Platts Oilgram News: Petrodollars

January 28, 2013

by Gary Gentile, Platts Oilgram News

When Interior Secretary Ken Salazar announced he would step down from his post in March, the media counted among his accomplishments the reformation of the “scandal-ridden” Minerals Management Service.

In the wake of the 2010 Deepwater Horizon disaster, Salazar split the agency into three to regulate offshore oil and gas drilling and collect revenue from leases on federal lands. The current accepted wisdom is that the MMS was dismantled because it was corrupt, inefficient and-by implication-its shortcomings were partly to blame for the blowout of BP’s Macondo well and oil spill in the Gulf of Mexico.

The reputation of the main US regulator for oil and gas exploration on federal lands is no small matter. In some years, revenue from energy on federal lands can be second to US federal income taxes. But, companies will invest in the US only if they have confidence in the regulator.

At a recent meeting of the Ocean Energy Safety Advisory Committee, formed in the wake of Macondo, two people-one a retired MMS employee and another a private sector engineer who worked on the other side of MMS for years-defended the agency’s record.

“I have lots of respect for the secretary and the job he is doing,” Ken Arnold, an engineer and consultant to the oil and gas industry said. “But I thought it was possible to conclude from the secretary’s comments yesterday that, pre-Macondo, the MMS was not an effective regulatory body and needed to be overhauled.

“I think that they were an effective organization,” Arnold said. “They had some very good dedicated and knowledgeable personnel who tried their hardest to regulate us and to hold the industry to a standard as best we knew how to do that standard at the time we were doing it.”

Elmer “Bud” Danenberger spent 38 years working on offshore drilling issues, including service with the MMS, which was formed in 1992. He praised the work of the Offshore Energy Safety Advisory Committee, but noted that the MMS had addressed many of those same issues over the years.

“A lot of these issues have been considered in the past,” he said. “We may not have done it exactly right. We may not have had the resources. But a lot of these issues have been discussed.”

One effort made by the former MMS was the decision in 1990 to take over a unique testing facility in New Jersey that helped develop some of the technology and techniques used to effectively respond to the Macondo spill. The facility had been abandoned by the Environmental Protection Agency and the MMS saw a chance to use it to vastly improve spill response knowledge.

The Oil and Hazardous Materials Simulated Environmental Test Tank, or OHMSETT, is a 667-foot long pool that holds 2.5 million gallons of water. The US Coast Guard trains oil spill response crews there. Companies test new spill containment and cleanup technologies, including skimmers and boom.

And the MMS made strides in spill research and regulation of offshore drilling all while supervising active exploration and production off the Pacific and Atlantic coasts as well as the Gulf-something current regulators don’t have to deal with.

And while drilling safety became the focus of the agency after Macondo, former MMS Director Elizabeth Birnbaum, who served less than a year from 2009-2010, laid the groundwork for offshore wind generation and transmission, a top priority of the Obama administration.

The agency did have its scandals, including some officials engaging in sex and drug use with oil company employees and the acceptance of thousands of dollars of gifts in the Denver office that handled royalty collections.

Some inspectors in Louisiana were also shown to have accepted sports tickets and other gifts from oil company officials, although it was never shown that the “cozy” relationship ever compromised offshore safety.

Obama and Salazar brought former federal prosecutor Michael Bromwich in to oversee the restructuring of MMS in 2010. But while he instituted new ethics rules and an investigations unit, he rejected the notion of widespread corruption at the MMS.

“I knew from the beginning that the portrait of MMS personnel that was pervasive in the media immediately following the 2010 oil spill, a combination of incompetence and corruption, was badly distorted,” Bromwich said last week. “For the most part, agency personnel were committed, knowledgeable and hardworking public servants, like so many other
under-appreciated career federal employees.

“Allegations of corruption aside, the problems in the agency were largely the product of failed leadership, inadequate funding, and structural conflicts of interest. That was not a failing of the agency’s career employees but instead a failure of leadership and a legacy of neglect.”

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