BOEMRE budget request grows amid cutbacks elsewhere in DOI

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Feb. 16 -- The US Bureau of Ocean Energy Management, Regulation and Enforcement would receive 50% more in fiscal 2012 than its enacted 2010 budget, which continued into 2011, under the Obama administration’s proposed federal budget. The increase, which contrasts with other US Department of the Interior agencies where funding would be cut, is designed to implement organizational and regulatory reforms following the 2010 Macondo well accident and massive crude oil spill into the Gulf of Mexico.

“This bureau has not had sufficient resources to provide an appropriate level of regulatory oversight of offshore oil and gas development. These shortcomings have become more pronounced as operations have moved into deeper and deeper waters,” BOEMRE Director Michael R. Bromwich said on Feb. 14 as the agency’s proposed budget was announced.

“The president’s budget request would, if enacted, provide us with the resources—including personnel, technical expertise, and equipment—needed to remedy that situation,” he continued. “We look forward to working with leaders in Congress to ensure that these critical resources are provided.”

Funding would be $358.4 million, which is $119.3 million, or 50%, more than its current annual budget, after adjusting for funding transferred to the US Interior secretary’s office as part of the ongoing reorganization of the former US Minerals Management Service. Interior Sec. Ken Salazar began the process soon after the Apr. 20 well blowout and explosion of the Deepwater Horizon semisubmersible rig and subsequent massive oil spill from the deepwater Macondo well, operated by BP PLC. One of his early moves on May 19, after renaming the agency, was to order the transfer of its revenue collection responsibilities to DOI’s Office of the Assistant Secretary for Policy, Management, and Budget. Bromwich was sworn in as its new director of June 21.

Further divisions
The additional requested resources would be used to complete BOEMRE’s transformation into two separate agencies: the Bureau of Ocean Energy Management, which will handle federal offshore leasing and environmental management, and the Bureau of Safety and Environmental Enforcement, which will concentrate on those regulatory responsibilities. Salazar and Bromwich have said the separation should be complete by Oct. 1, when Fiscal 2012 begins, ending the major organizational conflicts which characterized the agency when it was MMS. BOEMRE’s coastal impact assistance program is scheduled to move to another DOI agency, the US Fish and Wildlife Service, soon after.

Money from BOEMRE’s proposed budget also would be used to hire new oil and gas inspectors, engineers, scientists, and other key staff to oversee industry operations; conduct detailed engineering reviews of offshore drilling and production safety systems, and develop new risk-based inspections and safety oversight strategies, including the establishment of real-time monitoring of key drilling activities; and implement more aggressive reviews of company oil spill response plans, according to the agency. Additional resources would also facilitate the timely review of offshore oil and gas permits, it added.

It said funding increases would be partially offset by $65 million in inspection fees charged to offshore producers, an increase of $55 million over 2010 enacted levels. The fees would also apply to offshore drilling rigs for the first time. BOEMRE said that US President Barack Obama’s independent oil spill commission specifically recommended the use of industry fees in its January 2011 final report so that “[r]egulation of the oil and gas industry would no longer be funded by taxpayers but instead by the industry that is being permitted to have access to a publicly owned resource.”

That proposal quickly drew a protest from National Ocean Industries Association Pres. Randall B. Luthi, who warned that increased fees in US waters simply would drive offshore oil and gas investment and jobs elsewhere. “To imply that the offshore industry does not pay its fair share is simply untrue,” he said on Feb. 14. “It is worth repeating that oil and gas produced from the [US Outer Continental Shelf] provides significant revenue to the federal treasury in the form of bonus bids, royalties, rentals, and corporate taxes on overall earnings.” The offshore industry turns over almost 20% of its sales directly to the federal treasury as royalty payments, and pays corporate taxes on its overall earnings, he noted.

Luthi, who was MMS director from July 2007 to January 2009, said that offshore industries in 2008 paid $8.3 billion in royalties, $237 million in rent and $9.4 billion in lease bids. In 2010, the industry paid $4 billion in royalties, $245 million in rent, and $979 million in lease bids. The funding to restructure BOEMRE and to increase personnel could be more than covered by that existing revenue, he suggested.

“It is also ironic that the administration proposes a new fee to charge companies for not producing, while the agency itself is not producing the necessary permits for the companies to actually drill,” Luthi said. “The administration could generate much, if not all, of the requested revenue just by conducting offshore sales. We have gone from having at least two sales a year to possibly zero in 2011.”

Contact Nick Snow at nicks@pennwell.com.

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