Congress to consider changes to offshore drilling regime

July 5, 2010

U.S. offshore operators may soon face expanded liabilities, more stringent rig and well design requirements, vigorous and frequent inspections, and greater civil and criminal penalties in the event of an oil spill. 

On June 30, two Senate Committees separately approved, and advanced to the full Senate, bills that would tighten offshore drilling regulations.

The Senate Energy and Natural Resources Committee’s Bill, S.3516 would separate the Bureau of Ocean Energy Management, Regulation, and Enforcement into two agencies: one responsible for offshore revenue and royalty collection, and the other for licensing, safety and environmental regulation.  

Bill, S.3516 would also include tougher civil and criminal penalties that increase over time with inflation, and would place a levy on operators to fund the hiring and improved training of federal inspectors.

The same day, the Senate Environment and Public Works Committee approved  Bill S.3305 to eliminate the $75 million cap on liability found in the Oil Pollution Act of 1990.  As well, operators would need to submit extensive spill response plans before new drilling applications are approved.

Meanwhile, three Committees in the House of Representatives are working on similar legislation.  The U.S. House Transportation and Infrastructure Committee approved Bill H.R. 5629 that would, with retroactive effect, remove the above mentioned $75 million liability cap, and raise to $1.5 billion the minimum amount of insurance that offshore facilities must hold.  Further, under federal law, operators would be liable for health-related claims associated with oil spills, claims that are currently pursued in State courts.

The U.S. House Energy and Commerce Committee’s proposed Blowout Prevention Act of 2010 would require operators who drill “high-risk wells” (wells located within 200 nautical miles of the U.S., or those onshore where a blowout “could lead to substantial harm to public health and safety or the environment”) to install blowout preventers and obtain independent technical inspection of new rigs before they begin operating.  Rigs would have to be reviewed every six months by third party inspectors, with the possibility of surprise inspections by federal authorities.

The U.S. House Natural Resources Committee will consider its own bill on July 14, written with the intent to improve the transparency and accountability in federal energy regulation. 

Congress’s focus on offshore reform may result in a broad, merged legislation by the end of the Second Session.  Despite support for increased regulation by both parties, Republican critics argue that with open-ended liability and tougher drilling requirements, only the largest offshore operators will be able to shoulder these new costs.

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