In many oil and gas disputes, experts are required to opine on what actions would typically be taken by a prudent operator in a specific set of circumstances, this could be described as ‘Good Oilfield Practice’ (“GOP”). In the same scenario, ‘Best Oilfield Practice’ (“BOP”) will typically constitute actions of a higher standard than expected in GOP. Here, one of our Martello experts, considers the concept of BOP, and impacts on disputes.
Background
BOP is a potentially simple concept however, defining and implementing it can be significantly complex.[1] BOP is neither a legally required standard[2] nor a set of industry[3] or national standards and conditions applied by operators which insurance providers can use to assess claims. Industry/national standards typically constitute actions considered GOP and form the lowest acceptable level of actions expected of contractors and operators executing projects and in operations. These standards cover the full range of oil and gas disciplines from design engineering, through to environmental impacts, Health & Safety and normal facility operations. Contractual and fiscal obligations can also be included within these standards, especially within national standards developed by governing states. All stages of oil and gas field development may implement BOP, from exploration, through to production, export and abandonment.
BOP is dynamic, evolving with increased knowledge and experience. These practices may additionally be idiosyncratic within companies and geographical regions, developing based on technological improvements and learnings captured from past (safety/operations) incidents. For example, safety standard updates by the United Kingdom, European and United States regulatory bodies following the Macondo well incident (DeepWater Horizon) in 2010.
An established best practice will have multiple examples of both positive implementations as well as learnings from failures and their consequences. This represents the gold standard approach to developing BOP records. In less sophisticated systems, learnings are limited to siloed communications within departments or working groups.
What does BOP encompass?
A BOP’s scope will typically include:
Benefits that may be gained from BOP include:
Developments and trends
One of the challenges with the concept of BOP is that the subject matter evolves and can most effectively be applied if suitable records are kept and details shared with industry peers. The criteria for ‘best practice’ needs to be understood not only within a company but across its supply chain. There is a symbiotic relationship between the evolution of both good and best practice, where historically, a widely accepted best practice transitions to become good practice, resulting in improvements in standards across industry as a whole.
A key takeaway is for operating companies to consider not only how information is disseminated internally, but what steps are taken to actively learn from industry peers.[4] International forums, conferences, and industry common interest groups are effective neutral grounds for such dissemination. However, confidentiality can complicate this ability to share information in the public domain as can power and influence considerations and operator hubris.
Impacts on disputes
GOP has featured in numerous disputes, and it is anticipated that BOP will increasingly do so as the terminology becomes more widely used, including within host government standards in various jurisdictions. In some cases, a clear definition of the necessary criteria to satisfy BOP is missing from these government standards and in fact, these best practices do not differ from good practice stated in wider industry standards or implied in contractual agreements.
Although BOP may be cited within disputes, courts and tribunals may consider additional factors when determining whether a case claiming deficient BOP implementation is proven. For example, in Republic of Yemen vs. Canadian Nexen Petroleum, where a definition of ‘good practice’ was missing from contract documents, the arbitral tribunal accepted the opposing sides experts’ agreed interpretation of compliance with GOP. In this case, the physical condition of the facility at handover, and whether or not it was negatively impacted by non-adherence to good practice formed the basis of the final determination.
The outcome of Republic of Yemen vs. Canadian Nexen Petroleum, demonstrates the impact other factors may have on interpretations of good or best practice. In project developments and operations, cost and schedule demands or changes in government laws can influence management decision making, which in turn can affect outcomes in the final construction, selection of technologies or operating approaches. These seemingly unrelated decisions can result in disputes when there is a perception of, or an actual performance failure. Companies and service providers can disagree on whether good or best practices were followed especially where interpretations of the impact of management decisions differs between parties.
In a dispute, an evaluation of whether or not BOP (or GOP) was applied needs to be established. Where it is determined that BOP was not followed, an understanding of the factors leading to the decision alongside any supporting risk analysis and mitigations would be the preferred approach by any expert. The ideal scenario would be to identify the supporting documented records that show how BOP has evolved. In cases where records are not available, subjective interpretations take precedence and an expert’s knowledge and experience becomes vital. It is therefore crucial that an expert with a wide breadth of relevant experience across companies, industry bodies and geographical regions is selected. The expert may then opine based on their knowledge of the development of BOP in the required context.
Conclusion
The scope of application of BOP within disputes can include contractual, duty of care (environmental and social) and other non-technical areas as a need has been recognised to expand the concept through the value chain. This may lead to better record keeping by companies, strengthening the development of standards, thus closing gaps of ambiguity that currently exist.
As the oil and gas industry faces an existential threat resulting from the energy transition, companies are under greater levels of scrutiny from socio-economic and environmental impact perspectives. Reputationally, governments and companies want to be seen implementing the highest possible standards in their projects and day to day operations. Disputes will become more commonplace as the number of actors in the energy industry increase, with the growing number of green energy offerings in the marketplace seeking to replace oil and gas supplies.
With these changes in mind, we foresee disputes arising in the following areas:
Regulation/legal changes: Environmental regulations are becoming more stringent for example reducing gas flaring and methane emissions from oil and gas facilities [4]. Notably, in 2023 an increasing number of countries are enacting laws to limit greenhouse gas emissions by between 40% to 65% by 2030, raising the expectation of best practice. There are more opportunities for disputes to be raised where interpretations differ as to the root cause of an incident being linked to a failure to adhere to best practice.
Extension into energy transition projects: Application will extend into energy transition projects where expert knowledge gained within oil and gas is the most appropriate and applicable to this new industry. For example, with the growth of facilities using sequestration to dispose of Greenhouse Gases such as Carbon Dioxide, knowledge of drilling, wells and subsea infrastructure are essential to determining what good practice and best practices entail. As a nascent industry without the historic references, interpretations from the most similar representative industry is most appropriate.
Retrospective implementation: Challenges to the BOP standards applicable to an existing project or operation are liable to increase, particularly where record keeping has been poor. The timeframe when a best practice was applicable becomes the critical decision point in any arbitration or dispute. With inconsistent record keeping to properly document best practices within not only oil and gas but also the wider Energy industry, it is likely more disagreements will occur relating to best practices in place at the time of project execution.
References
[1] Whilst the terminology refers to oilfields this concept is equally applicable to oil and natural gas developments.
[2] Unlike for example the British Safety Standards or ASME codes.
[3] For example, American Petroleum Institute. (API)
[4] In legal cases encountered by Martello we have, more than once, seen an assertion that one company should learn from the incidents and near misses encountered by another.
