Background
The traditional operating practices in the North Sea have been shifting towards the introduction of "total facilities contractors". The total facilities contractor "operates" offshore installations under contract to the owners, although it is neither a co-venturer nor is it the field operator appointed under the relevant joint operating agreement.
The Health & Safety Commission (HSC) has published a Consultative Document in which it proposes the complete repeal of the current Offshore Installations (Safety Case) Regulations 1992 ("OSCR") and their replacement with the Offshore Installations (Safety Case) Regulations 2004 (the "2004 Regulations"). An earlier Law Now (Proposed replacement of Offshore Installations (Safety Case) Regulations 1992) summarised the main changes between the OSCR and the 2004 Regulations but it is useful to highlight the potential impact the 2004 Regulations will have on licensees and their relationship with total facilities contractors.
Relevant HSE Regulations
Of course, the OSCR is only one of many sets of regulations promulgated under the Mineral Workings Act 1971 and the Health and Safety at Work etc. Act 1974 regulating the obligations of "duty holders", the most important of these (in addition to the OSCR) being:
- Offshore Installations and Pipeline Works (Management and Administration) Regulations 1995 ("MAR");
- Offshore Installations (Prevention of Fire and Explosion, and Emergency Response) Regulations 1995 ("PFEER");
- Offshore Installations and Wells (Design and Construction etc.) Regulations 1996 ("DCR");
- Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995 ("RIDDOR");
- Pipeline Safety Regulations 1996 ("PSR");
- Offshore Installations and Pipeline Works (First Aid) Regulations 1989 ("FAR").
The current proposal relates only to the amendment of the safety case obligations (being the repeal and replacement of the OSCR and some minor amendments to PFEER and other relevant Regulations) and the HSC is not, currently, seeking to extend the scheme of amendments to the other Regulations listed above.
Current Definition of Duty Holder
"Duty holder" is currently defined under the OSCR as "an operator or owner who prepares a safety case pursuant to" the OSCR. The operator, for the purposes of the OSCR, is defined as "the person appointed to execute any function of organising or supervising operations)".
Who will be the duty holder in future?
The actual definition of duty holder under the OSCR will not change: instead the intent is to amend the definition of "operator".
The HSC, when considering the need for changes to the OSCR, reviewed the entire duty holder concept in light of the introduction of total facilities contractors, and concluded that duty holder status is still a useful tool and that the concept of one person preparing the safety case for an installation should be retained.
However, under the proposed 2004 Regulations new obligations are created on the licensees to ensure that the person appointed by them to prepare and meet the safety case is capable of performing its obligations. If the HSE (which will administer the 2004 Regulations overseen by the HSC) is not satisfied, this duty will revert to the licensee, an option which is not available under the current OSCR. The HSC has proposed several changes to the Regulations to bring this about.
Operator definition
The first proposal is to amend the definition of operator under the 2004 Regulations.
It is important to remember that the term "operator" when used in both the OSCR and the 2004 Regulations is not synonymous with the term "operator" as commonly understood within the oil and gas industry (i.e. the field operator appointed under a joint operating agreement (JOA)).
The draft 2004 Regulations contain two options:
- Under the first, the operator will be the person appointed by the co-venturers to operate the installation, being either the person appointed by the licensees to do so, or where it is not clear that one person has been appointed to perform these functions, the person managing and controlling the exercise of these functions (total facilities contractors would fall within this definition).
- However, the HSC has identified the possible confusion which can arise where total facilities contractors are appointed as defacto operators: i.e. that these companies are not the DTI approved field operator appointed under the joint operating agreement. Usually, in fact, the total facilities contractor will be appointed by this field operator (on behalf of the co-venturers). Therefore, the draft 2004 Regulations contain an alternative option, placing the duty to prepare and maintain the safety case upon the field operator. This would alleviate the HSC's concern that, where total facilities contractors are appointed, the field operator will not have direct control of the installation (albeit that it will have a close contractual relationship with the contractor).
The HSC are also proposing an additional step, of making all "significant parties" jointly responsible for preparing the safety case. Although it is not clear who "significant parties are, this would mean that the field operator and the total facilities contractor would work together in preparing the safety case, and it would be "owned" by both (with, we assume, both being liable for any failure to submit or maintain it).
Licensee definition
The draft 2004 Regulations also contain a welcome amendment: replacing the concept of "concession owner" (being the person appointing the operator) with "licensee". The licensee is defined in a very familiar way, being "any person to whom a licence to search and bore for and get petroleum in respect of any area within relevant waters is granted pursuant to the Petroleum Act 1998".
Licencees' Obligations
Whichever definition of operator is eventually used in the 2004 Regulations, licensees will appoint this operator (who may if the option 1 definition is used, be a total facilities contractor) and in doing so must ensure that the appointee is capable of carrying out the functions of operator under the 2004 Regulations and complying with its legal responsibilities (similar to the obligations imposed when appointing an Offshore Installation Manager).
If the HSE is not satisfied that a person has been appointed to "execute the main functions of a production installation" (should the first suggested definition of "operator" be used) or where there is no DTI approved operator (should the second suggested definition be used) then the licensees shall be deemed to be the operator, and will have joint liability for the performance of the operator's obligations under the 2004 Regulations.
Perhaps more controversially, the licensees' obligations will fall equally on each of the licensees, no matter their percentage interest holding under the JOA.
Furthermore, the licensees' obligations do not end with the appointment of the operator, as each licensee must "take all reasonable steps to ensure that the operator appointed by him carries out his functions and discharges his duties". Where the appointed operator is a total facilities contractor, this control could be exercised contractually, including placing clear obligations on the total facilities contractor in the contract and ensuring that there are clear reporting obligations on the total facilities contractor.
If the second definition is used, the field operator rather than the total facilities contractor will be duty holders under the Safety Case Regulations and control will presumably be exercised through the JOA and Operating Committee.
Conclusion
If the draft 2004 Regulations are enacted in their current form, they will not affect the ability of co-venturers to appoint total facilities contractors to operate offshore installations but they will create a clearer statutory obligation on licensees when appointing and supervising total facilities contractors.
Co-venturers should continue to draft their total facilities contracts with a clear risk allocation structure. However, they should bear in mind that indemnities in the total facilities contract and in the joint operating agreement will not be enforceable (as a matter of public policy) where a criminal offence is committed. There is now a risk of licencees being prosecuted for the offence of failing to take all reasonable steps to ensure that the operator appointed by him carries out his functions and discharges his duties
Of practical import to licensees with small percentage holdings is the possibility of being jointly liable for the preparation and maintenance of a safety case. Simply appointing an operator will not be sufficient to avoid this obligation, if the HSE is not satisfied that the operator can do the job or the operator is not adequately supervised by the licensees.
The consultation paper on the proposed 2004 Regulations can be found at: http://www.hse.gov.uk/consult/condocs/cd198.htm and the consultation period continues until 10th September 2004.
For further information please contact Lorna Hingston in the Aberdeen office at [email protected]
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