The Commission Finds...

I've been skimming through the report of the presidential commission on the Deepwater Horizon accident. Lacking time to read every word, I'm finding it on the whole a moderate document. By that I mean that it will not satisfy either those who expected the commission to repudiate deepwater drilling entirely or those that harbored faint hopes that it might issue a blueprint for a rapid return to drilling incorporating the key learnings of the disaster. Instead, as a number of observers have pointed out, its findings point to a complex web of contributing factors--in the process implicating the entire industry--and its recommendations suggest a thicket of new regulations and added fees for oil & gas exploration in US waters.

Anyone awaiting gleaming insights and Ah-ha! moments such as those that exemplified the Rogers Commission's investigation of the space shuttle Challenger accident was bound to be disappointed. With no commissioner having direct knowledge of the theory and practice of offshore drilling in the way that the Rogers Commission included some of the leading lights of the US aerospace community at the time, there was no one to lead it to such results, only paid technical staff to carry out the guidance of a team led by professional politicians. That's not as bad as it sounds. Given the breakdown of what little trust existed for the oil & gas industry, a commission made up largely of experienced oil executives, petroleum engineers and geologists would have lacked credibility with governmental decision makers and the public. However, the composition of the commission surely presaged the outcome of its work.

In the foreword to the document, which is probably all that many will ever read, I was reassured to see a broad recognition of the importance of petroleum to the US economy, the challenges involved in moving away from it, and the necessity of exploiting the resources of the Gulf of Mexico. The commission also pointed out that our conscious decision to focus offshore drilling in the Gulf and not elsewhere carries risks--a surprising admission considering that one of the commission chairs played a significant role in the establishment of that policy. However, I was disappointed at the sweeping indictment of the practices of the entire industry.

The commission was neither tasked nor staffed to investigate the entire US offshore drilling community. Such an undertaking would have required either years or a much larger effort. The parallel to the implication that because most of the industry uses the same contractors, then most of the industry must operate in a similarly risky manner would be as if the Rogers Commission had found that because most rockets and many aircraft were built with components from the same suppliers, most rockets and aircraft must be as risky as the shuttle proved to be. That logic is shaky, at best.

My own experience in the industry doesn't qualify me to pass judgment on the overall quality of the commission's investigation or the full implications of its technical and procedural recommendations. However, in my quick perusal of the document several points jumped out at me that seemed to reflect a limited perspective. I'll highlight two examples.

First, with regard to the risk of fatalities on offshore facilities, the report concludes that "From 2004 to 2009, fatalities in the offshore oil and gas industry were more than four times higher per person-hours worked in US waters than in European waters, even though many of the same companies work in both venues." This was backed up by a chart on page 228 comparing these statistics from several sources. Yet while every fatality is one too many, and no one should be complacent about them, I was astonished that it didn't seem to have occurred to the commission's staff to compare these accident statistics to the US industrial safety statistics, either overall or in similar industrial settings. In a brief Google search I turned up the "Census of Fatal Occupational Injuries Summary, 2009" from the Bureau of Labor Statistics of the US Dept. of Labor. Converting the average US fatal work injury rate of 3.3 per 100,000 full-time equivalent workers for 2009 (the year before Deepwater Horizon) to a comparable rate of 1.6 per 100 million manhours, it appears that offshore work is roughly three times as hazardous as the average of all work. When you consider that the latter reflects the contribution of tens of millions of service and government workers in categories for which highway accidents and homicides account for the largest share of risk, I'm not sure how much lower I'd expect the fatality rate to be for a group of people working long hours aboard facilities jammed with rotating equipment and heavy objects. The subject at least deserves a more thorough look than it was given here.

Then there's recommendation G2, which is the catch-all funding mechanism for all the extra regulatory work required to carry out the commission's other recommendations. I don't disagree that the agencies that monitor and issue permits for offshore drilling should be staffed with enough professionals of suitable experience and training to provide effective oversight and to minimize bottlenecks and delays in the permitting and oversight process. However, the idea that the industry should pay for this with added fees--based on a half-baked analogy to the telecommunications industry--ignores the enormous funding mechanism that's already in place in the form of the lease bonuses, rents and royalties collected by the government from these companies. In the previous fiscal year the agency formerly known as the MMS reported $2.3 billion in revenue from activity on the Outer Continental Shelf, after collecting $9.1 billion the year before. If the federal government has been spending these funds for other purposes, rather than allocating a sufficient portion to protect its investment, there's no guarantee that additional monies collected from the industry would be spent more wisely.

Ultimately, the questions of what happened on the Deepwater Horizon and who bears the blame are likely to be resolved in a court of law. It may be just as well that the commission didn't wait for all the evidence to be in to issue its findings. But they also can't be viewed in isolation. We live in a world in which OPEC seems to be quite content to sit on its ample spare production capacity and watch oil prices ratchet back up towards $100 per barrel and potentially higher, as the global economy recovers. The oil buried under the Gulf represents one our best hedges against OPEC's understandable satisfaction with the status quo. Yes, we need better response capabilities for future spills--some of which is already in the works--and yes, the industry must increase its focus on offshore safety and accident prevention. At the same time, we also need the industry to resume drilling absolutely as quickly as feasible under the new guidelines. The apparent lack of urgency on the part of the commission and administration to make that happen seems divorced from the broader context.