Introduction
Estimation
Results
Conclusion
Drill Safely Drill: The Role of Compliance Inspections on Oil
& Gas Platforms in the Gulf of Mexico
Lucija Muehlenbachs
Mark Cohen
Resources for the Future
June 21, 2011
Introduction
Estimation
Results
A Few Facts
Gulf covers 1.5 million km2
Over 500 million barrels annually ($50B)
29% of US crude oil production
8% of US crude oil consumption
Conclusion
Introduction
Estimation
Results
A Few Facts
Gulf covers 1.5 million km2
Over 500 million barrels annually ($50B)
29% of US crude oil production
8% of US crude oil consumption
Deepwater Horizon spill (2010)
About 5 million barrels spilled
Damages could be as much as $80 billion
Conclusion
Introduction
Estimation
Results
A Few Facts
Enforcement budget $23 million
About 5 cents per barrel (1/10 cent per gallon)
55 inspectors
$12 million annually for 12 helicopters
Conclusion
Introduction
Estimation
Results
A Few Facts
Enforcement budget $23 million
About 5 cents per barrel (1/10 cent per gallon)
55 inspectors
$12 million annually for 12 helicopters
FY 2009 inspections:
7,201 meters (for production/revenue)
4,765 pipelines
3,862 production facilities
614 drilling rigs
296 workover
63 abandonment
Conclusion
Introduction
Estimation
Results
Conclusion
Preliminary analysis of data
Analyzed all production facilities in Gulf (3,020 platforms from
1996-2010)
54,137 self-reported incidents (blow-outs, spills, etc.)
91,775 inspections
Introduction
Estimation
Results
Conclusion
Preliminary analysis of data
Analyzed all production facilities in Gulf (3,020 platforms from
1996-2010)
54,137 self-reported incidents (blow-outs, spills, etc.)
91,775 inspections
Preliminary Findings:
Reported incidents are higher:
Older, major complexes, when drilling, higher production
levels, deeper
Introduction
Estimation
Results
Conclusion
Preliminary analysis of data
Analyzed all production facilities in Gulf (3,020 platforms from
1996-2010)
54,137 self-reported incidents (blow-outs, spills, etc.)
91,775 inspections
Preliminary Findings:
Reported incidents are higher:
Older, major complexes, when drilling, higher production
levels, deeper
Significant variation across companies
BP and BHP Billiton more self-reported incidents
BP less likely to receive enforcement action after inspection
Introduction
Estimation
Results
Conclusion
Preliminary analysis of data
Analyzed all production facilities in Gulf (3,020 platforms from
1996-2010)
54,137 self-reported incidents (blow-outs, spills, etc.)
91,775 inspections
Preliminary Findings:
Reported incidents are higher:
Older, major complexes, when drilling, higher production
levels, deeper
Significant variation across companies
BP and BHP Billiton more self-reported incidents
BP less likely to receive enforcement action after inspection
Incidents of non-compliance are persistent
Previous noncompliance predicts current noncompliance
Introduction
Estimation
Results
Conclusion
Preliminary analysis of data
Analyzed all production facilities in Gulf (3,020 platforms from
1996-2010)
54,137 self-reported incidents (blow-outs, spills, etc.)
91,775 inspections
Preliminary Findings:
Reported incidents are higher:
Older, major complexes, when drilling, higher production
levels, deeper
Significant variation across companies
BP and BHP Billiton more self-reported incidents
BP less likely to receive enforcement action after inspection
Incidents of non-compliance are persistent
Previous noncompliance predicts current noncompliance
However due to potential targeting of enforcement, did not
draw causal inferences
Introduction
Estimation
FY 2012 Obama Budget Proposal
50% increase in BOEMRE budget
Triple number of inspectors to 150
Results
Conclusion
Introduction
Estimation
Results
FY 2012 Obama Budget Proposal
50% increase in BOEMRE budget
Triple number of inspectors to 150
More inspectors allows for:
1
2
increased frequency of inspections
increased number of inspectors per inspection
Conclusion
Introduction
Estimation
Results
FY 2012 Obama Budget Proposal
50% increase in BOEMRE budget
Triple number of inspectors to 150
More inspectors allows for:
1
2
increased frequency of inspections
increased number of inspectors per inspection
Will more inspectors lead to more enforcement?
Conclusion
Introduction
Estimation
Results
Conclusion
Compliance Inspections
Inspection by 1 to 6 inspectors
Visual, testing & paperwork
“Incidents of Noncompliance” (INCs)
15% Warning
20% Component Shut-in
3% Facility Shut-in
Facility shut-ins can be more than slap on wrist:
BOEMRE estimates cost of facility shut-in over $900,000 per
day
1% Civil Penalty
Introduction
Estimation
Results
Conclusion
Mean (Standard Deviation) Enforcement Actions by
Number of Inspectors
No. of Warnings
No. of Component Shut-ins
No. Facility Shut-ins
INCs to Civil Penalty Review
One
.459
(1.080)
.404
(1.212)
.020
(.204)
.050
(.379)
Two
.407
(.984)
.499
(1.345)
.055
(.301)
.053
(.475)
Three
.635
(1.307)
1.017
(2.256)
.113
(.435)
.096
(.458)
Four+
.667
(1.113)
1.267
(1.438)
.133
(.352)
.067
(.258)
Introduction
Estimation
Results
Conclusion
Introduction
Estimation
Results
Conclusion
1
3
1.2
1.4
No. Inspectors
WSPD Difference (m/s)
4
5
6
1.6
7
1.8
Mean Difference in Wind Speed and the Mean Number of
Inspectors
1998
2000
2002
2004
Year
Max(WSPD)−Min(WSPD)
2006
2008
No. Inspectors
2010
Introduction
Estimation
Results
Conclusion
Our Estimation Strategy
INCipt = ϕ + ϑInspectorsipt + Xipt % + εipt
Xipt include:
Platform Characteristics (age, production, depth, prior INCs)
Inspector Characteristics (experience, prior INC tendencies)
Operator Characteristics (number of platforms, % ownership)
Other (time trend, year-quarter effects, post-BP spill)
Introduction
Estimation
Results
Conclusion
Our Estimation Strategy
INCipt = ϕ + ϑInspectorsipt + Xipt % + εipt
Instrument for inspectors using weather:
Inspectorsipt = α + βWSPDt + Xipt φ + εipt
Xipt include:
Platform Characteristics (age, production, depth, prior INCs)
Inspector Characteristics (experience, prior INC tendencies)
Operator Characteristics (number of platforms, % ownership)
Other (time trend, year-quarter effects, post-BP spill)
Introduction
Estimation
Results
Conclusion
Data: Inspections in Lake Jackson District: Oct. 2003 August 2010
Inspections source: BOEMRE
platform, inspector id, INCs
history of inspections by platform and inspector (using data
from 1986 to inspection(t))
Introduction
Estimation
Results
Conclusion
Data: Inspections in Lake Jackson District: Oct. 2003 August 2010
Inspections source: BOEMRE
platform, inspector id, INCs
history of inspections by platform and inspector (using data
from 1986 to inspection(t))
Platform Characteristics source: BOEMRE website
production, well count, age, water depth..
lessees working interest and designated operators
Introduction
Estimation
Results
Conclusion
Data: Inspections in Lake Jackson District: Oct. 2003 August 2010
Inspections source: BOEMRE
platform, inspector id, INCs
history of inspections by platform and inspector (using data
from 1986 to inspection(t))
Platform Characteristics source: BOEMRE website
production, well count, age, water depth..
lessees working interest and designated operators
Weather source: NOAA
5 buoys, daily wind speed at 8am
Introduction
Estimation
Results
Conclusion
Regressing INCs on Number of Inspectors
Warnings
Inspectors
Controls
n
OLS
.103**
(.040)
Yes
2,008
Component
OLS
.218***
(.054)
Yes
2,008
Facility
OLS
.035***
(.010)
Yes
2,008
Weighted
OLS
.679***
(.141)
Yes
2,008
Controls include:
Platform: age, distance to the shore, water depth, production, no. wells, depth,
prior INCs, inactive, major complex, manned, Corpus Christi indicators
Inspector: past inspections with warnings, component shut-ins, facility-shut ins,
no. past inspections, new inspector indicator
Ownership: no. of platforms operated, no. of different lease owners, %
ownership of operator
Other: time trend, year-quarter effects, post-BP spill, oil price
Introduction
Estimation
Results
Conclusion
Regressing INCs on Number of Inspectors
Warnings
IV
OLS
.103** .444
(.040) (.444)
Yes
Controls
Yes
n
2,008
2,008
F-stat for Excl.
8.23
Controls include:
Inspectors
Component
Facility
Weighted
OLS
IV
.218*** 1.335**
(.054)
(.640)
Yes
Yes
2,008
2,008
8.23
OLS
IV
.035*** .214*
(.010)
(.117)
Yes
Yes
2,008
2,008
8.23
OLS
IV
.679*** 3.969**
(.141)
(1.722)
Yes
Yes
2,008
2,008
8.23
Platform: age, distance to the shore, water depth, production, no. wells, depth,
prior INCs, inactive, major complex, manned, Corpus Christi indicators
Inspector: past inspections with warnings, component shut-ins, facility-shut ins,
no. past inspections, new inspector indicator
Ownership: no. of platforms operated, no. of different lease owners, %
ownership of operator
Other: time trend, year-quarter effects, post-BP spill, oil price
Introduction
Estimation
Results
Enforcement Severity Increases w/ Inspectors
Possible Mechanisms:
1
More inspectors, more eyes
Conclusion
Introduction
Estimation
Results
Enforcement Severity Increases w/ Inspectors
Possible Mechanisms:
1
More inspectors, more eyes
2
More inspectors, less likely to succumb to pressure
Conclusion
Introduction
Estimation
Results
Conclusion
Enforcement Severity Increases w/ Inspectors
Possible Mechanisms:
1
More inspectors, more eyes
2
More inspectors, less likely to succumb to pressure
“there goes my bonus” or “my wife is sick, and I’ll lose my
job” to deter inspectors from issuing violations.
–Department of the Interior, Inspector General Report, 2010.
Introduction
Estimation
Results
Conclusion
Enforcement Severity Increases w/ Inspectors
Possible Mechanisms:
1
More inspectors, more eyes
2
More inspectors, less likely to succumb to pressure
“there goes my bonus” or “my wife is sick, and I’ll lose my
job” to deter inspectors from issuing violations.
–Department of the Interior, Inspector General Report, 2010.
Regulatory capture
Group dynamics
Introduction
Estimation
Results
Conclusion
No strong evidence of “regulatory capture”
Warnings
(1)
OLS
.085**
(.043)
1.077
(1.169)
.179**
(.074)
-.466
(1.117)
.020
(.061)
Yes
2,008
Component
Facility
(2)
(3)
(4)
(5)
IV
OLS
IV
OLS
No. Inspectors
.443
.176*** 1.417** .037***
(.492) (.057) (.715) (.011)
O,I Relationship
2.157
.922
4.647* .183
(1.886) (1.550) (2.742) (.291)
First Time (O,I)
.120
.029
-.177
-.016
(.110) (.099) (.160) (.019)
F,I Relationship
-1.507 .145
-3.425 -.109
(1.811) (1.481) (2.631) (.278)
First Time (F,I)
-.126
.199** -.302
-.000
(.208) (.081) (.303) (.015)
Full Controls
Yes
Yes
Yes
Yes
n
2,008
2,008
2,008
2,008
F-stat for Excl. Var.
7.56929
7.56929
Controls include: platform, inspector and operator characteristics,
quarter dummies.
Weighted
(6)
(7)
(8)
IV
OLS
IV
.239*
.587*** 4.233**
(.131) (.150) (1.927)
.789
3.653
14.607**
(.502) (4.083) (7.390)
-.049* .173
-.433
(.029) (.260) (.432)
-.691
-.612
-11.122
(.481) (3.901) (7.093)
-.082
.418*
-1.056
(.055) (.214) (.816)
Yes
Yes
Yes
2,008
2,008
2,008
7.56929
7.56929
time trend and year-
Introduction
Estimation
Results
Conclusion
No strong evidence of “group” dynamics
2 Inspectors
(1)
W
Times Together
-.005
(.004)
First time together -.063
(.169)
Full Controls
Yes
n
509
(2)
C
.010*
(.005)
-.125
(.217)
Yes
509
(3)
F
.001
(.001)
-.005
(.043)
Yes
509
3 Inspectors
(4)
Avg
.019
(.014)
-.334
(.591)
Yes
509
(5)
W
-.051
(.070)
.018
(.435)
Yes
89
(6)
C
-.016
(.079)
-.066
(.490)
Yes
89
(7)
F
.003
(.029)
-.158
(.179)
Yes
89
(8)
Avg
-.070
(.215)
-.747
(1.338)
Yes
89
Introduction
Estimation
Results
The Bottom Line
Increasing the number of inspectors increases the strict
penalties
“Regulatory capture” and group dynamics do not appear to
explain our findings
Conclusion
Introduction
Estimation
Results
Possible Extensions..
Deterrent effect of enforcement actions
optimal civil penalty, optimal number of inspectors or
inspections
Extend analysis to mobile drilling units
Impact of firm characteristics (ownership structure, financial
capacity, etc.)
Thank you!
Conclusion