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May 11, 2010 / V A Nichols

Major Structural Change in Government Regulation of Oil

May 11, 2010

Obama Seeks to Split Agency That Monitors Oil Drilling

By SHERYL GAY STOLBERG and JOHN M. BRODER

WASHINGTON — President Obama is proposing to split the agency that oversees offshore oil drilling into two parts, one to inspect oil rigs and enforce safety and the other to oversee leases for drilling and collect royalties, the White House said Tuesday.

The shift would be the first major structural change in government regulation of oil and gas operations since the destructive Gulf Coast oil spill that began on April 20. The formal announcement is expected to be made by Interior Secretary Ken Salazar at 1 p.m. Eastern time, officials said.

Mr. Salazar will propose breaking up the Minerals Management Service, which has been caught up in scandals repeatedly in recent years and has been accused of being too cozy with the industry it is supposed to regulate. Its current mission includes collecting royalties and negotiating leases while at the same time acting as a policeman, overseeing safety and environmental protection rules.

The minerals service supervises one of the federal government’s largest sources of revenue after personal and corporate income taxes. It collects an average of $13 billion a year in royalties and fees from oil and gas on public and Indian lands and offshore.

The proposal to divide the agency reflects the shift in attitude by the Obama White House since the Gulf spill began. In March, a few weeks before the drilling-rig explosion and fire that led to the spill, the president laid out plans for comprehensive energy legislation that called for new offshore drilling in the Atlantic Ocean from Delaware to central Florida. That legislation faced an uncertain path in the Senate even before the accident.

After the spill, Mr. Obama suspended his oil drilling plan, saying his administration would not approve any new offshore leases unless rigs had new safeguards.

Mr. Salazar’s announcement on Tuesday coincides with hearings about the disaster on Capitol Hill, where members of Congress are expected to grill executives of BP, the oil company responsible for the sunken rig and leaking well, as well as its chief contractors, Transocean and Halliburton.

The White House has been trying to respond aggressively to the April 20 disaster in hopes of avoiding comparisons between the spill, which is threatening wildlife and causing widespread environmental damage off the coast of Louisiana, and Hurricane Katrina, which devastated the same region in 2005.

The White House press secretary, Robert Gibbs, announced the proposed changes in the mineral agency Tuesday morning over Twitter.

Mr. Salazar came to office last year promising to clean house at the agency, where officials in the Denver office were found to have accepted lavish gifts and travel and engaged in sex and drug use with oil company officials. The former Interior Department Inspector General, Earl E. Devaney, described the agency as an ethical wasteland and repeatedly called for fundamental reforms.

The agency has also historically lacked the staff and money needed to adequately police the large and lucrative oil industry, and has instead often relied on the industry’s assurances that its practices were safe. Under the Bush administration, the agency was run by two officials from Wyoming with ties to former Vice President Dick Cheney, himself a former chief executive of Halliburton, one of the world’s largest oilfield service firms.

Mr. Salazar instituted a new code of conduct for the agency’s officials and halted a royalty program that allowed oil companies to keep billions of dollars in payments that were owed to the government.

Other countries have moved to end the conflicts of interest that are inherent in having a single agency responsible both for encouraging production and for enforcing oil drilling safety regulations. Norway created a separate safety agency in 2004, and Australia in 2005; both countries have extensive offshore oil and gas operations.

Referring to its Petroleum Safety Authority, the Norwegian Ministry of Labor said in an e-mailed statement, “When the P.S.A. was created, an important purpose was to create even clearer borders between the authority for resources in the petroleum activities and the authority concerning health and safety issues.”

Mr. Salazar’s staff is conducting a study of offshore drilling policy and practices, and he is to report the findings to President Obama as the end of the month. He has also formed an offshore drilling oversight board to make recommendations about safety and environmental regulations that are needed.

Mr. Salazar has suspended almost all new offshore leases, including one already approved off the coast of Virginia.

In addition to the Congressional hearings on Tuesday, the United States Coast Guard and the mineral agency, which are conducting a separate investigation of the disaster, begin two days of public hearings in Louisiana on Tuesday.

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