US House Set To Vote On Offshore-Drilling Overhaul
July 29 2010 - 8:10PM
Dow Jones News
The U.S. House of Representatives is set to vote Friday on
remaking the entire offshore-drilling system, setting up a fight
over how far the government should go in removing support for the
industry and instituting new safeguards following the Gulf oil
spill.
Democrats from outside of oil-producing states are pushing the
legislation, the first chamber-wide response to the BP PLC (BP,
BP.LN) oil spill. The disaster has damaged Gulf Coast tourism and
fishing, and harmed wetlands and wildlife. But oil-state Democrats
are breaking with their caucus to join Republicans in warning that
response goes too far and will put independent oil and gas
producers out of business.
"I'd like to support the bill, but I can't do it," said Rep.
Gene Green (D., Texas). "It would stop most of our independents
from being able to drill." He said that "about 30" Democrats are
opposed.
The House Democratic caucus expects to have enough votes to pass
the spill legislation even if 30 members break ranks. But the
defections expose a divide within the party that could stall
spill-response legislation in the U.S. Senate. Senate Democrats,
who may vote next week on removing liability limits, do not have
the 60 votes necessary to get around Republican procedural
obstacles and must work with Republicans to pass legislation.
Eliminating the cap on damage claims that companies must pay for
offshore oil spills is becoming a proxy for a broader fight about
the role of government in offshore drilling. Democrats want to
discard liability caps, currently set at $75 million, in order to
avoid putting taxpayers on the hook for damages that go beyond the
costs of cleanup. On Thursday, the White House called liability
limits an "implicit subsidy" for the oil and gas industry, and said
it "strongly supports" repealing the limit on economic damages
claims.
But without a limit to liability, insurers have indicated that
they will stop providing offshore-drilling insurance, leaving
drilling to the major oil companies that are able to self-insure
against disasters.
"Maybe this is a sector where you really need large companies
who can bring to bear the expertise and who have the wherewithal to
cover the expense if something goes wrong," Carol Browner, special
adviser to President Barack Obama on energy and climate change,
said in an interview with the Wall Street Journal a month ago.
Some key House Democrats say that the industry may have a
point.
"Are the concerns of the small independents legitimate? Yes, I
believe they are," House Natural Resources Committee Chairman Nick
Rahall (D., W.Va.) said. "And perhaps in the give and take that's
going on currently, we'll find some middle ground there that will
take into account their concerns."
House Democrats are pushing to change every aspect of the
offshore-drilling business, from the time a company bids on a lease
to the point when it designs deepwater wells and puts safety
equipment on drilling rigs. Companies with poor safety records
would be banned from obtaining new leases or drilling permits, a
measure that is expected to hit BP especially hard.
In order to obtain a lease or a permit, BP would have to certify
that no more than 10 deaths had occurred at its facilities over the
previous seven years as a result of violations. Eleven workers died
when the rig BP was leasing exploded in the Gulf of Mexico in
April. BP has asked House leaders to soften the legislation, saying
that its operations "contribute significantly" to domestic oil
production.
Government-mandated safeguards, such as requiring blowout
preventers to have two sets of shear rams, are also part of the
legislation. Blowout preventers are supposed to shut off wells in
the event of a catastrophic disaster, with the shear rams the last
line of defense on the equipment. Shear rams are supposed to cut
pipe and then seal off the well. But a 2004 study commissioned by
the agency formerly known as the Minerals Management Service
questioned whether shear rams were strong enough to cut through the
thick pipes used in drilling. The joints that interconnect pipes
create extra barriers.
Some drilling companies say that their rigs aren't designed to
accommodate a second set of shear rams. That raises questions about
whether existing equipment could be overhauled or would become
worthless.
The bill "would penalize every single well with blowout
preventer standards that apply without regard to risk factors such
as water depth, well depth, reservoir potential, well pressure or
proximity to response equipment," said Jim Noe, general counsel of
rig company Hercules Offshore Inc. (HERO). "At some point, even the
companies capable of satisfying all of the breathtaking new
requirements will ask themselves, "am I willing to take this much
exposure to the federal government?"
-By Siobhan Hughes, Dow Jones Newswires; (202) 862-6654;
siobhan.hughes@dowjones.com