Analytical Perspectives of Some of the fifteen Recommendations from the Presidential Commission on BP Oil Spill
Policymakers and lawmakers in congress are probably finding it difficult to develop a complete understanding of the threshold needed in marine law tweaking essential to make oil and gas companies change their way in the exploration of oil and gas, offshore. The British Petroleum offshore spill, the largest in US history, created an atmosphere of mistrust and sometimes misunderstanding of how laws on books have failed to meet the advancements in exploration technology and attendant accidents; and, how weaknesses in the enforcement of industrial safety regulations have given too much leeway to oil and gas companies exploring offshore. There were poignant criticisms of the long history of neglect and oversight in off-shore drilling and how this has contributed to the explosion and spill at the Macondo well. Enter the Presidential Commission on May 21, 2010 to help us find out what actually caused the British Petroleum oil spill in the Gulf of Mexico; and, provide recommendations for change or a new direction for the industry.
This week, the seven member commission unanimously endorsed fifteen separate recommendations in their released report. Among the recommendations from the Commission were: 1) Raise liability cap on offshore spills from the current $75 million to a higher threshold; 2) Commit 80% of the fines levied under the Clean Water Act from the BP oil spill to restoration of fisheries and shorelines in the Gulf Coast; 3) Toughen safety regulations for deep water oil drilling and require companies to demonstrate that they can deal with the risk associated with the well or depth of drilling; 4) Create an independent agency charged with ensuring companies share information about best practice in terms of worker safety and environmental controls; 5) Give Regulatory Agency up to 60 days before issuing out approval for oil drilling licenses; and 6) Establish better communication among federal agencies, including the National Oceanic and Atmospheric Administration and the United States Coast Guard to help improve exploration leases awards to any oil company. As many congressional lawmakers are about to act on the commission’s recommendations, this blog attempts to analyze the potential impact of these recommendations on offshore oil drilling and make some additional observations.
A. Raise Liability Cap from $75 million
The potential consequence of this recommendation is the possible increase in insurance premiums that oil and gas companies in high activity area will have to pay as they engage in increased oil and gas exploration activities offshore. Oil companies will have to fork out more money in insurance premiums if they want to engage in riskier exploration at depths hitherto unattenuated. Insurance companies underwriting exploration projects will want to have more information regarding why an oil and gas company has chosen to drill in riskier terrain or geology. The downside of this recommendation is, while huge companies in the industry may not bat an eye on the liability cap, smaller players will find they are out of luck in exploring at greater depths. Further, a few smaller oil companies may find this requirements financially inconveniencing; however, if they have to do business in an environment that will ensure that public safety is not compromised, they may want to take a second look before committing to huge projects that has potential of resulting in a spill. Lawmakers adopting this recommendation would likely inform oil and gas companies that, the huge damage to the Macondo well was minor compared to the environmental destruction and marine habitat degradation that came out of BP oil spill. This is in addition to loss of lives, money, the nation's psyche and regulatory agency re-organization from the BP oil spill experience. There is also good argument that inability of oil companies to immediately determine the extent of oil spill and in the case of the BP experience, the underestimated volume of oil gushing out of Macondo well in the first four weeks, will definitely justify raising the liability cost from seventy-five million dollars; an amount that is agreeably insufficient in case of a huge oil spill like that of British Petroleum. Documentation of marine habit damage and environmental destruction in the coming years will espouse the justification for parting with the current liability limit.
B. Commit 80% of the fines levied under the Clean Water Act from the BP oil spill to restoration of fisheries and shorelines in the Gulf Coast
Companies in the oil and gas industry have done really well for themselves and there are few doubts that they would do better in the coming decades. We have just gone through everything that is imaginable in the case of the BP oil spill. We’ve attempted to find a penalty worthy of the attention of the oil companies’ executives, or ones that will deter anyone from violating the Clean water Act with impunity. Despite a commitment to over 20 billion dollars for the Macondo well spill, British Petroleum still reported better quarterly profits. Although a company like British Petroleum may feel uncomfortable with this recommendation; it must now endeavor to do a better job regarding adherence to industrial safety regulations for its own good and that of the industry. Some of us who are industry observers believe that not only will the Gulf Coast and residents be served well by this recommendation, the 80% threshold of fines will be cautionary for risk taking oil and gas companies that are charting to nearly everywhere, underneath and overland, to seek the black gold. That the fines from British Petroleum debacle is to be spent on restoring marine life in the Gulf Coast is a learning and reflective experience for all.
The central question for lawmakers now is to ask, how did the commission come to this particular recommendation threshold? Was this in response to the clamor from the affected parties or residents of the Gulf Coast? Was it out of a genuine articulation of the size of damage and the required restoration cost to make the environment whole again? Was it in the existing provisions in the law of the land regarding the Clean Water Act or associated Laws that impact environmental sanctity? The extent of damage to an environment from an oil spill may dictate a higher percentage of levies to be committed to rectify damage. Thus recommendations articulated with a number of technical and economic factors are better justifiable, than if it was done with a fiat. While the industry as a whole may not want to question this recommendation, British Petroleum would find that it will hardly receive any sympathy from objective lawmakers. The question for lawmakers is, would the 80% threshold be laying a precedence in the correction to fisheries and shorelines damage?
C. Toughen safety regulations for deep water oil drilling and require companies to demonstrate that they can deal with the risk associated with the well or depth of drilling
Although the industry has hardly appreciated the essence of tougher safety regulations in light of the BP oil spill experience, with some of them insisting that the laws on the books are sufficient enough and they just need to be enforced. It seems appropriate to talk in terms of the changes in drilling technologies that has brought other consideration for public safety in the adoption of new ways and means for drilling for oil and gas offshore. The whole industry must be prepared at these critical moment for new adjustments in safety regulations, in light of the changing environment of risks and uncertainties in exploring for gas and oil.
Recommendations are called for a prototype of the LEAP design, Learning Experience and Performance Design model, in tweaking the safety regulations. This model is built on the premise that the oil and gas companies' efforts should be first and foremost, to enable any of their members involved in a dastardly accident of a huge oil and gas spill, to be in a position to manage the size of spill from past experience and learning of other companies (i.e. ExxonMobile and British Petroleum; and, to commit sufficient money and necessary manpower to effectively address the impact of the spill without the Federal Government stepping in to bail out the recalcitrant offender. This model breaks down the experience of oil and gas spill into three phases: before, during and after events surrounding past spills. That is, whatever learning that may have come out of ExxonMobile and BP oil spill, the industry has as a whole must has the responsibility and onus to read and understood catalog of all events and activities, both technical and non-technical, that are associated with the spill and managing the aftermath effect of the spill. Any oil company finding itself in the middle of a disastrous spill should first look at what ensued after the spill and work its way backward.
Information on the impacts of representative spills must be well understood and articulated at prior, during and after the spill to be able to understand what led to the spill, what happened during the spill, what were the consequential impact of the spill. If the oil companies understand and appreciate the after-accident impact events, they probably be more cautious, in designing, building and working on an exploration project or platform that is probably suited for a deeper depth drill or a complexity terrain or geology from where the prospecting is commencing. Would this dramatically lessen the chances of an oil spill or a huge disaster? The catalog of experience and information regarding the issues in the spill and the aftermath of the spill will create better tools for understanding risks associated with a number of offshore drilling and how to better combat the numerous after-shock events that seemed to have defeated British Petroleum and ExxonMobile in their misfortunes.
Once associated probabilities of engaging in large scale oil drilling or exploration are well understood and articulated, including what may result from an accidental explosion and the associated fines and probably the public disdain, oil companies are probably going to design an accidental oil spill-proof platforms or project; and, where they are unable, they would at least minimize the after-shock-accidental impact experience for both workers on the rigs and their management(s). For years, the oil and gas regulatory agencies have not only failed to enforce the regulations on the book, some of them hardly understood the implication of their failures and why so many people have called for the dismantling of the old and dysfunctional agency responsible for the task, the Mineral Management Services.
The LEAP model offers both the industry and the regulatory agency, real time understanding of the challenges associated with huge oil spills and the human sufferings and discomforts that often would ensue, when laws on the books regarding workplace safety, are ignored or unenforced. In addition, the model offers a combination of appreciation of the contribution of experience in accumulating knowledge of how to manage huge spills, articulate past failures of oil companies that have been in bad disasters and using such knowledge to prevent any further havoc in the industry. Supplementing oil and gas drilling knowledge with consequence of accidental explosions and spill experience information, will probably make many in the industry, take all necessary precautions to prevent huge accidents and explosion; and, associated deaths of workers.
Lawmakers must never negotiate on this particular recommendation. It is about time that the executives in oil and gas companies sit up and own-up to their past negligence with respect to regulatory safety violations. The huge oil and gas companies in the industry seem to value profits more than the challenges of having to deal with the unexpected accidental events surrounding huge explorations. The obvious failure of BP and its insistence to to workers on the Macondo well to complete the project on time, probably precipitated this accident; and since we now know that, there is hardly any reason for the lawmakers to compromise on stricter regulations on how oil and gas companies prospect for the black gold, offshore and onshore. The dramatic impact of the oil spill in the Gulf Coast is an indication that we need a firmer hand in managing how safety regulations are written and enforced in the industry.
The blog tomorrow will address the other three recommendations:
D) Create an independent agency charged with ensuring companies share information about best practice in terms of worker safety and environmental controls;
E) Give Regulatory Agency up to 60 days before issuing out approval for oil drilling licenses; and
F) Establish better communication among federal agencies, including the National Oceanic and Atmospheric Administration and the United States Coast Guard to help improve exploration leases awards to any oil company.