* Maximum fine is $35,000 a day even if worker dies
* Interior Dept to issue new offshore safety rule
* Report on whether to lift drilling ban ready by Oct. 31
By Tom Doggett
WASHINGTON, Sept 8 (Reuters) - The fines U.S. Interior Department inspectors can impose for unsafe offshore drilling practices are not tough enough to discourage oil and gas companies from wrongdoing, a government panel said on Wednesday.
Civil penalties are currently capped at $35,000 per violation per day, which is dwarfed by what energy companies pay to explore and produce energy resources. In addition, it may take up to a year to levy the fine because of the time district government offices and other bureaucratic layers have to review such penalties.
"The current level of civil penalty fines and incentives, as well as the processing time afforded, do not make them an effective deterrent to violations of Outer Continental Shelf regulations," said an Interior Department offshore safety oversight board that issued its findings to Interior Secretary Ken Salazar.
BP was paying about $500,000 a day to lease the Deepwater Horizon drilling rig that exploded in April, killing 11 workers and causing the biggest offshore oil spill in U.S. history.
In an environment where many companies pay between $500,000 and $1 million daily to run an offshore facility a potential fine of no more than $35,000, even in the case of a worker's death, is not an effective tool to enforce safety regulations, the panel said.
For all of last year, the Interior Department collected a total of $919,000 in civil penalties for offshore drilling violations, which is equal to the cost of shutting down a large drilling facility for just one day.
Higher penalties was one of more than 50 recommendations Salazar said he would consider to improve how offshore drilling is regulated.
Separately, Salazar said he expects the department's agency that oversees offshore drilling to present him with a report by Oct. 31 as scheduled on whether the government's temporary moratorium on deep water drilling should be lifted earlier. The drilling ban is set to expire at the end of November.
Salazar said all of the recommendations for improving offshore drilling safety do not have to be implemented before the moratorium is lifted.
The department is scheduled to issue by the end of this month a final rule requiring additional safety steps for offshore drilling and will for the first time require the oil and gas industry to establish comprehensive safety and environmental management systems.
(Reporting by Tom Doggett;editing by Sofina Mirza-Reid)