Q&A: Relationship with feds improving, but uncertainty lingers

Randall Luthi, the head of the National Ocean Industries Association and a former federal offshore drilling regulator, will discuss energy politics and policy on Tuesday at the Offshore Technology Conference. He spoke with FuelFix about some of the regulatory issues that may have participants buzzing during this week’s gathering. Here are edited excerpts from the interview:

FuelFix: There’s so much happening in Washington right now that will affect the industry, from compliance with SEMS II, the latest Safety and Environmental Management Systems rule, to the possible new proposed standards for blowout preventers later this year. What are you hearing the most about?

Luthi: What I’m getting the most questions about is the full implementation of SEMS. The blowout preventers rule has a lot of people’s attention, only because they’re not sure of a couple of things. Everyone suspects there is going to be a higher requirement for blowout preventers. One of the questions is whether there will be an adequate time frame to phase in those requirements. As a rule, once industry knows what is expected, they can meet it. They just can’t meet it necessarily the next day.

FuelFix: In his speech at the Center for Offshore Safety forum last week in Houston, James Watson (director of the Bureau of Safety and Environmental Enforcement) seemed to be working hard to reassure industry that the Safety and Environmental Management Systems audits won’t be the basis of enforcement actions. Do you think he’s hoping that companies will provide more information in their submitted audits?

Luthi: That’s part of the concern any company has. If the audit finds something wrong, you want to be able to fix it and take care of it. If you’re turning that over to Bureau of Safety and Environmental Enforcement, what are they going to do with that? I think Director Watson was really making an effort to say:, “That’s not what we’re after here. We’re after making the process better, getting more information for all of us.”

FuelFix: The Bureau of Ocean Energy Management is on track to issue a final environmental impact statement on seismic in the Atlantic later this year, paving the way for geophysical studies perhaps as early as next year. Recognizing there are no Atlantic sales contemplated in the current five-year offshore leasing plan, what kind of industry demand is there for seismic studies along the East Coast?

Luthi: What I’m hearing is there is interest just because there is such a lack of new data, but what I’m not hearing yet is someone saying we’re willing to pay for data even though we may never end up with a sale. I think everyone is waiting to see how the environmental impact statement comes through. It appears it is going to be litigated given all the concerns raised about seismic by the (non-governmental organizations). I think it’s wait and see where we are once the environmental impact statement is approved. Conceptually it’s an important first step, but by the time you get through it all, will it make a huge amount of difference? I think it’s too early to tell.”

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FuelFix: How is the relationship these days with federal regulators?

Luthi: It’s much, much better than two years ago. A good example of that is the Bureau of Safety and Environmental Enforcement at the Center for Offshore Safety forum. They did a great workshop on SEMS. That they’re able to listen and be engaged in these kinds of forums I think is fantastic. You really can’t have a well-regulated industry until the regulator agency understands the industry well.

FuelFix: Another big change is that the safety bureau is now taking enforcement action against contractors, after first announcing the policy at OTC two years ago. Is this something you expect people to be talking about?

Luthi: Most of industry felt this might happen but wouldn’t happen that often. Then in March when there were six incidents of non-compliance issued, that got a lot of people’s attention. Some of the issues are still unresolved. If you’re going to issue incidents of non-compliance routinely against contractors, what does that do to contractors and their insurance? That’s one of the areas that hasn’t been addressed.

FuelFix: One of the things that isn’t in the official regulatory agenda for the Bureau of Safety and Environmental Enforcement but clearly is contemplated is this idea of developing Arctic-specific standards. What would be the industry’s appetite for engaging on that and working with regulators to develop some clear guideposts?

Luthi: Companies want to know how is the Arctic going to be treated so much differently. Is it going to be treated differently off the coast of Alaska than in Norway and some of the other Arctic areas? Just what are the rules as we start to make those investments up there? Shell is a great example of the kind of monetary investment it takes to start looking in the Arctic. A lot of companies are going to say, “Boy, how much money do we spend when we’re not sure what we’re going to have to do?”” We certainly don’t want to make this up as we go along or change it as we go along.”