“Deep Water: The Gulf Oil Disaster and the Future of Offshore Drilling” – Final Report of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling

Introduction

April 2010 marked a catastrophe of an unprecedented scale in the Gulf of Mexico that was undoubtedly a turning point for the future of offshore drilling not only in the United States, but worldwide. On April 20, the Macondo well that was situated 50 miles offshore Louisiana blew out causing the sinking of the semi-submersible Deepwater Horizon rig which resulted in injuring 17 and costing the lives of 11 workers and in having devastating environmental and broader economic impacts. On January 2011, the “National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling”, appointed by President Obama on 22  May 2010, handed over its report[1] after a six-month intense research period. This seven-member, non-partisan and independent entity provided a thorough analysis and impartial judgment of the causes that led to the blowout as well as to make recommendations for suitable reform of the conduct of offshore operations. The Commission characterized the accident as fully preventable caused by a series of failures that reflect “systemic”[2] deficiencies in risk management that have to be tackled in order to mitigate or even eliminate the recurrence of such a devastating accident in the future.[3]

Role of Minerals Management Service (MMS)

In the U.S., the responsible agency for the regulatory oversight of offshore drilling operations was the Minerals Management Service (MMS). Shortly after the accident the federal agency was reorganized into three distinct and separate entities: Bureau of Ocean Management, Bureau of Safety and Environmental Enforcement and Office of Natural Resources Revenue. As the Review stated, “Like the Deepwater Horizon, MMS ceased to exist”.[4]

MMS had two statutory missions: to promote offshore drilling and to ensure that this offshore development would proceed in a safe manner, thus safeguarding human health and the environment and creating, according to the National Environmental Policy Act (NEPA, 1970), “conditions under which man and nature can exist in productive harmony”. In the framework of exercising these two distinct but complementary missions, MMS received both political and industry pressure with a view to increase lease revenues and expedite permit approvals weakening safety management standards respectively. Under this combined pressure, MMS yielded to the industry’s demands.

Moreover, MMS was sharply criticized for systematically lacking the resources, personnel, technical training and expertise in petroleum engineering, thus rendering itself incapable of promulgating the safety regulations necessary for the conduct of offshore operations. Such a failure to accomplish its primary mission was considered as “inexcusable”[5] for an entity charged with a responsibility of such a magnitude.

Furthermore, the inadequacies of MMS were underscored by the gradual movement of offshore drilling operations into deeper waters, a development that highly increases the risk of an accident. Despite its key role in safety management and the fact that it was the sole agency responsible for the regulatory oversight of offshore drilling, MMS did not take any action to mitigate the increased perils that accompany drilling in ever-deeper waters, being rather unable to confront this challenge.

BP’s Safety Culture

The importance of proper safety management operations is stressed out throughout the Report. BP, a company with the unwavering commitment of “no accidents, no harm to people and no damage to the environment”[6] was “no stranger to serious accidents”[7].

The Report cites BP for placing more importance on occupational (personnel) safety-minimization of injury rates which BP reduced by 75%- rather than on process (operational) safety which refers to the overall risk mitigation.

BP’s professed commitment has not been met and was, thus, proved invalid. What was shown, instead, illustrated a deficiency of reliable risk management and a series of chronic safety lapses that were reflected in a number of important safety accidents caused by BP (Grangemouth refinery accidents, North Sea platforms, Texas City refinery explosion).

Contributing Factors to the Blowout

As the Report suggests, “the Macondo blowout was the product of several individual missteps and oversights by BP, Halliburton, and Transocean, which government lacked the authority, the necessary resources, and the technical expertise to prevent.”[8] The “lost returns”[9] event that the well experienced on 9 April revealed that double failure and the dominant culture of complacency, and marked the starting point that led to the blowout. The series of facts that are inextricably linked with causation of the blowout can be stipulated as follows:

• Failure to contain hydrocarbon pressures in the well
• BP’s failure of risk evaluation of Macondo’s cementing decisions and procedures
• Employment of long string casing instead of liners leading to higher possibilities of primary cement failure increased by the unfamiliar geology of the Macondo well
• Usage of 6, instead of 21, centralizers
• Lack of responsible analysis of the impacts of the combined risk factors associated with the well
• Improper conduct and interpretation of the negative pressure test evaluating the integrity of the Macondo well, thus illuminating flaws in BP’s management procedures.
• Lack of “formally” trained personnel for conducting such test resulting in a demonstration of overconfidence with regard to its interpretation and hence to false assumptions
• Oversights of critical signs about the upcoming blowout by the drilling crew of the rig
• Compartmentalization of information and failure of adequate communication between BP and its contractors, Transocean and Halliburton, resulting in the non-sharing of important information by BP with its contractors, or sometimes even internally within BP, and hence in the lack of full appreciation of the impacts of the decision-making procedures. e.g.: non-communication of important lessons by Transocean of an earlier near-miss in the North Sea four months prior to the Macondo well blowout.

Apart from the directly-related to the blowout (mostly technical) causes, the rig’s demise signaled a second combination of contributing factors that can be traced back to the inadequacies and deficiencies of the federal regulatory level:

• Decades (1982-2010) of inadequate regulation, insufficient investment and incomplete planning in drilling safety and oil spill containment technology[10]
• Pressure from political and industry interests – lack of autonomy of MMS
• Deficit of technical expertise, personnel and resources of MMS
• No standard procedures for conducting and interpreting negative-pressure tests at the time of the Macondo well blowout
• Lack of internal procedures between BP and its contractor, Transocean for conducting and interpreting such tests
• Cost- and time-saving decisions underestimating the associated risks with regard to safety management
• The combination of all these contributing factors made the blowout inevitable and in the end uncontrollable.

Recommendations

The Report sets out a broad array of recommendations that evolve around seven thematic areas:

To improve the safety of offshore operations, the Commission assigns to the Department of the Interior extensive competence in the field of creating a new, more rigorous approach of the risk assessment and management program. As the US has the “highest reported rate of fatalities in offshore oil and gas drilling among its international peers”,[11] both the Congress and the Department of the Interior should set new high-level emergency -response standards that would be applicable not only to the Gulf region but also to the Arctic[12] and globally.

Furthermore, the Commission puts forward the creation of an independent agency within the Department of the Interior charged with the authority to “oversee all aspects of offshore drilling safety (operational and occupational) as well as the structural and operational integrity of all offshore energy production facilities”.[13]

The two major points of the Commission concerning the safeguarding of the environment stress out the need to “revise and strengthen the NEPA policies and practices” in the offshore drilling context by issuing guidelines so that NEPA would be applied in a “consistent, transparent and appropriate manner”.[14]

The Commission’s recommendations in the area of oil spill response and planning address the need for a thorough overhaul that would create a “rigorous, transparent and meaningful oil spill risk analysis and planning process for the development and implementation of better oil spill response”[15] as well as the establishment of “distinct plans and procedures for responding to a spill of National Significance”.[16] Towards this end, “Congress should provide mandatory funding for oil spill response research and development and provide incentives for private-sector research and development”.[17]

One of the most obvious shortcomings that the blowout underscored was the inability and the unpreparedness of both government and industry to contain the flow of oil from the damaged Macondo well. It is suggested that in order to advance well-containment capabilities in the wake of the blowout “the Department of the Interior should require offshore operators to provide detailed plans for source control as part of their oil spill response plans and applications for permits to drill” that would be both “effective” and “deployable”.[18]

Taking into account the unprecedented challenge that the blowout presented to the response capability of both government and industry and the large scale damages inflicted on the natural resources and habitats in the Gulf coast, the Commission indicated that compensation to the public “for injury to and lost use of public resources” must be awarded under the Oil Pollution Act (OPA, 1990).[19] Compensatory restoration  must fulfill the “in-place and in-kind requirement”[20] and the compensatory restoration process should be conducted in a transparent and appropriate manner. According to estimates, fully restoring the Gulf will exceed $15 billion, requiring a minimum of $500 million per year, over 30 years. For the fulfillment of that long-term end and for ensuring significant funding, the Commission suggests directing 80 percent of the Clean Water Act penalties to support a region-wide restoration strategy.

The sixth point of recommendations concerned a major issue of attention: the financial limits of liability. As mentioned above, the Oil Pollution Act provides compensation for property damage, lost profits and economic injuries, as well as for restoring injured natural resources.[21] However, there are limits for the financial liability of the liable party. Under the Act, there is a $75million liability cap unless it is shown that the liable party was “guilty of gross negligence or willful misconduct, violated a federal safety regulation, or failed to report the incident or cooperate with removal activities, in which case there is no limit on damages”.  On the other hand, it is worth stressing that, under the Act, there is also provision for the Oil Spill Liability Trust Fund, which serves as an efficient backup mechanism and as a safeguard for awarding compensation to oil spill victims for damages in excess of the statutory $75 million liability cap. In particular, if the liable party does not satisfy the claims of those victims, the latter can submit their claims for uncompensated costs and OPA-related damages to this Fund. The Trust Fund, being able to afford a payout up to $ 1 billion per incident, proceeds with compensating the oil spill victims after adjudicating their claims and afterwards seeks reimbursement from the liable party. In the Deepwater Horizon case, BP, the liable party, has waived the $75 million cap placing $20 billion in escrow for compensation claims. However, BP’s action cannot function neither as guarantee nor as precedent for other companies in the future in the event of facing an accident of such a magnitude. Hence, the Commission proposed to raise that cap without specifying to what extent. BP, the liable party, was a well capitalized company that was able to afford the millions of dollars for compensation. Raising the existing cap or even eliminating it might drive oil companies with more limited financial means compared to BP out of the market.

Last but not least, Congress is encouraged, for the purpose of strengthening its engagement in the field of ensuring responsible offshore drilling, to enact legislation so as to “create a mechanism for offshore oil and gas operators to provide ongoing and regular funding of the agencies regulating offshore oil and gas development”.[22]

Concluding Remarks

Offshore oil and gas drilling plays a fundamental role for the U.S. economy and the nation’s energy supply. At the same time, it is an inherently risky business. However, this pervasive riskiness should not imply that the Deepwater Horizon blowout was unavoidable, but that there should be an effective and efficient regulatory and oversight mechanism that would eliminate or mitigate the causation of offshore accidents.

As the Report concluded, “Drilling in deepwater has not to be abandoned. It can be done safely”.[23] Through this central message, it is once more stressed out that an overall and extensive transformation of the oil and gas industry’s safety culture is more than necessary for ensuring the continuation and safe conduct of offshore operations in the future. The fulfillment of this crucial element will contribute significantly to the gradual rebuilding of the damaged public faith in the oil and gas industry, thus contributing to the restoration and re-development of the undermined offshore drilling operations.

Endnotes

1. National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water: The Gulf Oil Disaster and the Future of Offshore Drilling, Report to the President, USA: January 2011, also available at www.oilspillcommission.gov/final-report (Last accessed: April, 7 2011) (hereinafter, The Report).
2. The Report, p. 122.
3. The well was capped 87 days (mid-July) after the blowout and was finally killed 65 days (mid-September) thereafter through a relief well which was constructed to permanently seal the reservoir.
4. The Report, p. 55.
5. Ibid., p. 57.
6. Ibid., p. 218.
7. Ibid., p. 220.
8. Ibid., p. 115.
9. “Fracture pressure is the pressure at which the geologic formation is not strong enough to withstand the pressure of the drilling fluids in a well and hence will fracture. When fracture occurs, drilling fluids flow out of the wellbore into the formation instead of circulating back to the surface.” This causes what is known as “lost returns” or “lost circulation.” For further information see The Report, p. 90.
10. The Macondo well blowout served as an incentive for the development of the spill response technology which over a period of more than 20 years has improved only incrementally.
11. The Report, p. 251. During a five-year period (2004-2009), fatalities in the offshore oil industry in the US were four times higher than in Europe. This imbalance underscores the fact that fatalities and accidents are not unavoidable, but that they rather depend on the differing safety cultures and regulatory systems under which members of the industry operate (see figure on fatalities p.228).
12. Especially in the Arctic, increased attention and special planning are a prerequisite for the safe conduct of oil and gas drilling operations due to the vulnerable and fragile ecosystem and the unfamiliar geological and weather conditions of the region. To address these challenges and risks associated with this frontier, a comprehensive scientific and oil spill response research and a thorough environmental impact assessment must be developed and conducted. To this end, the Arctic Council has begun updating its voluntary Arctic Offshore Oil and Gas Operation Guidelines with a view to strengthen international standards for Arctic offshore drilling. However, these preconditions, specially-related to the Arctic, should serve as a safeguard for the responsible and safe conduct of such operations rather than as a “de facto moratorium” for offshore drilling in the Arctic.
13. Ibid., p. 256.
14. Ibid., p. 261.
15. Ibid., p. 266.
16. Ibid., p. 267.
17. Ibid., p. 270.
18. Ibid., p. 273.
19. Ibid., p. 276.
20. Ibid., p. 277.
21. OPA under paragraph 2702(b)(2)(A) defines natural resource damages as “damages for injury to, destruction of, loss of, or loss of use of, natural resources, including the reasonable costs of assessing the damage, which shall be recoverable by a United States trustee, a State trustee, an Indian tribe trustee, or a foreign trustee.”
22. Ibid., p. 290.
23. Ibid., p. 293.