OFFSHORE DRILLING

Interior to split MMS, separating regulators from royalty collectors

This story was updated at 5:58 p.m. EDT.

In the face of a massive oil spill in the Gulf of Mexico, the Interior Department plans to split the agency that oversees offshore drilling into two entities -- one to inspect and regulate, the other to collect royalties from petroleum companies and handle leasing, a department official said today.

Interior Secretary Ken Salazar will announce the division of the Minerals Management Service in a press conference at department headquarters this afternoon. Interior can revamp MMS without permission from Congress, the official said, although congressional appropriators must agree to fund the new office.

MMS collects billions of dollars of royalties from offshore drilling each year, but it also writes regulations that govern the industry.

The agency has faced intense scrutiny in light of the April 20 explosion at the Deepwater Horizon rig that let oil start gushing into the Gulf of Mexico about 50 miles off Louisiana. Critics have charged that MMS has been too cozy with the industry and allowed it to have too much say over the federal regulations.

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Rep. Darrell Issa (R-Calif.), the top Republican on the House Oversight and Government Reform Committee, last week said he wants to assess whether the Minerals Management Service put in place regulations necessary to ensure the safety and operability of vessels drilling in the Gulf (E&ENews PM, May 3).

"News reports indicate that MMS may have sidelined regulatory efforts that would have brought the U.S. oil industry in line with prevailing industry safety standards, which mandate the use of remote-controlled acoustic shut-off switches," Issa wrote in a letter to Salazar. "If true, MMS will need to explain why it chose to do so."

Today, Issa issued a statement about the Interior plan: "Hopefully, Secretary Salazar's proposal represents a first step in what must be a comprehensive effort that will address the entirety of the bureaucratic breakdown at Interior. Working together, we can incorporate the best of all ideas and recognize the problems at Interior and MMS stretch far beyond the Deepwater Horizon incident."

Ahead of Salazar's announcement, the Project On Government Oversight (POGO) issued a statement praising the planned MMS split. POGO called for separating MMS's auditing and leasing functions in a 2008 report, "Drilling the Taxpayer."

"This is an important step in the right direction, but let's get this right and not fix MMS piecemeal," POGO executive director Danielle Brian said today. "Leasing must be separated from all oversight functions to ensure that taxpayers' interests are also protected in royalty collections."

House Natural Resources Committee ranking member Doc Hastings (R-Wash.) said the proposal merits consideration.

"My first reaction is that such a division of duties would have benefits if it can be done right," Hastings said in a statement. "A thoughtful look needs to be taken at how to make certain that American-made energy production can be the safest in the world."

The American Petroleum Institute today released a statement saying it looks forward to learning the details of the proposal.

"Our industry's priority is to provide safe, technologically sound and environmentally responsible offshore operations and we remain committed to working with Secretary Salazar to achieve this goal," the group's statement said. "We have a strong record of working cooperatively with the government to promote safe offshore operations, while maintaining a strong offshore leasing program."

President Obama has put all new offshore drilling on hold pending the results of an Interior investigation into the spill. Salazar has appointed a new offshore safety oversight board to recommend reforms.

MMS was engulfed by a sex, drugs and illegal gifts scandal and has been subject to a series of reports by government watchdog agencies saying it does not accurately collect royalties and urging reforms.

Salazar has long contemplated reorganizing the energy agencies he oversees. Last May he said he was considering consolidating MMS and the Bureau of Land Management, which is in charge of drilling on land.

After scandals at MMS and reports by watchdogs showing major deficiencies in federal royalty collections, Salazar said last spring he was considering a reorganization of the two (E&ENews PM, May 13, 2009).

Interior will ask "why do we have different regions, are we organized in the right way, would it make more sense to be organized along major watersheds or the different ways in which we can do that," Salazar testified then. "I think it's important at the beginning of the administration to really take a hard look at those issues, and I will be doing that once we have our full management team in place."

House Natural Resources Chairman Nick Rahall (D-W.Va.) also proposed a restructuring of the agencies as part of sweeping legislation he introduced last year (Greenwire, Sept. 9, 2009).

That legislation would create a new agency called the "Office of Federal Energy and Minerals Leasing" to handle onshore and offshore lease sales, inspection, enforcement and revenue collection. It would consolidate the oil and gas, wind, wave and solar programs now carried out by BLM and MMS.

Under the bill, the office's director would require Senate confirmation, unlike the head of MMS, which currently is the only major Interior bureau whose top official does not require confirmation. All employees of the new office who conduct audits or compliance reviews would have to meet professional auditor qualifications.

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