Gulf oil spill report warning: US must watch offshore drilling more closely

In its final report released Tuesday, the National Oil Spill Commission is recommending the federal government increase not only the budgets of agencies charged with regulating the oil and gas industry, but also that it remove the $75 million liability cap to cover economic damages caused by future oil spills.

The commission’s 398-page report follows a six-month investigation into the Deepwater Horizon explosion that resulted in the discharge of 4.9 million barrels (205 million gallons) of oil into the Gulf of Mexico.

Former Sen. Bob Graham (D), a commission co-chair, said in a press conference Tuesday that the report was meant to create “a factual record” of the incident, and purposely did not charge any of the companies involved with the disaster with criminal misconduct. Mr. Graham said the Department of Justice would use the report to assess future legal action taken against BP, Transocean, and Halliburton, the three leading players involved in the disaster.

The report offers an exhaustive examination of what caused the oil rig to explode April 20, the response, and its consequences on the regional economy and Gulf of Mexico ecosystem. Besides showing how the explosion was preventable, the commission uses its findings to create a portrait of government agencies it says lagged behind industry in regard to engineering expertise and technology, which it says is the basis for its recommendations of increased funding and oversight.

“The technology, laws and regulations, and practices for containing, responding to, and cleaning up the spills lag behind the real risk associated with deepwater drilling … government must close the existing gap and industry must support rather than resist that effort,” the report states.

Among the commission’s many recommendations:

• Increased and more comprehensive drilling, production, and emergency response standards need to be established that are specific to individual environments or operations. These new measures will mean a greater frequency of audits. The time to evaluate drilling leases should be extended from 30 to 60 days.

In the drilling permit process, operators will be required to show regulators a profound understanding of the geography of the high-risk area and a proven track record of competence. They must demonstrate that they have the financial capability to complete the job. Oil operators should also be able to show that all components of the well – particularly the blowout preventer – are equipped with sensors that can provide accurate diagnostic information even during an emergency.

• Congress should authorize a new agency within the Department of the Interior that will oversee operational and occupational safety independent of the leasing program. Commission Co-Chair William Reilly described the agency as being headed by a person with “long-term industry knowledge and experience [who] cannot be removed or politically interfered with.” In order to stack the agency with regulators with the same level of engineering and technical experience as those in the private sector, Mr. Reilly said competitive salaries in line with industry are needed.

• The Environmental Protection Agency needs to update its procedures for testing chemical dispersants. Reilly said that the pre-approval process for dispersants needs to involve testing that reflects “real time situations” rather than just sticking to a single standard.

• Congress should allocate 80 percent of future Clean Water Act penalties levied in the Deepwater Horizon incident to provide long-term restoration of the Gulf of Mexico. A state-federal council should be established to create project goals for ecosystem recovery, and that council should receive input from a citizen advisory panel representing regional stakeholders.

• Because the scope of the economic and environmental damages caused by the disaster is unprecedented, the current $75 million liability cap established by the Oil Pollution Act of 1990 is insufficient. The commission is asking Congress to “significantly increase the liability cap and financial responsibility requirements” to ensure damages will be paid even if the responsible party does not have the resources or goes bankrupt before compensation is complete.

• The commission stopped short of saying what the new liability cap should be, but Graham suggested that one option is that it should be “variable based on actual risk.” He argued that because different drilling depths and environments offer different challenges, liability might be determined on a case by case basis.

• To protect smaller companies that may find their insurance rates spike due to damages resulting from larger operators, the commission is suggesting industry create a “mutual insurance pool” that would require operators to pay premiums that would be kept in reserve in case of a spill.

Although the commission is leaving it up to the Department of Justice to determine the fines it intends to pursue, Albert Lin, an environmental law professor at the University of California at Davis and a former US Attorney, says it is likely it will be significantly higher than the $1 billion in damages collected from Exxon following the Valdez disaster in 1988.

“There’s no perfect formula for figuring out the right amount,” says Mr. Lin, but the commission report will be helpful in determining factors like past negligence that can be used to create a rough methodology. BP could try to reduce the amount of damages by saying it has been cooperative in establishing a $20 billion escrow fund to pay for losses suffered by individuals and business owners through an independent claims facility.

Lin says the company can also use the fund to plead against a larger fine, saying it already has paid so much in civil claims.

With so many in the new Congress already speaking out against industry regulation in other matters such as health care, there is a question as to whether or not the commission’s recommendations to expand regulation in the oil and gas industry will be welcome.

Graham says he is optimistic that the issue “will override an ideological preference for less government.” He adds that because the recommendations are about “regulating land the people of the United States owns and … we are stewards of invaluable assets,” legislators should understand how the matter differs from private enterprise.

President Obama created the commission May 22, approximately one month after the explosion. Because of its six-month deadline, it did not have a chance to report findings from the blowout preventer, which is currently being tested.

Those findings are likely to be included in the investigation conducted by the Coast Guard and Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE).