FPSO ASSET INTEGRITY

15 - 16 October 2015

Crowne Plaza London - Heathrow, London, United Kingdom

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FPSO Asset Integrity Management

and Life Extension Forum

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

FPSO ASSET INTEGRITY MANAGEMENT

AND LIFE EXTENSION FORUM 2015

15 – 16 OCTOBER 2015, LONDON

REGULATION KEYNOTE:

LEGAL & REGULATORY TREATMENT OF FPSO

ALEXANDER REID, PARTNER

T: +44 (0)20 7264 8104

Overview



Update on treatment of FPSOs by Courts and regulators



Legal classification of FPSOs remains uncertain



Regulatory update

Legal and Regulatory Compliance in the current FPSO Market



Market conditions impacting

FPSO awards



Clear focus on existing asset

integrity and cost efficiency



Regulatory compliance

remains crucial element to

cost-effective projects

Source: Pareto Securities (July 2015)

0 2 4 6 8 10 12 14 16 18 2010 2011 2012 2013 2014 2015 (Est.) No . o f A w ar d s

Risk Management



Industry where identification

and management of risk is a

priority



Recent FPSO incidents in

2015: Cidade De Sao Mateus /

Petrojarl Knarr



Continued uncertainty in

relation to laws and regulations

is a major concern

Cidade De Sao Mateus (Source: Sao Paulo Today)

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

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?

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

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".

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

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

Merchant Shipping (Oil Pollution Preparedness,

Response and Co-operation Convention) (Amendment) Regulations

2015

Competent Authority

Health and Safety Executive + DECC =

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

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

Co-operation Convention) (Amendment) Regulations 2015

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

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 / 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

Lawyers for international commerce

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