NEW YORK (TheStreet) -- It may still be a long road to new offshore-drilling regulation, but we learned enough last week from the big oil execs to add at least one speed bump ahead of future oil-spill disasters. Without one conclusive finding about blowout preventers, long-string well casings or cement bond logs that have made petroleum engineers of us all, we can firmly conclude that applying Section 302 of the Sarbanes-Oxley Act to the oil industry deep-water well operations can't hurt as a starting place to add some responsibility in the Big Oil corner office.
What, you ask, is Section 302 of Sarbanes-Oxley? That is the section on corporate responsibility -- and, specifically, senior executives taking individual responsibility for the accuracy and completeness of corporate financial reports. There is no reason that Section 302 of the, let's say, Markey-Burgess rewrite of oil drilling legislation could not mandate that senior executives in the oil industry take individual responsibility for the thoroughness and completeness of well design and drilling operations.
Section 302 describes specific forfeitures of benefits and civil penalties for non-compliance (e.g., if a BP deepwater well were to fail, CEO Tony Hayward might be required to put his yacht up as collateral in civil court). Section 302 of Sarbanes-Oxley also mandates that "the company's 'principal officers' (typically the Chief Executive Officer and Chief Financial Officer) certify and approve the integrity of the company's financial reports quarterly." There is no reason that couldn't be revised to read that "the company's principal officers (typically the Chief Executive Officer and head of production and exploration) certify and approve the integrity of the company's deep-water wells."
Sarbanes-Oxley Section 302 also requires corporate officers to sign off as being responsible for internal controls and having evaluated these internal controls, listing deficiencies in the internal controls, and any significant changes in internal controls or related factors that could have a negative impact on the internal controls. There is no reason why these internal controls could not apply to the exact types of decisions made at the BP Macondo well with which BP CEO Hayward said he couldn't possibly be expected to be "in the know."It's far from enough of a fix, but the offshore drilling version of Sarbanes-Oxley would provide an extra layer of corporate responsibility for deep-sea well design and operation. If nothing more, it might keep the CEOs of oil companies just a little more honest, and make them be a little more proactive in overseeing far flung operations -- operations that operate in the middle of the ocean and to depths of 35,000 feet below human vision. Indeed, the CEOs of all the big oil companies told us last week that applying Sarbanes-Oxley to deep-water wells is a change that shouldn't cause them any worry, or in the case of Hayward, showed us that it is a change they are asking us to force on the sector: Last week's testimony from the big oil CEOS started with a cadre of heavyweights from Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP). The message from the Big Three in the oil industry was much the same: BP screwed up, we do things differently, don't worry about our wells, all is under the watchful eye of companies unlike that reckless British operator. Yet the oil CEOs gave those on Capitol Hill plenty to worry about in regards to potential for future oil spills when it became clear that their oil-spill response plans were cut-and-paste jobs that matched the BP approach word for word -- and often inaccurate word for word. In fact, the oil CEOs admitted that the oil spill response plans were embarrassments. The Minerals Management Service of the Interior Department has already taken a step in this direction at its level of oil drilling enforcement by adding an oil company CEO certification requirement as a pre-cursor to allowing the resumed operations in the shallow-water Gulf of Mexico drilling, but critics have contended that the certification requirement still allows the oil industry to more or less serve as its own compliance regime without enough checks in place. Of course, some will argue that adding a layer of senior corporate officer responsibility is just the type of alarmist response that is typical of socialist takeovers, and on top of the Pennsylvania Avenue "shakedown" of BP uncovered by moonlighting investigative reporter Rep. Joe Barton (R-Texas), a Sarbanes-Oxley Section 302 for the oil industry would bring America one step closer to becoming a Hugo Chavez state-run oil monopoly. Anyway, why should all oil companies be punished for the actions of one reckless company with a history of accidents and penalties?
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