The Oil Industry Says It Can Regulate Itself

“Badges? We ain’t got no badges. We don’t need no badges! I don’t have to show you any stinkin’ badges!”–The Treasure of the Sierra Madre, 1948

A former Shell Oil Co. President John Hofmeister recently suggested that BP plc (NYSE:BP) should resist giving the US government any money to create an escrow account to cover clean-up costs and some liabilities from the Deepwater Horizon disaster. “At some point the entity will have to defend itself,” Hofmeister said. “At what point are they willing to offend or even alienate certain government officials in the interest of the enterprise because the alternative would basically be to give up the enterprise?”

The “point” may have already come. BP is not only under attack; its own industry is trying to ostracize the UK-based firm. The world’s largest oil companies want Congress to believe that there is no point for further regulation of the industry. They want the public to believe that there is no need for any additional oversight. There is no need to shutter deepwater drilling in the Gulf. The industry can make sure that there are no further spills, no further mistakes because BP’s problem was an accident, probably exacerbated by the carelessness of BP workers or the workers of its suppliers

At hearings in Washington, Chevron (NYSE: CVX) CEO John Watson said that his company would never drill a well like the Deepwater Horizon one. Chevron uses a different type of technology, he argued. Exxon Mobile CEO Rex Till Tillerson told the same committee that the BP well did not follow a number of standards that he says are industry standards that his firm follows.

It is hard to get many people to believe the oil company’s statements, particularly about the environment. The images of spills in Alaska and off the coasts of France and Mexico are too well-remembered. So is the contrast between people paying $4 per gallon of gasoline while the big oil firms made tens of billions of dollars.

The fact that the oil companies are rich should not have anything to do with whether they are right. Firms like Exxon are wonderful whipping boys. They have been since the days of John D Rockefeller. But, the companies are so easy to demonize that it is possible it obscures whether there is any truth to their comments about drilling in the Gulf.

Rep Henry Waxman told the CEOs of the nation’s largest oil companies that they are no better prepared to deal with a deepwater spill than BP. That is almost certainly not true because some engineers are more competent than others and some safety practices are more well-considered. Exxon may be better at drilling safe deepwater wells than BP.  No one will ever know. The answers, if there are any, will be lost in the fog of Congressional investigations and the struggle that BP and Obama are in to salvage their reputations and perhaps their futures.

Congress will put together a new set of regulations and a new enforcement system. That may keep another Deepwater Horizon spill from occurring. Or, the cost to BP may make oil companies much more vigilant about their own wells to prevent them from paying the billions of dollars that BP will have to pay. Regulation, or the will to keep high profits. One, the other, or both will be the key to a new level of “safety”.

Politicians cannot make the case that each oil company is as bad as the rest. Some may be better at drilling and safety than others. But, the oil firms cannot claim that because they are better managed than BP and that offshore drilling should start again without any repercussions. However, the US does need the oil. Closing the Gulf will put many people out of work. Some small drilling companies may close.

The federal government will end up spending tens of millions of dollars to aid in clean-up resulting from the spill. A lot of the money will come from taxpayers and not BP. At this point Obama should put an inspector on every drilling rig in the Gulf. The oil companies could go back to work. New regulations would not have to be rushed. The cost of monitoring the platforms would be less, even with each of them manned with a US government employee, than another  oil leak.  That would leave the current battle where it should be–between BP and the American government.

Douglas A. McIntyre