Learning from Deepwater Horizon

By ,

Summary

 

Una Jefferson: I wanted to start by talking about the debarment process which plays a fairly big role in your book. How would you describe it as a tool for enforcing environmental rules?

Abrahm Lustgarten: Debarment is a sort of an obscure, bureaucratic process within the federal government. Large companies like BP often have a act now, apologize later and pay the fines kind of approach for environmental and other types of infractions, which makes them impervious to certain types of regulations and violations of a modest size.

BP has tens of billions of dollars in profits every year and paying even an extraordinary penalty like what we saw after the Gulf spill, is a relatively approachable sum of money.

So that leaves the government with very little leverage except for using this obscure action called debarment, which basically says that the government could cancel or refuse to give future contracts with the federal government. Depending on how big those contracts are, that might or might not make a difference.

In the case of BP, it made a huge difference. The company is contracted to supply fuel, oil, and energy to a number of US bases and operations abroad, which at the time were actively engaged in combat. So there was a very large job for BP to perform but it was also a sensitive moment for the federal government as well in terms of maintaining that supply chain.

Una Jefferson: How common is it that the sheer size of the contracts makes it difficult for the government to use debarment as an enforcement tool?

Abrahm Lustgarten: Debarment is common. You can go the federal database list online and there’s thousands and thousands of debarment actions. It’s a frequently used tool.

The BP case was different because it basically affected the intersection between national defense and environment. And sad to say that when that is the matchup, it’s defense that usually wins.

In my experience, when I’ve looked at debarment cases where the US Department of Defence is involved, and they almost always get their way and they don’t care as much as they should about the environmental infraction that might be on the other end of the situation. In the case of BP, the Department of Defence had an interest in maintaining their fuel supplies, not having to find a new supplier and interrupting operations at foreign bases.

The EPA rightfully saw debarment as tool that they legally had at their disposal, but maybe practically weren’t actually going to be allowed to use.

Una Jefferson: There was this really interesting dynamic in the book where the EPA lawyer Jean Pascal was almost disinclined to debar BP because then the EPA would lose the oversight and audit rights over the company. Do you think that in this case it was in some ways better or more effective to have them kind of hanging in the balance rather than actually using this tool?

Abrahm Lustgarten: It’s really difficult to say in that particular case. The EPA was in a tough spot and that’s why it took Jean Pascal a decade to chart her next step. The unfortunate truth of the situation was that BP was an immensely powerful company that flagrantly violated a number of laws over many many years. And the inability of the EPA to stop that is testament to its weakness in the situation.

Una Jefferson: I was wondering about your reaction to the rollback of some of the rules that were passed in response to the Deepwater Horizon disaster. The Interior department’s Bureau of Safety and Environmental Enforcement published several changes to the oil and gas production rules for offshore. How important do you think these particular rules were for preventing a similar disaster in the future?

One of the big ones is that they’re removing the requirement for an independent verification of the safety measures and equipment for offshore production. And they’re also removing the requirement for an engineer to certify designs for some pieces of equipment, primarily focused on the blowout preventer.

What role would have independent verification played in the lead up to this disaster?

Abrahm Lustgarten: The BP disaster is a perfect example of what I think is a very common problem, which is the simple phenomenon of time costs money and the more you can save time, the more money you’ll make from a production standpoint. BP in the Gulf of Mexico was literally in a race for minutes to get oil into the pipeline as quickly as possible. And that was an enormous motivator to cut every corner legally and perhaps illegally. There’s a pattern both within BP and also across the industry of seizing the most efficient path forward through regulatory hurdles or through well development hurdles, which includes engineering inspections, safety tests and all those things.

When you talk about removing regulations that require those extra steps, you’re basically talking about green lighting or offering a handshake agreement that places the safety of the environment and the safety of the people who work in those situations on faith that next time BP will choose to do the right thing, will choose to have an engineer check the well or it’s construction processes before bringing it online even though the regulations won’t require it. And we’ve already seen the track record says that that won’t happen.

So it was an important improvement in the regulations when those regulations were implemented. They were put in place for obvious reasons. They’re put in place for lots of people’s benefit, including the companies themselves. In the long run, regulations can save companies like BP many billions of dollars in liabilities.

Removing them is a typical deregulation measure and I think it’s pretty reckless.

Una Jefferson: It’s interesting you mentioned the time it takes to get these independent verifications done. In this particular case, to what extent do you think the motivation for cutting out these independent verifications was just the time it takes to do the handoffs and check all the boxes as opposed to BP perhaps feeling that they would not be able to meet a higher standard of design which might be applied by having an engineer look over some of their equipment?

Abrahm Lustgarten: In the case of the Macondo well in the Gulf of Mexico, the company was behind schedule. Every day the well was not actually producing oil was costing it somewhere in the realm of $500,000. And so if you are 30 days behind you have a direct cost of $15 MM associated with that delay. That is the most immediate pressure that I found that BP and companies like it were responding to in short cutting these processes. For the most part, I did not find a disagreement within the oil industry about the importance of safety checks and engineering checks and procedural measures. There is an acknowledgement that they serve a role and an agreement that those are the steps that keep the processes safe. The corners were not cut out of fraudulent intent or because they were sure that they would not pass an inspection as much as really just not wanting to take the time to slow down to cross their t’s and dot their i’s. And that’s the pattern that I saw time and time again in which the Macondo well fits perfectly. There’s no one that I talked to at BP who thought that the blowout preventer shouldn’t have been checked, that the problems that they had witnessed with it shouldn’t have triggered several work stoppages and and double checks and safety procedures. But at each incremental point there was a staff person who made a personal decision, a subjective decision that they could save a couple minutes by either assuming that everything was okay or bypassing, a third party check.