More Hurdles From BOEMRE?

Todd Shriber
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Prior to the Gulf of Mexico oil spill last year, casual observers of the oil industry probably were not familiar with the Interior Department's Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). To many, it was just another one of those alphabet-soup agencies in our nation's capitol.

BOEMRE's relative anonymity changed in the blink of an eye when the Deepwater Horizon rig sunk last April, leading to 11 deaths and the largest oil spill in U.S. history. For those that own energy stocks, if they did not know in 2010 what BOEMRE is or what the agency does, they almost certainly do today. My brief explanation for a second grader is that BOEMRE is the regulatory body that overseas offshore drilling in U.S. waters, including the Gulf.

The agency was elevated to controversial status following the government-imposed moratorium on deep-water drilling following the spill, but even though the moratorium has been lifted, BOEMRE has remained no less irksome to oil companies, their employees (current and prospective) and shareholders.

Post-moratorium, two industry complaints regarding BOEMRE have trumped all others. There is the obvious one regarding the speed at which at new permits for deep-water Gulf projects have been approved. Hey, once any industry gets the Feds or Congress involved, approvals for anything are going to come at a pace that makes a snail look like a Ferrari.

Related and perhaps more important is the notion that has had only a muddled vision of what is expected of it regarding newly enhanced safety regulations that need to be met in order win new permits. The reason for this is because BOEMRE has given little or no uniformity on these regulations and there appears to be more confusion on the way. In reference to comments made today by BOEMRE Director Michael Bromwich, the New Orleans Times-Picayune ran a headline that said ''Drilling safety regulations are not set in stone, BOEMRE director says.''

That is just the problem. Nothing is set in stone and without that uniformity, companies working in the Gulf are almost shooting in the dark when it comes to getting new projects approved. It seems silly that one set of standards would be applied to Exxon Mobil, another to Royal Dutch Shell and still another to Apache (APA), just as hypothetical examples. Really the only company that BOEMRE can require to go above beyond the call of duty when it comes to new safety standards is BP (BP).

For the other exploration and production companies, there should be a uniform set of standards for shallow water drilling, another set of standards for whatever depths BOEMRE deems as deep-water depts and then maybe another set for ultra deep-water activity. Was that so hard?

I may be guilty of some over-simplification here, but creating uniform safety standards for Exxon and Shell is not as difficult as it would be for, say, Apple and Procter & Gamble. Those companies do entirely different things, but when it comes to working in the Gulf, Exxon (XOM) and Shell (RDS-A) are basically doing the same things: Exploring for oil and natural gas.

Bromwich also wants the authority to hold jurisdiction over contracts in addition to E&P companies. Congress looks like it wants an explanation on that, which is good. In the meantime, folks should be demanding an explanation as to why it is so hard to come up with safety standards for companies that are in the same business looking to do the same thing. Is it really as challenging as we have been led to believe?

Todd Shriber