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BSEE Finalizes Production Safety Systems Rule Amendments: Third-Party Certification of Critical Safety and Pollution Prevention Equipment is No Longer Required

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On September 28, 2018, the federal Bureau of Safety and Environmental Enforcement (“BSEE”) published a final rule amending existing oil and gas production safety system regulations imposed on oil and gas exploration and production operators in the federal Outer Continental Shelf (“OCS”). This final rule revises certain of the regulations adopted by the Obama Administration only two years ago, in September 2016 (the “2016 Rulemaking”), and reflects President Trump’s vision of stripping away unnecessary burdens on the oil and gas industry without sacrificing safety. Among other things, the new final rule adopted by BSEE eliminates the requirement for offshore operators to obtain independent third-party certification of critical safety and pollution prevention equipment, including subsea safety equipment and, most notably, blowout preventers. The new rule takes effect on December 27, 2018.

BSEE’s Response to Executive and Department Orders.

Shortly after President Trump took office, he issued a pair of Executive Orders directing federal agencies to undertake reviews of existing federal regulations in hopes of improving energy development in the United States without adversely affecting safety or the environment. In particular, on March 28, 2017, President Trump signed Executive Order No. 13783, “Promoting Energy Independence and Economic Growth,” directing federal agencies to review all existing regulations and other agency actions and to possibly revise or rescind any regulations or actions that unnecessarily burden the development of domestic energy resources beyond the degree necessary to protect the public interest or otherwise comply with the law. President Trump followed up with a second Executive Order, No. 13795, “Implementing an America-First Offshore Energy Strategy,” directing the Secretary of the Interior to take certain actions to encourage energy exploration and development, including on the OCS, to maintain the Nation’s position as a global energy leader while ensuring that such energy-related activities are safe and environmentally responsible.

Pursuant to these orders, the Department of the Interior Secretary Ryan Zinke issued Order Nos. 3349 and 3350, directing BSEE and other agencies to reconsider a number of regulatory initiatives governing oil and gas exploration in offshore waters, which included the 2016 Rulemaking, codified in 30 C.F.R. 250, Subpart H (the “Subpart H Regulations”). BSEE’s September 2018 final rule amending the Subpart H Regulations is responsive to those executive and department orders.

BSEE’s Reconsideration of the Subpart H Regulations — Key Take-Aways.

BSEE reported that 484 provisions comprise the Subpart H Regulations and all of those provisions were reviewed and considered in connection with issuance of the new final rule. Of those 484 provisions, BSEE states that only 84 provisions — representing only 18% of the 2016 Rulemaking — were appropriate for revision or deletion.

In making these changes, BSEE focused on offshore oil and gas production technology and operations, including subsea production systems used for production in increasingly deeper waters. Additionally, the agency compared each of the proposed revisions to the 424 recommendations from 26 separate reports from 14 different organizations developed in the aftermath of, and in response to, the Deepwater Horizon incident in 2010, and determined that none of the changes to be made to Subpart H Regulations by new final rule will contradict any of those recommendations. Further, BSEE confirmed that nothing in this new final rule will alter any provision of the 2016 Rulemaking in a way that would make the result inconsistent with those 424 recommendations and would not alter any elements of other rules promulgated since the Deepwater Horizon incident, including the Drilling Safety Rule (adopted October 2010), Safety and Environmental Management (“SEMS”) I Rule (adopted October 2010), SEMS II Rule (adopted April 2013), and the 2016 Well Control Rule (adopted April 2016).

The changes to the 2016 Rulemaking, as emphasized by BSEE in its September 28, 2018 final rule, include the following:

  • Elimination of third-party certification of Safety and Pollution Prevention Equipment (“SPPE”);
  • Clarification of failure reporting requirements with respect to SPPE or other safety components;
  • Updating of enforceable standards in the Subpart H Regulations;
  • Updating the requirements for inspection of the fire tube for tube-type heaters;
  • Clarification and revision of certain production safety system design requirements;
  • Clarification of requirements for atmospheric vessels carrying Class 1 liquids; and
  • Clarification of need to notify the BSEE District Manager before commencing production.
  1. Elimination of Third-Party Certifications of SPPE.Perhaps the most significant revision made by the September 28, 2018 final rule is the elimination of the requirement that regulated parties obtain independent third-party certifications that each SPPE device will function in the most extreme conditions to which it will be exposed. The third-party certification provision was a requirement imposed in the 2016 Rulemaking as a means of having an independent party examine and confirm the operational suitability of the device for its intended function based on all possible conditions. BSEE is replacing the third-party certification requirement with the following requirements:
    1. the operator must have each device design-tested by an independent test agency, according to the testing criteria in the appropriate standards;
    2. the operator must maintain documentation of the process used to ensure the device is designed to function in the conditions to which it may be exposed, including temperature, pressure, flow rates and environmental conditions; and
    3. the operator must obtain independent third-party review and certification of any device removed from service and installed at a different location.

    In response to public comments that elimination of the third-party certification criterion will significantly reduce safety and environmental protection, BSEE responded that the Subpart H Regulations continue to impose numerous requirements, including enforceable standards incorporated by reference, that effectively provide multiple layers of review to ensure safety and environmental protection in the design, installation and testing of certain aspects of production safety systems. BSEE stated that these regulations contain extensive testing provisions for SPPE and other production system components to ensure that the devices will function as designed, when needed.

    For example, the agency points to certain design standards (e.g., ANSI/API Spec. 6A and ANSI/API Spec. 14A) that set design criteria for SPPE, based on the type of SPPE being utilized, and require most types of SPPE to be design-tested by an independent third-party testing facility. BSEE also references supplemental layers of review of such devices that are found in the Subpart H Regulations and involve: (i) use of SPPE that is manufactured and marked pursuant to a quality assurance program that satisfies ANSI/API Spec. Q1 or another equivalent quality assurance program approved by BSEE (see existing § 250.801(a)-(c)); (ii) the setting of detailed production safety system testing criteria and mandating that SPPE failing to meet the testing criteria must be repaired or replaced (see existing § 250.880); (iii) requiring professional engineering approval of modifications to production safety systems (see § 250.842(a), as amended); and (iv) requiring additional design documents to be developed, maintained and provided to BSEE upon request (see new § 250.842(b)).

    Finally, the obligation to obtain independent third-party certifications for devices moved to different locations is required because original design testing is based, in large measure, on the conditions present or expected to be present at a particular location and if the device is relocated to a new location, then new or different conditions may exist, which must be identified and addressed.

  2. Clarification of Failure Reporting Requirements with Respect to SPPE or Other Safety Components. BSEE asserts that its clarifying comments made in the September 28, 2018 final rule with respect to failure reporting is not intended to relax Subpart H Regulations for reporting SPPE or safety component failures. Rather, the agency’s clarifying comments to these existing regulations — that BSEE may elect to have SPPE or safety component failures reported to a BSEE designee instead of BSEE directly — is intended to streamline the reporting function to the recipient best suited to address failures.As a practical matter, on October 16, 2016, BSEE designated the Bureau of Transportation Statistics (“BTS”) to receive SPPE failure reports. The reporting of SPPE and equipment component failure information directly to the BTS should increase the potential for improving safety by allowing the BTS to examine the information in the aggregate and to prepare reports on the aggregate analysis to share with the public, including the regulated industry. Additionally, BSEE reports that the information submitted to the BTS is protected from release under the “Confidential Information Protection and Statistical Efficiency Act.”Finally, the existing provision in the Subpart H Regulations requiring operators to report equipment failures to original equipment manufacturers, in addition to BSEE (or BSEE’s designee), remains unchanged by the new final rule and thus, provides an additional pathway for the failure information to be examined by industry specialists (i.e., the original equipment manufacturers) who are best-suited to make changes to failed SPPE to address the equipment design and performance issues. Finally, one additional revision made by BSEE in the new final rule with respect to failure reporting is to expressly clarify that gas lift shut down valves (often referred to as “GLSDVs”) are considered SPPE devices, and thus any failure of such GLSDV devices must be reported as required under the failure reporting requirements.
  3. Updating of Standards Incorporated into the Subpart H Regulations. The September 28, 2018 final rule incorporates by reference certain updated standards into the Subpart H Regulations. The Subpart H Regulations include references to various design, operating and testing standards (including codes, specifications, and recommended practices) that offshore operators must adhere to in connection with constructing, operating and maintaining the SPPE. BSEE frequently incorporates by reference standards that “standards development organizations” have developed through a consensus process, with input from stakeholders such as the oil and gas industry, as a means of establishing requirements for activities performed on the OCS. As applicable standards are developed and/or improved, they are incorporated into the Subpart H Regulations. All such standards that are incorporated by reference into these regulations become regulatory requirements that are enforceable under applicable law and with which operators much comply. It is this reliance upon approved standards incorporated by BSEE into the Subpart H Regulations that has contributed to the agency decision to eliminate third-party certification of SPPE devices, as discussed above.
  4. Updating the Requirements for Inspection of the Fire Tube for Tube-Type Heaters.In the September 28, 2018 final rule, BSEE eliminated the obligation for operators to remove fire tubes as part of the inspection process for tube-type heaters that are equipped with either automatically controlled natural or forced draft burners installed in either atmospheric or pressure vessels that heat hydrocarbons or glycol. Elimination of the removal of these fire tubes is considered by BSEE to be a safety-related concern because removing the fire tube may present a hazard if the fire tube is located in a place where it is not easy to remove.As recognized by the agency, alternate inspection methods and technology have been proven to be effective and as safe or safer than removing the fire tube for visual inspection. For example, operators may use a combination of cameras with thickness sensors to inspect fire tubes that cannot be easily accessed, instead of removing the fire tube completely. This revision in the Subpart H Regulations allows the operator to determine an appropriate method to inspect the fire tube and is a more flexible, performance-based approach.
  5. Clarification of Various SPPE Design and Related Requirements.BSEE highlights additional clarifying comments for several additional SPPE design and related requirements in its September 28, 2018 final rule. These clarifying comments relate to:
    1. simplification of requirements for piping schematics, electrical system information, provision of certain documents to BSEE, and timing for an operator’s update of existing documents;
    2. inclusion on design documents of atmospheric vessels containing Class 1 liquids that are connected to the process system; and
    3. the timing for updating of drawings with respect to modification requests made to BSEE, as well as the need to receive approval from the BSEE district manager before commencing production through, or otherwise using, the new or modified system.

    None of these additional revisions to the Subpart H Regulations appear to be controversial.

    The amendments to the Subpart H Regulations will become effective on December 27, 2018.

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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.