A presidential commission to explore the cause of the recent blowout and on-going oil spill in the Gulf of Mexico (GOM), safety and environmental regulations that govern offshore production, and the relationship between the Minerals Management Service (MMS) and producers will be created by President Obama, Interior Secretary Ken Salazar told a Senate energy committee last week.

The White House has formed national commissions on only two other occasions in recent memory — the explosion of the Space Shuttle Challenger on Jan. 28, 1986 and the Three Mile Island incident near Harrisburg, PA, in 1979 — the site of the worst civilian nuclear accident in U.S. history.

In addition, Salazar said the MMS, which regulates offshore energy production, and the U.S. Coast Guard are conducting a joint investigation of the explosion aboard the BP-leased Deepwater Horizon rig in the GOM, while the inspector general of Interior is looking into whether any MMS officials or employees were involved in any regulatory improprieties.

Salazar defended the agency, saying that while “there are some bad apples at MMS,” most of the employees are “good public servants.” A number of committees in the House and Senate also are carrying out investigations.

Members of the Senate energy panel accused MMS of being the lap dog for the oil and gas industry. While this might have been the case in the past, Salazar said this was not the case now. “This is a very highly regulated industry…There is a very robust regulatory review in place.”

However, policymakers still will need to “take a hard look” at the laws governing the exploration and development of oil and natural gas in the OCS, particularly the law that requires the MMS to act on exploration plans within 30 days, Salazar said. He agreed that the industry, MMS and Congress may have become lax over the years with respect to oil spills, given it’s been 40 years since the last major spill involving a rig off of Santa Barbara, CA.

And “collective responsibility has to be put right at the the feet” of BP, Halliburton, Transocean Ltd. and Cameron, the manufacturer of the blowout preventer, and other associated companies, Salazar said. After several meetings between the administration and BP, “our expectation…is that every cent that is required to make Americans whole and [the] environment whole will in fact be there,” Salazar said.

“Regulatory failure is one of the three interlocking failures that I believe are at the heart of this [rig explosion and spill] problem,” said Committee Chairman Jeff Bingaman (D-NM) during the hearing. He noted that several areas bore close examination. For one, were the right technical standards in place to govern the drilling being undertaken by the Deepwater Horizon rig? he asked. Bingaman expressed concern about the cementing operations. “It’s possible that the extent of the cementing involved here was inadequate for this particular well.”

He further said the GOM disaster “could be a result of a limited and reactive role that MMS seems to have taken over the years toward these highly complex wells…Many MMS employees do have relevant expertise and are involved in research and key areas of well safety…They need to be more fully engaged with industry in reviewing overall design and implementation of these challenging deepwater wells.”

Bingaman further said potential regulatory failure “is exemplified by the lack of follow-through on how approved plans are implemented, including the detection and response to unusual occurrences that might warn of bigger problems.”

In a separate Senate committee hearing last Monday, Homeland Security Secretary Janet A. Napolitano said she wanted to “reserve judgment on the adequacy” of BP’s response efforts to the massive crude oil spill.

“Whether during the exact hours around the sinking of [the] rig, they should have had more or different equipment there, or more or different kinds of expertise there, it would be premature of me to say,” she said during a hearing of the Senate Homeland Security and Governmental Affairs Committee, which is reviewing the federal agency and industry responses to the the rig explosion on April 20.

Rear Admiral Peter V. Neffenger of the U.S. Coast Guard said he was “very impressed with what I’ve seen” of the cleanup efforts by federal agencies and industry. “I do believe we have the capability” to carry out an effective cleanup.

Both Neffenger and Napolitano expressed some concern about the spill potentially reaching the southern Florida coast. Tar balls came ashore the Florida Keys last Wednesday, but the Coast Guard determined that they were not from the oil spill. The Coast Guard “is watching that [the Loop Current] very carefully,” said Neffenger. If the spill should reach Florida, it would be a “more manageable piece” than what the GOM is facing, he noted.

“We’re actually treating it [Loop Current] as if it were its own coastline,” Napolitano said.

As of last Monday, she reported that claims against BP were being filed online. “So far over 16,000 claims have been filed by affected individuals and businesses. BP has paid out over $9.6 million. It has not yet denied a claim,” she said.

The fallout from the oil slick is beginning to be felt at the higher echelons of MMS. The Washington Post reported last Monday that Chris Oynes, associate director for offshore energy and minerals management at MMS, will retire at the end of the month. He has come under fire for having an allegedly cozy relationship with the industry officials he managed.

“I can’t comment on any personnel action,” said Interior spokesman Frank Quimby, when NGI asked about Oynes planned departure.

The federal government has imposed a moratorium on any new drilling in the deepwater until investigations into the causes of the disaster are completed. It’s estimated that 60% of the oil in the GOM is from the deepwater.

Salazar said BP and other companies are pursuing a number of methods to block the oil flow. “We are throwing everything at it.” In one method, they will seek to kill the well through injecting fluids and mud into the well itself through devices that are being constructed and being deployed on the ocean floor (see related story). “The mechanisms have been built out over the last several weeks. And the expectation is that this Saturday or Sunday the triggers will be pulled to try to accomplish the dynamic kill of the well,” he told the Senate panel.

Obama last Tuesday said he was “disappointed” by Republicans effort to block a bill to raise the oil companies’ liability for economic damages from oil spills in the Gulf to $10 billion from $75 million under the current law. Producers said the bill, introduced by individual congressmen in the Senate and the House, would make GOM operations uninsurable by all but the largest companies. The President has also sent to Congress a bill to increase oil spill liability, but his bill did not specify a new limit (see NGI, May 17).

“Initial economic analysis shows raising the liability cap to $10 billion per incident would limit Gulf operations to only the largest companies, forcing mid-size and smaller firms who cannot self-insure from the market,” said Jack Gerard, head of the American Petroleum Institute.

“Insurance industry equity is insufficient to provide such coverage, but even if insurance were available, the hypothetic premium increases would raise the total unit costs of exploration and production in the Gulf of Mexico by 25%, making many fields uneconomical to produce, which would threaten our nation’s energy security, reduce government revenues and cost thousands of American jobs,” he said.

“Make no mistake, independent producers that operate in the offshore are not ‘mom-and-pop’ operations; they are well-funded organizations that have been responsible operators in the offshore for more than four decades,” said said Independent Petroleum Association of America Chairman Bruce Vincent, who is also president of Swift Energy. “However, these liability legislative proposals will empower multinational and foreign oil companies while creating an impossible financial challenge to other American companies who compete with these corporations in the offshore.”

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