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Oil Executives Under Fire in Congressional Gulf Leak Probe

May 11, 2010 at 12:00 AM EST
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Oil company executives traded blame for last month's explosion at an offshore rig in the Gulf of Mexico at hearings in Washington and Louisiana. Gwen Ifill talks to a Wall Street Journal reporter for more on the investigation into the environmental disaster.
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GWEN IFILL: As crews in the Gulf continued today to search for new ways to plug the Deep Horizon oil spill, lawmakers and industry officials met in Washington and Louisiana to debate causes and consequences.

NewsHour correspondent Tom Bearden has our report.

ALWIN LANDRY, ship captain, Damon Bankston: Mayday, mayday, mayday. The rig is on fire. Abandon ship.

TOM BEARDEN: Ship captain Alwin Landry said he heard that message over the radio the night of April 20, when the oil rig Deepwater Horizon exploded in the Gulf of Mexico.

Today, at a hotel outside New Orleans, the Coast Guard and Interior Departments launched two days of public hearings to piece together what happened that night and to try to find a cause.

Captain Landry was aboard the Damon Bankston, a vessel near the rig. The night of the blast, he saw mud raining down on his ship.

ALWIN LANDRY: I was advised that they were having trouble with the well. Momentarily after that, another voice came over the radio, ask me to go to 500 meters standby. I advised him I still had a transfer hose on board. And there was a pause and a response. And then, shortly after that, the first explosion at the rig occurred.

TOM BEARDEN: While eyewitnesses told their stories in Louisiana today, senators in Washington began questioning the top executives of the companies responsible for the Deepwater Horizon.

Wyoming Republican John Barrasso gave his early impression of the witness testimony.

SEN. JOHN BARRASSO, R-Wyo.: Reading the written testimony for today’s hearing, reading the written testimony I hear one message. And the message is, don’t blame me. Well, shifting this blame does not get us very far.

TOM BEARDEN: Nevertheless, executives from the three companies that built, owned and ran the Deepwater Horizon tried to do just that.

LAMAR MCKAY, president and chairman, BP America, Inc.: Transocean, as owner and operator of the Deepwater Horizon drilling rig, had responsibility for the safety of drilling operations.

TOM BEARDEN: BP blamed Transocean, which owns the rig, and says a failsafe device didn’t work. Transocean said it was Halliburton’s problem. That company was responsible for plugging the well with cement.

And, in turn, Halliburton blamed BP for a faulty drilling plan. BP owned the lease on the well site 50 miles off the Louisiana coast.

At least four million gallons of oil have spilled so far, and possibly much more. Despite repeated efforts, BP has so far failed to stop the leak nearly a mile below the ocean’s surface.

New Jersey Democrat Robert Menendez noted a bitter coincidence when questioning BP America’s CEO, Lamar McKay.

SEN. ROBERT MENENDEZ, D-N.J.: Mr. McKay, we’re sitting in the very same hearing room where the hearings were held to investigate the sinking of the Titanic.

But what I see is a company not prepared to address a worst-case scenario, but a company that is flailing around, trying whatever they think of next to try to deal with the worst-case scenario that you all had the ability to do.

LAMAR MCKAY: We’re drilling two relief wells. Two, we’re working on the subsea on the blowout preventers. We’re fighting it aggressively offshore. We are using dispersant in situ burn and skimming. We’re protecting the shorelines with boom. We are prepared to clean up and deal with any — anything that gets to shore. And we’re prepared to — to — to deal with the economic impacts.

TOM BEARDEN: Senator Ron Wyden noted that the Deepwater Horizon spill is only the latest in a series of catastrophes at BP facilities.

McKay said the firm has a good record and assured the Oregon Democrat that a new management philosophy was in place.

LAMAR MCKAY: We have a tremendous track record of — of compliance. It’s measured by the MMS. And I — what I — what I’m telling you is, I have not been aware of or see deficiencies in the Gulf of Mexico systems.

SEN. RON WYDEN, D-Ore.: And I’m still not clear what changes have been made after Tony Hayward said there were going to be changes made.

LAMAR MCKAY: Well, it gets down to the agenda and the culture of the company. And — and…

SEN. RON WYDEN: It sure does. And the culture of this company is that there’s been one accident after another.

LAMAR MCKAY: The agenda has been clear. I believe we’ve progressed a long way. We’re not finished. We’ll never be finished.

TOM BEARDEN: Part of that obligation will be paying damages. And McKay said his company would consider paying claims above the $75 million cap imposed by Congress 20 years ago.

Mary Landrieu’s Louisiana constituents are particularly interested in that outcome.

SEN. MARY LANDRIEU, D-La.: Will BP pay?

LAMAR MCKAY: We have been very clear. Tony Hayward, our CEO, has been very clear. And we are going to pay all legitimates claims, all legitimates claims.

SEN. MARY LANDRIEU: And define legitimate, please, for us.

LAMAR MCKAY: Substantiated claims. I — I can’t define the term.

What — here’s the intent. The intent is to be fair, responsive and expeditious. And to — as to the $75 million that you mentioned, we think that we’re going to exceed that, obviously, and that is an — irrelevant.

TOM BEARDEN: It was the first in a series of hearings to explore the causes and effects of the giant spill that could impact offshore drilling for years to come. But several senators said Congress should seek to improve the practice, not abandon it.

SEN. LISA MURKOWSKI, R-Ala.: Our nation will need a lot of oil for a long time to come. And for the sake of our nation’s economy, for the sake of our national security, and this incident notwithstanding, for the sake of the world’s environment, we need to safely produce the maximum amount of that energy here at home.

TOM BEARDEN: Here in Kenner, Louisiana, witnesses continue to tell the investigative panel what they saw and heard the night the Deepwater Horizon blew up. Eleven men are still missing and presumed dead. And officials said the decision to call off the search for them was not made lightly.

KEVIN ROBB, U.S. coast guard: Basically, you get to that point where it seems to be, from the person who is going to suspend, that the search effort has been significant, and there’s — there’s just no reasonable assumption can be made that the individuals are still alive.

TOM BEARDEN: Kevin Robb was on shore when the rig exploded and coordinated Coast Guard rescue efforts. Investigators asked why the Coast Guard didn’t help fight the fire that engulfed the rig. Robb told them the Coast Guard’s priority that night was saving lives.

KEVIN ROBB: For this specific incident, an offshore commercial vessel, we’re not the lead on the firefighting operation. I believe the outline, specifically, states, that that would — the lead agent on that would be a certified fire marshal, or fire boss, if you will. We have a finite number of — of personnel, resources, budgetary considerations.

TOM BEARDEN: The public hearings continue tomorrow. The findings will be folded into a final investigatory report.

GWEN IFILL: The Minerals Management Service, MMS, is the main government agency in charge of regulating the offshore oil industry. But, for years, it has had problems of its own.

Interior Secretary Ken Salazar called for splitting the agency into two independent entities today, one charged with inspections and enforcement, the other with collecting billions of dollars in royalties.

KEN SALAZAR, U.S. interior secretary: We ought to then have the environmental and safety enforcement functions, so that there is no conflict, real or perceived, with respect to those functions, the — the raising — allowing oil and gas companies to come and — and take of the American natural resources on — on the one hand, because that’s beneficial to the national security of the United States and to the treasury of the United States, and then, on the other hand, making sure that, as those functions take place, that they’re being conducted in the most safe way and in the most environmentally responsible way possible.

GWEN IFILL: But has the Minerals Management Service been too cozy with the industry it regulates?

For that, we turn to Stephen Power of The Wall Street Journal.

Welcome, Stephen.

You — in The Wall Street Journal, you did a big investigation about this agency no one prior to now had ever really heard of. So, what is your understanding of the reasoning in splitting this agency in two?

STEPHEN POWER, The Wall Street Journal: Well, the reasoning is that, in the view of some critics, this agency has a conflict of mission. That is, it has missions that are at odds with one another.

On the one side, the agency is charged with essentially promoting offshore drilling. The reason it has an incentive to do that is that its mission is to collect as much money from the oil companies as possible for the U.S. treasury and really maximize the return on those assets for the taxpayer.

But, on the other side, they are also charged with regulating the safety of the offshore oil and gas industry, which often entails making tough decisions about whether or not to require a more expensive practice or a technology.

And doing that can affect whether — potentially, whether a company — how much a company wants to invest in a particular product — or project, which, ultimately, can potentially affect how much of a return the taxpayers are going to get from doing business with those companies.

GWEN IFILL: So, what did you find as evidence that perhaps there was a — there could be a conflict here? For instance, are there cases in which the MMS has said to a company, you ought to do this better, and the company simply hasn’t done it, and the MMS hasn’t followed up?

STEPHEN POWER: Well, we — my colleague Russell Gold and I found a number of instances in which the agency had flagged a particular safety problem or something that it was concerned about, a practice in the offshore industry, but ultimately decided not to do anything about it, or defer to the industry to figure out what to do about it, and, in some cases, chose not to follow up on the recommendations of the very people that it had commissioned to study the problem.

One example that we found was the case of a Norwegian researcher who was commissioned by the MMS about a decade ago or so to — after the MMS raised concerns about the effectiveness of blowout preventers and whether or not they would work adequately. And the Norwegian researcher, Per Holand, told us that he had recommended requiring that these blowout preventers be equipped with essentially a second set of shear rams that can cut off and cap a well in the event of an emergency.

He found that as many as — in as much as 10 percent of the time, the current method, the current standard for those equipment may not actually work, because, in certain parts of the pipe, certain parts of the pipe are just very thick. So, having another set of — of these shear rams would at least increase the odds that you would be able to cap the well in the event of an emergency.

GWEN IFILL: But the companies didn’t really necessarily build these — this backup plan, essentially.

STEPHEN POWER: But the agency chose not to go forward with that recommendation, apparently because it was going to cost the industry more money.

GWEN IFILL: Well, OK, let’s talk about the money, because how much of these royalties and fees that the agency collects from these companies goes right to the agency?

STEPHEN POWER: Well, the agency — part of the agency — about roughly half of the agency’s budget comes eventually from various fees and rental receipts that they charge to the oil and gas industry.

This — this agency, the MMS, some years, it’s the second biggest governmental source of revenue, second only to the IRS in terms of revenue for the federal treasury. So, it’s actually — even though it’s a very small, obscure agency, has a very important role.

GWEN IFILL: Has self-regulation always been the norm for an agency like this? It seems unusual to have a federal or a government agency in charge of regulating an industry also benefiting from the industry’s support — the industry’s support or the industry doing well, I guess.

STEPHEN POWER: Well, one of the issues that has been raised by people who have worked at the MMS is that this — this industry has just become much more sophisticated, much more technical, as it’s gone into greater depths of the ocean, because, of course, there are restrictions, increasingly, on where you can drill.

And, so, as the industry has become more sophisticated, the MMS has really chosen to defer to the industry, because the idea was that that’s where the expertise lies. What the — what Secretary Salazar is doing today appears to be putting — moving the agency more in the direction of countries like the U.K. that have already taken steps to separate the royalty collection side of the minerals services that they have from the safety side.

And, in the U.K., after they did this about a decade ago, after a very bad fire aboard an oil platform that killed over 100 people, the safety record did improve.

GWEN IFILL: So, in general, the U.K. being one example, does the U.S. safety record compare favorably or unfavorably with safety records in other countries?

STEPHEN POWER: Well, we found in our examination that the U.S. record does not compare favorably, that, in fact, compared with European nations, the rate of deaths and injuries is — is significantly higher, in some cases, four to five times as high.

GWEN IFILL: Does the — does this plan, this Salazar plan that was announced today, does it have to be now approved by anybody, by the Congress?

STEPHEN POWER: It’s not entirely clear what aspects of it are going to have to be approved by Congress or not.

I mean, another idea that’s been floated out there by some lawmakers is to require that the head of this agency require Senate confirmation. That appears not to be something that Secretary Salazar talked about in his announcement today. So, we don’t have quite all the details yet as to which aspects of this plan may require congressional approval.

GWEN IFILL: OK.

Well, Stephen Power of The Wall Street Journal, thanks a lot for helping us out.

STEPHEN POWER: Glad to be with you.