Oil groups ready to fight tougher rules


The most dramatic change facing oil and gas companies in the wake of the Gulf of Mexico oil spill is unlikely to be any specific regulation, but what Obama administration officials hope will be a tougher mindset at the industry’s regulator.

The Bureau of Ocean Energy Management will now have to take a closer look at worst-case scenarios when it reviews new drilling projects.

A report this week by the White House’s Council on Environmental Quality (CEQ) examined the compliance of the bureau’s predecessor, the Minerals Management Service, with an environmental law known as the National Environmental Policy Act (Nepa). This included the use of so-called categorical exclusions, which allowed MMS to waive environmental reviews of some drilling projects in the licensing process.

It concluded that the bureau should “identify potentially catastrophic environmental consequences and accurately assess them as part of its decision-making”.

In the past, MMS had identified a 1979 offshore well blow-out that leaked 10,000 to 30,000 barrels of oil per day for nine months as a catastrophe, but never used the spill in its analysis of “spill probability” because it occurred outside US waters.

The council said the BP spill constituted “significant new information” that would “require re-evaluation of some conclusions reached in prior Nepa reviews and other environmental analyses and studies”. Though the language sounds arcane, the call for a rethink on potential environmental impacts will have broad reverberations for the oil and gas industry.

The companies are ready to fight back. This week, the American Petroleum Institute said it was planning “citizen rallies” to express concern at regulatory changes and proposed legislation in the wake of the BP spill, which led to 4.9m barrels of oil spewing into the waters of the gulf.

Oil industry executives have already warned that the planned new environmental rules will only increase companies’ high costs. Smaller operators, in particular, could find it difficult to comply, said one executive.

Bruce H. Vincent, chairman of the Independent Petroleum Association of America who is also president of Swift Energy, a mid-cap oil company based in Houston, said this week’s announcements were a case of the government “trying to create a series of bureaucratic hurdles to the industry being able to develop the leaseholds they had been granted”.

“It means the moratorium [on deepwater drilling] in the Gulf of Mexico will continue unofficially,” he added. Even though the moratorium had now been lifted in shallow waters, only two permits had recently been granted.

One of the biggest uncertainties facing companies trying to get to grips with proposed new regulations was how to quantify a “worst-case discharge”, said Andy Radford, API policy adviser.

“We need to know what the volume [of a worst-case discharge] is,” he said. The industry was working with the federal government to find a way to calculate this. Only once this was done could companies look at their response plans to any spill and amend them.

John Schiller, chairman and chief executive of XXII, the Nasdaq-listed US oil independent with core operations located on- and offshore Louisiana, said companies needed some clarity on what the government was looking for. “They are not giving you a formula … We would like to get back to where we know what they’re looking for and can then plan accordingly.”

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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