From Reagan To Macondo – 30 Years of Oil and Gas Law

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Carol E. Dinkins
10/05/2012

In this exclusive interview with Oil and Gas iQ, Carol E. Dinkins, Partner at Vinson & Elkins LLP discusses the changing face of the legal profession, from the bold energy policy of the Reagan administration to retrenchment after the 2010 blowout of the Macondo 252 well in the Gulf of Mexico and the scope of energy law in the evolving energy landscape worldwide.

Oil & Gas IQ: Carol, you've had quite a large and varied career within the legal field, one of the first things that I'd like to ask you about is your whole experience within the Reagan administration. First of all, tell us a little bit about what your role entailed and then how really have things changed from then to now.

CE Dinkins: When I joined the Reagan administration in the very early part of 1981 it was a very exciting time to be in government because President Reagan had come into office with the commitment to make some very wide-ranging and very remarkable changes in government. And I was invited to serve in the Justice Department and to be in charge of the Environment and Natural Resources Division and that's the division in the Justice Department that handles all of the litigation involving federal land which includes the outer continental shelf.

It's the division that defends the departments and agencies of the government when they are sued, such as for rule-making or whether they have properly followed environmental procedures themselves. I defended the Department of the Interior, the Environmental Protection Agency and the Department of Defence whenever they were brought into litigation as defendants. I also enforced the federal laws against pollution and criminal laws involving environmental matters.

A big part of our responsibility at that time was to implement the Superfund law which passed in the lame duck session of Congress in December 1980. We had a very active docket of about 20,000 cases and matters. I also represented the Attorney General of the United States in the President's Cabinet Council on natural resources, energy and the environment and that Cabinet Council met usually two times a week because there were a lot of activities at the Department of the Interior, for example, to expand out of continental shelf leasing.

And that was the point in time when the administration put into place the five year leasing programme. There had not been previously that kind of deliberate and long-range planning to make sure that lease sales would be conducted on a regular basis so that industry would have the opportunity to bid on federal leases and to engage in exploration, development and production on a more systematic basis.

During that time there was a lot of reaction to the shortages of gasoline and the oil embargo during the Carter administration. So there was a great deal of pressure to make sure that the oil and gas industry could be very active and be robust because there was a grade-up [?] to try to make the United States less dependent on foreign oil than it had been.

Some of what has changed rather dramatically in the industry since the early 1980s will come as no surprise to you or to your audience, but a big change has been the move into the very deepwater part of the outer continental shelf. And the incredible advancement in equipment and technology; the sophistication is far greater than it was in the early 80s and there's a lot more automation, of course, than there had been in the early 80s. So there have been very dramatic changes and a great deal of activity that did not exist when I went into the government in 1981.

Oil & Gas IQ: One of the things that strikes me from you've been saying, Carol is the difference between a more outgoing and I suppose in some ways pioneering Reagan administration than the recent retrenchment after Macondo, as well. It would be remiss of me to be talking to you and not be talking about the impact that Macondo has had on your profession; what do you think the fallout has been in the US and the rest of the world?

CE Dinkins: This, of course, was a very dramatic and very attention-getting event and there have been some very strong changes and there were some very strong reactions to Macondo. One of those is, of course, the immediate drilling moratorium, which was quite a remarkable thing to have happened. That was something that affected everybody in the industry; everybody who lives and works and vacations anywhere near the Gulf of Mexico.

Then, I've seen reports of what effect it had far away from the Gulf of Mexico with those who make the type of equipment or what goes into the equipment that services the offshore industry. That drilling moratorium, I think, was very immediate and a very significant impact. Then pretty soon on the heels of that we began to see reorganisation of the regulatory agencies within the Department of the Interior and we saw a Presidential Commission that convened and studied the incident and came out with page after page of recommendations.

We also have seen new safety and permitting requirements and some very intense regulatory programmes that actually go to how the drilling is conducted and what the plans are for response to an event. And then the capabilities and testing of the blowout preventer equipment and the response capabilities for an event such as this. We've also seen that industry itself has adjusted its practices and industry has established its own marine well containment company and the Helix Well Containment Company.

And then also the Centre for Offshore Safety and that was established in response to the new Safety and Environmental Management Systems Rule that the Department of the Interior promulgated, which made what had been recommended practices mandatory. And now, of course, the drilling contractors as well as the operators are putting into place the safety and environmental management systems. And those systems are quite rigorous and they are quite expansive and they require such things as hazards analysis and management of change procedures and operating procedures and pre-start up review, in ways that had not been required previously.

Again, they were recommended practices but not requirements. These are safety practices and environmental management systems that in my discussions with the industry people are really looking to put into place around the world with their crews and their equipment and not just in the US Gulf of Mexico. So the changes are having ramifications that go far beyond the borders of the United States.

Oil & Gas IQ: In an industry where joint ventures are so important do you think that an incident like Deepwater Horizon and then the legal backlash that came out of it has maybe damaged the confidence of some parties?

CE Dinkins: I think that industry has taken very much to heart the lessons to be learned and that have been learned as a result of this incident. And I think what it has caused any number of entities to do is take a hard look at whether their risks are matched up with their insurance; whether that's insurance in the market or self-insurance that a company might provide.

I think that companies who work offshore are really examining what they had thought their expectations were as to how things might play out in the event of an incident that was unprecedented, and examining whether they have in place the kind of protection that they had anticipated. So I think it has caused a great deal of examination. There has been, for example, discussion of revising the standard forms, but that has not occurred to date and I suspect that there will continue to be discussion of that going forward.

Oil & Gas IQ: Bring us nicely into the next question that I wanted to ask and it was your opinion of those standard form contracts. From a personal perspective, do you think drafting and negotiation skills are not being as developed as they once were in the past?

CE Dinkins I think lawyers make their living by drafting and by negotiating and just because they use standard forms doesn't mean that there isn't a great deal of negotiation and drafting that goes around those. The benefit of standard forms is very fundamental because it sets people's expectations and by use of standard forms over a period of years people in the industry know what the practices are and what the expectations are.

It saves time and it causes people to focus on what is different, what is unique about a particular situation and make sure that they address that, rather than spend their time going over and over things that are well settled as industry practices and expectations. Beyond that, by having standard forms you put into place a body of law and you create precedents as to how unanticipated situations are handled and you create the precedents as to the construction of the provision of the standard form agreement.

I think all of that saves speculation. It saves on litigation, which is a good thing and it makes doing business more predictable, which also is a good thing.

Oil & Gas IQ: In the US you've got shale, you've got deepwater developments. You've got ever more stringent environmental regulation to keep up with. Obviously, a lot of that was on the back of the Macondo disaster, and there are emission targets that are being clamped on. Fuel and gas industry, globally as a whole, is it more difficult being a lawyer in 2012 than it was in the 1980s?

CE Dinkins:You have to really be paying attention to the changes in the law and to the development of interpretation of the regulations, because, as you've so wisely noted, it is much more stringent and then are a lot more requirements on industry than we had 30 years ago. But it's important to keep up with the developments and the regulatory programmes, some of them, I think, go beyond what is necessary. Others of them have caught up with what people in the industry have been doing as they advanced their own programmes to be good stewards of the environment.

What that does is put a level playing field into place for those who are very careful in their operations, as distinguished from their competitors who might not be so rigorous in their own self-policing. There is a benefit to standard regulatory programmes and what we need to make sure of is that those programmes are well conceived and that they are enforced across the board in a consistent way and applied uniformly.

Oil & Gas IQ: The last question that I'd like to ask today is you've witnessed a lot of transition during your career, is there anything that catches your eye at the moment with regards to international development in the legal field? Are there any trends that you think, maybe over the next five/ten years, will become more prevalent in regulating what we do as an industry?

CE Dinkins:I think the evolution of the safety and environmental management systems that came, first of all in the UK in the aftermath of the Piper Alpha with the safety case, and now, in the aftermath of the Macondo with the rule on safety and environmental management systems is what we are likely to see being adopted by the entities within the industry who operate on a global basis.

I think they will take that to the countries that are just beginning to develop their shale and their offshore resources and that they will help them develop their own regulatory programmes and enforcement programmes in a very responsible way that has been informed by these incidents in the UK and the US.

I think that that will continue to make the industry safer and the uniformity of regulatory programmes, the uniformity of self-policing and the uniformity of training will be a good thing on a global basis.

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