This opinion piece presents the opinions of the author.
We have written periodically about the expansion of the regulatory scope of the Bureau of Safety and Environmental Enforcement (BSEE) to include all offshore service companies in addition to operators/leases. At one point our discussion focused on whether BSEE had the statutory authority to regulate service companies under the powers granted it by the Outer Continental Shelf Lands Act (OCSLA). While that remains an important issue, the more critical one for the industry is what the regulatory rules will be and how they will be enforced. The process for establishing these offshore regulatory ground rules is the rulemaking process that requires the regulator to proffer a set of rules for comment by the industry and then to take those comments and work with the industry to reshape any rules deemed unworkable or unclear. Through this give and take process, the regulations under which service companies will be regulated will become clear, and more importantly, known and understood by service companies before they began work offshore.
The lack of regulatory clarity is problematic. Largely due to the BP Macondo trial, the long-established relationships between operators/lessees and their service company contractors have been upset. Now, all companies involved in a project offshore have joint and several liability for any damages caused during the work. That means every participant involved in providing a service is liable for the actions, or mistakes, of all the other contractors involved along with the actions of the operator/lessee. In the past, the operator/lessee was the responsible person for all regulatory errors and insurance liability. The operator/lessee could then establish a working relationship with its contractors via contracts that spelled out what risks each party would assume. That historical working relationship has now been scrambled.
While some offshore service companies were very concerned about the changed nature of the regulatory scheme and lack of clarity, others were comfortable that they could work through any issues because they had a high level of comfort with the leader of BSEE, James Watson, a former head of the Coast Guard, which shared some regulatory responsibility with the offshore industry’s prior regulator, the Minerals Management Service, and has continued that relationship with BSEE. The positive working experience with Admiral Watson gave these service company executives comfort.
Admiral Watson has announced he is leaving BSEE September 2nd for a job in the private sector. This means Sally Jewell, the recently appointed Secretary of the Interior, will be naming a replacement to head BSEE. While Sec. Jewell is well-respected and has oil company work experience early in her career, whomever she appoints to this position could tip the regulatory balance. Will her appointee be an activist with an agenda for stricter regulation or will it be someone comfortable with a light touch to the regulatory tiller? Given the recent court ruling forcing Anadarko Petroleum Corporation (APC-NYSE) to face a lawsuit over comments to investors about the company’s involvement in Macondo, managements should be more alert to the changing face of offshore regulation. Maybe offshore service executives will want to reconsider their previous decision not to push BSEE on rulemaking to clarify offshore regulation.
G. Allen Brooks works as the Managing Director at PPHB LP. Reprinted with permission of PPHB.
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