While the commission that was appointed by President Obama to look into the fatal explosion aboard the BP plc-leased Deepwater Horizon rig on April 20 continued to press for a higher liability cap on offshore damages and the creation of a separate safety institute Wednesday, some senators were concerned with the fact that liability is centered solely on the operator, allowing contractors a free pass.

Speaking at a U.S. Senate Committee on Energy and Natural Resources hearing on the Deepwater Horizon incident on Wednesday, Sen. Ron Wyden (D-OR) asked commission Co-Chairmen Bob Graham, a former senator and governor from Florida, and William Reilly, who was administrator of the Environmental Protection Agency under the George H.W. Bush administration, why contractors currently hold no responsibility.

"We've got BP holding the lease from the federal government, then we've got contractors that own the rigs and do the drilling," Wyden said at the hearing. "The problem has been that the contractors hide behind the leaseholders and try to shield themselves from liability." In the Macondo well tragedy, Wyden noted that both Halliburton and Transocean "rushed to blame BP."

In its original findings (see Daily GPI, Jan. 12), the commission proposed that a $75 million liability cap on offshore damages be lifted, saying it is "totally inadequate." But the commission 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 of Mexico (GOM).

"If all you do is lift the liability limits...the contractors, and the pervasive problems that you all have pointed out, are not going to be subject to liability," Wyden continued. "They've absolved themselves. Should the Congress consider some sort of special approach to ensure there is accountability with the contractors?...If you don't do something like that and all you do is lift the liability limits, we will continue to have this finger-pointing routine in case after case after case. We won't have built up the kind of tier of safety protection that the public deserves."

Reilly responded that operators are best suited to shoulder the responsibility. "A good operator is in charge of everything that happens and is extremely rigorous with respect to policing contractors," he told the committee. Sole liability "on those who actually own the lease, have the responsibility and write the contracts for their contractors is probably better than the alternative of trying to parcel out [liability] -- particularly given how hugely complex the relationships and the number of service contractors there are that support one large rig for example... Most good operators work very hard to try to make sure that the whole stream of support services that they have is managed effectively."

Reilly said GOM resources can be accessed safely. "We believe that in order to create a sustainable entity with integrity, free from political interference and from the concerns of revenue generation, a distinct entity must be created, a safety institute within the Interior Department to regulate for safety and environment."

He added that the commission wasn't satisfied with the industry's safety and environmental management. "We respect those systems and understand how good they are," Reilly said. "However, at the conclusion of [the industry's] presentations, I found myself asking, 'well with all that you are doing...your rigs were nevertheless shut down in the Gulf. Not only that, your response plans were concerned to protect walruses. Your fatality rate is five times what it is in the North Sea, which is a much more punishing environment.' And as I was told the very first week of my appointment, by the [then] CEO of BP, Tony Hayward, 'we have no adequate subsea containment capability or technology.'"

Graham noted that since the 1950s when the decision was made to lease federal tracts in the GOM for oil and gas exploration, "we have had a national responsibility to see that the exploration was done in a manner that was safe, environmentally protective and beneficial to the nation. That responsibility has become greater as the industry has moved into deeper and deeper, and inherently more risky areas of the Gulf.

"Drilling offshore will never be reduced to zero risk, but as a nation we can take some concrete steps that will dramatically reduce the chances of another Macondo. The commission believes these steps are necessary...as we fulfill our role as a prudent landlord of this property that belongs to the people of the United States. If dramatic steps are not taken, we fear that at some point in the coming years, another failure will occur and we will wonder why Congress, the administration and the industry stood idle."

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