By Brian Minty, FQM Ltd. The Macondo blowout has irrevocably changed the regulatory environment of oil and gas production. The Deepwater Horizon explosion, whilst tragically claiming 11 lives, was also considered to be the largest ever accidental oil spill, with a vast long-term environmental reckoning. Four years on, and the legislative repercussions of the catastrophe are becoming evident, too. In the wake of the disaster, an inquiry by the European Commission into the preventability of further similar incidents concluded that the existing divergent and fragmented regulatory framework, along with current industry safety practices, did not provide adequate assurance that risks from offshore accidents were minimized throughout the Union. As a result, the Offshore Safety Directive (OSD) was adopted on June 28, 2013. The aim of this directive is to reduce, as far as possible, the occurrence of major accidents related to offshore oil and gas operations and to limit their consequences. The U.K. will have to harmonize the directive by July 19, 2015, with full compliance the year after. The current period of consultation means the clock is ticking for all operators, but what are the implications of the directive and who will be mostly affected? Perhaps one of the biggest structural changes is that a new competent authority, or CA, is to be formed within each member state, with powers to oversee enforcement measures and which will report annually on operator performance. The exact format of this body is currently in discussion but, overall, it will have significant powers to impose penalties and enforcement actions if companies do not respect the minimum standards. Revisions to these minimum standards seem reasonable enough and ask questions that operators are used to answering: Are you technically competent enough to operate? Are you transparent enough about your reporting and operating systems? And are you financially robust enough with the correct liabilities in place? However, as always, the devil is in the detail. Looking closely, we see that the financial tolerances of companies will come under much greater scrutiny before operatorships are granted, and obligatory wider emergency planning and reporting will be required. Technical solutions presented by operators will need to be verified independently prior to and periodically after the installation is taken into operation. An all together new level of transparency is also required, so that companies will have to publish information on their websites about standards of performance and will be requested to submit reports of incidents overseas to enable key safety lessons to be shared. One of the biggest changes involves questions around liability and compensation. Oil and gas companies will be fully liable for environmental damage caused to protected marine species and natural habitats over a much larger area. At present, the current EU legal framework for environmental liability (ELD) is restricted to territorial waters, i.e. about 22 km (14 miles) offshore but, by 2016, this will extend to cover all EU waters, including the exclusive economic zone, so approximately 370 km (230 miles) from the coast. As the dollar cost of Macondo has clearly demonstrated, very few operators have the financial capability to support the cost of environmental damage and remediation. Such a significant change could even impact the insurance industry as a whole. While the majority of the items above are represented at least partially within other EU and national regulations, the sticking point, for smaller oil companies is the section on proven “technical and financial capacities.” The OSD requires member states to ensure that licenses are not granted until satisfactory evidence has been provided that the applicant has, or will make, adequate financial provision for potential liabilities. This is not a new concept in the U.K. offshore world; however, the government, oil and gas industry, and insurers will need to tackle the question of how to factor extended ELD damages into financial provision calculations. So, as the countdown continues, what do you need to know? All in all, the directive is not quite as punishing as it could have been but with its many legal definitions that require testing, especially around independent verification and environmental liability, it is far from straight forward. There are definite deadlines to be met, and it is likely that the majority of operators will struggle with both the concepts involved and the resources to implement them. One thing is sure, with further reforms on the horizon in both the civil and criminal liability spheres, the OSD appears to be only the first step by the EU in reforming our offshore environmental and safety regimes in response to the Macondo disaster. Brian Minty is associate director at FQM Ltd., a health, safety, environment and quality consultancy and training organization.