Marshall Island “Regulators”—What Could Go Wrong?

Tribune explores how Transocean flagged Deepwater Horizon in the tiny Pacific nation

Let’s circle back around to last week’s excellent Los Angeles Times and Chicago Tribune report on the Deepwater Horizon.

Did you know the Deepwater Horizon rig (which is technically a ship) itself was flagged and thus regulated by the Marshall Islands, whose population is just under that of Oshkosh, Wisconsin? I didn’t until this story.

While American regulators oversaw (well, were supposed to have overseen) BP’s oil-well drilling, they weren’t in charge of the ship. Marshall Islands outsourced that to a private corporation.

Under International law, offshore oil rigs like the Deepwater Horizon are treated as ships, and companies are allowed to “register” them in unlikely places such as the Marshall Islands, Panama and Liberia — reducing the U.S. government’s role in inspecting and enforcing safety and other standards.

The LAT has a fantastic lede that shows how U.S. regulators were out of the loop at just about every stage of the Deepwater Rig’s globalized history:

The Deepwater Horizon oil rig that exploded in the Gulf of Mexico was built in South Korea. It was operated by a Swiss company under contract to a British oil firm. Primary responsibility for safety and other inspections rested not with the U.S. government but with the Republic of the Marshall Islands — a tiny, impoverished nation in the Pacific Ocean.

Regulatory arbitrage: maritime edition.

I mean, come on! It’s not like U.S. regulators have been known for their fearsomeness in some time. But even that’s not enough for Transocean, and Tribune reporters Tom Hamburger and Kim Geiger found the lax enforcement may have undermined safety on the rig:

“Over the years, the manning dwindled down and down,” said Douglas Harold Brown, chief mechanic aboard the Deepwater Horizon, who had been assigned to the floating drilling rig since shortly after it was manufactured in 2000. “I believe that safety was compromised by this,” he said in an interview.

Brown’s lawyer and others say the Marshall Islands licensed the Deepwater Horizon in a way that allowed rig operator Transocean Ltd. to place an oil drilling expert — the so-called offshore installation manager — ahead of a licensed sea captain in making decisions on the day of the explosion.

The dual command structure created confusion that delayed an effective response to the growing crisis aboard the Deepwater Horizon, he and others allege.

There are a couple of holes in the story, alas. Tribune reports that the Marshall Islands outsourced inspections to a private corporation, but it never names that company nor tells us where it’s located or what it does—or tells us it couldn’t find out.

And I don’t think the story is clear enough in delineating who was responsible for what. From what I can tell, the Marshall Islands was responsible for ship safety, but the U.S. was responsible for well safety. But it’s hard to tell from this story.

I would have liked to have seen at least a flacky quote from Transocean on its reasons for registering the ship in the Marshall Islands. Here’s a quote from the Guardian:

The International Transport Workers’ Federation claims such flags are simply a way of avoiding taxes, paying cheap registration fees and enabling ship owners to employ cheap labour.

Which misses the regulatory point. Tribune gets at that here:

Some members of Congress are expressing concern about the Marshall Islands and other countries that outsource their inspection responsibilities to private companies. Coast Guard officials confirm that more rigorous inspection procedures apply to the relatively small number of rigs registered in the U.S.

A foreign vessel will be reviewed by the Coast Guard, but the inspection is relatively cursory, relying on inspection reports prepared by outside firms that have been paid directly by the owners of the vessel.

And the reporters make themselves much clearer in an interview with the Huffington Post Investigative Fund than they do in their own story:

At the time of the explosion, when gas alarms sounded, the captain waited for the drilling manager to get out of the shower to approve his pushing of an emergency disconnect button — the result of a command structure that puts a drilling manager in charge, not a captain. That structure is established by the Marshall Islands.

“The details are hazy in terms of whether it had been more like 5 minutes or 20 minutes,” Geiger said. “But the problem was that there was a system where a captain was second-guessing himself, wondering whether they were facing a real emergency and whether he was the one in charge.”

Those were crucial moments. “Disaster could have been averted,” noted Hamburger. “It’s expensive to push these emergency switches, so the captain felt he needed to check with the drilling manager. Obviously we can’t say for sure it would have worked, but it was an opportunity that was missed because of this managing structure.”

That’s great stuff, but it should have been in their own story. It wasn’t. Here’s what we got instead:

The Deepwater Horizon captain testified to investigators last month that he conferred with the drilling manager before he attempted to disconnect the rig. By the time a crew member decided on his own to push the emergency disconnect, it was too late.

It’s not hard to see that these overlapping jurisdictions, at a minimum, couldn’t make things clearer or easier in the event of a disaster. And it’s quite likely it made them worse.

This one’s worth further investigation.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.