A federal court has blown a hole in the government’s policing of offshore drilling, declaring many drilling companies and their employees beyond the reach of certain law enforcement actions.
The appeals court ruled last week that the government cannot use a major set of safety and environmental regulations to prosecute the contractors and subcontractors to which energy companies outsource much of their work. The regs apply only to the companies at least nominally in charge of the drilling—the ones that lease the drilling rights from the government and operate the wells—the court said.
“This decision ignores the reality of who is actually doing the work in the Gulf,” said Cynthia M. Sarthou, executive director of Gulf Restoration Network, an environmental group based in New Orleans.
“It will make holding the oil industry accountable a lot more difficult—including the contractors who do most of the risky work,” Sarthou said.
The court said the government had overreached in using rules issued under a federal law called the Outer Continental Shelf Lands Act (OCSLA) to charge contractors with criminal violations.
The ruling would not prevent offshore contractors from being penalized in other ways or charged with violating other laws. But, at a time when the Trump Administration is considering expanding drilling in coastal waters and loosening restrictions on energy companies, it means the government could hold less of a check on hazardous conduct—and contractors could have less to fear for contributing to future disasters.
Last year, 81 percent of offshore oil and gas exploration and production work was performed by contractors and subcontractors, spokesman Gregory Julian of the federal Bureau of Safety and Environmental Enforcement (BSEE; pronounced as “Bessie”) told the Project On Government Oversight.
The September ruling by the U.S. Court of Appeals for the Fifth Circuit involved the government’s effort to assign responsibility for a fatal 2012 explosion on an oil platform in the Gulf of Mexico operated by a company called Black Elk Energy Offshore Operations. As the court explained, the government’s strategy of applying the rules to contractors had its roots in an earlier incident—one of the worst environmental disasters in history, the BP oil spill of 2010.
After the Deepwater Horizon drilling rig exploded in 2010, killing 11 people and releasing millions of barrels of oil into the Gulf of Mexico, the federal agency BSEE went after BP, the company that operated the well. But it didn’t stop there. Breaking from more than 60 years of enforcement practice, the agency also cited contractors Transocean and Halliburton, to which BP had outsourced crucial responsibilities.
BP had engaged Transocean to provide the Deepwater Horizon rig and drill the well. A federal assessment of the disaster published in 2011 said that Transocean owned more than 140 drilling rigs. BP hired Halliburton to cement the well. The government alleged that all three companies were at fault and issued citations called Incidents of Non-Compliance, or “INCs,” against each of them.
“This is the first time the Department of the Interior has issued INCs directly to a contractor that was not the well’s operator,” BSEE, an agency within the Interior Department, said as it announced the citations.
“To ensure the safe and environmentally responsible conduct of offshore operations, companies that violate federal regulations must be held accountable,” the director of BSEE at the time said.
The agency followed up in August 2012 by declaring that, as a matter of policy, it would issue INCs to contractors “for serious violations of BSEE regulations.” INCs can serve as precursors to civil penalties and criminal charges.
All told, BSEE has issued 73 INCs to 21 contractors under the rules at issue in the recent court ruling, the agency spokesman said.
The Black Elk episode is a prime example.
In November 2012, while welding was going on, a Black Elk platform off the coast of Louisiana burst into flames, killing three workers and spilling oil into the Gulf. As described in an investigative report later published by the government, the circumstances suggested that lessons of the Deepwater Horizon disaster had failed to sink in. Inadequate supervision on the platform had “led to a complete degradation of the safety culture,” investigators found.
Black Elk had enlisted contractors such as Grand Isle Shipyard to conduct work on the platform and provide workers, including workers who were involved in the welding, investigators reported.
The government indicted Black Elk, Grand Isle, and some of the individuals allegedly involved on criminal charges under laws that included OCSLA and the Clean Water Act.
In August 2017, under a plea agreement, Black Elk was convicted of felonies and ordered to pay a $4.2 million fine. However, by then, Black Elk was in bankruptcy, the Justice Department said in an August news release.
The government “contends the contractors were criminally liable because they failed to obtain proper authorization to weld, failed to conduct appropriate pre-work inspections, and failed to ensure the construction area was safe for hot work” such as welding “as required by OCSLA safety regulations,” the appeals court summarized.
In a court filing, the Justice Department argued that, under that law, “any person who knowingly and willfully violates a regulation designed to protect health, safety, or the environment or conserve natural resources, is liable for criminal penalties.” [Emphasis in original] The Justice Department said that counter-arguments “would moot entire swaths of regulation.”
A federal trial court nonetheless threw out the OCSLA charges against the contractors, and the Fifth Circuit agreed that the OCSLA regulations do not apply to the contractors. The appeals court pointed in part to the fact that, for more than 60 years, BSEE and its predecessors had refrained from enforcing the regulations against contractors.
“The government’s past inaction speaks volumes about the scope of its regulatory authority, particularly when measured against its breathless defense of the policy importance of these indictments,” a three-judge panel of the appeals court wrote.
The Fifth Circuit appeals court opinion appeared to go even farther. It hinted that the government could be on shaky ground trying to impose civil penalties on contractors under OCSLA regulations. The Fifth Circuit encompasses the states of Texas, Louisiana, and Mississippi, where much of the oil and gas industry operating in the Gulf of Mexico is based and where many criminal and civil cases involving that industry would be litigated.
A Justice Department spokesman declined to comment on the ruling. A BSEE spokeswoman had little to say.
“We have received the 5th Circuit Court of Appeals’ ruling and are reviewing it in consultation with the Department of Justice,” BSEE’s Eileen P. Angelico said by email.
As Deepwater Horizon contractor Transocean’s experience shows, the government still has enforcement tools at its disposal when dealing with offshore contractors. In a 2013 settlement with the government, Transocean agreed to pay $1.4 billion in civil and criminal penalties under the Clean Water Act.
“It’s not like they’re scot-free,” said attorney Stanley A. Millan, who teaches environmental enforcement at Tulane and Loyola law schools.
In response to the recent appeals court ruling, the government’s options include appealing to the full Fifth Circuit or to the Supreme Court. In addition, BSEE could rewrite the regulations at issue to make clear that they apply to contractors. However, it is unclear whether an administration that has talked about easing federal regulations would have any interest in tightening these