It is not surprising that after a catastrophic event like the April 2010 oil spill in the Gulf of Mexico (GoM), the government would impose new regulations on offshore drilling. Among other things, the government imposed two deepwater drilling moratoria, created new safety rules governing offshore drilling activities, adopted new requirements for oil spill response and containment, and substantially restructured the federal agencies that oversee offshore drilling by creating the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) from the former Minerals Management Service in 2010. It then split BOEMRE into the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) in 2011. These actions have had a profound impact on offshore drilling in the US. Now that two years have passed since the spill, it is worth taking stock of the current state of offshore drilling regulation.

Changes in regulation

Some of the government’s regulatory changes, even those that add significant costs, have received broad acceptance because they improve the safety of offshore drilling. However, other changes have added to the industry’s regulatory costs without offering any material improvements. Moreover, the government has made many procedural missteps in its regulatory efforts. Without adequate justification, it imposed a deepwater drilling moratorium that a federal court struck down. It reimposed the moratorium, again without adequate justification and without following the proper administrative procedures, leading a federal court to hold the government in civil contempt.

Workers attempt to contain the oil spill that resulted from the Deepwater Horizon explosion in 2010. The US government's response to the disaster has been called into question.

Workers attempt to contain the oil spill that resulted from the Deepwater Horizon explosion in 2010. The US government's response to the disaster has been called into question.

After lifting the moratorium, it took an inordinately long time to issue drilling permits, prompting a federal court to find the government’s actions to be unlawful and to require the government to act more expeditiously. The government imposed many substantive regulatory changes through “Notices to Lessees” (NTLs) and other informal guidance documents instead of following the required notice-and-comment process. As with the moratorium and the delay in issuing drilling permits, this stealth rulemaking was condemned by a federal court. Further, the government’s repeated promulgation of new regulatory guidance caused significant confusion both among the industry and the government’s own personnel.

Improvements and inadequacies

Two years after the spill, the government has improved on some of these counts. For example, the Department of the Interior has not recently imposed any new significant regulatory changes, either through NTLs or through formal regulation.

On the other hand, the speed with which the government is processing applications for permits to drill is still inadequate. A year ago, a primary reason for the delays was the government’s new and constantly evolving requirements regarding oil spill containment. With time and an end to the flow of new regulatory pronouncements, the uncertainty has diminished and operators now know how they can comply with the government’s current view of the containment requirements.

Yet the delays remain. At present, they seem to be caused partly by government understaffing and an inefficient allocation of the resources the government does have, conditions that seem to have been made worse by the splitting of BOEMRE. As a result, the current pace of permit approval lags far behind historical norms. Even fairly routine permits, such as commingling production or abandoning a well, take an extended period of time to obtain.

In addition, the BSEE seems to have adopted a “deemed submitted” process, under which it will not start to review a permit application until it deems the application to be complete. Thus, an application that is approvable but is missing one piece of data must be resubmitted – and seems to go to the back of the permitting queue – before the BSEE will review and approve it. The concept of deemed submittal cannot be found anywhere in the Interior Department’s drilling permit regulations. Rather, it seems to be borrowed from the department’s planning document approval process, where the department uses the concept of deemed submittal to extend the statutory time period for acting on planning documents. This deemed submittal system sometimes results in substantial delays when an operator is forced to make repeated resubmissions before the government will deem an application to be submitted so the review process can begin.

The repercussions of these delays go beyond the simple length of time it takes to obtain a permit. Operators also suffer due to the lack of predictability in the process. The ability to schedule rigs, manpower, and the purchase of raw materials is integral to whether many offshore prospects can be explored for and developed economically. The lack of certainty about how long it will take an operator to obtain a permit unnecessarily adds to the costs of offshore exploration and development and makes the exploitation of some prospects impossible.

Two years after the GoM oil spill, the regulatory environment is certainly more stable than it was immediately following that tragic event. The government has allowed drilling activities to resume and has, at least for the moment, ceased its practice of repeatedly issuing substantive requirements through NTLs and other informal guidance documents. However, some problems with the government’s regulatory regime remain. Perhaps most notably, the period of time it takes to obtain permits is still too long and unpredictable. Hopefully, the government will be able to address these issues in the near future.