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Changing Cybersecurity Expectations For US Oil & Gas Companies – Security | #hacking | #cybersecurity | #infosec | #comptia | #pentest | #ransomware


Cyber risks facing the oil and gas industry continue to grow.
Legal requirements likewise are continuing to expand. The cybersecurity directives issued by the
Transportation Safety Administration (TSA) in 2021 and 2022, for
example, imposed new requirements upon certain oil and gas
pipelines, including new incident reporting obligations and
required vulnerability assessments.

The Cyber Incident Reporting for Critical
Infrastructure Act of 2022 (CIRCIA) and the Securities and
Exchange Commission’s (SEC) proposed rule to require public companies to
disclose material incidents within four business days promise
further change. Moreover, the National Cybersecurity Strategy
(Strategy) recently released by the Biden administration makes
strengthening the cybersecurity of US critical infrastructure a top
priority. Emphasizing an increase in government regulation and
private-sector accountability to “rebalance” legal
expectations for companies, the Biden administration’s Strategy
could have potentially significant consequences for the oil and gas
sector, particularly if Congress passes legislation expanding
regulatory authorities.

In short, further change is on the horizon. But what does this
mean for companies in the oil and gas industry? While it is
impossible to predict precisely how policymakers will shape
cybersecurity requirements in the future, leaders in the oil and
gas sector will benefit from understanding three key trends: first,
a shift towards earlier reporting and public disclosure of cyber
incidents; second, an increase in government oversight and
regulation of cybersecurity within the industry; and third, a
heightened focus on cyber governance, including by companies’
boards of directors.

In this article, we summarize how these trends may affect oil
and gas companies in the coming years and describe steps companies
can take to stay ahead of the curve.

Earlier Reporting & Public Disclosure of Cyber
Incidents

TSA substantially expanded cyber incident reporting requirements
in the oil and gas industry when it required critical pipeline
owners and operators to report any cybersecurity incident on a
pipeline’s network infrastructure to the Department of Homeland
Security’s Cybersecurity and Infrastructure Security Agency
(CISA) within 12 hours of identification. Policymakers are not
stopping there.

The two forthcoming requirements discussed below will also
further advance this trend towards earlier reporting of incidents
to government agencies and, in some cases, public disclosure of
cyber incidents. As a result of these and other impending changes,
a broad range of US oil and gas companies should expect to be
required to report, and possibly disclose, certain cyber incidents
in the next few years.

In 2022, Congress dramatically expanded cyber incident reporting
to the federal government with CIRCIA. That statute requires
covered entities to report certain substantial cyber incidents to
CISA within 72 hours. Covered entities will also need to disclose
within 24 hours any ransom payments made.

The exact scope and mechanics of these requirements will be
identified in a rulemaking effort led by the Director of
CISA— a process that saw extensive industry comments in
response to a request for information in September 2022. Some of
these industry comments recommended that CISA cover only the most
critical infrastructure and the most severe incidents in the
forthcoming rule.

The tone of the National Cybersecurity Strategy appears to
suggest, however, that the Biden administration may interpret
CIRCIA broadly so that it covers a wide group of incidents
experienced by a broad set of companies. While the implementation
timeline provided in CIRCIA means that any final rule is unlikely
to go into effect for at least a couple of years, oil and gas
companies should not be caught flat-footed when the time comes.

Increasing public disclosure of cyber risks and cyber incidents
to investors has been a focus of the Securities and Exchange
Commission for over a decade. Having previously issued guidance,
the SEC took the further step in March 2022 of proposing a rule
that would require publicly traded companies to publicly disclose
cybersecurity incidents on a Form 8-K within four business days of
determining that the incident is “material.”

This proposed rule raised numerous concerns for industry
stakeholders about its workability and unintended consequences. For
example, numerous stakeholders across industries urged the SEC to
permit delay of public disclosure of incidents when disclosure
would impair law enforcement investigations, compromise national
security, or otherwise have serious negative consequences for the
victim company or third parties. It remains to be seen how the SEC
will resolve the comments it received. Assuming the SEC moves
forward with a final rule that roughly aligns to the proposal,
publicly traded oil and gas companies should be prepared for early
public disclosure of cyber incidents.

Practically speaking, this trend toward early
reporting—and possibly public disclosure—will require
relevant businesses to maintain procedures that allow them to
quickly and appropriately assess the cyber incidents they face and
then, provide accurate information to key internal decisionmakers
so that they can determine whether notification or disclosure is
required. Companies that do not maintain well-defined internal
procedures for responding to cyber incidents that involve their
legal counsel and escalate key decisions to executive stakeholders
will likely struggle to meet forthcoming requirements and to manage
the consequences of incident reporting or disclosure.

As a result, oil and gas companies will likely benefit from
assessing and exercising their incident response policies,
particularly after more clarity is available around the scope and
substance of future regulatory requirements.

Increases in Government Oversight & Regulation

The National Cybersecurity Strategy prioritizes establishing
cybersecurity requirements for critical infrastructure. To that
end, the Strategy explains that the “Federal Government will
use existing authorities to set necessary cybersecurity
requirements in critical sectors.” The Strategy further
explains that the Administration will work with Congress to close
gaps in existing authorities. And it further explains that
“[w]here states or independent regulators have authorities
that can be used to set cybersecurity requirements, the
Administration will encourage them to use those authorities in a
deliberate and coordinated manner.”

While it is difficult to predict how Congress and state
governments will view these goals, it is clear that many policy
leaders share widely held concerns about cyber threats to energy
infrastructure. For example, just weeks after the Administration
announced the Strategy, the Senate Energy and Natural Resources
Committee conducted a hearing to examine cybersecurity
vulnerabilities in US energy infrastructure. In that hearing, the
witnesses testified to the shift in the cyber threat landscape and
the need for collaborative action—including the federal
government—to address an ever-growing threat.

To address these issues, the Biden administration and
like-minded states are likely to take available actions to close
perceived gaps in government oversight. To that end, a recent report by the Government Accountability Office
(GAO) on the cybersecurity of offshore oil and gas facilities
provides an example of an area in which government action may be
forthcoming. Likewise, legislation in New York state may provide an
example of how state governments will try to steer cybersecurity
practices within the industry.

Together, these examples suggest that greater government
oversight—and possibly direct regulation—of
cybersecurity in the oil and gas industry likely lies ahead.

GAO Study on Offshore Oil & Gas
Cybersecurity

GAO’s October 2022 report described offshore infrastructure
as facing significant threats from a broad range of cybercriminals,
hackers, and state actors. Given these threats and vulnerabilities
in critical systems, including operational technology (OT), GAO
concluded that an attack could cause significant physical,
environmental, and economic harm, and that disruptions to oil and
gas production and transmission in the aftermath of a cyberattack
could have a direct impact on global supplies and markets. GAO
called on the Bureau of Safety and Environmental Enforcement
(BSEE), and agency within the Department of the Interior, to
immediately develop and implement a cybersecurity strategy for
offshore oil and gas facilities.

It remains to be seen how exactly BSEE will move forward and
what implications this will have for oil and gas companies.
However, in light of the National Cyber Strategy, companies should
likely expect the Biden administration to use available authorities
to drive changes in cybersecurity practices in offshore facilities,
as well as other areas that the administration itself identifies as
not being subject to relevant cybersecurity requirements.

Companies that are currently subject to limited regulation on
this front will consequently likely benefit from engaging with the
Biden administration on potential policy approaches and specific
proposals to ensure that chosen approaches actually improve
cybersecurity and do not have unintended consequences. At the same
time, such companies will likely benefit from reviewing regulatory
requirements or guidance in related sectors, as well as relevant
industry best practices. While not required by law, confirming that
their cybersecurity management programs are generally aligned with
these guideposts will likely help prepare an oil and gas company
for any future regulation or guidance applied directly to its
business.

State-Level Action

Recent action in New York state may provide an indication of how
state legislatures and regulators may weigh in on cybersecurity in
the oil and gas industry. There, Governor Kathy Hochul signed legislation (A.3904B/S.5579A) increasing
cybersecurity oversight of New York’s energy industries at the
end of 2022.

Amongst other things, the new law will provide the Public
Service Commission, which regulates New York’s energy
industries, with enhanced auditing powers. This includes the
authority to perform “an annual audit of gas corporations and
electric corporations relating to the adequacy of cyber-security
policies, protocols, procedures and protections.” The statute,
among other provisions, also requires utility companies to prepare
for cyberattacks as part of their annual response plans and directs
the Public Service Commission to establish rules requiring gas
corporations and electric corporations to develop and implement
capabilities to detect unauthorized network activity.

New York’s action aligns with the Biden administration’s
interest in states helping to set minimum cybersecurity
requirements for critical infrastructure. How many other states
will follow suit remains to be seen. However, oil and gas companies
should be prepared to see more state-level actions akin to those in
New York, especially in states where significant oil and gas
infrastructure is located. As at the federal level, tracking these
proposals and engaging effectively with state legislators and
regulators will likely help make future requirements both more
effective and more practical.

Heightened Focus on Governance

Effective cybersecurity requires strong collaboration between
technical stakeholders, safety teams, legal, communications, and
other functions. Strong cybersecurity programs are typically
documented in appropriate policies and procedures, and oversight is
performed by senior executives and the board of directors.
Expectations around these governance best practices are rapidly
increasing.

The anticipated revision to the NIST Cybersecurity Framework
will introduce a new “Govern” function, for example, and
the SEC’s proposed rule regarding cybersecurity disclosures by
registrants would emphasize governance in the required disclosures.
Oil and gas companies should expect this focus on governance to
continue to grow in the coming months and years, and refine their
own cyber risk management and oversight approaches accordingly.

NIST Framework v.2.0

The Framework for Improving Critical Infrastructure
Cybersecurity, issued in 2014 by the National Institute for
Standards and Technology (NIST), has become a broadly utilized tool
for managing cyber risk to oil and gas companies, among others.
After making limited updates to this framework in 2018, NIST now
anticipates making more substantive revisions in an upcoming
version 2.0.

To that end, in January 2023, NIST released a concept paper describing its intended approach
and soliciting public comment. This concept paper flagged
NIST’s intent to highlight governance in version 2.0, elevating
it in a new “Govern” function that would join the
existing five functions—identify, protect, detect, respond
and recover.

According to NIST, this “new crosscutting Function will
highlight that cybersecurity governance is critical to managing and
reducing cybersecurity risk.” This function “may include
determination of priorities and risk tolerances of the
organization, customers, and larger society; assessment of
cybersecurity risks and impacts; establishment of cybersecurity
policies and procedures; and understanding of cybersecurity roles
and responsibilities.”

NIST explains that these “activities are critical to
identifying, protecting, detecting, responding, and recovering
across the organization, as well as in overseeing others who carry
out cybersecurity activities for the organization, including within
the supply chain of an organization.” In NIST’s
estimation, elevating governance to a function “would also
promote alignment of cybersecurity activities with enterprise risks
and legal requirements.”

In short, oil and gas companies—many of which have long
employed the NIST Cybersecurity Framework—should expect
governance to be a core and expected feature of their cybersecurity
programs in the future, if not already. To that end, oil and gas
companies would be well served to confirm that existing policies
and procedures, and other governance tools, adequately address the
governance goals previewed by NIST.

SEC Rulemaking

The SEC’s proposed cybersecurity rule likewise highlights
cybersecurity governance. It would require detailed disclosures
regarding: policies and procedures, if any, for identifying and
managing cybersecurity risks and the company’s cybersecurity
governance; the board of directors’ role in oversight of
cybersecurity risks; and management’s role in managing
cybersecurity-related risks and implementing the company’s
cybersecurity policies and procedures.

For example, it would require a registrant to explain:

  • Whether the registrant has a cybersecurity risk assessment
    program, and if so, provide a description of such program.

  • hether the entire board, specific board members or a board
    committee is responsible for the oversight of cybersecurity risk;
    and how the board is informed about cybersecurity risks, and the
    frequency of its discussions on this topic.

  • Whether and how the board considers cybersecurity risks as part
    of its business strategy, risk management and financial
    oversight.

In addition, under the rule as proposed, a registrant would be
required to disclose whether any board member has cybersecurity
expertise, and, if so, the nature of such expertise.

While the details of any final rule remain to be seen, the
SEC’s approach confirms the increasing expectations for
governance of cyber risk by registrants. Oil and gas
companies—even including those that are not public
companies—will be well served to evaluate their own cyber
governance practices and to confirm that their senior leaders
provide effective oversight.

Conclusion

Cybersecurity expectations for US oil and gas companies have
increased in recent years and further change is on the way.
Companies should engage with policy makers to ensure that future
policies effectively advance the cybersecurity of the industry. US
oil and gas companies also generally will be well served by
anticipating three key trends:

  • Earlier required reporting or disclosure of cyber
    incidents.

  • Increased government oversight or regulation of cybersecurity
    practices.

  • Increased expectations for cyber governance.

While the details of future cybersecurity expectations for the
industry remain to be seen, understanding and responding to these
three trends will allow US oil and gas companies to manage the
legal, financial, and reputational risks associated with the many
cyber threats that they face.

Originally published By Bloomberg Industry Group, Inc. June
2023.

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