Safety Regulations, Firm Size, and the Risk of Accidents in E & P Operations on the Gulf of Mexico Outer Continental Shelf
Authors: Iledare Omowunmi O. , Pulsipher Allan G. , Baumann Robert H. , Dismukes David E. 
Published: December 2007

The current expanded role of smaller independent oil producers in the OCS has led to concern about the possibility of increased risk of accidents in E&P operations on the Gulf of Mexico OCS. In addition, questions have been posed concerning the effects of the Minerals Management Service's (MMS) safety regulations and inspection program, firm size, and industry practices on the risk of accidents in E&P operations on the Gulf of Mexico OCS. The specific purposes of the study reported in this paper were to ascertain (1) whether any empirical justification exists for the widespread concern that an increase in independents' relative share of E&P operations in the Gulf OCS region will be detrimental to safety and (2) whether MMS policies and safety programs have reduced the frequency or severity of accidents on the OCS. Our statistical and descriptive analyses of data on accidents from MMS provide no statistical evidence to support the apprehension that an expanded role for independents in E&P activity constitutes any major threat to safety on the OCS. In fact, the evidence shows that independents have a marginally better safety and environmental performance than the majors during the period 1987-1993. Further, the results of our econometric analysis confirm the expectation that the more effective MMS inspectors are at detecting incidents of noncompliance the lower the rate of accidents on the OCS is, ceteris paribus. In addition the results indicate that the variability in platform exposure years - cumulative age of operating platform - in comparison to other factors explains a significant portion of the variation in accidents per operating platform. That is, the platform aging process provides more opportunity for accidents than any other contributing factors. Our econometric analysis also suggests that, if the other factors contributing to offshore accidents are held constant, the responsiveness of accident rate to drilling activity is inelastic while the response of accident rate to production activity levels is elastic.

Introduction

The Gulf of Mexico Outer Continental Shelf (OCS) region remains the focal point of offshore oil and gas activity in the U.S. Most offshore geological and geophysical surveys, exploration drilling, and development drilling occur on the Gulf of Mexico OCS, and the region accounted for about one-third of both the total U.S. crude oil and natural gas liquids (NGL), and natural gas reserve additions in 1994. The region also accounted for a significant portion of total U.S. petroleum production - 12.5 percent of the total domestic oil and NGL production and more than 25 percent of domestic gas production - in 1994. In terms of domestic petroleum supply outlook, 2.52 billion barrels of remaining recoverable oil (crude oil and condensate) reserves and 29.3 trillion cubic feet of recoverable natural gas reserves - the driving force of petroleum supply - are estimated to lie in 743 proven active fields in the Gulf OCS region.

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