Watchdogs over the oil and gas industry need more clout

Editorial
Vancouver Sun
Monday, May 16, 2005

A business has only one overriding purpose: to deliver a return on investment to its owners. Despite all the recent blather about corporate citizenship and good governance, everything is subservient to the pursuit of profit.

Nations that embrace the profit motive are rewarded with ample wealth to provide a high standard of living for their citizens, spend lavishly on social programs and dispense aid to less fortunate states.

However, society has priorities other than making money, such as public health and safety and environmental integrity. Business must operate in such a way that it does not compromise these goals. Legislators put rules and regulations in place to ensure that the common good is not sacrificed for the sake of the almighty dollar.

So it is disturbing to learn that the oil and gas industry in British Columbia has a sorry record of compliance with provincial rules. An audit by the Oil and Gas Commission found that of 3,305 field inspections last year nearly two-thirds were in breach of regulations -- a total of 5,734 infractions. The number of violations is up 26 per cent from the 2003 audit, which may reflect the booming oil and gas sector and a greater emphasis on field inspections rather than a surge in lawlessness.

Still, oil and gas producers should clean up their act or face consequences if they don't. And therein lies the problem.

The Oil and Gas Commission was created as a component of the Oil and Gas Development Strategy, a plan worked out by the New Democratic Party government and the Canadian Association of Petroleum Producers in 1998, designed to increase production and stimulate investment in the oil and gas industry.

From its inception, the commission was charged with regulating an industry the government was anxious to promote and nurture. It is responsible for enforcing regulations under a dozen different acts, covering drilling, waste management, spills, road construction, pipelines and workers' compensation issues.

But it has little in its enforcement tool box to effectively do the job. It can write deficiency letters asking offenders to take remedial action and, in a serious case where safety is jeopardized, can issue a stop-work order. It has no authority to levy fines and must call in another government agency if further investigation is warranted.

It is supposed to regulate the industry, its website says, "through fair, consistent, responsible, and transparent stakeholder engagement."

Like the B.C. Securities Commission, the Oil and Gas Commission is financed by the industry it regulates, charging fees for services such as issuing permits for oil and gas activities.

The difference is that the body which regulates the securities industry acts as prosecutor, judge and executioner. It can initiate investigations, conduct hearings, issue judgments, levy hefty fines, prohibit offenders from serving as an officer or director of any public company, shut down an investment dealer and even ban bad players from capital markets for life. It commands, even demands, the respect of those it regulates.

Companies will take shortcuts if they can save money. They are obliged to find the most cost-effective ways to produce the highest possible profit. That's their duty to shareholders. Given corporate zeal to keep costs to a minimum, if the penalties for non-compliance become an onerous business expense, a needless drag on earnings, the number of violations will drop.

Let the risk-takers in the oilpatch develop our resources, reap their rewards, create jobs and pay taxes within a framework of fair and reasonable regulations that will be vigorously enforced by an Oil and Gas Commission that has real clout.

© The Vancouver Sun 2005