Health and safety a priority in oil and gas production

Hon Christopher Finlayson

Acting Minister of Labour

27 November 2012Media Statement

Health and safety a priority in oil and gas production

New regulations will ensure that health and safety is a priority in the growing petroleum exploration and extraction industry, Acting Minister of Labour Christopher Finlayson announced today.

New regulations are being introduced to strengthen management of oil wells over the whole life of the well, including managing hazards that could cause a major accident, and minimising the likelihood of an uncontrolled release of oil and gas. Operators will also be required to prepare and submit safety cases to the regulator for assessment before commencing any new operations.

From June 2013, operators carrying out petroleum exploration and extraction activities will have to comply with new regulations for the management of major accident hazards, made under the Health and Safety in Employment Act.

“The recent report of the Pike River Royal Commission, although concerned primarily with underground mining, made very clear that New Zealand’s regulatory standards in hazardous industries were not up to world standard,” Mr Finlayson said. “The changes announced today will bring the petroleum exploration and extraction sector into line with practice in the United Kingdom and Australia.”

“Oil and gas is an important and growing industry in New Zealand. It has the potential to create many jobs and economic opportunities, so it is vital that the industry develops with a stronger focus on the health and safety of workers.”

“New Zealand has never had a major accident resulting in multiple fatalities or injuries in the oil and gas sector, but that is not a justification for standing still,” Mr Finlayson said. “Building skilled and safe workplaces is one of the priorities of this government. It is a vital part of our growth agenda. We are determined that such operations in New Zealand must be managed, and regulated, in such a way as to protect themselves, their workers and the environment from danger.”

Under the new regulations:

• Operators (both onshore and offshore) will be required to prepare a safety case and submit it to the Ministry for acceptance before the commencement of operations. The Ministry will be able to recover, from operators, the full cost associated with its assessment of safety cases.

• Operators of smaller scale, lower risk onshore production installations will be required to prepare an overview of the measures in place to protect the health and safety of those at, or near the installation in lieu of a safety case.

• All operators will have to report ‘near miss’ incidents that could have led to a major accident – this will ensure the Ministry has sufficient data to inform the targeting of its regulatory interventions.

• The regulatory regime will focus on the whole lifecycle of the well to ensure that wells are designed, modified, commissioned, constructed, equipped, operated, maintained, suspended and abandoned in a way that ensures operators reduce the risks to a level that is as low as is reasonably practicable.

• All operators will be required to implement arrangements for independent and competent persons to examine the design, construction, and maintenance of all wells within their inventory.

Q AND A

How will these regulatory changes enhance the existing position?

The changes will ensure that operators, before they commence operations, identify and evaluate all hazards with the potential to cause a major accident and identify suitable control measures. The Ministry will need to accept the findings of this assessment before operations can commence. Currently this requirement is confined to the offshore petroleum industry and does not require regulatory acceptance.

The changes will also introduce more robust requirements to ensure that well integrity is maintained throughout the lifecycle of wells. Well integrity is the first line of defence against an uncontrolled release of oil and gas (or blowout).

Won’t this add a level of cost and complexity to the exploration and extraction process – a focus of the Government’s forward energy policy?

Major accidents, such as the 2009 Montara incident off the northwest coast of Australia, the 2010 Deepwater Horizon incident in the Gulf of Mexico, and the Pike River Mine incident here in New Zealand leave no room for doubt. Unless the management of major accidents is scrupulously observed by the sector and those who regulate it, the potential for harm to petroleum workers, and (in some cases) the environment exists. These regulations will strengthen the management of these hazards.

How much will this new regime, particularly on safety cases, cost operators?

Operators will be required to pay fees of between $70k and $100k for the assessment of their safety case, depending on the type of installation they will be using. The assessment of a revised safety case will cost between $34k and $54k.

Arrangements for the independent examination of wells are likely to cost individual operators $70k per annum (on average).

Other changes will effectively codify what diligent operators have always done as a matter of routine and are unlikely to increase costs.

Why are you putting the cost of health and safety on the operators when there is already a Health and Safety levy they must pay?

The technical sophistication of this sector will likely require the Ministry to engage specialist advice to support the assessment of safety cases. Given the limited number of such operations in New Zealand, it is not feasible for the Ministry to have such specialist resources on staff, so it will have to be purchased on the open market or from overseas regulators. Operators stand to reap significant profit from their work in and around New Zealand but equally, if something goes wrong, the cost to the country in human, economic and environmental terms could be very substantial and so mitigating that risk should not be a cost to taxpayers. Most submitters in the consultation process, including the industry association (PEPANZ), supported the cost recovery proposals.

What international jurisdictions were studied as these regulations were prepared?

Findings from the Commission of Inquiry into Montara and the National Commission on the Deepwater Horizon Oil Spill were taken into consideration during the review of the current health and safety regulations that apply to petroleum exploration and extraction activities. The current regulations were also compared against those used in the United Kingdom and Australia. The new regulations ensure that our approach in New Zealand is more consistent with practice in Australia and the United Kingdom and developments in light of recent major accidents that have occurred overseas.

Is the Ministry properly resourced to implement these regulatory extensions?

The High Hazards Unit was established in 2011 to improve the Ministry’s capacity and capability to provide effective oversight of the petroleum, geothermal, and mining industries.

The safety case regime’s cost recovery mechanism enables the High Hazards Unit to purchase specialist advice to support the assessment of safety cases.

Have you introduced the concept of on-site “check inspectors” as is proposed for underground mining?

In the consultation, unions advocated expanded powers for health and safety representatives working on installations. Under the Health and Safety in Employment Act, that is not possible, but instead, their work will be addressed with the development of an Approved Code of Practice for employee participation in the sector. The Independent Health and Safety Taskforce, being chaired by Shell NZ head Rob Jager is due to report in April next year and may have views on this matter.