Stricter offshore drilling rules issued, upsetting industry

NEW ORLEANS (AP) – The Obama administration issued new rules Thursday to make offshore oil and natural gas drilling equipment safer and to reduce risks in digging wells, but the oil industry and its supporters in Congress say they are costly and questioned their need.

The rules published by the Interior Department came nearly six years after the catastrophic blowout of a BP well in the Gulf of Mexico killed 11 workers and injured many others aboard Transocean’s Deepwater Horizon drilling rig. The out-of-control leak dumped millions of gallons of oil into the Gulf.

Meanwhile, another federal agency – the U.S. Chemical Safety Board – issued recommendations Wednesday saying even more rigorous safety standards are needed to make offshore drilling safe. That agency said offshore workers should be involved more in safety decisions and regulators given more authority to enforce rules.

The Interior Department rules target blowout preventers, massive valve-like devices meant to prevent oil and gas from escaping when a driller loses control of a well. The device failed in the BP spill.

Officials said the rules will improve the inspection, maintenance, and repair of blowout preventers, which are known as BOPs. For example, the devices will need to be broken down and inspected every five years.

Also, companies will have to use BOPs that are better equipped to shear drill pipe in the case of an emergency. This was one of the problems in BP’s disaster.

In addition, drilling of highly complex wells must be monitored in real-time by experts onshore.

The rules also set out standards called “safe drilling margins” for the design, casing, cementing and other work that goes into drilling a well.

On a teleconference, Interior Secretary Sally Jewell called the rules “a vital part of our extensive reform agenda to strengthen, update and modernize our offshore energy program using lessons learned from Deepwater Horizon.”

Environmental groups applauded the rules.

“It’s about time the federal government tightened the safety rules on offshore drilling,” said Jacqueline Savitz with Oceana, an environmental group. She cited federal data showing 22 losses of well control, 1,066 injuries and 11 deaths in the offshore industry since the BP disaster.

“The only way to truly ensure there will never be another disaster of the magnitude of Deepwater Horizon is to stop drilling offshore,” she said in a statement.

Industry leaders and their supporters saw it differently.

Erik Milito, the upstream group director for the American Petroleum Institute, said his group was reviewing the rules, which he said might stifle innovation and actually make drilling less safe.

U.S. Sen. David Vitter, R-Louisiana, said the federal move is “bad news for Louisiana, and certainly has the potential to kick our oil and gas industry while it’s down.”

A recent industry-funded study warned of dire consequences if the rules went into effect as proposed.

The economic analysis by Wood Mackenzie, a business research firm, found the regulations could raise drilling costs by 20 percent or more. In worst-case scenarios, the analysis said exploration could drop by as much as 55 percent, and less drilling could translate to $70 billion in lost state and federal tax revenues by 2030 and up to 190,000 lost jobs.

Last year, a study commissioned by the American Petroleum Institute estimated the regulations would cost the industry $31.8 billion over 10 years.

The government estimates the cost of compliance will be much lower, at about $890 million over 10 years.

Fadel Gheit, an oil industry analyst at Oppenheimer & Co., doubted the rules would have a dramatic effect on drilling operations – especially compared to the effect of low oil prices, which have curtailed drilling.

He added that the industry would adjust. “Don’t underestimate the resilience of this industry and when pressed, they deliver.”

Brian Salerno directs the Bureau of Safety and Environmental Enforcement, the agency that oversees offshore drilling. He said the rules were drafted with industry involvement, and some final rules were tweaked to satisfy industry concerns.

In a statement, BSEE said the new rule “is in harmony with industry’s best practices, standards and equipment specifications.” It said companies will have three months or longer to comply with the rules.

David Pritchard, a Texas petroleum engineer who studies offshore safety, said the rules would help make drilling safer.

“There’s ample proof in all our drilling activities that we sustain a very high number of kicks and our track record is not that good,” Pritchard said. He said requiring real-time monitoring of risky wells was critical.

He said the industry would likely save money by adhering to stricter drilling standards.

“Kicks, stuck pipe, (well) losses — those issues are overwhelming in cost,” he said. “That’s what (the industry is) not recognizing: There are cost savings to be made from doing it right.”