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Mind The P’s and Q’s (And BAST?) Of DP – USCG And BSEE Issue Joint Safety Alert Regarding Dynamically Positioned Offshore Supply Vessels

Continuing their post-Macondo/Deepwater Horizon symbiotic approach to regulating the offshore oil industry, the United States Coast Guard (USCG) and Bureau of Safety and Environmental Enforcement (BSEE) issued a joint Safety Alert in late February regarding a loss of station incident on a dynamically positioned (DP) offshore supply vessel (OSV) engaged in downhole operations on a production platform in the Gulf of Mexico. See February 24, 2015 Safety Alert. This Safety Alert, coming just a few months on the heels of the USCG’s recent Notice of Proposed Rulemaking (NPRM) regarding DP systems on vessels operating on the Outer Continental Shelf (OCS) (see USCG NPRM of November 28, 2014 Regarding DP Systems, 79 Fed. Reg. 70944, hereinafter “USCG DP Rules”), is the most recent reminder that USCG and BSEE both hold sway on the OCS, sometimes in ways that may not be readily apparent or intuitive.

The USCG DP Rules

As a preliminary point, the USCG (after several prior indications that rulemaking on DP systems was long overdue, as previously reported on this blog – see inter alia THE OSV REGS COMETH) issued its DP Rules in late November of 2014. In particular, the purpose of the DP Rules was to “decrease the risk of loss of position by a [DP’d] [mobile offshore drilling unit, MODU] or other vessel that could result in a fire, explosion, or subsea spill.” Unsurprisingly, the USCG DP Rules make several references to the Macondo disaster, which – although it did not result from any loss of DP on the Deepwater Horizon MODU – provides a perfect example of the type of catastrophic incident that a loss of DP during critical downhole operations might cause. In this regard, the USCG DP Rules note numerous voluntary reports to the USCG of “near miss” incidents (which, given the non-mandatory nature of this reporting, suggests that even more such near misses have in fact occurred) involving loss of station (on both MODUs and OSVs) due to DP problems, many of which could potentially have resulted in personal injury, loss of life, and/or severe environmental damage.

Prior to the USCG DP Rules, the USCG had provided some intermittent guidance (via policy letters) regarding DP systems, but the November 28, 2014 NPRM is the first comprehensive effort by the USCG to regulate DP systems. The proposed regulations in the USCG DP Rules would appear at 33 C.F.R. parts 140, 143, and 146, and at 46 C.F.R. Parts 61 and 62. The new rules do not require that vessels have a DP system, but rather set minimum standards for any that do.

As an overarching, thematic matter, the USCG DP Rules repeatedly reference “critical OCS activities” throughout the newly proposed regulations. As defined at 33 C.F.R. §140.305, “critical OCS activities” include activities “where maintaining station is critical because a loss of position could cause personal injury, environmental pollution, or catastrophic damage.” The USCG DP Rules recognize that industry has (to some extent) self-regulated the safety of DP systems used during “critical OCS activities,” insofar as large leaseholders have unilaterally required their contractors providing DP’d MODUs/vessels to adhere to minimum DP system/design standards and operational guidelines. Nonetheless, the USCG has issued these new rules given in light of the potentially large-scale risks posed by DP failures; the expanded (and expanding) use of DP technology on the OCS; and the resulting need for a unified set of standards.

The USCG DP Rule focuses on two main areas: (1) operation and design of DP systems; and (2) training, manning, and watchkeeping standards for DP systems.

As for operation and design standards, the USCG DP Rule “requires new and existing MODUs, and new vessels other than MODUs, that engage in Critical OCS Activities using a DP system, to comply with certain provisions of” the International Maritime Organization (IMO) regulations, as well as provisions of the 2012 Marine Technology Society (MTS) DP Operations Guidelines (previously recommended by the USCG via Interim Voluntary Guidance notices published by the USCG). The standards derived from these sources will be mandatory for certain classes of DP vessels, depending on their size and the nature of their activities, on a sliding, “risk-based” scale. The details of these operation/design standards (including a matrix depicting the “risk-based” scale) are available in the USCG DP Rules.

As for manning/training/watchkeeping standards, the USCG DP Rules critically note that any MODU/vessel engaged in DP operations is considered to be a “self-propelled motor vessel and is considered to be underway” during such operations, thus rendering those vessels subject to the Standards for Training Certification and Watchkeeping (STCW) Convention. Thus, any such vessels are required to adhere to the watchkeeping/hours of rest mandates. Likewise, because DP vessels are considered “underway” while DP’d, the COLREGS/”Rules of the Road” likewise apply to such vessels. Accordingly, the new regulations require that every DP vessel on the OCS have a Dynamic Positioning Officer (DPO) who is a credentialed (but not necessarily licensed) mariner. Likewise, training for the DPO and other crew charged with DP responsibilities must meet International Marine Contractors Association and IMO minimum training requirements. Additionally, both DP crew training and watchkeeping protocols should be considered on a risk-based scale along the lines of a Safety Management System (SMS), depending on vessel-specific DP system capabilities and the nature of operations in which the vessel is engaged.

Finally, encompassing both operation/design and manning/watchkeeping/training, the USCG DP Rules require (again, on a sliding scale) that DP’d vessels/MODUs obtain certification from USCG-approved classification societies:

[D]ifferent levels of risk are associated with different vessels and missions. In general, we are proposing a risk-based approach tied to the type of vessel and whether the vessel conducts Critical OCS Activities. In addition, we propose to distinguish between vessels other than MODUs based on vessel size. For the lower risk category of vessels that conduct Critical OCS Activities, meeting IMO [requirements], obtaining surveys from a DP system assurance organization (DPSAO), meeting DP personnel and system training requirements, and following the MTS guidance is sufficient to ensure a satisfactory safety level.

* * *

[The USCG DP Rule] would require more oversight on MODUs and other larger vessels that use a DP system to engage in Critical OCS Activities. These higher risk vessels would be required to obtain plan review and surveys from a DPSAO.

Thus, the USCG DP Rules seem to provide certain minimum standards, but subject these standards (generally speaking) to a sliding, risk-based scale in terms of mandatoriness in application.

Notably, the USCG DP Rule expressly recognizes that “[u]nder a [2008] Memorandum of Agreement between the [USCG] and BSEE, the [USCG] is responsible as the lead agency for regulation of DP System design, and all aspects of DP system operation except criteria for well shut-in and disconnect when out of the watch circle [i.e. loss of station incidents].”

However, this is ostensibly at odds with BSEE’s own express regulatory jurisdiction over “OCS facilities and any vessels engaged in drilling or other downhole operations,” including “facilities under jurisdiction of other Federal agencies [e.g. the USCG] that [BSEE] inspect[s] by agreement,” to verify compliance with both BSEE regulations “and other applicable law and regulations.” 30 C.F.R. §250.130 (emphasis added). In other words, BSEE appears to retain some general level of authority over DP vessels.

And notwithstanding the DP-specific provisions of the USCG DP Rule, BSEE’s recent rulemaking regarding “best available and safest technology” requirements – or BAST – could arguably encompass DP systems. Specifically, 30 C.F.R. §250.107 requires operators to “use the best available and safest technology (BAST) whenever practical on all exploration, development, and production operations.” This regulation was initially issued in an NPRM that noted as follows regarding BAST:

Proposed [30 C.F.R.] Sec. 250.107(c) would provide that wherever failure of equipment may have a significant effect on safety, health, or the environment, an operator must use the BAST that BSEE determines to be economically feasible on all new drilling and production operations, and wherever practicable, on existing operations. Under this proposed provision, BSEE would specify what is economically feasible BAST. This could be accomplished generally, for instance, through the use of [Notices to Lessees] or on a case-specific basis. To implement the exception allowed by the Act, proposed Sec. 250.107(c)(2) would allow an operator to request an exception from the use of BAST by demonstrating to BSEE that the incremental benefits of using BAST are clearly insufficient to justify the incremental costs of utilizing such technologies.

78 Fed. Reg. 52239, 52243 (Aug. 22, 2013).

Moreover, the then-current version of §250.107 included certain “safe harbor” language providing that (1) BAST was only required “whenever practical” and (2) that compliance with BSEE regulations would “in general” constitute the use of BAST. However, the NPRM would remove these safe harbors:

Existing §250.107(c) requires the use of BAST ‘‘whenever practical’’ on ‘‘all exploration, development, and production operations.’’ Moreover, it provides that compliance with the regulations generally is considered to be the use of BAST. The existing provision is problematic for a number of reasons. The use of the phrase ‘‘whenever practical’’ provides an operator substantial discretion in the use of BAST. The statute [43 U.S.C. §1347(b), regarding BAST on the OCS], on the other hand, requires the use of BAST that [BSEE] determines to be economically feasible on all new drilling and production operations. With respect to existing operations, the Act requires operators to use BAST ‘‘wherever practicable,’’ which does not afford the operator complete discretion in the use of systems equipment. In addition, although operators must comply with BSEE regulations, such compliance does not necessarily equate to the use of BAST. Existing paragraph (d) is written in terms of additional measures the Director can require under the Act, and includes a general requirement that the benefits of such measures outweigh the costs.

The proposed rule would more closely track the Act. Proposed §250.107(c) would provide that wherever failure of equipment may have a significant effect on safety, health, or the environment, an operator must use the BAST that BSEE determines to be economically feasible on all new drilling and production operations, and wherever practicable, on existing operations. Under this proposed provision, BSEE would specify what is economically feasible BAST. This could be accomplished generally, for instance, through the use of NTLs, or on a case specific basis. To implement the exception allowed by the Act, proposed §250.107(c)(2) would allow an operator to request an exception from the use of BAST by demonstrating to BSEE that the incremental benefits of using BAST are clearly insufficient to justify the incremental costs of utilizing such technologies.

Id. (emphasis added).

Given the extraordinarily broad scope of BAST as proposed in the NPRM for §250.107 – and given that BSEE has (as previously reported here) asserted that its regulatory jurisdiction extends to both operators and their contractors – this BAST requirement could arguably extend to DP systems on contracted vessels supporting OCS leasehold operations.

The comment period for the NPRM regarding BAST closed in December of 2013, and the rule is now in the “Final Stage” regulatory process.

The USCG-BSEE Joint DP Safety Alert

Given this murky background – and notably notwithstanding the apparently clear delineation that the USCG wields the regulatory sword for all DP issues – the February 24, 2015 joint Safety Alert issued by the USCG and BSEE muddies the waters (which have been muddied in this regard ever since the Macondo/Deepwater Horison incident) as to who is really in charge.

The Safety Alert concerns an incident in which a DP’d OSV connected to a well while conducting downhole operations experienced a DP failure resulting in loss of station that sheered the well’s Christmas tree superstructure. A subsurface safety valve prevented what would have otherwise been a hydrocarbon flow from the well.

The Safety Alert – which curiously does not even reference the USCG DP Rule – notes what steps could and should have been employed to prevent the loss of station incident.

In turn, the USCG makes certain recommendations to “owners and operators of OSVs using DP” to follow various USCG DP guidance documents (again, however, with no specific mention of the USCG DP Rule).

In addition, BSEE reminds “leaseholders/operators” – notably without any reference to offshore contractors, despite their prior suggestions that they have authority over these contractors as well – that they must “ensur[e] safety and environmental hazards associated with contract vessels on their lease,” including specifically loss-of-station incidents involving DP vessels contracted for work on their leases.

Thus, notwithstanding the USCG’s ostensibly unequivocal statement that it alone regulates DP systems, BSEE’s involvement in the Safety Alert – as well as its behind-the-scenese presence vis-à-vis its broad BAST regulations, its self-proclaimed jurisdiction over contractors, and the omnipresent SEMS obligations of OCS operators – suggests as a practical matter that BSEE is just as much (at least potentially) of a regulator in this area as the USCG. Simply put, it appears that (once again) the universal thump may be passed round with respect to DP incidents on the OCS.

For example, “DP system equipment [is generally divided] into classes based on reliability levels designated as equipment class 1, 2, or 3. Equipment class 1 (DP–1) is the least reliable and equipment class 3 (DP–3) is the most reliable.” 79 Fed. Reg. 70944, 70946. The USCG DP Rule sets baseline standards for DP systems, but does not necessarily require use of the most up-to-date or reliable DP systems; recognizes that all three classes are still in use; and requires DP-2 or higher (albeit noting significant performance disparities even within the DP-2 class) for new-build vessels/MODUs engaged in Critical OCS Activities. Id. at 70949. That said, “[b]ecause of the mechanical and structural demands associated with DP–2 systems or higher that are not feasible to satisfy in older vessels, the [USCG] proposes to make the existing population of OSVs and crewboats exempt from the DP–2 equipment requirements of the [USCG DP Rule].” Id. at 70959. Moreover, the USCG DP Rule does not even necessarily require use of DP: the rule requires “[u]se DP–2 or higher systems if conducting Critical OCS Activities” – “[o]r [allows vessel operators to] choose to not operate with DP” at all. Id. at 70977. However, under BSEE’s proposed BAST regulations, leaseholders/operators, and potentially their contractors (insofar as BSEE asserts regulatory authority over them directly), might arguably be required to use vessels with DP-3 class systems notwithstanding the non-mandatory provisions of the USCG DP Rule.

With the comment period on the USCG DP Rules recently extended through May 27, 2015, industry interests should consider providing feedback requesting a more finite delineation of how – and by whom – DP systems will be regulated on the OCS.