PSM coverage for manufacturing explosive perforation guns

NOTICE: This is an OSHA Archive Document, and may no longer represent OSHA Policy. It is presented here as historical content, for research and review purposes only.

November 8, 1995

MEMORANDUM FOR: RICHARD S. TERRILL ACTING REGIONAL ADMINISTRATOR
REGION X

FROM: JOHN B. MILES JR., DIRECTOR
DIRECTORATE OF COMPLIANCE PROGRAMS

SUBJECT: Applicability of 29 CFR 1910.119 Process Safety
Management (PSM) Standard to the Manufacture of Explosives Required Under 29 CFR 1910.109(k)(2)

This is in response to your October 24 and October 31 memoranda requesting subject clarification/interpretation with respect to the manufacture of explosives, subsequently handled and used at oil and gas well drilling, servicing and production work sites.

In your October 24 memorandum, you indicated that Region X had issued a letter of interpretation (to The Honorable Charles W. Mahlen, Commissioner, State of Alaska Department of Labor dated June 15, 1994). You indicated that the PSM standard applies in the manufacturing (including assembly) of explosive devices, that is, perforation guns, at locations other than the well site where such devices are pieced together, placed in the well, and detonated. We concur with this interpretation.

In your October 31 memorandum, you disclosed that Halliburton, the company involved in the litigation with the State of Alaska in the inspection of an explosion-related fatality, has claimed that 29 CFR 1910.119 does not apply to their operations because of the "retail facility" exception under paragraph 1910.119(a)(2)(i). They claim that the perforation guns (explosive devices which are intended to explode) that they assemble are sold to end users. Also, they claim that retail facilities as defined in the Occupational Safety and Health Administration (OSHA) Instruction CPL 2-2.45A CH-1 (which provides PSM standard compliance guidelines and enforcement procedures) would apply to their facility. Appendix B clarifications and interpretations in the aforementioned OSHA instruction includes the following question and reply:

Question: What is the definition of "retail facilities" that are exempted from coverage by the PSM standard?

Reply: With respect to enforcement of the PSM standard, a retail facility means an establishment that would otherwise be subject to the PSM standard at which more than half of the income is obtained from direct sale to end users.

Please be advised that the "retail facilities" exception is intended to apply to an establishment in the retail trade as delineated in the Standard Industrial Classification (SIC) Manual. With exceptions, retail trade establishments sell merchandise to the general public for personal or household consumption. On the other hand, wholesale trade establishments may sell similar merchandise for exclusive use by industry. A worksite where perforation guns are manufactured and from which they are sold primarily for use by the oil and gas well drilling, servicing and production industry would be considered a wholesale trade establishment. The preamble to the PSM Final Rule (Starting with the third paragraph from the bottom of the middle column on page 6369) provides further discussion on the intended application of the "retail facility" exception.

Income derived from selling perforation guns to the oil and gas well drilling, servicing and production industry may not be counted as "income obtained from direct sales to end users" for the purpose of qualifying for the "retail facilities" exception under paragraph 1910.119(a)(2)(i).