Policy Brief—Regulating Offshore Oil and Gas Exploration: Insights from the Deepwater Horizon Experience in the Gulf of Mexico

On April 20, 2010, the Macondo well suffered a blowout, causing the mobile offshore drilling unit Deepwater Horizon to explode and eventually sink. Oil flowed from the well into the Gulf of Mexico for 87 days. In the aftermath of this event, the U.S. government proposed significant regulatory changes related to offshore oil and gas exploration and production. In this article I consider the likely costs and potential benefits of these new regulations, both of which are very large. I find that the reduction in expected damages resulting from the new regulations will offset the costs of these regulations as long as they yield a modest reduction in the probability of a major spill.