Oil & Gas (or SEMS) Compliance #1 Management’s Responsibility

Almost all of the CFR sub-part regulations focus on management’s responsibility and accountability towards compliance and regulatory change management.

This blog focuses on the legal requirements for establishing an organizational structure and management attitudes toward regulatory change management and how management can motivate others to comply with regulatory requirements.

Under the Management Responsibility provisions of CFR’s, firms are required to have an adequate organizational structure in which people who perform and assess quality, reliability and compliance should have the necessary authority, responsibility, independence and resources. Unfortunately, just publishing those requirements are not driving the firms to comply with regulatory change management related issues. Regulators are now imposing regulatory fines to coerce firms in to complying with regulatory change management.

For example, I’ve heard and seen the following citations and fines in the oil and gas sector:

• West Virginia, a state with 56,000 wells, issued 19 penalties in 2010
• Wyoming, the center of Rocky Mountain energy, also collected $15,500 in fines in 2010
• Pennsylvania is the most aggressive about fining violators. It levied fines for four percent of the violations, with the penalties totaling $3.7 million. The largest of those was a $900,000 fine against a drilling company that contaminated the water of 16 homes
• On November 25, 2003, the Los Angeles district director cited a firm saying, “You have not provided adequate resources…for management, performance of work and assessment activities…to meet the requirements.”

Management cannot afford to wait for regulators to fine them in order to take action or view compliance as a deterrent from revenue. The commitment to Regulatory Compliance needs to start from the top. Management needs to empower the regulatory compliance or regulatory change management functions to establish systems that yield reliability, sustainability and quality results.