29 April 2011 Jo Hulbaekdal, Manager DNV Kazakhstan LLP Lessons learned from Deepwater Horizon

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Presentation outline  The Deepwater Horizon, a game- changer?  DNV’s involvement and response  A new US regulatory regime?  Industry changes?

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April  About 21:40 local time, gas under high pressure flows uncontrolled up from the Macondo well onto Deepwater Horizon. The gas ignites resulting in fires and explosions. DWH sank 36 hours later.  11 fatalities and 17 injured  Oil leakage: - From April 20 th – July 15 th (well capped) - Initial rate 62,000 b/d declining to 53,000 b/d ( tonnes in total)  Twice as big as the largest oil spill event ever The event: April 20 th, 2010

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Industry response: Immediate uncertainties  Will liability and insurance premiums increase?  Will result of investigation lead to redesign of BOP stacks?  How will the new US regulatory regime and legislation affect cost?  How will this influence the drilling activity, the rig market and the competitive situation in US?  How will changes in the US affect offshore activities elsewhere?

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Major accidents have consequences on regulations NEW REGULATORY REQUIREMENTS  Alexander Kielland (1980) – structural redundancy, risk acceptance criteria  Piper Alpha (1988) – “Safety Case”, risk management approach  Exxon Valdez (1989) – double hull tankers  Texas City (2005) – increased safety for process industry MACONDO BLOWOUT ???

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April DNV’s involvement and response

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April To kill the Macondo blow-out was a complex marine operation: Managing risk is crucial DNV involvement:  Hazid facilitation for BP  Verification of marine risers  Safety Case Studies for rigs  Re-certification of BOP systems  Topside verification, assessment of marine systems, stability inspections of involved vessels  Review of the DWH maintenance system and rig condition assessment program  Safety and flaring studies

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April US-Norway, share industry learning

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Investigation of BOP for US Government  The Joint Investigation Team (JIT) of the departments of the Interior and Homeland Security has contracted DNV for the forensic examination of the blowout preventer and lower marine riser package that was fitted to the Macondo well  16 meter tall, weight 300 tonnes  Forensic investigation use expertise from: - Technology Centre, Columbus - Deepwater Technology Centre in Houston  Report published March 23 rd, 2011

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April A new US regulatory regime?

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Comparing the US and Norwegian offshore drilling regulations: Key regulatory regime differences The Norwegian regulations are mainly performance-based The U.S. regulations are primarily prescriptive  The intention with a performance-based regime is to make the operator regulate own activity when it comes to safety, health and environment (SHE)  The intention with prescriptive regulations is to prevent accidents by identifying specific technical requirements that the operator must comply with. The Authorities control the operator’s activity inter alia through approvals and inspections.

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Comparing the US and Norwegian offshore drilling regulations: Key learning points  Mainly risk-based approach, systematically identify and mitigate risks.  Separate authorities for resource management and SHE management  Agency with coordinating role in the development and supervision of SHE regulations.  Establish barriers on technical, operational and organisational levels  Latest edition of applicable regulations and referred standards for mobile units  Two independent and tested well barriers in all drilling and well operations  Recertification of blow-out-preventer (BOP) every 5 years AND one area where we are not so different  Validation of functionality and capacity of oil recovery equipment ?

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Presidential Commission Report, Jan 11 th 2011: Selected recommendations  Significantly increase the liability cap and financial responsibility requirements for offshore facilities.  Establish independent offshore safety agency.  Develop a proactive, risk-based performance approach similar to the “safety case” approach in the North Sea.  Supplement the risk-management program with prescriptive safety and pollution-prevention standards.  Industry “best practice” standards should be applied and updated in the Gulf of Mexico, in the Arctic, and globally.  Create a rigorous, transparent, and meaningful oil spill risk analysis and planning process for better oil spill response.  Well components, including blowout preventer stacks, are equipped with sensors or other tools to obtain accurate diagnostic information—for example, regarding pressures and the position of blowout preventer rams.

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Industry changes?

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Consequences in the US Gulf of Mexico  The drilling moratorium was lifted on October 12, certify compliance with existing rules and requirements, including those that recently went into effect - adequate blowout containment resources - shallow water drilling operations subject to new rules and requirements as of June 8,  New regulations and standards - Environmental NTL (Notice to Lessees), Compliance and Review NTL, Drilling Safety Rule and the Workplace Safety Rule.  13 companies may resume their drilling activities as of January 3, provided they comply with new policies and regulations set by BOEMRE

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Norway and UK: Reactions  Norwegian and UK oil industries are reasonably confident that their regulations are modern and well functioning.  Norwegian Government and OLF have been cooperating with the US authorities. Ditto UK Government and HSE.  In both countries the regulatory authorities and oil industry are however keen to extract key learnings from the event.  Environmental concerns have risen higher on the agenda, especially for the High North and more sensitive areas, such as Lofoten.  Oil & Gas UK has established the Oil Spill Prevention and Response Advisory Group (OSPRAG) looking at UK oil spill response.  Both countries also watching EU developments.

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Rest of the world’s reaction - examples  Awaiting outcome of the US investigations (UK, Norway, Canada, Brazil)  Greenland required Cairn Energy to have a second rig on standby to drill a relief well  Australia reviewing their national oil spill plans, current plans are for a tanker grounding and not a long term blow out  Gabon have cancelled offshore acreage bid rounds until US investigations are complete A lot of understandable “wait and see”.

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Key take away  The Deepwater Horizon is a game- changer - we are facing a systematic shift with significant reach  A new US regulatory regime is in the making - most likely with international impact  Industry changes will be significant - Increasing the focus on safety, environment and risk management

© Det Norske Veritas AS. All rights reserved. Tuesday, 26 April Safeguarding life, property and the environment