FPSO ASSET INTEGRITY

8/17/2019 FPSO ASSET INTEGRITY

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15 - 16 October 2015

Crowne Plaza London - Heathrow, London, United Kingdom

th th

FPSO Asset Integrity Managementand Life Extension Forum

Improving cost efficiencies and minimizing shutdown time whist increasing

vessel productivity, value and safety

https://twitter.com/bisgrpcom


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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

[email protected]

mailto:[email protected]:[email protected]


3/18

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


4/18

Legal and Regulatory Compliance in the current FPSO Market

Market conditions impactingFPSO awards

Clear focus on existing asset

integrity and cost efficiency

Regulatory complianceremains crucial element tocost-effective projects

Source: Pareto Securities (July 2015)

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2

4

6

8

10

12

14

16

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2010 2011 2012 2013 2014 2015 (Est.)

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Global FPSO Awards


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Risk Management

Industry where identificationand management of risk is apriority

Recent FPSO incidents in2015: Cidade De Sao Mateus /Petrojarl Knarr

Continued uncertainty inrelation to laws and regulationsis a major concern

Cidade De Sao Mateus (Source: Sao Paulo Today)

Petrojarl Knarr (Source: BG Group)


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Key question remains – is an FPSO a "ship"?

How will the Courts and regulators treat the various species offloating exploration, production, storage and offloading vessels?

Potential interpretations:

1. Similar to trading ships; or

2. Similar to permanent offshore installations


7/18

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 thesurface, subsea facilities or the seabed


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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


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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 removaland 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 othercargoes 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 ClaimsCLC = International Convention on Civil Liability for Oil Pollution Damage


10/18

Interpretation of the definition of a "ship"?

Case Studies

The Santa Fe Magellan The Slops

International Oil Pollution Compensation (IOPC) working group to develop clearguidelines. 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 forseagoing 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


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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


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Legal consequences – why important?

LLMC

If a "ship" under the LLMC, the owner, charterer or operator may be entitled tolimit 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 bypollution 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 limitliability to:

LLMC limit = US$90 million

CLC limit = US$135 million

Contrast Deepwater Horizon costs


13/18

FLNG – is it a ship?

4 Floating

X Fixed/moored in place (expected to be for20-25 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 wemean by "carry"]

"it depends" until have a reported case, or thereis a convention giving guidance

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=SErAJaxjLn4LcM&tbnid=BPsVSkuKHsJF-M:&ved=0CAUQjRw&url=http://www.upstreamonline.com/live/article1326372.ece&ei=NrItUoKgHYfL0AXz-YGABg&psig=AFQjCNE0qPtQ2R1fLbHy2Ex1w-6ZvyI_1A&ust=1378812798537332


14/18

Regulatory Update: The Offshore Safety Directive

EU Offshore Safety Directive 2013

Offshore PetroleumLicensing (Offshore

Safety Directive)Regulations 2015

Offshore Installations

(Offshore Safety

Directive) (Safety Case

etc) Regulations 2015

Merchant Shipping (OilPollution Preparedness,Response and Co-

operation Convention)(Amendment) Regulations

2015

Competent AuthorityHealth and Safety Executive + DECC

=Offshore Safety Directive Regulator


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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


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Offshore Safety Directive: Key Features

Offshore Petroleum Licensing (Offshore Safety Directive) Regulations2015

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 Co-

operation Convention) (Amendment) Regulations 2015

Requirement to have an Oil Pollution Emergency Plan (OPEP) extended to non-production installations / decommissioning

Powers to forbid operations where an OPEP is not in place


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Offshore Safety Directive: Industry Implications

Transitional period for existing installations

Safety cases must be approved by 2016/2018 deadline or date of nextthorough review (if earlier):

- Well operations / non –production 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?


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Lawyers for international commercehfw.com

Documents

FPSO ASSET INTEGRITY