Shell in new feud with UK regulator over N Sea safety

DJ-Royal Dutch/Shell Group's U.K. upstream unit is for the second time in 18 months at loggerheads with the British safety regulator, the Health and Safety Executive.

Shell (U.K.) Exploration and Production Ltd. and the HSE are arguing over whether the oil company is doing enough to monitor safety at its 29 offshore sites in the British North Sea.

The HSE says Shell Expro, as it's known, isn't doing enough and has slapped improvement notices on nine installations, with five notices still in effect.

Shell Expro insists its safety record is fine, and, indeed, the HSE stopped short of ordering the company to cease operations on the nine sites. But for the past two-and-a-half years, the two sides have disagreed over the best way to verify an installation's safety to prevent a major accident.

Phil Dyer, a Shell Expro spokesman, said the reason for the drawn-out debate has been uncertainty about what the HSE was requesting.

"There was some debate on what the interpretation of suitable (verification) was and what was the actual task being asked for," he said. "This debate went on well into 2001."

Offshore safety made the headlines Wednesday after five workers died, and another six were presumed dead, when a helicopter chartered by Shell Expro crashed into the North Sea east of Cromer in eastern England. The crash, which involved a helicopter operated by Bristow Helicopters, is unrelated to concerns the HSE has about verification procedures on Shell Expro's offshore installations.

Just over a year ago, Shell Expro and the HSE locked horns over whether the energy company's most expensively built offshore installation in the North Sea, the $1.2 billion Shearwater natural gas platform, could continue to operate following a double blowout in one of its eight wells.

The HSE won that dispute, forcing Shell Expro to shut down Shearwater from November 2000 to June 2001. The loss from that site - estimated at $475 million - was a factor in Royal Dutch/Shell's failure to achieve production targets during 2001.

Shell Expro's current dispute with the HSE began with the introduction in 1998 of a safety verification scheme to determine the efficacy of key equipment on offshore installations.

Authorities had reasoned that the previous regime, under which platforms were issued with a certificate of fitness, was too prescriptive and didn't effectively guard against mishaps, said Paul Dyett, an HSE spokesman.

A key part of the new process was for an outside inspector, called an independent competent person or ICP, to examine and test a platform's equipment, Dyett added.

For a long time Shell Expro wasn't convinced of the merits of the new safety regime.

"We had a valid certification of fitness and we didn't think there was any need for an ICP to repeat that process," said Roddy Evans, a maintenance manager at Shell in Aberdeen. "Nothing had changed in the integrity of our installations."

During a scheduled inspection in 1999, the company's Cormorant Alpha oil and gas platform, located about 470 kilometers northeast of Aberdeen, was identified as operating in breach of the new regulations and an improvement notice was issued on the rig in December that year.

According to documents accompanying the improvement notice, the HSE gave Shell Expro until April 2000 to present a suitable verification scheme. The deadline was missed, but eventually compliance was achieved in July 2000 and the improvement notice was withdrawn. It was to be the first of numerous missed deadlines.

Concerned by Shell's sluggish approach, the HSE soon broadened its review to cover all the company's offshore installations and set up meetings during 2000 and 2001 to ensure compliance with the new system, the HSE's Dyett said. Another three installations were issued with improvement notices. These have now been withdrawn.

In a letter to Shell on Oct. 24, 2001, HSE inspector Terry Thompson observed that the company's compliance with the new verification scheme was "significantly behind schedule."

"You have failed to put into effect a suitable verification scheme," he said.

Shell Expro officials complained that the HSE's verification scheme was "vague" and required the use of too much historical documentation.

With more than a million boxes of data on its British North Sea installations, the company found it time-consuming to extract the documentation inspectors needed to verify its equipment's design performance against actual performance, said John Yates, principal engineer at Det Norske Veritas, a global vessel registrar and maritime consultancy.

Six DNV verifiers were hired earlier this year to help Shell Expro meet compliance as the number of improvement notices mounted.

"Shell had to demonstrate that they had the (documentation) background," Yates said. "What we are doing is helping them demonstrate it."

Unimpressed by the company's efforts, the HSE slapped improvement notices on another five Shell installations - Auk, Fulmar, Gannet, Kittiwake and Anasuria - in March in a bid "to get us take their concerns seriously," said Shell Expro's Dyer.

"Commitments had been made to the HSE and deadlines had not been kept," conceded Dermot Grimson, Shell Expro's external relations manager in Aberdeen.

Shell Expro insists that safety at its installations hasn't been compromised, despite the regulator's long-standing dissatisfaction with its compliance efforts.

"This has been an issue over documentation, not the integrity of our installations," said maintenance manager Evans.

But that's not the view of trade unionist Jake Molloy, general secretary of the Aberdeen-based Offshore Industry Liaison Committee and an outspoken critic of oil-industry safety standards.

"If they aren't getting to grips with verification, what does that say about how safety is being handled?" Molloy said.

The latest dispute with HSE means Shell Expro's safety image will likely suffer.

In a bid to avoid another verification episode, the company has created a dedicated body whose sole task is to "ensure all commitments to all regulatory bodies are complied with in a timely, structured and coordinated manner."

The company is also confident that its five installations still under an improvement notice will meet an October deadline for compliance with the HSE.

Shell Expro is owned 50:50 by Royal Dutch/Shell Group and ExxonMobil Corp.

By Michael Wang, Dow Jones Newswires