Thinking constructively about oil spill prevention
Posted on | June 28, 2010 | 1 Comment
Since April 20, the oil and tanker industries have been confronted with the realization that the rules of risk management, and the framework of maritime liability, are being altered in many ways.
Uncertainty now abounds. The old order of cost containment has changed. The ad hoc compensation regime imposed by the US Government on BP, is, as Morten Arntzen, Chief Executive of Overseas Shipholding Group told New York’s Marine Money conference on June 23, a “game-changer.”
Mr Arntzen flatly stated that “after Macondo, in US Waters, limitation of liability is dead”.
In his view, the forthcoming ”post-BP” liability legislation likely to emerge from the US Congress before its August recess will have an impact on tanker vessels as well as drill rigs.
Mr. Arntzen recalled that, as Director of Ship Finance at what was, twenty-five years ago, Manufacturer’s Hanover Bank, he had helped reorganise the outstanding debt of the C. Y. Tung group of companies, then known as Island Navigation.
As he reminisced:
“During this prolonged reorganisation, share values remained fairly stable.” As a banker, I’m flabbergasted to see a publicly-held company lose a large part of its market capitalisation after a major environmental incident.
Lending institutions and investors now recognise that asset values can be wiped from the boards, as a result of a disaster like the one we now have in the Gulf of Mexico.”
It is significant that the thinking at some oil majors is coming into line with that of congressional staffs and the Obama administration: if exploratory drilling is to resume on the U S outer continental shelf, and if BP is to successfully borrow on public markets, A CONSIDERABLE MEASURE OF PUBLIC CONFIDENCE MUST BE RESTORED.
This is true of cash-rich ExxonMobil, and smaller outfits of the Anadarko type. The pressurising of BP to set up a $20bn fund to cover its liabilities from the explosion may, it is feared, drive smaller companies from the area, due to the possible costs of operating there.
As a result, only the “big three” might remain: ExxonMobil, Chevron and Shell.
The big push is to get government permission to resume exploration, and drilling, in the U. S. Gulf. It is recognised that restoring trust, and therefore public support, will cost some money. Reliance on the infamous blowout preventer as a “fail-safe” protection device has badly dented whatever technical credibility the drillers might once have claimed. To restore political and public support for offshore drilling, the “beancounter” culture that dominated risk management at BP and the other oil and exploration companies, must be set aside.
A joint research and engineering scheme (British, not American, sense of the word) must be organized with the participation of U. S. Government agencies, but with oil company funding. This should be permanent.
Effective legislation would have to include:
- A system of industry-wide risk management, funded by the oil companies;
- The risks inherent in drilling in deep sea conditions must be assessed by experts, and the results made publicly available;
- The same process must be required in extreme or hostile environments, such as icy or Arctic Conditions;
- The prevention process, and the testing and research involved, must be analysed, and kept under review by an oversight panel of experts,
- Who will report to the Bureau of Ocean Energy Management, Regulation and Enforcement (formerly the Minerals Management Service);
- The prevention process must, within each oil company, have a budget and cost system that is subject to government oversight.
One glaring lesson of the Deepwater Horizon/ Macondo disaster is that anything that is not a producer of revenue, such as a safety or risk management programme, will be starved of funding by the budget controllers;
There is a need for a permanent structure for the conduct of research on oil spill prevention, on the technical means of stopping the flow, and on the environmental impact of spills, chemical dispersants and other aspects of an incident;
A federal oil spill laboratory and testing facility, under the National Institute of Standards and Technology, financed by fees from oil producers, would perform design and equipment tests replicating the pressures, temperatures and geological characteristics of the drilling zones and sites;
The company’s Risk Awareness and Management Programme (RAMP) would be validated by a RAMP Certificate, issued by the State on whose outer continental shelf the well is to be drilled, and the rig’s flag state as well;
The elements of the certificated programme would be spelled out in the law and regulations of that State, and would be subject to audit by the authorities of that state, or its recognised organization, and by the Administration of the rig’s State of
Registry;
The oil spill liability regime, in the form of amendments to the Oil Pollution Act of 1990, must continue to be insurable. This will mean that
limitation of liability, and proof if financial responsibility, must continue to be economically and legally viable, and remain a part of the “package” adopted by Congress;
The intertwined responsibilities. Of the Coast Guard and the now renamed Bureau of Ocean Energy must be disentangled. The process of inspection of the condition, and testing, of specific items of safety equipment must be spelled out, and tasks assigned, so that there are no holes in the fence, and no more excuses;
The field known as risk management, and the entire issue of environmental protection, must be freed of the pervasive corporate illness sometimes called “beancounteritis”. it is clear that BPs
financial and budget controllers bear a heavy responsibility for the cluelessness that blew a sixty billion dollar hole in the corporation.
While there is no legislative solution for incompetence, our petroleum resources are a vital asset. It is time to recognize that oil production is in effect a public utility.
The camel’s nose is now well and truly under the tent flap, in the form of the public interest. That interest means that the public, and not just the government, must be given a more direct role in the
prevention and avoidance of future spills and blowouts.
And, finally, when we get all of the above, let’s resume deepwater drilling.
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October 5th, 2010 @ 7:56 am
oil spills should be controlled as soon as possible to prevent environmental damage:`.