Seismic–Managing the Risk

Seismic data is recognized throughout the Oil and Gas industry as one of the tools available to industry that can have a significant positive effect on the F&D (Finding & Development) costs associated with developing a company’s reserve base. Unfortunately, within the Oil and Gas industry the inherent risk of acquiring seismic data is sometimes ignored. If you work for a company that acquires seismic data but does not get involved in the acquisition process, then your company and possibly you personally may be at risk of significant financial penalties, and possibly even criminal prosecution.

When asked to submit this article, I immediately started thinking about Bill C-45, plus all of the different regulations, legislations, acts, and IRP (Industry Recognized Practices) that govern the seismic industry. A compounding factor is the issue of jurisdiction. Each country, province, state, territory, has its own version of these laws. There are a lot of them. Ignorance of the applicable law in the geographic area in which you are having seismic work done is not a viable defence. Note: In the absence of legislation or regulations, the IRP becomes the standard to which industry is tied to by governments and civil law.

For the purpose of this article, I have tried to distil some of this information into commonly accepted definitions.

Ownership

Usually refers to the Energy Company which will use the seismic data for the purpose of exploring for minerals, oil, or gas. The responsibilities of ownership that are outlined in legislation are enshrined there. They do not go away by hiring contractors and delegating a prime or principle contractor.

BC WCB (British Columbia Workers Compensation Board): The obligations of an owner are provided for in section 119 of the Act, which states:

Every owner of a workplace must

1. provide and maintain the owner’s land and premises that are being used as a workplace in a manner that ensures the health and safety of persons at or near the workplace,
2. give to the employer or prime contractor at the workplace the information known to the owner that is necessary to identify and eliminate or control hazards to the health or safety of persons at the workplace, and
3. comply with this Part, the regulations and any applicable orders.

Licensee

Usually refers to the Energy Company or Speculative Seismic Company or Licensed Project Management Firm.

Gov. Ab. SRD (Government of Alberta, Department of Sustainable Resources)

Exploration Regulations: An Exploration License must be obtained before a person or company can apply for or carry out an exploration program. The license holder is then accountable for all work done under this exploration program. However, the licensee cannot carry out any actual exploration activity until the Department SRD, Public Lands and Forest Division issues an Exploration Approval for each program submitted under that license.

Exploration Permittee

Refers to the Acquisition Contractor, usually a Seismic Acquisition Contractor, or a Permitted Project Management Firm.

Gov. Ab. SRD Exploration Regulations: Company or person wanting to operate equipment (often a contractor hired by Exploration Company).

Prime or Principal Contractor

This term refers to the company responsible for ensuring the health and safety of the workers or the public on the work site. Unless delegated, this responsibility lies with the Licensee or Owner. It should be noted that only one Prime or Principal Contractor can be assigned to a single work site at a time. A single work site is defined by its geographic area. If a seismic project is to have several different Prime or Principle Contractors for the various phases of the program, there must be adequate separation in distance and time to separate the phases of the project. If in this process, there is a geographic overlap; responsibility will be retained by the owner. As well, in this area, a Prime or Principal Contractor must have the ability to function as a principle contractor; this means that the owner must give them the latitude and authority to fulfil their role and to not fetter them in the process.

BC-WCB: “prime contractor” means, in relation to a multiple-employer workplace,

1. (a) the directing contractor, employer or other person who enters into a written agreement with the owner of that workplace to be the prime contractor for the purposes of this Part, or
2. if there is no agreement referred to in paragraph (a), the owner of the workplace.

Due Diligence

BC-WCB: Taking all reasonable care to protect the well-being of employees or co-workers. To meet the standard of due diligence, you must take all precautions that are reasonable in the circumstances so that you can carry out your work and your health and safety responsibilities.

It is the common view, of the various Governments, that the Owner and/or Licensee are responsible for whatever happens on the work site. The responsibility for the health and safety on the work site, and compliance with IRP-16 can be delegated to the Prime or Principal Contractor, but only after the Owner has exercised Due Diligence in selecting their prime or principal contractors of choice. The pre-qualification of contractors, especially contractors that are going to delegated as Prime or Principle Contractors is a key element in the process of establishing a program of due diligence.

Due diligence varies from company to company, person to person.

BC-WCB: You must take all the precautions that a reasonable and prudent person would take in the circumstances. A good question to ask yourself when trying to define your personal level of due diligence: Am I satisfied that I have exercised the same level of care and responsibility that I would if any of my family where employed on this work site by this contractor?

Managing the Risk

Many questions have to be asked, deliberated on, and eventually answered before a seismic program gets off the ground. The process is usually driven by an exploration team. Once the decision has been made and the AFE (Authorization for Expenditure) signed, now what do you do? Somebody, usually the geophysicist, has to take charge. In the good old days, most of the energy companies had an in-house expert to turn to, someone they could go to that could “just get the program shot”. Well in today’s world, few companies have this resource. So how does the seismic program get shot, while at the same time fulfilling the obligations of Ownership, Licensee, & Due Diligence?

The first and most important decision that has to be made is who is going to manage the project? The energy company will have to decide at this point what their level of participation in the program will be. The company’s options fall anywhere between managing the entire project and retaining Prime or Principal Contractor responsibilities to delegating all responsibilities out to contractors. The decision made will depend upon the management philosophy of the company. It should be noted that if a company decides to delegate Prime or Principal Contractor to someone other then themselves, due diligence is required to ensure that the contractor selected is able to fulfil the role of Prime or Principal Contractor.

At this point, the energy company may hire an individual consultant, a project management firm, or a full service data acquisition contractor.

Individual Consultant: Depending on the energy company’s inhouse level of expertise and their desire to retain a high level of involvement, contracting a consultant to manage the day to day operational issues is an option. A contract that clearly defines the role and the level of responsibility is very important. The consultant should have the contacts within the industry and should be aware of the regulatory regime for the geographic area of the program. Individual consultants normally will not accept the role of Prime or Principle Contractor. This responsibility would be retained by the energy company or possibly delegated to another one of contractors on the program site.

Project Management Firms: Categorized as “Geo Land and Field Services” on the CAGC website, these companies offer a wide range of services to the Oil Companies. Some of the services offered: geophysical program design, government approvals, permitting, program management, drill push, cat push, QHSE monitoring, accounting services, licensee, permittee, prime or principal contractor, and short term financing. Depending on the project management firm, different levels of services are available. Most of these companies operate on a hive principal. The majority of services are subcontracted out to other contractors. All of these contractors work together, usually under the control of the project management firm to complete the program. Some project management firms will take on the role of Prime or Principle Contractor. The contract must clearly define the role of the project management firm. A Master Service Agreement between the project management firm and the energy company should be negotiated and in place prior to work starting. This type of agreement standardizes the terms of the contract on an ongoing basis for multiple programs. New terms can be added or deleted on a project by project basis via project specific addendums.

Data Acquisition Contractors: Like the project management firms, the Acquisition contractors offer a variety of services. Some of the acquisition contractors can offer the same level of service as the project management firms plus the data acquisition, while others would prefer to focus only on data acquisition. Prime or Principle Contractor delegation is generally accepted by the data acquisition contractors, but again, Due Diligence is required. If the acquisition contractor is only on the program during the recoding phase, how can that contractor be held responsible as Prime or Principle Contractor during the front end preparatory stage of the program? Some energy companies use a floating Prime or Principle Contractor delegation. As the different service providers complete their particular phase of the program they will hand off the Prime or Principle Contractor delegation back to the energy company or to the next service provider. This will work, but again, Due Diligence is required. A Master Service Agreement should be negotiated and in place prior to work starting.

Industry Associations

As I stated earlier in the article, ignorance of the applicable laws is no defence. I have given passing reference to some of the laws, legislations, acts, and IRP. I have tried to impress upon you the importance of Due Diligence. The best way to protect yourself and your company is to become knowledgeable. The best source of this knowledge is through the different associations that represent our industry. These associations represent our industry to the public and to the governments in the areas that we conduct our work. Governmental agencies are required to seek stakeholders input before changing or writing law. In the absence of law, the associations will write the IRPs that govern our industry. The associations and governmental departments are in constant communication. These discussions control the regulatory evolution of our industry.

The following is a short list of associations that play an important role in the Geophysical Industry.

CAGC (Canadian Association of Geophysical Contractors) cagc.ca can provide a list of contractor services. The web site is also filled with information on IRP, changes in legislation, safety alerts, and COR (Certificate of Recognition). This website is probably the best place to start to gather the information Energy Companies will need to practise Due Diligence.

CAPP (Canadian Association of Petroleum Producers) capp.ca also has some useful information on their website. The CAPP “Contractor HSE (Health, Safety and Environment) Pre- Qualification” questionnaire is a good tool to use during the bidding stage of your program. It will give you a standard format when you are normalizing the HSE performance of your potential contractors. Again, an important part of Due Diligence.

CSEG (Canadian Society of Exploration Geophysicists) cseg.ca

PSC ( Petroleum Safety Council) psc.ca has information concerning government regulations, safe work practices, safety alerts, and a full listing of the Industry Recognized Practices.

The onus of Due Diligence requires Energy Companies to become knowledgeable of the laws and IRPs that govern our industry. Also, Energy Companies that take a hands-off approach to acquiring their seismic data do so at their own peril.