HSE-MS Audit Team Briefing Sessions

1. HSE-MS AuditTeam BriefingSessions

2. Team Briefing programme • Why do we audit? • When do we audit? • Link Model HSE-MS auditing • What do we audit? • Audit methodology • What do we audit against? • Ten principles of HSE-MS (EP-95000 questionnaire) • Site visits & interviews • Report Writing • Audit rating • Audit schedule • Audit Team task distribution

3. Risk definition Risk = Frequency * Consequence

4. EscalatingImpact of Errors Insurable Risks - Assets / Liabilities • 1970 Torrey Canyon $ 10 Million • 1980 Amoco Cadiz $ 100 ,, • 1986 Piper Alpha $ 3000? ,, • 1990 Exxon Valdez $ 10000 ,, • 1993 Braer $ 200? ,, • 1995 Sea Empress $ 150+ ,, Next ??????

5. EscalatingImpact of Errors Non Insurable Risks - Commercial/Financial • 1970 Shell Nuclear Initiative $ 1000? million • 1990 Showa Shell $ 1500 ,, • 1996 Barings Bank $ 2000 ,, • 1996 Brent Spar $ 100? ,, • 1996 Shell Nigeria $ ??? ,, Next ??????

6. EscalatingImpact of Errors High Impact events - All avoidable • Bhopal - 2000+ people • Exxon Valdez - Environment • Herald of Free Enterprise - 180 lives • Estonia - 800 people Next ?????? Consequences • Leading to new standards (cost effective?) • Loss of business

7. Business Risk ".. the safety and environmental risks of our operations are perhaps the largest business risk we run, .." Moody-Stuart letter 17/3/92 to Opco MDs and GMs

8. Risk management Risk = Frequency * Consequence • Changing goalposts ! • Steady (reduced?) frequencies • Increasing consequences • Have we gained ? Risk of error needs to be massively reduced!

9. SIEP View “There should be absolutely no question of operational urgency or other pressures taking priority over safety. It has been repeatedly demonstrated that improved safety in operations goes hand in hand with greater efficiency, quality and cost effectiveness....... ..... I would therefore request you to ensure that work does not start before it is confirmed that essential safety systems are in place and that staff are accountable for this requirement. Where we cannot ensure safety, operations should be suspended. M Moody-Stuart 24/4/92

10. EP 93-1600 (Nov 1993)E&P Guideline on Audits and Reviews Group Policy: • It is the responsibility of the Chief Executivs and managers of the Group Companies to set up, maintain and operate an appropriate framework of business controls. • The process of internal audit provides a means for independently reviewing these controls. • Audit plans should be drawn up which cover all aspects of a Company’s activities (including operational, commercial, technical, health, safety and environmental aspects). • Appropriate resources with skills matching the objectives should be used to conduct audits. • The Company’s Internal Audit Committee should approve the audit plan, monitor progress against plan, review significant control findings, and ensure that agreed action plans are followed up. The Group policy applies both to SIEP-EP and the E&P Operating Companies.

11. Health Management Activity Rig Seismic Start up Facility HSE Audits & Reviews 84-98 Environmental 50 45 40 35 30 25 20 15 10 5 0 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

12. New World (post SIEP reorganisation)frequency SIEP led E&P Audits • On OU (Opco) request • SIEP steering/guidance to be provided by RBDs, upon detection that OUs do no longer operate with boundaries of Group standards Coordinate schedule such that same ground is not covered twice within recommended period

13. Business Controls Business controls are the structured means which management uses to help it achieve the objectives which have been set for the company.

14. Business Controls Framework Business Environment Business Objectives Processes • Control Mechanisms • Organisation • Policy • Procedures • Supervision • Management • review and • appraisal Control Application Business Operations

15. Policy & Objectives Organisation Responsibilities & Resources Improve Standards & Procedures Correct Implementation & Monitoring Control Review & Appraisal Model Management System

16. Corrective Action Monitoring HSE Management System Leadership and Commitment Policy and Strategic Objectives Organisation, Responsibilities Resources, Standards & Doc. Hazard and Effects Management Planning & Procedures Implementation Corrective Action & Improvement Audit Corrective Action & Improvement Management Review

17. Leadership & Commitment Policy & Strategic Objectives Organisation, Responsibilities, Resources, Standards & Doc. Control HEMP Planning & Procedures Implementation Audit Management Review Mapping HSE-MS HSE-MS for auditing HSE-MS as per model Leadership & Commitment Policy & Strategic Objectives Organisation & Responsibilities Resources & Competence Assurance HEMP Planning Standards, Procedures & Doc. Control Implementation & Monitoring Audit & Corrective Action Management Review & Improvement

18. Audit Definition Audit is the systematic process whereby it is established that business controls: • are complete and consistent • are cost-effective and efficient • safeguard the company’s resources and promote their effective use • provide, and protect the integrity of, required records and information • comply with laws and regulations

19. Internal Audit Mission To provide, as an integral part of the management review process, independent advice on the maintenance and improvement of a well-balanced business control framework appropriate to the organisation

20. Structure of Questionnaires • Generic Questionnaire (common to all HSE Audits) • Leadership & Commitment • Policy & Strategic Objectives • Organisation & Responsibilities • Resources & Competence • Hazards and Effects Management • Planning • Standards, Procedures & Doc. Control • Implementation & Monitoring • Audit & Corrective Action • Management Review This is an example only. Team leader to modify as needed Subsidiary Questionnaire Facilities Subsidiary Questionnaire Facilities Subsidiary Questionnaire Seismic Subsidiary Questionnaire Drilling Subsidiary Questionnaire Start-Up Subsidiary Questionnaire Health Subsidiary Questionnaire Activity Subsidiary Questionnaire Environmt

21. Objective & Strategy Objective: • To provide assurance that HSE management system is effective Strategy • Look for unknown problems • Focus on gaps between areas of responsibility • Investigate identified deficiencies in depth • - find underlying causes • Record all areas investigated, noting any omissions

22. Audit Overview • Based on National and Company standards • Sampling process • Overall impression usually negative • attempt to balance but focus on improvement • Focus on controls • Recommendations illustrate rather than limit solution • Ownership by whole team • facts supported by whole team • judgement by consensus

23. Start Up Audit • Verification prior to start-up of the facility that: • HSE management is effective during development and construction • Recommendations of design reviews, Hazops etc. have been followed up • Hardware is fit for intended purpose and complies with standards • Operating, maintenance and emergency procedures are available, adequate, and understood • People have been trained for their work

24. Areas Covered • Auditee Organisation • Competence • HSE Management • Effectiveness of management controls • Equipment and Operability • Fitness for purpose • Design Process • Reviews and change control • Other • Client's request

25. Cause and Effect Cause Business objectives? Policy failing? Recommendation Review & App. failing? Organisation failing? Procedural failing? Supervisory failing? Problem Detailed findings/deficiencies/problems

26. Terms of reference • Control Assessment Matrix • Audit programme (incl. test plans) StudyDocumentation Site visit Interviews Test findings ReportFinalisation PresentFindings Drafting Editing Rating Audit Process Familiarisation Review & Testing Reporting

27. Audit report Audit process Kick-offmeeting Summary Backgrounddata Present toAuditee Audit Rating Audit Programme & Questionnaire Assess structureof controls SummariseFindings Levelofdetail Clusterissues Test controls Establish state of controls Detailfindings Clearfindings Verydetailed Familiarisation Review & testing Reporting

28. Terms of Reference OBJECTIVE • To assess the effectiveness of Barendrecht - Ziedewij gas production and evacuation system HSE-MS. • Verify that: • relevant Safety Case is implemented and that the systems are operated accordingly • HSE risks are adequately identified and those considered acceptable are managed at ALARP levels. SCOPE • Prod. ops. and maint. activities at the B & Z installations • All interfaces with relevant facilities. • Corporate MSs, other than SC management and documents, standards and organisation elements directly related to routine operations of the systems are excluded. Example only: Team leader to edit

29. Terms of Reference Special attention • Awareness of and compliance with the management of hazards • Adequacy of measures (planned or in place) to rectify the shortcomings identified in the V&G document, • Adequacy of emergency response and recovery measures, Example only: Team leader to edit

30. Standards • Laws and regulations of The Netherlands • Permit requirements • Current NAM (BUO) standards and procedures • V&G document. The audit may also include comment on any shortfall in the above in relation to Shell Group and industry standards. Audit will be conducted along EP 95000 methodology Example only: Team leader to edit

31. Standards • Does it meet legal requirements? • Does it meet current NAM standards? • if not, upgrade automatically • Does it meet current SIEP standard? • Does it meet current industry standard? • if not, upgrade if cost-effective

32. Leadership & Commitment HSE an integral part of business • Do managers effectively balance any conflict in the competing requirements to safeguard technical integrity and to optimise cashflow? • Do staff believe that management and supervisors are serious about the priority of HSE matters? • Do managers and supervisors periodically visit worksites and attend departmental safety meetings? • Do managers and supervisors lead by example - do they follow their own rules?

33. Policy & Strategic Objectives Challenging policy and objectives understood by all • Is there a Health, Safety and Environment policy? • Are strategic objectives defined (also for HSE aspects)? • Do the policy and objectives require continuous improvement, and set a leadership goal? • Are objectives cascaded to tasks and targets for all staff? • Does the policy contain an explicit statement that work should be stopped/not started if unsafe? • Are the policy and objectives endorsed by the present chief executive? • Are they readily available to employees and contractors? • Do employees and contractors understand policy and objectives? • Is Contractors' HSE management is consistent with Company's?

34. Organisation & Responsibilities • Is the organisation appropriate? • Are boundaries and interfaces adequately described? • Are responsibilities defined to fully cover all activities? • Is there an appropriate balance between line staff and advisers? • Do all staff have job descriptions (also defining HSE aspects)? • Do staff understand and accept their responsibilities and authorities?

35. Resources & Competence Assurance • Are resources adequate for effective HSE management? • Are job competence needs defined? • Are individual competencies assessed against the job requirements? • Are the mandatory competency requirements being complied with? • Is there an structured HSE training system? • Does the HSE training system meet line requirements? • Is the HSE training system being used?

36. HEMP Hazards are known, ALARP and contained • Have all hazards and effects been identified? • Are consistent screening criteria avalable? • Have all risks and effects from from hazards been evaluated ? • Have appropriate measures been defined and implemented to reduce intolerable risks to tolerable levels? • Have appropriate measures been defined and implemented to reduce tolerable risks to ALARP level? • Have tolerable risks been elliminated where practicable? • Are the procedures and other measures and practices effective in containing hazards at ALARP level?

37. Managing risk Eliminate High Avoid??? Likelymagnitudeof loss REDUCE Manage Alarp Accept??? Low High Probability of occurrence

38. Insurance and Risk management Business objectives? Cause Policy failing? Recommendation Organisation failing? Review & App. failing? HSE Management System Supervisory failing? Procedural failing? Problem Detailed findings/deficiencies/problems

39. Risk Assessment Matrix Definitions Consequence consequence of scenarios that can develop from the release of a hazard given the available barriers and defences (in incidents or near misses the hazard has been released already whereas in all other cases the hazard has not yet been released) Probability probability is estimated on the basis of historical evidence that the assessed consequence has materialised (i.e. not the probability of the release of the hazard)

40. Weakness Classification Matrix A B C D E Environ- ment Repu- tation Happens several times a year in the audited OU Happens several times a year in the audited facility People Assets Severity Never heard of in EP industry Has occurred in EP industry Has occurred in the audited OU No injury or damage to health No damage No effect No impact 0 Manage for continuous improvement Slight injury or health effects Slight impact Slight damage Slight effect 1 Minor injury or health effects Minor damage Minor effect Minor impact 2 Consider- able impact Major injury or health effects Local damage Localised effect 3 Incorporate risk reduction Measures Single fatality or permanent total disability Major damage Major effect National impact 4 Intolerable eliminate Inter- national impact Extensive damage Massive effect Multiple fatalities 5 Serious: Exposes OU to a major extent in terms of achievement of corporate HSE objectives or results. High: Though not serious, essential to be brought to Management attention. Includes medium weaknesses as repeat from previous reports. Medium: Could result in perceptible and undesirable effect on achievement of HSE objectives. Low: No major HSE impact at process level, correction will assure greater effectiveness/efficiency in process concerned.

41. A B C D E Environ- ment Repu- tation Happens several times a year in the audited OU Happens several times a year in the audited facility People Assets Severity Never heard of in EP industry Has occurred in EP industry Has occurred in the audited OU No injury or damage to health No damage No effect No impact 0 Low Slight injury or health effects Slight impact Slight damage Slight effect 1 Minor injury or health effects Minor damage Minor effect Minor impact Medium 2 Consider- able impact Major injury or health effects Local damage Localised effect 3 High Single fatality or permanent total disability Major damage Major effect National impact 4 Serious Inter- national impact Extensive damage Massive effect Multiple fatalities 5 Weakness Classification Matrix Serious: Exposes OU to a major extent in terms of achievement of corporate HSE objectives or results. High: Though not serious, essential to be brought to Management attention. Includes medium weaknesses as repeat from previous reports. Medium: Could result in perceptible and undesirable effect on achievement of HSE objectives. Low: No major HSE impact at process level, correction will assure greater effectiveness/efficiency in process concerned.

42. Risk to People • Severity Description • 0 No injury or damage to health • 1 Slight injury or health effects (including first aid case and medical treatment case) - Not affecting work performance or causing disability. • 2 Minor injury or health effects (Lost Time Injury) - Affecting work • performance, such as restriction to activities (Restricted Work Case)or a need to take a few days to fully recover (Lost Work Case). Limited health effects which are reversible, eg skin irritation, food poisoning. • 3 Major injury or health effects (including Permanent Disability) - Affecting work performance in the longer term, such as a prolonged absence from work. Irreversible health damage without loss of life, eg noise induced hearing loss, chronic back injuries. • 4 Single fatality or permanent total disability. From an accident or • occupational illness (poisoning, cancer). • 5 Multiple fatalities - From an accident or occupational illness • (poisoning, cancer).

43. Severity Description • 0 Zero damage. • 1 Slight damage - No disruption to operation (costs less than US$10,000). • 2 Minor damage - Brief disruption (costs less than US$100,000). • 3 Local damage - Partial shutdown (can be restarted but costs up to US$500,000). • 4 Major damage - Partial operation loss (2 weeks shutdown, costs up to US$10,000,000. • 5 Extensive damage - Substantial or total loss of operation (costs in excess of US$10,000,000) Risk to Assets

44. Risk to Environment • Severity Description • 0 Zero effect - No environmental damage. No change in the environment. • No financial consequences. • 1 Slight effect - Local environmental damage. Within the fence and within systems. Negligible financial consequences. • 2 Minor effect - Contamination. Damage sufficiently large to attack the environment. Single exceedance of statutory or prescribed criterion. Single complaint. No permanent effect on the environment. • 3 Localised effect - Limited loss of discharges known toxicity. Repeated exceedance of statutory or prescribed limit. Affecting neighbourhood. • 4 Major effect - Severe environmental damage. The company is required to take extensive measures to restore contaminated environment to its original state. Extended exceedance of statutory or prescribed limits. • 5 Massive effect - Persistent severe environmental damage or severe nuisance extending over a large area. In terms of commercial or recreational use or nature conservancy, a major economic loss for the company. Constant, high exceedance of statutory or prescribed limits.

45. 3 Risk to Reputation • Severity Description • 0 No impact - No public awareness. • 1 Slight impact - Public awareness may exist, but there is no public concern. • 2 Limited impact - Some local public concern. Some local media and/or political attention with potentially adverse aspects for company operations. • 3 Considerable impact - Regional public concern. Extensive adverse attention in local media. Slight national media and/or local/regional political attention. Adverse stance of local government and/or action groups. • 4 National impact - National public concern. Extensive adverse attention in the national media. Regional/national policies with potentially restrictive measures and/or impact on grant of licences. Mobilisation of action group. • 5 International impact - International public attention. Extensive adverse attention in international media. National/international policies with potentially severe impact on access to new areas, grants of licences and/or tax legislation.

46. Classification findings/recommendations WeaknessDefinition Serious Exposes company to a major extent in terms of achievement of corporate HSE objectives or results High Though not serious, is essential to be brought to attention of senior management team. Includes any medium weakness which is repeat finding from previous report. Medium Could result in perceptible and undesirable effect on achievement of HSE objectives. Low ** No major HSE impact at process level, correction will assure greater effectiveness/efficiency. ** Low Recommendations will be kept out of body audit report. Will be appended to report as memo to auditee.

47. Bow-tie Concept Harm to people and damage to assets or environment Events and Circumstances BARRIERS HAZARD CONSEQUENCES Undesirable event with potential for harm or damage Engineering activities Maintenance activities Operations activities

48. HSE Risk Management SAFETY / HSE CASE COMPANY CONTRACTOR • Demonstration (regulator, shareholder • Major hazards of installation • Quantitative risk assessment • Safety-critical activities • Latent failures • Execution • (Minor) hazards at the workplace • Qualitative risk assessment • Hazardous activities • Active failures Engineering Design Hardware WORKPLACE HAZARD MANAGEMENT Operations People

49. Contractor HSE • What is contracted? • equipment and personnel • specified product or service • Contractor HSE management system • Pre-qualification: can contractor meet all HSE req’s? • Role of contractholder/ single point responsibility • Contract HSE plan • have all hazards been identified • are controls in place to eliminate/control hazards • are systems in place to verify: audits and inspections

50. Policy Process Task Managing HSE Risk OU Contractor HSE-MS HSE-MS interfacedocuments Rig specificHSE Case HSE Case contractualrequirementsHSE Plan Manageworkplacehazards Manageworkplacehazards