Sudden Exposure -

Mitigate your Financial

Risk to Short and Long

Term Environmental

Impacts in Drilling

Project Management

David van Senden

September 2015

Outline

Introduction – Drilling and Production

Risks of Marine Oil Spills

• Ecosystem Values (Environmental and Socioeconomic)

• Potential consequences for proponents – i.e. polluter pays

NOPSEMA Financial Assurance (OPGGS amendment 2013)

• APPEA Method for estimating FA

Readiness Planning for Impact and Damage Assessment

• EP/OPEP Impact assessment: Baseline (pre-spill) vs rapid response

• Statistical confidence in attributing impacts (and damages) to an oil spill

Conclusions

• Drilling and Production Operations • Project Management • Engineering Services • Well Optimization • Planning and Approvals • Compliance Monitoring

Project Management

Approvals, Drilling & Production Services

> Drilling & Production service offerings include:

– Project management and outsourcing

– Global rig management services

– Well engineering and design

– Production management

– Environmental Investigations and Planning (EP, OPEP)

– Environmental Compliance Monitoring

– Financial Assurance Compliance

> Managed the drilling, workover, or completion of over 2,500

wells around the world

> Cardno manages between 5 and 15 third-party rigs around

the world at any given time

Ecological Risks of

Marine Oil Spills

• Ecosystem Value (Environmental

and Socioeconomic)

Marine Reserves, Bio

regions, Coastal Habitats

(RAMSAR)

Primary Industries

(Fisheries, etc)

Recreation and Aesthetics

Industrial

Cultural and Spiritual

Basis for EP/OPEP/OSMP

Figure 3 Example conceptual process model for oil spills. NOPSEMA N-04750-IP1349

Potential consequences for proponents – i.e. polluter pays

Exxon Valdez – Natural Resource Damages Settlement approx $1 Billion in

early 90’s dollars

Gulf Spill - Published estimates of $25-30 Billion in clean up, economic damages

and early restoration (does not include NRDA or Civil Penalties)

Small spill clean up 100,000 gallons can easily breach at 1 million a day, damage

assessment costs and natural resource claims can be in the $5-15 million range

Brazilian prosecutors submitted claims in civil lawsuits

against Chevron seeking $17.5 billion in damages for a

November 2011 oil spill. Final settlement agreement

includes about $130 million in compensatory actions for

the 3,600-barrel (~150000 gallons) spill northeast of Rio

de Janeiro.

NOPSEMA - Offshore Titleholders Financial Assurance

Offshore Petroleum and Greenhouse Gas Storage Act 2006 (OPGGS Act) and related

regulations amended 28 May 2013 to strengthen the polluter pays principles of the act,

clarify and broaden its financial assurance requirements.

Titleholder is required (1 Jan 2015) to maintain financial assurance sufficient to meet the

costs of the operational response measures (e.g. well control and containment) and

costs arising from addressing the environmental consequences (e.g. monitoring and

remediating the environment).

2013 amendments included provision for regulation requiring titleholders to demonstrate

financial assurance as a prior condition for the acceptance of an environment plan (EP)

by NOPSEMA.

APPEA developed a standard method (GHD, 2014) for use by titleholders to estimate the

level of financial assurance necessary to meet the requirements of the OPGGS Act.

GHD | Report for APPEA - Method to assist titleholders in estimating appropriate levels of financial assurance for pollution incidents arising from petroleum activities, 61/31048

The APPEA calculation method requires that:

• Reasonable worst case scenario identified during fate and transport modelling

be generally consistent with, or more extreme than, any incident that actually

occurs;

• Small number of incident parameters (type of hydrocarbon released, volume of

hydrocarbon released, and a measure of shoreline impact) can reasonably

predict the general magnitude of operational response costs associated with

hydrocarbon releases in marine waters of Australia;

• The type and level of effort required to respond to, clean up, and monitor a

release described in the NOPSEMA approved Environmental Plan is adequate

to achieve desired clean-up endpoints;

• The bottom up approach to costing well control, operational response, and

monitoring efforts for the 10 case studies generates reasonable estimates; and

• 10 case studies relied upon are reasonably representative of the universe of

petroleum activities other titleholders subject to the financial assurance

requirement may undertake.

Reasonableness of APPEA method

Bottom-up costing comparison

Oil Spill Response Readiness Planning

Impact assessment: Baseline (pre-spill) vs rapid sampling

Issue of scale

Spatial - 10m’s to 1000km’s

Temporal - hours to years

Baseline Data

Cost versus return (risk reduction)

Focus effort (if required) to high risk areas

Rapid response “baseline” information is collected at

control or reference sites asap during/after spill

Response time

Prioritisation of effort

Broad scale assessments (e.g. remote sensing)

OPEP and OSMP need to provide sufficient detail that

titleholders are ready with capacity to respond

Impact and Damage Assessment

Statistical confidence in attributing impacts (and damages)

Confounding effects due to range of habitat types and natural variability

Ability to resolve spill effects from natural variability – Remote sensing,

temporal information at reference sites

Statistical analysis as a tool to provide “unequivocal” apportionment for

litigation defence

Basis for legal argument about apportionment of liability and costs

3rd party damages (eg. tourism, fishing) currently not included in Financial

Assurance Estimate but titleholders are potentially liable after the event

Concluding Remarks

• Recent regulatory changes require greater commitment to event

readiness and Financial Assurance to cover costs of spill incident

cleanup, restoration (but not third party liability)

• Implementation of operational and response monitoring - requires

improved preparedness – e.g. environmental monitoring drills,

enhancement of impact resolution tools (audits by NOPSEMA)

• Future liability assessment will require robust statistical treatment for

impact assessment and implications on data quality

• Consequences and processes for apportionment of liability for spill

effects need to be better understood

• Including these issues in planning for exploration drilling programs

helps to mitigate risk