When yes is no

Eldon Ball • Houston

Oil companies and support industries with US Gulf of Mexico operations have been collectively holding their breaths in anticipation of the next turn of events to emerge from Washington. They know from experience that bureaucratic decisions have the force of law. Seemingly benign rule changes can – and have – cost them billions of dollars in lost revenue, higher operating costs, and increased overhead.

They got a glimpse of the future recently in a speech by Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). Bromwich spoke at the Center for Strategic and International Studies Gulf Oil Spill Series in Washington, D.C.

Although it was not reported widely – if at all – in the mainstream, it holds abundant evidence of how the new look of GoM regulation will affect the industry, and it isn’t encouraging.

Take the following example of when “we won’t change the rules” translates into “we will change the rules.” It isn’t remarkable by its scarcity – Washington is fluent in double talk – but gets the gold star for pure audacity.

On the off chance that you think we are being facetious, note the following comments from his presentation:

“Over the past few months, especially since our new rules were announced at the end of September, we have heard from countless companies, trade associations, and Members of Congress about the significant anxiety that currently exists in the industry that we will soon change the rules of the permitting process significantly, thereby creating further uncertainty about what is required to conduct business on the OCS.

“The phrases we hear repeatedly are that we are ‘changing the rules’ and ‘moving the goalposts’ – the implication is that we have other regulatory requirements up our sleeve that we have not yet unveiled. This is not the case. Barring significant, unanticipated revelations from investigations into the root causes of theDeepwater Horizon explosion that remain in process, I do not anticipate further emergency rulemakings. Period.”

That would seem to slam the door on any significant changes to the rules of the game in the Gulf of Mexico, wouldn’t it? However, he goes on:

“But…” (you just knew there was going to be a “but”) “…at the same time, we can no longer accept the view that the appropriate response to a rapidly evolving, developing and changing industry, which employs increasingly sophisticated technologies, is for the regulatory framework and the applicable rules to remain frozen in time. Over time, the regulatory framework and the specific requirements must keep pace with advances in the industry – and with industry ambitions to drill in deeper water in geological formations that have greater pressures.”

Translation: Weare going to change the rules.

The new BOEMRE

You knew that the old MMS was being replaced, but did you know that no sooner than BOEMRE replaced it, BOEMRE itself would be morphed into a new creation.

As Bromwich later outlined in his talk before the Center for Strategic and International Studies, here are some changes that are coming – to distinguish them from the changes that “aren’t” coming.

“MMS – with its conflicting missions of promoting resource development, enforcing safety regulations, and maximizing revenues from offshore operations and lack of resources – could not keep pace with the challenges of overseeing industry operating in U.S. waters,” he explained.

“The reorganization of the former MMS is designed to remove those conflicts by clarifying and separating missions across three agencies and providing each of the new agencies with clear missions and new resources necessary to fulfill those missions…”

The revenue collection arm of the former MMS became the Office of Natural Resources Revenue. Over the next year, the offshore resource management and enforcement programs will also become separate, independent organizations:

• On the one hand, the new Bureau of Ocean Energy Management (BOEM) will be responsible for managing development of the nation’s offshore resources in an environmentally and economically responsible way.
• On the other hand, the new Bureau of Safety and Environmental Enforcement (BSEE) will enforce safety and environmental regulations.

Continuing to quote: “Over the past several months, we have been gathering the facts that are necessary to complete the reorganization in the most rational and sensible way. We have been busy interviewing Bureau employees in all of our regional offices; collecting and analyzing data relating to the Bureau’s processes, systems and regulatory metrics; and developing various models and options for restructuring and reforming the Bureau.

This work has been painstaking and time consuming, but it is critical to inform decision-making regarding the transformation of the Bureau.”

According to Bromwich, the design will be shaped by the following concepts:

• “We will separate resource management from safety oversight to allow our permitting engineers and inspectors greater independence, more budgetary autonomy, and clearer senior leadership focus. The goal is to create an aggressive and tough-minded but fair regulator that can effectively evaluate the risks of offshore drilling, will promote the development of safety cultures in offshore operators, and will keep pace with technological advances.”
• “We will provide a structure that ensures that thorough environmental analyses are conducted and that the potential environmental effects of proposed operations are given appropriate weight during decision-making related to resource management in BOEM. That structure must ensure that leasing and plan approval activities are properly balanced. These processes must be both rigorous and efficient so that operations can go forward in a timely way – but they must be based on a complete understanding of the potential environmental effects of those operations. We must also ensure that appropriate mitigation of those potential environmental effects are in place.”
• “We will also strengthen the role of environmental review and analysis in both organizations through various structural and organizational mechanisms.”

What it really means

Clearly, no one would argue that it is not critically important to protect human life and the environment, and that government must provide the structure for implementing and ensuring this process. We all want that.

That isn’t the point.

The point is that a new overburden of bureaucratic oversight, control, and expense is being created far beyond what is needed. It amounts to all the things it says it isn’t – “that we have other regulatory requirements up our sleeve that we have not yet unveiled,” as Bromwich put it.

We can’t read Bromwich’s remarks and think anything other than that this governmentdoes have new regulatory requirements up its sleeve. And the industry will learn of them soon enough.