Macondo: the disaster that changed the rules - SCOR.COM
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Technical newsletter April 2014
Macondo: the disaster that changed the rules
On 20 April 2010, while completing work on an exploratory well in the Macondo Prospect, approximately
50 miles off the coast of Louisiana, the semi-submersible oil rig Deepwater Horizon experienced a
catastrophic blowout, leading to several crippling explosions and an uncontainable fire that resulted
in the deaths of 11 rig workers. Two days later, the rig sank in approximately 5,000 feet of water.
The accident severed the rig's connection to the seafloor, while the blowout preventer experienced
a complete failure, allowing oil from the reservoir to plume into the Gulf of Mexico. The federal
government estimates that the Deepwater Horizon incident released 4.9 million barrels of crude oil
into the Gulf of Mexico before the damaged well was stabilized on 15 July, making it the single worst
offshore incident in US history.
In the three years following the oil spill, the government and the oil and gas industry (the Industry) have
worked hard to create and implement new rules governing offshore drilling.
The Deepwater Horizon accident has led to a re-evaluation of deepwater drilling procedures. New
regulations have been implemented with a view to preventing future oil spill incidents and improving
the health and safety of both the environment and offshore workers.
This seems particularly relevant in a technological environment where an increasing number of oil and
gas projects involving ultra-deep drilling are being presented by various players.
Most people in the oil production business believe that the era of easy oil discovery is over, and many
of today’s oil and gas reservoirs are indeed to be found in increasingly difficult locations with complex
geologies. These locations include large, ultra-deep oil and gas reservoirs.
The (re)insurance sector still views these projects as extremely risky. SCOR’s objective is to incorporate
these new prospects into our existing portfolios as carefully as possible.
SCOR Global P&C’s Business Solutions division currently deals with a large number of ultra-deep drilling
projects. It is important for the underwriters, lawyers, regulators, financiers and engineers involved to
understand the risk exposure linked to these projects and to verify that the insureds are closely following
the new post-Macondo regulations.
US government focus – four areas
Only three years have passed since the Task Forces (JITFs) and the Bureau of Safety
disaster in the Gulf, but it is already and Environmental Enforcement (BSEE). Center for Offshore
Safety (COS)
clear that the incident has led to some The order specified that:
significant changes in terms of the • The Center for Offshore Safety (COS)
regulation of offshore oil and gas would be created by the Industry to serve as
Minerals Bureau of Safety
production in the United States. the focal point for operators to work together Management and Environmental
on the enhancement of offshore operations. Service (MMS) Enforcement (BSEE)
Changes in the regulation • The Bureau of Safety and Environmental
of offshore oil and gas Enforcement (BSEE) would have the
Joint Industry
production authority to inspect and investigate Outer Task Force
The first notable change was to the identity Continental Shelf (OCS) activities, including (JITFs)
and makeup of the regulator itself. calling witnesses, levying penalties, and
On 9 May 2010, the Secretary of the Interior cancelling or suspending activities.
issued Secretarial Order No. 3299, eliminating • The Joint Industry Task Forces (JITFs)
the Minerals Management Service (MMS) and would be assembled by the Industry in
replacing it with three new bodies: the Center order to focus on critical areas of the Gulf
for Offshore Safety (COS), the Joint Industry of Mexico’s offshore activity.The changes reflect the Department’s Procedures Task Force (Procedures JITF), enhancing safety and environmental
response to criticism of its functioning the Joint Industry Offshore Equipment Task protection.
in the past. M MS was supposed to Force (Equipment JITF), the Joint Industry The ultimate goal for these JITFs is to
be responsible for guaranteeing safe Subsea Well Control and Containment Task improve Industry drilling standards in
and secure operations on the Outer Force (Subsea JITF), and the Joint Industry order to form comprehensive and safe
Continental Shelf. In theory, this meant Oil Spill Preparedness and Response Task drilling operations, well containment
that MMS would carefully evaluate the Force (OSPR JITF). and intervention capability, and oil spill
environmental and socioeconomic impact Sessions began in early spring of 2010 response capability, not just through
of lease sales and other OCS activities, to provide recommendations to the US the evaluation and revision of Industry
balancing the cost s and benefit s of Department of the Interior in the areas guidelines and procedures, but also
further development. However, there of oil spill prevention, intervention and through active engagement with regulatory
was a perception among many critics that response, with the definitive aim of processes.
the revenue management functions of
MMS gave it a direct incentive to increase
and expedite OCS development, thereby
hampering its regulatory neutrality.
Changes in the safety & Well Containment &
environmental management Intervention Capability
system
A lot of good work has gone into remaking
the old MMS. The Bureau of Safety and
Environmental Enforcement (BSEE), now
includes an Investigations and Review Unit, Sale
the mission of which is “to promptly and Drilling
credibly respond to allegations or evidence Operations
of misconduct and unethical behaviour Spill
by Bureau employees; pursue allegations Prevention &
Response
of misconduct by oil and gas companies Industrie Drilling
Capability
involved in offshore energy projects; and Standards
assure the Bureau's ability to respond
swiftly to emerging issues and crises,
including significant incidents such as spills
and accidents”. BSEE must be adequately
Figure 1: Restoring confidence in deepwater drilling operations through comprehensive improvements
staffed, clear about its mission and able to to well containment and intervention capability, spill response capability and drilling standards.
keep up with the constant innovations of
private industry - a challenging task given
the need to compete for talent with the Drilling safety rules: and operational performance.
Industry and with other entities. Joint Industry Offshore These recommendations resulted in the
A transparent way must be found for the Operating Procedures Task Force revision of the American Petroleum Institute
Industry to be involved in exposing the new Permit applications must now meet (API) guidelines, which are considered
investigators and regulators to emerging new standards for well design, casing Industry best practices for US oil and gas
technologies and techniques. and cementing, and be independently operations.
BSEE and the Industry must develop a certified by a professional engineer. Plans The API guidelines provide well design and
collaborative approach to training these must include a compliance statement and operational considerations for the safe design
new investigators. a review of subsea blowout containment and construction of deepwater wells, with
resources for deepwater drilling. maximum reliability:
Joint Industry Task Forces (JITFs): • the casing and cement programme must
four areas ➥ Well integrity now be certified by a Professional Engineer;
Amid the initial uncertainty regarding the The Procedures JITF reviewed critical • two independent barriers must be set
causes of the blowout, the difficulty of a processes associated with the drilling and up during completion (certified by a
major reorganization, and heavy public completion of deepwater wells, in order to professional engineer);
criticism, the oil & gas industry assembled identify gaps between existing practices and • any change-out of lighter fluids must be
four JITFs to focus on critical areas of regulations and Industry best practices. Their approved (negative test procedures);
Gulf of Mexico (GOM) offshore activity: recommendations were intended to move • installation, sealing, and locking of casing
the Joint Industry Offshore Operating Industry standards to a higher level of safety hangers is a new requirement.
SCOR Global P&C - Technical Newsletter - 2➥ BOP (blowout preventer) & control Adequate spill responses ➥ Marine Well Containment
system: Joint Industry Offshore & well containment resources Company
Equipment Taskforce ➥ Joint Industry Subsea Well Control In the days immediately following the
The Equipment JITF reviewed current BOP and Containment Task Force incident, it became clear that neither the
equipment designs, testing protocols and The Subsea JITF reviewed technologies companies involved nor the Industry as
documentation. Their recommendations, as and practices for controlling the release a whole had realistic plans in place for
listed below, were designed to close any gaps of oil from the source of a subsea well containing a disaster of the scale presented
and to create improvements in these areas: where there has been a loss of control. by the Macondo blowout.
• blind-shear ram function-testing & 3rd These include equipment design, protocol Though the operators were ultimately
Party verification; testing, research and development (R&D), able to cap the wellhead and then seal
• requirement & function testing for auto regulations and documentation to determine the well itself, the initial series of trial-and-
shear; if enhancements are needed. error attempts at stopping the initial leak
• m in im u m re q u ire m e nt s fo r R OV The JITF identified five key areas of focus for damaged both the environment and the
intervention plus testing; GOM deepwater operations: public’s confidence in the Industry.
• BOP inspection & maintenance to API • Well containment on the seafloor; Early shortfalls in necessary oil cleanup
RP 53; • Intervention and containment within the equipment led critics to accuse the Industry’s
• minimum requirements for personnel subsea well; response process of having evolved very
operating BOP equipment. • Subsea collection and surface processing little since the Exxon Valdez disaster decades
and storage; earlier.
Based on the Equipment task force’s • Continuing R&D; Anticipating that the Industry would now
recommendations, an API work team • Relief wells. have to demonstrate enhanced capabilities,
began development on the fourth edition several large integrated companies formed
of API RP 53 Recommended Practices The Subsea JITF focused primarily on the Marine Well Containment Company
for Blowout Prevention Equipment Systems potential operational scenarios after a well (MWCC) in July 2010.
for Drilling Wells. This edition was updated blowout has occurred. It also considered the Shell, ExxonMobil, ConocoPhillips and
and published in early 2012. containment of hydrocarbons that may leak Chevron announced that the consortium
from subsea production system equipment would be funded by $1 billion in member
Worst case blowout (e.g. subsea production wells) and casing contributions. The purpose of MWCC
discharge & blowout response: stubs on the seafloor. was to design and make available a
joint Industry oil spill technology system that would be “flexible,
F o ll ow ing the M a co nd o a ccid ent , adaptable…. able to begin mobilization
stronger offshore drilling regulations were within 24 hours and that can be used on a
implemented. For instance, operators must wide range of well designs and equipment,
now demonstrate that they are prepared to oil and natural gas flow rates and weather
deal with the potential for a blowout. conditions.”
The Joint Industry Oil Spill Preparedness The pre-engineered system was designed
and Response Task Force (OSPR JITF) spent to be able to contain a blowout in
several months developing and prioritizing 10,000 feet of water at a peak discharge
project plans to address each preliminary rate of 100,000 b/d. Since its introduction,
recommendation, and subsequently received six new companies have joined MWCC
approval and Industry funding commitment (BP, Apache Corp, Statoil ASA, BHP Billiton,
for a multi-year work programme. Anadarko Petroleum, and Hess Oil). Member
The OSPRS divided the recommendations companies claim to represent 70 percent
into seven categories, or work streams, as of the deepwater wells drilled in the Gulf.
outlined in the original report, specifically: Non-members can lease the MWCC system
• Planning for a fee.
• Dispersants
• Shoreline Protection and Cleanup ➥ Helix Well Containment Group
• Oil sensing and Tracking At the same time, a larger group of more than
• In-Situ Burning 15 independent oil and gas companies active
• Mechanical Recovery in deepwater exploration and production
• Alternative Technologies formed the Helix Well Containment Group
(HWCG). The group works in partnership
with Helix Energy Solutions Group (HESG),
a field services company active in the Gulf
Well containment system of Mexico.
SCOR Global P&C - Technical Newsletter - 3Members
Q4000
ATP Oil & Gas Corporation Non-DP. Storage Tanker
Cobalt International Energy, LP
12" Flex Export Line
Deep Gulf Energy, LP Floating Offloading Hose
(Hawser not shown)
ENI U.S. Operating Company
Energy Resource Technology GOM Inc.
Freeport-McMoRan Oil & Gas
LLOG Exploration Company, LLC Helix producer I
Marathon Oil Company
Marubeni Oil & Gas (USA), Inc
Murphy Oil Corporation
Noble Energy, Inc. 6-5/8" HD-563
5" 10,000 PSI
Repsol E&P USA Inc. Q-125 32 lbs/ft
Casing (5-5/8" ID) Flexible Riser
Stone Energy Corporation (All threaded,
Q4000 installed)
Walter Oil & Gas Corporation
W & T Offshore Inc.
Flow
Intervention
5" 10,000 PSI
Stack Can Riser Flexible
RiserRiser
System
connect
to BOP,
In fact, HESG was hired as part of the effort Wellhead IRS
or Tree
to stem the flow of oil from the ruptured SSOD
Macondo well, and at one point was BOP Subsea shut
Stack
successfully collecting up to three quarters off device /
Well Cap
of the oil flowing from the well before it
was capped.
There is considerable debate over whether
the existence of two separate Industry-
sponsored containment entities, HWCG Helix containment system
and MWCC, is either useful or necessary.
HWCG, populated by smaller, independent
companies, is positioned to respond to Center for Offshore Safety (COS) governance
a blowout at a mid-sized well. MWCC,
as a partnership between much larger, The Center’s primary objective is the improvement of the Industry’s safety and
integrated international oil companies, is environmental performance. It will provide a platform for Industry collaboration
clearly designed for a much larger incident. with third party stakeholders, including Federal agencies.
This dichotomy would seem to imply that
the two systems are equally important. The Center is located in Houston and has a governing board representing a diverse cross-
Indeed, there has been some discussion of section of the Industry.
the groups working together in the future.
Member Companies
It is important to note that both HWCG • Anadarko Petroleum • ConocoPhillips • NOIA
and MWCC are generally geared towards Corporation • Diamond Offshore • Oceaneering
responding to incidents in the US Gulf of • Apache Drilling, Inc. International, Inc
Mexico. An early criticism of this approach • Baker Hughes Inc. • Ensco Offshore • Pacific Drilling
was that the Industry was ill-prepared for • BHP Billiton Petroleum International • Schlumberger
subsea blowouts in other areas of the OCS, • BP Exploration and • Exxon Mobil Corporation • Seadrill Americas
or indeed globally. Production Inc. • Halliburton • Shell International E&P Inc.
To respond to this issue, nine of the world’s • Cameron International • HESS • Statoil North America Inc.
largest oil companies announced the Corp. • IADC • Stone Energy
formation of the Subsea Well Response • Center of Offshore Safety • Marathon Oil • Tidewater Inc.
Project (SWRP) in May of 2011. SWRP • Chevron Energy • Marine Spill Response • TOTAL E&P USA INC.
members include BG Group, BP, Chevron, Technology Company Corporation • Transocean
ConocoPhillips, ExxonMobil, Petrobras, • Cobalt International • Murphy Oil
Shell, Statoil and Total. Energy • Noble Corporation
SCOR Global P&C - Technical Newsletter - 4What about the other countries?
The human tragedies, together with the environmental, social and economic costs of Macondo, inevitably led the
US to conduct an extensive review of its regulatory regime. The UK and the European commission followed suit.
UK offshore regulatory regime One of the areas scrutinised was the financial DECC is aware through the auspices of
In considering the consequences of the capabilities of licensees following a blowout Oil&Gas UK (OGUK), an Indemnities and
Macondo accident for the UK regulatory from drilling operations on the UKCS. Insurance Review Group was established
regime, it is important to consider the under a forum to provide assistance to a
significant differences between the United In respect to drilling activity, OPEPs (Oil review of what and how to demonstrate
Kingdom Continental Shelf (UKCS) and Pollution Emergency Plans) contain worst financial responsibility with regard to both
the Gulf of Mexico – in terms of both the case scenario information and details are first and third party costs, including the
physical environment concerning weather, provided of the incident response actions OPOL limit.
climate and normal sea state, and the nature to be implemented should such a scenario The outcome of this working group was
of the regulatory regime, where a goal- occur, including loss of well containment/ the production of OGUK Guidelines.
setting approach plays a major role in the well blow out. These actions can include These guidelines contain five appendices
UK compared to a largely prescriptive US deployment of a capping/containment setting out certificates that, depending on
approach. device or the drilling of a relief well with the particular circumstances, OGUK recommend
In December 2012, the UK government related logistical and time frame factors. should be submitted to DECC.
published its final report on the adequacy of All the response mechanisms to be used by This guidance has effect on and from
the present regulatory regime for offshore oil the operators during any such incidents will 1 January 2013.
and gas operations on the UK Continental be expensive (first party costs), as may the
Shelf (“UKCS”) in the post-Macondo era. compensation costs for pollution damage Norwegian regulation
Responsibility for offshore oil and gas (third party costs). Following the Macondo incident in April
regulation in the UK is split between 2010, the Norwegian Ministry of Petroleum
three authorities: (1) the Health & Safety For an OPEP to be credible and for DECC and Energy announced that the incident
Executive (“HSE”), which is responsible for to have sufficient assurance that the OPEP could result in changes to laws and
the safety integrity of E&P operations: (2) the will be implemented when required, DECC regulations concerning activities on the
Department of Energy and Climate Change requires operators to provide sufficient Norwegian Continental Shelf.
(“DECC”), which is responsible for licensing evidence that the risks of the operation have The Petroleum Safety Authority, PSA
and drilling consents as well as environmental been appropriately estimated and that the Norway, has the regulatory responsibility
protection and response; and (3) the Maritime financial mechanisms are in place to meet for safety, emergency preparedness and
and Coastguard Agency (“MCA”), which is those risks. the working environment for all offshore
responsible for responding to oil spills. and onshore petroleum-related activities
In 1988, the UK suffered its own “Macondo” The level of financial responsibility that in Norway.
when the Occidental-operated Piper Alpha companies need to demonstrate for any According to PSA Norway, the Macondo
production platform exploded, resulting in particular well should be calculated by accident has demonstrated the need
167 deaths. establishing the combined: to assess a number of measures that
The subsequent regulatory review led to • cost of well control can improve the management of major
a raft of safety legislation, with the effect • cost of financial remediation and accident risk, with an eye to more robust
that the UK’s offshore regulatory regime compensation from pollution solutions than those generally employed
is now regarded as one of the most robust And this should accompany the relevant today. Permission from the PSA to start
in the world and acknowledged as a “gold OPEP at the time it is submitted to DECC drilling a new well will now depend on
standard”. Nevertheless, Macondo provided for approval, unless otherwise agreed with the applicant’s ability to handle a potential
a poignant reminder of the importance of DECC. blowout.
maintaining and developing a regulatory The PSA repor t of assessment s and
regime of the highest standard, capable of Financial responsibility can be verified by recommendations after the Macondo
managing incidents in increasingly complex means of: incident was finally issued on 16 June 2011.
and remote drilling scenarios. • reliance on credit/financial strength Part one of the report focuses on lessons
In 2011, DECC has been reviewing the rating of the operator or co-venturer for safety and emergency preparedness in
systems and processes in place with the aim • insurance connection with drilling and well operations
of improving and strengthening procedures, • parent company guarantee/affiliate on the Norwegian Continental Shelf,
including those demonstrating financial undertaking; and part two contains guidance on the
responsibility, with regard to exploration and • any combination of the above. prevention of major accidents in general for
production activity. the whole Norwegian petroleum industry.
SCOR Global P&C - Technical Newsletter - 5Brazilian regulation production level of 2.5 million barrels per necessarily translate into strengthening Looking to the oil and gas landscape day could actually double by 2020, when Brazilian legislation in an effort to lessen beyond the Gulf of Mexico, the Macondo taking into account the “pre-salt” project the damage caused by an oil spill. oil spill and environmental clean-up off the coast of São Paulo. The Brazilian authorities discussed these response has been studied by another issues at a meeting held in Rio de Janeiro, oil producing country in the Americas The offshore discoveries have resulted in which concentrates 80% of the country’s - Brazil. The largest country in South new shipbuilding, ship owning, shipyards, oil exploration. Five workgroups were America is already a major player in the crewing and overall maritime sector created to gather information on accident oil industry and its production is about opportunities. This boom brings to mind prevention and strategies designed to to increase exponentially. State-owned the Spiderman comics statement: “With contain and minimize the impacts of energy superpower Petroleo Brasileiro S.A. great power there must also come great possible leaks. (Petrobras) has projected that the current responsibility”. Said responsibility will Post-Macondo projects: preparing for the underwriting challenges Companies have no doubt learned a lot with new guidance post-Macondo has dealing with “deep offshore drilling” from the Macondo oil spill, but mistakes been challenging due to the frequent projects. In all honesty, however, it is can of course still happen. Operators have amendments to current requirements, the still difficult to know if there have been learnt how to respond to these in a faster, differences between countries and the lack effective advances in offshore safety since more efficient way. of communication between the various the Macondo accident of April 2010. The lessons of Macondo are all about safety centres and organizations. engineering, permits, plans, communication N ever theless, the incident has not and sociology. The idea is that anyone, From an insurance point of view, the discouraged global deepwater exploration. employee or contractor, can order work purpose of this document has been to In the near future, there will be even more to be suspended if he or she feels that give an overview of the new regulations deepwater drilling rigs and deepwater anything unsafe is going on. However, many post-Macondo and to set out the challenges projects in existence than before the spill. operators have been finding that complying encountered by insurers/reinsurers when Caroline Haquet Underwriter Offshore & Shipbuilding SCOR Global P&C chaquet@scor.com SCOR Global P&C 5, avenue Kléber - 75795 Paris Cedex 16 - France Editor: Dominique Dionnet Tel.: +33 (0)1 58 44 72 62 - Fax: +33 (0)1 58 44 85 22 - ddionnet@scor.com ISSN : 1967-2136 No part of this publication may be reproduced in any form without the prior permission of the publisher. Design and conception: SCOR Global P&C, Strategy & Development/ – (04/2014).
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