By David S. Hilzenrath
Saturday, June 12, 2010; A11
In May 2007, an auditor named David McKay arrived by helicopter on the oil rig Deepwater Horizon. His mission was to assess the rig's compliance with an international safety and environmental protection code.
McKay's visit lasted about a day, and he found that maintenance on some of the equipment was overdue by as much six months. Some of that work was "safety critical." But none of it stood in the way of the rig's recertification for another five years.
After listening to McKay's account last month, the co-chairman of a panel investigating the April 20 disaster on the rig reacted with incredulity.
"I don't understand what is the value of this audit that you do," Coast Guard Capt. Hung M. Nguyen said during a hearing conducted by the Coast Guard and the federal Minerals Management Service.
Those doubts haven't stopped the Obama administration from giving more responsibility to organizations like McKay's employer, a company that examines such issues as safety, maintenance, emergency preparedness and environmental protection on drilling rigs. In issuing new requirements for drilling in the Gulf of Mexico, the Interior Department said this week that rig operators must have "an independent third party" confirm that their blowout preventers work.
The Deepwater Horizon was registered in the Marshall Islands, a Pacific archipelago that like many jurisdictions, authorizes private organizations such as McKay's employer, Det Norske Veritas (DNV), to inspect vessels that operate under its flag.
The owners of the oil rigs decide which of those organizations to hire, and they pay for the services. At a recent hearing, a Marshall Islands official was asked whether that arrangement presented a conflict of interest.
"In some persons' minds it might, but it's been a long-standing facility that's been in place for years," said Thomas F. Heinan, deputy commissioner of maritime affairs.
The U.S. Coast Guard inspects oil rigs, too. But in the case of rigs operating under foreign flags, it relies on the private inspectors to do the bulk of the work, Coast Guard Capt. Verne B. Gifford testified. For those platforms, the Coast Guard "goes onboard the vessel just to verify," a process that "usually takes maybe four to eight hours," Gifford said.
The Minerals Management Service inspects rigs' drilling equipment. But apparently some things can fall through the cracks, such as the emergency disconnect system that is supposed to enable a rig to rapidly disengage from a well in the event of a blowout.
During the Coast Guard-MMS hearings, Lt. Cmdr. Michael Odom said the Coast Guard doesn't inspect it: "That would be inspected by the MMS inspector whenever they're there."
MMS official Michael Saucier testified otherwise. Asked whether the MMS has "any type of requirements or inspection methodology to ensure that the emergency disconnect system works," he answered, "No."
A spokesman for DNV, Blaine Collins, said the emergency disconnect system was beyond the scope of DNV's 2007 audit.
Another organization that examined the Deepwater Horizon on behalf of the Marshall Islands was the American Bureau of Shipping. ABS surveyor Arinjit Roy testified that the bureau never tests the emergency disconnect system.
As explosions rocked the Deepwater Horizon, a crew member desperately tried to disconnect, but to no avail.
Allowing companies to choose their own watchdogs is hardly unique to the oil business. The same approach applies when corporations hire accounting firms to audit their financial statements and when bond issuers pay ratings agencies such as Moody's and Standard & Poor's to grade their bonds. Those arrangements have been criticized as potentially contributing to accounting frauds and the subprime mortgage crisis.
The fact that an oil rig's operator is writing the check is "not going to influence our surveyor's judgment at all," John David Forsyth, ABS's assistant chief surveyor for offshore, told the Coast Guard-MMS panel.
Groups such as ABS assess compliance with an array of standards, including rules that they also write.
ABS is a nonprofit organization, but its "annual review" for 2009 reads much like the annual report of a profit-seeking enterprise, focusing largely on the expansion of its business and the competition for market share. Chairman Robert D. Somerville -- whose compensation for 2008 totaled about $4 million, according to an ABS tax return -- wrote about "aggressive marketing," "raising revenues" and "record performance," and he remarked: "Every contract was hard fought."
Somerville expressed a hope that ship owners would see ABS as "a partner . . . rather than as the policeman."