Federal Responses to the Gulf of Mexico Oil Spill: Developments to Date and What to Watch for in the Future

Author:Mr Joseph Nelson, Jonathan D. Simon and Jennifer Owen
Profession:Van Ness Feldman

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The explosion of the Deepwater Horizon oil rig and subsequent oil spill in the Gulf of Mexico has captured the attention of the general public, as well as government officials, on a historic scale. BP, the lessor of the rig, has become the public focus of the spill. While it is far too early to determine the full environmental, operational and regulatory impact of the spill, and the full range of public and private sector responses, key issues are beginning to emerge that will have significant implications for the energy industry as a whole, beyond those entities engaged in, or supporting, offshore drilling and the manner in which the United States produces, transports and consumes energy.

Containment and cleanup efforts are evolving daily, as are the responses from the Administration and Congress. The release of oil into the Gulf is expected to continue for many months, and the cleanup effort long after that. The installation of a containment cap has allowed some siphoning of oil, with U.S. Coast Guard Thad W. Allen announcing Wednesday that 15,000 barrels per day are being collected from the Gulf. Relief wells are underway, with drilling projected to be completed in August.

With BP CEO Tony Hayward set to testify in front of a House Energy and Commerce subcommittee on June 17, attention to the ramifications of the spill is certain to continue. The political response will include debate on the future of offshore energy development with possible ripple effects throughout the energy industry. While some significant developments have taken place, much more activity is expected, and key questions remain unanswered. We highlight below noteworthy recent developments and identify major issues to watch in the coming months. We will provide updates to our clients as events warrant.

Major Developments - What to Watch For This Summer Structural Changes in the Executive Agencies The Minerals Management Service (MMS) within the Department of the Interior (Interior) is responsible for managing offshore oil and gas and renewable energy leasing and development on the Outer Continental Shelf (OCS), including ensuring that such offshore energy development is done safely and in an environmentally responsible manner. Recently, MMS has received widespread criticism, with claims ranging from inappropriate interactions and relationships with oil and gas representatives to perceived bias toward the industry, leading to the agency's alleged failure to enforce rigorous environmental and safety standards. Most notably, the Interior Inspector General identified a series of problems within the agency in a May 2010 report that has received widespread media attention. This report followed a 2008 report documenting widespread misconduct in MMS's Denver field office.

On May 27, 2010, Interior Secretary Salazar removed Elizabeth Birnbaum from her position as the MMS Director. Robert V. Abbey who serves as the Director of the Bureau of Land Management, now holds the MMS Director position on an acting basis until a new Director is nominated and confirmed by the Senate. In addition, Chris Oynes, Associate Director of Offshore Energy and Minerals Management at MMS, has resigned.

Further, in a May 19 Secretarial Order, Secretary Salazar divided MMS into three separate agencies, recognizing the inherent conflict between effective regulation and revenue collection: a Bureau of Ocean Energy Management, focused on OCS oil and gas and renewable energy project leasing; a Bureau of Safety and Environmental Enforcement, focused on inspections; and an Office of Natural Resources Revenue, focused on royalty collection. To date, congressional response to the reorganization has been tepid, with some questioning whether the Secretary has the authority to undertake the reorganization.

In addition to restructuring within Interior, proposals have been floated to move components...

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