The Bureau of Safety and Environmental Enforcement (BSEE) has now taken action, in a concrete manner, to implement its vision of exercising jurisdiction over service companies. On October 10, 2011, BSEE issued what it termed as "the initial group" of violations in the form of Incidents of Non-Compliance (INC's) under the federal regulations applicable to operations on Outer Continental Shelf Lands Act leases to service companies Halliburton and Transocean, in addition to BP, for violations arising from or directly related to the Macondo incident.
As we have previously reported, Director Bromwich announced through a press release and speech to the Houston-based Offshore Technology Conference on May 2, 2011 that BSEE intended to exercise jurisdiction over "not only those companies that operate leases, the traditional subjects of agency regulation and enforcement, but their contractors and service providers such as the owners of drilling rigs as well." There was no specification of the statutory or regulatory authority for the extension.
In taking the next step of issuing INC's to service companies, BSEE openly recognized that it was the first time the Department of the Interior (DOI) issued INC's directly to a contractor that was not the well's operator. However, the fact that BSEE has no express statutory authority to extend its jurisdiction to service companies or to take enforcement actions against them – and has never even issued a notice of proposed rulemaking to do so – raises concerns about whether BSEE's actions are lawful and by what standards its newly asserted authority will be exercised. The lack of express statutory or regulatory authority leaves the extent, purpose, procedures and standards for compliance with its expanded jurisdiction completely undefined.
Until such time as this expansion of jurisdiction is rescinded or overturned upon judicial challenge, service companies operating in the OCS should carefully consider the impact of BSEE's actions on all aspects of their operations and corporate governance. First, publicly held service companies should consider whether to add language to their filings with the Securities and Exchange Commission reflecting this extension of federal regulation over service companies and their operations. Second, all service companies should review their insurance agreements to ensure that they do not lack coverage for regulatory citations or resulting findings of violation. Third, both service companies and operators may need to review their service contracts to ensure that risks arising from this expanded jurisdiction are properly covered. Lastly, all service companies should immediately review their need to implement regulatory compliance programs or evaluate the adequacy of any such program currently in place.
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