Offshore Oil Drilling in the U.S. Arctic, Part Two: The Legacy of Deepwater Horizon

This article is the second of three in a series on Offshore Oil Drilling in the U.S. Arctic. 

By Nicholas Cunningham On April 20, 2010, the Macondo well controlled by BP and the rig operator, Transocean, experienced a blowout, resulting in the worst environmental catastrophe in U.S. history.[i] The Deepwater Horizon rig suffered multiple explosions causing the death of eleven workers, ultimately sinking in a fiery blaze after two days. The gusher of oil continued for 87 days, with an estimated total of 4.9 million barrels of oil dumped into the ocean before the well was finally sealed.[ii]

The causes of the failure were multiple, with a series of failures along multiple steps in the drilling process culminating in the eventual blowout. The National Commission setup by President Obama to investigate the causes of the blowout detailed the failures in its final report. For one, the regulators responsible for drilling safety had a conflict of interest, responsible for both oversight and revenue collection. The Minerals Management Service (MMS) had the incentive to approve an expansion of offshore oil drilling due to the billions of dollars of revenues from lease sales and royalty payments, which conflicted with its expressed mandate of environmental protection and drilling safety.[iii]

Furthermore, the oversight that was conducted by MMS was often inadequate. MMS regulators would conduct both annual inspections of rigs as well as unannounced inspections, as required under the 1978 OCSLA amendments.[iv] Inspectors would check for compliance in pollution control, drilling, well completion, electrical and personal safety among other requirements. However, over the past few decades, offshore oil drilling has mushroomed and the resources available to MMS have not kept pace.[v]

Safety regulations governing the practices of offshore drilling were also found to be inadequate. Despite several high profile oil spills in the late 1980’s, including the Exxon Valdez spill, MMS failed to enact meaningful reform.[vi] MMS considered several measures to make the regulatory regime more rigorous, but delayed rulemaking, under the pressure from the American Petroleum Institute (API), an industry trade group.[vii] Twenty years passed without an upgrade in regulatory oversight. The BP Commission argues that an informal understanding coalesced between the industry and the regulators, with the oil industry convincing the regulators that technology had progressed so considerably that regulations were not needed.[viii] Instead, MMS merely urged the industry to take voluntary action to operate safely.

REFORMS IN THE WAKE OF THE DEEPWATER HORIZON BLOWOUT

Regulatory Reforms

The Minerals Management Service (MMS) was temporarily reconstituted as the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). However, final reforms were made in October 2011, by dividing the functions of the now defunct MMS into three bodies: the Office of Natural Resources Revenue, responsible for revenue collection; the Bureau of Ocean Energy Management (BOEM), responsible for administering the development of mineral resources on the OCS; and the Bureau of Safety and Environmental Enforcement (BSEE), responsible for environmental regulations and enforcement.[ix] These three agencies were intended to enhance regulatory oversight by reducing the conflict of interest between collecting revenue from the very industry it was meant to regulate.

BOEMRE and its successor agencies issued several regulatory reforms after learning lessons from the Deepwater Horizon incident. BOEMRE issued the “Interim Drilling Safety Rule” on October 12, 2010, which made several reforms to technical drilling safety requirements. For example, industry best practices according to the American Petroleum Institute were made mandatory instead of voluntary.[x] Also, independent third party verification is required for the proper functioning of the blind shear rams, a crucial component of the Blowout Preventer (BOP), which is the last line of defense in the event of a well blowout. Rig operators must demonstrate their preparation for a “worst-case discharge,” and their steps to deal with a blowout scenario.[xi] BOEMRE would also begin using multi-person inspection teams for inspections of offshore oil and gas rigs.

Another reform implemented by BOEMRE is the requirement for offshore oil rig operators to implement Safety and Environment Management Systems (SEMS), known as the “Workplace Safety Rule.”[xii] The SEMS requires performance-based standards for equipment, management, safety practices, environmental safeguards, and clear protocol to address hazards in all of these categories. The Workplace Safety Rule was established in order to address the human error that was so evident in the Deepwater Horizon disaster.

Legislative Reforms

In the immediate aftermath of the blowout, a flurry of activity occupied the time of the U.S. Congress, as public outrage was at a peak. The House of Representatives held 32 hearings on the matter while 27 hearings were held in the Senate.[xiii] Over 150 pieces of legislation were introduced to reform the offshore drilling process and regulatory regime.  However, Congress has failed to take steps to address drilling safety and incorporate lessons learned from the Deepwater Horizon incident. While there were several attempts to pass legislation, particularly in the first few months after the blowout, enough bipartisan support could not be mustered to implement legislative changes. Once the well was contained, and the oil stopped flowing, the impetus for reform melted away.

The White House pushed a legislative package three weeks after the blowout to increase funding for regulatory oversight, raise liability limits on responsible parties for disasters, and increase a tax on the oil industry to pay into the Oil Liability Trust Fund from 8 cents per barrel to 9 cents.[xiv] The White House bill did not pass. More recently, the RESTORE Act passed as part of a larger transportation bill in March 2012, which would dedicate 80% of penalties BP might pay in the future under the Clean Water Act to restoration of the Gulf of Mexico.[xv] While this bill may be signed into law and will benefit restoration activities, it does not affect regulatory oversight.

With the oil industry and some members of Congress upset over a temporary drilling moratorium enacted by the President and the perceived intentional delays in permitting, political attention shifted from a regulatory regime that was not strong enough, to one that was overly burdensome. A bill introduced in March 2011 sought to establish deadlines for permitting, forcing the Department of Interior to accelerate the permitting process.[xvi] While this too did not pass, the significant support it received from a sizable faction of Congress demonstrated the political momentum for strengthening the regulatory regime had passed. The U.S. had experienced its worst environmental disaster in history, and not only did Congress not tighten oversight, but now the political winds had shifted to weaken it.

ACTIONS TAKEN TO ADDRESS DRILLING SAFETY IN THE ARCTIC

With warming temperatures from climate change causing glaciers to retreat, and an increasing global need for energy supplies, the Arctic is the next frontier for energy development. However, offshore oil drilling in the Arctic involves higher innate risk relative to drilling in warmer waters such as the Gulf of Mexico, including harsher weather, shorter days, varying amounts of ice coverage, and less developed infrastructure. The memory of the Deepwater Horizon blowout remains fresh, and with the failures leading to that incident in mind, the Obama administration and the oil industry have taken a series of steps to enhance safety for Arctic exploration.

President Obama signed Executive Order 13580 on July 12, 2011, to establish the Interagency Working Group on Coordination of Domestic Energy Development and Permitting in Alaska.[xvii] The working group, chaired by the Deputy Secretary of Interior David Hayes, will coordinate efforts across all federal agencies to develop energy in the Arctic. The move is meant to streamline governmental work on offshore oil development, share information, and more efficiently issue permits for drilling. Engaging with local Alaskan communities as well as preparedness and response to an emergency situation is also a key objective of the working group.            

Shell Gulf of Mexico, Inc. promises to be at the forefront of oil exploration in the Arctic, specifically in the Chukchi Sea and the Beaufort Sea. It acquired leases for exploration in the Chukchi Sea during Lease Sale 193, which took place in February 2008. Figure 2 shows the leases issued in Lease Sale 193 in the Chukchi Sea.

The lease sale drew criticism from environmental groups that opposed Arctic drilling on the basis of a lack of understanding of the effects of an oil spill on the marine environment. Earthjustice filed a suit against the Minerals Management Service on behalf of a variety of stakeholders [xviii] and in July 2010 a federal judge ruled that MMS had not adequately considered the environmental impacts of oil and gas development on the surrounding environment as required under the National Environmental Policy Act.[xix] The court also ruled that MMS had failed to consider the impacts of increased natural gas development in the Chukchi Sea. The ruling halted all oil and gas activities in the area, effectively suspending Lease Sale 193 until MMS conducted a proper environmental impact statement.

To comply with the court order, the reformed BOEMRE issued a supplemental environmental impact statement (SEIS), published in the Federal Register on August 26, 2011, which detailed a revised environmental analysis, including the effects of a hypothetical Very Large Oil Spill (VLOS).[xx]

Shell Gulf of Mexico also produced an Oil Spill Response Plan, detailing their preparedness for a worst case discharge in the Arctic. The plan commits Shell to planning for several contingencies that were not required before the Deepwater Horizon incident. For instance, Shell must have ready access to a “capping stack,” to shut off the flow of oil in the event other systems fail.[xxi] Additionally, Shell must be prepared to drill a relief well within a few days in the event of a blowout, a process that took BP months to do. Shell committed to having an oil spill response fleet onshore near the drilling rigs, 24 hours a day, 7 days a week, during drilling operations. Also, if a well were to blowout, Shell promised to have its response fleet onsite within 60 minutes. Finally, Shell has agreed to limit drilling when whales are present, and also cease drilling if ice coverage returns earlier in the year than expected.

Part 3 of this series will be published on Thursday, July 19.

[i] Lavelle, M. (2010, May 27). Gulf Oil Spill Worst in U.S. History; Drilling Postponed. National Geographic, pp. http://news.nationalgeographic.com/news/2010/05/100527energy-nation-gulf-oil-spill-top-kill-obama/.
[ii] U.S. Geological Survey. (2011). Assessment of Flow Rate Estimates for the Deepwater Horizon/Macondo Well Oil Spill. Washington DC: Department of Interior.
[iii] National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. (2011). Deep Water: The Gulf Oil Disaster and the Future of Offshore Drilling. 56.
[iv] Ibid. 68.
[v] Ibid. 68.
[vi] Ibid. 70.
[vii] Ibid. 71.
[viii] Ibid. 71.
[ix] Bureau of Ocean Energy Mangement, Regulation and Enforcement. (2011). The Reorganization of the Former MMS. Washington DC: Department of Interior. Retreived from BOEMRE web site: http://www.boemre.gov/reorganization.htm
[x] Bureau of Ocean Energy Mangement, Regulation and Enforcement. (2011). Fact Sheet: The Drilling Safety Rule. Washington DC: Department of Interior.
[xi] Bureau of Ocean Energy Mangement, Regulation and Enforcement. (2011). Regulatory Reform. Retrieved from BOEMRE web site: http://www.boemre.gov/Reforms.htm
[xii] Ibid.
[xiii] Hagerty, C., & Ramseur, J. (2010, September 19). Deepwater Horizon Oil Spill: Highlighted Actions and Issues. Retrieved April 18, 2012, from Environmental Legislation: http://environmental-legislation.blogspot.com/2010/09/deepwater-horizon-oil-spill-highlighted.html
[xiv] The White House. (2010, May 12). Fact Sheet: Deepwater Horizon Oil Spill Legislative Package. Retrieved April 18 http://www.whitehouse.gov/the-press-office/fact-sheet-deepwater-horizon-oil-spill-legislative-package, 2012, from White House Office of the Press Secretary.
[xv] Editorial Staff. (2012, April 17). Momentum for Restore Act in Congress: An Editorial. The Times-Picayune.
[xvi] Congressional Research Service. (2011). Offshore Oil and Gas Development: Legal Framework. Washington DC: CRS. 6.
[xvii] Department of Interior. (2011, December). Interagency Working Group on Alaska Energy. Retrieved March 25, 2012, from DOI web site: http://www.doi.gov/alaskaenergy/index.cfm
[xviii] Earthjustice represented the Native Village of Point Hope, City of Point Hope, Inupiat Community of the Arctic Slope, Alaska Wilderness League, Center for Biological Diversity, Defenders of Wildlife, National Audubon Society, Natural Resources Defense Council, Northern Alaska Environmental Center, Oceana, Pacific Environment, Resisting Environmental Destruction on Indigenous Lands (REDOIL), Sierra Club, The Wilderness Society and World Wildlife Fund.
[xix] Center for Biological Diversity. (2010, July 21). Federal Court Halts Oil and Gas Activities Under Chukchi Sea Lease Sale. Retrieved March 25, 2012, from CBD web site: http://www.biologicaldiversity.org/news/press_releases/2010/chukchi-leases-07-21-2010.html
[xx] Bureau of Ocean Energy Mangement, Regulation and Enforcement. (2011). BOEMRE Releases Final Supplemental Environmental Impact Statement for Chukchi Sea Lease Sale 193.  Retrieved from BOEMRE web site: http://www.boemre.gov/ooc/press/2011/press0818a.htm

[xxi] Bureau of Safety and Environmental Enforcement. (2012, February 17). Obama Administration Announces Major Steps toward Science-Based Energy Exploration in the Arctic. Retrieved March 27, 2012, from BSEE web site: http://www.bsee.gov/BSEE-Newsroom/PressReleases/2012/press02172012.aspx.