On Oct. 18, 2010, BOEMRE published new Subpart S to 30 CFR 250 requiring offshore lessees and operators to implement a Safety and Environmental Management Systems (SEMS) program on or before Nov. 15, 2011.
On Sept. 14, 2011, before SEMS programs could be implemented, BOEMRE issued Proposed Rules adding new requirements for operator's SEMS programs (SEMS II). SEMS was in the works before the Deepwater Horizon oil spill last year, but the new requirements contained in SEMS II are clearly a response to the oil spill and a continuation of efforts by BOEMRE to change the regulatory culture of the offshore oil and gas industry.
Now is a good time for compliance departments to assess whether their corporate compliance programs project a corporate culture that conforms to the expectations of the offshore regulators.
"A Culture of Ethical Failure"
The "ethical culture" at MMS was the subject of considerable criticism before the Deepwater Horizon incident. In 2008, the Inspector General for the Department of the Interior reported finding "a culture of ethical failure" at MMS, including widespread instances of MMS employees accepting gifts and gratuities from regulated companies, in some cases with "prodigious frequency."
The IG was also critical of the close relationship between MMS inspectors and the companies that they regulated. She testified to Congress that the ethical lapses at MMS were, to a large extent enabled by industry.
The IG suggested that Congress impose ethical requirements on oil and gas companies. BOEMRE did not wait for Congress to act. It issued new ethical rules and a written recusal policy for its employees. It will also begin using multiperson inspection teams, presumably to reduce the chance that a single inspector will succumb to attempts by operators to influence their decisions.
Enforcement Means Enforcement
When the name of the MMS was changed to the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), the director of BOEMRE told Congress that "regulation" and "enforcement" were added because those elements had been lacking in the approach of the old MMS.
The director, Michael Bromwich, is a former federal prosecutor with minimal oil and gas experience. He was appointed after the oil spill to reform the old MMS. True to his prosecutorial roots, director Bromwich quickly announced the creation of an Investigations and Review Unit (IRU) staffed by "a team of prosecutors, FBI agents, and enforcement officials." Its mission is to investigate allegations of misconduct by BOEMRE employees and by oil and gas companies. It will also be used to conduct post-accident investigations.
The reorganization of the old MMS was completed on Oct. 1, 2011, when BOEMRE was divided into the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE). The latter agency will, as the name suggests, concentrate on the enforcement that director Bromwich believes was lacking at the old MMS.
Increased Penalties
Director Bromwich has expressed the view that BOEMRE's current civil penalty authority of $40,000 per violation, per day is "a trivial nuisance rather than an effective deterrence" and that significantly higher penalties are needed as a threat to encourage compliance. BOEMRE has suggested that it could make more liberal use of facility shut-in orders or it could turn to more aggressive environmental enforcement.
BOEMRE has positioned itself to do the latter. BSEE will have responsibility for enforcing environmental laws that contain both civil and criminal penalties more severe than the OCSLA. Future environmental violators may be facing grand jury subpoenas rather than Incidents of Noncompliance (INCs).
SEMS II
SEMS II includes four requirements that are directed more to "cultural" changes than to specific operating protocols:
- SEMS programs must include "Stop Work Authority" that authorizes all employees, (including contractors) to immediately stop work that is creating a risk or danger to human health or the environment.
- SEMS programs must identify the person with the Ultimate Work Authority for implementing Stop Work orders and deciding when it is safe to resume work.
- Each employee on an offshore facility must receive a wallet card containing the number of a hotline that BOEMRE established last summer for reporting violations of safety and environmental regulations. Reports to the hotline can be made confidentially.
- SEMS programs must be audited by independent third-party auditors acceptable to BSEE.
Adapting to the Changing Culture
The overarching theme emerging from these changes is the establishment of a regulatory culture that is more prescriptive, more intrusive and less collaborative than before. Here are a few suggestions to help your compliance program adapt to these changes.
- Ensure that your corporate ethics code addresses conduct that could be viewed as "enabling," unethical conduct by BSEE employees. Your ethics code should publicly and transparently project an ethical culture that meets the expectations of the regulators.
- Consider drafting protocols to guide your personnel in responding to BSEE inspections, IRU investigations and even search warrants. Include suggestions on how to challenge INCs without appearing to exert undue or improper influence on the inspectors or investigators.
- Encourage employees and contractors to report potential violations internally and ensure that your compliance department responds quickly and effectively to such reports. Responding to internal reports of violations will be much easier than responding to a BSEE inspection or IRU investigation initiated by a call to BSEE's hotline.
- Ensure that your Stop Work Authority program is more than a paper program. Encourage management to reward employees who stop work appropriately and discipline employees who don't. Ensure that employees who appropriately stop work do not become the target of criticism or retaliation.
- Monitor the "tone from the top" and remind your management that the perception of your company's compliance culture will influence how BSEE reacts to potential violations on your offshore facilities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
