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Senate Panel Raises Liability Caps for Offshore Spills

Source: WSJ

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Posted on 01 Jul 2010

A U.S. Senate committee voted Wednesday to remove all limits on damage claims that oil companies could pay for offshore spills, the leading edge in a wave of new industry regulations anticipated following the disaster in the Gulf.

But the measure to discard the current $75 million cap on spill liability, along with other proposals to tighten government regulation of offshore oil drilling practices, faces an uncertain future.

Democratic leaders are considering rolling some or all of the measures directly related to the Gulf oil spill into broader energy and climate legislation that may not have the votes to pass the Senate.

The elimination of the liability cap, which would be retroactive, has emerged as a potent issue on Capitol Hill as the projected costs of the Gulf spill rise, even though BP PLC agreed under pressure from the Obama administration to put up $20 billion to pay spill-related claims.

Already, BP has paid out $130 million in claims, according to the latest data available from the response team.

Democratic lawmakers say taxpayers shouldn't be at risk of paying for damage to property and livelihoods caused by oil spills.

Republicans—and at least one Democrat—expressed concern that removing the cap on damage claims would shut all but the largest oil companies out of offshore drilling by making it impossible to obtain insurance.

As an alternative, Sen. James Inhofe (R., Okla.) proposed allowing the president to set liability caps on a case-by-case basis, using guidelines that would take into account such criteria as the leaseholder's safety record and the proximity of its well to emergency response equipment.

Democrats rejected Mr. Inhofe's proposal, saying it would leave too much wiggle room.

A group that represents smaller oil companies said the legislation approved Wednesday by the Senate Environment and Public Works Committee to lift the cap on liability for damages from oil spills would largely benefit foreign oil companies and the largest oil firms.

"This is unreasonable from an economic and business standpoint and will have a devastating impact on job losses and possible increased reliance on foreign oil," Bruce Vincent, chairman of the Independent Petroleum Association of America and president of the Houston-based Swift Energy, said in a statement.

Among other proposals under consideration in Congress: eliminating a "categorical exclusion" process used by the Interior Department to forego some environmental reviews of offshore drilling projects; and requiring blowout preventers—which are supposed to shut off wells in the event of a catastrophic pressure surge—to have back-up systems in case some parts fail.

Interior Secretary Ken Salazar and his new top offshore drilling regulator, Michael Bromwich, indicated they would consider the ideas during their testimony Wednesday before a House panel.

Meanwhile, a powerful House Democrat said Wednesday that the government should bar BP from bidding for new offshore oil drilling leases for up to seven years.

U.S. Rep. George Miller (D, Calif.), a close ally of House Speaker Nancy Pelosi, said Wednesday he would draft legislation to prohibit the interior secretary from issuing offshore oil and gas leases to a company determined to be a "danger to workers and natural resources" based on its record of violations of environmental and workers safety laws.

BP has paid fines to settle charges that it violated workplace safety and environmental rules in connection with a deadly Texas refinery accident in 2005, a pipeline spill in Alaska in 2006 and safety violations at an Ohio refinery earlier this year.

The company faces criminal and civil investigations in connection with the Gulf spill.

Mr. Bromwich said he hadn't concluded whether a company's past record should determine a firm's eligibility for a new lease, but "certainly it should be considered a relevant factor."

Separately, the Interior Department said it fined BP's U.S. unit $5.2 million for submitting "false, inaccurate, or misleading" reports for energy production on Indian tribal lands in southwestern Colorado.

A spokesman for BP said the company "is considering its options in response to" the fines. The errors have been corrected, and represent less than .02% of the $1.1 billion of royalties paid annually by BP to the federal government, the BP spokesman added.

Interior Secretary Ken Salazar declined to say during testimony before a House panel when the administration planned to issue a revised offshore drilling moratorium in the Gulf of Mexico.

The order to halt new deepwater drilling for six months while a presidential commission investigates the causes of the BP spill was struck down last week by a federal judge. The administration is appealing.

Also on Wednesday, Sen. Jim DeMint blocked a Senate vote on granting the presidential commission subpoena power.

A spokesman for the South Carolina Republican said he didn't object to giving the commission such power and that he was acting at the request of other Republicans.


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