Minerals Management Service and the Oil & Gas Industry: The wisdom of Solomon

May 11, 2010

Rebecca Lutzy says:

John, Thanks for posting this and highlighting this issue at The Energy Collective.  This is a welcome change to the Minerals Management Service and is long overdue.  The situation is a textbook case of "regulatory capture" of an agency.  The conflict-of-interest was perhaps most visible through the "Sex-for-Oil" scandal of 2008 (CBS/AP News - Sex for Oil Scandal), but the more serious impact has been lax regulation and oversight of oil drilling practices. 

BP is not alone among oil companies in not having invested sufficiently in back-up systems for activating blow out preventers - nor were they required to have such systems, common in Europe, despite serious safety warnings by MMS in 2000 and awareness of the problem. 

Although I don't have much sympathy for BP, which lobbied alongside other oil companies to keep regulations lax and must be held accountable for the spill, it may well be that this accident could have happened on any number of offshore rigs in the US (motivating BP CEO Tony Hayward's "why me?").  We unfortunately can't expect the oil industry to regulate itself and pony up to pay for necessary safety precautions that aren't required - that is what regulatory agencies are for, and we need to make sure they can do their job and not be literally and figuratively in bed with the oil companies.  Breaking up the MMS into two agencies is a good start.

As reported in E&E and Greenwire articles (subs req) since this spill (note: The New York Times and Wall Street Journal have also been covering this well):  

A Wall Street Journal investigation found that the Minerals Management Service, which is tasked with overseeing offshore drilling, did not implement most safety regulations, instead leaving the task up to oil companies. The agency, which is under scrutiny following the oil rig explosion and spill in the Gulf of Mexico, wrote broad performance goals, then left oil producers and drillers to decide how to meet them.

According to industry executives and former regulators, MMS often did not follow up on safety problems. As a result, the safety record of American drilling companies paled in comparison to those in other countries. Over the past five years, an offshore oil worker in the United States was at least four times more likely to be killed than a worker in Europe and 23 percent more likely to be injured...

...Some observers say MMS has an inherent conflict of interest. While it is supposed to be a watchdog, it is also meant to promote energy independence and increase revenue. Of MMS's $342 million budget in 2010, nearly half comes from the oil industry through fees and rental receipts. Critics have previously attacked MMS for giving the industry too much freedom on royalty payments...

 - Rebecca, Content and Community Manager, The Energy Collective

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