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Deepwater Horizon & Montara Oil Spills Possible Legal Implications

Hilton Hotel, Singapore23-24 November 2010

www.searesources.biz

International Oil Spill Response 2010 Conference

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Text

APresentation Outline

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1 PTTEP Montara West Atlas

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Conclusion

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Transocean / BP Deepwater Horizon

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International Law

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Domestic Law and Institutions

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1 AUGUST 2009 PTTEP AUSTRALASIA

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21 Aug ’09, PTTEP Australasia Operated rig ‘West Atlas’

in Montara oil fields of Timor Sea had a well-

headed blow out that spilled 2,000-4,000 barrels per day for 76 days.

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2 APRIL 2010 DEEPWATER HORIZON

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World’s biggest offshore drilling contractor

Owned and Operated the Deepwater Horizon drilling rig

In Gulf Mexico under contract to BP Oil

20 April 2010, caught fire and sank in 1,500 m (5,000 ft) of water

Killed eleven (11) workers

More than 5,000 barrels (>800,000 litres) of oil spilled per day to 15 July 2010 (possibly

>20,000 barrels per day)

Fatal blowout at Macondo Well caused the loss of the Deepwater Horizon rig.

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• July 2010 Financial Times "at some point the scale of the litigation becomes so large that it really is novel", that "the situation is likely be complicated further because the variety of probable cases means it will be hard to aggregate them into so-called class actions” and that there is "no way to put this in historical context because we have never faced anything like this before“… litigation is being discussed in terms of a 20 year timescale.

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all ushered in new national laws and international laws relating to oil spills and safety.Will West Atlas and Deepwater Horizon incidents do the same?

Torrey Canyon

Exxon Valdez

Piper Alpha

INCIDENTS

Deepwater Horizon event in particular was very high profile.

Exxon Valdez Piper AlphaTorrey Canyon

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3 International Law

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Environmental Pollution from Land, or operations within

EEZ / Continental Shelf

Pollution from Vessels

Responsibility and liability rules are more detailed.

International rules enforced & monitored

International Maritime Organization guidelines and rules

No binding minimum standards in treaty law to guide countries

LOSC provides a framework for it but does not set the rules.

Bilaterally

Regionally

Globally

UN Convention on the Law of the Sea calls for rules to be negotiated:

In the main, yet to be done

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• For example, Treaty Law to protect the environment from shipping (some also apply to oil & gas operations, but were driven by concern primarily over shipping impact):

– Prevention: MARPOL 73/78; London Convention & Protocol; Load Lines Convention; Ballast Water Management Convention; Anti-fouling Systems Convention; Convention on Safe Containers 1972; STCW Convention; Basel Convention of Transboundary Movements of Hazardous Wastes; COLREGS; SOLAS;

– Preparedness & Response: Intervention Convention & Protocol; OPRC 1990 & its Hazardous & Noxious Substances Protocol 2000; SAR Convention; Salvage Convention; Civil Liability for Oil Pollution (CLC) Convention; Fund Convention 1992

• Why?

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01,000,0002,000,0003,000,0004,000,000

Metric Tons

Metric Tons

Source: American Enterprise Institute for Public Policy Research No.1, June 2010

Last 60 years = 10 offshore drilling accidents >5,000 tons of oil: = 72 tanker accidents >5,000 tons of oil

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• SOLAS Chapter IX ‘The International Management Code for the Safe Operation of Ships and for Pollution Prevention’– 1st July 2010 amended to include the concept of

assessment by the company of “…all risks to … ships, personnel and the environment, and [establishment of] appropriate safeguards”

– ISM auditors, port State & flag State administrators must determine that ship (and MODU) operators have documented risk assessment procedures

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• UN Convention on the Law of the Sea• Article 194

– States shall take, individually or jointly as appropriate, all measures consistent with this Convention that are necessary to prevent, reduce and control pollution of the marine environment from any source, using for this purpose the best practicable means at their disposal and in accordance with their capabilities, and they shall endeavour to harmonize their policies in this connection.

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• UN Convention on the Law of the Sea• Article 194

– The measures taken pursuant to this Part shall deal with all sources of pollution of the marine environment. These measures shall include, inter alia, those designed to minimize to the fullest possible extent:• (c) pollution from installations and devices used in

exploration or exploitation of the natural resources of the sea-bed and subsoil, in particular measures for preventing accidents and dealing with emergencies, ensuring the safety of operations at sea, and regulating the design, construction, equipment, operation, and manning of such installations and devices.

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4 Domestic Law and Institutions

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• Australia– COO of Roc Oil, Alan Linn:

• “It was always our feeling that (Montara) would be a game-changer for the Australian industry… The Deepwater Horizon on top of that will fundamentally change the way the industry is regulated. It has to.”

– Commission of Inquiry into the incident with nearly all the powers of a Royal Commission

– Australian Financial Review (19 June ‘10) speculation of “a single national regulator for off-shore drilling”

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• UK:– Government reviewing indemnity and insurance

requirements for smaller companies– Qualification criteria to become an operator

(exploration & production) may change– Dilemma because Gov depends on smaller

companies to find new oil– Dept for Energy & Climate Change recruiting

additional inspectors for its Aberdeen office– Recent 26th licensing round, areas off Northern

Ireland placed off limits because of coastal proximity

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• USA:– May 2010, Dept of Interior issued a report entitled

‘Increased Safety Measures for Energy Development on the Outer Continental Shelf’ – requirement for improved blowout preventers with stricter testing and inspection procedures, and tougher standards for off-shore well designs

– Preliminary draft legislation proposed by the House Energy and Commerce Committee includes provision that the CEO of an oil company personally attests that it has a blow-out preventer and effective oil-spill response plan

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• USA (Cont’d)• Moratorium on deepwater drilling activity (>500 feet), lifted on

13 October, with tighter Dept of Interior regulations creating a “Gold Standard” for offshore operations, e.g.:

– Operators must have their blowout preventer inspected and its design reviewed by an independent third party.

– They must present a report showing how they would prevent or reduce a blowout at the wellhead.

– They must get all their casing designs and cementing procedures certified by a professional engineer.

– The Bureau of Ocean Energy Management, which issues new permits for deep-water drilling in the Gulf, is “working to develop additional rules and guidelines”

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• USA (cont’d):– New approach where step-by-step procedures will be

monitored and graded by internal and external auditors– Sep 2010, Dept of the Interior announced will not decide

on oil & gas drilling in the Alaska Arctic outer continental shelf until completes review of offshore drilling issues – Alaska sues Dept over the “de facto moratorium”, but is conducting analysis of state regulations on offshore drilling

– Operators may be required to demonstrate the capability to drill a relief well if necessary, i.e. source control

– Since Deepwater Horizon event, Shell added response for Alaska Chukchi Sea operations to build a containment dome and recovery system (similar to that built to contain Macondo) well for storage at a nearby port

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• South Pacific Island States:– Model ‘Marine Pollution Prevention Legislation’

developed by the Secretariat of the Pacific Regional Environment Programme (SPREP)

– Already promulgated by Cook Islands, Samoa, and Tonga and used as a model by Fiji, Nauru, PNG and Solomon Islands

– Sets levies for a National Marine Pollution Fund (POLFUND), contributors are vessels over certain tonnage and oil storage depots

– POLFUND for oil spill planning, preparedness & response

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5 Conclusion

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• Around the world, economic opportunity and technological advances are driving the search for energy sources into deeper ocean

• If new regulations and financial liability too onerous, will shut out smaller operators, restrict production and require transportation of more oil (thus increasing risk again)

• Already seen domestic legal tightening and more cautious institutional response; inevitably will flow into international rules, especially relating to improved control of oil source

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Speaker:

MAX HERRIMAN (Chief Executive Officer)

max@searesources.biz

Thank you.