NPD Says Rig Shortage not Caused by Regulations or AoC

"The rig shortage on the Norwegian Shelf is not the result of special Norwegian regulatory requirements or the AoC (Acknowledgement of Compliance) system. However, there are possibilities in the regulations that could be utilized better than they are today," says Director General of the Petroleum Safety Authority Norway (PSA) Magne Ognedal. He calls on operators and licensees on the Norwegian shelf to have a more long-term strategy to ensure necessary access to drilling facilities.

Plans being laid by the operating companies on the Norwegian shelf call for a sharp increase in exploration activity, but the number of exploration wells could be limited by access to mobile drilling facilities.

However, Director General Magne Ognedal rejects claims that the rig shortage is the result of special Norwegian regulatory requirements within the PSA's sphere of responsibility, or of the AoC system, which entails that no mobile drilling facilities can operate on the Norwegian shelf without an Acknowledgement of Compliance (AoC).

So far, 24 mobile drilling facilities have received AoCs, while one application is currently being processed. Nineteen facilities with AoCs are currently in operation on the Norwegian shelf.

Short-term contracts
"The other drilling facilities with AoCs are not available because they are working in other countries," says Ognedal, and rejects the assertion that the AoC system acts as a bottleneck in relation to bringing in new drilling facilities.

"My impression is that the plans for vigorous exploration activity may be limited primarily by the operators' and the licensees' own short-sightedness," says Ognedal, referring in part to the fact that the operating companies often enter into individual and short-term contracts with the drilling contractors.

"The large operators in Norway have greater opportunities than others as regards applying a long-term perspective, and this is exploited to a certain extent. It is not common practice to cooperate across license groups to make longer contracts an option.

Therefore, the drilling contractors, who want more long-term assignments, have entered into agreements for larger drilling campaigns on the continental shelves of other countries.

Flexible AoC system
The Acknowledgement of Compliance (AoC) system was introduced as a voluntary scheme in 2000, in part under pressure from the industry itself to increase the predictability for use of mobile drilling installations.

"This doesn't mean that any facility with an AoC can be used for any assignment. Selection of the drilling facility is something the operator must decide on when planning drilling activity," says Ognedal, who emphasizes that the feedback from the industry regarding the system has been very positive.

"Most recently during the AoC seminar organized by the PSA on January 27th this year the industry emphasized that the system, which was made mandatory on 1 January 2004, contributes to comprehensive regulatory reviews and more cost-effective solutions," says Ognedal.

"However, we challenge the industry to apply established systems in connection with AoC applications. To facilitate the movement of rigs in North West Europe, the authorities agreed on the IADCs "North West European HSE Case Guidelines", which is a standard for qualification and documentation of mobile drilling facilities in connection with AoC applications. We have not seen much sign that the industry is exploiting this opportunity," says Ognedal, and adds that the PSA normally estimates a processing period of three months for an AoC application.

Not a cost driver
The PSA's Director General also rejects claims that the Norwegian regulations within the PSA's sphere of responsibility are cost-driving.

"We have for some time challenged our critics to point out which parts of the Norwegian petroleum regulations are allegedly cost-drivers compared with the regulations in other countries, but we have not got any clear answers," says Ognedal.

He refers among other things to a study conducted by Smedvig in 2001-2002 on the initiative of Norwegian and British authorities, in which the regulations for mobile facilities in the two countries were compared.

The study identified 46 requirements that applied only to the Norwegian shelf, and ten requirements that applied only to the British shelf. The remainder of the requirements are, for all practical purposes, the same.

"The point, however, is that the only requirement that has a real financial impact is that on the Norwegian shelf we require mechanical pipe-handling. In practice, however, the drilling facilities that are in demand by the operators for use in the North Sea Basin have already installed such equipment. Therefore, this requirement does not affect the rig situation on the Norwegian shelf," says Ognedal.

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