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Shallow-Water Drillers Must Verify Blowout Devices, U.S. Says

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U.S. interior secretary Ken Salazar
U.S. interior secretary Ken Salazar speaks during a Senate Environment and Public Works Committee hearing in Washington. Photographer: Andrew Harrer/Bloomberg

June 9 (Bloomberg) -- Oil and gas companies drilling in the Gulf of Mexico’s shallow waters must verify that they meet new requirements for blowout preventers by June 17, U.S. regulators said.

Companies will have to get an independent third party to confirm that the devices to stop spills work and are compatible with well locations, the Interior Department said in a statement yesterday. Those that don’t comply will be subject to shut-in orders, meaning operations on the rigs may be halted.

The Obama administration said last week that companies drilling in shallow Gulf waters needed to resubmit applications to meet standards added after the BP Plc oil spill that began when a rig exploded April 20. The blowout preventer on the deepwater BP well failed, and oil continues to spew into the Gulf.

“We must ensure that offshore drilling is conducted safely and in compliance with the law,” Interior Secretary Ken Salazar said in the statement. “Shallow-water drilling may continue under the stronger safety requirements that we are implementing.”

The rules were set out in notices the department’s Minerals Management Service sent to lessees yesterday, according to the statement. In addition to certifying blowout preventers, companies must submit safety certifications by June 28.

While the requirements will apply to both deepwater and shallow-water drilling operations, companies operating in waters deeper than 500 feet remain under a six-month moratorium, the department said.

Trade Group

MMS must be careful not to impair the industry’s ability to produce oil and natural gas, the American Petroleum Institute said in a statement yesterday. The moratorium on deepwater drilling may idle 50,000 workers in Gulf states, the Washington-based trade group said.

The new requirements mean a “framework is beginning to take shape to allow shallow-water drilling activity to resume,” the institute said. “Domestic oil and natural gas production will continue to be an integral part of our nation’s energy future.”

Third-party certification of blow-out preventers is the main new hurdle for the industry, Randall Stilley, chief executive officer of Houston-based Seahawk Drilling Inc., said in an interview. Companies already meet several of the other requirements, he said.

“This is not a huge change for us,” Stilley said.

Industry remained concerned that requirements regulators have yet to announce for exploration and drilling plans could further delay drilling activity, leaving rigs idle and forcing companies to lay off employees, Stilley said.

Sarbanes-Oxley Act

A new rule that CEOs certify compliance with safety regulations resembles the 2002 Sarbanes-Oxley Act, which set new standards for U.S. public company boards, management and public accounting firms, said Joe Hill, vice president with Tudor Pickering Holt & Co. in Houston.

The timing of compliance will depend on how confident chief executives are about putting their “John Hancock on that form,” Hill said. The requirements are likely to lead to the development of a cottage industry of firms to certify drillers are in compliance, he said.

To contact the reporters on this story: Jeff Plungis in Washington at jplungis@bloomberg.net; Jim Snyder in Washington at jsnyder24@bloomberg.net.

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

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