2010. However there
are some differences in significant and major hydrocarbon releases: they are
higher in Norway, and apparently increasing; in the UK releases (significant
and major) are broadly flat lining. In Norway there have been no ignitions of
hydrocarbon releases since 1992; in the UK 1.5% of releases since 1992 are
ignited. That both countries go to the length of striving to compare data is
itself a leading and positive indicator of the strength of those risk based
regimes, and in the North Sea region in general. Table 3, below, is an abstract
of the kind of data-sharing in which the UK and Norway invest to benchmark the
performance of their offshore sectors and to assist developing strategic
priorities.

UK Over 3 day trends 2005/10               Norway minor
injury trends 2005/10

UK & Norway hydrocarbon
releases – 'major & significant'

Table 3

14.       All NSOAF members apply a goal
setting regime based on risk assessment, following the essentials in the
Drilling Hazardous Industries Directive 92/91/EC. The NSOAF plenary meetings
provide for discussions and comparisons of safety performance trends and
significant incidents. Harmonisation of data does require some interpretation,
and only the UK and Norway appear to process their data in a bilateral
exercise.

Mediterranean region

15.       The 2009 report from Italy's
Ministry of Economic Development (D.G. for Mining and Energy Resources)[160] shows that lagging indicators
for occupational health and safety performance is decreasing at a faster rate
than the decline in production. Whilst this can be attributable partly to a low
level of drilling activity overall, it is characteristic of the improvement
globally in occupational safety performance. There were no reported occurrences
of (potential) major hazards in the categories 'fires and explosions',
'ionising radiations' and 'loss of containment'  The greater part of Italy's oil
production (88%) is onshore, whereas 75% of gas production is from offshore
areas. No offshore exploration wells were drilled in 2009, but 20 production
and 'other' wells (e.g. for storage of gas) were drilled offshore.

Industry illustration

16.       Industry associations have their
own reporting systems for non governmental companies. These systems are
obviously unable to enforce full or accurate reporting of injuries by making
non-reporting a statutory offence. The Association of Oil and Gas Producers
(OGP, comprising 42 major oil companies) produce the most respected statistics[161]

OGP data 2009 || Europe || Best world comparator || Average

Lost time injury frequency (per 1m hours worked) || 1.31 – worst (Italy worst Germany best) || 0.26 (Middle East) || 0.45 (Africa 0.42 -nearest)

Total recorded injury rate (per 1m hours worked) || 3.05 – worst || 0.92 (Middle East) || 1.75 (Africa 1.25 -nearest)

Fatal accident rate* (per 100m hours worked) || 4.0 - worst || 2.1 (Asia/Australasia) || 3.2 (N & S America – 3.1 & 3.3 resp. – nearest)

Fatal accidents/fatal incident** || 3.5 - worst || 1.0 (Asia/Australasia) || 1.9 (N America 2.0 – nearest)

Table 4

- FAR is 5 year rolling average to even out spikes

** Average of number of persons killed in a single
incident

That Europe should have the worst of all injury rates
is not explained. Some of the major companies themselves report that Europe is
not their best performing region. Another interpretation is that Europe has
above average reporting rates, although this will not apply to fatal accidents.
The North Sea region is prone to spikes of data arising from helicopter crashes
because helicopters are the only mode of personnel transport – there were 21
fatal accidents reported in Europe in 2009, 16 as a result of a single
helicopter incident. As a result, in 2009 Europe had a FAR of 6.58/100m hours
worked – world's worst. Figures for 2010 for Europe were 0.97 – world's best.
Last year's highest fatal accident rate was North America (Deepwater Horizon). 
When comparing OGP data with national data it should be noted that fatalities
arising from helicopters in transit in Europe are counted as aviation incidents
and not counted in the national authorities offshore sector databases

17.       Comparing national (EU) data with
OGP data we observe a common deficit, where OGP rates tend to be significantly
lower than data collected under EU national statutory reporting schemes. For
example both Netherlands, Norway (removing minor injury rates) and the UK
report a lost time injury frequency of c. 4 / 1m hours worked for 2009, whereas
the OGP reported rate for Europe (where the most significant proportion of the
working population is in NL, No, UK) is 1.31.

18.       Companies collect their own data,
but generally do not publish specific information, tending instead to publish
relative analysis (trends over time, normalised against industry. In general,
companies show a steady improvement in occupational safety and health incident
performance, reflecting the trends in the OGP data. Not all companies record
accidents occurring to contractors that aren't in their direct employment. The
accident rate amongst contractors is around twice the rate to oil company
employees.

Environmental incident reporting

19.       With the apparent exception of
the Dutch regulator (State Supervision of Mines, SSM) reports of offshore
environmental management data appears to be prepared by industry – either by
companies, local trade associations, or OGP[162]
. Such reports may be coordinated by environmental regulators and accessible
via the relevant Government agency website (for example, the Department of
energy and Climate change, UK[163]).
Most EU environment regulators provide access to policy information and
departmental guidance for environmental impact assessments and environmental
supervision[164]. 
However, details of sector spill performance and other failures of primary or
secondary containment offshore related to potential accidents to the
environment are somewhat more elusive than safety reports.

Leading indicators

20.       Leading indicators focus on the
process system not on incidents and injuries that have occurred. In major
hazards sectors they comprise functions such as deep root cause analysis,
application of risk assessment, levels of training and skills acquisition, and
measurement of critical functions relating to potential failure of safety
systems (such as barrier failures, and overpressure in closed systems). Their
greatest value is where they are installation specific – i.e. they are selected
for relevance to the prevailing circumstances – so they are less easy or useful
to compare between different companies/countries/regions.

21.       The value of well chosen leading
indicators is in signalling an early warning of loss of integrity in the
process control system, enabling remedy prior to failure occurring. The
collection of site specific leading indicators is a positive indicator of a
'high reliability organisation' - a company with a strong safety culture,
whose organisational arrangements and systems give a very high likelihood of outstanding
safety and operational efficiency over the long term.  Two European
countries – Norway and UK - are recognised as leaders in the development and
application of leading performance indicators[165]. In addition, a current pilot
NSOAF project is underway (with SSM chairing) to identify leading and lagging
key indicators of safety performance (KPI's) in the oil and gas sector.

22.       Looking back 30 years before
Deepwater Horizon, there have been a number of offshore disasters in EU waters
beginning with 123 deaths from the loss of Norway's Alexander Kielland in 1980.
Whilst reliable data are hard to find, especially where disasters occurred in
the pre-internet era, the North Sea has experienced a number of major
hazard-type incidents in which lives were lost. Although not usually escalating
to total platform and population loss (such as in the loss of Piper Alpha and
167 lives in 1988), these lesser events were nonetheless potential major
disasters. We list some notable blowouts and other offshore disasters in
Appendix 1 to this annex. Although not all of these incidents have been
investigated in great depth, their frequency and scale are rough indicators
that both likelihood and consequences of major offshore incidents are
significant.

23.       The development of goal setting
regulation spreading out from Norway (1985) and the UK (1991) caused a
significant reduction in major accidents involving loss of life due to process
safety failures and blowouts during the 1990's. However during the 2000's major
hazard incidents (well control incidents) and their precursor tell-tales
(hydrocarbon leaks) have plateaued or begun to increase, whilst injury rates
(which are mainly occupational in nature) have mostly fallen continuously. We
are able to identify the favourable trends in occupational health and safety
injury on a global scale from OGP data, but only in the North Sea and in some
IRF countries (but not USA) can we look at major hazards indicators[166] such as well incidents and
hydrocarbon leaks and note the downward trend in this data category has stopped
or is reversing.

24.       The best available benchmarks of
leading indicators are from the UK and Norway who have both published sequences
of reports on major hazard risk indicators 3,[167] that indicate flat or
upward trends in a number of major hazard risk indicators in the North Sea.

25.       The latest Norwegian report is
unequivocal in its risk trend report, concerning hydrocarbon leaks: "...a
comparison of leak frequency on the Norwegian and British Continental Shelf
shows there is potential for reduction on the Norwegian Continental
Shelf". In other words, the targets for the period 2008 – 2010 have not
been met and the trend is not one of continuous improvement. More directed, and
not least continuous, effort is required to reverse the trend."

26.       Norway has just published a
hard-hitting report of its evaluation of the state of the offshore industry in
the light of the Deepwater Horizon incident[168].
In noting that the failures leading to that incident are familiar (and
therefore implying that by now they should be effectively under control) Norway
feels the Gulf of Mexico incident reflects unfavourably on the entire offshore
community, including regulators and international processes. Norway also
observes the Deepwater Horizon incident is symptomatic of inadequate safety
culture going back 40 years. In looking at recent major incidents that include
the Australia Montara incident, Norway further concludes there is significant
diversity in the ways in which a major incident can occur (i.e. the incident shows
the risk of incidents is higher than previously thought), and because Norway
has a diverse environment, it must exercise increased vigilance on a number of
risk fronts in its own offshore industry: areas such as technology, expertise
and management. Norway also assesses that a goal setting and risk based
approach to regulation is encouraged by the Deepwater Horizon incident (with
which the US National Commission agrees). Norway concludes that it has more to
do and sets out an early blueprint.

27.       A
2009 report by the UK reported progress of industry on meeting the challenges
in the UK Government's 2007 'KP3' report which found significant shortcomings
in safety control in the UK sector. This report was widely hailed as a global
indicator of the state of the global offshore oil sector. It is clear from the
recent update report that progress has been made since 2007 but equally clear
to the UK regulator that more effort and more consistency is necessary: "Asset
integrity/process safety management: The review
found evidence of considerably raised awareness of the need for effective
process safety management and major hazard risk controls. It is clear, however,
that further progress in the management of asset integrity is required. The
industry must also focus effort on greater reduction of significant hydrocarbon
releases to build upon progress already made."

28.       In these two countries, both of whom have
experienced offshore disasters on a terrible scale, there are robust, risk
based regimes, diligent data collection and analysis, and objective, goal based
intervention programmes. It is because of these characteristics that both
countries are able to identify where efforts need to be made, and at the same
time target expert resources to the key problems. Other North Sea countries -
Netherlands, Denmark - exercise similar diligence and meet regularly to ensure
cross-communication. Whereas it is not possible to quantitatively assess the
risk everywhere of an offshore major incident, the view of those countries that
are most penetrating in their oversight and assessment is that offshore risks
are significant and can be reduced further.

29.       The Netherlands regulator (SSM) currently chairs
NSOAF's main committee. In this role, SSM has been actively encouraging the development
of key performance indicators of major hazard risk controls. We include at
Appendix 3 a recent letter sent on NSOAF's behalf to industry following a
workshop on KPI's. The Netherlands is also active within its own regulatory
frontier. For example SSM has requested its sector operators exceed the
national reporting arrangement by recording process safety related incidents –
near misses. These are not available for public examination, presumably because
of the voluntary and therefore unenforceable nature of the data collection. The
SSM is also active in IRF and NSOAF in pursuing the means to more usefully
compare incident data between different jurisdictions – and acknowledges the
difficulties in so doing.

30.       It is clear that risk based regimes are doing
most of the tightening of regulatory impact in response to their heightened
sense of risk from their internal reviews. It is equally clear that other
regimes are less able in this regard precisely because they are not organised
as risk based major hazards regimes.

31.       The overall and inevitable
conclusion is that without a standard format for statutory reporting of
offshore safety and near miss data – at least amongst regulators in the same
region - there is little likelihood of any confidence in benchmarking any
safety data – except fatal accident rates - between countries.

32.       This conclusion is reflected in
the ambition of members of NSOAF and IRF (both groups have members with first
hand experience of offshore disasters – see Appendix 1) for achieving
consistent reporting standards within their membership, and for developing
better leading and lagging measures for process safety. The report of the
National Commission inquiring into the Deepwater Horizon disaster finds,
amongst its recommendations for improving the efficacy of its regulation of
offshore, the need for "detailed requirements for incident and data concerning
incidents and "near misses"" .

33.       In Appendix 2 we reproduce an
initial draft scoping list of potential indicators for standardised reporting.
In Appendix 3 we show some of the work currently available or in development
amongst EU countries on key performance indicators. The keys to good data
transfer between jurisdictions will be in having relevant data to share, and in
having this consistently defined and reliably reported by industry.

Appendix 1

Serious offshore incidents

Countries
in red are non European IRF members

Countries
in blue are European IRF members

1.         Major
offshore blow-outs causing big pollution/destruction since 1977

Norway Ekofisk (1977),

Mexico Ixtoc (1979/80),

UK Ocean Odyssey (1988)

USA Timbalier Bay (1992)

Egypt
Temsah field (2004)

USA Deepwater Horizon (2010)

2.         Offshore disasters in 30 years leading to Deepwater Horizon

Mexico Ixtoc - blowout 1979; 0 fatalities, 71 evacuees; oil flowed for 9
months

Norway Alexander Kielland – structural failure and capsize 1980; 123 killed

Canada Ocean Ranger 1982 - loss of buoyancy; 84 killed

China
Glomar Java Sea – overwhelmed in storm1983; 81 killed

UK Piper Alpha – process plant explosion and fires 1988; 167 killed

Brazil Enchova – well blowout 1984; 42 killed (and rig totally destroyed in
1988)

Thailand
Sea Crest – lost in storm 1989; 84-91 killed (8 of the dead were from the EU)

Brazil P.36 – explosions in process system 2001; 11 killed

India
Mumbai High - fractured export riser and fires 2005; 22 killed

Mexico Usumacinta – gas leak then blowout of production wells 2007; 22 killed

USA
Deepwater Horizon – blowout and fires 2010; 11 killed

Appendix 2

Scope of leading/lagging indicators for standardised
reporting

1.Major incidents – occurrences & near misses

Major incidents are: 1. collapse, overturning or failure of load-bearing parts of lifts, lifting equipment and other (temporary) structures (like scaffolds) 2. explosion, collapse or bursting of any closed vessel or associated pipework 3. failure of any freight container in any of its load-bearing parts 4. electrical short circuit or overload causing fire or explosion 5. any unintentional explosion of explosives 6. accidental release of a biological agent likely to cause severe human illness 7. failure of industrial radiography or irradiation equipment to de-energise or return to its safe position after the intended exposure period 8. malfunction of breathing apparatus while in use or during testing immediately before use 9. failure or endangering of diving equipment, the trapping of a diver, an explosion near a diver, or an uncontrolled ascent 10. collapse or partial collapse of a scaffold over 5 metres high, or erected near water where there could be a risk of drowning after a fall 11. incidents in relation to a well (e.g. uncontrolled release or diverted flow from a well) 12. incidents in relation to a pipeline or pipeline works 13. release of petroleum hydrocarbon on or from an offshore installation 14. fire or explosion at an offshore installation, other than one to which the previous paragraph applies or not reported under the previous paragraph 15. release or escape of a dangerous or toxic substance other than petroleum hydrocarbon on or from an offshore installation (e.g. H2S release) 16. collapse of an offshore installation or its plant 17. failure of equipment required to maintain a floating offshore installation on station 18. dropped objects on an offshore installation or on an attendant vessel or into water nearby 19. damage to or on an offshore installation caused by adverse weather conditions 20. (unauthorized) infringement of the safety zone around an offshore installation, including actual collision 21. vessel on collision course towards an offshore installation 22. subsidence or local collapse of the seabed near an offshore installation 23. loss of stability or buoyancy of a floating offshore installation 24. precautionary and emergency evacuation (not otherwise reportable) of an offshore installation, in the interests of safety 25. any person falling into water ('man overboard')

2. Major incident – release to the marine environment (MATTE)

These are (unauthorized) release or spills of liquids and/or solids into the sea, over 1000 litre or 1000 kg. Examples: spills of liquid hydrocarbons (oil, diesel, OBM) chemicals, other than intended and/or permitted discharge waste

Notes

Injuries – fatal / major / over 3 day – reportable under domestic arrangements for occupational injury reporting – essential to harmonise N Sea criteria: Norway, UK/RIDDOR, and Netherlands (under Dir/92/91/EEC) Where injuries result from major incident occurring, or consequential release to the marine environment, a major incident report must be submitted in addition to the occupational injury report

Appendix 3

Key Performance indicators

1. NSOAF report to industry

2. HSE leaflet on Key Performance Indicators

[1] As defined in the Commission’s Impact Assessment Guidelines
http://ec.europa.eu/governance/impact/commission_guidelines/docs/iag_2009_en.pdf,
pp.45.

[2]
‘Testimony of Dr. Joseph R. Mason’, 06/04/2011, U.S. House of Representatives
Subcommittee on Energy & Mineral Resources,
http://naturalresources.house.gov/UploadedFiles/MasonTestimony04.06.11.pdf.

[3] As per
‘Risk Assessment Data Directory – Major Accidents’, Report No. 434-17, March
2010, International Association of Oil & Gas Producers, http://www.ogp.org.uk/pubs/434-17.pdf

[4] Total
loss of the unit including constructive total loss from an insurance point of
view; however, the unit may be repaired and put into operation again.

[5] Severe
damage to one of more modules of the unit; large/medium damage to load-bearing
structures; major damage to essential equipment.

[6] ‘Impact
Assessment Guidelines’, 15/01/2009, European Commission, SEC(2009) 92,
p.43.

[7] HSE
Economic Analysis Unit (EAU) appraisal values, 2006 (Q3) Short version,
28/07/08, http://www.hse.gov.uk/economics/eauappraisal.htm

[8]
‘Transocean Ltd. Provides Deepwater Horizon Update’, 26/04/2010, Transocean
Ltd, http://www.deepwater.com/fw/main/Transocean-Ltd-Provides-Deepwater-Horizon-Update-451C936.html?LayoutID=46

[9] BP
Sustainability Review 2010, http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/e_s_assets/e_s_assets_2010/downloads_pdfs/bp_sustainability_review_2010.pdf

[10] BP
fourth quarter and full year 2010 results, http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/B/bp_fourth_quarter_2010_results.pdf

[11] Under
the US Clean Water Act, 1,100 dollars are to be paid for each barrel spilled;
this amount may increase to 4,300 dollars if the spill is the result of gross
negligence.

[12]
Source: ‘Cost of Spills’, The International Tanker Owners Pollution Federation
Limited, http://www.itopf.com/spill-compensation/cost-of-spills/

[13] ‘Risk
Assessment Data Directory – Major Accidents’, Report No. 434-17, March 2010, International
Association of Oil & Gas Producers, http://www.ogp.org.uk/pubs/434-17.pdf

[14] Costs
estimated in December 2009 US dollars and include property damage, debris
removal, and cleanup. Excluded were the costs of business interruption, extra
expense, employee injuries and fatalities, and liability claims. Source: ‘The
100 Largest Losses 1972-2009; Large Property Damage Losses in the
Hydrocarbon-Chemical Industries’, 2009, Marsh Property Risk Consulting, http://www.marshriskconsulting.com/Load/article_1219057.pdf

[15]
Offshore blowouts result from gas, or gas and oil escaping out of control under
high pressure from subsurface reservoirs during drilling or production. Oil may
be released either at the water surface or on the sea bottom, depending on the
type of drilling rig being used, and other factors. Every modern rig has a set
of large control valves, known as blowout preventers, to stop the flow of oil,
gas and other well fluids if problems occur during drilling.

[16]
Definition as per SINTEF, http://www.sintef.no/Home/Technology-and-Society/Safety-Research/Projects/SINTEF-Offshore-Blowout-Database/

[17] ‘Press
release: Munich Re develops new insurance solution for oil catastrophes’,
12/09/2010, The Munich Reinsurance Company, http://www.munichre.com/en/media_relations/press_releases/2010/2010_09_12_press_release.aspx

[18]
Source: ITOPF, http://www.itopf.com/information-services/data-and-statistics/statistics/#major;
Deepwater Horizon MC252 Gulf Incident Oil Budget (August 4, 2010), http://www.noaanews.noaa.gov/stories2010/PDFs/DeepwaterHorizonOilBudget20100801.pdf;
Jane Lubchenco et al., BP Deepwater Horizon Oil Budget: What Happened to the
Oil? (August 4, 2010), http://www.usgs.gov/foia/budget/08-03-2010...Oil%20Budget%20description%20FINAL.pdf

[19] The
Iran-Iraq war either caused or prevented blowouts in this field from being
capped.

[20] http://home.versatel.nl/the_sims/rig/ekofiskb.htm

[21] ‘Well
Integrity: Big contributor to Major Accident Risk’, 20/02/2008, Petroleum
Safety Authority, Norway, http://www.ptil.no/well-integrity/big-contributor-to-major-accident-risk-article4157-145.html

[22] In the
case of the offshore spill, there may be greater release, a greater degree of
uncertainty about the size of the spill, a different type of oil dispersal due
to release near the seabed, and a more complex (and potentially costly) process
for capping a spill. Conversely, a large number of tanker wrecks occur on, or
close to the coastline, potentially increasing cleanup costs when compared with
offshore spills due to shoreline oiling.

[23]
Communication from the Commission to the European Parliament and the Council on
a second set of Community measures on maritime safety following the sinking of
the oil tanker Erika, COM(2000) 802 final, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2000:0802:FIN:EN:PDF

[24] The
Prestige: one year on, a continuing disaster, http://www.wwf.fi/www/uploads/pdf/Prestige_raportti_marras03.pdf

[25]
‘Report of the Working Group on Environmental Risk Evaluation Criteria within
the context of Formal Safety Assessment’, Agenda item 17, Marine Environment
Protection Committee, 60th session, 24/03/2010, International Maritime
Organization, http://www.martrans.org/documents/2009/sft/MEPC%2060-WP.11.pdf.

[26]
International Oil Pollution Compensation Funds, http://www.iopcfund.org.

[27] UK
Deepwater Drilling - Implications of the Gulf of Mexico Oil Spill - Energy and
Climate Change Committee, UK House of Commons, p26,
http://www.publications.parliament.uk/pa/cm201011/cmselect/cmenergy/450/450i.pdf

[28]
‘Worldwide Analysis of Marine Oil Spill Cleanup Cost Factors’, Dagmar Schmidt
Etkin, 2000, Presented at Arctic and Marine Oilspill Program Technical Seminar,
http://www.environmental-research.com/erc_papers/ERC_paper_2.pdf

[29]
‘Annual Report and Form 20-F 2010’, BP plc, http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/set_branch/STAGING/common_assets/downloads/pdf/BP_Annual_Report_and_Form_20F.pdf,
p.73

[30] ‘Environmental
Statement: Appraisal Well 204/10a-D (Cambo 4)’, 2011, http://www.hesscorporation.com/environmentalstatement/Well20410a-D_Cambo4ES-13-01-11.pdf

[31] ‘Risk Assessment Data Directory – Major Accidents’, Report No.
434-17, March 2010, International Association of Oil & Gas Producers,
http://www.ogp.org.uk/pubs/434-17.pdf

[32]
‘Offshore Injury, Ill Health and Incident Statistics 2009/2010: HID Statistics
Report HSR 2010 – 1’, 10/12/2010, UK Health and Safety Executive, http://www.hse.gov.uk/offshore/statistics/hsr0910.pdf;
‘Trends in Risk Level in the Petroleum Activity: Summary Report 2009– Norwegian
Continental Shelf’, 27/04/2010, Norway Petroleum Safety Authority, http://www.ptil.no/getfile.php/PDF/RNNP%202009/Trends%20in%20risk%20levels%20-%20Summary%20Report%202009.pdf

[33]
Source: ‘Offshore Injury, Ill Health and Incident Statistics 2009/2010: HID
Statistics Report HSR 2010 – 1’, December 2010, Health & Safety Executive,
Hazardous Installations Directorate, Offshore Division (OSD), http://www.hse.gov.uk/offshore/statistics/hsr0910.pdf

[34]
‘Impact Assessment Guidelines’, 15/01/2009, European Commission,
SEC(2009) 92, p.43.

[35] HSE
Economic Analysis Unit (EAU) appraisal values, 2006 (Q3) Short version,
28/07/08, http://www.hse.gov.uk/economics/eauappraisal.htm

[36] SINTEF
Offshore Blowout Database, http://www.sintef.no/sintefcom/Technology-and-Society/Safety-Research/Projects/SINTEF-Offshore-Blowout-Database/

[37] An
incident where hydrocarbons flow from the well at some point where flow was not
intended and the flow was stopped by use of the barrier system that was
available on the well at the time of the incident. Definition as per SINTEF.

[38] https://www.og.decc.gov.uk/information/wells.htm

[39] http://factpages.npd.no/factpages/Default.aspx?culture=en

[40] ‘Blowout
and Well Release Frequencies – Based on SINTEF Offshore Blowout Database,
2005’, 26/06/2006, Scandpower, http://www.oljevernportalen.no/nofo/Dokumenter/90005001_r2_2006_1.pdf

[41] HPHT
wells are wells with expected shut-in pressure equal to or above 690 bar
(10,000 psi) and/or bottomhole temperature exceeding 150°C. ‘Well integrity in
drilling and well operations’, NORSOK standard D010, Rev. 3, August 2004, http://www.npd.no/Global/Norsk/5%20-%20Regelverk/Skjema/Br%C3%B8nnregistrering/Norsok_standard_D-010.pdf

[42] ‘HSE
Information sheet: Guidance on Risk Assessment for Offshore Installations’,
Offshore Information Sheet No. 3/2006, 2006, UK Health and Safety Executive.

[43] As
provided in ‘Risk Assessment Data Directory – Blowout Frequencies’, Report No.
434-2, March 2010, International Association of Oil & Gas Producers,
http://www.ogp.org.uk/pubs/434-02.pdf

[44] Excluding shallow gas incidents and assuming:
1) 7% of all wells drilled are HPHT; 2) 0.08 coiled tubing operations per well
year; 3) 0.05 snubbing operations per well year; and 4) 0.17 workover
operations per well year, all as per Scandpower. Number of wells does not
include those in Bulgaria, Cyprus, Germany, Malta, or Romania.

[45]
‘Accident Statistics for Offshore Units on the UKCS 1990-2007 Issue 1’, April
2009, Oil & Gas UK, http://www.oilandgasuk.co.uk/cmsfiles/modules/publications/pdfs/EHS30.pdf.
Data from the UK Corporate Operational Information system, SINTEF Offshore
Blowout Database, DNV’s Worldwide Offshore Accident Databank and UK Marine
Accident Investigation Branch.

[46] Det
Norske Veritas defined blowout as: “An uncontrolled flow of gas, oil or other
fluids from the reservoir, i.e. loss of 1. barrier (i.e. hydrostatic head) or
leak and loss of 2. barrier, i.e. BOP/DHSV.”

[47] In
correspondences with the Commission, HSE disputes these figures, noting that
HSE wells specialists would only have identified only one of the four incidents
Det Norske Veritas used to calculate blowout probabilities as a blowout.

[48] Oil
wells are defined as wells where the formation has an estimated gas/oil ratio
of less than 1,000. Gas wells are defined as wells where the formation has an
estimated gas/oil ratio of more than 1,000.

[49]
Scandpower figures are based on a sample of 95,270 oil well years and 82,204
gas well years in the combined areas of US GoM and North Sea.

[50] Det
Norske Veritas, Environmental Risk Assessment of Exploration Drilling in
Nordland VI, Report No. 20/04/2010, http://www.olf.no/PageFiles/6525/Environmental%20risk%20assessment%20of%20exploration%20drilling%20in%20Nordland%20VI.pdf

[51]
‘Environmental Statement: Appraisal Well 204/10a-D (Cambo 4)’, 2011, http://www.hesscorporation.com/environmentalstatement/Well20410a-D_Cambo4ES-13-01-11.pdf

[52]
‘Notification of order to Statoil – Gullfaks C’, 19/11/2010, Petroleum Safety
Authority Norway, http://www.ptil.no/news/notification-of-order-to-statoil-gullfaks-c-article7409-79.html.

[53]
‘Communication from the Commission on the Precautionary Principle’, Brussels,
02/02/2000,

Commission
Of The European Communities, COM(2000) 1, http://ec.europa.eu/dgs/health_consumer/library/pub/pub07_en.pdf

[54] Source: http://www.ptil.no/ageing-and-life-extension/category626.html

[55] Source: http://www.offshore-mag.com/index/article-display/9114015229/articles/offshore/equipment-engineering/north-sea-northwest-europe/2010/08/hse-launches_uk_platform.html

[56] There are activities planned in the UK, west of Shetlands at sea
depths of up to 1,600 metres, near the Faroe Islands at sea depths of 1,100
metres and in Norway at up to 1,700 metres.

[57] Prospecting is taking place in the Barents Sea
and off Greenland. In April 2011, Statoil announced a
significant oil discovery on the Skrugard prospect in the Barents Sea.

[58] "HPHT developments in the UKCS" Ref
http://www.hse.gov.uk/research/rrpdf/rr409.pdf

[59] "kick" is an industry term used for situations of sudden
escalation of well pressure leading to temporary disruption of the standard
operation of the well.

[60] Council Directive 96/82/EC of 9 December 1996 on the control of
major-accident hazards involving dangerous substances, OJ L 345, 31.12.2003, p.
97–105, amended by Directive 2003/105/EC of the European Parliament and of the
Council of 16 December 2003 amending Council Directive 96/82/EC on the control
of major-accident hazards involving dangerous substances, OJ L 345, 31.12.2003,
p. 97–105

[61] It comprises identifying major accident scenarios, assessing
consequences and likelihood to evaluate risks, identifying control and
mitigation measures, and developing suitable management arrangements for
implementing the measures. The approach to each MAH site should be contained
within a company safety report or safety case. This may be provided to the
national regulator for regulatory assessment.

[62] The UK HSE’s
Advisory Committee on the Safety of Nuclear Installations (ACSNI: HSC, 1993)
produced a definition of safety culture that has been re-used extensively: ‘The
safety culture of an organisation is the product of individual and group
values, attitudes, perceptions, competencies, and patterns of behaviour that
determine the commitment to, and the style and proficiency of, an
organisation’s health and safety management. And: 'Organisations with a
positive safety culture are characterised by communications founded on mutual
trust, by shared perceptions of the importance of safety and by confidence in
the efficacy of preventive measures’ This is referred to in the USA
Presidential Commission report Ch.8 pp 217.

[63] More details on available studies and reports in Annex IX.

[64] UK offshore enforcement statistics since 2001/02 (comprising the
total number of prosecutions and statutory improvement or prohibition notices)
are broadly steady over the past 10 years at 49/year (2010/11 provisionally =
47). See Annex XIII for more information on benchmarking between
sectors/countries.

[65] E.g. of OSPAR countries five (UK, N, NL, DK and D) have evaluated
their operations and all have identified improvement needs.(source:
Investigations of Drilling in Extreme Conditions and their Relevance to
Potential Environmental Impacts - Preliminary report)

[66] For example along the lines of Senior Labour Inspectors' Committee (SLIC),
or the North Sea Offshore Authorities Forum in other regions. Refer to
DG.EMPL/B3 website for further information.

[67]  Often focus only on lagging performance indicators such as past
incidents but not on leading ones, deep cause analyses, lessons learned etc

[68]  The Seveso Directive requires extensive reporting by both
operators and Member States.

[69] Ref United Nations Convention on the Law of the Sea, 1964.

[70] Under this approach, operators are required to identify and assess
the major risks case by case and demonstrate to the national authorities how
these risks would be managed. In certain jurisdictions, the document used is
called 'safety case'.

[71] For example, Romania and Bulgaria have seemingly less comprehensive
regulatory regimes than the North Sea states.

[72] As defined in the Commission’s Impact Assessment Guidelines
http://ec.europa.eu/governance/impact/commission_guidelines/docs/iag_2009_en.pdf,
pp.45.

[73] Some
aspects, in particular workers' health and safety in the sector are addressed
in EU legislation.

[74]
http://ec.europa.eu/governance/impact/commission_guidelines/docs/ia_guidelines_annexes_en.pdf.

[75] Such as the Offshore Installations (Prevention of Fire and
Explosion, and Emergency Response) Regulations 1995 (PFEER) the Offshore
Installations and Wells (Design and Construction, etc) Regulations 1996 (DCR)
and the Offshore Installations (Safety Case) Regulations 2005 (SCR05).

[76]
Source: ‘Offshore Injury, Ill Health and Incident Statistics 2009/2010: HID
Statistics Report HSR 2010 – 1’, December 2010, Health & Safety Executive,
Hazardous Installations Directorate, Offshore Division, http://www.hse.gov.uk/offshore/statistics/hsr0910.pdf

[77]
‘Assessment Principles for Offshore Safety Cases (APOSC)’, March 2006, Health
& Safety Executive, Hazardous Installations Directorate, Offshore Division
(OSD), http://www.hse.gov.uk/offshore/aposc190306.pdf

[78]
Source: ‘Offshore Injury, Ill Health and Incident Statistics 2009/2010: HID
Statistics Report HSR 2010 – 1’, December 2010, Health & Safety Executive,
Hazardous Installations Directorate, Offshore Division,
http://www.hse.gov.uk/offshore/statistics/hsr0910.pdf.

[79]
Source: Det Norske Veritas, WOAD - Worldwide Offshore Accident Databank,
v5.0.1. Summarized in ‘Risk Assessment Data Directory – Major Accidents’,
Report No. 434-17, March 2010, International Association of Oil & Gas
Producers.

[80]
Blowout frequencies, Report no. 434-2, March 2010, http://www.ogp.org.uk/pubs/434-02.pdf

[81]
‘Summary of differences between offshore drilling regulations in Norway and
U.S. Gulf of Mexico’, 02/08/2010, Det Norske Veritas, http://www.nofo.no/stream_file.asp?iEntityId=924

[82]
Source: International Regulator's Forum, IRF Country Performance Measures, http://www.irfoffshoresafety.com/country/performance/

[83]
International Regulator's Forum, IRF Country Performance Measures, http://www.irfoffshoresafety.com/country/performance/

[84] Det
Norske Veritas, Environmental Risk Assessment of Exploration Drilling in
Nordland VI, Report No. 20/04/2010, http://www.olf.no/PageFiles/6525/Environmental%20risk%20assessment%20of%20exploration%20drilling%20in%20Nordland%20VI.pdf

[85] ‘Large
spills’ defined as spills of over 1,000 bbl. ‘Risk Assessment Data Directory –
Major Accidents’, Report No. 434-17, March 2010, International Association
of Oil & Gas Producers, http://www.ogp.org.uk/pubs/434-17.pdf

[86] Source: European
Commission questionnaire data.

[87]
Although the baseline scenario has been calculated on this basis, it is likely
that actual figures are higher because of the higher accident indicator rates
associated with prescriptive offshore safety regimes.

[88] See,
for example, ‘PSA seeks explanation from Statoil after Gullfaks B gas leak’,
24/03/2011, Petroleum Safety Authority, Norway, http://www.ptil.no/news/psa-seeks-explanation-from-statoil-after-gullfaks-b-gas-leak-article7730-79.html.

[89] Number
of staff include all management, professional (senior inspectors, inspectors and
other technical staff), legal and administrative staff combined. Installations
include all fixed, mobile and subsea production and drilling units. Source:
European Commission questionnaire data collected from Denmark (Danish Energy
Agency, but not including the relevant staff of the Ministry of the
Environment), Italy (National Office for Mining, Hydrocarbons and Geothermal
Resources), the Netherlands (State Supervision of Mines), Norway (Petroleum
Safety Authority and Climate and Pollution Agency), and the UK (Health and Safety
Executive, Department of Energy and Climate Change).

[90] The Italian regulator was unable to supply details of its overall
budget, preventing a direct comparison of other this indicator of regulator
resources.

[91]
Source: European Commission questionnaire data.

[92]
Source: European Commission questionnaire data collected from Denmark (Danish Energy Agency, but not including the relevant staff of the
Ministry of the Environment), Italy (National Office for Mining, Hydrocarbons
and Geothermal Resources), the Netherlands (State Supervision of Mines), Norway
(Petroleum Safety Authority and Climate and Pollution Agency), and the UK
(Health and Safety Executive, Department of Energy and Climate Change).

[93]
Installations include all fixed, mobile and subsea production and drilling
units. Source: European Commission questionnaire data collected from Denmark
(Energi Styrelsen, but not including the relevant staff of Miljøministeriet),
Spain (Minesterio de Industria, Turismo y Comercio), the Netherlands (Staatstoezicht op de Mijnen) and the UK (Health
and Safety Executive, Department of Energy and Climate Change).

[94]
Corrected for differences in national hourly wage rates according to Eurostat
hourly labour costs, 2004, http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=0&language=en&pcode=tps00173.

[95]
Source: European Commission questionnaire data.

[96]
Source: European Commission questionnaire data.

[97] This figure is based on only the running
costs reported by the company in question and indicated in the Figure 6.
One off expenditures have been excluded.

[98] Source: European
Commission questionnaire data.

[99] This figure is based on only the running costs reported by the
company in question and indicated in the Figure 6. One off expenditures
have been excluded.

[100] ‘Deep Water: The Gulf Oil Disaster and the Future of Offshore
Drilling’, National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling, 01/2011, pp. 129-171, http://www.gpoaccess.gov/deepwater/deepwater.pdf;
Report of the Montara Commission of Inquiry, Commissioner David
Borthwick, 18/06/2010, Commonwealth of Australia. Presented to parliament on 24
November 2010, pp. 23, 294-5, 315, 370,
http://www.ret.gov.au/Department/Documents/MIR/Montara-Report.pdf

[101] COM(2010) 600 final, 26.10.2010

[102] ‘Deep Water: The Gulf Oil Disaster and the Future of Offshore
Drilling’, National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling, 01/2011, pp. 245-6, http://www.gpoaccess.gov/deepwater/deepwater.pdf;
‘Emergency Response, Doctrinal Confusion, and Federalism in the Deepwater
Horizon Oil Spill’, Thomas A. Birkland and Sarah E. DeYoung, 2011, Publius
41(3), pp. 471-493.

[103] Impact assessment
study into possible options for amending the Seveso II Directive, Final Report,
September 2010, COWI, http://ec.europa.eu/environment/seveso/pdf/Seveso%20IA_Final%20report.pdf

[104] After levelling-up to North Sea standards,
the running safety compliance costs to industry are estimated at €100,000 per well per year, as the reader
will recall from Section 1.2 of this annex.
There are 6,315 operational wells in Europe.

[105] ‘Press Release: Offshore industry warned over ‘not good enough’
safety statistics’, 24/08/2010, Health & Safety Executive, http://www.hse.gov.uk/press/2010/hse-offshorestats.htm

[106] UK data on dangerous occurrences, which can
also be seen as an indicator of the likely risk of a major incident, does not
go back long enough to be able draw any conclusions from it (2003/04). This
data has, therefore, not been presented.

[107] Source: ‘Trends in Risk Level – Summary report 2010’, 29/04/2011,
Petroleum Safety Authority, Norway, http://www.ptil.no/getfile.php/PDF/RNNP%202010/Summary_Report_2010_rev1a1.pdf.

[108] Source: European Commission questionnaire data collected from Italy
(Ufficio Nazionale Minerario per gli Idrocarburi e le Georisorse), the
Netherlands (Staatstoezicht op de Mijnen), and the UK (Health and Safety
Executive, Department of Energy and Climate Change).

[109] Assuming a linear relationship between activity levels and resources devoted to activities. Source:
European Commission questionnaire data collected from Denmark, Italy, the
Netherlands, Norway, Spain and the UK. Figure does not include the budgets of
the regulators of Germany, the Faroe Islands, Ireland or Malta.

[110] ‘The principle of Radioactive Waste Management’, 1995, IAEA
Publications, http://www-pub.iaea.org/­MTCD/publications/PDF/Pub989e_scr.pdf.

[111] ‘Proposal for a COUNCIL DIRECTIVE on the management of spent fuel
and radioactive waste’, COM/2010/0618 final - NLE 2010/0306

[112] ‘Conference Summary: 3rd International
Regulators’ Offshore Safety Conference’, 20/10/2010, International
Regulators’ Forum, http://www.irfoffshoresafety.com/conferences/2010conference/summary.aspx.

[113]
Source: European Commission questionnaire data.

[114] The figure used for the total combined budget was €87.7 million.

[115] Total offshore authority staff for the aforementioned EEA Member
States is 506. Source: European Commission questionnaire data collected from
Denmark (Danish Energy Agency, but not including the relevant staff of the
Ministry of the Environment), Italy (National Office for Mining, Hydrocarbons
and Geothermal Resources), the Netherlands (State Supervision of Mines), Norway
(Petroleum Safety Authority and Climate and Pollution Agency), and the UK
(Health and Safety Executive, Department of Energy and Climate Change).

[116] Source: European Commission questionnaire data collected from Spain
(Ministry of Industry, Tourism and Trade), the Netherlands (State Supervision
of Mines), Norway (Petroleum Safety Authority and Climate and Pollution
Agency), and the UK (Health and Safety Executive, Department of Energy and
Climate Change).

[117] This estimation does not include Bulgaria, Germany, Ireland, Malta
or Romania.

[118] ‘Capping and Containment: Global Industry Response Group
Recommendations’, Report No. 464, May 2011, International Association of Oil
& Gas Producers, http://www.ogp.org.uk/pubs/464.pdf.

[119] ‘EMSA 2011 Budget’, European Maritime
Safety Agency, http://www.emsa.europa.eu/component/flexicontent/download/966/214/23.html.

[120] ‘EMSA 2011 Budget’, European Maritime
Safety Agency, http://www.emsa.europa.eu/component/flexicontent/download/966/214/23.html.

[121] Source: European Commission questionnaire data collected from
Denmark (Danish Energy Agency, but not including the relevant staff of the
Ministry of the Environment), Italy (National Office for Mining, Hydrocarbons
and Geothermal Resources), the Netherlands (State Supervision of Mines), Norway
(Petroleum Safety Authority and Climate and Pollution Agency), and the UK
(Health and Safety Executive, Department of Energy and Climate Change).

[122] Article 194

[123] Article 153(1) and (2)

[124] Article 191(2), first indent

[125] See COM(2008) 791 final of 25.11.2008 and COM(2010) 771 of
17.12.2010

[126] COM(2010) 461 final of 8.9.2010

[127] ECJ
case C-188/07 (Commune de Mesquer v Total France SA and Total International
Ltd.) provides important jurisprudence. The ECJ in the
abovementioned case concerning maritime transport (Erika tanker accident) came
to the conclusion that oil accidentally spilled at sea following a shipwreck,
mixed with water and sediment and drifting along or being washed at the coast
of a Member States constitutes waste within the meaning of the Waste Framework
Directive.

[128] See for instance the Van de Walle case (C-1/03) with Texaco being
considered as holder of waste or Mesquer case (C-187/03) with Total being
potential holder of waste.

[129]            Directive 94/22/EC of the
European Parliament and of the Council of 30 May 1994 on the conditions for
granting and using authorizations for the prospection, exploration and
production of hydrocarbons

[130]            Focus is only on the main elements of this capability
as opposed to detailed requirements which vary
according to the different geological, geophysical, technical and other
circumstances of each individual case.

[131] ALARP refers to 'risks as low as reasonably
practicable'. It is at the centre of UK health and safety law and as such is
referred to by a number of respondents. For a risk to be ALARP it
must be demonstrated that the cost involved in reducing the risk further would
be grossly disproportionate to the benefit gained. In its most general
(European wide) sense it is a best common practice of judgement of the balance
between risk in absolute terms, and societal benefit - deciding at which point
further expenditure to reduce the residual risk is unreasonable

[132] Refer to S. 3.3.2 (6) for clarification of the term Competent
Authority, which is related to law and not to skill

[133] NSOAF stands for the North Sea Offshore Authorities Forum, a
voluntary grouping of offshore regulatory authorities from the North Sea area
used by them for exchange of information  and views on issues of common
interest.

[134] Explanatory reference

[135] International groups like OGP, and national ones like OLF (Norway)
and Oil and Gas UK work intensively with national agencies on hardware and
operational solutions to respond to deepwater drilling incidents.

[136] Such as those developed for the Baltic Sea under the Helsinki
Convention (http://www.helcom.fi/).

[137] Directive 2004/35/CE of the European Parliament
and of the Council of 21 April 2004 on environmental liability with regard to
the prevention and remedying of environmental damage

[138] Directive 2000/60/EC

[139]  Directive 2008/56/EC

[140] Lifecyle stages: Design options, construction and commissioning;
operations and maintenance; modification and decommissioning

[141] This would include aspects like good practices for major hazards
control; revised technical standards in, for example, well control and process
safety, well capping and emergency response; and establishment of cooperative
associations for sharing assets for tackling major pollution events.

[142] Lifecyle stages: Design options, construction and commissioning;
operations and maintenance; modification and decommissioning

[143] Regulation (EC) No 1013/2006 of the European Parliament and of the
Council of 14 June 2006 on shipments of waste

[144] These include: guidance on good practices for major hazards
control; revised technical standards in, for example, well control and process
safety, well capping and emergency response; and establishment of cooperative
associations for sharing assets for tackling major pollution events.

[145] Commission Decision 95/319/EC

[146] International Association of Oil and Gas Producers, http://www.ogp.org.uk/

[147] Global Industry Response Group recommendations – OGP Reports 463,
464 and 465, May 2011

[148] International Petroleum Industry Environmental Conservation
Association: the global oil and gas industry association for environmental and
social issues – www.ipieca.org

[149] OSPRAG Second Interim Report – April 2011.

[150] BOP: Blow-Out Preventer: safety device to close-in or seal off a
(flowing) well.

[151] Offshore Pollution Liability Association Ltd. A voluntary, industry
mutual agreement to settle claims as a result of an oil spill. Current limit
for claims is set at $ 250 million per occurrence.

[152] Operators Co-operative Emergency Service, provides a framework
around which an operator may acquire equipment from another operator in an
emergency, even across international boundaries.

[153] UK:-  http://www.hse.gov.uk/pubns/priced/l73.pdf

[154] DG SANCO:-  https://webgate.ec.europa.eu/idb/documents/2009-IDB-Report_screen.pdf

[155] OGP 2010 report Appendix D. http://www.ogp.org.uk/pubs/455.pdf 
There are 11 reports from Europe in the latest report: 1 each from Denmark and
NL, and 9 from Greenland.

[156] Sanco report says "Please note that
despite the harmonisation efforts undertaken by the respective data centres and
data providers in the member states, the injury statistics may not always be
completely comparable and the differentiation in sections of injury
surveillance is not always clear-cut. There are many reasons for this ranging
from differences in the organisation of the national health care systems to
cultural differences in the reporting of injury causes".

[157] IRF data sheet 2009: http://www.irfoffshoresafety.com/country/performance/IRF_CountryPublicationData_2009.xls

[158] For entry to the data bank: http://www.hse.gov.uk/statistics/index.htm

[159] Latest (to 2010) is at: http://www.hse.gov.uk/offshore/statistics/hsr0910.pdf
; see also a quick synopsis (to 2011) at: http://www.hse.gov.uk/offshore/statistics/stat1011.htm

[160] Ministero dello Sviluppo Economico/ Dipartimento per l'Energia /
Direzione Generale per le Risorse Minerale ed Energetiche 2009: http://unmig.sviluppoeconomico.gov.it/unmig/stat/ra2009.pdf

[161] http://www.ogp.org.uk/pubs/455.pdf

[162] OGP 2009 environmental report: http://www.ogp.org.uk/pubs/442.pdf

[163] DECC portal for OSPAR agreed environmental management statements is
at: https://www.og.decc.gov.uk/environment/ospar_eems_recomm_opers.htm 
; environmental emissions management system, operated by O&G UK is at: https://www.og.decc.gov.uk/EEMS/index.htm

[164] Danish Energy Agency annual report 2010 pp 35-42: http://www.ens.dk/Documents/Netboghandel%20-%20publikationer/2011/Denmarks_oil_and_gas_production_2010.pdf
; see also DECC policy and guidance at: https://www.og.decc.gov.uk/

[165] Developing process safety key performance indicators http://www.hse.gov.uk/pubns/priced/hsg254.pdf
; Norway: Trends in risk level in the petroleum activity 2010:  http://www.ptil.no/getfile.php/PDF/RNNP%202010/Summary_Report_2010_rev1a1.pdf

[166] The UK trade body, Oil & Gas UK, has recently initiated a
voluntary arrangement amongst its members to report on 2 leading indicators of
safety – non compliances with the independent verification scheme; and safety
critical maintenance backlogs

[167] UK
KP3 report update 2009: http://www.hse.gov.uk/offshore/kp3review.pdf

Norway
Safety – status & signals 2010 http://www.ptil.no/getfile.php/PDF/SAFETY%202010.pdf

[168] English summary of PSA's evaluation of DwH disaster: http://www.ptil.no/getfile.php/PDF/DwH_PSA_summary.pdf