`Urgent Reform' of Oil Industry Needed to Prevent Spills, Obama Panel Says

Only “urgent reform” of government rules and oil industry practices can prevent future disasters similar to BP Plc’s oil spill, the presidential panel investigating the accident said in its final report.

Deep-water exploration should be overseen by an independent agency in the Interior Department, with companies paying for an overhaul, the National Commission on the BP Deepwater Horizon Oil Spill said in a report today in Washington. The agency needs a leader with a fixed term who is shielded from political influence, according to the panel.

“After a long period of rolling the dice, our luck ran out,” commission co-chairman Bob Graham, a former Democratic U.S. senator and Florida governor, said at a press conference in Washington on the report examining the April 20 blowout.

The bipartisan commission created on May 21 by President Barack Obama began work following the disaster aboard a rig leased by BP in the Gulf of Mexico. The panel concluded that systemic management failures at the London-based company and its main contractors caused the catastrophe, showing a need for an overhaul of the industry and government rules.

Lack of communication and training at BP, Halliburton Co. and Transocean Ltd., coupled with lax government oversight, led to the blast that destroyed Transocean’s $365 million Deepwater Horizon rig and spewed crude for 87 days, the commission said.

Photographer: Derick E. Hingle/Bloomberg

The Transocean Development Driller III. Close

The Transocean Development Driller III.

Close
Open
Photographer: Derick E. Hingle/Bloomberg

The Transocean Development Driller III.

The commission’s report is about “restoring the faith of the country in a vital enterprise,” saidWilliam Reilly, commission co-chairman and a former head of the Environmental Protection Agency.

‘Lot Of Noise’

The panel will “make a lot of noise” to ensure lawmakers pass legislation to enact the overhaul, said Reilly, who estimated the changes would cost as least $100 million.

“We support the commission’s efforts to strengthen industry-wide safety practices,” Scott Dean, a BP spokesman, said in an e-mailed statement. Halliburton “continues to view safety as critical to its success,” the Houston-based company said today in a statement.

Vernier, Switzerland-based Transocean said in an e-mailed statement today that its crew’s actions on the rig were “appropriate” and based on “limited information” that was provided to them.

The Bureau of Ocean Energy Management, Regulation and Enforcement was created by Interior Secretary Ken Salazar after the spill to replace the Minerals Management Service, which had oversight for drilling at the time of the blowout. The office is being split into three units, separating environmental and safety oversight from royalty collection, said Michael Bromwich, bureau director.

‘Key Reforms’

“We have already implemented several of the key reforms the commission has made clear are necessary,” Salazar said today in a statement. “We will use the commission’s report and the findings of other investigations to inform future actions to strengthen safety and oversight.”

Salazar and Bromwich added requirements for well design, blowout containment resources and cementing practices, and started a recruiting campaign to hire inspectors and engineers, the Bureau of Ocean Energy Management said on its website.

The presidential panel is the first government entity to announce its findings. The Justice Department continues a civil investigation and a probe of potential criminal violations, and the U.S. Coast Guard-Interior Department joint investigation group has a March 27 deadline for its report.

‘Unanswered Question’

“The commission has left unanswered the fundamental question of what went wrong,” said Representative Fred Upton, a Michigan Republican and chairman of the House Energy and Commerce Committee. ‘The commission’s report is limited to general assertions about the enforcement agencies and industry as a whole.’’

The panel also urged broader consultations with the Coast Guard and National Oceanic and Atmospheric Administration prior to leasing and creation of a “distinct environmental science office” within the Interior Department.

The $490 billion drilling industry faces additional U.S. safety-equipment requirements and a slower permitting process for oil exploration in waters more than 500 feet (152 meters) deep as a result of rules imposed after BP’s Macondo well exploded in April, killing 11 people.

The world’s biggest energy companies, including Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp. and ConocoPhillips, pledged in July to spend $1 billion for a non-profit company that will respond to blowouts and spills in the Gulf. Marine Well Containment Co. is assembling a fleet of vessels able to handle spills as large as 100,000 barrels of crude a day in seas as deep as 10,000 feet.

‘Too New’

“These efforts are too new to judge,” the commission said in its report.

“Chevron is confident in the safety of our drilling practices, and we are working diligently with the industry to ensure that robust drilling practices are used by all,” Margaret Cooper, spokeswoman for the San Ramon, California-based company, said in an e-mail today. “The recommendations made by the national commission will be a part of that effort.”

The commission recommended boosting “significantly” the $75 million cap on liability for offshore drilling accidents. Such a change would require action by Congress. BP has waived the limit in paying costs for the Gulf spill.

The BP spill followed 20 years of oil companies drilling in “deeper and deeper” and “riskier and riskier” areas of the Gulf of Mexico without proper government oversight, Graham said.

Safety, Revenue

The conflict between the government’s role as a safety regulator, and its reliance on royalty revenue “second only to the income tax” is to blame for the lax regulation, Graham said.

The American Petroleum Institute, the industry’s Washington-based trade group, faulted the commission for drawing broad conclusions based on its study of a single incident.

“This does a great disservice to the thousands of men and women who work in the industry and have the highest personal and professional commitment to safety,” Erik Milito, upstream director for the Washington-based trade group, said today in an e-mailed statement.

Reilly said the offshore oil and gas industry “needs to pick up its own game.” Even companies with good safety records must recognize there are “systemic problems” that demand an industry-wide response, Reilly said.

Beyond creating a new, private organization to set standards of excellence, the panel recommends the industry modify blowout preventers, so that they would allow for “more expeditious hook-ups of injection and evacuation networks and hoses,” the commission’s report said. The blowout preventer failed at BP’s Macondo well in the Gulf.

To contact the reporters on this story: Katarzyna Klimasinska in Washington at kklimasinska@bloomberg.net; Simon Lomax in Washington at slomax@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net.

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.