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Oil Drillers Resisting Tougher Offshore Oversight, Salazar Says

U.S. drilling companies are resisting efforts by President Barack Obama to beef up oversight of offshore oil and natural gas operations on federal leases, Interior Secretary Ken Salazar said.

An overhaul at the Minerals Management Service, which oversees platforms such as the Deepwater Horizon that exploded in the Gulf of Mexico last month, “raised the ire” of companies, Salazar said today in remarks at a Senate hearing.

Salazar is making his first appearance before Congress since Transocean Ltd.’s $365 million platform, leased by BP Plc, exploded April 20 and sank two days later, killing 11 workers and unleashing a spill that threatens the Gulf Coast. Lawmakers have said the MMS failed to ensure that BP and other drillers were operating under proper safety guidelines.

“Many of the changes we have made have raised the ire of industry,” Salazar told the Senate Energy Committee. “In the past 16 months, our efforts at reform have been characterized as impediments and roadblocks to the development of our domestic oil and gas resources.”

Obama has vowed to end the “cozy relationship” between companies and regulators. The administration is splitting MMS to separate inspection and safety enforcement from leasing and royalty collection. The agency generates about $13 billion a year for the U.S. by partnering with companies to develop oil and gas, trailing only the Internal Revenue Service in revenue.

Photographer: Aaron M. Sprecher/Bloomberg

Ken Salazar, U.S. interior secretary, to make an appearance before Congress. Close

Ken Salazar, U.S. interior secretary, to make an appearance before Congress.

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Photographer: Aaron M. Sprecher/Bloomberg

Ken Salazar, U.S. interior secretary, to make an appearance before Congress.

At least eight congressional committees scheduled hearings on the BP oil spill this month, including today’s separate hearings by Energy, Environment and Commerce.

Obama Commission

Obama is planning to create a commission to investigate the accident, similar to presidential probes of the 1979 Three Mile Island nuclear accident and the 1986 Space Shuttle Challenger disaster. The president has suspended issuing offshore drilling permits for 30 days.

“There’s plenty of responsibility to go around,” Salazar said. “That responsibility, I will say, starts first with the Department of Interior and the Minerals Management Service. We need to clean up that house.”

Confidence in the MMS was “seriously eroded” by “well- publicized examples of misconduct and ethical lapses,” Salazar said. In 2008, Interior Department Inspector General Earl Devaney that found employees in the unit collecting lease fees had sex with and accepted gifts from industry contacts while failing to collect almost $200 million owed by energy companies.

Salazar said work also is needed on regulation of blowout preventers, devices intended to stop wells from gushing. The blowout preventer 5,000 feet below the surface at BP’s well has failed to shut off the flow of oil.

BP Remedies

BP is considering filling the failed preventer with tires and other junk to block the oil, adding a second device, or injecting drilling mud into the well. Salazar said using the mud, known as a dynamic kill, is the “best option” to stop the leak.

“This Saturday or Sunday, triggers will be pulled to try the dynamic kill,” Salazar said.

Senator Jeff Bingaman, a New Mexico Democrat and chairman of the committee, said changes in the drilling plan that may have contributed to the disaster “can been driven by cost and the desire to make up lost time in a drilling project. Where was the MMS in this process? Was it consulted?”

Bingaman said that while questions have been raised about procedures used to cement the well, MMS regulations were followed. The well had failed a pressure test hours before the explosion, suggesting that natural gas may have seeped into it, Representative Henry Waxman, a California Democrat, said last week citing a report from a BP official.

Cement Issue

“It is possible that the extent of the cementing was inadequate for this particular type of well given its other design features,” Bingaman said. “However the amount of cement appears to have met MMS’s technical standards.”

The well is leaking an estimated 5,000 barrels of oil a day, according to BP, the U.S. Coast Guard and the National Oceanic and Atmospheric Administration. BP today said it doubled the amount of oil it’s able to collect from the leak using a mile-long pipeline connecting the well to a ship on the surface.

Regulators authorized BP to employ a technique that uses chemicals under water to disperse oil near the seabed, EPA Administrator Lisa Jackson told the Senate Environment and Public Works Committee. The dispersants are toxic and must be monitored, she said.

“Dispersants are generally less toxic than the oils they break down,” Jackson said. “However, the long-term effects of dispersants on aquatic life are unknown.”

Onshore Rules

The MMS yesterday released rules on oil and gas leasing on land aimed at bolstering environmental protection. Republicans said the measures will slow energy development.

“These new regulations aren’t aimed at improving drilling safety and will only lead to lost jobs by stifling American-made energy production,” Representative Doc Hastings, a Washington Republican, said in a statement. The rules “will only serve to drive up the price of energy and cause further damage to our economy.”

To contact the reporter on this story: Jim Efstathiou Jr. in Washington at jefstathiou@bloomberg.net.

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