Sex, Drugs and Well Control

The U.S. Minerals Management Service (MMS) has been ordered to separate its oil royalty collection and safety inspection roles, a conflict of interest that contributed to the causes of the Deepwater Horizon disaster. Sexual impropriety and illegal drug abuse cast shadows. 

In his testimony to the senate committee investigating the causes of the explosion on the Deepwater Horizon, U.S. Dept of Interior Secretary Salazar admitted his agency had fallen short by failing to prevent the massive Gulf of Mexico oil spill.

A department within his agency, the Mineral Management Service (MMS), oversees offshore drilling and production. It accounts for 30% of total U.S. production, obviously vital to U.S. energy needs. Secretary Salazar admitted that a full and proper consideration of offshore safety had not been done and is overdue.

The MMS has four roles: to effectively license petroleum activity on the continental shelf, to ensure maximum levels of oil and gas production, to oversee offshore safety, and to collect oil revenues for the government.

In fact, the MMS is Uncle Sam’s second-largest cash cow generating about $13 billion a year in oil and gas revenues for the U.S. Treasury. Only the Internal Revenue raises more.

The Americans are learning the lesson we learned with Piper Alpha. Invest in one government department the responsibility to regulate safety AND the responsibility to maximize production and revenue flows, and safety becomes a poor second, or even third.

Exactly where the UK Dept of Energy found itself in 1988. With Britain’s miners defeated and pits closing at the rate of one a month the ‘dash for (offshore) gas’ was on. Moreover, with the UK government heavily dependent on offshore oil revenues, the Dept of Energy had to stay very focused. Not, unfortunately, on safety.

Consequently167 colleagues died on 6 June 1988 — effectively doubling at a stroke the number of needless deaths in UK oilfield up to that point. Piper Alpha was a policy failure at the highest level of government for which no servant of the Dept of Energy can in any way be held responsible.

A similar policy failure in the U.S. evidently contributed to the loss of the Deepwater Horizon and 11 crewmen. The MMS has frequently been criticised as an ineffective regulator, too eager to facilitate rapid oilfield development and revenue generation.

A prime example relates to this catastrophe. BP asked for and was granted a “categorical exclusion” from the National Environmental Policy Act in 2009 releasing the company from preparing a detailed environmental assessment for a well which, if not capped soon, may yet become the world’s worst oil-related environmental disaster.

Soft-touch oversight of safety has long been the MMS modus. In one of its own safety alerts the MMS warned that backup systems to activate blowout preventers were “an essential component” of deepwater drilling. Shortly thereafter the MMS conceded that such systems — mandated in Norway, Brazil and elsewhere —were too costly and need not be installed after all.

Four weeks into this escalating catastrophe President Obama has pledged a more stringent regulatory regime will be put in place. Secretary Salazar has belatedly ordered the MMS to separate its oil royalty collection and safety inspection roles. Admitted a contrite Salazar: “We have to clean up that house."

Not before time. A recent investigation found that key MMS personnel involved in sexual liaisons with oil company management had discouraged the MMS in 2003 from demanding better systems to prevent well blowouts like the one currently spewing 5,000 barrels of oil a day into the Gulf of Mexico.

There followed the scandal of RIK (Royalty in Kind), the wildly successful scheme designed to enhance revenue collection for the U.S. Treasury. RIK enabled the MMS to take some of the government’s share not in dollars but in physical oil and gas and sell it on the open market.

According to statistics maintained by MMS, RIK in 2006 sold over 800 million cubic feet of gas and 150,000 barrels of oil every day. The value to the government of RIK oil and gas sales in fiscal year 2006 was $4 billion, or approximately $11 million per day.

With so much cash sloshing about things soon got out of hand. Between 2002 and 2006, nearly a third of MMS RIK staff socialized with and received a wide array of gifts and gratuities from oil and gas companies that were regulated by MMS.

The investigative report of August 2008 uncovered a culture of substance abuse and promiscuity, one example being a high heid’yin engaged in illegal drug use and sexual relations with subordinates. RIK staff had also accepted corporate hospitality from industry sources when too intoxicated to drive home.

Some RIK employees frequently consumed alcohol at industry functions, used cocaine and marijuana, and had sexual relations with oil and gas company representatives on the justification, so they said, of developing business relationships. Oil company representatives commonly referred to agency staff as the “MMS Chicks”.

In the course of the investigation one senior MMS executive said in a sworn statement: “I do not have inappropriate relationships … with any of the representatives from the various [oil] companies.” When evidence to the contrary came to light, the executive stood by her original statement saying that a “one night stand” did not constitute a relationship.

More seriously, some MMS RIK staff moonlighted for energy companies and received gifts and fees. In the course of one such relationship, commercial information relating to pipeline transportation costs, the confidentiality of which was vital to the interests of another firm regulated by the MMS, was divulged.

The investigative report into the above peccadilloes names five oil and gas companies. BP is not one of them. The report also notes that 99.9% of Department of Interior employees are hard working and ethical. Unfortunately, commented the investigator, bad conduct by a few casts a shadow over the whole agency.

While not disagreeing, it is clear that MMS’s problems run far deeper. It is institutionally compromised much as the UK Dept of Energy was pre-Piper. Safety was from the start destined to be eclipsed by two main and overarching imperatives driving the MMS: provide for America’s thirst for cheap and plentiful gasoline and, secondly, feed the U.S. government’s desperate quest for revenue, bearing in mind the $1.4 trillion (and growing) deficit.

The blame game goes on — who screwed up the cement job (or not); who did, or did not, test the BOP; what modifications were made, or not, to the BOP; who should have, but did not, prepare an oil spill contingency plan. Truth will out and BP will shoulder its share of the blame and cost. On judgement day, the company will not be alone in the dock, that’s for sure.

In the meantime, the court of public opinion has BP the only bandit in town. The venom in the voice of Fox News presenters spitting out “British oil company BP” is frightening. America has neatly externalised its anger and cast itself the victim of a foreign interloper.

Candid self-examination will, in time, bring Americans to a better understanding of what really caused the Gulf of Mexico tragedy.

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