Deepwater Drilling: Recommendations for a Safer Future

The April 2010 Deepwater Horizon oil spill released an estimated 200 million gallons of oil in the Gulf of Mexico and is likely to be the single most costly oil spill off the U.S. coast. In August 2010, the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling asked RFF’s Center for Energy Economics and Policy (CEEP) to conduct a series of studies that would help inform the commission’s investigations and recommendations. RFF was not asked to assess the technical causes of the spill; instead, our task was to help identify potential improvements in industry and government practices to reduce the risk of future catastrophic spills.

We quickly assembled a team of experts with significant experience in risk assessment, regulatory and cost–benefit analysis, government enforcement, and the oil industry to tackle important questions such as: Are deepwater wells inherently riskier or might this incident simply have been caused by an outlier firm? What incentives to prevent a catastrophic spill faced the industry prior April 2010? Are there economic or legal barriers to instilling a safety culture in the drilling industry? Do government regulatory agencies have the right tools to assess the risks of catastrophic spills? Are government enforcement efforts up to the challenge? Are proposed industry efforts to prepare for future catastrophic spills adequate?

In addition to our own research and analysis, RFF staff interviewed and met with members of the commission, current and former government officials, and numerous industry representatives. As a result, RFF researchers formulated a series of findings and recommendations to improve the safety of future oil drilling operations.

The articles in this special issue of Resources explore various aspects of those findings and pose additional questions for the future of the industry. One of the key findings was the need to provide stronger incentives for industry to invest in safety, risk-reduction, and containment technologies. A second important finding was the need to reform regulatory structures to adapt to deepwater drilling risks. Finally, our researchers identified the need to strengthen the oversight capacity of institutions involved in offshore drilling.

How to Read this Chart: This chart shows how the articles in this special issue—and the discussion papers that they are based on—correlate to these Key Reccomendations.

= Strengthen Incentives

= Reform Regulatory Structures

=Strengthen Oversight

Key Reccomendations

In this Issue		On the Web
Incentives Instilling a Stronger Safety Culture: What are the Incentives? Joshua Linn and Nathan Richardson		Preliminary Empirical Assessment of Offshore Production Platforms in the Gulf of Mexico Lucija Muehlenbachs, Mark A. Cohen, and Todd Gerarden
Risk Assessment Managing the Risks of Deepwater Drilling Carolyn Kousky		Precursor Analysis for Offshore Oil and Gas Drilling: From Prescriptive to Risk-Informed Regulation Roger M. Cooke, Heather L. Ross, and Adam Stern
Risk Assessment Preventing Offshore Oil Spills Roger Cooke, Heather Ross and Adam Stern		Risk Management Practices: Cross-Agency Comparisons with Minerals Management Service Lynn Scarlett, Igor Linkov, and Carolyn Kousky
Risk Management Managing Environmental, Health, and Safety Risks: A Closer Look at How Three Federal Agencies Respond Lynn Scarlett, Arthur Fraas, Richard Morgenstern, and Timothy Murphy		Understanding the Costs and Benefits of Deepwater Oil Drilling Regulation Alan J. Krupnick, Sarah Campbell, Mark A. Cohen, and Ian W.H. Parry
The Next Battle The Next Battle: Containing Future Major Oil Spills Mark A. Cohen, Molly K. Macauley, and Nathan Richardson		Deepwater Drilling: Law, Policy, and Economics of Firm Organization and Safety Mark A. Cohen, Madeline Gottlieb, Joshua Linn, and Nathan Richardson
		Managing Environmental, Health, and Safety Risks Lynn Scarlett, Arthur G. Fraas, Richard D. Morgenstern, and Timothy Murphy
		Organizational Design for Spill Containment in Deepwater Drilling Operations in the Gulf of Mexico: Assessment of the Marine Well Containment Company (MWCC) Robert Anderson, Mark A. Cohen, Molly K. Macauley, Nathan Richardson, and Adam Stern

Deepwater Drilling Is Riskier

To determine if deepwater drilling is riskier, my colleagues Lucija Muehlenbachs, Todd Gerarden, and I examined data on over 3,000 fixed offshore oil platforms in the Gulf of Mexico and reported on the impacts of offshore production, such as fire damage, injuries, pollution, and related consequences in our paper, “Preliminary Empirical Assessment of Offshore Production Platforms in the Gulf of Mexico.”

What our findings show is the probability of a company-reported incident increases with water depth, even after controlling for levels of production, facility complexity, company in charge, and distance to shore. Simply put, ultra-deepwater production is both more complex and riskier.

For example, moving from a water depth of 500 feet to 5,000 feet increases the annual probability of a reported incident from roughly 10 to 70 percent. This finding holds even if the analysis is restricted to the top 10 oil producers in the Gulf. Although the analysis does not suggest that the water depth itself is the cause of increased incidents, it does reinforce the suspicion that drilling at increased depths results in greater technical challenges and, therefore, may require novel approaches to industry operation and government regulation.