US, UK regulators stress openness in discussion with operators
Come talk to us: that was the message from a top representative of the US government’s offshore regulator at a panel discussion with operators at the 8th Annual Decommissioning & Abandonment Summit in Houston last week.
The airwaves between Washington, D.C. and the Gulf of Mexico have been busier than usual in the past few months conveying a raft of regulations on everything from financial assurances and reporting of decommissioning costs to risk-based inspection and well-control measures.
Industry often looks at regulators as “like going to the principal’s office”, remarked Glenn R. Legge, Partner at Legge Farrow Kimmit McGrath & Brown law firm and chair of the Houston session. Legge’s firm represents operators such as ExxonMobil and Chevron, services companies such as Schlumberger, Cameron and Wood Group, and oil-focused insurers.
Michael Celata, Regional Director for the Gulf of Mexico at the Bureau of Ocean Energy Management (BOEM), and Eva Gravouilla, Regulatory Manager for Stone Energy, expressed optimism for a closer relationship on behalf of regulators and operators.
“Regularly in the industry, there are agreements between operators and their predecessors [the previous owners of their assets] that we’re not privy to…if we become more aware of these agreements or involved in these types of arrangements, then we’re willing to take that into consideration in terms of the financial planning we put together with an operator,” Celata said.
“I do get the sense that they are very open to applying any types of deferrals or exemptions or different types of financial bonding, because they want the industry to work as much as we want the industry to work,” Gravouilla said of BOEM and the other offshore regulator, the Bureau of Safety and Environmental Enforcement.
Brainstorming on financial arrangements
Addressing comments from Legge on operators’ hesitation to approach BOEM about financial arrangements, Celata said: “Part of the issues last year was that we were further away from publishing the notice to lessee [on financial assurances], and as this would get closer to that time we’d see more and more companies coming to talk to us. We’d do more of this outreach and have these discussions.”
But he also stressed there was room for regional discretion on regulations, and said his office would consider any one of a number of financial-assurance measures not currently being used by companies, including line of credit and insurance policies. The bureau has spoken with a number of operators about the possibility of funding a decommissioning trust, he revealed.
“I don’t think it suits anyone’s interest to be overly prescriptive,” he said. "I think especially in the environment we’re in now, it’s in everyone’s interests to be flexible… to come to a mutually beneficial solution.”
The Gulf of Mexico has a long history of platform installations (Source: BOEM)
Jim Christie, who became the UK Oil and Gas Authority’s head of decommissioning at the start of February, also participated in the panel discussion. He too emphasized flexibility, particularly in regard to facilitating collaboration – or bundling – of decommissioning services between operators.
“It may require a change in some of the regulations we have. It may need a change to some of the legislation,” Christie said, “but I think that the scope for cost-saving is tremendous. I don’t think it’s driven by increasing the level of scope necessarily.
“I think it’s more likely to be changed by the business model. And I think we’ve seen that in the nuclear decommissioning industry in the UK. They learned so many hard lessons in the way that they were doing it asset by asset. And it’s not being done almost as a national program. They’ve completely changed the contracting model… I think it would be foolish of us in the oil and gas industry to ignore some of the powerful learnings they’ve had.”
Deepwater, permitting need clarifying
What started as a panel session turned into a frank discussion, with panelists and audience members suggesting new areas for regulators to consider.
Gravouilla said the biggest challenge now was to frame suitable regulations for decommissioning in deepwater: “It does take much more time and much more money to take care of abandonment of deepwater assets. And those are assets that you definitely – because of the cost of installation – want to look at for any possible future utility, and you need to grant operators time to do that.”
A senior representative of one major oil company noted that the UK was promoting collaboration on the one hand, without lifting restrictive regulations on the other. The operator wants to offer the market a group of assets that will all reach cessation of production over a five-year period, but is required to bring the regulator a separate proposal for each asset, the representative noted. The operator would also like to conduct a single environmental assessment for a group of co-located assets and come up with a common solution for all of them, but again this brings it afoul of regulations, the representative added.
An official from another major oil producer asked Christie to clarify his position on reverse engineering and deconstruction. Christie responded with an example from the regulator’s study into Marathon Oil’s planned Brae decommissioning.
“It was designed to be put together and to operate. It was not designed to be removed by heavy lift… We’re not saying heavy lift is a bad option. We’re saying it’s a single option, and you should look at other opportunities. We also believe you shouldn’t design to the same standards and use the same practices as you are when you’re installing a facility for 25-year life, when what you’re doing is you’re preparing a facility for 24-hour journey to a disposable yard,” he said.
With demolition yards, “everyone’s picture, immediately, is: my god it’s a mess, it’s like a child’s bedroom. But if you go to a good demolition site, it’s one of the tidiest places in the world. Because everything they do is hazardous, and they take care of everything equally well.
“And whether you do that onshore or offshore, work out the best answer for your asset: work out what’s important to you, what’s not important to you. And come up with the best economic answer that meets the safety and environmental requirements.”