BP will be allowed to participate in an upcoming U.S. offshore oil and gas lease sale despite its role in the largest offshore oil spill in U.S. history, a top government regulator said on Thursday.

Michael Bromwich, head of the newly formed Bureau of Safety and Environmental Enforcement, said his agency determined that it would not be appropriate to ban BP from obtaining new leases to drill offshore.

"They don't have a deeply flawed record offshore," Bromwich told reporters after testifying at a House Natural Resources committee hearing.

"The question is, 'Do you administer the administrative death penalty based on one incident?' and we've concluded that's not appropriate."

The department has scheduled a lease sale in December, offering more than 20 million acres for development in the western Gulf of Mexico.

It will be the first offshore lease sale since an explosion on the Deepwater Horizon rig last year killed 11 workers and ruptured BP's Macondo well, spewing more than 4 million barrels of oil into the Gulf of Mexico.

In the days after the accident, observers raised the possibility that the government may bar BP from moving ahead with its offshore drilling program in response to the disaster.

Slap on the wrist
Representative Edward Markey, the top Democrat on the House committee, said he thinks the government should reconsider its decision not to suspend BP. He also called for Congress to raise the fines that companies face for violating offshore drilling regulations.

The drilling enforcement agency issued citations on Wednesday against BP and its top contractors, Transocean and Halliburton, for last year's drilling accident. By law, the companies face fines of up to $35,000 a day, per incident for the violations.

Based on that statute and length of time between the explosion and the capping of the Macondo well, Markey said that BP would face at most $21 million in fines for its seven citations. He said Halliburton and Transocean would each face at most $12 million in fines.

Markey said he thinks the fines are not high enough, with BP's potential penalties representing just seven hours of profit for the company by his estimates.

"That fine obviously does not even begin to approach the amount needed to be a deterrent against a repeat of this tragedy. That fine is a slap on the wrist," Markey said at the hearing.

Bromwich agreed that the penalties need to be raised, reiterating his call that civil fines should at least be in the six-figure range.

The agency has not offered details on the amount of fines the companies may face. Bromwich said the agency will have to determine what time period would be used to assess fines for each citation.

Some Republican lawmakers at the hearing questioned the agency's authority to issue citations to contractors. Traditionally, the agency has only regulated well operators. Bromwich said government lawyers believe the agency can go after contractors based on statutes in the Outer Continental Shelf Lands Act.

(By Ayesha Rascoe, Reuters, 13/10/2011)