*Herman Melville, Moby Dick; Or, the Whale
Just under a year after the November 16, 2012 rig fire that left three workers dead, a joint investigative panel of BSEE and the United States Coast Guard has issued a report regarding the causes of the incident and recommending various enforcement actions/regulatory responses in the wake of the incident (“the Report”). http://www.bsee.gov/uploadedFiles/BSEE/Enforcement/ Accidents_and_Incidents/Panel_Investigation_Reports/Final%20BSEE%20Black%20Elk%20report.pdf. This Report and the ensuing Incidents of Non-Compliance (INCs) issued by BSEE are yet another reinforcement of BSEE’s controversial, unprecedented, and arguably ultra vires extension of its regulatory enforcement jurisdiction to offshore contractors in addition to its historic and statutorily supported jurisdiction over OCS operators and lessees.
The explosion and fire occurred around 9:00 AM on November 16, 2012 during welding operations on piping connecting two dry oil tanks and one wet oil tank on Black Elk’s West Delta Block 32 complex, which included three platforms (A, D, and E). Platform D consisted of crew quarters; Platform A had previously handled production from 9 wells that had been plugged and abandoned; and Platform E, where the explosion and fire occurred, handled production from 6 other producing wells. At the time of the incident, however, the Platform E wells had been shut in since August of 2012 due to hurricane damage at a nearby Energy XXI platform, which received all production from Platform E. Black Elk decided to perform certain upgrade/ maintenance construction work during the shut-in period, and the welding that led to the incident was part of this work.
The Report concludes that the explosion was caused by sparks from the welding work igniting residual hydrocarbon vapors in the wet oil tank, which started a chain reaction explosion in the other two dry tanks and likewise causes ignition of hydrocarbons elsewhere on the platform. The Report likewise notes the following violations/safety breakdowns that led to the explosion and fire:
- improper issuance of/adherence to hot work permits;
- failure to use gas detection equipment prior to hot work;
- failure to have properly functioning/maintained gas detection equipment available;
- failure to inspect work area prior to hot work;
- lack of proper project supervision by Black Elk over its contractors/subcontractors;
- inadequate project planning/coordination among Black Elk and its contractors, including inadequate training and communication, and failure by Black Elk as operator to enforce its Safety and Environmental Management System(SEMS) during the project, and/or to ensure its contractors’ compliance with its SEMS program;
- failure of personnel to invoke “stop work” authority.
As a result of these findings, the BSEE-USCG panel recommended issuance of multiple BSEE INCs to both Black Elk and three of its contractors (Wood Group Production Service Network, a production services contractor; Grand Isle Shipyard, which provided the welders for the work; and Compass Engineering Consultants, which provided project management services for the construction work). These INCs include violation of broad based general safety regulations (i.e. failure to conduct operations in a safe and workmanlike manner and to adequately protect personnel, 30 C.F.R. §250.1070, as well as task-specific regulations (i.e. failure to ensure removal of hydrocarbons prior to welding work, 30 C.F.R. §250.113). In total, the Report recommended 11 INCs each against Black Elk and Wood Group, and 9 each against Grand Isle and Compass, but also notes that “[f]urther evidence may reveal additional violations. Under BSEE regulations, the maximum civil penalty of $40,000.00 per violation per day. 30 C.F.R. §250.1403. It also bears noting that Black Elk previously issued its own expert report, which placed blame for the incident squarely on Grand Isle. http://www.blackelkenergy.com/news/67-explosion-and-fire-on-gulf-platform-occurred-during-welding-contractors-failed-to-follow-standard-safety-practices.html
Following the Report, on November 13, BSEE formally issued 41 INCs to/among Black Elk, Grand Isle, Wood Group and Compass. http://www.bsee.gov/Inspection-and-Enforcement/Enforcement-Programs/Incidents-of-Non-Compliance.aspx
\The Report and the resulting slew of INCs is thus another emphatic wake-up call that BSEE’s self-proclaimed jurisdiction over offshore contractors – whether legally valid or not – is a stark reality. That said, BSEE’s intent to issue INCs to Black Elk’s contractors – in addition to perpetuating the fundamental question of whether BSEE even has jurisdiction to do so – raises additional problems.
First, the Report’s discussion of Black Elk’s SEMS breakdowns – with specific reference to how its contractors’ failed to follow the SEMS program – begs the question of whether BSEE’s SEMS regulations (including the time-consuming and expensive process of creating of comprehensive SEMS program subject to periodic audit) may apply directly to offshore contractors. This currently unanswered question may soon be emphatically resolved: in its Final Rule promulgating the SEMS regulations, BSEE stated (in response to a comment) that it “is evaluating the possibility of requiring contractors to have a SEMS program while performing operations on the OCS,” and “may address this concept through future rulemaking.” 78 Fed. Reg. 20423, 20426 (Apr. 5, 2013). In other words, contractors may soon be directly required by BSEE to have their own comprehensive SEMS programs. This, in turn, begs the question of whether and to what extent multiple contractors’ independent SEMS programs may have to be coordinated, along with the SEMS program of the operator/lessee, to ensure consistency. The potential for confusion in this area is enormous.
Second, there is a question of whether any BSEE INCs may be appropriate for the West Delta Block 32 incident because no well operations were taking place when the incident occurred. By way of precedent, BSEE previously issued an INC to a lessee on June 22, 2012 related to a trip-and-fall incident in which a third-party contractor fell aboard a jackup rig; however, BSEE later rescinded the INC (on written request of the lessee) on the basis that the rig “was jacked-up on [the lessee’s] lease performing only construction and maintenance activities,” not well operations. BSEE Accident Investigation Report Re: June 22, 2012 INC issued to Tarpon Operating and Development, L.L.C. (Aug. 9, 20122) available at http://www.bsee.gov/uploadedFiles/BSEE/Enforcement/Accidents_and_Incidents/20Jun2012TarponSM50.pdf. Based on the Report, it appears that the work being performed at the time of the West Delta Block 32 incident – which the Report itself describes as “welding work that was being conducted as part of construction operations” during a long shut-in period – was similarly “only construction and maintenance activities” just as in the prior case in which the INC was rescinded.
The Report thus highlights the bewildering – not to mention frustratingly inefficient and expensive – state of regulatory enforcement on the OCS in the wake of BSEE’s self-ordained jurisdiction over OCS contractors.
Moreover, the apparent discrepancy between the result in the Tarpon INC – which involved a relatively minor incident – and the result in the West Delta Block 32 INC – which involved three fatalities – underscores the inherent vagueness and subjectivity with which BSEE is applying its newly minted jurisdiction over offshore contractors. Specifically, BSEE has stated that it will consider four factors in determining whether a contractor’s conduct was so “egregious” as to merit BSEE enforcement action: (1) whether the violation implicated health, safety, or environmental concerns; (2) resulting harm or potential harm from violation with respect to health, safety, and the environment; (3) foreseeability of such harm; and (4) extent of the contractor’s involvement in the violation. http://www.bsee.gov/uploadedFiles/Issuance %20of%20an%20Incident%20of%20Non%20Compliance%20to%20Contractors.pdf. This amorphous and subjective “egregiousness” standard actually creates even more confusion than would a simple blanket assertion of contractor jurisdiction. As is apparent from the Tarpon/West Delta Block 32 INCs, the same type of activity may or may not give rise to an INC depending on the outcome of an incident. In other words, BSEE’s jurisdiction over contractors appears to be result-driven; a violation that results in a minor incident may be ignored while the same violation resulting in a major incident may lead to a myriad of INCs. This 20/20 hindsight, result-driven approach leaves industry with no practical, commercial means of predicting if, how, and by whom they will be regulated.
It remains to be seen whether and how any of the three contractors in this case will challenge the INCs issued against them by BSEE.
