U.K. OPERATORS ASSESS CULLEN REPORT'S FALLOUT

Operators hope for a prompt, effective transfer of responsibility for U.K. North Sea safety from the British Department of Energy to the government's Health and Safety Executive (HSE).

That's one of the recommendations in the Douglas Cullen report, based on an investigation of Occidental Petroleum (Caledonia) Ltd.'s Piper Alpha platform disaster that killed 167 men in July 1988. Cullen is a Scottish judge.

Harold Hughes, director general of the United Kingdom Offshore Operators Association, told a London conference immediate steps must be taken to ensure that the new unit of HSE should be established quickly and firmly.

The conference, organized by the Institute of Petroleum and Society of Petroleum Engineers, was the first opportunity for industry leaders to discuss possible fallout from the Cullen report issued last month (OGJ, Nov. 19, p. 21).

Hughes said there appears to be some question about the resources that will be available to HSE. The change is too important to be subject to any shortage of resources, he said.

Resourcing is not only a question of money, Hughes said. It also means establishment of an organization with the right positions and staffing structure to asssure that personnel with offshore experience can be recruited and retained.

Before the conference got under way, DOE announced that Tony Barrel, HSE director of technology, has been appointed head of the new offshore safety division.

HSE Chairman John Cullen said the date for transferring the offshore safety roles of DOE and the Department of Transport to HSE has not been chosen. The process probably will take several months.

CONOCO VIEWS

R.E. McKee, chairman and managing director of Conoco (U.K.) Ltd., told the conference safety management probably will be one of the most challenging and rewarding management roles any executive will perform. His company has a reputation as one of the most safety conscious operators in the British North Sea.

McKee said there must be dedication to a policy that ranks safety equal to development, production, profits, research, and all other key ingredients of a successful business. Then a framework must be built to get the safety policy flowing throughout the entire company.

Safety must be slotted into the company career structure, goals, objectives, and rewards systems and all the other processes that are essential to keeping a business moving along, McKee said. And everyone in the company must know that management is serious about safety.

Giving safety top priority could be the most prudent management decision ever made, he said.

It would be good for morale, people, productivity, and profits.

PIPER ALPHA WATERSHED

Martin Lovegrove, a director of the London merchant bank Kleinwort Benson Ltd. and head of the bank's petroleum department, said Piper Alpha will be a watershed.

The industry is recognizing that the emphasis of field operations has changed from getting platforms on stream and building production to assuring that platforms are properly maintained. That way, not only do personnel work safely and the environment is protected but the maximum amount of oil and gas is recovered.

Commenting on the Cullen report's statement that considerable amounts of money and effort would have to be put forth in educating management and operating people, he said such an investment probably is more important than outlays for equipment.

Lovegrove said management should consider a safety investment as an insurance premium. Top management is particularly loathe to sanction spending without a reason that can be immediately understood and measured.

It is relatively easy to sanction 20 million for equipment that is forecast to yield a return of more than 20%/year, Lovgrove said. But it is much harder to sanction a similar outlay for something that carries no identifiable monetary return.

WHAT PIPER ALPHA COST

Lovegrove said the losses incurred by Piper Alpha underscore the benefits of regarding safety as insurance.

The Oxy group will lose about 190 million bbl of oil that will not be produced in 1988-92. The replacement Piper Bravo platform is to start production in 1992.

Lovegrove placed the value of deferred production in 1988 money at 1.93 billion. And after taking into account the 650 million capital cost of replacing Piper Alpha facilities, a 170 million savings in operating costs, and 390 million cost recovery from Piper Alpha insurance, the reduction in pretax cash flow is 2.02 billion in 1988 money.

Against this is set 180 million saving in royalty payments, 1.96 billion savings in petroleum revenue tax and corporation tax, along with taxes of 330 million on the Piper Alpha loss recovery.

Considering all those figures, the reduction in the group's cash flow was 210 million in 1988 money.

The discounted value of the future cash flow to the companies using a 6.5% real discount rate is a negative 90 million in 1988 money. The discounted value of U.K. government revenue is a negative 1.12 billion.

Lovegrove said the North Sea industry could be worse off by about 1.62 billion by the end of 1992 at 1988 prices. That stems from loss of production through temporary shutdowns, higher operating costs, and spending of as much as 1.2 billion on emergency shutdown valves.

Those costs are likely to be shared 64% by the government through relief on the petroleum revenue tax and corporation tax and 36% by the oil industry.