OCEAN HULL COMMITTEEWORKSHOPMONDAY 25 SEPTEMBER 2014 14.45 – 15.00 HRS

A COMPARISON OF THE NORWEGIAN REGIME AND THAT OF OTHER JURISDICTIONS IN RESPECT OF LIABILITY FOR OIL POLLUTION FROM FPSO AND FSUS

Advokat Stephen KnudtzonAdvokatfirmaet Thommessen AS

1

2

▶often shaped like ordinary tanker vessels, but permanently moored

▶do not require a main engine and propulsion equipment.

▶often shaped like ordinary tanker vessels, but have a process plant (topside) on deck

▶often moored with a turret arrangement or maintain a stable position with DPS

FPSO AND FSU’S - INTRODUCTION

FSU – ”Floating Storage Unit”

FPSO – ”Floating Production, Storage and Offloading Unit”

3

▷The underground – reservoir

▷The wellhead and blow-out preventer (BOP)

▷The flexible risers with oil flow from the wellhead or production unit to the FPSO or FSU

▷The oil stored onboard the FPSO or FSU

▷From bunkers and other oil used onboard the FPSO or FSU

▷From other vessels or units that collide with the FPSO or FSU – such as Drilling Rigs, Offshore Service Vessels (OSV’s) or Shuttle Tankers

OIL POLLUTION IN OFFSHORE EXPLORATION AND PRODUCTION

4

FPSO WITH RISERS FROM SUBSEA

5

TANDEM LOADING FROM FPSU

6

TANDEM LOADING TO SHUTTLE TANKER

7

WHAT COULD TYPICALLY CAUSE OIL POLLUTION?

▶Accidents in the operation of the offshore oil field

▷bad workmanship, errors in design or faulty installation of subsea equipment or risers, and/or

▷errors in operation (human errors) during drilling operations or installation of risers

▶Collision between the FPSO and other objects

▶Accidents onboard the FPSO or FSU relating to the process plant or maritime matters (handling of bunkers etc)

▶Bad weather

▶Nuclear or cyber attacks

8

THE NORWEGIAN LIABILITY SYSTEM – PETROLEUM ACT CHAPTER 7

▶Pollution damage defined as:

▷damage as consequence of effluence or discharge of petroleum from a facility, including a well, and

▷costs of reasonable measures to avert or limit such damage or such loss,

▷loss incurred as a consequence of reduced possibilities for fishing

▶FSU and FPSO’s, as well as drilling vessels and shuttle tankers (while loading from a facility) are defined as facilities

9

NORWEGIAN LIABILITY REGIME(CONT)

▶Strict unlimited liability on the Operator and on the licencees, in proportion to their participating interest in the JV.

▶”Force majeure” may cause liability to be reduced

▶Channeling of liability – no liability for pollution damage for others: subcontractors, suppliers, manufacturers and employees of operator

10

NORWEGIAN LIABILITY REGIME (CONT)

▶Limited right of recourse by the licencees against other parties –▷only against a person or someone in his service which has acted willfully or by gross negligence

▷but liability may be reduced on the basis of reasonableness

▷a shipowner is always entitled to limitation under the Norwegian Maritime Act, which incorporates the LLC 1969

11

THE LEGAL BASIS FOR LIABILITY FOR POLLUTION

▶The United Nations Convention on the Law of the Sea of 10 December 1982 (“UNCLOS”)– Article 77:

▷Coastal State exercises sovereign rights over the continental shelf for the purpose of exploring it and exploiting its natural resources.

▶The coastal states will regulate the liability for oil pollution in national legislation

▶Coastal states may enter into treaties with other coastal states

12

THE NATIONAL LIABILITY REGIME ON SELECTED CONTINENTAL SHELFS

UKCS

▶Strict liability is established for Operators of Offshore facilities under the ”Offshore Pollution Liability Agreement” (”OPOL”)

▶Liability limits are MUSD 250 in total, divided into 50 % between

▶reimbursement to public authorities of Remedial Measures and

▶compensation to third parties of Pollution Damage.

13

UKCS (CONT)

▶The Operator has to provide evidence of financial responsibility – insurance

▶In addition there is unlimited liability for tort and statue, provided it arises out of negligence resulting in a forseeable damage

▶Subcontractors of the Operator are normally held harmless under knock-for-knock and indemnity arrangements (”K4K”)

14

NATIONAL LIABILITY REGIMES (CONT)

▶Strict liability follows from the Oil Pollution Act 1990 (”OPA 90”) for the owner, operator or demise charterer

▶Liability is limited depending on type of spill and damage caused

▶No cap, if gross negligence or willful misconduct, or violation of certain regulations

USA

15

USA (CONT.)

▶Liability covers loss of natural resources, removal and clean-up costs, property damage, loss of profits/earning capacity, loss of government revenue or increased public services cost.

▶In the Maconda case the cap would have been MUSD 75, if not waived by BP

▶Each state in the US has its own environmental legislation with liability provisions

▶K4K arrangements regulate the liability/indemnity between the operator and its subcontractors

16

NATIONAL LIABILITY REGIMES (CONT)

▶Under the Subsoil Act the licensee is strictly liable to pay damages for any loss, damage or injury caused by the activities carried out under the license.

▶A shipowner is entitled to limitation under the Merchant Shipping Act in respect of mobile offshore installations and ships

Denmark

17

NATIONAL LIABILITY REGIMES (CONT)

▷The Offshore Petroleum Act 2006 contains no specific provisions on civil liability

▷Liability has to be derived from provisions prohibiting escape and from insurance obligations

▷The Oil and Gas Operations Act imposes strict liability on the person who is required to obtain an authorization

▷The liability is limited, and the cap varies depending on the geografical area

Australia

Canada

18

INTERNATIONAL INITIATIVES TO PROMOTE UNIFORM RULES

EU

G 20

▷Study in 2013 from the University of Maastricht: ”Civil Liability and Financial Liability for Offshore Oil and Gas Activities”

▷Uniform rules may be suggested in the EU – strong resistance

▷Established a Global Marin Environment Protection working group, considering a proposal to establish an international fund available for clean up after catastrophes on the marine shelf.

19

INTERNATIONAL INITIATIVES (CONT.)

Comite Maritime International (CMI)

▷CMI has established a Working Group on ”Offshore activities – pollution liability and related issues”

▷A questionaire has been circulated and replied to by 18 countries describing the national liability regimes

20

ISSUES UNDER EXISTING CONVENTIONS

▶Strict liability for the registered shipowner under the ”International Convention on Civil Liability for Oil Pollution Damage 1969” as amended in later Protocols (”CLC 1969”)

▷Applies to ”any seagoing vessel and seaborne craft of any type whatsoever, actually carrying oil in bulk as cargo”

▷1992 Protocol extends application to a vessel not ”actually carrying oil in bulk as cargo”, when it is ”constructed and adapted” to do so

▷The liability is limited, except where there is qualified negligence or privity

21

ISSUES UNDER EXISTING CONVENTIONS (CONT)

▶International Fund for the Compensation for Oil Pollution Damage, 1971 (FUND 1971), as amended in subsequent Protocols, in particular the 1992 FUND Protocol.

▷The 1992 FUND compensates loss and damage in excess of the shipowners liability under CLC 1969 up to certain limitation amounts

▷The 1992 FUND is funded by the member states by contributions levied on oil receivers.

▷The 1992 FUND and a Supplemental Fund are administered by the IOPC Fund.

22

THE ISSUE UNDER CLC 1969 AND 1992 FUND

▶The issue is the same:

▷whether an FPSO and FSU is a ship and fall within the application of the CLC 1969 and the 1992 FUND?

23

THE ”ELEPHANT TEST” DOES NOT HELP

▶In an old judgment from 1897 Lord Scrutton made the following comments on the problem of defining a ship:

▶ ”One might possibly take the position of the gentleman who dealt with the elephant by saying that he could not define an elephant but he knew what it was when he saw one”

▶Life has become more complicated and diversified:

24

DO YOU RECOGNIZE THIS AS AN FPSO?

25

THE ISSUE: APPLICATION OF THE 1992 CONVENTIONS TO FPSO AND FSU’S

▷A legal opinion (2011) concludes that a FSU and FPSO is not a ship:

▷ it was not intended that the 1992 FUND Convention should apply to these units,

▷they do not transport oil from A to B and

▷the IOPC Fund is held to have a wide discretion to decide what vessels fall inside and outside the scope of the 1992 Conventions.

▷A Greek supreme court decision (2006) - the ”Slops” case: a decommissioned tanker used as a storage facility for waste oil, is a ship

26

SPECIFIC ISSUES RELATING TO FSU’S

▶Tanker vessels that are temporary used as FSUs :

▶a shuttle tanker replacing a permanently moored FSU while being repaired or

▶a tanker used as ”mother vessel” – loading and offloading cargoes to other vessels by STS transfer.

27

CRITERIA FOR EXCLUDING FPSO’S AND FSU FROM THE DEFINITION OF A SHIP

▶Objective criteria that may provide som guidance:

▷Whether the FSU/FPSO is connected to flexible risers?

▷Purpose built FSU’s with no navigation and/or steering equipment?

▷Ordinary tanker vessels converted to a FPSO or FSU – do they cease to be covered by the liability regime and when is its status as ship reactivated?

28

ALTERNATIVE SOLUTIONS CURRENTLY DISCUSSED

▶The IOPC Fund indicates following alternative approaches to allow cover under the conventions:

▷(i) Any situation where a vessel carries or stores oil on board and which can be considered as being part of the maritime transport chain should be included in the scope of the Conventions, subject to the clarification of what constituted maritime carriage of oil and its limits; and

▷(ii) To develop a list of vessel types or scenarios which are clearly within or outside the Convention’s definition in order to have a set of interpretive criteria aimed at assisting the governing bodies of the 1992 Fund to decide on a case-by-case basis.

29

CONCLUSION

▶The Norwegian liability regime is the only system that:

▷channels liability to the licence (field operator) with limited recourse against subcontractors,

▷has no limitation rights, and

▷does not question whether the FPSO or FSU is a ship or not, except when a recourse claim is made against a shipowner who has limitation rights

30

THANK YOU FOR YOUR ATTENTION!