In the recent past, the corporate world and governments have increasingly adopted practices associated with risk management industry and related studies. Risks have become a strong focal point with a help of which operational activities of most private, public, and governmental organizations are assessed for compliance with social, legal, environmental, and economic requirements of the society. Personnel in private and public organizations often deal with risk associated with various aspects including health, finance, security, safety, and environmental responsibility. This has made most governments to recognize the fact that they need to formulate policies to identify, detect, assess, and respond to elements of risk that occur in any organizations’ operations for the sake of the good of the public (Hutter 2005). As such, most governments have developed explicit plans of assessing, appraising, and managing risk in a bid to formulate an appropriate response policy to prevent risks and mitigate their effects whenever they occur in society. As complexity and interdependence grows, the government being a major caretaker of public’s interests has to inform organizations and the public about risks and possible policy trade-offs. In order to achieve the desired result, governments have formulated risk regulation measures to enhance compliance. These measures of risk regulation are risk-based because they are formulated with the view of potential risks. The risk-based approach to regulation of risk is based on the measurement of probability of occurrence of the risk, its magnitude, and the effectiveness of adopted measures in terms of risk prevention or mitigation (Hutter 2005). Therefore, risk regulation, which may be governmental, private, or joint undertaking, often uses risk-based approach to define modes of making regulatory proposals and strategies of compliance. Development and formulation of risk-based approaches to regulation of risk often encounter a number of challenges, which exist due to differences between various industries and public administration challenges. Some of the challenges, in this case, include subjective nature or risk perception and interrelated nature of risk.
The risk-based regulation approach is meant to identify processes that assess economic, environmental, and social impacts that form three most significant considerations. Comprehensive measure of impacts, especially over the long-term, is rarely straightforward and a less likely to be accurate. However, this has never stopped risk-based regulations from being a favoured approach. This is so because of the fact that risk-based approach to regulation allows to direct resources to the most significant risk areas, where risks could potentially have a significant impact on stakeholders. In essence, the approach prevents unnecessary spending of resources to all risks, including substantial investment in regulating risks, that are less likely to occur or those, which may have less significant impact. The approach is viewed as a part of the development of the deregulation movement of early 80’s, in which the government sought to limit the extent of regulation or red tape, which was perceived to be a source of burden for organizations (Sparrow 2000). The use of risk-based approach allows to streamline regulation and avoid unnecessary regulations that create economic or time burden where there is little probability of risk or less significant impact in case of a risk. This is achieved by ensuring that regulation efforts are concentrated where the impact or probability is the highest, while reducing regulations where the impact of the risk may be negligible or less probable. This is economically beneficial and time saving for organizations that may be compelled to adhere to regulations. The result is that time and money are saved, and this possibly leads to reduced prices for consumers. Imposition of regulations after considering probable risks does not suffice the regulation effort. Therefore, governments have to set up compliance measures, which ensure that regulations are adhered to as a means of achieving objectives of reducing and mitigating risks (Sparrow 2000). This paper reviews risk-based approaches to risk regulation as well as risk-based compliance model. The focus of the paper is on the analysis of compliance and on the inevitable possibility of noncompliance to regulation in risk based approaches. The analysis is based on the United Kingdom (UK) occupational health and safety requirements. The paper focuses on Nexen Petroleum's Golden Eagle Area Development (GEAD) project and its compliance to the regulations. Golden Eagle is a 2007 discovery of offshore oil in North Sea of Europe, which also includes Peregrine fields on blocks 12/26a, 20/1N, and 20/1 approximately 111 kilometres northeast of Aberdeen. This offshore oil drilling project was planned to officially begin in 2014. It has been approved by the Department of Energy and Climate Change in 2011. This is a project of Nexen, which holds a stake of 36.5%. Other partners include North Sea, Maersk Oil, Edinburgh Gas and Oil, and Suncor Energy (Offshore Technology 2012). This project of Nexen has to comply with UK regulation as well as with other forms of occupational health and safety regulations both regionally and locally. As such, this paper will evaluate Nexen’s risk regulatory framework and its compliance to UK, regional, and local regulatory standards on the same. The greatest focus will be put on the ability of Nexen’s project to comply with occupational and health regulations as well as on the possibility of possible noncompliance.
Compliance and Noncompliance
It sometimes occurs that well-designed regulatory frameworks malfunction at times. This is especially so when there enforcement and compliance measures in place are poorly observed. As such, the establishment of a regulatory framework based on any approach alone is not enough. It should be followed by an effective targeting of compliance measures. Targeting of compliance measures must occur together with careful consideration of enforcement approaches. Enforcement denotes various means by which compliance is sought by regulating bodies.
On the other hand, compliance denotes the conformity of entity’s actions and operations to the set laws and regulations. Conformity is subjective and depends on regulations, regulating bodies, entities under regulation, and circumstances surrounding organizations’ actions. Similarly, compliance has no precise definition. This is because even laws and regulations that should be complied with are subject to situational legal interpretation, which is rarely fixed. Therefore, the application of one regulation or law to two different situations may have different results based on interpretations made in different cases (Ayres & Braithwaite 1992). This basic fact shows why compliance is a subjective pursuit, which is never defined with precision. The notion of compliance is thus often interpreted differently by different entities of regulation. As a result, compliance to regulatory frameworks is never absolute. This creates challenges in regulation because breaches may at times not be considered as crimes by the parties involved.
Set regulations are never aimed at outright prohibition, but rather management of a risk situation. Furthermore, since the former is absolute and the later is subjective to managerial situation, compliance becomes a loose situational definition. This means that there can never be a single definition of compliance that fits all situations. Therefore, a framework of interpretation for various situations has to be in place to cater for differences among cases. This notion is best illustrated by the phrase “so far as is practicably reasonable,” which is commonly applied in the Occupational Health and Safety Act of UK. A closer look at the situation implied above allows to assume that there might be a possibility of over-compliance or under-compliance in different situations.
Compliance is often associated with strict adherence to laws. However. the review above proves otherwise. This is the reason why Ayres and Braithwaite (1992) claim that compliance is a constant state of seeking negotiations, which are aimed at arriving at a common ground. This is the actual truth about what happens in compliance efforts as regulators set standards, while the regulated seek to meet them based on possibilities in their operational environments. Variations in compliance imply that levels of compliance vary significantly. Therefore, the whole compliance issue creates a continuum on which various levels of compliance fall depending on the situation at hand. As such, the point of compliance attained under a specific regulatory framework depends on various factors such as legal and political environments as well as on the nature of regulated tasks and leadership. For example, greater stringency of regulation implementation coupled with recent scandals of a political nature in certain area may call for greater obligation of enforcement of regulations and bigger pressure to comply with the rules set by regulation bodies (Amotu 2008). These factors coupled by other incentives determine the level of compliance attainable by any organization on the compliance continuum. The level of compliance is thus a factor of various determinants of compliance. These determinants include are listed below.
Compliance is the desired result in any regulatory framework. However, the above analysis has shown that this result is never fully attainable. Instead, only different points of compliance are attainable along the compliance continuum. This implies that non-compliance is also a likely result in most cases of seeking or enforcing compliance. Non-compliance may be defined as the opposite of compliance or rather the attainment of a lower threshold of compliance along the compliance continuum. Therefore, non-compliant state organizations under regulation are said to have attained a minimal level of set standards in terms of complying with required standards.
Non-compliance is influenced by various factors such as lack of knowledge about compliance standards, lack of interest to comply, insufficient skills and finances to enforce compliance measures (Sparrow 2000). Non-compliance is never welcomed in any risk situation that brings about loss. However, situational analysis may at times make the non-compliant state momentarily acceptable. However, this may not be acceptable in cases when regulations are well defined by the law because ignorance is never an excuse in such circumstances. Amidst the review of possibilities of non-compliance, it is important to understand that, at times, some level of non-compliance is acceptable and may even go unnoticed or have no significant impact in case of a risk. For example, if a plant fails to provide gas masks to protect employees in case of gas leakages, there is a possibility that such non-compliance will have little impact and go unnoticed if a leakage of a non-poisonous gas occurs with minimal risk for health. Nevertheless, this is still a case of non-compliance. It is important to remember that as along the compliance variable lies on a continuum, there will always be a possibility of non-compliance of some level, which may be extremely high or minimal (Amotu 2008).
Nexen Petroleum's Golden Eagle Area Development (GEAD) project has to adhere to governmental, regional, and local regulations because of its location. As such, it has to comply with all regulations in relation to environmental, social, legal, and economic requirements. However, greater interest of this paper is in the compliance of Nexen Petroleum's project with occupational safety and health regulations, which are central in offshore oil drilling operations. Occupational safety and health (OSH) area deals with protection of health, safety, and welfare of all personnel in the GEAD project. The main objective of OSH is fostering healthy and safe working environment. The program is also concerned with protection of other stakeholders such as customers, employers, co-workers, and family members as well as people who may be living in neighbourhoods, where the project is implemented. Nexen’s activities are subject to a number of governmental regulations and controls in countries where they operate. These regulations and laws affect operations relating to occupational health and safety, environmental protection, exploration, and production practices.
Operations of GEAD projects are subjected to various international, territorial, and local regulations and laws on occupational safety and health. These regulations and laws relate to quantities and types of waste and substance that can be discharged into environment. Nexen uses certain internal processes and tools to ensure that it maintain necessary level of safety for its employees. Apart from internal controls, the company also adheres to industry best practices and standards (Nexen 2012).
In order to protect occupational health and safety Nexen has created Health, Safety, Environment, and Social Responsibility Group (HSE&SR), which helps to ensure that Nexen’s operations, including GEAD project, adhere to ethical, safe, and socially acceptable standards (Nexen 2011). Performance of Nexen’s HSE&SR with regard to OSH is regularly reviewed by an external auditor. This happens at least one in three years, and the progress report is revealed to the public in company’s sustainability report. These internal measures offer an appropriate landscape, where compliance to occupational health and safety standards can be easily achieved within the organization. Apart from internal measures, there is also external pressure from the government, public, and employee welfare groups across the UK. These institutions seek to pressure organizations to ensure safe and healthy working environment.
Social and environmental responsibilities have become significant measures of corporate performance for the public, investors, and the government. The presence of bodies responsible for enforcement of better occupational health and safety standards in the UK is a significant boost to compliance. These bodies foster environment in accordance with relevant regulations. The main bodies involved in OSH enforcement, offshore oil industry, and projects such as the GEAD project include the Health and Safety Executive Sector (HSE) and the Offshore Division (OSD).
HSE is tasked with the responsibility to ensure that different regulations and laws relating to occupational health and safety in offshore gas and oil industry are adhered to by all players. On the other hand, OSD ensures that the risk to employees working in the offshore oil and gas industry is well controlled. OSD enforces the observance of occupational health and safety standards by offering guidance and advice on technical and operational matters. Existence of the mandate of these organizations in GEAD’s operational jurisdiction will ensure that higher level of compliance is attained with regard to occupational health and safety. This will be possible due to advisory and monitoring roles that these regulatory organizations undertake. Existence of legislations that directly govern industry’s sector, such as Health and Safety at Work Act 1974 (HSW), provides an environment where compliance is likely to be higher. HSW stipulates standards that should be adhered to and ensures high safety and healthcare standards for employees (Onsi 2009).
Apart from HSW, there are various statutory instruments, which are used to ensure higher occupational health and safety standards for employees in the offshore industry. These instruments are likely to increase the level of compliance of Nexen’s GEAD project. The Safety Case Regulations Statutory Instrument (SI) 2005/3117 is one of the important instruments. It encourages management of companies like Nixen, which are involved in offshore drilling to comply with safety and health laws. The instrument also makes provision for auditing of safety systems (Onsi 2009).
The Prevention of Fire and Explosion and Emergency Response Regulations (PEEER) statutory instrument ensures that companies involved in offshore operations comply with fire safety standards and that there are appropriate protective and preventive measures in place to avoid fire incidents.
The Design and Construction Regulations (DCR) statutory instrument (SI 1996/913) ensures that all offshore installations, such as those planned for the GEAD project, comply with standards that reduce risks of employee traumas (Onsi 2009).
The Management and Administration Regulation (MAR) statutory instrument (SI 1995/738) ensures that all companies involved in offshore activities, such as those of GEAD, have management structures in place that ensure greater compliance to relevant occupational safety and health standards.
The Provision and Use of Work Equipment Regulations (PUWER) statutory instrument (SI 1992/2932) ensures that all employees are provided with right working tools and equipment.
Laws, statutory instruments, and bodies such as OSD and HSE help to create an environment, where compliance to occupational health and safety standards is high. In this environment higher levels of compliance are expected from Nexen’s operations in the GEAD project.
The earlier review on levels of compliance showed that attainment of 100 % compliance is unlikely in any situation. As such, some levels of non-compliance should be expected in Nexen’s GEAD operations. Non-compliance in this aspect will be deemed as a partial adherence to basic standards set out for occupational health and safety. The industry is not likely to be totally non-compliant because it has to obtain license before the beginning of operations. However, adherence to these standards may not always be maintained at the desired level, thus leading to some level of non-compliance.
There are various causes of non-compliance, which are the main reasons for lack of proper measures in providing occupational health and safety standards. The biggest challenge in achieving compliance in the GEAD project may arise from the big number of contracted players in the project. Overall compliance of Nexen to OSH standards in the GEAD project relies on how well company’s contracted workers implement occupational health and safety standards.
The nature of GEAD project is complex and involves a number of other companies contracted to undertake various tasks. Implementation of appropriate occupational health and safety standards is thus not only a task for Nexen, but also for all contracted companies. Non-compliance is likely to occur in such circumstances because levels of adherence to standards by different contracted companies may differ. Additionally, different contracted companies may have differing internal measures and structures for securing occupational health and safety standards. As such, they may implement occupational health and safety measures differently, therefore, contributing to overall low level of non-compliance. GEAD is likely to have high levels of variability of compliance because there are various contracted companies involved in the project. These companies may uphold levels of compliance, which may be lower than those expected by Nexen’s HSE&SR. Companies involved include Yokogawa, Penspen, Heerema Fabrication Group, Technip, GE Oil and Gas, SLP Engineering, MechTool, Lamprell, CA&I, and BMT Cordah (Offshore Technology 2012).
The large number of contracted companies for the project makes the whole project and its operations complex. Companies are likely to have different levels of compliance with regard to occupational health and safety standards. This variability may cause overall level of compliance of contractor - Nexen Incorporation - to decline. This overall gap in compliance due to the variability may be hard to handle. This is because harmonization of occupational health and safety standards across company’s contractors may be difficult. Poor assessment of non-compliance risks may also result in a non-compliance gap. Nexen may relocate some resources and efforts away from risk management, which is assumed to be of least significance.
Difference in compliance levels is significantly affected by the perceived weight or of risk and the level of probability. These elements are determined during assessment of the risk and non-compliance risk. Inaccurate assessments that indicate certain risks as less probable and less serious may lead to non-compliance. Project’s management may neglect addressing such risks or pay minimal attention to them. Similarly, if an assessment indicates low level of risk during non-compliance risk assessment, it is likely that the result will be low level of compliance, or rather higher tolerance to some levels of non-compliance in the project.
Other possible causes that may lead to non-compliance include regular change of regulations and laws related to occupational health and safety. These changes may take time to adapt to operations and thus can cause non-compliance during the period of change. Costs of compliance may drive some contracted firms to be contended with non-compliance thus leading to the overall rise in the level of non-compliance in the GEAD project.
Compliance gap resulting from non-compliance may have serious effects on the operations of GEAD project. Firstly, there is the possibility that neglected risks may cause a lot of damage, including employee deaths, injuries, and losses associated with the damage of property. The Piper Alpha Disaster is an example of an offshore oil drilling disastrous event. It shows possible consequences of non-compliance to occupational health and safety measures. Litigations may also occur in cases where risks arise due to non-compliance. Employees in the GEAD project that may get injured due to poor implementation of occupational health and safety standards may sue Nexen for negligence. They may demand large amounts of compensation, which may be extremely costly for the organization. Additionally, the process of handling legal issues during the litigation process may cause a lot of expenses for the company. There is a possibility that the government may also issue criminal charges against Nexen if governmental audit of occupational health and safety measures reveals that the organization or its contracted parties have flouted rules regarding provision of safe and healthy working standards during project’s operations (Ayres & Braithwaite 1992).
Occurrence of risks and their negative impact in cases of non-compliance may also damage reputation for the company. Compliance gap resulting from non-compliance may lead to a loss of customers because of the negative reputation. Revocation of license of operation is also a possible measure of curbing non-compliance. The government is usually responsible for issuance of license for operation. In GEAD’s case, licensing is done by the Department of Energy and Climate Change (DECC). If the organization is found to have poor occupational health and safety standards, licenses required for operations of the project may be suspended or revoked (Bloomberg Business Week 2012). Revocations only occur in cases of extreme non-compliance (Ayres & Braithwaite 1992). Civil and criminal penalties from the government may also be a consequence in cases of non-compliance. But this is determined depending on the level of non-compliance at a certain time of project’s operations. On a positive side, compliance gap means that there is some level of non-compliance. Therefore, this implies that some portion of finances that would otherwise have been invested into compliance effort will be saved . Therefore, non-compliance could save the company some money, which can be put into other core or immediate operations of the organization.
Risk is a common phenomenon in all operations. Possible risks associated with any operation can impact business and operations to a great extent whenever they occur. The effects of risk may negatively impact the environment, employees, consumers, and even operations of the organization affected. As such, the issue of risk becomes a concern for all stakeholders including consumers, investors, employees, and the government. In order to mitigate risk, governments and organizations have formulated policies on identification, measurement, and response to risks. Implementation of such policies poses a significant challenge to organizations because it often involves extra costs and management tasks. As such, organizations may be tempted to ignore putting in place measures against due to lack of knowledge or simply due to the aversion of associated costs.
However, this does not mean that occurrence of neglected risk will not affect other people such as consumers or employees. For example, an organization may fail to implement OSH safety measures to guard against injury. This may save organization some money but at the expense of risking life and safety of its employees. It is due to such reasons that governments step in with interventions.
In order to avert negative impact of risk in the occupational health and safety sector, organizations have to comply to set minimum standards on handling risk. The risk-based approach to regulation is the most commonly adopted one in the management of risk. The approach is based on assessing identified risks, probability of their occurrence, and their potential impact to determine necessary measures to be put in place. Establishment of GEAD project in the northern shore by Nexen Petroleum is a business characterized by risks, especially the ones related to the environment. However, like any other business, it also has a substantial level of risk in the occupational health and safety sector. As such, the government and other local and international bodies created regulations to govern the management of risk in offshore drilling activities of projects such as GEAD. The formulation of such regulation does not suffice in preventing or mitigating risks. This has to be followed by enforcement measures, which are meant to ensure full compliance.
As it was stated earlier, compliance is the desired result, but it is never fully attained due to variability of adherence to regulation, which results from different factors such as interpretation of the regulations and laws made in the regulatory framework. Lack of finances, knowledge on risks, poor risk analysis, and negligence are some of the reasons that hinder full compliance. Therefore, in most circumstances only partial compliance is attained. This creates a continuum in compliance, and regulating bodies have to seek various enforcement measures such as education, warning letters, civil litigation, license suspension, and revocation among others to ensure that higher levels of compliance are attained.
In GEAD’s case, Nexen has already taken measures to enhance internal compliance to occupational health and safety requirements. Additionally, there are well planned structures, organizations, statutes, and laws that direct Nexen in implementing occupational health and safety in the project. However, it faces challenges of possible non-compliance due to the complexity of the project, which involves numerous contracted companies. The level of compliance of contracted companies may differ, and this variability will negatively affect Nexen’s compliance. The compliance gap created may result into various negative consequences such as litigation, fines, license suspension, revocation, or criminal penalty depending on the severity of non-compliance. In view of this, it is recommended that Nexen petroleum should ensure that its operations and measures on occupational health and compliance are harmonized across all partakers of the project.