EHS management software

A troubled market

It's been a difficult past two years for the petroleum industry. The average price of a barrel of crude oil has fallen from its most recent high of nearly $106 in June of 2014, to a staggering low of less than $29 in January of this year. Prices have rebounded marginally since then, but at the time of this article, crude remains at less than $50 per barrel and the US Energy Information Administration (EIA) anticipates prices to remain below $60 through the end of 2017. Even though global petroleum demand has risen by more than two million barrels per day in the past two years to nearly 97 million barrels per day in 2016, prices remain depressed as booming North American production, combined with a continued policy of increased output from OPEC, creates a supply glut that has been the primary cause of slumping prices.

The effect of these market conditions can already be seen. Within the last two years, the supermajors have delayed or cancelled at least $200 billion in planned development projects and moved to cut capital expenditures by as much as 30% in 2016. Last year saw a marked decrease in the number of large mergers and acquisitions, and at least 36 North American oil and gas companies had filed for Chapter 11 bankruptcy, leaving some $13 billion in unpaid debt. High financial risk is deterring investment, and the growing absence of smaller firms from the marketplace may drive domestic production further downward, even as OPEC continues to oversupply the market in an effort to assert its market dominance.

Tighter environmental regulation

Emissions monitoring

US regulatory policies are placing added and increased pressure on domestic producers as newly proposed methane emission standards will, for the first time, seek to regulate both new and existing extraction, transportation, refining and storage infrastructure. Though the industry has managed to achieve a nine percent reduction in US methane emissions since 1990, President Obama's Climate Action Policy - in keeping with the United States' commitment to the COP21 Paris Climate Agreement - will require domestic oil and gas producers to curb methane emissions by 40% to 45% by 2025.

The EPA's June 3, 2016 Final Rule was a first step towards this ambitious goal, and established more stringent new source performance standards (NSPS) aimed at cutting methane and VOC emissions from new, reconstructed, or modified sources. The EPA is also requiring oil and gas companies to submit to an Information Collection Request (ICR) for the purpose of assessing methane emissions from their existing facilities. The data obtained through the ICR will be used by the EPA for establishing future emissions targets that will likely result in added technological and administrative costs to producers. EHS management software can help lower the cost and complexity of emissions monitoring and reporting across multiple facilities, and can help easily identify non-compliance so that emission reductions can be more effectively implemented.

Chemical safety

Amendments to the Toxic Substances Control Act (TSCA) signed into law by President Obama this past June have given the EPA unprecedented authority to review, restrict, and potentially ban chemicals that the agency deems as presenting "an unreasonable risk of injury to health or the environment." Moving forward, the EPA will be reviewing all new and existing chemicals on the market, potentially including those used in oil and gas production. Prior to the passage of the new law, chemical producers were able to claim exemption from testing and disclosure of chemical data under the protection of trade secrets. However, new provisions of the TSCA will make it substantially more difficult for chemical manufacturers to substantiate any claim for exemption. Safety testing and review could potentially impact the cost and availability of chemicals that are essential to oil and gas production.

Should these chemicals face greater restrictions, oil and gas companies may also encounter added chemical safety and inventory reporting requirements. EHS management software can help prevent exposures and environmental releases of hazardous chemicals through real-time chemical inventory monitoring and remote access to chemical safety data. Some EHS management software systems offer enhanced spill response planning and reporting features that, when combined with improved chemical inventory management, allow faster containment and remediation capabilities.

OSHA recordkeeping

OSHA is also placing increased scrutiny on domestic extraction and production facilities. OSHA continues to tighten its injury and illness reporting standards, and is expected to implement its controversial electronic recordkeeping rule in July of 2017. As part of the anti-retaliation provisions contained in the rule, OSHA will be evaluating the incident reporting procedures in place at facilities across the country to ensure that those procedures are not unreasonably difficult or discouraging to employees when reporting workplace incidents. At the heart of the new rule is the requirement for businesses that employ more than 250 individuals to electronically submit injury and illness data on an annual basis. This will significantly refine OSHA's ability to target inspections and enforcement actions toward high risk industries and businesses with excessive rates of injuries and illness. Additionally, as of August 1st, OSHA will be imposing a 78% increase on penalties for workplace health and safety violations of all types.

EHS management software can provide more effective incident prevention, and equip your facilities with more efficient incident and injury reporting tools. EHS management software makes compliance with OSHA standards easier and more cost-effective, and promotes greater employee engagement with your EHS management programs to help build a stronger workplace safety culture.

Offshore regulation

In April of this year, the Bureau of Safety and Environmental Enforcement (BSEE) published its final well control rule that will enforce greater safety and performance standards on the materials and equipment used in offshore drilling. The rule includes tighter regulations on well design, well control, casing, cementing, and requires operators to provide real-time well monitoring and subsea spill containment. Interior Secretary Sally Jewell noted, "This rule builds on enhanced industry standards for blowout preventers to comprehensively address well design, well control and overall drilling safety." Though the well control rule will present offshore operators with substantial new costs and technological challenges, it is only a small part of a larger regulatory agenda on the part of the Bureau of Ocean Energy Management (BOEM) and BSEE that seeks to strengthen safety and environmental enforcement in offshore oil and gas development following the dissolution of the Minerals Management Service (MMS) and Deepwater Horizon disaster.

With an ever-increasing number of safety and environmental regulations, oil and gas companies will benefit from a more accurate and cost-effective way of tracking their compliance tasks and reporting obligations. A good EHS management software system can achieve this by automatically notifying managers when compliance tasks and reporting must be completed, and simplifies compliance with enhanced change management, risk assessment, employee training, audit and inspection, and regulatory reporting capabilities.

The ROI of safety

Numerous studies have been conducted to quantify the massive financial impact of workplace incidents and injuries, as well as the undeniable financial benefits of improved EHS management. Each year, the National Safety Council (NSC) releases its Injury Facts report, a compendium of injury and illness data gathered from dozens of academic journals, federal and international health organizations, and NGOs. While the NSC's 2016 report noted that the average cost of a non-fatal workplace injury was $39,000, and the average cost of a workplace fatality topped $1.42 million, the unique operational characteristics of the oil and gas industry amplify these injuries cost estimates dramatically.

A study by Helmerich & Payne International Drilling Co. published in the January, 2012 issue of Drilling Contractor magazine estimated the average cost of a single lost-time injury or lost-workday case to be $200,000. The article also notes that the indirect costs of oil and gas related workplace injuries are generally estimated to be between five to seven times greater than the direct cost alone. Conservative estimates placed the total cost of the average lost-time injury or lost-workday case at approximately $1.2 million per case. These values might seem nominal until one considers that, as of 2014, the oil and gas industry reported an estimated 12,500 non-fatal injuries, and had the second highest occupational fatality rate in the US with 142 - a rate seven times higher than the US average.

The NSC report showed the average cost of a minor workplace injury to be 16 times higher than the cost of prevention, and for serious injuries or fatalities, the cost is as much as 48 times greater. The 2016 NSC report, in addition to an April, 2009 study published in the ASSE journal Professional Safety, determined that investment in safety programs and more effective EHS management provided between $2 and $6 in return for every $1 invested, with an average safety ROI of $4.14. Furthermore, a strong injury and illness prevention program was shown to achieve a 15-35% reduction in workplace injuries. Numerous case studies exist that demonstrate the significant cost reductions achieved through increased investment in EHS management. Improved EHS management strategies allowed Mobil Oil's Joliet, Illinois refinery to reduce workers' compensation costs by 89% over a 6-year period.

The benefits of investment in EHS management go well beyond increased incident prevention and the cost savings that it can achieve. Environmental compliance is also a significant source of risk for oil and gas producers, and the cost of non-compliance can be staggering. In just over six years, the cost to BP for the Deepwater Horizon disaster climbed to more than $61 billion, including $4 billion in EPA criminal penalties and $14 billion for violations of the Clean Water Act. In the past two years, the Brutus oil spill in the Gulf of Mexico, the Refugio oil spill near Santa Barbara, the pipeline leak near Glendive, Montana that released at least 1,200 barrels into the pristine Yellowstone River, and the 112-day natural gas leak at Aliso Canyon in Southern California that was dubbed the Deepwater Horizon of natural gas have all highlighted the increasing risk and devastating effects of these types of incidents - especially with the recent boom in US domestic oil and gas production - and created added pressure on producers to assume greater responsibility for the safety and environmental sustainability of their operations. A relatively small investment in more effective EHS management software can help reduce the risk of these catastrophic environmental disasters, and spare oil and gas companies from their titanic costs.

Growth in sustainability

The corporate environmental sustainability movement is gaining serious traction among top global enterprises. Eighty-one percent of S&P 500 companies published sustainability reports in 2015, and the emerging data is helping answer the long-debated question of whether sustainability undermines or improves financial performance. Bob Willard, author of The New Sustainability Advantage states that, "sustainability initiatives can improve profits by at least 51% to 81% within three to five years while avoiding a potential 16% to 36% erosion of profits if they did nothing." CDP, a nonprofit that has worked with global corporate partners to build the largest collection of self-reported climate change, water and forest-risk data finds that S&P 500 companies who published sustainability reports outperform those that do not. For example, corporations whose strategies actively manage and plan for climate change earned an 18% higher ROI than companies who don't, and 67% higher than those companies who do not report their carbon emissions. CDP also found that companies who invested in reducing carbon emissions experienced 50% lower volatility in earnings, and 21% higher dividends than companies that did not.

Rather than relying solely on financial data, investors are increasingly looking to EHS and sustainability metrics as indicators of overall investment risk. CDP studies show that the number of institutional investors requesting carbon disclosure data rose from 35 signatories in 2002 to 655 signatories representing more than $78 trillion in assets by 2012. Institutional investment in environmentally sustainable companies has grown at a faster pace than conventional investments, increasing from less than $500 billion in 1995 to more than $25.2 trillion by 2010. One out of every eight dollars in professionally managed investment in the US is invested in sustainable businesses.

EHS management software as an asset

It's an unfortunate reality that many companies place a lower priority on investment in EHS management when financial resources are constrained, but the return on investment is well worth it. EHS management software should not just be viewed as a tool for compliance, but as a shield against the substantial environmental, health and safety risks inherent to oil and gas production. In an industry where risk and volatility are a constant challenge, increased commitment to better EHS management and greater environmental sustainability will help hedge those risks while encouraging greater investment to help revitalize and support operations.

ABOUT THE AUTHOR

Greg Duncan, BS, MELP, is an EHS and sustainability expert at VelocityEHS, a cloud software company that delivers a comprehensive suite of EHS products aimed to help companies better manage SDS/Chemical inventories, audits, inspections, incidents, corrective actions, compliance issues and reporting, and safety meetings management.