BSEE

By Tod J. Everage

On February 3, 2017, BSEE issued its first Notice to Lessees (NTL) of 2017, advising of the revised OCSLA Civil Penalty Assessment Matrix. For the second time in 6 months, BSEE has increased the maximum civil penalty to $42,704 per day per violation, up from $42,017 per day per violation that was set in July 2016. These new changes were effective for all civil penalties assessed on or after February 3, 2017, even if the alleged violation predated February 3, 2017. The new matrix is shown below.

OCSLA Civil Penalty Assessment Matrix

February 3, 2017

GENERALIZED MATRIX FOR OCSLA CIVIL PENALTY ASSESSMENTS IN $/DAY/VIOLATION

Enforcement Code

Category A Category B Category C

W

$5,250-42,704

($15,750)*

$10,500-42,704

($21,000)*

$21,000-42,704

($26,250)*

C

$10,500-42,704

($21,000)*

$15,750-42,704

($26,250)*

$31,500-42,704

($36,750)*

S

$15,750-42,704

($26,250)*

$21,000-42,704

($31,500)*

$36,750-42,704

($38,850)*

Note: W=Warning, C=Component Shut-in, and S=Facility Shut-in

* = Starting Point for Assessment

Category A

Category B

Category C

Threat of injury to humans.

Threat of harm or damage to the marine or coastal environment, including mammals, fish and other aquatic life (threat may or may not involve endangered/threatened species).

Threat of pollution.

Threat of damage to any mineral deposit or property.

Injury to humans that results in 1-3 days away from work or 1-3 days on restricted work or job transfer.

Minor harm or damage to the marine or coastal environment, including mammals, fish, and other aquatic life (harm to aquatic life did not involve an endangered/threatened species).

Pollution caused by liquid hydrocarbon spillage of up to 50 barrels (bbls).

Minor damage to any mineral deposit.

Minor property damage equal or less than $25,000.

Additional incidents required to be reported under 30 CFR 250,188, except (a)(6), (b)(1), (b)(4).

Loss of human life.

Injury to humans that results in more than 3 days away from work or more than 3 days on restricted work or job transfer.

Serious harm or damage to the marine or coastal environment, including mammals, fish, and other aquatic life (harm to aquatic life involved numerous individuals or involved one or more members of an endangered/threatened species.

Pollution caused by liquid hydrocarbon spillage of more than 50 barrels (bbls).

Serious damage to any mineral deposit.

Serious property damage greater than $25,000.

The full text of the NTL can be found here.

BSEE

By Michael J. O’Brien

In an earlier blog post here we highlighted the facts in Island Operating Co., v. Jewell, et al., Civil Action No. 16-145, currently pending in the Lafayette Division of the Western District of Louisiana. The central issue in Island Operating is whether a contractor that provides personnel to perform work on the Outer Continental Shelf can be issued an Incident of Non-Compliance (“INC”) and/or a civil penalty by BSEE for a failure to comply with the safety and environmental duties imposed by the Outer Continental Shelf’s Lands Act (“OCSLA”) and Part 250 of the Code of Federal Regulations. In a trial ruling on the briefs, Judge Doherty held that the duty to comply with the safety and environmental standards under OCSLA flows only to a lease holder or a permit holder; thus, offshore contractors such as Island cannot be issued an INC or a civil penalty from BSEE. In a day in age when nearly every offshore platform is ran or maintained by contractors, the very agency created to regulate offshore platform safety has no authority to do so against those contractors, per Judge Doherty. And, her ruling appears to be legally sound given the actual language of OCSLA.

Prior to this ruling, only two legal writings really touched on this issue, though neither of which boiled it down as succinctly and straightforwardly as Judge Doherty. First, in 2012, the Director of BSEE issued Interim Policy Document No. 12-07 (effective August 15, 2012) stating that BSEE would increase its INC’ing of contractors for serious violations of BSEE regulations. This came as a direct result of the Deepwater Horizon incident. The Director stated that it was BSEE’s position that any person performing an activity under a lease issued or maintained under OCSLA was subject to BSEE’s regulations and compliance, including contractors. His statement was based presumably in part on 30 CFR §250.146(c), which broadly encompasses contractors performing such activities. Second, Judge Milazzo from the EDLA recently held that the BSEE regulations could not serve as a basis for criminal penalties against contractors, though she only acknowledged that BSEE civil and regulatory authority over contractors had not yet been established. She was the first to affirmatively say that the OCSLA regulations did not extend to contractors, but her holding was in a criminal context and her analysis was heavily focused on the regulations rather than OCLSA. The USA has appealed her ruling to the U.S. 5th Circuit, which has extended briefing to respond to Judge Doherty’s recent ruling.

Judge Doherty, however, started her analysis with the language of OCSLA itself. Judge Doherty’s opinion focused on three sections of OCSLA. She first highlighted 43 U.S.C. §1332 (entitled: “Definitions”) that determines which types of juridical entities are subject to the entire act. Specifically, Section 1332 provides that “persons” are subject to the act, and they are defined as (in addition to a natural person) an “association, estate, a political subdivision of a state, or a private, public, or municipal corporation.” Next, Judge Doherty examined 43 U.S.C. §1348(b) (entitled: “Enforcement of Safety and Environmental Regulations”) which identifies which “persons” a duty is imposed as to safety and environmental issues, namely the duty to maintain all places of employment in compliance with occupational health and safety standards. Based on the plain language of the Section 1348, the duty to maintain places of employment and operations within the area of a lease or permit in compliance with safety, health, and environmental regulations falls – on “any holder of a lease or permit” granted under OCSLA. Section 1348 does not list any other types of party upon whom that duty falls. Last, Judge Doherty noted that 43 U.S.C. § 1350 (entitled: “Remedies and Penalties”) delineates the type of penalties allowed against those who violate the safety and environmental issues.

Reading these three statutes together, Judge Doherty held that a party who is neither a lease holder nor permit holder, such as Island, is not identified in 43 U.S.C. §1348 as having a duty related to environmental and safety standards. Accordingly, Island cannot be found to have violated a duty with which it is not charged. Further, Island cannot be subject to a regulatory penalty or fine from BSEE. According to Judge Doherty, “OSCLA’s plain language, when read in context, is clear, and does not embrace contractors, such as Island within the duty created by §1348(b).” Only lease holders and permit holders are therefore subject to OCSLA’s mandates.

Without OCSLA governance, offshore contractors are similarly not subject to Part 250, which are simply OCSLA’s implementing regulations. This is so despite the express language contained in §250.146(c) that applies the duty to any person who performs an activity on the OCS under a lease. However, Judge Doherty emphasized the distinction between the authorizing statute (OCSLA) and its implementing regulations (Part 250). She held that the regulations used to simply implement the statute cannot expand the scope of the statute beyond what the statute itself provides. As was also supported by the legislative history, OCSLA clearly does not include contractors within its scope, and thus, the BSEE regulations must be confined to that scope.

Judge Doherty’s decision that BSEE does not have the authority to enforce OCSLA’s regulations against a non-lease holder or non-permit holder will have far reaching consequences given BSEE’s recent history of issuing INC’s and civil penalties to contractors for accidents and injuries on the Outer Continental Shelf. Though it remains to be seen how BSEE will react to this decision in other jurisdictions, at least according to Judge Doherty, BSEE can only issue INC’s and civil penalties against the lessees and permit holders, i.e. – platform owners. Operators can neither be INC’ed nor fined. It is almost a certainty that BSEE will appeal this decision to the United States Fifth Circuit Court of Appeals. At a minimum, this decision should serve as the basis for appeal of any BSEE INC’s issued to contractors going forward. We will soon publish another article addressing the potential implications of this decision (or any future 5th Circuit decision) on other aspects of contractor liability on the OCS and certainly continue to monitor this case as it makes its way through the appeals.

BSEE

By Michael J. O’Brien

Historically, the U.S. Bureau of Safety and Environmental Enforcement (BSEE) has issued Incidents of Non-Compliance (INC’s) to oil and gas lease holders on the Outer Continental Shelf for a variety of accidents, spills, and other incidents offshore. However, as a result of the events that led to the Deepwater Horizon explosion and the subsequent investigation, BSEE began issuing INC’s to contractors working for the lessees and operators on the OCS.

In Interim Policy Document (IPD) No. 12-07 (effective August 15, 2015), the director of BSEE advised that while the primary focus of BSEE’s enforcement actions will continue to be on lessees and operators, BSEE would also issue INC’s to contractors for serious violations of BSEE regulations. In instances where INC’s are issued to a contractor, INC’s would also be issued to the lessee or operator.

Since the issuance of IPD No. 12-07, BSEE has consistently issued INC’s to contractors and operators alike. Many contractors have cried foul and objected to this new policy. They argue that BSEE has overstepped its bounds and misinterpreted the existing law, and they may have a legitimate argument.

One such contractor, Island Operating Company, Inc., filed suit in the United States District Court for the Western District of Louisiana to challenge BSEE’s interpretation. Island Operating Co, Inc., v. Sally Jewell, Secretary U.S. Dept. of the Interior; et. al., Civil Action No. 16-145. While the District Court may issue a ruling favorable to either Island or the U.S.A., it is virtually guaranteed that the losing party will file an appeal with the United States Fifth Circuit, with an eye towards the U.S. Supreme Court as the final word on this matter.

The facts in this matter are not in dispute. On June 3, 2012, a fire erupted on an offshore oil production platform causing two individuals to jump into the Gulf of Mexico for their own safety. The two individuals were employed by Island; they were the only individuals aboard the platform. The offshore production platform was owned by Apache. The two Island employees were tasked with transferring a highly flammable chemical to a day tank on the platform. To complete the transfer, Island’s crane operator lifted the chemical tank to gravity feed the highly flammable chemical into the platform tank through a hose. Due to the height of the chemical tank, the Island employee on the deck of the platform could not reach its shut off valve. Thus, the only way to stop the flow was for Island’s crane operator to lower the chemical tank. Unfortunately, during the transfer, the crane operator left the crane to get lunch for himself and a co-worker. In the meantime, the receiving tank overflowed and the wind blew the chemical to the nearby pipeline exhaust stack where it was ignited. Separate investigations into the incident by BSEE, Apache, and Island all determined that the two Island employees were the sole cause of the fire.

Within days of the fire, BSEE conducted an onsite investigation and issued an INC to Apache. Several months later, on March 5, 2013, BSEE issued an INC to Island Operating. On March 19, 2013, Island asked BSEE to rescind the INC based on its status as a contractor. On April 17, 2013, BSEE declined to rescind the INC. Island filed an appeal to the Interior Board of Land Appeals on May 2, 2013 which was denied on September 25, 2015. Thereafter, Island filed suit challenging BSEE’s authority to issue the INC’s.

The District Court determined that the case would be tried on the briefs. Island submitted its brief on September 9, 2016; BSEE submitted its opposition brief on October 14, 2016. The briefs are lengthy. They also adopt polar opposite positions. Simply stated, Island argues that BSEE does not have the authority to issue INC’s to contractors under either OCSLA or Part 250 of the Code of Federal Regulations. If Island is correct, then this decision will be a regulatory victory for offshore contractors in the Gulf of Mexico. Island’s argument is founded mainly in the legislative history of the federal laws and the definition of the term “You” as it’s used in the CFR’s. In response, BSEE details why it believes it has the right to issue INC’s to contractors, based in part on its role as the governmental agency burdened with enforcing offshore safety rules. BSEE argues that it only makes sense that with the high percentage of offshore platforms being operated by contractors that BSEE should have some oversight over them. Also, with only Island employees responsible for this accident, it would be unreasonable to INC only Apache and not hold Island accountable for its actions. The District Court has taken this matter under advisement, and its final ruling, which is guaranteed to have a wide range of implications for operations in the Gulf of Mexico, is still pending. We will continue to closely monitor this case and provide an update when a final decision has been issued.

Industrial Bolt & Rusted Metal

By Michael J. O’Brien

Multimillion dollar offshore drilling rigs and subsea drilling equipment can be rendered worthless if their most basic components, the nuts and bolts that hold them together, fail. Since 2013, investigators with the Bureau of Safety and Environmental Enforcement (“BSEE”) have been investigating why bolts used in subsea oil equipment have suddenly, and without warning, failed. These bolt failures have caused shut-downs and increased safety concerns for possible catastrophic well events. At least one subsea equipment provider has issued a global recall for faulty bolts on its blowout preventers (“BOP”). Flaws have also been found in BOP’s manufactured by other companies.

These bolts failure are now on BSEE’s radar. Indeed, BSEE has issued Safety Alert 318 warning of “the recurring problem of connector and bolt failures in various components used in risers and subsea BOP’s used in offshore operations.” BSEE’s regulators are currently working with drilling companies, manufacturers, and the American Petroleum Institute (“API”) to create new standards for minimum hardness and coating of subsea equipment bolts, as well as guidelines for assembly and installation of the bolts. The API has proposed replacing “critical bolts” that do not meet the proposed hardness standard by 2017. It is estimated that this issue could affect more than 2,400 platforms and oil rigs in the Gulf of Mexico.

The reason for the bolt failures has yet to be determined. It is likely that the alloys used in heavy steel bolts are not hard enough to survive in the waters of the Gulf of Mexico. Alternatively, excessive tightening or “over-torqueing” could be causing the failures.

New BSEE regulations require greater reporting of breakdowns and failures, including bolt failures. Thus, offshore drillers and support companies would be wise to heed BSEE’s Safety Alert and inspect the bolts in their equipment for failures. Preventative maintenance and replacement of bolts that are not up to specifications can prevent catastrophic and costly failures in the future as well as significant regulatory penalties.

For information concerning BSEE’s Safety Alert No. 318, please see www.BSEE.gov/bolts.