FPSO Asset Integrity Management

and Life Extension Forum

Improving cost efficiencies and minimizing shutdown time whist increasing
vessel productivity, value and safety

15 th - 16th October 2015

Crowne Plaza London - Heathrow, London, United Kingdom

FPSO ASSET INTEGRITY MANAGEMENT

AND LIFE EXTENSION FORUM 2015
15 16 OCTOBER 2015, LONDON

REGULATION KEYNOTE:
LEGAL & REGULATORY TREATMENT OF FPSOS
ALEXANDER REID, PARTNER
T: +44 (0)20 7264 8104

alexander.reid@hfw.com

Overview

Update on treatment of FPSOs by Courts and regulators

Legal classification of FPSOs remains uncertain

Regulatory update
Implementation of the EU Offshore Safety Directive

Legal and Regulatory Compliance in the current FPSO Market

Market conditions impacting

FPSO awards

Global FPSO Awards

18

16

Clear focus on existing asset

integrity and cost efficiency

No. of Awards

14

12
10
8
6
4
2

Regulatory compliance
remains crucial element to
cost-effective projects

0
2010

2011

2012

2013

Source: Pareto Securities (July 2015)

2014

2015 (Est.)

Risk Management

Industry where identification

and management of risk is a
priority
Recent FPSO incidents in
2015: Cidade De Sao Mateus /
Petrojarl Knarr

Cidade De Sao Mateus (Source: Sao Paulo Today)

Continued uncertainty in
relation to laws and regulations
is a major concern

Petrojarl Knarr (Source: BG Group)

Key question remains is an FPSO a "ship"?

How will the Courts and regulators treat the various species of
floating exploration, production, storage and offloading vessels?
Potential interpretations:
1.

Similar to trading ships; or

2.

Similar to permanent offshore installations

FPSO Characteristics

Need to consider three categories of floating vessels:

1) Craft built to function as "ships"
2) Floating offshore units that do not resemble "ships"
3) Floating units somewhere between these categories

The third category includes FPSOs common features include:

Resemblance to "ships" in much of their construction
But, do not navigate regularly between places, and may have a connection to the
surface, subsea facilities or the seabed

Key features and functions of a ship

What are some of the key features and functions that may be relevant in
determining whether an FPSO is a "ship"?
Floating?
Not fixed/moored in place?
Ship-shaped?
Self-propelled?

Rudder?
Can navigate independently?
Sea/ocean-going?
Used to navigate between places?
Used in trade and commerce?
Used to carry cargo?

The term "ship" has not been clearly defined in International Conventions

Legal Considerations is an FPSO a "ship"?

Limitation of Liability IMO Conventions:

LLMC 1976 applies to a range of different claims, including personal injury, wreck removal
and property damage:

Covers claims "occurring on board or in direct connection with the operation of a ship" ship not defined

LLMC does not apply to certain "floating platforms constructed for the purpose of exploring or exploiting
natural resources" floating platform also not defined

CLC 1969 (1992 protocol) applies to pollution claims:

Contains a difficult and convoluted definition:

"Ship" means any sea-going vessel and seaborne craft of any type whatsoever constructed or
adapted for the carriage of oil in bulk as cargo, provided that a ship capable of carrying oil and other
cargoes shall be regarded as a ship only when it is actually carrying oil in bulk as cargo and during
any voyage following such carriage unless it is proved that it has no residues of such carriage of oil in
bulk aboard"

LLMC = Convention on Limitation of Liability for Maritime Claims

CLC = International Convention on Civil Liability for Oil Pollution Damage

Interpretation of the definition of a "ship"?

Case Studies
The Santa Fe Magellan
The Slops
International Oil Pollution Compensation (IOPC) working group to develop clear
guidelines. Latest report published on 11 September 2015
Recommendations:

Non-Exhaustive / Illustrative List of vessels defined as "ships"

Includes: "Offshore craft that have their own independent motive power, steering equipment for
seagoing navigation and seafarer on board so as to be employed either as storage units or carriage
of oil in bulk as cargo and that have the element of carriage of oil and undertaking a voyage"

Excludes: "Vessels or craft involved in the production or processing of oil, for example... FPSOs..."

'Grey areas' are to be decided by the 1992 Fund on a case-by-case basis on using the
'hybrid approach' interpreting the example list and the "maritime transport chain" test

Other examples
Arrest

1952 Convention applies to "sea-going ships" not defined

1999 Convention applies to "ships" again, not defined

Merchant Shipping Act 1995

"Shipowner" is defined as "the owner, charterer, manager and operator of a seagoing ship"

"Ship" includes references to "any structure...intended for use in navigation as a ship"

International Convention for the Control and Management of Ships' Ballast

Water and Sediments 2004

A "Ship" is defined in the convention as:

"A vessel of any type whatsoever operating in the aquatic environment and includes
submersibles, floating craft, floating platforms, FSUs and FPSOs".

Financing Issues

Legal consequences why important?

LLMC
If a "ship" under the LLMC, the owner, charterer or operator may be entitled to
limit their liability for certain maritime claims concerning the ship
It not a "ship", there is no such right of limitation
CLC

If a "ship" under the CLC, the owner will be strictly liable for damage caused by
pollution from oil cargos, but may be entitled to limit its liability
If not a "ship", there is no such right of limitation
Worked example:
under International Conventions, an owner of a VLCC of 160,000 GT can limit
liability to:

LLMC limit

= US$90 million

CLC limit

= US$135 million

Contrast Deepwater Horizon costs

FLNG is it a ship?
4 Floating
X Fixed/moored in place (expected to be for
20-25 years)
X Ship-shaped
X Self-propelled
X Rudder
X Can navigate independently
4 Sea/ocean-going
X Used to navigate between places
4 Used in trade and commerce
? Used to carry cargo [depends what we
mean by "carry"]
"it depends" until have a reported case, or there
is a convention giving guidance

Regulatory Update: The Offshore Safety Directive

EU Offshore Safety Directive 2013

Offshore Petroleum
Licensing (Offshore
Safety Directive)
Regulations 2015

Offshore Installations
(Offshore Safety
Directive) (Safety Case
etc) Regulations 2015

Competent Authority
Health and Safety Executive + DECC
=
Offshore Safety Directive Regulator

Merchant Shipping (Oil

Pollution Preparedness,
Response and Cooperation Convention)
(Amendment) Regulations
2015

Offshore Safety Directive: Key Features

Regulations came into force in the UK on 19 July 2015
Creation of OSDR as new competent authority

Safety Case Regulations (SCR) 2015

Owners/Operators must prepare and submit a Safety Case to the CA, which must
include:

Corporate Major Accident Prevention Policy (CMAPP)

Description of the Safety and Environmental Management System (SEMS)

Verification / Well examination schemes

Internal Emergency Response procedure

Decommissioning Safety Case

Design / Relocation Notifications

Offshore Safety Directive: Key Features

Offshore Petroleum Licensing (Offshore Safety Directive) Regulations
2015
Licensing authority must consider (a) the "sensitivity" of the marine environment (b)
technical / financial capability of licensee
Licensee financially liable for prevention / remediation of environmental damage

Merchant Shipping (Oil Pollution Preparedness, Response and Cooperation Convention) (Amendment) Regulations 2015
Requirement to have an Oil Pollution Emergency Plan (OPEP) extended to nonproduction installations / decommissioning

Powers to forbid operations where an OPEP is not in place

Offshore Safety Directive: Industry Implications

Transitional period for existing installations
Safety cases must be approved by 2016/2018 deadline or date of next
thorough review (if earlier):
- Well operations / nonproduction installations: 19 July 2016
- Production installations: 19 July 2018

Not a radical overhaul for the UK but increase in reporting requirements

Review existing arrangements
Model for further action in the sector across other regions?

Lawyers for international commerce

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