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Overhaul of Oil Industry Urged

Workers clean tarballs Monday off Waveland beach in Mississippi. Months after the BP spill ended, the oil globules are still washing up on Gulf shores. (Getty Images)

Spill Panel’s Co-Chairman Calls for New Approach to Safety to Prevent Disasters

DECEMBER 8, 2010


The oil and gas industry needs a “major transformation” in its approach to safety to avoid another big offshore-drilling disaster, a leader of the presidential panel investigating the BP PLC accident plans to tell a gathering of industry officials Wednesday.

William K. Reilly, co-chairman of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, also plans to say that BP and two other companies involved with the doomed Macondo well—Halliburton Co. and Transocean Ltd.—made “breathtakingly inept and largely preventable” missteps, according to a copy of his prepared remarks viewed by The Wall Street Journal.

His speech also calls for improvements in the training and expertise of federal regulators, who “failed us miserably” in their oversight of offshore drilling before the April 20 explosion of the Deepwater Horizon rig that left 11 workers dead and triggered the worst offshore spill in U.S. history.

But the bulk of Mr. Reilly’s remarks—to be delivered in New Orleans at a conference of attorneys for U.S. oil and gas companies—focuses on the industry, and what Mr. Reilly says is the absence of “a shared industry culture that puts a premium on safety and risk management.”

“The interest group that could most threaten the future viability of offshore drilling is the oil and gas industry itself,” Mr. Reilly says in the speech. “There has to be a recognition that the industry has not made safety a high enough priority. We need a major transformation in the oil and gas industry’s understanding of what it means to put a priority on creating a safety culture. This is an industrywide challenge that can’t simply be laid at the feet of a few rogue players.”

Mr. Reilly’s speech is significant, because it comes as his panel is preparing to deliver a report next month to President Barack Obama that could influence future regulation of the industry. Although Mr. Reilly says in the speech that his comments are only “personal observations,” his views are likely to influence the panel’s findings. His views could also carry weight in the industry because of his background: A Republican who ran the Environmental Protection Agency under President George H.W. Bush, Mr. Reilly is also a longtime board member of ConocoPhillips, though currently on leave from the post.

Halliburton said Tuesday it “remains confident that all the work it performed with respect to the Macondo well was completed in accordance with BP’s specifications for its well-construction plan and instructions.”

BP declined to comment.

Transocean said “the calculations, blueprints and step-by-step construction procedures for the well were crafted by BP engineers and approved by federal regulators in advance of—and in some cases, during—the construction process itself.”

In recent days, oil industry leaders and their congressional allies have blasted the Obama administration for its decision last week to maintain a longtime ban on drilling in the eastern Gulf of Mexico and the Atlantic coast. In a conference call with reporters this week, the president of the American Petroleum Institute, Jack Gerard, said the administration’s decision threatened U.S. jobs and energy needs, and was inconsistent with the lifting in October of a temporary moratorium on drilling in the central and western Gulf of Mexico.

But Mr. Reilly, in his speech, says an “embarrassing reality” exposed by the BP spill is that the technical expertise of government regulators “has lagged far behind” that of industry, and that it will take time for regulators to catch up. In that context, it is “regrettable but not really surprising that regulatory officials are reluctant to sign their names to new [drilling] permits.”

Mr. Reilly goes on to complain that industry officials “stood by and let disaster happen” in the Gulf, even though “certain companies were well known within the industry to be laggards when it came to a safety culture.” With oil and gas firms increasingly drilling in deeper water, he argues that the odds of another catastrophe will rise if the industry doesn’t take action. He suggests the industry establish a safety institute that would conduct audits of companies’ safety practices and cultures, and whose work would be shared with insurers and companies’ boards.

Such an institute, he adds, would be similar to “Inpo”—the Institute of Nuclear Power Operations, which was created in 1979 following the nuclear accident at the Three Mile Island plant in Pennsylvania. That group, whose inspection teams conduct regular evaluations of nuclear plants and assess training programs, is widely credited with improving plant safety and performance.

“You can invest in safety now, or you can pay for failure later,” Mr. Reilly says in the speech. “An oil spill of national significance may now put the very survival of any but the largest company in peril.”

It’s unclear how the industry will respond to Mr. Reilly’s message. At a recent commission hearing, Nancy Kete, the commission’s senior adviser on corporate safety, acknowledged the oil industry’s structure was “much more complicated” than the nuclear industry’s, with more service providers and more types of technology.

“There’s a small number of very large companies and then a large number of smaller companies, and so the cost of something like this and the influence of something like this will be more complicated,” Ms. Kete said. “I don’t think we can design it for them, but I think that they can handle that.”

Write to Stephen Power at [email protected]

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