Oil Spill Probe Reveals Need to Balance Precautions, Profits

Ray Suarez talks to the chairmen of the president's oil spill commission about how companies can adopt practices to lower the risk of another massive oil spill like the one that devastated the Gulf of Mexico.

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    Finally tonight: new recommendations from a presidential commission on preventing another major oil spill.

    Ray Suarez has the story.


    In the aftermath of the oil spill disaster in the Gulf Coast last April, people wanted answers to three basic questions: What led to the deadly fire and explosion of BP's Macondo well, could it have been prevented, and how do we keep something similar from happening again?

    The president appointed an oil spill commission, which has studied those issues for months. Today, it released its final report — among the recommendations: the creation of a new independent safety agency, better-funded oversight and tighter regulation of offshore drilling, and lifting the liability cap for accidents, now withstanding at $75 million.

    Former U.S. Senator Bob Graham, a Democrat, and Republican William Reilly, former head of the EPA, are the co-chairs, and they join me to discuss their findings.

    Gentlemen, what led you to the conclusion that this was both foreseeable and preventable?


    BOB GRAHAM, co-chairman, National Oil Spill Commission: First, there's been a major transformation in the offshore oil industry.

    Up until about 1990, it was primarily shallow water drilling. Since 1990, the industry has been moving into deeper and deeper and inherently riskier areas. The technology to do that has been fabulous. It's like the space program.

    Unfortunately, there wasn't a parallel development of safety required for those deeper drillings and the capacity to respond to an accident, to contain it, and to limit its consequences. So, this wasn't a surprise that an event like this should occur. And we found that it was an avoidable and preventable tragedy.


    Mr. Reilly, did you find that the three main companies involved, Transocean, BP, and Halliburton, were cutting corners, saving money, trying to do something in a way that was just skirting on the edge of security?

    WILLIAM REILLY, co-chairman, National Oil Spill Commission: The commission identified close to a dozen decisions, very bad decisions, which — each of which was hard to understand or to justify, decisions to provide faulty cement on the part of Halliburton, cement that failed nine separate tests when conducted by Chevron's laboratory for the commission, with the same formula, of Transocean, which failed to detect gas rising in the drill pipe, even though there was an index in the console, indication in the console that it was happening.

    And, then, of course, BP made any number of decisions with respect to cementing and centralizers and the number of things they should have understood and been able to control for. So, this caused us to conclude that there's one company that is primarily responsible, BP.

    There are two other companies that are also implicated in this, Halliburton and Transocean. And they operate the world over for virtually the entire global oil and gas industry in virtually every ocean where there are hydrocarbons mined.

    That caused us to say something controversial and I think rejected by many in the industry, certainly some of the best companies. We said it's a systemic problem. Those very good companies do not want to be painted by the same brush, and that's fair. But it's inconceivable to us that these companies, the contractors would only have supplied faulty cement, would only have missed detecting gas in the drill pipe at one rig for one company.

    And irrespective of whether it is or isn't a systemic problem, we think that the best companies have every self-interest now to ensure that one laggard, one corner-cutter doesn't bring down the whole industry or cause all of their rigs to be shut down, which is what happened last summer in the Gulf of Mexico.


    Senator, the report suggests a creation of a new oversight agency. Can that be done quickly? That's a hard thing to do.


    It would require congressional action.

    What we found was that, historically, the Department of Interior had two functions. One was to collect royalties. And second was to supervise for safety. And when there was a conflict between those two, the royalties almost always won out.

    So, there have been some steps taken by Secretary Salazar to divide those functions, but we think we need to go another step further and make the safety function more independent, for instance, that its head would serve a fixed term, would not be subject to the pleasure of the secretary of the department or the president of the United States, much like the director of the FBI serves a fixed term.

    We think that kind of insulation is going to be important in order to avoid a relapse back in to safety second, money first.


    Well, Mr. Reilly, you led a regulatory agency. To build one from scratch will take some time. In the meantime, can we just go ahead and keep on drilling in the Gulf, exploring, extracting, while this new oversight panel is being created?


    It will take time. It will take time to bring the regulatory entity up to a level at which you can have confidence that it's the match for the industry.

    I think that the new regulations that have been issued by the Interior Department and Secretary Salazar are going to function very well in the near term. Certification of equipment is now required. A whole range of new tests and inspections have to be passed.

    However, it's clear to me that industry is going to have to step up its game. Industry is going to have to do what the nuclear industry did after Three Mile Island and create an institute which will evaluate, audit, and police itself, give grades to rig operators and to companies and to contractors, and call out those companies which are corner-cutters or laggards, who, if they don't, will risk shutting down the whole industry again.

    I think the industry has the self-interest to do that. It certainly has capability. It's a very sophisticated industry, and I think a responsible one. After all, they are playing a very vital role in our economy. We need the resources they are developing. And I think they can do it responsibly and well.


    The government takes a pretty heavy hit in this report for not really doing the job of oversight before the Macondo well blowout.

    Talk about what you found was lacking in the U.S. government's oversight of this industry.


    One, there have been history of a cozy relationship between the industry and the regulators, in some cases, literally a cozy relationship; second, that the people who were the regulators were outmatched by the people who represented the industry.

    They were not as well-trained. They were not as competent. They were not as technically sophisticated as the people they were supposed to be regulating. So, we did put a big negative mark on the way in which the government has conducted itself and made a series of recommendations to reverse that, to create a truly competent, independent, credible regulatory agency, which would be complemented by the industry organization that Bill has just described.


    Why not make an unlimited cap on liability, take away the cap altogether, and what it costs, it costs, if there's a major accident?


    The commission looked closely at the liability issue. It's now $75 million. We recommended that it be raised significantly.

    The issue — and we dealt with any number of independent companies that operate in the Gulf — the issue in their eyes is — in the eyes of economists who have looked at this, is, if you get that cap too high, you may well find that you have limited leasing — competition for leases to a few big companies.

    And I don't think anybody wants to see that happen, for a variety of reasons. We want to see healthy independents continue to compete and play the role culturally that they play in the Gulf.

    We believe that, probably, the solution to this is to have some kind of insurance pool that spreads the risk. And, as time goes on without spills, without disturbances, the premiums can go down. But, frankly, we didn't have enough expertise and, in the six months that we operated, enough time to vet that sufficiently with the insurance industry, and to also get sense of how that would play, given the fact that Canada's liability cap is $35 million, and the United Kingdom's is about 50 million pounds.

    So, you don't want your oil and gas operators to leave U.S. waters, to go to places where there are fewer risks and less liability. So, all of that has to be worked out. We weren't able to do everything in the six months that we had. But I think that to raise the cap somewhat significantly is a responsible near-term move.


    William Reilly and Bob Graham, gentlemen, thank you both.


    Thank you very much.


    Thank you.