CONGRESS MUST FIX OIL POLLUTION ACT

If implemented as proposed by the U.S. Minerals Management Service, the Oil Pollution Act of 1990 will force many independent producers out of the offshore exploration and production business and some out of business altogether. Yet the MMS proposals may provide industry the opportunity to say some things that U.S. lawmakers and regulators need to hear. That the proposals might come to govern operations on the Outer Continental Shelf is inconceivable.

Nov. 15, 1993

3 min read

The law, as MMS reads it, requires that every company operating an offshore facility demonstrate financial responsibility of $156 million. That means a company must have a net worth of $150 million or cover the deficiency with insurance, bonds, letters of credit, or some other form of guarantee.

It's a tall order for companies that don't meet the net worth test. The guarantees add to the already high costs of offshore work. And they may not be available at all because underwriters fear OPA doesn't foreclose their exposure to unlimited liability.

REQUIREMENT UNFAIR

The requirement is unfair. It creates a cost of business entry for small operators that large operators don't face. And it takes no account of relative risks. Furthermore, the MMS proposes to define "offshore facility" so broadly that the financial test would apply to any equipment that might spill oil into navigable waters anywhere in the U.S.

Congress probably didn't have all this in mind when it passed OPA amid the high passions following the Exxon Valdez crude oil spill off Alaska. So lawmakers should not hesitate to take a calm look at OPA and correct its perversions. And industry should not hesitate to use a rehearing of the oil spill issue to make some broader political points.

The issue will show whether elected officials really want to avoid excessive and unnecessary regulation. The $150 million financial test for offshore operators goes beyond excessive and is wholly unnecessary. Spills from drilling and producing operations are rare and cost nowhere near $150 million. Existing laws provide needed indemnities. What reason remains to let OPA destroy companies and jobs?

The issue also gives independent producers a chance to demonstrate their viability. In recent years independents have increased their offshore activity, adding competition and efficiency to the business. They have found and developed fields that major companies would have ignored. They have created jobs, paid taxes and royalties, and contributed to U.S. oil and gas production. Why shut them out of the OCS with excessive and unnecessary financial requirements?

OPERATIONS AND THREATS

Finally, the OPA issue gives industry a fresh chance to define its operations and relate them to environmental threats. Exxon Valdez was a tanker. Tankers spill many times more oil than drilling and producing facilities do. Yet OPA, like many other reactions to the Alaskan spill, smears all oil and gas operations with the same brush. It was political backlash from Exxon Valdez that chilled development of giant Point Arguello oil field off California, cemented congressional opposition to leasing of the Arctic National Wildlife Refuge Coastal Plain, and foreclosed OCS leasing and drilling outside the central and western Gulf of Mexico. Those developments cost Americans jobs and the federal treasury money. Those developments meant less U.S. oil produced and more oil imported, mostly by tanker. Does Congress want to extend a string of events that clearly contradicts national interests?

OPA has flaws, that Congress must correct. It also represents a test of whether Congress has learned anything about energy and U.S. economic imperatives.