Interview: Oil Spill Repsonse Insights from MSRC's Benze: Steven T. Benz, President and CEO, Marine Spill Response Corporation (MSRC)
As President and CEO of MSRC, Steve Benz presides over the largest oil spill response company in the United States (and worldwide). In that position since January 1996, he has during that tenure, overseen several critical phases in the Company’s evolution. These include a major restructuring in the late 1990s to make it more competitive; growth throughout the 2000-2009 period, including acquisition of several companies; leadership in overseeing MSRC’s role in responding to the 2010 BP spill in the Gulf of Mexico; and most recently the large expansion of MSRC’s resource base and customer growth in the aftermath of the Gulf spill. Prior to joining MSRC, Benz spent 16 years (1979-1995) working for British Petroleum (BP), notably serving as Director of Corporate Planning for BP America. From 1991-1995, he was President, BP Shipping US and Corporate Vice President of Alaska Trading and Transportation. He graduated from Case Western Reserve University with a degree in Chemical Engineering and also earned a Masters Degree in Management Science from Stanford University Business School as a Sloan Fellow. The words MSRC are most often connected to the world of oil spill response, but what Benz and his not-for-profit firm do on a daily basis, encompass much, much more. Listen in this month as he defines the current state of ‘response’ operations in this hemisphere, looks back at what came before, and then ahead to what might come about next.
The Marine Spill Response Corporation (MSRC) is a not-for-profit organization dedicated to oil spill response. How does that work exactly? Lead the readers through your legal and membership structure.
The MSRC business model is structured on the premise that two key related but distinguishable services are offered to our customer base. First, we provide the resource capacity to be listed in customer response plans required by regulations, whether it is the U.S. Coast Guard or by other agencies, such as the Bureau of Safety and Environmental Enforcement (BSEE), which oversees the drilling and production of oil offshore in the Gulf of Mexico, Alaska and California. This is a compliance service. The second service to customers is providing readiness and response in the event of a real incident or discharge. I distinguish between these two services because one is based on some type of baseline scenario planning (compliance) and the other is based on unpredictable and often uncontrollable factors that enter into play when a real spill occurs. While the first service and its potential revenue base is relatively definable in terms of number and size of the different segments of the developing, processing, and transporting of crude oil, the second service – actual spills are obviously not predictable and therefore not very conducive to business modeling in the classic commercial sense. It is for this reason that MSRC is set up as a not-for-profit organization that is not dependent on spill revenues to provide a return to shareholders. We work with our customer base to establish a resource level which not only meets their compliance requirements, but their recognition that it take more than just a “compliance check in the box” to respond to actual discharges. This makes our business model sustainable and does not depend on spill events. Contrast that with for-profit organizations, which must generate spill revenues to provide market-based returns to their shareholders. In the absence of such revenues on a sustainable and predictable basis, they must manage their returns through other means such as a capacity-based cost structure at the edge of compliance or by diversifying (or I would argue diluting) their focus through other non-spill response related services and activities. These types of organizations certainly have a role to play in response activities as supplemental resources, and we use many of them as part of our supplemental Spill Team Area Responders or STARs. As to organizational structure, we operate as part of a two-tier structure in which the Marine Preservation Association (MPA), also a not-for profit entity provides funding to MSRC for all its annual operating and capital investment requirements to meet both services described above. MPA consists of operators within the various oil drilling, development, processing, and transportation business as well and non-oil carrying vessels that carry substantial fuel that could be at risk during a mishap. This two-tier structure was established back in the early 1990’s to separate the responsibilities and legal liabilities that result from oil spill responses from those companies that provide funding to the response organization. To ensure this separation, MPA provides long-range strategic direction and funding for a robust spill response program, but does not get involved in the governance or operations of MSRC. As such, MPA and MSRC have separate Boards that oversee their respective role and responsibilities.
MSRC went through, in your words, “a major restructuring in the late 1990’s to make it more competitive.” Who does a not-for-profit spill response company compete with?
This is a question I have been asked many times over the years. When MSRC was originally conceived, it was established to provide co-op type services, similar to local and regional co-ops but on a national basis, especially for large-scale discharge events. It was anticipated that MSRC would provide both compliance planning resources as well as response services to all operators that required Worst Case Discharge Services through an agreed upon cost sharing formula according to volumes processed or moved on the water. However what evolved over the first few years of MSRC’s existence was a dichotomy among various operators as to what resources would be required for compliance planning purposes versus what may be necessary to respond to actual spills versus table-top exercises. This was exacerbated by what many viewed as an excessive overhead cost structure that evolved within MSRC at the time. The combination of these phenomena created business opportunities for the for-profits to meet the different philosophies of the various operators requiring compliance planning obligations. Therefore, MSRC needed to re-calibrate its operating structure to meet the needs of the operators that wanted both services (plan compliance and response), but in a more commercially minded approach. This was the value proposition that I was recruited to bring to MSRC in the mid-1990s, having come from executive assignments in a major oil company with an understanding of how to balance the goals of our major funding customers. Over the years we have grown our customer base substantially with this commercially minded approach.
Talk about the companies you’ve acquired over the last decade or so – what did they add to your toolbox to make MSRC a better organization? Is it complicated to absorb ‘for profit’ firms into a not-for-profit structure?
MSRC did not acquire companies but rather merged operations with several regional co-ops that were also not-for-profit entities. These entities had existed for many years before MSRC was established and were largely funded by the same operators that were members of MPA. Each of the mergers, three on the West Coast and one on the East Coast, allowed common funders to benefit primarily from a one-call turnkey response rather than having each organization out there responding in parallel. It also had the benefits of a common investment strategy going forward and synergies in overheads.
The new so-called ‘fi-fi’ rules finally promulgated by the Coast Guard have arguably blurred the lines between salvage and the response communities. For salvors and vessel operators, it more clearly defines relationships and required capabilities in times of emergency and how people prepare for that. What has it changed (if anything) for your shop?
Overall it has had little impact on us since the regulations on oil spill response have been in effect since the implementation of OPA-90 in 1993.
Responder immunity is a big deal for salvors – what about spill response folks? Do you face the same sort of scrutiny and liabilities? If so, what are you doing about it?
Responder immunity is a very big deal for spill response companies. In the aftermath of the 2010 Gulf of Mexico oil spill, we along with many other responders found ourselves named in various lawsuits. Aggressive plaintiff’s attorneys have sought to take advantage of various gaps in the strict language of federal responder immunity provisions in OPA-90. MSRC is part of a consortium of all types of responders and salvors seeking to plug such gaps in responder immunity provisions of the laws.
What’s the biggest issue on your plate today in terms of your business model and the regulatory environment that you toil in?
I believe the biggest challenges we face are operating in an environment of regulatory uncertainty. We are nearly four and a half years since the 2010 Gulf of Mexico spill and still awaiting its impact both on offshore operations (BSEE) and its knock-on effect on shipping operations (USCG). It is important that regulators take a measured and thoroughly assessed view before developing new regulations, but with that thoughtful approach comes a window of challenge by response organizations such as MSRC as to appropriate investments to make. MSRC has in fact made a number of major investments in enhanced spill response capability despite not having clearer regulatory certainty. This again is a result of our dual approach of both meeting compliance as well as response to actual events.
Salvors (increasingly) tend to make their equipment multi-missioned. In other words, they take a capital-intensive asset that might otherwise be idle for large periods, and use it for multiple missions – and generate multiple income streams. That – I would imagine – is a little harder for you to do within the structure that you operate. How do you balance the books in a year when there are no spills and other environmental disasters?
As I pointed out at the beginning of our discussion, our not-for-profit structure recognizes the challenges of unpredictability of oil spill events. In fact, it is a very successful year when/if there are no spills among our customers, as it does not impact our basic ability to continue to receive funding from MPA.
MSRC’s role in responding to the 2010 BP spill in the Gulf of Mexico was monumental. Tell us about that event. What went well and what could be done better (lessons learned) next time?
MSRC was the largest company by any yardstick that performed surface response cleanup (as opposed to sub-sea response activities). Some of the metrics that demonstrate our involvement include: largest single offshore response vessel fleet with 12 of our 15 industry-unique Responder Class vessels; over 11,000 man days of offshore activity from direct MSRC employees; supervised over 4,000 contractor employees; led the largest overall operations of the aerial dispersant program; and provided key personnel for the precedent setting in-situ burns. We were commended numerous times by BP and other parties, including the Coast Guard for our role in the response. As with any event of this magnitude, there are many lessons learned from such an event. To ensure that we could take advantage of the experience we gained on the event we conducted our own internal review by spending many months assessing our experiences after our activity was complete. In total we interviewed all personnel that were involved in off shore response activities, with the objective to understand at the field level what went well, what could have been improved, what equipment challenges existed, what workarounds were necessary, what human elements went well, and finally what human elements need enhancement. We have spent time reviewing with our customer base and regulators such as BSEE and the USCG our general findings. While it would take a lengthy time to go into such details, some of the most important observations from our experience include: the need for better remote sensing to ensure that resources are most efficiently used by being in the thickest oil; the response “tool box” must have multiple options and equipment and tactical methods since conditions vary almost daily (e.g. sea states, debris, weathering of oil, among many other variables); and sustainability over an extended period (in this case over six months) must be built into any response capability -- especially the human element.
How many full time employees does MSRC have and in what regions do you operate?
MSRC has about 425 direct employees and we have four operating regions covering the Atlantic coast (including the Caribbean), Gulf of Mexico, California, and the Pacific Northwest (including Hawaii).
The future direction of response capabilities, at least in the US, may involve remote sensing capabilities. Flesh this out a little for the readers.
As I indicated in your question on lessons learned, using remote sensing to enhance the ability to have response resources in the optimal locations at the right time can have a profound impact on enhancing spill response. MSRC has spent the last few years since the 2010 Gulf of Mexico event searching out technologies to improve the traditional methods of aerial surveillance with the human eye. I am very proud of the new tools we have developed with several leading remote sensing companies that now allow us to do things we were not able to do back in 2010. This includes remote sensing capability from aircraft, tethered balloons, and ships.
Other technologies are being developed and used to increase the ability to recover oil from the water once MSRC is on site. Tell us about just a few of these breakthroughs.
As I again indicated in the question on lessons learned from the Gulf spill, MSRC has focused on a number of strategic and tactical options to ensure that we can make the best “game day and game time” decisions for the challenges that vary daily in oil spill response. As such, we have developed dual options for recovery from our Responder Class vessels, using both the traditional methods of collecting and offloading oil with our Transrec skimming systems while also having the ability to go into what we call Buster mode, using a Norwegian developed oil collection and recovery system that can operate at higher advancing speeds under the appropriate circumstances. We have also added a number of newer skimming systems designed to recover more oil and less water.
MSRC was formed as a U.S. Coast Guard Classified Oil Spill Removal Organization (OSRO) in 1990 to offer oil spill response services and mitigate damage to the environment. This came, presumably, in the wake of the EXXON VALDEZ and the Oil Pollution Act of 1990. What’s changed since then in the world of spill response? Pick out just one defining event, development or regulatory change that has impacted all stakeholders.
The Exxon Valdez catalyzed the passage of OPA-90 and even today it remains the most influential event since it impacted the regulations governing all operators who process and move crude oil. While the regulatory impact of the 2010 Gulf of Mexico spill has to date influenced operations offshore in the Exploration and Production business, I believe it ultimately will impact other oil operations and shipping as the promulgation of offshore regulations is taken into account by the Coast Guard and the Environmental Protection Agency.
(As published in the December 2014 edition of Marine News - http://magazines.marinelink.com/Magazines/MaritimeNews)