United States Department o f the Interior OFFICE O F HEARING S AND APPEALS

Interior Boar d of Land Appeal s 801 N. Quincy Street, Suite 300

Arlington, Virginia 2220 3

703-235-3750 703-235-834 9 (fax) January 16, 2015

T A K E E R I C A

2013-4 5

FREEPORT-MCMORAN ENERGY, LLC

Main Pass Area, Block 299, Platform B

Incident(s) o f Noncompliance

Decision Set Aside and Remanded

ORDER

Freeport-McMoRan Energy, LL C (FME), a wholly-owned subsidiary of McMoRan Exploration Co., has appeale d from a Notification o f Incident(s) of Noncompliance (INCs ) issued by the Distric t Manager, Ne w Orleans District Office , Bureau of Safety an d Environmenta l Enforcement Thi s Notification allege d violations of 30 C.F.R. Part 250 on Main Pass Area, Block 299, Platform B (Platform) which operated by FME and located of f the coast of Louisiana on Outer Continenta l Shelf (OCS ) Lease No.

BSEE inspected th e Platform and issued nine INCs on December 2 8 O f seven INCs appealed by FME, four were remanded t o BSEE. See Order dated June 4,

BSE E maintains a list of potential incidents o f noncompliance with referring to general operation s an d referring to production operations See

(las t visited on Oct. 21, 2013) (PIN C Index) For example, i t identifies PINC No. P-280 as: "I S EACH [surface-controlled subsea ' safety valve (SCSSV)] INSTALLED IN A WELL TESTED WHEN INSTALLED REINSTALLED AND AT INTERVALS NOT EXCEEDING 6 MONTHS AND REMOVED REPAIRED AND REINSTALLED, OR REPLACED, IF IT DOES NOT OPERATE PROPERLY?" PIN C Index (Production Operations) a t unpaginated 2 5 (citin g

FM E immediately corrected tw o INCs by removing a blockage tha t caused a sump not to actuate on Dec. 28 and by retesting on Dec. 29, See Notification a t 1 (citing 30 C.F.R. § 250.802(b) an d date corrected), 3 (citin g 30 C.F.R. § 250.803(b)(4) an d date corrected). Neithe r is an issue in this appeal .

2012. FM E addresses each of the three remaining INCs in its Statement of Reasons (SOR). BL M responded o n September 5, 2013 (Answer) ; FME replied on September 23, 2013 (Reply) . Thi s matter i s now ripe for resolution by the Board.

Discussion

The Outer Continental Shelf Lands Act (OCSLA), 43 §§ 1331-1356 (2006), authorizes th e to issue and administer leases the OCS for oi l and gas exploration , development, an d production. operation s o n OCS lease must "be conducted i n a safe manner b y well-trained personnel usin g technology, precautions, an d techniques sufficien t to prevent or minimize the likelihood of blowouts, loss of well control , fires, spillages, . . . o r other occurrences which may cause damage to the environment or to property, or endanger life or health." 43 U.S.C. § 1332(6) (2006) .

Section 22 of the OCSLA, 43 U.S.C. § 1348 (2006) , authorizes an d directs the Secretary t o issue and enforce safet y an d environmenta l regulations an d regularly inspect OCS facilities. Lessees , owners, and operators are to conduct their operation s "in compliance with regulations intended t o protect persons, property, and th e environment on the outer Continenta l Shelf," afford th e Department prompt access to its facilities, an d provide pertinent operating records upo n request. W&T Offshore Inc., 14 8 323, 354 (1999) ; see 30 C.F.R. §§ 250.105, 250.146 . Sectio n 24(b) of the OCSLA, 43 U.S.C. § 1350(b) (2006) , empowers th e Department t o assess civil penalties agains t thos e who fail t o comply with it s implementing rules, but "only after notice of such failure and expiration of a reasonable period allowed for corrective action." W&T Offshore, Inc., 148 IBL A at 355. Wha t is at issue in this appeal i s a notice of violation, the predicate fo r an assessment of civil penalties .

The parties' burdens with respect to INCs were recently outlined Apache Corp., 183 IBL A 273 (2013) , wherein we ruled:

If determines, reliable, probative, and evidence, tha t an OCS lessee or operator ha s no t an y requirement o f a statute, regulation , order, o r lease term for any Federal [offshore ) oi l [and] gas lease, then it issue an INC, stating therein the nature o f the and how to correct it Th e burden is on the appellant challenging a to demonstrate , by preponderance of the evidence, tha t BSEE ' error it s analysis , o r its is not supported b y record showing BSEE gave due consideration to all factor s and acted o n the basis of a rational connection between th e facts found

the choice made.

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183 IBLA at 288; see also Black Elk Energy Offshore Operations, LLC, 18 2 IBLA 331, 341 (2012), and cases cited; Pacific Operators, Inc., 165 IBLA 62, 75 (2005), and cases cited ("[A]n appellant must either show error by a preponderance o f the evidence or that the decision is arbitrary, capricious, or otherwise contrary to law."). We separately addres s each of the three INCs here challenged by FME.

Whether BSEE properly found FME violated 30 C.F.R. § 250.804(b)

BSEE issued two INCs based on the similar determinations:

"The records available for verifying the SCSSV in well B-8 was tested using approved methods were insufficient an d inaccurate."

"The records available for verifying the SCSSV in well B-2 was teste d using approved methods were insufficient an d inaccurate. (Not legible)."

Notification o f Incident(s) o f Noncompliance, dated Dec. 28, 2011 (Notification ) at 1 , 2 (citing 30 C.F.R. § 250.804(b) and PINC P-280); see supra note Ever y ' SCSSV must be "tested i n place for proper operation," using procedures specifie d in American Petroleum Institute Recommended Practic e 14 B (API RP 14B), "to ensure proper operation." 3 0 C.F.R. § 250.804(a)(l)(i). A s to recordkeeping, BSEE rules state:

The lessee shall maintain records for a period of 2 years for each [SCSSV] . .. a t the lessee's field office neares t the OCS facility or other locations conveniently available to [BSEE] . Thes e records shall be available for review by a representative o f BSEE. Th e records shall show the present statu s and history of each device, including dates and details of installation, removal, inspection, testing, repairing, adjustments, an d reinstallation.

30 C.F.R. § 250.804(b). FM E claims its testing records "were made available to the inspectors, along with back-up proper of the valves." Notice of Appeal (NOA ) at 2; see SOR at 6.

The undisputed facts of show that FME BSEE inspectors wit h inspection forms for Wells B-8 and B-2, "Subsurface Safet y (sic)"

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Inspection Report and dated Jul y 8, (B-8 Report, B-2 Report).3 See Declaration of Blair Spencer, Manager o f Environment and Safety (FME) , at 16; id. Ex. 1; Declaration of Calvin Encalade, Production Superintendent (FME) , at 16, id., Ex. 1; Answer at 3-4. FM E avers it also provided the morning report and could have provided BSEE with its log book from Jul y 8, See SOR at 6 ("On their face , these documents undermine BSEE' s challenge t o the sufficiency, accuracy, an d legibility of McMoRan's testing records."); Spence r Declaration at 118-9; id., Exs. 3, 4; Encalade Declaration at 16, id., Exs. 3,4; see Answer, Ex. B (undated not e to ' counsel).

The Inspection Reports identify: Date ; Well ; Depth; Operator; Foreman ; Valve Type; Date Last Checked; Results ; Tim e Valve Shut-In; Action Taken; and Tube Size . The test results for each well was "Held." BSE E cited FME for violating 30 C.F.R. § 250.804(b) becaus e its B-8 Report did not identify "shut-in tubing pressure" (SITP) and an SITP entry in the Action Taken section o f the B-2 Report was "a dark smudge or scratch-out followe d b y a handwritten '88#.'" Answe r at 3 , 4. BSE E obviously places great importance o n SITP, that term does not appear in 30 C.F.R. § 250.804. BSE E has no t cited any provision in the applicabl e tes t method (API RP 14B), any rule, notice to lessees, or guidance documen t tha t requires operator s to maintain SITP data, nor has i t shown or explained ho w or in what way SITP data is the prerequisite neede d for verifying th e approved metho d was used to the B-2 and B-8 Wells or that such data are more significant than any other evidence o f well status on the date in question. O n the record before us , we simply are no t able to find tha t FME was required to maintain SITP data in order t o comply with 30 C F R 250.804(b) .

BSEE may issue an INC if it "determines, base d on reliable, probative, an d substantial evidence , tha t an OCS lessee or operator ha s no t followed an y requirement o f a statute, regulation, order, o r lease term." Apache Corp., 183 IBLA at 288. However , the administrative record (AR ) submitted by BSEE on March 1, 2013, include s littl e to support eithe r o f these INCs. I n fact, i t does not even includ e the Inspection Reports that were determined b y BSEE to be "insufficient and inaccurate," a s they were later attached as exhibit s to appellant's SOR . at 2, 3. BSE E apparently view s those reports a s the acceptable means for verifying whethe r FM E used API RP 14B to test that wells were

properly, but it has cite d no law, rule, precedent, or supporting its view.

It appears this is an FME report, no t a BSEE report, and tha t it is not BSEE form or a form .

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FME submitted on appeal its Platform morning report (Ex. 3) and log book (Ex. 4) for July 8, both of which include SITP data. I t also submitted Encalade's an d Spencer's Declarations, both of whom were present durin g the BSEE inspection. The y attested tha t the morning report and log book were prepared in the usual course of business. Whil e there are discrepancies regardin g their identified

Encalade describe d them as minor and explained that they could be attributable to different individuals reporting SITP data a t different times of the day. In contrast, BSEE submitted a note to counsel from Jacob Tullos, one of the BSEE inspectors on the Platform, who stated he did not receive the morning report or log book an d suggested tha t FME may have added tha t SITP data afte r the fact. Mor e importantly, however, BSEE has disputed Encalade's characterizatio n and explanation of these slight differences i n reported SITPs, nor explained why a difference o f pounds per square inch (psi ) on the morning report psi in the detailed chart versus 52 0 psi in the comments section) is a critical element that negates evidence conveyed by the morning report and log book regarding the use of API RP 14B to test and determine that Wells B-2 and B-8 were operating pronerlv on

8, 2011.

FME's sworn declarations and proffered evidence therefore stand largely unrefuted b y BSEE. I n the absence of a rule, policy, or guidance document regarding specific data tha t must be captured to demonstrate complianc e with testing requirements, th e current record does not support a determination that FME violated 30 C.F.R. § 250.804(b). W e therefore se t aside these INCs.

2. Whether BSEE properly found FME in violation of §§ 250.107(a), 250.401(e)

BSEE issued the final IN C on appeal based on the following: "A s a result of documented safety violations, inaccurate record keeping, insufficient oversight , and limited [ ] it has been determined that Freeport McMoran is unable or unwilling to provide their operators wit h the resources necessary for the protection of

BSEE submitted nothing from John Calvin , the other BSEE inspector who inspected the Platform, signed the INCs, may have actually received FME's morning report. Nor has BSEE made representations abou t what Calvin knows of the inspection. 5

FME responded b y claiming its oversight of operations on the Platform was more than adequate (i.e. , it fou r full-tim e wit h over 100 years of combined offshore experience wh o were responsible for the Main Pass 299 field) an d by questioning whether "limited support" was a violation of 30 C.F.R. § 250.107(a)

(continued...)

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personnel an d the environment at this time." Notificatio n a t 1 (citing 30 C.F.R. §§ 250.107(a), 250.401(e),6 and PINC No. FM E claims the "basis for this INC cannot be discerned fro m eithe r the INC itself or the administrative record" and that "BSEE has faile d t o identify any specific facts supporting the broad claims made in the INC. " SO R at 1 ; see id. at 8 ("The [INC ] is worded so broadly that it is impossible for FME to determine the underlying elements o f the alleged violations."). FME also urges the Board to "set aside the INC because the record contains no evidence demonstrating" that it violated 30 C.F.R. §§ 250.107(a) o r 250.401(e). Id

BSEE admits this INC was issued "due to the inspector's impression " that FME was not committed to complying with 30 C.F.R. § 250.107(a) an d 30 C.F.R. § 250.401(e), which was based on three INCs issued on December 8 and 9 , and

and/or 3 0 C.F.R. § 250.401(e). NO A at 1 , 2; see also SOR at 9-10. I n light of our resolution of this appeal, we need no t address these factual and legal issues.

Th e rule at 30 C.F.R. § 250.107(a) states : "Yo u must protect health, safety , property, and the environment by: (1) Performing all operations i n a safe and workmanlike manner; an d (2 ) Maintaining all equipment and work areas in a safe condition." Th e rule at 30 C.F.R. § 250.401(e) direct s lessees/operators "to keep wells under control at al l times" and to "[u]se and maintain equipment and material s necessary to ensure the safety and protection of personnel, equipment , natural resources, and the environment."

PIN C No. is directed at the following: "DOE S THE LESSEE PERFORM ALL OPERATIONS IN A SAFE AND WORKMANLIKE MANNER AND PROVIDE FOR THE PRESERVATION AND CONSERVATION OF PROPERTY AND THE ENVIRONMENT?" PINC Index (General Operations) a t 2 (citing 30 C.F.R. §§ 250.107(a), 250.401(e)) ; see supra note 1.

8 Spencer avers that adequate resources were devoted to personnel an d

the environment and refers t o safety trainin g and regular drill s workers participate in, as FME Safety Guidelines and its Practices Manual , the employment of full-time foreme n on the tha t report directly to the Platform

Superintendent (wh o reports to the FME Senior Vice-President o f Operations), and the tha t its budget for is little different prio r years when FME had untarnished compliance record. See Spencer at 1111-14.

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six INCs issued on December 28, Answe r at 6; see supra note 2. However , al l but one of those "numerous INCs " were set aside or reversed by the Board. Th e record may support the existence of a subjective belief by the inspector on December 28, but it does not support a finding tha t FME was then violating either of these cited rules.

BSEE does not explain on appeal how or in what way the record shows FME violated general duty to perform OCS operations "i n a safe and workmanlike manner," keep "equipment and work areas in a safe condition," or have "equipment and materials necessary to ensure the safety and protection of personnel, equipment natural resources, an d the environment." C.F.R. 250.401(e). It-has shown and the record does not support its determination that FME was in violation of those rules or that this third IN C adequately state d "th e nature o f the violation and how to correct it." Apache Corp., IBLA at Sinc e this INC is not supported by reliable, probative, and substantial evidence o f record, we set it aside and the case is remanded t o BSEE.

BSEE expresses concern "about the level of McMoRan's commitment to safety matters and regulatory compliance" and notes that FME had "one of the highest INC/component ratios in the Gulf of Mexico, 0.72 versus the Gul f average of 0.05." Answer at 6 n.2. Howeve r it concedes that ratio "was not used in support of the G-

INC," which renders i t irrelevant to our review of this INC. Id. I n any event FME states its ratio was 0.06 for 2010 0.3 for 2011 (not the 0.72 claimed by BSEE) and that company-wide ratio for was 0.07, compares favorably to Gulf of Mexico averages of 0.05 (2010 ) and 0.04 See Reply 9 (citing BSEE Reports, Reply, Exs. 1, 2) .

10 Nowhere in the INC is its basis explained, generalized references t o

violations, inaccurate record-keeping, insufficient oversight , and limited support I t simply did not of any facts BSEE have relied on to determine it was

violatio n 30 C.F.R. § 250.107(a) o r 30 C.F.R. § 250.401(e) o r how to such violation.

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Accordingly, pursuant to the authority delegated to the Board of Land Appeals by the of the Interior, 43 C.F.R. § 4.1, the above-described INCs issued on December 28, are set aside, and this case is remanded to BSEE.

I concur :

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