* Panel says BP spill indicates industry-wide problem
* Panel weighing self-regulating oil industry group
* Govt oversight of offshore drilling has been inadequate (Adds background, comments about liability caps)
WASHINGTON, Dec 2 (Reuters) - The White House oil spill commission on Thursday challenged offshore drillers to boost safety standards, detailing proposals for the creation of an independent, self-regulating industry group and reform of government oversight.
Created in the aftermath of the BP (BP.L) drilling accident in the Gulf of Mexico, the commission said the entire offshore oil industry needed to increase its focus on safety and such an industry group could hold firms accountable.
"The oil and gas industry needs to embrace a new safety culture," commission co-chair Bill Reilly said at the start of a two-day meeting to help prepare the panel's final report.
Reilly said a lack of resources had plagued the government's offshore drilling regulator for years, which he said justified the Obama administration's decision to delay expansion of offshore drilling to areas off the Atlantic coast and in the eastern Gulf. [ID:nLDE6B10VL]
"The industry is upset about it, but one has to ask how a decision could ever have been made otherwise, given the poor state of the agency itself," Reilly said.
The presidential commission tackled possible solutions for the government and the oil industry at Thursday's meeting, as it worked to lay out a path for offshore drilling after the nation's largest offshore oil spill in history.
It will be ultimately up to Congress, regulators and companies to decide whether and how to implement whatever policy changes the commission recommends.
The panel is considering pushing for the creation of a self-regulating safety organization for offshore drilling akin to the U.S. nuclear sector's Institute of Nuclear Power Operations to help enforce industry standards. [ID:nN18227167]
At Thursday's meeting, commission staff said an independent safety group would be able to perform independent auditing and should be empowered to dole out rewards and sanctions.
Any safety institute set up by the industry should not be operated by a lobbying group, such as the American Petroleum Institute, the panel's staff said.
To encourage participation in a safety institute, some commissioners said it may be necessary to require membership before firms can drill in areas deemed risky by regulators.
REFORMING GOVERNMENT OVERSIGHT
To be effective, the institute would have to be complemented by a strong federal regulator, the staff said.
"There are fundamental weaknesses in the U.S. regulatory approach" to offshore drilling, commission co-chair Bob Graham said at the meeting.
The panel's staff said the Interior Department's offshore drilling agency had been severely underfunded for years, and too many overlapping duties among federal agencies had caused lapses in oversight.
Ultimately, the panel said the government would need to adopt a system that combined prescriptive rules with a risk-based performance approach.
The panel is also considering recommending a more drastic reorganization of Interior's offshore drilling agency than the department has already proposed. [ID:nN19223644]
Under the commission staff's plan, safety regulations would be enforced by a separate entity within the department that would not have to answer to the interior secretary or other political appointees.
In addition, commissioners said there may be a need to increase fees to fund additional government oversight and to require companies to prove they can respond to a major spill before acquiring leases for high-risk areas.
Congress should phase in increases to the cap on the amount companies may pay in economic damages from oil spills, as well as raise financial responsibility requirements for drilling, panel staff said.
WEIGHING COSTS VS SAFETY
At a meeting last month, the panel's investigative team blamed bad decisions by BP and its contractors, Halliburton (HAL.N) and Transocean (RIG.N), for the massive Gulf spill. [ID:nN09295607]
The panel's staff on Thursday said most of those mistakes had resulted from management failures at all three companies.
The panel also officially released a chart detailing decisions made by BP and its contractors prior to the spill that saved time but increased risks. The chart was leaked by the media last week. [ID:nN24213109]
Companies need policies to make sure financial pressures do not bias decisions in favor of cost savings over safety, the panel said.
This is the panel's final public deliberation before the scheduled release of its official policy recommendations in January. (Editing by Alden Bentley and Dale Hudson)