After six months of hearings the presidential commission on the BP Deepwater Horizon rig disaster released its final report Tuesday, calling for major safety reforms in the offshore oil and natural gas industry, such as the creation of an industry-run offshore safety institute. Producers were divided on some of the report's conclusions and recommendations.

Producers took issue with the commission's finding that the problems that contributed to the fatal explosion aboard the BP plc-leased Deepwater Horizon rig on April 20 were not isolated, but rather were evident throughout the industry. The disaster unveiled "systemic failures" in both the oil and gas industry and the federal government that regulates producers, said commission Co-Chair Bob Graham, a former senator and governor from Florida, during a press briefing on the 320-page report's findings and recommendations.

Over the past 20 years there has been a "rapid movement by the oil and gas industry to...deeper, riskier and riskier areas of the Gulf of Mexico," and "we became lulled into a sense of inevitable success," he said. On April 20, "after a long period of rolling the dice, our luck ran out," Graham said.

"It seems to me to be indisputable that the solution to the problem is industry wide," said commission Co-Chair William Reilly, who was administrator of the Environmental Protection Agency under the Bush administration. In addition to "bad decisions" and "blunders" made by BP, Halliburton and Transocean, a "culture of complacency that affected [both] government and industry" contributed to the blowout of the Macondo well and ultimate explosion.

BP was majority owner and the Macondo well operator when the blowout happened. Transocean Ltd. owned the Deepwater Horizon rig, which BP leased to drill the well; and Halliburton was the primary service operator. The explosion on April 20 killed 11 people and decimated a large portion of the Gulf Coast region commercially (see Daily GPI, April 23, 2010). Halliburton Tuesday disputed the report's characterization of February and April foam stability tests related to the cement pump on the Macondo well.

Reilly said the oil and gas industry may not have been a "high-risk" industry in shallow waters, but it has become one as it has moved into the deep waters of the Gulf.

"We object to the commission's insistence on there being a 'systemic' problem throughout the industry. This is not supported by the facts. Over 43,000 wells have been drilled in the Gulf of Mexico without a Macondo-like accident," said Randal Luthi, president of the National Ocean Industries Association (NOIA), which represents the offshore industry.

"Nor does this disaster-free record show a culture of complacency. The April 20 accident cannot be taken lightly, but it should not be used as a dam to halt efforts for energy security and reliability," he said.

"The report is not an indictment of offshore oil and gas production. While many opposed to offshore exploration will undoubtedly use the report to bolster their calls to stop offshore oil and gas development, even the commission members themselves recognize the importance of moving ahead with additional development," Luthi said. Both Graham and Reilly have been critical of the moratorium, saying it was "excessive and lasted too long," Reilly pointed out.

Likewise, Erik Milito, upstream director of the American Petroleum Institute (API), said he was concerned that the report casts doubt on an entire industry 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."

The report calls for the creation of a safety agency within the Interior Department, which would have enforcement authority to oversee all aspects of offshore drilling safety. The agency would be headed by someone with a background in science and management.

It also recommends that funding for the Bureau of Energy Management, Regulation and Enforcement (BOEM) be increased to step up inspections of rigs and platforms.The additional funds, it suggests, could come from fees on new or existing leases. It's "sad to say" that part of the reason for the Deepwater Horizon rig explosion was that "our government let it happen...Our regulators were considerably outmatched," Graham said.

The commission also proposed the establishment of a "safety institute that is entirely controlled and managed by industry, which enforces best practice, which evaluates, which audits and which grades the performance of various companies," Reilly said. The safety institute would supplement the government's oversight of industry operations.

It is "essential [the] safety institute operate apart from API," which it said is "culturally ill-suited to drive a safety revolution in the industry." The report added that API has an "established record of opposing reform and modernization of safety regulations."

There has been resistance from both industry and Congress to the concept of a safety institute, but Reilly said, "we're going to make a lot of noise" to win support this time around. Both co-chairs plan to testify before the Senate Energy and Natural Resources Committee and House Natural Resources Committee later this month.

NOIA's Luthi said the report "rightfully points out that we in the oil and gas industry, as in any walk of life, should always be striving to improve safety." He said industry efforts to improve safety were under way even before the presidential commission was formed.

"Some of the major companies have established the Marine Well Containment Corporation, which will continue technology research and development in deepwater containment efforts. Other companies have made immediate efforts to have the best available containment and response equipment more available now," Luthi said.

He further said the recommendation to establish a self-regulating safety institute is "certainly worth more discussion and study." However, "any such institute must have the full support of all aspects of the industry, from the smallest service company to the largest multinational corporations."

The commission also proposed that a $75 million liability cap on offshore damages be lifted, saying it is "totally inadequate." But the panel did not go as far as to recommend an unlimited liability. It said that was up to Congress to decide. Reilly believes that "some sort of compromise" will have to be worked out so that smaller producers are not driven out of the Gulf.

If there has to be a liability cap, Graham suggested that it be variable, depending on whether a producer is operating in shallow waters or ultradeep waters.

In response, the API said it has already begun the process of creating an industry safety program for deepwater operations that will build on API RP 75, a safety practice that was recently adopted by BOEM. That program will draw from the best practices in the nuclear and chemical industries and will use independent, third-party auditing to measure performance, the API said.

In May the Interior Department split the Minerals Management Service into three separate entities to ensure that enforcement, energy development and revenue collection responsibility were separate (see Daily GPI, May 21, 2010). However, "We think it's not enough," said Reilly. He believes more must be done to ensure that revenues do not influence issues related to safety.

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