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Oil industry regulation: scepticism over new sheriff in the wild wild west

September 7, 2010, 8:58 am

Originally posted by Tim Webb - The Guardian - September 6, 2010

Oil industry executives in the US call the Gulf of Mexico the "wild wild west", a place where regulations are rarely enforced and offshore operators can do what they want. Barack Obama has promised to tighten regulations to prevent a repeat of the Gulf disaster but many within the industry are sceptical that much will really change.

A failure of regulation is as much the cause of the disaster as the actions of BP and the other companies involved on the Deepwater Horizon rig, which exploded in April. The evidence that has emerged so far from the US congressional investigations reveals countless instances of standard safety procedures being ignored. It transpires that the federal regulator, the Minerals Management Service, wasn't so much asleep at the wheel but abdicated itself entirely of any responsibility for making sure offshore operators complied with the law.

Staff allowed operators to fill in and sign off safety audits of their offshore operations that the regulator was supposed to carry out itself. Among Houston-based insurers, BP had a reputation for being the riskiest operator and for pushing its subcontractors the hardest, industry sources have told the Guardian. But it would never have been allowed to carry on like this had the regulatory sytem not failed.

Reining in the industry will be no easy feat. Big Oil – like much of the American South where it is based – is fiercely resistant to what it perceives as interference from the federal government. In New Orleans in June, a judge ruled in favour of a group of oil services companies that had appealed against the moratorium on deepwater drilling imposed by the White House following the disaster. The judge agreed that the ban risked causing more economic damage to the region. In the end the ban still stood, but Obama was given a bloody nose and reminded that the oil industry was not about to turn the other cheek.

Industry experts fear that many of the changes will be no more than cosmetic. Obama is planning to break up the MMS to prevent conflicts of interest arising in the future, and has already changed its name. He has also promised to end the revolving-door practice of staff finding well-paid jobs as lobbyists for the industry when they leave the regulator.

Mike Sawyer, a Houston-based oil industry engineer, is not hopeful that the new regulator will be any more effective than its predecessor. "You have the same guys from the agency now working for the new regulator. All that's happened is the pack has been reshuffled. If you put a dress on a pig it's still a pig," he says. Without a massive increase in funding, it's hard to see how any regulator can closely monitor hundreds of offshore operators, many of whom are drilling in water thousands of feet deep using increasingly sophisticated technology. "Anytime that someone from MMS or any other government regulator goes out to one of the rigs or refineries, the engineers run circles around them on knowledge – as a regulator you can't see everything," Sawyer adds.

The oil industry is notorious for wielding influence in the corridors of power in Washington to protect its interests. According to a political watchdog, the Centre for Responsive Politics, companies contributed more than $35m to federal political candidates and parties ahead of the 2008 election. One source recalls trying to drum up interest in Washington about a lawsuit being filed against a major oil company in the Gulf. "Each time we visited, the politicians would say 'oh, that company has just been here'. They were always one step ahead of us. No-one was interested in what we had to say."

The oil industry has a powerful card to play with the politicians: energy security. Domestic oil production, most of which comes from the Gulf, reduces US dependence on foreign imports. Companies have already threatened to take their rigs elsewhere if new safety regulations make drilling too expensive.

BP's public relations line is that it will take responsibility for cleaning up the Gulf and making those affected by the disaster "whole" again. But privately its lawyers will fight tooth and nail to limit the amount of fines and compensation it must pay out. BP is still in dispute with another regulator, the Occupational Safety and Health Administration (Osha), over the explosion at its Texas City refinery back in 2005 that killed 15 workers. Osha had originally fined BP $87m for not implementing hundreds of required safety improvements at the refinery. BP appealed and recently negotiated an out-of-court settlement over some of the charges, but will continue to contest the rest. It knows its negotiating position is stronger now because public – and political – interest has moved on.

Brent Coon, a lawyer who represented one of the victims of the explosion who successfully sued BP, says he fears a similar scenario could occur in the Gulf now that BP has finally sealed the well for good. "The public is not thinking too closely now about what happens when the media and the cameras leave but when that happens, the people of the Gulf will be left to their own devices."

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