As the hulk that had been the Deepwater Horizon plunged like a wounded leviathan toward the seafloor, it ensnared President Barack Obama’s energy agenda, dragging it into the depths of political uncertainty. In March 2010, less than a month before the disaster and a little more than a year into his presidency, Obama had announced that he wanted to open federal waters in the eastern Gulf of Mexico, along the eastern seaboard, and in parts of offshore Alaska to new offshore drilling. It was a concession to the oil industry, which had aligned against Obama’s plan to limit greenhouse gases through an elaborate “cap-and-trade” system. Billed as a “free-market solution,” the complicated process involved trading an ever-shrinking number of pollution credits on an exchange similar to that used for futures contracts. It was designed to create economic incentives for companies to reduce carbon emissions, but its structure placed much of the cost burden on companies that dealt in oil and gas, especially refiners. Cap and trade was the latest incarnation of the carbon-trading scheme that John Browne had championed within BP in the late 1990s and pitched to the Clinton administration. Obama had included it in his plan to promote alternative energy before political realities overtook it.
By early 2010, the cap-and-trade bill was languishing in Congress, and Obama needed the support of lawmakers from oil-producing states. The industry had long clamored for more access to offshore leases on both coasts. Former Alaska Governor Sarah Palin, the vice presidential candidate for Obama’s opponent, John McCain, in the previous year’s election, had summed up the industry’s sentiment in her popular slogan, “Drill, baby, drill.” Just three weeks before the Horizon blew up, Obama defended his plans to allow more offshore drilling. “It turns out, by the way, that oil rigs today generally don’t cause spills,” he said. “They are technologically very advanced.”1 The industry, though, remained wary. Despite his overtures, oil companies knew that Obama wasn’t their friend. His predecessor, George W. Bush, had been considered an industry insider. While his own record in the oil patch of west Texas was spotty at best, Bush was receptive to oil companies’ needs. What’s more, he favored a soft touch with regulation, and the oil industry is among the country’s most heavily regulated. Obama, by contrast, endorsed the allure of “green” energy. He wanted to take away long-standing tax credits and incentives for oil and gas production and shift them to subsidies for alternative fuels. Cap and trade was just another step in that process.
One oil company, though, was less concerned: BP. Obama had been a favorite of the company and its employees. During his time in the Senate and in his campaign for president, Obama was the biggest recipient of donations from BP’s political action committee and individual employees, collecting more than $71,000. It was the largest slice of the more than $6.2 million that BP and its employees had given to federal candidates in the previous two decades, although the amount remained modest compared to that given by Obama’s biggest donors.2
BP’s financial connections to Obama’s administration didn’t end there. John Browne had set BP apart from other major oil companies with his 1997 speech at Stanford, acknowledging global warming and the role that oil companies played in it. Following the speech, BP had donated $20 million to solar research as the first step in a decade-long program of backing “green” energy research. By 2007, the program had expanded, and BP had awarded a $500 million grant to establish the Energy Biosciences Institute at the University of California, Berkeley. The institute funds dozens of research projects seeking what Tony Hayward described as the next generation of biofuels. Basically, the institute is attempting to find a more efficient fuel than ethanol, the corn-based gasoline additive.
“What the world needs is a plant that grows fast, doesn’t need water, [and has] high cellulose lactose density, lots of sugar—so you can describe what you need. The task for the bioscience generally is to go and define it and create it,” Hayward said soon after BP awarded the grant. “What we’re trying to do with this Energy Biosciences Institute is create a sort of mission-based approach to science to say here’s the task, draw on all the broad spectrum of functional science disciplines from biology to engineering to create what we need. That’s what that’s all about.”
The institute was run by Dr. Stephen Chu, a Nobel Prize– winning researcher and a pioneer in the study of biofuels. Obama would later tap Chu to become his energy secretary, and Chu, in turn, would hire BP’s top scientist, Steven Koonin, as the undersecretary for science. It was Koonin who made the decision, when he was still at BP, to direct the bulk of the grant establishing the biosciences institute to UC Berkeley and Chu.
Oil company executives love to complain about energy secretaries. A common refrain is that no administration—not even those of the two Bushes, both of whom had worked in the business—has ever chosen someone with energy industry experience to run the Department of Energy. Obama’s selection of Chu, though, was seen as something even more dastardly. Far from being a detached bureaucrat, Chu had spent his career trying to develop alternatives to some of the biggest industries that he was supposed to oversee. Essentially, he had devoted his research to putting oil companies out of business. Now, he would be regulating them. BP didn’t share the industry’s concern. Inside its Houston offices, there was a sense of excitement, if not smug satisfaction, that someone that the company knew so well would now be in charge. It didn’t work out that way. Although Chu was to play a role in the government’s response to the Horizon spill, the Energy Department didn’t oversee offshore drilling. Chu would grow increasingly disenchanted with BP’s handling of the Gulf spill response as the summer wore on.
Regulation of the offshore energy industry fell to the Interior Department’s Minerals Management Service (MMS), a troubled agency whose name and structure were permanently changed by the Horizon disaster. The MMS, which approved BP’s frantic well design alterations in the days before the rig blew up, was an agency whose very existence represented a potential conflict of interest between government and industry. Its job was to award offshore leases, collect royalty payments from energy companies on the oil and natural gas that they produced, and police offshore drilling. Both Washington and the state governments along the Gulf Coast welcomed the royalty revenues that poured in as offshore drilling activity increased in the 1990s. The influx of revenue to federal coffers combined with the post-Reagan philosophy of deregulation and the industry’s own hubris about its technical advances to foster a system of lax oversight.
MMS rig inspectors lived in the same areas as the oilfield workers they oversaw. Many of them grew up in areas such as southern Louisiana, whose economy depends on the offshore industry, and many had worked in the oilfields themselves before joining the government. As one field office official, who had been an inspector for the Deepwater Horizon, said: “Obviously, we’re all oil industry. We’re all from the same part of the country. Almost all of our inspectors have worked for oil companies out on these same platforms. They grew up in the same towns. Some of these people, they’ve been friends with all their life. They’ve been with these people since they were kids. They’ve hunted together. They fish together. They skeet shoot together. . . . They do this all the time.”3 MMS employees often angled for industry jobs while still working for the agency. The MMS inspector general released a report a month after the Horizon explosion that focused on employees’ behavior at the Lake Charles, Louisiana, field office from 2000 to 2008. It found that inspectors routinely accepted gifts from the oil industry—crawfish boils, hunting and fishing trips, skeet-shooting contests, and golf tournaments. Two employees and members of their families flew on an oil company jet to attend the 2005 Peach Bowl game in Atlanta, Georgia, to watch Louisiana State University’s football team play. One of them told investigators that he knew the trip was wrong, but he justified it because he was a “big LSU fan.”4 The findings weren’t too surprising. MMS had been running as an industry lapdog for years. Earlier investigations had found instances of favoritism and a litany of gifts from oil companies, including ski trips, tickets to sporting events, and golf outings. One report also found “a culture of substance abuse and promiscuity” involving regulators and the companies that they were charged with regulating. It detailed frequent social gatherings lubricated with alcohol, cocaine, and marijuana. Some women were dubbed “MMS chicks” by oil company employees, and one suggested that a female MMS worker meet him for a bubble bath before they attended a Houston Texans football game.5
Such revolving doors between regulators and the regulated weren’t uncommon. In Texas, for example, BP hired a state engineer in 2003 after he’d spent the two previous years processing applications for BP’s new air quality permit at the Texas City refinery. Once on board, the former regulator spent the next two years representing BP in the permit negotiations. BP and state officials said the hiring didn’t violate state laws that restrict regulators from taking industry jobs because although the engineer was involved in some BP permit applications for Texas City, he didn’t work on the specific one that was granted in 2005. Regardless, the move illustrated the economic power oil companies like BP have over regulators.
While MMS employees enjoyed the gratuities lavished on them by oil companies, the agency remained perpetually understaffed. It had a total of 55 inspectors to oversee about 3,000 offshore facilities in the Gulf. By comparison, on the West Coast, 5 MMS inspectors covered just 23 rigs.6 Federal regulations call for each rig to be inspected monthly. As a result of the understaffing, many rigs in the Gulf fell behind on their inspection schedules. The Deepwater Horizon, for example, was inspected only six times in 2008, and at the time of the explosion, it had missed 16 scheduled inspections since 2005. When inspectors did make it to the rigs, they often focused on reviewing the paperwork on tests that the company had conducted earlier. Surprise inspections, although required, were almost never conducted. The last inspection of the Deepwater Horizon, which was completed less than three weeks before the accident, was done by an inspector who later would tell MMS and Coast Guard investigators that he had never done an inspection before and his only experience was four months of training, which he had just completed.
Perhaps it would have been physically possible for a single inspector to adequately supervise an average of 54 Gulf rigs if the inspectors had been properly trained, but many of them weren’t. Half of those surveyed as part of an Interior Department internal investigation said that they felt they lacked sufficient training, and some said that they had so little understanding of what they were inspecting that they simply asked company representatives to explain it to them. As a result, the MMS collected less than $1 million in civil penalties for offshore safety violations, which an internal report noted equaled less than one day’s production for a larger facility in the Gulf.7 Even when it did question companies’ records, the MMS rarely halted drilling or revoked permits for safety violations. As far back as 2003, the agency had questioned BP’s safety record in the Gulf. The MMS had expressed concern about a rig fire the previous year and a pressure buildup in an unfinished well that had forced the evacuation of workers, saying that the incidents “raised questions about the ability of BP to safely conduct drilling operations in the Gulf of Mexico.” Yet BP continued drilling with the agency’s blessing.
While the MMS functioned as a regulator, its overriding concern was enabling drilling, not restricting it. With more than $10 billion in annual royalties being collected, the government had an incentive for offshore production to continue. That stream of revenue, combined with the Gulf’s unique role as a vital source of domestic energy, led to a special set of policies, many of which minimized reviews and accelerated the issuance of drilling permits. As new drilling technology lured companies farther offshore in the 1990s, the MMS adopted a new system of safety rules designed to reduce human errors leading to accidents, but it made these rules voluntary. In 2009, when it proposed tightening its safety regulations and making them mandatory, BP and other oil companies opposed the move, suggesting how the rules should be written if the agency decided to move forward.8 The former head of the MMS—Elizabeth Birnbaum, who was to lose her job over the Horizon disaster— told Congress that the rules would eliminate two-thirds of all offshore accidents. They still haven’t been implemented.
As drilling technology became more complex, the system of regulating it became more lax. MMS training couldn’t keep up with the new equipment. After decades of safe operations, both the industry and the MMS began to believe that a blowout simply couldn’t happen. But, the technology for drilling in a few hundred feet of water is vastly different from the technology for drilling in a few thousand feet. On shallower wells, for example, the blowout preventer, the fail-safe device that failed in the Deepwater Horizon disaster, sits on the deck, rather than a mile below the surface. Inspectors can see it when they tour a rig. The Horizon’s was on the seafloor, a mile below the surface, and accessible only by remote underwater submarines.
As the knowledge gap between the industry and the inspectors grew, the MMS expanded the idea of voluntary compliance. Industry experts argued that only the companies themselves had the technical knowledge to regulate the business. Bureaucrats, being unfamiliar with the complexity of offshore drilling, would only inhibit production, leading to higher prices and a greater dependence on foreign oil. Rather than allowing Congress or the administration to make rules that it didn’t understand, the industry’s trade group, the American Petroleum Institute, outlined minimum operating standards for its members. In the budget- and time-constrained world of the MMS, the institute provided a way to speed rule making. The result was a system in which companies operating offshore didn’t feel compelled to follow rules that many saw as voluntary.
In late August 2010, a panel of Coast Guard and MMS officials assembled in a hotel conference room in south Houston for the latest round of hearings into the Horizon disaster, which they had been conducting for most of the summer. Late on a Wednesday afternoon, investigators grilled a Transocean subsea superintendent on the arcane rules governing the maintenance of blowout preventers. Among many rules for offshore operations, the API had issued guidelines for how the preventers should be maintained. Transocean, however, didn’t follow those rules because it didn’t find them practical. Instead, it had its own set of policies based on its years of hands-on experience with the equipment, the supervisor said. At various times during the months of hearings, the panel’s co-chair, Coast Guard Captain Hung Nguyen, appeared exasperated by the lack of clear procedures and a clear chain of command aboard the Horizon, lapses that are common in the industry. He asked, for example, how the crew knew when command shifted from the captain of the rig to the offshore installations manager, which is supposed to happen when the rig is connected to the well. There was no official transfer of command. The Horizon’s captain told him that everyone on board just knows. During another session, Nguyen questioned why companies weren’t required to have backup systems that would trigger the blowout preventers if a rig lost power. An MMS official said that the agency “highly encouraged” such systems. “Highly encourage? How does that translate into enforcement?” Nguyen asked incredulously. “There is no enforcement,” the official replied. Nguyen’s disbelief at the lack not just of regulation but indeed of any meaningful oversight structure seemed to grow as the hearings progressed. Now, he interrupted the discussion again. The rules for inspecting blowout preventers seemed rather loose, he said. He found the “cavalier attitude” toward such a critical safety device disturbing.
The MMS regulations, he pointed out, codified the API guidelines as the rule, the minimum requirement for maintaining the preventers. “Now we have a company, Transocean or somebody else, deciding their program is better,” he said. “What good’s the regulation that sets the minimum standard when everybody’s doing their own thing out there?” Transocean argued that since the API rule was voluntary, it didn’t have to follow it. Nguyen countered that the government didn’t adopt a regulation with the intent of its being optional. API’s standards required the blowout preventer to be disassembled and inspected every five years. That would mean taking a rig out of commission for 90 days, the supervisor testified. At a half-million dollars a day in lost revenue, the inspection would cost the company $45 million. Its in-house procedure allowed it to keep the rig in operation.
For its part, the MMS did little to ensure that the industry complied even with the voluntary rules because in the Gulf, unlike in other areas where offshore drilling took place, exceptions were the rule. As wells were drilled in deeper and deeper water, the rules that did exist were stretched. Many of them dated from the 1970s, when the deepest well was about 700 feet below the water’s surface. The Horizon was drilling at a depth almost five times greater. BP had to apply for repeated exemptions when it switched to the long-string design, because it deviated from its own design standards and safety policies. It requested another exemption from testing the blowout preventer, even though it had malfunctioned weeks before the accident. The MMS granted all these exemptions, sometimes within minutes of the request.
Each offshore well is different, yet the MMS accepted blanket environmental plans for many of them. Known as the environmental impact statement, such a plan was supposed to outline the size and potential damage from a spill. Most major oil companies working in the Gulf used the same plan. As would later be revealed before Congress, among the contacts they listed was a national wildlife expert who had died four years before the plan was filed. They cited walruses, sea lions, and other animals that don’t live in the Gulf as “sensitive biological resources.” One oil company executive admitted to law-makers that the plans were an embarrassment.
Yet even if the MMS staff had wanted to review these plans, it wouldn’t have had the personnel necessary to wade through each study, which typically ran from 500 to 800 pages. John Hofmeister, the former president of Shell Oil, visited MMS’s Washington headquarters in the summer of 2006 to determine why it was taking so long for the agency to approve a Shell environmental impact statement for drilling in the Beaufort and Chukchi seas off the coast of Alaska. The process was supposed to take 120 days, but at the end of that time, nothing had happened. Shell had a limited window of ice-free drilling days, and time was slipping away. Hofmeister, who had come to Shell as a human resources executive after working outside the industry for companies such as General Electric, thought he needed to understand the MMS permitting process better and arranged the headquarters visit. He found that preparing the paperwork involved reviewing hundreds of pages of documents and writing hundreds more. “Common sense told me that no one could put an eight-hundred-page permit together in four months. They acknowledged as much, knew what the law said, and admitted they were in violation.”9 Congress had refused to extend the time requirement for granting the permit, so MMS simply ignored the time stipulation. Shell had spent $3.5 billion for its Chukchi and Beaufort leases, and four years later, it was still waiting for permits. Yet in the Gulf, the MMS was issuing as many as a thousand new drilling permits a year.
The offshore oil industry was awash in its own hubris. Oil executives frequently pointed out that tens of thousands of wells had been drilled in the Gulf without a major accident, all done under the auspices of the industry’s self-regulation. While this was technically true, the industry’s much-vaunted safety record involved some public relations veneer. Although they weren’t considered major accidents, 18 workers—excluding the 11 who died aboard the Horizon—had been killed while working offshore since 1979. In the past decade, blowouts and other “well control incidents” had caused 5 rig explosions and 17 evac- uations.10 That’s still a low incident rate compared with the number of wells drilled, but after most of the accidents, the MMS proposed new rules, such as improved cementing techniques or better-equipped blowout preventers. In each case, the industry said that such measures were unnecessary and too costly. Some changes were eventually implemented; others weren’t.
Exploration for oil in the Gulf of Mexico had become ruled by the engineers’ conceit that the industry’s technology was impeccable and by the financial arrogance that argued that safety would never be compromised because the fallout from a disaster would be so great that companies would never cut corners. The companies never asked the key questions: What happens if the technology doesn’t save you? What if workers have been lulled into complacency and fail to recognize how their decisions could lead to disaster?
It was against this backdrop of fractured regulations that Obama made his call for lifting some of the long-standing federal bans on offshore drilling. The move drew an immediate rebuke from some members of his own party and from environmental groups that included key supporters. The Horizon disaster, coming just weeks later, erupted on the political front like a flaming chorus of “I told you so.” Obama struggled for months to express the proper amount of outrage, to capture the public’s anger, and to prove to his party faithful that he was willing to stand up to oil companies. One of his first decisions in response to the disaster, though, came on May 12. He abolished the MMS, splitting it into three agencies. One would issue leases, one would collect royalties, and a third would supervise offshore drilling and production. His second major decision came a few weeks later: All new drilling in the Gulf of Mexico, America’s most prolific and promising reserve of domestic energy, would cease immediately.