[Senate Hearing 112-1]
[From the U.S. Government Publishing Office]
S. Hrg. 112-1
NATIONAL COMMISSION REPORT
ON THE BP OIL SPILL
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
TO
REVIEW THE REPORT AND RECOMMENDATIONS, INCLUDING ANY RECOMMENDATIONS
FOR LEGISLATIVE ACTION, ISSUED BY THE NATIONAL COMMISSION ON THE BP
DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING
__________
JANUARY 26, 2011
Printed for the use of the
Committee on Energy and Natural Resources
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64-994 WASHINGTON : 2011
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont MIKE LEE, Utah
DEBBIE STABENOW, Michigan RAND PAUL, Kentucky
MARK UDALL, Colorado DANIEL COATS, Indiana
JEANNE SHAHEEN, New Hampshire ROB PORTMAN, Ohio
AL FRANKEN, Minnesota JOHN HOEVEN, North Dakota
JOE MANCHIN, III, West Virginia BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
McKie Campbell, Republican Staff Director
Karen K. Billups, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS
Page
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Graham, Hon. Bob, Co-Chair, National Commission on the BP
Deepwater Horizon Oil Spill and Offshore Drilling, Miami Lakes,
FL............................................................. 6
Murkowski, Hon. Lisa, U.S. Senator From Alaska................... 4
Reilly, Hon. William K., Co-Chair, National Commission on the BP
Deepwater Horizon Oil Spill and Offshore Drilling, San
Francisco, CA.................................................. 23
APPENDIX
Responses to additional questions................................ 49
NATIONAL COMMISSION REPORT
ON THE BP OIL SPILL
----------
WEDNESDAY, JANUARY 26, 2011
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:34 a.m. in room
SR-325, Russell Senate Office Building, Hon. Jeff Bingaman,
chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. The hearing will come to order. This is our
committee's first hearing in the 112th Congress.
We appropriately begin with an issue of highest priority.
That is the Deepwater Horizon tragedy. We have an important
role to play in understanding what happened, ensuring that it
will never happen again. The subject deserves our urgent
attention.
It's now 9 months since the Deepwater Horizon offshore
drilling rig exploded and sank taking the lives of 11 people.
Following that explosion oil gushed into the Gulf of Mexico for
almost 3 months before it could be contained, spilling an
estimated 170 million gallons, the largest oil spill in our
Nation's history. As I said at the time of the disaster, this
is not just a Louisiana problem.
This is America's problem. Despite the passage of time this
remains a serious problem. Not just for the Gulf region, but
for the Nation as a whole.
While there may be disagreement about where and how to do
it, no one can doubt the need to continue to produce domestic
oil and gas. However much of our remaining reserves are
offshore and in deep water and far below the ocean floor. The
Deep Water Horizon tragedy has taught us that such development
involves a highly complex interplay of technologies and human
decisions that sometimes must be made quickly on the basis of
uncertain and evolving information. State of the art safety
systems with sufficient margin for error and clear lines of
communication, responsibility and authority are essential.
Now that the oil is under control it's tempting for those
of us with some distance from the events to ignore the
difficult reality of offshore drilling and move on to other
things. Those in the Gulf who have dealt directly with the loss
of life or the environment and the economic consequences of the
tragedy cannot do that. For their sake and for the national
interest, the rest of us must not do that either. We must
complete this work and assure that this oil and gas development
is done safely, every time, and that failure is not an option.
For all those reasons we need to be sure that we have in
place systems in our government and in industry so that this
type of tragedy cannot happen again. Beyond that we should lead
the world in development of these systems and technologies and
not settle for standards that are less rigorous than those of
other nations. This is a complex and challenging matter. The
committee unanimously reported legislation in the 111th
Congress that would take many of the necessary steps.
Since then the Department of Interior has taken a number of
important actions to address these issues. Nevertheless I
continue to believe that legislative change is necessary to
fully ensure safe operations going forward. I intend to
introduce legislation again in this Congress, bipartisan
legislation, as is the effort here in our committee. Additional
information has been made available from a variety of sources
since we prepared the legislation that we proposed last summer.
This new information will help us make improvements to our
bill.
In that regard we're very appreciative of the detailed and
thoughtful work of the National Commission on the BP Deepwater
Horizon Oil Spill and Offshore Drilling. Working under a 6-
month deadline they produced an impressive body of work
including key recommendations for achieving the kind of system
of offshore energy development that we aspire to have. We're
very grateful for the work of the Commission, their excellent
staff.
We're pleased to have the Commission Co-Chairs, Senator Bob
Graham, our former colleague and the Honorable William Reilly,
as our witnesses today.
Before we call on them let me defer to Senator Murkowski
for any comments she would want to make at this time.
[The prepared statement of Senator Bingaman follows:]
Prepared Statement of Hon. Jeff Bingaman, U.S. Senator From New Mexico
The hearing will come to order. This is the Committee's first
hearing in the 112th Congress. We appropriately begin our work with an
issue of the highest priority--the Deepwater Horizon tragedy. We have
an important role to play in understanding what happened and ensuring
that it will never happen again. This subject deserves our urgent
attention.
It is now nine months since the Deepwater Horizon offshore drilling
rig exploded and sank, taking the lives of eleven people. Following
that explosion, oil gushed into the Gulf of Mexico for almost three
months before it could be contained, spilling an estimated 170 million
gallons--the largest oil spill in the nation's history.
As I said at the time of the disaster, this is not just Louisiana's
problem. This is America's problem. Despite the passage of time, this
remains a serious problem not just for the Gulf region, but for the
nation as a whole.
While there may be disagreement about where and how to do it, no
one can doubt the need to continue to produce domestic oil and gas.
However, much of our remaining reserves are offshore, in deep water,
and far below the ocean floor. The Deepwater Horizon tragedy has taught
us that such development involves a highly complex interplay of
technologies and human decisions that sometimes must be made quickly on
the basis of uncertain and evolving information. State of the art
safety systems with sufficient margin for error and clear lines of
communication, responsibility, and authority are essential.
Now that the oil is under control, it is tempting for those with
some distance from the events to ignore the difficult reality of
offshore drilling and move on to other things. Those in the Gulf who
have dealt directly with the loss of life or the environmental and
economic consequences of this tragedy cannot do that. For their sake,
and for the national interest, the rest of us must not do that. We must
complete this work, and ensure that this oil and gas development is
done safely every time, and that failure is not an option.
We hear concerns about the economic consequences of slowing down
the leasing and permitting process to address safety issues. We must be
sensitive to these issues and efficient in our regulation. But even if
we focus only on economics, the worst outcome for the industry would be
another accident or an ongoing lack of confidence in industry
operations. Of course there is much more than industry economics at
stake--the very lives of oil and gas workers, the livelihood of workers
in other industries, and the irreplaceable coastal environment.
For all these reasons, we must ensure that we have systems in place
in our government and in the industry so that this cannot happen again.
Beyond that, we should lead the world in development of these systems
and technology and not settle for standards that are less rigorous than
those of other nations.
To achieve these goals is a complex and challenging matter. This
Committee unanimously reported legislation in the 111th Congress that
would take many of the necessary steps. Since then the Department of
the Interior has taken a number of important actions to address these
issues. Nevertheless, I continue to believe that legislative change is
necessary to fully ensure safe operations going forward, and intend to
introduce legislation again in this Congress.
Additional information has become available from a variety of
sources since we prepared our legislation last summer that will help us
make improvements to our bill. In that regard, I am very appreciative
of the detailed and thoughtful work of the National Commission on the
BP Deepwater Horizon Oil Spill and Offshore Drilling. Working under a
six month deadline, they produced an impressive body of work, including
key recommendations for achieving the kind of system of offshore energy
development that we aspire to have.
We are grateful for the work of the Commission and their excellent
staff, and are pleased to have the Commission co-chairs, Senator Bob
Graham and the Honorable William Reilly, as our witnesses today.
Before we hear from them, let me turn to Senator Murkowski for any
opening remarks she would like to make.
[The prepared statement of Senator Sessions follows:]
Prepared Statement of Hon. Jeff Sessions, U.S. Senator From Alabama
Thank you Mr. Chairman, The Deepwater Horizon incident is a very
serious disaster and it is heartbreaking to think of the lives that
were lost, the livelihoods that have been affected, and the impact on
the environment.
The damage that began in the Gulf of Mexico on April 20, 2010, did
not stop when the well was capped and the oil was contained. The
environmental impact of this accident is unprecedented, and many of the
long-term effects may remain unknown for years to come. Alabamians are
still suffering despite the establishment of the Gulf Coast Claims
Facility and the promises made by BP and Ken Fienberg to make everyone
whole.
Unfortunately many complex problems remain and Gulf Coast residents
are still living with the threat of foreclosure, bankruptcy, or being
forced to pull money from their retirement accounts or children's
college funds to pay the bills. In addition, small businesses along the
Gulf Coast that make the majority of their income in the summer months
have been crippled and are fighting to stay open.
Now, these problems are being compounded by high gas prices.
According to the Energy Information Administration, current gasoline
prices around the country average $3.16 a gallon. Approximately 70% of
the cost of gasoline can be attributed to the price of crude oil. As
the largest component of the price of gasoline, this accounts for more
than refining costs, retailing fees, and state and federal taxes
combined. The Department of Interior estimates that the Outer
Continental Shelf contains approximately 85.8 billion barrels of oil
and of these, 44.9 billion barrels are estimated to be in the Gulf of
Mexico. Tapping into these reserves would bring more oil to the global
market and help lower its price. In addition, producing more oil here
at home would keep American income in the U.S., create jobs, and reduce
the amount of money we send to foreign countries. I believe that it is
unthinkable that we have no problem relying on countries such as
Brazil, Saudi Arabia, Iran, and Venezuela, for increased oil imports,
while refusing to produce our own domestic reserves.
The reality is, if we do not drill in the Gulf, we will buy the oil
from a foreign source. I truly believe that America must move toward
greater energy independence and self-sufficiency by adopting a
comprehensive energy plan built on the principles of fuel diversity and
responsible domestic exploration. I recognize we cannot accomplish this
overnight. Currently, the United States consumes on average 18.8
million barrels of oil a day. The greater our dependence on foreign
energy, the greater the threat to America's national and economic
security.
Offshore drilling is an important industry to my state and to our
nation. According to the American Petroleum Institute, the offshore
industry is responsible for nearly 200,000 jobs in the Gulf of Mexico
and a Mobile Chamber of Commerce survey found that the industry
employees over 1,000 individuals from Alabama. Offshore drilling in the
Gulf of Mexico supplies 30 percent of America's domestic energy
production and 80 percent of the Gulf's oil comes from operations at
depths of water greater than 1,000 feet. Since the spill occurred, the
exploration and production of these resources has virtually stopped.
Following the Administration's announcement of their supposed lifting
of the moratorium, only two permits for deepwater drilling have been
issued, which is down 88 percent according to the Gulf Permit Index.
As Mr. Graham has pointed out in his prior comments, offshore
drilling provides the second largest single source of revenue to the
federal government after income taxes. The oil and gas industry
provides the U.S. Treasury over $20 million each day and contributes $1
trillion to the U.S. economy.
Ultimately, we need to address this incident--but must proceed
cautiously to avoid passing legislation that may present unintended
consequences to our economy and energy security. We must conduct a
comprehensive review of our current oil and gas policies to prevent
another crisis similar to what happened in the Gulf. We must feel
confident that we can move forward with domestic energy production
safely and effectively. Our nation depends on energy exploration on the
Outer Continental Shelf, and we must do all we can to make certain that
oil and gas production is conducted under the strongest environmental
protections.
Thank you for your work and efforts in assembling this report, and
I look forward to your testimony.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman. I do appreciate
that you have convened the hearing this morning. I was
optimistic that we would be able to welcome our new committee
members here, but we're still waiting for those assignments to
be made. I think we all recognize how much we get out of these
hearings, they are very worthwhile.
I do understand your desire to have this hearing on a
timely basis. But I also observe that this issue is very
difficult and complex.
Further, I believe that once our committee is fully
organized we'll need to ensure that every member of the
committee has an opportunity to not only hear, but ask
questions and express their views on these matters. Every one
of our constituents uses energy. They rely on us to help ensure
it is affordable, secure and increasingly clean.
I think we recognize that this past year was challenging on
many fronts. I don't think anyone on this committee would ever
want to relive the events of last spring and summer.
We lost 11 men.
We lost the oil rig they worked on.
The oil was released into the Gulf of Mexico for 87 days.
I have said before that this terrible tragedy brought back
the worst memories of the Valdez spill in Alaska 20 years
earlier. Last year's spill was stopped in mid-July. But it
remains appropriate for us to help those impacted by seeking to
seek to prevent future disasters.
The report that we are here to consider today will
certainly play a role in that effort. I respect and appreciate
the Commission's work. Also note the presence of the two
Chairmen here. I look forward to your presentation today.
I'll also point out that as this hearing's background memo
notes there are four other prominent reports on the Deepwater
Horizon incident.
We have one from the Joint Department of Interior/Homeland
Security investigation.
We have a 30-day report from the Department of Interior's
Safety Oversight Board.
We have the National Academy of Engineering report which
isn't due out until March.
Then there's finally the BP's internal report which came
out last fall.
As expected I don't think that these reports are perfectly
congruent. It leaves a great deal of work for us to do in
analyzing where there is agreement among these conclusions and
where there might be need for more inquiry. I hope that we will
at least informally agree on a threefold pledge regarding our
offshore policy.
That is, first, that no victim of a spill should ever go
uncompensated.
That taxpayers should never be on the hook for a company's
damages.
Third that these priorities are managed in a way that not
only preserves, but also promotes a competitive, domestic
offshore industry.
I think that should be agreeable and achievable for all of
us.
One of the true ironies in the tragedies in the Gulf
disaster was that it both opened and reopened such horrific
wounds for the fishermen and others who saw their livelihoods
compromised by its sudden impact. These effects were brought
first by the oil spill and later by the Administration's
moratorium on offshore drilling which has cost thousands of
jobs and had a chilling effect on our Nation's energy policy.
We have to begin confronting those choices today.
More specifically we have to decisively recognize the risks
and the rewards of offshore energy exploration. There's simply
no better way to take measure of those risks and rewards than
by visiting the Gulf of Mexico, witnessing the balance between
the many users of the ocean and their respect for one another.
In my experience the fishing, tourism and energy industries are
perfectly capable of co-existing, just as they did for many
decades before last year's incident. The economies of states
like Alaska and Louisiana indisputably depend on all three. The
loss of any one will lead to instability and hardship.
Americans require seafood. We love our vacations at the
beach. We depend on oil to live our lives. It's a delicate
balance, but a co-existence that we have sustained.
So I view our job here, Mr. Chairman, as finding a way to
return to a point where our regulators and industry are working
to keep all three of these sectors in a secure and sustainable
livelihood. We absolutely need to look at ways to improve our
offshore system and make those operations safer. The
uncertainty that we have had to face over the past year has
been staggering. I hope that today's hearing will provide some
ideas and some clarity as we chart an expeditious path forward.
With that, I look forward to the presentation from the
gentlemen before us and welcome them.
The Chairman. Thank you very much. I now ask Senator
Graham, Mr. Reilly, to go ahead with their presentations in
whichever order they'd like. We, again, thank you very much for
the hard work you've put into this effort and your staff and
congratulate you on the excellent report you've presented to
us.
But if you could each take somewhere in the range of 10
minutes and give us your recommendations. Then we will
undoubtedly have questions.
Senator Graham.
STATEMENT OF BOB GRAHAM, CO-CHAIR, NATIONAL COMMISSION ON THE
BP DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING, MIAMI
LAKES, FL
Senator Graham. Thank you very much, Mr. Chairman. It shows
what being away from here for 6 years will do to you. We very
much appreciate the invitation that you've extended and the
opportunity to present our report.
I also wish to extend our best wishes to the other members
of the committee. I understand that Ranking Member, Senator
Murkowski has had a family crisis recently and we hope that
everything goes well for your----
Senator Murkowski. It all came out fine. Thank you.
Senator Graham. My long time friend and colleague, Bill
Reilly and I will divide our report with Bill talking about the
basic safety issues and recommendations. I will talk about
containment, response and restoration.
In May of last year President Obama created our Commission
and asked it to determine first the causes of the Deep Water
Horizon disaster.
Second, to evaluate the response to that disaster.
Third, to advise the Nation about how future energy
exploration should take place in a responsible manner.
On January the 11th, we released our report, a copy of
which I believe has been made available to all members of the
committee, and we are very pleased that this report was
completed on time, within our 6 months allowance, under budget
and is a unanimous report of the seven members of the
Commission. Those are aspects that we're very proud of and
recognize that that's not always the case.
Although our membership came in for some initial criticism
as lacking in independence and lacking in technical expertise,
I believe we've demonstrated that our work was completely
independent. That we have not shied away from criticism where
we thought that criticism was deserved whether it was at the
White House, the Congress or the industry itself. Our
competency will be judged by our report, its findings and its
recommendations.
We began our effort 6 months ago with a trip to the Gulf
with an extraordinary staff led by Executive Director, Richard
Lazarus. We used hearings, interviews, face to face meetings,
to hear from as many voices as possible with a dedication to
following the facts wherever they might lead. The
Commissioners, the staff of scientists, lawyers, engineers and
policy analysis worked hard and under very demanding deadlines
to make our inquiries broad, deep and effective.
When the President created this Commission, his Executive
Order charged us with finding the root causes of the accident
and recommending measures that would ensure that such a
disaster would never happen again or if it did occur that the
measures to mitigate against damage of the magnitude caused by
Deep Water Horizon spill would not recur. In his statement,
Bill Reilly will discuss these new safety measures. I am going
to discuss response and containment and then restoration.
The response to the Deep Water Horizon spill both at the
government and industry level fell short. Although many
responders acted quickly and in some cases heroically, the
Commission concluded that neither BP nor the Federal Government
was prepared to conduct an effective response to a spill of
this magnitude and complexity. There was a failure to plan in
advance, a failure to coordinate effectively with State and
local governments and lack of information concerning what
response measures would be effective.
In addition, neither the industry nor the Federal
Government had invested in research, development and
demonstration to improve the technology for response or for
controlling the flow of oil from the damaged Macondo. Much of
the technology was the same technology that we saw used in
response to the Exxon Valdez spill 20 years earlier in Alaska.
There had been virtually no enhancement of our technological
capability to deal with a major oil spill.
Equally troubling at the outset of the spill neither
government nor industry had sufficient expertise to determine
the rate of the flow of oil. This lack of accurate knowledge
impeded the efforts to determine the appropriate control
technology and to do it on a timely basis. All these factors
together made for a long and costly response effort that, at
least in the early stages, did not meet the standards which
Federal law requires. The Nation watched on television as day
after day they saw the flow of oil from the broken pipe.
In our report the Commission makes a number of
recommendations to improve response and containment.
Among those recommendations that the Department of
Interior, consulting with other agencies, should develop a more
rigorous set of requirements for industry response plans.
That the EPA and the Coast Guard should involve State and
local governments as significant players in spill response
planning.
That Congress should provide adequate and sustained funding
for oil spill research. We will not waste another 20 years
without improving the technology to do so.
That industry should fund a private organization to
develop, adopt and enforce standards of excellence to assure
continuous improvement in equipment for large scale response,
containment and rescue.
The Commission's recommendations are far reaching in this
area. There is a role for Congress, for the executive branch
and industry in significantly improving our capabilities. There
is also a role for Congress in conducting oversight to assure
that all of these actions are taken.
Now I'd like to turn to how this disaster might play a
positive role in restoring the Gulf of Mexico, one of the
Nation's most valuable ecosystems. As a result of the Deep
Water Horizon spill over 170 million gallons of oil were
spilled into the Gulf with some portions still remaining on the
ocean floor and possibly settling on that floor. The Macondo
disaster placed further stress on coastal resources already
degraded by many decades by a variety of economic and
development activities, including energy production.
On April 19, 2010, the day before the Deep Water Horizon
disaster, the Gulf was, as it remains, a highly productive
ecological and industrial region that nonetheless had seen
years or decades of degradation. Americans rely on the coast
for many things including energy, seafood, tourism. Making the
day before April 19, 2010, the target for restoration would set
our goal at an unnecessarily low aspiration. Rather we should
use this as an occasion for this environmental disaster to aim
higher.
The Commission chose to aim higher by recommending that the
Federal Government, working closely with the Gulf States, make
a renewed and national commitment to the Gulf of Mexico and its
natural resources. Currently no funding source exists to
support comprehensive, regional restoration efforts. Estimates
of the cost of Gulf restoration vary widely. But according to
testimony before our Commission, fully restoring the Gulf will
require between $15 and $20 billion or a minimum of $500
million a year for 30 years.
The litigation process related to the Gulf Deepwater
Horizon spill is likely to generate at least some of those
needed funds. But Congressional action will be required to
assure that the funds reach the Gulf. The Commission recommends
that 80 percent of any Clean Water Act penalties and fines be
directed to Gulf restoration.
The Commission also recommends that Congress create an
effective State/Federal authority to administer Gulf ecosystem
restoration policy. If funding is to be most effectively
directed at long term system restoration, a decisionmaking body
should see that binding priorities are set and funding criteria
adhered to. The structure of the Alaska Exxon Valdez Oil Spill
Trustee Council should inform the structure of a Gulf Coast
Council. As in Alaska, Congress should assure that the
priorities and decisions the Council are informed by input from
Citizen Advisory Councils that represent the diverse
stakeholders and that restoration decisions are rooted in the
best science.
Mr. Chairman, I conclude my remarks by making a general
point that is simple and obvious, but often over--forgotten
when we talk about drilling in the Outer Continental Shelf.
These resources, the Gulf of Mexico, the Federal areas of the
Gulf of Mexico, belong to all of us. They belong to the
American people. Since the 1950s when the decision was made to
lease Federal tracts in the Gulf for oil and gas exploration we
have had a national responsibility to see that that exploration
was done in a manner that was safe, environmentally protective
and beneficial to the Nation.
As my colleague will outline that responsibility has become
greater as the industry has moved into deeper and deeper and
inherently more risky areas of the Gulf. Drilling offshore will
never be reduced to zero risk. But as a Nation we can take some
concrete steps that will dramatically reduce the chances of
another Macondo.
The Commission believes these steps are necessary, steps
necessary as we fulfill our role as a prudent landlord of this
property that belongs to the people of the United States. If
dramatic steps are not taken we fear that at some point in the
coming years another failure will occur and that we will wonder
why the Congress, the Administration and the industry stood
idle. The people of the Gulf who have suffered so much and all
Americans deserve to know that their government and the
industry are going to do.
Mr. Chairman, I appreciate the opportunity to present these
remarks. I will ask that our written statement and the full
report be entered into the record. I look forward to responding
to your questions.
[The joint prepared statement of Hon. Bob Graham and Hon.
William Reilly follows:]
Joint Prepared Statement of Hon. Bob Graham and Hon. William Reilly,
Co-Chairs, National Commission on the BP Deepwater Horizon, Oil Spill
and Offshore Drilling
I. INTRODUCTION
Chairman Bingaman, Ranking Member Murkowski, and members of the
Committee, thank you for the opportunity to testify today on behalf of
the National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling.
The explosion that tore through the Deepwater Horizon drilling rig
last April 20, as the rig's crew completed drilling the exploratory
Macondo well deep under the waters of the Gulf of Mexico, began a
human, economic, and environmental disaster.
Eleven crew members died, and others were seriously injured, as
fire engulfed and ultimately destroyed the rig. And, although the
nation would not know the full scope of the disaster for weeks, the
first of more than four million barrels of oil began gushing
uncontrolled into the Gulf--threatening livelihoods, the health of Gulf
coast residents and of those responding to the spill, precious
habitats, and even a unique way of life. A treasured American
landscape, already battered and degraded from years of mismanagement,
faced yet another blow as the oil spread and washed ashore. Five years
after Hurricane Katrina, the nation was again transfixed, seemingly
helpless, as this new tragedy unfolded in the Gulf. The costs from this
one industrial accident are not yet fully counted, but it is already
clear that the impacts on the region's natural systems and people were
enormous, and that economic losses total tens of billions of dollars.
On May 22, 2010, President Barack Obama announced the creation of
the National Commission on the BP Deepwater Horizon Oil Spill and
Offshore Drilling (the ``Commission''): an independent, nonpartisan
entity, directed to provide thorough analysis and impartial judgment.
The President charged the Commission to determine the causes of the
disaster, and to improve the country's ability to respond to spills,
and to recommend reforms to make offshore energy production safer. And
the President said we were to follow the facts wherever they led.
This Commission report (the ``Report''), which we ask be made part
of the hearing record in its entirety, is the result of an intense six-
month effort to fulfill the President's charge. As a result of our
investigation, we conclude:
The explosive loss of the Macondo well could have been
prevented.
The immediate causes of the Macondo well blowout can be
traced to a series of identifiable mistakes made by BP,
Halliburton, and Transocean that reveal such systematic
failures in risk management that they place in doubt the safety
culture of the entire industry.
Deepwater energy exploration and production, particularly at
the frontiers of experience, involve risks for which neither
industry nor government has been adequately prepared, but for
which they can and must be prepared in the future.
To assure human safety and environmental protection,
regulatory oversight of leasing, energy exploration, and
production require reforms even beyond those significant
reforms already initiated since the Deepwater Horizon disaster.
Fundamental reform will be needed in both the structure of
those in charge of regulatory oversight and their internal
decision-making process to ensure their political autonomy,
technical expertise, and their full consideration of
environmental protection concerns.
Because regulatory oversight alone will not be sufficient to
ensure adequate safety, the oil and gas industry will need to
take its own, unilateral steps to increase dramatically safety
throughout the industry, including self-policing mechanisms
that supplement governmental enforcement.
The technology, laws and regulations, and practices for
containing, responding to, and cleaning up spills lag behind
the real risks associated with deepwater drilling into large,
high-pressure reservoirs of oil and gas located far offshore
and thousands of feet below the ocean's surface. Government
must close the existing gap and industry must support rather
than resist that effort.
Scientific understanding of environmental conditions in
sensitive environments in deep Gulf waters, along the region's
coastal habitats, and in areas proposed for more drilling, such
as the Arctic, is inadequate. The same is true of the human and
natural impacts of oil spills.
We reach these conclusions, and make necessary recommendations, in
a constructive spirit: we aim to promote changes that will make
American offshore energy exploration and production far safer, today
and in the future.
II. THE ROOT CAUSES OF THE EXPLOSION
The Commission examined in great detail what went wrong on the rig
itself. Our investigative staff uncovered a wealth of specific
information that greatly enhances our understanding of the factors that
led to the explosion. The results of that investigation are described
in detail in Chapter 4 of the Report. The separate report of the chief
counsel, to be published soon, will offer the fullest account yet of
what happened on the rig and why. There are recurring themes of missed
warning signals, failure to share information, and a general lack of
appreciation for the risks involved. In the view of the Commission,
these findings highlight the importance of organizational culture and a
consistent commitment to safety by industry, from the highest
management levels on down.
To summarize, the Macondo blowout happened because a number of
separate risk factors, oversights, and outright mistakes combined to
overwhelm the safeguards--promised by both government and by private
industry--to prevent just such an event from happening. But most of the
mistakes and oversights at Macondo can be traced back to a single
overarching failure--a failure of management by BP, Halliburton and
Transocean. Set out below are what Commission investigative staff
determined were ``key facts.''
Key Facts.--The investigation team identified several key human
errors, engineering mistakes and management failures including:
A flawed design for the cement slurry used to seal the
bottom of the well, which was developed without adequate
engineering review or operator supervision;
A ``negative pressure test,'' conducted to evaluate the
cement seal at the bottom of the well, identified a cementing
failure but was incorrectly judged a success because of
insufficiently rigorous test procedures and inadequate training
of key personnel;
Flawed procedures for securing the well that called for
unnecessarily removing drilling mud from the wellbore. If left
in place, that drilling mud would have helped prevent
hydrocarbons from entering the well and causing the blowout;
Apparent inattention to key initial signals of the impending
blowout; and
An ineffective response to the blowout once it began,
including but not limited to a failure of the rig's blowout
preventer to close off the well.
Key Findings.--The ``key facts'' led investigators to make the
following ``key findings'':
Errors and misjudgments by at least three companies--BP,
Halliburton and Transocean--contributed to the disaster.
Management failures included:
--Inadequate training of key personnel.
--Inadequate management of numerous late-stage well design
decisions.
--Poor communication within and between the companies involved.
--Inadequate risk evaluation and risk mitigation measures.
The disaster could have been prevented. Notably, workers on
the rig incorrectly interpreted clear warning signs of a
hydrocarbon influx during the negative pressure test. If
recognized, those warning signs would have allowed them to shut
in the well before the blowout began.
Government regulations did not address several key causes of
the blowout, and regulators lacked the resources or technical
expertise to address others.
Whether purposeful or not, many of the risk-enhancing
decisions that BP, Halliburton, and Transocean made saved those
companies significant time (and money).
The Commission's investigation concludes that these failures were
preventable. Errors and misjudgments by at least three companies--BP,
Halliburton and Transocean--contributed to the disaster. Federal
regulations did not address many of the key issues. For example, no
regulation specified basic procedures for the negative pressure test
used to evaluate the cement seal or minimum criteria for test success.
The chapter also notes that, ``. . .whether purposeful or not, many of
the decisions that BP, Halliburton, and Transocean made that increased
the risk of the Macondo blowout clearly saved those companies
significant time (and money).''
Attached to this testimony is a table that sets out decisions that
increased risk at Macondo, while potentially saving time.*
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* All attachments have been retained in committee files.
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III. REGULATORY OVERSIGHT AND THE NEED FOR REFORM
Regulatory Oversight
The responsibilities assigned to the Minerals Management Services
(MMS) in an effort to regulate the offshore oil and gas industry have
created conflicts of interest and have been subject to pressure from
political and industry interests. MMS was not only responsible for
offshore leasing and resource management; it also collected and
disbursed revenues from offshore leasing, conducted environmental
reviews, reviewed plans and issued permits, conducted audits and
inspections, and enforced safety and environmental regulations.
Over the course of many years, political pressure generated by a
demand for lease revenues and industry pressure to expand access and
expedite permit approvals and other regulatory processes often combined
to push MMS to elevate revenue and permitting goals over safety and
environmental goals. As a result, the safety of U.S. offshore workers
has suffered. The United States has the highest reported rate of
fatalities per hours worked in offshore oil and gas drilling among its
international peers (the U.K., Norway, Canada, and Australia) but has
the lowest reporting of injuries. This striking contrast suggests a
significant under-reporting of injuries in the United States.
These problems were compounded by an outdated organizational
structure, a chronic shortage of resources, a lack of sufficient
technological expertise, and the inherent difficulty of coordinating
effectively with all of the other government agencies that have had
statutory responsibility for some aspect of offshore oil and gas
activities. Besides MMS, the Departments of Transportation, Commerce,
Defense, and Homeland Security, and the Environmental Protection Agency
(EPA) were involved in some aspect of the industry and its many-faceted
facilities and operations, from workers on production platforms to
pipelines, helicopters, drilling rigs, and supply vessels.
Reorganization Needed
To remedy this conflict of interest, Congress should create an
independent agency with enforcement authority to oversee all aspects of
offshore drilling safety (operational and occupational) as well as the
structural and operational integrity of all offshore energy production
facilities, including both oil and gas production and renewable energy
production. The roles and responsibilities of BOEMRE should be
separated into three entities with clearly defined statutory
authorities.
(1) The Offshore Safety Authority would have primary
statutory responsibility for overseeing the structural and
operational integrity of all offshore energy-related facilities
and activities, including both oil and gas offshore drilling
and renewable energy facilities. Congress should enact an
organic act to establish its authorities and responsibilities,
consolidating the various responsibilities now under the OCSLA,
the Pipeline Safety Act, and Coast Guard authorizations. This
should include responsibility for all workers in energy related
offshore activities.
(2) The Leasing and Environmental Science Office would be
charged with fostering environmentally responsible and
efficient development of the Outer Continental Shelf, and would
act as the leasing and resource manager for conventional
renewable energy and other mineral resources on the OCS. The
Office would also be responsible for conducting reviews under
the National Environmental Policy Act (NEPA).
(3) The Office of Natural Resources Revenue would be
responsible for revenue collection and auditing.
Congress should review and consider amending where necessary the
governing statutes for all agencies involved in offshore activities to
be consistent with the responsibilities functionally assigned to those
agencies. The safety-related responsibilities of the new offshore
safety agency should be included in a separate statute.
Since the Commission issued its final report on January 11th,
Secretary of the Interior Ken Salazar has already announced changes in
the organization within Interior that reflect many of the Commission's
recommendations. Other Commission recommendations will require
congressional action, especially those recommendations that seek to
promote the independence of the Offshore Safety Authority from
politics. For instance, the Commission recommends that the head of the
Safety Authority be appointed to a fixed term that cuts across any one
Presidential Administration, a change that can be accomplished most
effectively only by statute.
Regulation to Better Manage Risk
The Commission also recommends a more comprehensive overhaul of
both the leasing program and the regulatory policies and institutions
used to oversee the safety and environmental protection of offshore
activities. The goals must be to reduce and manage risk more
effectively, using strategies that can keep pace with a technologically
complex and rapidly evolving industry, particularly in high-risk and
frontier areas, and to secure the resources needed to execute the
leasing function and provide adequate regulatory oversight. To
accomplish these goals the Commission offers the following three
recommendations:
The DOI should promulgate prescriptive safety and pollution-
prevention standards that are developed and selected in
consultation with international regulatory peers and that are
at least as rigorous as the leasing terms and regulatory
requirements of peer oil-producing nations.
The Department of the Interior (DOI) should develop a
proactive, risk-based performance approach specific to
individual facilities, operations, and environments, similar to
the ``safety case'' approach in the North Sea which requires
drilling rigs to be certified and have safety management
obligations separate and apart from the operator
Working with the International Regulators' Forum and other
organizations, Congress and the DOI should identify those
drilling, production, and emergency-response standards that
best protect offshore workers and the environment, and initiate
new standards and revisions to fill gaps and correct
deficiencies. These standards should be applied throughout the
Gulf of Mexico, in the Arctic, and globally wherever the
international industry operates. Standards should be updated at
least every five years, as under the formal review process of
the International Organization for Standardization (ISO). (See
below for expansion on the development of international
regulations.)
BOEMRE currently relies heavily on prescriptive regulations
incorporating a number of industry technical standards. Prescriptive
regulations must be the basis of an effective regulatory system, but
given the many variables in deepwater drilling, prescriptive rules can
never cover all cases. The federal agency responsible for offshore
activity must have a regulatory approach that integrates more
sophisticated risk assessment and risk management practices into its
oversight of energy developers operating offshore. The focus should
shift from prescriptive regulations covering only the operator to a
foundation of augmented prescriptive regulations, including those
relating to well design and integrity, supplemented by a proactive,
risk-based performance approach that is specific to individual
facilities (production platforms and drilling rigs), operations, and
environments. Both the operator and the drilling rig owners would have
a legal duty to assess and manage the risks of a specific activity by
engaging all contractors and subcontractors in a coordinated safety
management system.
To ensure that Interior has the ability to provide adequate leasing
capabilities and regulatory oversight for the increasingly complex
energy-related activities being undertaken on the OCS, budgets for
these new offices as well as existing agencies should come directly
from fees paid by the offshore industry, akin to how fees charged to
the telecommunications industry pay for the expenses of the Federal
Communications Commission, the Nuclear Regulatory Commission, the
Office of Pipeline Safety which are essentially fully funded by such
regulated industry payments. Through this mechanism, Congress, through
legislation, and DOI, through lease provisions, could expressly oblige
lessees to fund the regulation necessary to allow for private industry
access to the energy resources on the OCS, including renewables.
IV. ENVIRONMENTAL REVIEW
As part of its inquiry into the existing regulatory structure for
offshore drilling, the Commission reviewed existing mechanisms for
protecting the environment. In its work on this question, the
Commission focused on two issues: (1) the application of National
Environmental Policy Act (NEPA) requirements to the offshore leasing
process and (2) the need for better science and greater interagency
consultation to improve decision-making related to management of
offshore resources.
NEPA
Based on the Commission's review of leasing and permitting
processes in the Gulf of Mexico before the Deepwater Horizon incident,
the Commission concluded that the breakdown of the environmental review
process for OCS activities was systemic and that Interior's historical
approach to the application of NEPA requirements for offshore oil and
gas activities needs significant revision. In particular, the
application of tiering, use of categorical exclusions, the practice of
area-wide leasing, and failure to develop formal NEPA guidance all
contributed to this breakdown. The Commission recommends that the
Council on Environmental Quality and the Department of the Interior
revise and strengthen the NEPA policies, practices, and procedures to
improve the level of environmental analysis, transparency, and
consistency at all stages of the OCS planning, leasing, exploration,
and development process.
Improved Interagency Consultation and Environmental Science
Under OCSLA, it is up to the Secretary of the Interior to choose
the proper balance between environmental protection and resource
development. In making leasing decisions, the Secretary is required to
solicit and consider suggestions from any interested agency, but he or
she is not required to respond to the comments or accord them any
particular weight. Similar issues arise at the individual lease sale
stage and at the development and production plan stage. As a result,
NOAA--the nation's ocean agency with the most expertise in marine
science and the management of living marine resources--effectively has
the same limited role as the general public in the decisions on
selecting where and when to lease portions of the OCS. The Commission
recommends a more robust and formal interagency consultation process in
which NOAA, in particular, is provided a heightened role, but ultimate
decision-making authority is retained at DOI. The Commission further
recommends the creation of an Office of Environmental Science, led by a
Chief Environmental Scientist, with specified responsibilities in
conducting all NEPA reviews, coordinating other environmental reviews,
and whose expert judgment on environmental protection concerns would be
accorded significant weight in leasing decision-making.
V. REFORMING INDUSTRY SAFETY PRACTICES
Changing Business As Usual
Without effective government oversight, the offshore oil and gas
industry will not adequately reduce the risk of accidents, nor prepare
effectively to respond in emergencies. However, government oversight
alone cannot reduce those risks to the fullest extent possible.
Government oversight must be accompanied by the oil and gas industry's
internal reinvention: sweeping reforms that accomplish no less than a
fundamental transformation of its safety culture.
Even the most inherently risky industry can be made much safer,
given the right incentives and disciplined systems, sustained by
committed leadership and effective training. The critical common
element is an unwavering commitment to safety at the top of an
organization: the CEO and board of directors.
Industry Self-Policing as a Supplement to Government Regulation
One of the key responsibilities of government is to regulate--to
direct the behavior of individuals and institutions according to rules.
Many businesses and business groups are involved in internal standard
setting, evaluation, and other activities that constitute self-policing
or self-regulation. But even in industries with strong self-policing,
government also needs to be strongly present, providing oversight and/
or additional regulatory control--responsibilities that cannot be
abdicated if public safety, health, and welfare are to be protected.
Industry-standard setting and self-policing organizations are
widespread in the United States and in most industrialized nations--
typically for operations marked by technical complexity, such as the
chemical, nuclear power, civil aviation, and oil and gas industries,
where government oversight is also present. These processes coexist
where there are relatively limited numbers of people with the requisite
expertise and experience, making it hard for government to be able to
rely solely on its own personnel (especially when government cannot
compete with private-sector salaries for those experts). Support for
standard setting and self-policing also arises in industries whose
reputations depend on the performance of each company, and where
significant revenues are at stake. However, industry self-policing is
not a substitute for government but serves as an important supplement
to government oversight.
After Three Mile Island, the nuclear power industry established the
Institute of Nuclear Power Operations (INPO), a nonprofit organization
with the ambitious mission ``to promote the highest levels of safety
and reliability--to promote excellence--in the operation of commercial
nuclear power plants.'' The oil and gas industry, like the nuclear
power industry, has both the substantial economic resources and the
necessary economic incentive to make it happen. INPO was formed because
doing so was in the industry's self-interest. As the Deepwater Horizon
disaster made unambiguously clear, the entire industry's reputation,
and perhaps its viability, ultimately turn on its lowest-performing
members. If any one company is involved in an accident with widespread
and potentially enormous costs, like those that followed the Macondo
blowout, everyone in the industry--companies and employees--suffers, as
do regional economies and the nation as a whole. No one, in industry or
in government, can afford a repeat of the Macondo explosion and spill.
Like the nuclear power industry in 1979, the nation's oil and gas
industry needs now to embrace the potential for an industry safety
institute to supplement government oversight of industry operations. To
be credible, any industry-created safety institute would need to have
complete command of technical expertise available through industry
sources--and complete freedom from any suggestion that its operations
are compromised by multiple other interests and agendas. As a
consensus-based organization, the American Petroleum Institute (API) is
culturally ill-suited to drive a safety revolution in the industry. For
this reason, it is essential that the safety enterprise operate apart
from the API. API's longstanding role as an industry lobbyist and
policy advocate--with an established record of opposing reform and
modernization of safety regulations--renders it inappropriate to serve
a self-policing function.
The INPO experience makes clear that any successful oil and gas
industry safety institute would require in the first instance strong
board-level support from CEOs and boards of directors of companies for
a rigorous inspection and auditing function. Such audits would need to
be aimed at assessing companies' safety cultures and encouraging
learning about implementation of enhanced practices. The inspection and
auditing function would need to be conducted by safety institute staff,
complemented by experts seconded from industry companies. There would
also need to be a commitment to share findings about safety records and
best practices within the industry, aggregate data, and analyze
performance trends, shortcomings, and needs for further research and
development. Accountability could be enhanced by a requirement that
companies report their audit scores to their boards of directors and
insurance companies.
The industry's safety institute could facilitate a smooth
transition to a regulatory regime based on systems safety engineering
and improved coordination among operators and contractors--the
principles of the U.K.'s ``safety case'' that shifts responsibility for
maintaining safe operations at all times to the operators themselves.
It should drive continuous improvement in standards and practices by
incorporating the highest standards achieved globally. The industry
also needs to benchmark safety and environmental practice rules against
recognized global best practices. The Safety and Environmental
Management Program Recommended Practice 75 (API RP 75) developed in
1993 by the API and incorporated by reference in the Department of the
Interior's new workplace safety rules, adopted in October 2010, is a
reasonable starting point.
VI. RESPONSE AND CONTAINMENT
As part of its charge from President Obama, the Commission looked
at the effectiveness of the response to the spill. There were
remarkable instances of dedication and heroism by individuals involved
in the rescue and cleanup. Much was done well--and thanks to a
combination of good luck and hard work, the worst-case scenarios did
not all come to pass. But it is impossible to argue that the industry
or the government was prepared for a disaster of the magnitude of the
Deepwater Horizon oil spill. Twenty years after the Exxon Valdez spill
in Alaska, the same blunt response technologies--booms, dispersants,
and skimmers--were used, to limited effect. On-the-ground shortcomings
in the joint public-private response to an overwhelming spill like that
resulting from the blowout of the Macondo well are now evident, and
demand public and private investment. So do the weaknesses in local,
state, and federal coordination revealed by the emergency.
Neither BP nor the federal government was prepared to conduct an
effective response to a spill of the magnitude and complexity of the
Deepwater Horizon disaster. Three critical issues or gaps existed in
the government's response capacity: (1) the failure to plan effectively
for a large-scale, difficult-to-contain spill in the deepwater
environment; (2) the difficulty of coordinating with state and local
government officials to deliver an effective response; and (3) a lack
of information and understanding concerning the efficacy of specific
response measures, such as dispersants or berms. Moreover, the
technology available for cleaning up oil spills had improved only
incrementally since 1990. The technologies and methods available to cap
or control a failed well in the extreme conditions thousands of feet
below the sea were also inadequate. Although BP was able to develop new
source-control technologies in a compressed timeframe, and the
government was able to develop an effective oversight structure, the
containment effort would have benefitted from prior preparation and
contingency planning.
Improved Oil Spill Response Planning
The Department of the Interior should create a rigorous,
transparent, and meaningful oil spill risk analysis and planning
process for the development and implementation of better oil spill
response. Several steps are needed for implementation:
Interior should review and revise its regulations and
guidance for industry oil spill response plans. The revised
process should ensure that all critical information and spill
scenarios are addressed in the plans.
In addition to Interior, other agencies with relevant
scientific and operational expertise should play a role in
evaluating spill response plans to verify that operators can
conduct the operations detailed in their plans. Specifically,
oil spill response plans, including source-control measures,
should be subject to interagency review and approval by the
Coast Guard, EPA, and NOAA. Other parts of the federal
government, such as Department of Energy national laboratories
that possess relevant scientific expertise, could be consulted.
Plans should also be made available for a public comment period
prior to final approval and response plans should be made
available to the public following their approval.
Interior should incorporate the ``worst-case scenario''
calculations from industry oil spill response plans into NEPA
documents and other environmental analyses or reviews.
Spills of National Significance
The Gulf oil spill presented an unprecedented challenge to the
response capability of both government and industry. Though the
National Contingency Plan permitted the government to designate the
spill as one of ``national significance,'' this designation did not
trigger any procedures other than allowing the government to name a
National Incident Commander.
EPA and the Coast Guard should establish distinct plans and
procedures for responding to a ``Spill of National Significance.''
Specifically, EPA should amend or issue new guidance on the National
Contingency Plan to:
Increase government oversight of the responsible party,
based on the National Contingency Plan's requirement that the
government ``direct'' the response where a spill poses a
substantial threat to public health or welfare.
Augment the National Response Team and Regional Response
Team structures to establish additional frameworks for
providing interagency scientific and policymaking expertise
during a spill. Further, EPA, NOAA, and the Coast Guard should
develop procedures to facilitate review and input from the
scientific community--for example, by encouraging disclosure of
underlying methodologies and data.
Create a communications protocol that accounts for
participation by high-level officials who may be less familiar
with the National Contingency Plan structure and create a
communications center within the National Incident Command--
separate from the joint information center established in
partnership with the responsible party--to help transmit
consistent and complete information to the public.
Strengthening State and Local Involvement
The response to the Deepwater Horizon disaster showed that state
and local elected officials had not been adequately involved in oil
spill contingency planning, though career responders in state
government had participated extensively. Unfamiliarity with, and lack
of trust in, the federal response manifested itself in competing state
structures and attempts to control response operations that undercut
the efficiency of the response overall.
EPA and the Coast Guard should bolster state and local involvement
in oil spill contingency planning and training and create a mechanism
for local involvement in spill planning and response similar to the
Regional Citizens' Advisory Councils mandated by the Oil Pollution Act
of 1990.
In addition, a mechanism should be created for ongoing local
involvement in spill planning and response in the Gulf. In the Oil
Pollution Act of 1990, Congress mandated citizens' councils for Prince
William Sound and Cook Inlet. In the Gulf, such a council should
broadly represent the citizens' interests in the area, such as fishing
and tourism, and possibly include representation from oil and gas
workers as ex-officio, non-voting members.
Research and Development for Improved Response
The technology available for cleaning up oil spills has improved
only incrementally since 1990. Federal research and development
programs in this area are underfunded: In fact, Congress has never
appropriated even half the full amount authorized by the Oil Pollution
Act of 1990 for oil spill research and development.
Specifically, Congress should provide mandatory funding (i.e.
funding not subject to the annual appropriations process) at a level
equal to or greater than the amount authorized by the Oil Pollution Act
of 1990 to increase federal funding for oil spill response research by
agencies such as Interior, the Coast Guard, EPA, and NOAA. In addition,
Congress and the Administration should encourage private investment in
response technology more broadly, including through public-private
partnerships and a tax credit for research and development in this
area.
Dispersants
Prior to the blowout, the federal government had not adequately
planned for the use of dispersants to address such a large and
sustained oil spill, and did not have sufficient research on the long-
term effects of dispersants and dispersed oil to guide its decision-
making.
EPA should update and periodically review its dispersant testing
protocols for product listing or pre-approval, and modify the pre-
approval process to include temporal duration, spatial reach, and
volume of the spill. EPA should update its dispersant testing protocols
and require more comprehensive testing prior to listing or pre-
approving dispersant products. The Coast Guard and EPA should modify
pre-approvals of dispersant use under the National Contingency Plan to
establish procedures for further consultation based on the temporal
duration, spatial reach, or volume of the spill and volume of
dispersants that responders are seeking to apply. EPA and NOAA should
conduct and encourage further research on dispersants.
Containment
The most obvious, immediately consequential, and plainly
frustrating shortcoming of the oil spill response set in motion by the
events of April 20, 2010 was the simple inability--of BP, of the
federal government, or of any other potential intervener--to contain
the flow of oil from the damaged Macondo well.
At the time of the blowout on April 20, the U.S. government was
unprepared to oversee a deepwater source-control effort. Once the
Secretary of Energy's science team, the U.S. Geological Survey, the
national laboratories, and other sources of scientific expertise became
involved, the government was able to substantively supervise BP's
decision-making, forcing the company to fully consider contingencies
and justify its chosen path.
The National Response Team should develop and maintain expertise
within the Federal government to oversee source-control efforts. The
National Response Team should create an interagency group--including
representation from the Department of the Interior, Coast Guard, and
the Department of Energy and its national laboratories--to develop and
maintain expertise in source control, potentially through public-
private partnerships.
Industry's Spill Preparedness
Beyond attempting to close the blowout preventer stack, no proven
options for rapid source control in deepwater existed when the blowout
occurred. The Department of the Interior should require offshore
operators to provide detailed plans for source control as part of their
oil spill response plans and applications for permits to drill.
These plans should demonstrate that an operator's containment
technology is immediately deployable and effective. In applications for
permits to drill, the Interior should require operators to provide a
specific source-control analysis for each well. As with oil spill
response plans, source-control plans should be reviewed and approved by
agencies with relevant expertise, including the Interior and the Coast
Guard.
Improved Capability for Accurate Flow Rate Estimates
Early flow rate estimates were highly variable and difficult to
determine accurately. However, the understated estimates of the amount
of oil spilling appear to have impeded planning for and analysis of
source-control efforts like the cofferdam and especially the top kill.
The National Response Team should develop and maintain expertise
within the federal government to obtain accurate estimates of flow rate
or spill volume early in a source-control effort. The National Response
Team should create an interagency group--including representation from
Interior, the Coast Guard, the national laboratories, and NOAA--to
develop and maintain expertise in estimating flow rates and spill
volumes. In addition, EPA should amend the National Contingency Plan to
create a protocol for the government to obtain accurate estimates of
flow rate or spill volume from the outset of a spill. This protocol
should require the responsible party to provide all data necessary to
estimate flow rate or spill volume.
More Robust Well Design and Approval Process
Among the problems that complicated the Macondo well-containment
effort was a lack of reliable diagnostic tools and concerns about the
well's integrity. The Department of the Interior should require
offshore operators seeking its approval of proposed well design to
demonstrate that:
Well components, including blowout preventer stacks, are
equipped with sensors or other tools to obtain accurate
diagnostic information--for example, regarding pressures and
the position of blowout preventer rams.
Wells are designed to mitigate risks to well integrity
during post-blowout containment efforts.
Industry Responsibilities for Containment and Response
Industry's responsibilities extend to efforts to contain any big
spills as quickly as possible and to mitigate the harm caused by spills
through effective response efforts. Both government, which must be
capable of taking charge of those efforts, and industry were woefully
unprepared to contain or respond to a deepwater well blowout like that
at Macondo. All parties lacked adequate contingency planning, and
neither had invested sufficiently in research, development, and
demonstration to improve containment or response technology.
From now on, the oil and gas industry needs to combine its
commitment to transform its safety culture with adequate resources for
containment and response. Large-scale rescue, response, and containment
capabilities need to be developed and demonstrated--including
equipment, procedures, and logistics--and enabled by extensive
training, including full-scale field exercises and international
cooperation.
To that end, at least two industry spill containment initiatives
have emerged that build on ideas and equipment that were deployed in
response to the Macondo blowout and spill. The nonprofit Marine Well
Containment Company was created in July 2010 by four of the major,
integrated oil and gas companies. The second spill containment
initiative is being coordinated by Helix Energy Solutions Group, which
played a role in the Macondo well containment efforts.
Yet neither the Marine Well Containment Company's planned
capabilities nor Helix's go past 10,000 feet despite the fact that
current drilling technology extends beyond this depth. Also it seems
that neither is structured to ensure the long-term ability to innovate
and adapt over time to the next frontiers and technologies. What
resources, if any, either initiative will dedicate to research and
development going forward is unclear.
The primary long-term goal of a spill containment company or
consortia should be to ensure that an appropriate containment system is
readily available to contain quickly spills in the Gulf of Mexico with
the best available technology. Any spill containment company or
consortia should ensure that it remains focused on this goal, even when
doing so potentially conflicts with the short-term interests of its
founding companies, in the case of MWCC, or the parent company, in the
case of Helix. An independent advisory board, with representatives from
industry, the federal government, state and local governments, and
environmental groups could help keep any spill containment initiative
focused on innovative, adaptive, effective spill response over the long
term.
VII. FINANCIAL RESPONSIBILITY
Oil spills cause a range of harms, including personal, economic and
environmental injuries, to individuals and ecosystems. The Oil
Pollution Act makes the party responsible for a spill liable for
compensating those who suffered as a result of the spill--through human
health and property damage, lost profits, and other personal and
economic injuries--and for restoring injured natural resources. The Act
also provides an opportunity to make claims for compensation from a
dedicated Oil Spill Liability Trust Fund. The Oil Pollution Act,
however, imposes limits on both the amount for which the responsible
party is liable, and the amount of compensation available through the
trust fund. In the case of the Deepwater Horizon spill, BP (a
responsible party) has placed $20 billion in escrow to compensate
private individuals and businesses through the independent Gulf Coast
Claims Facility. But if a less well capitalized company had caused the
spill, neither a multi-billion dollar compensation fund nor the funds
necessary to restore injured resources, would likely have been
available.
Liability for damages from spills from offshore facilities is
capped under the Oil Pollution Act at $75 million, unless it can be
shown that the responsible party was guilty of gross negligence or
willful misconduct, violated a federal safety regulation, or failed to
report the incident or cooperate with removal activities, in which case
there is no limit on damages. Claims up to $1 billion for certain
damages can be made to, and paid out of, the Oil Spill Liability Trust
Fund, which is currently supported by an 8-cent per-barrel tax on
domestic and imported oil.
The Oil Pollution Act also requires responsible parties to
``establish and maintain evidence of financial responsibility,''
generally based on a ``worst-case discharge'' estimate. In the case of
offshore facilities, necessary financial responsibility ranges from $35
million to $150 million.
Inadequacy of Current System
There are two main problems with the current liability cap and
financial responsibility dollar amounts. First, the relatively modest
liability cap and financial responsibility requirements provide little
incentive for oil companies to improve safety practices. Second, as
noted, if an oil company with more limited financial means than BP had
caused the Deepwater Horizon spill, that company might well have
declared bankruptcy long before paying fully for all damages. In the
case of a large spill, the Oil Spill Liability Trust Fund would likely
not provide sufficient backup. Thus, a significant portion of the
injuries caused to individuals and natural resources, as well as
government response costs, could go uncompensated.
Any discussion of increasing liability caps and financial
responsibility requirements must balance two competing public policy
concerns: first, the goal of ensuring that the risk of major spills is
minimized, and in the event of a spill, victims are fully compensated;
and second, that increased caps and financial responsibility
requirements do not drive competent independent oil companies out of
the market. A realistic policy solution also requires an understanding
of the host of complex economic impacts that could result from
increases to liability caps and financial responsibility requirements.
Options for Reform
As this Committee and others in Congress consider options for
addressing these problems, the Commission recommends that first,
Congress significantly increase the liability cap and financial
responsibility requirements for offshore facilities. To address both
the incentive and compensation concerns noted above, Congress should
significantly raise the liability cap. Financial responsibility limits
should also be increased, because if an oil company does not have
adequate resources to pay for a spill, the application of increased
liability has little effect. Should a company go bankrupt before fully
compensating for a spill, its liability is effectively capped. If,
however, the level of liability imposed and the level of financial
responsibility required are set to levels that bear some relationship
to potential damages, firms will have greater incentives to maximize
prevention and minimize potential risk of oil spills and also have the
financial means to ensure that victims of spills do not go
uncompensated.
Second, the Commission recommends that Congress increase the limit
on per-incident payouts from the Oil Spill Liability Trust Fund. If
liability and financial responsibility limits are not set at a level
that will ensure payment of all damages for spills, then another source
of funding will be required to ensure full compensation. The federal
government could cover additional compensation costs, but this approach
requires the taxpayer to foot the bill. Therefore, Congress should
raise the Oil Spill Liability Trust Fund per-incident limit. Raising
the Oil Spill Liability Trust Fund's per-incident limit will require
the Fund to grow through an increase of the per-barrel tax on domestic
and imported oil production. An alternative would be to increase the
Trust Fund through a surcharge by mandatory provisions in drilling
leases triggered in the event that there are inadequate sums available
in the Fund.
Third, the Commission recommends that the Department of the
Interior enhance auditing and evaluation of the risk of offshore
drilling activities by individual participants (operator, driller,
other service companies). The Department of the Interior, insurance
underwriters, or other independent entities should evaluate and monitor
the risk of offshore drilling activities to promote enhanced risk
management in offshore operations and to discourage unqualified
companies from remaining in the market.
The Interior Department currently determines financial
responsibility levels based on potential worst-case discharges, as
required by the Oil Pollution Act. Although the agency's analysis to
some degree accounts for the risk associated with individual drilling
activities, it does not fully account for the range of factors that
could affect the cost of a spill, and thus the level of financial
responsibility that should be required. Interior should analyze a host
of specific, risk-related criteria when determining financial
responsibility limits applicable to a particular company, including,
but not limited to: geological and environmental considerations, the
applicant's experience and expertise, and applicable risk management
plans. This increased scrutiny would provide an additional guard
against unqualified companies entering the offshore drilling market.
VIII. SPILL IMPACTS AND GULF RESTORATION
Even before the highly visible damages caused by the spill became
clear, many crucial Gulf economic and ecological resources--fisheries,
transportation, tourism--faced long-term threats. First, more than
2,300 square miles of coastal wetlands--an area larger than the State
of Delaware--have been lost to the Gulf since the United States raised
the massive levees along the lower Mississippi River after the
devastating Great Flood of 1927. Exceptionally powerful hurricanes,
always a threat to the region, struck the coast in 2005 (Katrina and
Rita) and 2008 (Gustav and Ike), causing even more wetland loss.
Second, low-oxygen bottom waters were in the process of forming a
massive ``dead zone'' extending up to 7,700 square miles during the
summer of 2010. Referred to as hypoxia, this phenomenon has intensified
and expanded since the early 1970s as a result of nutrient pollution,
mainly from Midwestern agriculture. And finally, the Deepwater Horizon
disaster made matters worse: 11 rig workers killed in the explosion and
17 injured; many thousands of people exposed to contaminated waters,
coasts, beaches, and seafood; thousands out of work; birds and sea
animals killed and significant habitats damaged or destroyed. The
Commission's investigation made plain that existing authorities are not
adequate to redress these significant harms and ensure restoration of
the Gulf.
Human Health Impacts
The National Contingency Plan overlooks the need to respond to
widespread concerns about human health impacts. For smaller oil spills,
the response effort is generally carried out by trained oil spill
response technicians, but given the scale of the response to the
Deepwater Horizon spill and the need to enlist thousands of previously
untrained individuals to clean the waters and coastline, many response
workers were not screened for pre-existing conditions. This lack of
basic medical information, which could have been collected if a short
medical questionnaire had been distributed, limits the ability to draw
accurate conclusions regarding long-term physical health impacts. EPA
should amend the National Contingency Plan to add distinct procedures
to address human health impacts during a Spill of National
Significance. Spills of this magnitude necessarily require a
significant clean-up effort, potentially exposing workers to toxic
compounds in oil and dispersants.
Consumer Confidence
Images of spewing oil and oiled beaches in newspapers and on
television set the stage for public concern regarding the safety of
Gulf seafood. Additional factors contributed to the lingering
impression that the public could not trust government assurances that
the seafood was safe: the unprecedented volumes of dispersants used,
confusion over the flow rate and fate of the oil, frustration about the
government's relationship with BP in spill cleanup, and lawsuits filed
by fishermen contesting the government's assurance of seafood safety.
The economic blow to the Gulf region associated with this loss of
consumer confidence is sizable. BP gave Louisiana and Florida $68
million for seafood testing and marketing, as well as money to assess
impacts on tourism and fund promotional activities. As of early
December 2010, BP was considering a similar request from Alabama.
In future spills, however, there is no guarantee that a responsible
party will have the means or the inclination to compensate such losses.
Such indirect financial harms are currently not compensable under the
Oil Pollution Act. Nevertheless, losses in consumer confidence are real
and Congress, federal agencies, and responsible parties should consider
ways to restore consumer confidence in the aftermath of a Spill of
National Significance.
The Commission recommends that Congress, federal agencies, and
responsible parties take steps to restore consumer confidence in the
aftermath of a Spill of National Significance.
LACK OF SUSTAINED FUNDING FOR GULF RESTORATION
A lack of sustained and predictable funding, together with failed
project coordination and long-term planning, has resulted in incomplete
and often ineffective efforts to restore the Gulf's natural
environment. No funding source currently exists to support regional
restoration efforts. While cost estimates of Gulf restoration vary
widely, according to testimony before the Commission, fully restoring
the Gulf will require $15 billion-$20 billion, or a minimum of $500
million per year, over 30 years. A number of different sources
currently provide funding to individual states for restoration, however
none of these sources provides funds for Gulf-wide coastal and marine
restoration, and none is sufficient to support the sustained effort
required. Most policymakers agree that without a reliable source of
long-term funding, it will be impossible to achieve restoration in the
Gulf.
Several Gulf States and the federal government have filed or are
expected to file suit against BP and other companies involved in the
spill, which will likely create opportunities to direct new restoration
funds to the region. In some cases, congressional action will be
required to ensure that funds are directed to this purpose. The
Commission recommends that 80 percent of any Clean Water Act penalties
and fines be directed to Gulf restoration. Should such penalties and
fines not be directed to the Gulf, Congress should consider other
mechanisms for a dedicated funding stream not subject to annual
appropriations. Although such mechanisms face hurdles, the fact remains
that resources are needed if progress on coastal restoration is to
continue. Inaction is a prescription for further degradation. Should
CWA penalties not be redirected to Gulf restoration, Congress should
consider other mechanisms for a dedicated funding stream not subject to
annual appropriations.
Decision-making Body for Expediting Work
In order for funding to be most efficiently directed at long-term
restoration, a decision-making body is needed that has authority to set
binding priorities and criteria for project funding. The Gulf Coast
Ecosystem Restoration Task Force is now in place, as recommended by the
September 2010 report on restoration from Secretary of the Navy Ray
Mabus to the President, and subsequently established by Presidential
Executive Order. According to the Executive Order, the job of the Task
Force is to begin coordinating the different restoration projects being
undertaken by various jurisdictions in the Gulf, coordinating related
science activities and engaging stakeholders. However, as many in
Congress and the Administration have suggested, the Task Force lacks
some features necessary to effectively direct long-term restoration
efforts in the Gulf--most importantly the ability to set binding goals
and priorities.
The Commission recommends that Congress establish a joint state-
federal Gulf Coast Ecosystem Restoration Council. The Council should
implement a restoration strategy for the region that is compatible with
existing state restoration goals. Experience in major restoration
endeavors, including those in the Gulf, has shown that, absent binding
goals to drive the process, restoration projects are insufficiently
funded, focused, or coordinated. Therefore, the restoration strategy
should set short-and long-term goals with binding criteria for
selecting projects for funding. Key criteria should include national
significance; contribution to achieving ecosystem resilience; and the
extent to which national policies--such as those related to flood
control, oil and gas development, agriculture, and navigation--directly
contributed to the environmental problem. Congress should also ensure
that the priorities and decisions of the Council are informed by input
from a Citizens Advisory Council that represents diverse stakeholders.
Restoration Rooted in Science
Finally, but essentially, restoration decisions must be rooted in
science. An approach that draws heavily on information and advice from
scientists will result in project selection and funding allocations
that are more likely to lead to an effective region-wide restoration
strategy. Such an approach will also advance transparency in decision-
making and enhance credibility with the public.
The Commission accordingly recommends the establishment of a Gulf
Coast Ecosystem Restoration Science and Technology Program that would
address these issues in three ways: (1) by creating a scientific
research and analysis program, supported by the restoration fund, that
is designed to support the design of scientifically sound restoration
projects; (2) by creating a science panel to evaluate individual
projects for technical effectiveness and consistency with the
comprehensive strategy; and (3) by supporting adaptive management plans
based on monitoring of outcomes scaled both to the strategy itself and
to the individual projects or categories of projects included in it.
Managing Ocean Resources
The Commission recommends that as a part of management and
restoration efforts in the marine environment, greater attention should
be given to new tools for managing ocean resources, including
monitoring systems and spatial planning. Marine scientists have emerged
from the Deepwater Horizon incident with more precise questions to
investigate, as well as a better sense of monitoring needs in the Gulf
of Mexico, which because of its multiple uses and economic value should
be a national priority. To that end, the National Ocean Council, which
the President initiated in July 2010, should work with the responsible
federal agencies, industry and the scientific community to expand the
Gulf of Mexico Integrated Ocean Observing System, including the
installation and maintenance of an in situ network of instruments
deployed on selected production platforms. Participation in this system
by industry should be regarded as a reasonable part of doing business
in nation's waters.
Coastal and marine spatial planning has the potential to improve
overall efficiency and reduce conflicts among ocean users. Congress
should fund grants for the development of regional planning bodies at
the amount requested by the President in the fiscal year 2011 budget
submitted to Congress. Ocean management should also include more
strategically sited Marine Protected Areas, including but not limited
to National Marine Sanctuaries, which can be used as ``mitigation
banks'' to help offset harm to the marine environment. Given the
economic and cultural importance of fishing in the Gulf region--and the
importance of Gulf seafood to the rest of the country--scientifically
valid measures, such as catch share programs, should be adopted to
prevent overfishing and ensure the continuity of robust fisheries.
IX. THE FUTURE OF OFFSHORE DRILLING
The central lesson to be drawn from the catastrophe is that no less
than an overhauling of both current industry practices and government
oversight is now required. The changes necessary will be transformative
in their depth and breadth, requiring an unbending commitment to safety
by government and industry to displace a culture of complacency.
Drilling in deepwater, however, does not have to be abandoned. It can
be done safely. That is one of the central messages of the Commission's
final report. The Commission's recommendations are intended to do for
the offshore oil and gas industry what new policies and practices have
done for other high risk industries after their disasters. The
Commission believes that the potential for such a transformation to
ensure productive, safe, and responsible offshore drilling is
significant, and provides reason for optimism even in the wake of a
disaster.
The significance of the Deepwater Horizon disaster, however, is
broader than just its relevance to the future of offshore drilling. The
disaster signals the need to consider the broader context of the
nation's patterns of energy production and use, now and in the future--
the elements of America's energy policy. The explosion at the Macondo
well and the ensuing enormous spill--particularly jarring events
because of the belief they could never happen--force a reexamination of
many widely held assumptions about how to reconcile the risks and
benefits of offshore drilling, and a candid reassessment of the
nation's policies for the development of a valuable resource. They also
support a broader reexamination of the nation's overall energy policy.
Important decisions about whether, when, where, and how to engage
in offshore drilling should be made in the context of a national energy
policy that is shaped by economic, security, pace of technology,
safety, and environmental concerns. Offshore drilling will certainly be
an important part of any such policy, but its relative importance today
will not, and should not, be the same a half-century from now. The
nation must begin a transition to a cleaner, more energy-efficient
future. Otherwise, its security and well-being will be increasingly
dependent on diminishing supplies of nonrenewable resources and on
supplies from foreign sources.
Drilling for oil in the Gulf of Mexico, however, is not solely a
matter for U.S. consideration. Both Mexico and Cuba have expressed
interest in deepwater drilling in the Gulf in the near future.
Potential sites are close enough to the United States--Cuba's mainland
lies only 90 miles from Florida's coast and the contemplated wells only
50 miles--that if an accident like the Deepwater Horizon spill occurs,
fisheries, coastal tourism, and other valuable U.S. natural resources
could be put at great risk. It is in our country's national interest to
negotiate now with these neighbors to agree on a common, rigorous set
of standards, a system for regulatory oversight, and operator adherence
to an effective safety culture, along with protocols to cooperate on
containment and response strategies in case of a spill.
FRONTIER AREAS
Our Commission also examined prospects in so called ``frontier
areas.'' On December 1, in the wake of the Deepwater Horizon
experience, Interior Secretary Ken Salazar announced that the
Administration would not proceed with drilling in areas where there are
``no active leases'' during the next five-year leasing plan. As a
result, exploration and production in certain frontier areas--the
eastern Gulf and off of the Atlantic and Pacific coasts--are deferred.
The Secretary also indicated that plans for 2011 drilling in Alaska's
Beaufort Sea would be subjected to additional environmental
assessments.
The major interest in offshore Alaska reflects the likelihood of
finding significant new sources of oil there. The Chukchi and Beaufort
Sea off Alaska's north coast rank behind only the Gulf of Mexico in
estimated domestic resources. But finding and producing those
potentially important supplies of oil offshore Arctic Alaska requires
the utmost care, given the special challenges for oil spill response
and containment, and heightened risks associated with this frontier,
especially its extreme cold, extended seasons of darkness, hurricane-
strength storms, and pervasive fog--all affecting access and working
conditions--and the extraordinary richness of its ecosystems and the
subsistence native communities dependent upon their protection. To deal
with these serious concerns about Arctic oil spill response,
containment and the heightened environmental stakes the Commission
recommends three approaches before the Department of the Interior makes
a determination that drilling in a particular area is appropriate.
First, the Department should ensure that the containment and response
plans proposed by industry are adequate for each stage of development
and that the underlying financial and technical capabilities have been
satisfactorily demonstrated in the Arctic. Second, the Coast Guard and
the oil companies operating in the Arctic should carefully delineate
their respective responsibilities in the event of an accident--
including search and rescue--and then must build and deploy the
necessary capabilities. Third, Congress should provide the resources to
establish Coast Guard capabilities in the Arctic, based on the Guard's
review of gaps in its capacity.
The Arctic is shared by multiple countries, many of which are
considering or conducting oil and gas exploration and development. The
extreme weather conditions and infrastructure difficulties are not
unique to the U.S. Arctic. Damages caused by an oil spill in one part
of the Arctic may not be limited to the waters of the country where it
occurred. As a result, the Commission recommends that strong
international standards related to Arctic oil and gas activities be
established among all the countries of the Arctic. Such standards would
require cooperation and coordination of policies and resources.
Bringing the potentially large oil resources of the Arctic outer
continental shelf into production safely will require an especially
delicate balancing of economic, human, environmental, and technological
factors. Both industry and government will have to demonstrate
standards and a level of performance higher than they have ever
achieved before.
Creating and implementing a national energy policy will require
enormous political effort and leadership--but it would do much to
direct the nation toward a sounder economy and a safer and more
sustainable environment in the decades to come. Given Americans'
consumption of oil, finding and producing additional domestic supplies
will be required in coming years, no matter what sensible and effective
efforts are made to reduce demand--in response to economic, trade, and
security considerations, and the rising challenge of climate change.
Last June, this committee reported a bill that would reform the
regulation of offshore drilling. The Outer Continental Shelf Reform Act
of 2010, if passed, would effect notable changes, many of which are in
line with the Commission's recommendations. The Committee proposed to
divide MMS into distinct bureaus with focused missions. The Commission
expanded on that by recommending a clear distinction between the land
management responsibilities of planning and leasing on one hand and the
safety oversight and enforcement roles on the other. The Department of
the Interior has just initiated the next phase of the reorganization of
the former MMS to achieve that clarity of purpose critical to
eliminating conflicts of interest. We applaud the detail of the
Secretary's plan for reorganization. While the legislation and actions
taken by Interior represent significant reforms, the Commission
believes it is important to go a step further. The Commission
recommends that Congress pass an organic act to establish the new
Bureau of Safety and Environmental Enforcement as a wholly independent
agency housed at Interior, with a Director appointed by the President
for a five or six year term. That authority is essential to ensure the
right institutional independence to protect the welfare of offshore
workers and the environment. Reorganization without statutory
clarification might be undone for the sake of efficiency once the
memory of the Deepwater Horizon has dimmed. That should not be allowed
to happen.
The Commission recommendations go a step further than the Committee
bill, in that we believe the budget for a competent safety regulator
must be guaranteed with funding from an assessment on the regulated
industry. This step is essential if we want to ensure that those
responsible for protecting In addition, the agencies charged with
regulating drilling must be adequately funded to ensure that they can
perform their duties, expedite permits and reviews as needed, and hire
experienced engineers, inspectors, and scientists.
The Commission will provide, within one week after this hearing, a
more detailed side-by-side comparison of the Committee bill and the
Commission's recommendations.
The extent to which offshore drilling contributes to augmenting
that domestic supply depends on rebuilding public faith in existing
offshore energy exploration and production. We have proposed a series
of recommendations that will enable the country and the oil and gas
industry to move forward on this one critical element of U.S. energy
policy: continuing, safe, responsible offshore oil drilling to meet our
nation's energy demands over the next decade and beyond. Our message is
clear: both government and industry must make dramatic changes to
establish the high level of safety in drilling operations on the outer
continental shelf that the American public has the right to expect and
to demand. It is now incumbent upon the Congress, the executive branch,
and the oil and gas industry to take the necessary steps.
The Chairman. Thank you very much. Your full statement will
be part of the record as will Mr. Reilly's. Why don't you go
ahead with your presentation?
STATEMENT OF WILLIAM K. REILLY, CO-CHAIR, NATIONAL COMMISSION
ON THE BP DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING,
SAN FRANCISCO, CA
Mr. Reilly. Thank you, Mr. Chairman. Senator Murkowski,
members of the committee, it is an honor and a privilege for us
to appear before this committee now as it has been to serve on
this Commission. We have, as Senator Graham described, spent
the last 6 months developing these recommendations. I think
what we have to report to the President and to you and to the
country is fundamentally a positive, a hopeful and even an
optimistic report.
We vitally need the resources of offshore oil and gas.
That's where the future lies in this industry. It's a major
contributor to our supplies. It will become a significantly
more important contributor in the future.
The country's confidence however, in our ability to access
those hydrocarbons safely, responsibly with protection for the
environment has been shattered. That is a matter of concern for
government and it certainly is a matter of concern for
industry. We need the resource. Our economy, our mobility, our
way of life requires it.
This Commission concludes that we can access it safely and
responsibly. We know how. We recommend in the report the
measures, the institutional changes, actually quite modest
ones, particularly with respect to the amount of new money that
we think is necessary. But we absolutely must take some of
these steps because when one looks at the history of government
oversight of this enterprise, and of industry's own having
fallen into a sense of complacency about safety, the history.
The record is not pretty.
We conclude that industry--that government first, through
several Administrations has allowed revenues which were one
major priority that it was expected to produce and to oversee
to drive concerns for safety and environment. There are many
reasons for this.
One of them has to do simply with budgeting. The budget for
the agency has gone down in the last 20 years while oil and gas
development offshore has tripled. The agency does not have
adequate resources to continue to do what the country asks it
to do. It is not sufficiently trained, professional, nor are
its people compensated. That is a fundamental reality.
Also because of the combination of its responsibility to
generate revenue with one hand and also to regulate and protect
with the other it has been conflicted. We believe that a
fundamental reform needed and this is a cost free reform, is to
create a wall of separation between the revenue generation that
will occur at the Interior Department as a consequence for
leasing. Revenues, that by the way are very substantial and
which are second only to the Internal Revenue Service in total
Federal receipts on the one hand and safety and regulation on
the other.
Secretary Salazar has moved in this direction. We applaud
those moves. We do not think they are sufficient.
We believe that in order to create a sustainable entity
with integrity, free from political interference and from the
concerns of revenue generation, a distinct entity must be
created, a safety institute within the Interior Department to
regulate for safety and environment. It should have access to
all of the resources of the government, of the Department. But
have an independent director, much like the FBI Director
appointed for a term of years and immune to political
interference.
We have used the terms complacency and systemic which have
drawn the lightning. They have been heavily criticized and
particularly by leaders in the industry. I understand why.
Because many companies have extremely impressive systems for
safety and environmental management, our Commission spent many
hours in the presence of at least three of those companies and
our senior technology and science advisor, Richard Sears,
claimed 33 years of experience in offshore oil and gas
development.
We respect those systems. We understand how good they are.
However, at the conclusion of their presentations I found
myself asking, well with all that you are doing, and I couldn't
think nor could our Commission staff have anything more to ask
them to do in many cases. Your rigs were nevertheless shut down
in the Gulf.
Not only that, your response plans were concerned to
protect walruses, your fatality rate is five times what it is
in the North Sea which is a much more punishing environment and
as I was told in the very first week of my appointment by the
CEO of BP, Tony Hayward, we have no adequate subsea containment
capability or technology. What I have heard so many industry
people say is well, no one thought this could happen. I think
that is another way of saying well we were complacent.
The government was complacent. Industry was complacent. I
personally have some history in the oil and gas industry. I
didn't think it could happen.
In order to address the industry part of this issue and to
recognize that however fast we undertake reforms within the
Interior Department to build up that Department and make it the
match for the people that it's regulating. Its inspectors
better trained in understanding the technologies and able to
oversee them. Industry itself has got to establish a safety
institute.
Other high risk industries have done this. The chemical
industry after Bhopal established Responsible Care. The nuclear
industry after Three Mile Island established the Institute for
Nuclear Power Operations.
These enterprises are designed to raise the standard of
everybody so that even the best companies, in fact especially
the best companies have an interest in making them work. There
were many people in industry who were fully aware of BP's
challenged history with respect to safety. They had no way of
doing anything about it.
With a safety institute, much like INPO for the nuclear
industry they would be able to have best practices designed, do
evaluations, do audits, third party audits, and then give
grades.
Draw to the attention of the CEOs of the lagging companies
their failings and ask if they do what the nuclear power
corporations group does, actually call them out.
Ask them publicly to explain or at least within the
industry to explain why they are getting a low grade and what
they propose to do about it.
We also conclude in the report that we need to recognize
the international dimensions of the problem. If you look at a
map of the Gulf of Mexico a very large part of it is not
subject to the sovereign jurisdiction of the United States. We
now know that Mexico intends within the next 2 years, as does
Cuba, to go into offshore oil and gas development.
We require with respect to the Gulf, in my view, in our
view, an agreement among the three countries about best
practices and the kinds of standards that will govern
everyone's operations. We need the same thing in the Arctic.
We've already seen Denmark move ahead and Greenland last summer
with two new wells.
Russia has just overseen an agreement between Rosneft and
BP to develop the Arctic and its waters. Canada will no doubt
move ahead. There's every reason for us to engage as a matter
of foreign policy these countries in ensuring that the Arctic
is subject to a common high standard of environmental
protection and safety.
Oil and gas is one important industry in the Gulf.
Fisheries and tourism also matter. We need to manage them in a
way that each is compatible with the other.
We can do that. It is very vitally important in our view to
inject more science in the decisionmaking affecting areas that
are determined to be eligible for leasing. Then in the way that
development and permitting is allowed to go forward.
I would conclude by saying that other countries, most
notably the United Kingdom and Norway, have responded to
catastrophes of their own in the offshore environment by
improving their standards. Norway and the UK both created
something called The Safety Case. It is something that
militates against a check the box mentality with respect to
regulation.
It says present to the regulator an analysis of a
particular problem, a particular formation with its pressures
and its challenges, whatever they may be. Explain how you, the
company that's going to be the operator responsible for
developing it, how you propose to address those risks, how you
propose to guard against a problem.
That has worked effectively in those 2 countries in the
eyes both of industry and of the international regulators. We
need to do something like that in our own environment. If we do
I think it will begin to restore the confidence of the country
in this industry and get us on with the job that we all
consider so important.
So in a very real sense for Senator Graham and myself and
for the members of the Commission, we've done what we can do.
We're delighted to have the attention and the concern expressed
by so many of you. But in a very real sense now it's over to
you.
Thank you, Mr. Chairman.
The Chairman. Thank you very much. We'll go with 5 minute
round of questions. Let me start out.
Let me ask first about the statistic that you, Mr. Reilly,
gave us here about the United States having the highest
reported rate of fatalities. You mention, I think, 5 times the
fatalities that have been experienced in the North Sea. Are
there some regulatory requirements that are imposed in these
other countries, in the United Kingdom, in Norway, that you
believe we have failed to impose?
Is that the explanation? Is it these entities that you've
referenced that have been established? What explains that
difference in the rate of fatalities?
Mr. Reilly. My sense of this is that there are two or three
elements that play a key role.
One is there is a very close relationship between the
regulatory enterprises and those who they are regulating with
careful, steady, monitoring of activities and a deep analysis
of what is proposed by an industry with respect to development.
That is The Safety Case that I mentioned.
The second is that the unions are more powerful. There is
probably a more immediate give and take with respect to safety
rules on the part of people who are looking after those on the
rigs, especially for the high risk businesses of helicopters
and diving. I think both of those play an important part.
I guess I would say that a third reason is probably a
culture that involves much better control over contractors and
a much more close scrutiny of contractor activities carried out
on behalf of operators.
I had a conversation recently with a chairman of one of the
majors who commented that Norway was the gold standard as far
as his company was concerned. He said we had our catastrophe
back in the early 1980s. We learned from it. But the regulation
is very, they're very practical, very specific, very much a
give and take and very particular to the well situation that's
being addressed. That is The Safety Case in a nutshell.
The Chairman. You also recommend this, that the industry
establish its own institute to deal with safety and to
establish safety standards and monitor that safety, as I
understand it. You make reference to this institute of nuclear
power operations, INPO, which is--was established after the
Three Mile Island incident for the nuclear industry. Suggest
that a similar institute should be established related to oil
and gas.
You go on to talk about how, in your view, the current, the
American Petroleum Institute is not properly equipped or
designed to perform this function. Could you describe that a
little bit more and explain how close this analogy is between
the nuclear industry and the oil and gas industry?
Mr. Reilly. Let me give my own personal impressions. I
serve on the board of a company that has two nuclear reactors
in Comanche Peak in Texas, 2,300 megawatts of nuclear power. I
have been consistently impressed that the senior management
after the evaluators have come through from INPO, which they do
every couple of years, has been extraordinarily respectful of
the people who are evaluating them, having been an
administrator of EPA, that was not always my experience with
the people that we regulated. But it is true for this group.
The group is focused not on compliance. It's focused on
best practice. The company that I'm associated with recently
scored a No. 1.
The CEO made a remark to me. He said if we do everything
this year that we did last year we will not get a No. 1 because
they raised the bar. They raise the standard every year.
INPO is an independent enterprise totally separate from any
other aspect of nuclear promotion, for example. That is part of
its strength. It is exclusively focused on safety. It's about
400, a staff of 400, a budget of $100 million or so, paid for
by industry. The fact that it has only one responsibility and
that responsibility does not include advocacy gives it, I
think, its special respect and independence.
Now with respect to the American Petroleum Institute I
really became aware in the course of the life of this
Commission of the tremendous technical resources that it
possesses. It does standards development for industry with its
task forces. It certifies equipment. It is the gold standard, I
understand, for equipment worldwide in the oil and gas
industry.
But it also advocates. In fact, that was my only previous
encounter with it when in all the years I had lived in
Washington. So I think the reality is both for optics and for
effective, independent operation of something that has a
distinct and exclusive mission on safety, it has to be a new
enterprise.
The Chairman. My time is up.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman. Thank you both,
gentlemen.
Mr. Reilly, you mention that the use of the term systemic
sets off its own controversy. Within your report the statement
is made ``Three major companies failed to apply rigorous
process safety measures to their drilling operations in the
Gulf of Mexico, Halliburton and Transocean which service
drilling operations throughout the Gulf along with BP.'' Then
you conclude that there's a systemic nature of the offshore
industry's problem.
But if you apply the same logic that you have two doctors
who make some pretty fatal errors with a patient that therefore
the entire hospital staff is somehow necessarily responsible
for what could be considered routinely making these fatal
errors on other patients. Is this a fair assessment of the
report's conclusion?
If that is the case, have we just basically been lucky then
that for the past few decades that a spill of this magnitude
has not occurred with some other 14,000 wells that are in the
Gulf of Mexico?
Mr. Reilly. Senator, I would answer that question with one
word. Yes.
I would cite some statistics here on loss of well control
which are 79 losses of well control between 1996 and 2009, I
think are the dates. I think you should have those handouts. I
know you can't read them from here. I can't read them from
here.
But those are, in many cases, near misses and lucky
accidents because they did not result in an explosion, for
example or in some cases even in a major spill. But they
involve loss of well control. That is the hydrocarbons. Gas was
moving.
Senator Murkowski. Does loss of well control mean a blow
out?
Mr. Reilly. No, it doesn't mean a blow out, but it means
very often a blow outs could happen if it's not managed, if
it's not corrected for. A loss of well control is not supposed
to happen in the industry. It is a mistake.
The notion of systemic and I know this is troublesome to
the industry and particularly to the companies which have
worked so hard to make themselves safe. I say systemic, we say
it's systemic because the presence of the two contractors who
are implicated along with BP in this accident is global. They
are operating everywhere for virtually everybody.
So everybody depends upon the quality of their work. Not
only that, but in the 1990s and even late 1980s the industry
began to divest itself of a number of capacities that it had,
many that had for example independent capacity to monitor and
to measure and evaluate cement when it was provided. They no
longer have that most of them now.
So they take what is given them as BP did in this case. It
turned out the cement had failed several tests by Halliburton
itself. Our Commission had the formula that we were given by
Halliburton tested and it failed nine tests in an independent
or in a laboratory run by Chevron.
It's inconceivable to us that Halliburton would only have
provided faulty cement to BP. Just as it's inconceivable to us
to Transocean which is the largest rig operator in the world
would only have failed to see gas rising in the drill pipe on a
BP rig. It really requires too much imagination, I think, to
imagine that all of it could have occurred only with respect to
one company in one place at one time.
Senator Murkowski. I understand clearly what you are
saying. Your report also recognizes that you have at least two
companies that you cite as having exemplary records for
operating in the OCS. You have a situation where you have
pinpointed obviously three operators. For those three operators
the sins are being held against everybody that is operating
there.
Again, the word systemic appropriately raises some
concerns.
Mr. Reilly. Could I just interject?
Senator Murkowski. Please go ahead.
Mr. Reilly. Even if one does not accept that it is a
systemic problem everybody's exploratory rigs were shut down in
deep water in the Gulf. That is one reason why I think it is
the answer to it is very much a systemic answer. I think the
industry is going to have to take itself, the responsibility
for having the institute we describe so that those very good
companies some of whose leaders most strenuously object to the
term systemic and feel they've been painted with that brush
have a means in the future of preventing one company from
implementing them all.
Senator Graham. If I could just add to what Bill has said.
You used the example of two doctors in a hospital. One of the
things that physicians are required to do is to diagnose the
ill patient before they prescribe what to do about their
condition. We think we have the same responsibility.
We could have diagnosed this. One option was that this was
one rogue company. Therefore the solution was to punish/
sanction that one company.
That was not our diagnosis. In the area that I spoke of,
restoration, it was stunning how ill prepared the industry writ
large was to respond to this incident. This--the capacity to
respond is an industry wide issue. The investment in the
research so that we will be constantly improving our capability
to respond is an industry wide issue.
So for those reasons we thought the word systemic was
appropriate, accurately diagnosed the problem. Therefore we
provided prescriptions on that basis. I don't think they are
onerous prescriptions. The use of The Safety Case, as is
currently done in the North Sea, exactly the same companies
that are operating in the Gulf of Mexico, the major companies
are operating in the North Sea. So that we're not asking them
to do something that is--with which they are unfamiliar.
I think another important thing that's happened in terms of
the prior safety record is that record was in areas of less
than 1,000 feet where the industries had decades of experience.
What's happened since 1900 is the industry had been moving into
first deep and now what is referred to as ultra deep drilling.
The risks are exponentially greater as you go into those deeper
waters. Therefore, the need to have an industry wide, systemic
approach to how we can do it in the safest possible manner, I
think, is compelling.
Senator Murkowski. My time has expired.
The Chairman. Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman. Thank you Chairman
Graham and Chairman Reilly. I think your report is full of
important recommendations.
The one I want to zero in on is this matter of the
contractors. Because I think as the committee has looked at
this issue it's important to really sort out all of the key
relationships between who actually does the work. So we've got
BP holding the lease from the Federal Government. Then you've
got contractors. They own the rigs and they do the drilling.
The problem has been that the contractors hide behind the
lease holders and try to shield themselves from liability. So
what we heard at Chairman Bingaman's hearing earlier is that
after the event both Halliburton and Transocean rushed to blame
BP. I actually went to the SEC filings and saw the lengths that
Transocean goes in order to absolve themselves of liability.
My question revolves around what the Senate is now looking
at, is if all you do is lift the liability limits which is
what's being discussed here in the Energy Committee. We're
debating it here in the Senate. The contractors and the
pervasive problems that you all have pointed out aren't going
to be subject to liability. They've absolved themselves.
So my question to both of you to begin is should the
Congress consider some sort of special approach to ensure that
there's accountability with the contractors.
For example, the Congress could consider a separate Federal
certification and bonding requirements for the drilling
contractors.
You could say that in deep water, for example, there ought
to be some specific measures put in place to hold these
contractors accountable.
My sense is if you don't do something like that and all you
do is lift the liability limits we will continue to have this
finger pointing routine in case after case after case and won't
have built up the kind of tier of safety protection that the
public deserves. I'd be interested in either of your comments.
Mr. Reilly. My own sense of that and I discussed that with
the Chairman of one of the major companies, who said a good
operator is in charge of everything that happens and extremely
rigorous with respect to policing contractors. To fix liability
on those who actually won the lease and have the responsibility
and write the contracts for their contractors is probably
better than the alternative of trying to parcel out.
Particularly given how hugely complex their relationships and
the number of service contractors are that support one large
rig, for example.
I have always been struck by the differential in accident
rates among contractors in the oil and gas industry verses
operators. They're typically quite significant. They're not
significant with respect to every company. But most companies,
they are.
Most good operators work very hard to try to make sure that
the whole stream of support services that they have is managed
respectively, is managed effectively. I know in the case of the
nuclear power industry, the INPO evaluations that I mentioned
go well back into the supply chain to look at those who supply
the fuel, who transport the fuel, who do the construction and
so forth. I think that is probably the safer, more reassuring
way to go rather than to try to get in the middle of contractor
relations on the part of the operator. You want the operator to
be on the line for what happens.
I would expect that one consequence of this might be that
in the future operators not only will be more rigorously
observant with respect to their contractors, but also
contractually will probably try to share more liability.
Senator Graham. If I could just add----
Senator Wyden. Chairman Graham, just as you get into it
there is no question, Chairman Reilly, that would make more
sense. But when you look at these contracts, that's why I went
to the SEC filing. That absent the BP, that BP in this case who
holds the lease being really hardnosed with respect to these
indemnity, you know, provisions, all bets are off with respect
to the contractors because I've seen the lengths that the
contractors are going.
It's really striking when you see this Transocean. I mean,
it's clear they saw the ball game as absolving themselves from
liability. So my first choice would be the BPs of the world
playing a hardnosed game with the contractors. But I just don't
see that to date.
Chairman Graham.
Senator Graham. I would make a couple of comments.
One, the most significant accident prior to Macondo
occurred in Australia. Australia set up a commission of inquiry
to review that. As I have understand their report they
basically absolved Halliburton which provided the cement which
was, as it was in this case, a critical element in allowing
this explosion to occur.
Because of this legal focus of attention on the prime
contract, who in this case I think was a Norwegian company, so
I would agree with the--Bill's observation. That I think while
it's not a perfect solution. That of the options placing
responsibility on the permitee is the best of the options.
One other thing that I would say this raises, the
regulators, in our judgment, have not adapted to the new
realities of the way the industry is operating. Too often they
continue to see this as vertically integrated industry that it
may have been in times past. Not only has it become an
extremely diverse industry in terms of the use of special
expertise, but it also has not given adequate, give the
regulators adequate attention to the safety consequences of
that--in the way in which they go about their operations.
So I think that's another reason to seriously consider our
suggestion that we need to substantially enhance the capability
of the regulator in part because of this greater complexity of
achieving safe operations.
Senator Wyden. My time is up, but as you all furnish more
examples of potential cement problems just makes the case for
one way or another overhauling this contractual relationship.
Thank you both.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Barrasso.
Senator Barrasso. Thank you very much, Mr. Chairman. I want
to welcome our guests. Thank you.
I appreciated your editorial in today's Politico that you
wrote called the due diligence for deep water oil drilling both
of you put in and found it very helpful. We need to remember
that 11 people lost their lives in this tragedy. The exact
causes of the accident are still unknown.
The report states the crew could have prevented the blow
out or at least significantly reduced its impact if they had
reacted in a timely and appropriate manner and human error a
component to this. Clearly there are lessons that need to be
drawn from this tragedy, ways to promote safety, to reduce
risk, to improve oil spill response. In my opinion shutting
down offshore energy exploration would be the wrong lesson to
take from this. Offshore exploration creates jobs, drives
economic development.
The Administration's response of a moratorium seems to be
at a point where people are making it permanent and others--and
people in the Gulf region are calling it a permatorium. It has
basically stopped offshore drilling. Jobs and economic recovery
have been significantly jeopardized.
The Department of Energy forecast domestic production is
going to decrease at least 13 percent in 2011. The gas prices
are increasing. The nationwide average is now over $3 a gallon.
I've had concerns throughout and have worked with members
of this committee on amendments to create a truly bipartisan
Commission because I've had concerns from the beginning. Mr.
Reilly, you and I have talked about this in my office, that the
Commission the President set up was philosophically opposed to
offshore drilling. One of the members of the Commission heads
an environmental group that has actively been involved in
litigation related to the oil spill.
The--I've been critical that the Commission has lacked
members with critical, technical expertise in offshore
drilling. There was no petroleum engineer or rig safety expert.
That that had an impact on the credibility of the Commission.
I'd like to focus a little bit on that failed blow out
preventer. I think people across the country who had never
heard of a blow out preventer after the tragedy in the Gulf all
focused on the blow out preventer. They saw news stories around
the clock. I thought it was a crucial piece of understanding
the cause of the accident.
Now the autopsy for the blow out preventer started just on
November 16. The Associated Press has now reported that the
testing has been delayed again on the blow out preventer. The
device was raised from the sea floor on September 4. It then
sat for 2 months at a NASA facility in New Orleans before
testing started. The investigating team overseeing the testing
and this is a report out just earlier this week isn't willing
to comment.
Did the Commission run specific tests on the blow out
preventer?
Mr. Reilly. No sir, we did not. This issue was obvious from
the start. In fact I raised it with the President at our first
meeting that we did not expect to have the blow out preventer
then up from the water, deep water, much before late August. I
think that was in fact true.
So there has been no forensic analysis of the BOP and nor
did we address that in our own deliberations because of course
we didn't have access to it.
Senator Barrasso. So do you think your investigation was
limited without the results and without even this
investigation?
Mr. Reilly. We're pretty confident we figured out what
happened.
Senator Barrasso. Human error?
Mr. Reilly. We know that the BOP did not activate. So
that's your fundamental fact that is relevant to the situation.
But with respect to the decisions that were made and the
consequences they had, we're confident that we go to the bottom
of this.
Senator Barrasso. I wanted to go also to a couple places in
the report and you mentioned it in the editorial as well as
your comments about Cuba and Mexico in terms of potential
impacts if there are drilling accidents in those areas. Because
we know right now that there is a large Russian oil and gas
production company which has contracted with Cuba that they
have planning on exploratory wells. They're going to be within
50 miles of the coast of the United States which if there is a
problem could affect fisheries, coastal tourism.
It seems that Cuba has already leased these blocks within
50 miles of the coast of Florida according to your report with
plans for seven exploration wells by 2014. You made some
recommendations here. Do you know if the Administration is
taking up on that? What we, as your home State of Florida,
others might not even hear about it in Wyoming, that's the
concern. What are the impacts of Russians coming in, their
companies drilling within that close of a distance to the
United States when our own companies aren't allowed to do so?
Mr. Reilly. I think they're worrisome. I have met with the
Mexican regulator, Juan Carlos Zepeda, about Mexico's own
standards and been reassured that also to learn that Secretary
Salazar has met with the President of Mexico, President
Calderon, about some of these issues and has invited us to go
down with him in March to work with the Mexicans.
I've also asked Zepeda if Mexico would use its
relationships with Cuba to become an interlocutor to try to
ensure that they also respect whatever is decided by the
Mexicans and by us together. Mexico would very much like to
have a treaty and we'd like to have it resolved by the end of
this year. The President has said after that he will have less
influence as a lame duck President.
Given Cuba's relationships with Mexico, I would imagine
that would be taken seriously by them. My understanding is and
this is really, probably fifth hand, that Cuba is sensitive to
what they have learned and what we have learned with respect to
the problems that we've had in deep water and interested itself
in ensuring that it doesn't happen to them.
Senator Barrasso. Thank you. Thank you very much, Mr.
Chairman. My time's expired.
The Chairman. Thank you.
Senator Udall.
Senator Udall. Thank you, Mr. Chairman.
Good morning to both of you. Thank you for your hard work
and in particular I want to thank your staff and make the
comment that this document is wide ranging. It's readable.
Concrete recommendations. It won't just sit on a shelf, I can
assure you.
I did also want to comment. Senator Barrasso, I thought
made an important suggestion to the committee last year. It's
unfortunate in a sense that we didn't get our wide ranging
energy bill out of the committee and that your idea could have
been implemented. I'm not sure, Senator, how we complement and
in some cases critique what's in here, but I'd be more than
happy to work with you as we move forward.
I was thinking as well, listening to you, that if we had a
lot of these protocols in place then we probably wouldn't have
had to have a moratorium after this spill because although we
all want no spills in the future and we're going to work
overtime to make that a reality, there may well be another
spill. If we have to shut down the entire industry and I know
Senator Landrieu is here, that's not a good thing. That hurts
our economy, hurts job creation and the like.
I did want to ask you about Cuba. But I think you've
already, you've expressed, I think, some thoughtful ideas
there. I'm not sure your work is done.
You may both have to be co-diplomatics there. I know,
Senator Graham, you've got great working knowledge of our
relationship or non-relationship with the Cubans. In particular
given that I think our own companies can't even collaborate
with the Cuban government. This is a thorny problem but one
that you've drawn important attention to.
If I might given, that my home State of Colorado has a lot
of onshore development and there have been some serious blow
outs in places like West Virginia and Pennsylvania just last
year, do you have any thoughts about your recommendations
applying to onshore oil and gas developments?
In particular, when you look at safety cultures and safety
regulations across the board?
Mr. Reilly. As a commission we did not get into that. But
in one of the questions that has arisen is would a new safety
institute established by the oil and gas industry have
responsibilities that go beyond the offshore environment. Our
sense is that certainly to begin with it should not.
The offshore environment presents a distinct set of
challenges and problems. It's more than enough to occupy a new
institution for some time. So probably it would be a mistake.
There are other regulatory bodies that, pipeline safety and so
forth, chemical response, that do attend to aspects of the
onshore oil and gas industry.
So our sense is that for now we would confine it. What we
say and have confined our recommendations to the offshore
environment.
Senator Udall. Senator Graham.
Senator Graham. I agree with what Bill has said. I would
underscore one of the differences between offshore and onshore,
onshore is a combination of drilling on publicly owned lands
and privately owned lands. So the government has a regulator
role and a landlord role.
In the case of the Federal waters in the Gulf of Mexico,
it's all public land. In my judgment that sets a different set
of obligations that yes, we're interested in having effective
regulation, but we ought to also be concerned as the owner of
the land for its prudent use.
A use that does not adversely affect our asset.
A use that is compatible with other users in the Gulf,
particularly the seafood and the tourism industries.
So I would agree with that. We've got a lot of work to do
to deal with the assignment that was given to us which was the
future of offshore drilling. There could well be some learning
in that process that might be applicable and eventually applied
to onshore that was outside of our jurisdiction.
Senator Udall. Senator, I want to mention I was excited to
hear you talk about restoring the Gulf's ecosystems. I know I
don't have to convince Senator Landrieu that that's important.
Perhaps this tragic incident can create more motivation to put
some of the resources you mentioned into the Gulf--since we all
have a stake not only because it's our gas station, but it's
also where we get the large majority of our seafood. Then the
tourism industry that's so important to your State is also
affected.
My time's expired. But again I wanted to thank you and in
particular I may want to follow up on the R and D ideas that
you had.
Senator Shaheen and I have introduced a combination of
bills that we hope we can generate support from the Chairman
and the Ranking Member that would expand the kind of R and D
that's done both in the Federal realm, but as well in the
private realm focusing on well head safety. But then also spill
responses. I know Senator Shaheen probably will want to talk
about her ideas in that regard.
Thank you again.
The Chairman. Senator Landrieu.
Senator Landrieu. Thank you, Mr. Chairman. I want to thank
both leaders of this Commission, Senator Graham and Mr. Reilly
for your contributions to this effort which is an extremely
important subject for our Nation, for the Gulf Coast and
particularly for the State of Louisiana that serves as host.
Primarily Texas and Louisiana serve as hosts along with
Mississippi and Alabama to some degree, but much less to this
great industry.
I want to just say to the members of this committee how
impressed I am with the intensity that you both put into this
work. Following it very closely at some points through this
work you've managed to aggravate the White House and the
President, who appointed you, the environmental community and
the industry. So there is some hope that this report has, you
know, found some sort of balance and----
Mr. Reilly. Making me feel we better get out of town.
[Laughter.]
Senator Landrieu. If we can review it with that in mind.
Second, one of my colleagues brought up again his, and I
want to stress this, brought up again his uncomfortable-ness
with the makeup of the Commission. I want to say again, I was
very uncomfortable when this Commission started for all the
reasons that the Senator outlined. But I found through your
work and reading your reports and testifying before your
Commission, meeting with your members, listening to what
other--how other people reacted that you all took a very
balanced approach.
One thing that I'm particularly pleased about because I
don't think people expected this is that this committee made an
unequivocal or this Commission, comment or statement about the
importance of the future of this industry. That it's important
that America have this industry. That we strive to make it the
best in the world.
That it's, I didn't hear the word indispensable. I'm not
sure the word indispensable is written here. But you've
communicated how important a robust, offshore oil and gas. I
don't want to put words in your mouth, Mr. Reilly, but could
you just repeat, you know, just briefly that part of your
testimony which I think is important as we begin.
Mr. Reilly. Senator Landrieu I opened with that statement
today. I think it is an absolutely vital industry. Vital to our
economy, to our mobility, to our way of life is what I said. It
seems obvious that irrespective of one's views with respect to
the transition that we need to carbon free fuels to away from
fossil fuels. That will be true for many, many years to come
under any scenario that I have seen that we can imagine.
I would like to comment a little further, if I might.
Senator Landrieu. Just 20 seconds because I don't want to
take up----
Mr. Reilly. On the credentials of the committee we did have
resources that were quite considerable. Richard Sears, I
mentioned his long experience in the industry, the meetings
that we had, the technical help we had from many sources. But
it really does strike me in fairness now. This is the product
of what we did.
If you have problems with it, specific criticism and I
haven't heard that from those who've been criticizing the
makeup of the Commissioners. It seems to me it's time to focus
on what we proposed----
Senator Landrieu. We can do and move forward together.
Mr. Reilly. What we determined were the causes rather than
our credentials.
Senator Landrieu. One of the other significant parts of
this particularly to the people of the Gulf Coast in Louisiana
is your strong recommendation that 80 percent of the penalty
dollars be directed to the Gulf Coast. Senator Graham, I'd just
like to ask you in 30 seconds. What struck you as, you know,
sort of the most important influential element that went into
that recommendation?
I mean what did you see? What did you hear that made you
really believe that this is the right thing to do because as
you know that is not current law. We're going to have to change
a law which I have introduced and will re-introduce to do so.
Senator Graham. One, the Gulf of Mexico is a major American
asset.
No. 2 it has been substantially degraded in recent decades
in significant part due to Federal decisions and Federal
actions.
Third, this tragedy will be compounded if we learn nothing
about the opportunities that are available to us.
I believe this is the chance that we may not have again in
the foreseeable future to make a significant movement toward
restoring this critical part of our Nation. To allow it to have
a new birth to perform all of the functions that it has done
for us not only in the provision of energy but also in the
provision of important food stocks and a source of regeneration
for our people.
Senator Landrieu. One final point. I think that we have to
be very careful. I know the systemic has been the lightning rod
here.
In defense of the industry on this point I'll make just a
couple of other facts, you know, noted for the record.
No. 1, I think it's important to say again since 1947 to
2009 only 175 thousand barrels have been spilled from over 16.5
billion barrels of oil produced. That's about one-one
thousandth of a percent spilled verses total production. I
think that's a pretty good record. If the industry was as
cavalier and complacent and totally unfocused on safety and
environmental concerns, I don't think that would be the
statistic. That is what it is.
Second, we have to be very careful comparing ourselves to
Norway. I want, Mr. Chairman, to put this in the record. There
were 140 million hours worked in the Gulf of Mexico. We're the
most robust area in the world, as you know.
More operators.
More people.
More rigs.
More money produced.
Norway worked only 41 million man hours in the same period
last year. Australia worked only 15 million. So if our, you
know, rate of injury to workers is five times higher, we're
still ahead of the game because this is ten times more man
hours worked. I think we've got to be very careful because our
industry is so large.
I'll conclude with this. We are proud of this industry. We
know it's essential for America's future. I ask every member of
this committee, Republican and Democrat, before you vote on
this final report, you owe it to yourself to come down and see
this industry in action.
You can talk to environmental groups. You can talk to
industry groups. But it is important to get your eyes on what
we are getting ready to sort of recalibrate and reregulate.
Thank you.
Mr. Reilly. Those are quite fair comments, Senator. I
accept them.
I would just say that among the industry people I have
surveyed they are extraordinarily complimentary, particularly
to the Norwegian system, but to the Norwegian and UK regulatory
systems. They experience the regulation there and consider that
it is more practical, more rigorous and ultimately satisfying
to them. They comply with those rules.
So I don't want to build too much on the Norwegian
experience. You're right. It's a much smaller country. Most of
it is not deep water by the way. But I take your point.
The Chairman. Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman. Thank you
gentlemen for your report and for your work on this.
My questions focus specifically on MMS and their--the
reforms that we need to have at MMS. The fact that as an agency
an oversight, the fact that input from other agencies and third
parties are so important. So I wanted to ask you specifically
about your recommendation on page 264 which is about NOAA
providing comments and recommendations concerning specific
geographic areas that should be excluded from the leasing
program or treated in a specific manner due to ecological
sensitivities for reasons relevant to NOAA's ocean and
coastline and science expertise.
Now I know Chairman Rockefeller has been very big on this.
I mean, my colleagues, Senator Boxer has recently introduced
legislation in regards to protecting our coastal areas. So you
seem to be very much in favor of making sure that Interior hear
from NOAA as it relates to science and sensitivity areas of our
oceans and how to proceed.
Senator Graham. I would say two of the themes that run
throughout our report are first, the focus on science that we
need to bring to bear the best science that within the
government and outside the government to make these decisions.
Second is specificity. For a period from the late 1930s up
until the 1990s most of our offshore oil and gas in the Gulf
was in fairly well known, predictable areas. Therefore large
tract leasing made some sense. As we move into deeper, deeper
waters the circumstances from one site to the next can be quite
different in terms of the geology, the pressures, the other
factors that would contribute to the level of riskiness.
So we want to bring that best science on a more focused
basis to evaluate specific sites as to their appropriateness,
the range of risk and the commitment of the ultimate permittee
to adopt measures that will mitigate those risks on that
specific site.
Senator Cantwell. Thank you, Senator Graham. Because I want
to know that in 2007 NOAA recommended that MMS dramatically
scale back its planned oil and gas lease sales in the Chukchi
Sea because of the environmental concerns because obviously if
some disaster happened there we have far, far less resources or
ability to reach that area. Basically MMS ignored NOAA's
recommendations and went forward with the lease sale as
planned.
So these are issues that are happening every day. So I
appreciate the report saying specifically Interior must adopt
NOAA's recommendations or publish writing for why they're not
so that we can get to the heart of this issue.
Second, the Commission's report includes a recommendation
to have regular third party audits on certification. I look at
the ABS Certification Societies that provide oversight for part
of the rigs. To me they could have provided a valued third
party validation of whether the equipment also functioned as
advertised. So I appreciate that that is also in your report to
strengthen the MMS oversight.
Senator Graham. I think all of those suggestions are
worthy, but they all reflect the fact that our regulatory
system has not kept up with the opportunities and the realities
of the way the industry is currently operating. So maybe one
of, if not the most recommendation to Congress those--that
thing which is singularly within its capability--is to provide
the adequate funding for the restoration and ongoing the
adequate funding to see that we have a regulatory system that
allows us to be that prudent landlord in the protection of the
safety and condition of the Gulf of Mexico.
Senator Cantwell. But it's hard for an agency like MMS to
provide that skill or technical expertise within inside the
agency. But certainly they can have third party contractors who
oversee that.
Senator Graham. That's--that difficulty is a substantial
part of the reason that we think it's important to have this
safety function be as singular and protected from inappropriate
external influence as possible.
Senator Cantwell. Thank you.
Mr. Reilly. If I could just comment on that, Senator?
I would draw your attention to this chart, MMS budget in
Gulf of Mexico crude oil production. That shows that the budget
of MMS in 1984 was about 250--what's that? Oh, I don't know the
page number.
I think you have it.
Senator Cantwell. In an attachment or?
Mr. Reilly. Ok. We will cite the page number in a minute.
Senator Cantwell. Is this the chart?
Mr. Reilly. Yes, it's that chart.
Actually I don't think you can see but what it says on the
gray line which is the budget of MMS went from $250 million to
under $200 million over that period, 1984 to 2009 while the
production of oil and gas subject to it in the Gulf of Mexico
went from 200 to 600 million barrels of oil. So threefold
increase in the production. Reduction in the budget of the
agency.
It's really obvious, it seems to me that we have been
implicated, all of us, in allowing that budget to remain
constant and actually to decrease while the challenge to the
people doing the regulating was so much more significant. I was
struck in the course of our inquiries to discover that in
California an inspector is responsible for about 6, as I
recall, rigs. In the Gulf the number is something like 55.
This is an agency that is under resourced. Although we
would all like to be able to focus on those recommendations
that do not have money attached to them in this current
budgetary climate, on that one, I don't think there's any way
to avoid it.
Senator Cantwell. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Shaheen.
Senator Shaheen. Thank you, Mr. Chairman. Thank you both
very much for all of the work that you and the Commission and
all of the staff have done to put forward such a helpful
report.
As Senator Udall suggested, I want to go back and talk
about oil spill research and response. That's something that
Senator Udall, Senator Bingaman and I have been working on
legislation. I found it stunning at the first hearing this
committee did after the spill happened where we had
representatives from BP, Halliburton and Transocean. When I
asked the question how much money are you spending on oil spill
research, deep water oil spill research? The answer from each
of them was, zero.
So I think this is clearly one place where we've got to
focus. I was really pleased to see that that's one of the key
recommendations from the report. I'm also particularly
interested because at the University of New Hampshire we have a
coastal response research center. Dr. Nancy Kinner there who
heads it has been doing some of the leading research in the
world in this area.
But as you talk about the private sector institute that you
would envision would be the way to address some of the leading
research in this area.
How do you envision that actually happening?
Do you see that the industry recognizes this need and is
willing to respond to that?
Right now as you know there is sort of a multi layered
effort that's never been funded within the Federal system to
try and address oil spill response. How do you see the two of
those working?
Could you just talk a little bit more about how we move
this issue along?
Mr. Reilly. Our history with respect to response and
investments is not impressive.
Senator Shaheen. Right.
Mr. Reilly. We started----
Senator Shaheen. Dismal.
Mr. Reilly. We started after Exxon Valdez to make a
reasonable try at it and I think it's gone down about 50
percent in the remaining years as memories of that disaster
have waned. The establishment on industry initiative of the
well containment corporation is in my view a very responsible
and appropriate thing for them to do. The amount of money
they've committed to it is serious money, a billion dollars
from four companies and maybe BP is now going to join it and
make it No. 5.
The Secretary of the Interior also wants to make research a
major function of a new industry academic government enterprise
he wants to create beginning with a FACA Committee Advisory
Group there. So there's a lot more attention going to it. We
really do desperately need it though.
I think the industry will probably respond significantly to
some aspects of this problem with the Marine Well Containment
Corporation. But there's some fundamental research needed both
on skimmer technology which is relatively primitive. Based on
what I saw in Alaska back in 1989 with the Exxon Valdez, it
hasn't really evolved much.
It's probably--it's hard for me to--and there's some who
say it's not that clear how you would change some of these
ships. I don't find that really quite believable. The open
ocean presents a lot of challenges to skimming. That's really
the basic problem we're dealing with, the wave and wind action.
The dispersants question needs research. It needs trials.
We've recommended that in the report. It seems to me that--and
I've always been suspicious of dispersants as largely cosmetic.
They do get into the water column and fish can't avoid it and
the rest.
In this case we concluded that it was a responsible
decision by the EPA Administrator to allow it and to allow it
in that quantity. But what really struck me as anomalous was we
had the debate about the safety of the dispersant Corexit was
proposed to be used after the spill.
Senator Shaheen. Right.
Mr. Reilly. We've never done any open water experiments at
all in Arctic waters in open, very cold, very icy waters, to
find out what in fact happens to hydrocarbons and how the
dispersants work with them and how fast do they degrade and so
forth. There's a lot of information that we ought to have at
the ready before we suddenly in real time are asked to make
decisions.
Senator Graham. If I could just add----
Senator Shaheen. Please.
Senator Graham. A paragraph to that. It seems to me that
what we saw after the explosion was crisis research.
Senator Shaheen. Right.
Senator Graham. We were struggling to try to answer
questions because we needed the answers today to respond. What
we need to be moving to is not only an enhanced quantity and
quality but also anticipatory research where we can ask what
are the questions that we might need to answer five or ten or
more years from now. I believe that the kind of initiative that
you have advocated would give us that ability to be able to
look over the horizon and be better prepared the next time we
have to face a crisis.
Senator Shaheen. Thank you. My time is up.
The Chairman. Thank you. Let me just ask one other question
that occurred to me.
I believe your recommendation is that the--this
governmental regulatory agency responsible for safety be funded
entirely with fees on the regulated industry itself. So that
it's not subject to the vagaries of Congressional
appropriations. That's my understanding of what you
recommended.
Are you suggesting that this research should also be funded
in that way or that that should be something that the Congress
appropriates on an annual basis?
Senator Graham. I would--my own answer to that question
would be I think that's part of the industry responsibility. If
you're going to have effective regulation it needs to be based
on the best science. The best science is going to require this
investment in R and D.
But whether it's done through the industry in a predictable
and sustainable manner or is done through Congressional
appropriations, it's important that it be done. If the Congress
wants to accept that responsibility on its own, then it needs
to feel an obligation to fulfill that responsibility.
Mr. Reilly. One challenge that is special to this industry
is it's enormously dynamic. It's developing very fast. The
technologies that are used in deep water were not around 25
years ago.
One has to be concerned in regulating the industry that the
regulator stays abreast of the groups being regulated. That has
not happened. They've fallen behind.
They've admitted in interviews that we have been privy to
that they don't understand some of the basic technologies that
negative pressure test, centralizers and the like. That's got
to change and research has got to be a part of that. Research
capability, I would think within the Department of the
Interior, and research strengthening of NOAA as well.
I don't see any way around trying to ensure that a very
fast moving industry simply doesn't get beyond the capacity of
the people who are exercising oversight.
The Chairman. Senator Murkowski, do you have additional
questions?
Senator Murkowski. Yes, Mr. Chairman. Thank you.
As we focus on the Gulf of Mexico we can't help but think
about our future opportunities when it comes to offshore, of
course that is the Arctic. You have both referenced.
Clearly we were impacted up North. We had hoped that Shell
would be able to proceed with a project out in the Beaufort and
Chukchi. That has been put on hold at least for an additional
year.
But the report recommends that the Interior Department
closely examine each stage of the exploration and the
development to see if the capabilities do exist for adequate
risk management in the Arctic before allowing that stage to
proceed. The question to you and Mr. Reilly would be whether
this recommendation allows for essentially a two track process
where you can have a build out of both the Federal Coast Guard,
search and rescue and the industry response capacity at the
same time that you have plans for exploration moving forward.
Presuming again, that you do have the industrial and the Coast
Guard response capacity that is growing, I guess commensurate,
with the exploration program.
Mr. Reilly. We specifically recommend against a moratorium
in the Arctic. That's black letter language in the report. But
we recognize that the challenges there are very important.
It's a very distinctive environment. The kinds of
regulations that would be effective in the Gulf would probably
not be so appropriate in the icy conditions of the Arctic. We
recommend that movement of the Coast Guard facility with a
search and rescue capability to closer to the area,
particularly in the Chukchi, that is proposed for leasing that
Shell has now leased and a number of other recommendations
relative to the establishment of better baseline science about
the important species there many of them either threatened or
endangered.
The recommendation though, as I would interpret it is very
much one that acknowledges that many of these recommendations
will take some time. The baseline science as it is proposed
would take minimum of 3 years for all four seasons each year.
The Coast Guard capacity to do search and rescue a little
closer than 1,000 miles away obviously may take some time. But
it probably ought to get an early priority.
In the meantime I think it has to be recognized that the
industry itself can provide a number of the functions and
should provide a number of the functions. In fact one of the
reasons we know what we know about polar bears is $30 million
of science was spent by Shell. The Shell proposal for
development there or exploration there is good as I have ever
seen. I think that's generally acknowledged by most observers
who have looked at it with their prevention capability and also
the response planning that they have with a 500 thousand gallon
tanker standing by and a top hat capability immediately
accessible and so forth.
So I think that it's a reasonable proposition to expect
that the decision that the Secretary has made to permit the
Beaufort development to go forward this summer or at least to
do so once a number of environmental studies have been
complete. Then to anticipate that within another year or so
drilling would be permitted in the Chukchi. I think those are
perfectly reasonable and consistent with our Commission's
report.
I would draw attention to the fact that some of the
challenges in the Arctic are less severe than they are in the
Gulf. The formation in the Chukchi, I understand, is about
5,000 feet down verses 18,000 feet in the Macondo situation.
The pressures are one fourth or one third as much. The well--
depth of the sea itself is 140 feet so there's no need for
robots to do the reparatory work in the case of an accident or
a need to correct some technology.
So there are a number of things that militate against
assuming that it is a wholly impossible challenge that the
country can't confront. It seems to me if there are the 27 to
35 billion barrels of recoverable oil that have been estimated
by USGS there we need to pay very special attention to safety
and environmental protection. But we also need to recognize
reality and probably do so in a responsible, careful way.
Senator Murkowski. I appreciate your statement. I think it
is important to reinforce the need for additional research
should not be used as a de facto moratorium on activity in the
Arctic. If we carry out this effort within specific timeframes
in order to inform the decisionmaking process. We are all
ahead.
My time is up. But I have one quick question if I might
continue, Mr. Chairman?
I mentioned in my opening statement that there are some
four other studies that are either underway or have been
completed. This committee will be looking to the
recommendations from the Commission. The question I direct
toward our panel is how much more do we need in order to make
an informed decision as we move to make these changes
structurally, organically in order to ensure that we have the
best operating industry offshore and both environmentally and
for the economic future of the country?
Senator Graham. Just as said the need for additional
environmental studies in the Arctic should not be used as a de
facto moratorium. I would suggest similar things. I don't
believe that the bulk of our Congressional recommendations such
as the 80 percent of the funds be directed toward restoration
are going to be a focus of or significantly challenged by any
of the other studies that are underway to the degree that we
have followed those other studies.
So I would suggest that there's a lot of good work that
this committee can engage in now and it's likely to be into the
spring before you're at a point to actually make some final
judgments. By that time, for instance the report of the
engineering academy will be available and all.
So will the report of the forensic analysis of the blow out
preventer, I doubt that they will substantially affect the
recommendations that we've made. But that information will be
available to you. But don't, I would urge, use the fact that
there's always more that you can learn as an excuse to do
nothing.
Mr. Reilly. Could I add just to what Senator Graham said
that obviously the blow out preventer has to be understood.
That will happen over the next year. You will be informed about
that.
Second, I regret that we did not have time to get into the
more detail about the kind of training and formation that
people at the BOEMRE require to be effective in the new
environment. That is something worthy of focus. I believe the
National Academy of Engineering will address that particular
with respect to technical and engineering training requirements
and what those standards should be. They do have implications,
by the way for compensation because if you want to get people
who are the match for the people that they're regulating you're
going to have to pay them a little more proportionately to what
in fact out on those rigs are getting paid.
Then finally with respect to the liability determination, I
don't know who else is going to do work on that. But there is a
significant amount of attention that's needed, I think, to look
at the insurance industry. Look at the way in which one would
reconcile the need to continue to have vigorous and vital
independent community of oil industries at the same time as we
protect the country and the taxpayer against the consequences
of any mistake that they might make.
We did not really resolve that definitively. But it's
something that going forward, I think, still remains to be
done. It's unfinished business.
Senator Murkowski. Thank you, Mr. Chairman.
The Chairman. Senator Landrieu.
Senator Landrieu. Thank you.
Just two other points.
One, following up on this support of this oversight agency
and independent safety agency, I want to after further review
of it, support that concept. I was initially skeptical. But
I've talked to a number of people on all sides of the issue and
reviewed again the report. I think having an independent safety
agency connected to the newly reorganized Bureau of Oceans
Management would be a step in the right direction.
I just caution us all when we are looking to the industry
for additional fees. I want to make sure the record reflects
that the industry already in just bonuses, severance and
royalties contribute about $7 billion every year in average of
the last ten. So we're spending only about $300 million. As you
said that number has been flat, $250 to $300 million. It's less
than 4 percent of the money that is generated.
I'm not counting corporate taxes paid by these entities.
I'm not counting sales tax generated by their direct activities
on the Gulf. I'm not counting income tax paid by every worker
and business owner in the Gulf.
I don't know what that number is. We should know. But just
royalties, bonuses and severance taxes direct from the offshore
industry is seven billion. So I think we've already got enough
money. Reallocate it to give more, a greater percentage of that
coming in, to the regulatory regime.
If we could get that up, I mean it's a pitiful, you know, 4
percent. I mean, you used to have to spend 10 or 15 or 20
percent usually in development work. You know, spend that money
to make that money.
We're investing less than 4 percent getting the 7.2. As I
said that's a small percentage of what the industry. So I'd
caution my colleagues before looking to this industry for
additional fees and taxes. They're already paying a
considerable amount.
Finally just, not so much that was a comment, but another
comment. I'm going to submit for the record, Mr. Chairman, the
latest shallow water permit was released 3 days ago to Apache
to drill in 175 feet. Here is the list.
[The information referred to follows:]
Offshore Safety Record
Over 2,000 deepwater wells have been drilled since 1992 and
over 42,000 total wells since 1947. Since 1971 up until this
accident, not a single spill caused by a well blowout exceeded
1,000 barrels.
From 1947 to 2009, 175,813 barrels have been spilled from
over 16.5 billion barrels produced. That is about 1/1000th of a
percent of the total production spilled.
Senator Landrieu. We've had 28 shallow water permits
issued. There are 10 pending. But to date there's not one
permit has been issued for deep water drilling in the Gulf.
This industry, 9 months after this accident, deep water
drilling is still virtually shut down. There are two to three
hundred people working on each one or were working on each one
of those rigs, Mr. Chairman, not counting the onshore support
activities and suppliers all over the country. So while the
moratorium has been lifted I just want to make a point no
permits for deep water are being issued.
So I'd like to end with Senator Graham's comment. Let's not
make, you know, the excuse of waiting for more reports to stop
doing what we know we can do safely now even if it's a one on
one review of each drilling operation.
Get these people back to work.
Then continue to vigorously work on the liability issues
and the safety issues and the research issues and the
investment in the environment.
Thank you.
The Chairman. Senator Shaheen.
Senator Shaheen. Yes, I'd like to go back to the oil spill
R and D issue. As you referenced the Oil Pollution Act in 1990
set up an interagency committee, Interior, Coast Guard, EPA,
NOAA, to develop and respond for oil spills and to do research
and response. I wondered if the Commission had looked at how
that agency functions and whether you have any recommendations
relative to its functionality.
One of the things that we found in talking to people as we
were developing our legislation last session is that there was
this sense that nobody was in charge of this aspect of dealing
with responding to drilling, particularly deep water drilling.
So I was wondering if you had recommendations from the report
on that issue.
Senator Graham. I'm not familiar with the specifics of the
operation of that interagency group. All I can say is that when
the crisis hit they had not equipped us to be able to respond
in a manner that I think is appropriate.
We have made a recommendation that the President, by
Executive Order, should establish a group of both governmental
and non-governmental experts to work on all these issues that
relate to response including maintaining our research and
development capability to be able to develop the defense
against an accident at the same rate that the industry has
developing the offense for drilling in increasingly deeper and
more risky environments.
Mr. Reilly. My impression of what has been done in Alaska
is positive. The only reason we know about the persistence of
hydrocarbons under the sands of many of the beaches of Prince
William Sound is because there has been a monitoring program in
effect that was amply funded for quite a while. The arguments
about whether or not the herring crash is attributable to the
oil spill to the extent that there are--there's any real
information that is more than speculation.
It's the consequence of the fact that when the amount of
money was parceled out for the trustee agencies in Alaska, it
was done so, not in one lump sum, but over a period of years.
I think the lesson for us in this case is to make sure that
we have a continuing capability to determine whether there is
impact on the Bluefin Tuna which spawns in the Gulf and
actually would have come into contact with the oil and gas.
What about the crabs and the oysters?
Are there lasting impacts on the larvae and their
fertility?
All of those questions--it would be very unfortunate to let
5, 10 years go by, have another incident and not have learned
from this one. So the degree to which there is scientific
research--money made available over a period of time and not
suddenly dispersed and forgotten--I think is important to one
of the lessons that we need to respect here.
Senator Shaheen. But that would speak to a funding stream
as Senator Bingaman suggested that is not based on the annual
budgeting process but is a dedicated funding stream from some
other source.
Mr. Reilly. In the case of Alaska as I recall it was a
billion dollar outlay that was extended--or fine rather that
was applied over a period of 10 years. That funded the
monitoring as I recall, the research.
Senator Shaheen. But for that period of 10 years.
Mr. Reilly. Yes. I think they found a way to stretch it out
more.
Senator Shaheen. But I'm thinking about as we think about
the oil spill research and response function also. I thought
the Commission's recommendation----
Mr. Reilly. That's--I'm not--I wasn't talking about
response.
Senator Shaheen. No, no. I understand. You were looking at
a different aspect of the research.
But I thought your fee on offshore leases was--provided
that dedicated funding source.
Thank you.
The Chairman. Senator Murkowski, do you have additional
questions?
Senator Murkowski. Just very quickly to follow up on the
Oil Spill Liability Trust Fund. It was established to ensure
that if there is an incident we have a fund to tap into, but
not necessarily for research. We have discussed ways you can
reserve money from the Oil Spill Liability and Trust Fund to
provide for that necessary stream of research which I think is
very important.
One of the things that we saw last year when we were
debating not only how we would address MMS restructuring but we
were also getting into the end of the session where we were
looking to essentially find funds to pay for different
initiatives. The Oil Spill Liability Trust Fund all of a sudden
came to everyone's attention.
The producers pay an assessment of eight cents a barrel
which goes into that trust fund. It has accrued an amount of
about a billion dollars. Suddenly folks were looking at that as
an opportunity to access the reserve fund differently from the
purposes for which it was intended.
I believe that we need to increase that fund and the
assessment. I feel pretty strongly that you don't increase the
assessment increase the value, the amount in that fund, and
then use it as a pay for things other than it was intended
which is to provide for that reserve fund in the event of
emergency just as we had with the Deep Water Horizon.
Your report does not address the issue of the liability cap
which is currently set at 75 million under OPA. You recognize
that it should be significantly increased. I appreciate the
fact that you have not gone into how much that figure might be
in terms of a significant increase.
Can you explain the factors that we should use when
determining a liability regime?
I laid out a few very general statements in my opening that
no taxpayer should ever be on the hook. Did you look to that
aspect or did you just say it needs to be increased?
Senator Graham. I would agree with all the points that you
made, Senator, about the considerations. If this had been a
slightly different set of circumstances, for instance if it had
not been BP, but a less financially capable firm or if it had
been a financially capable firm that was very litigious and
wanted to litigate every step of the way we would be in a much
different position today than we are with BP using its deep
pockets and doing things like putting up the $20 billion to
meet immediate payments. So I think the 75 million is clearly
inadequate.
It's a 20-year-old number. It was a number that was derived
to deal with the shallow water circumstances as dramatically
demonstrated by Exxon Valdez. What we learned with Deep Water
Horizon is that the consequences of a negative act can be
multiplied if it's done in the deep waters.
Now I'm now going to speak personally and not for the
Commission. It seems to me that if there's going to be a
liability limit it should be in relation to the risk that that
particular activity represented. To use the simplest measure
the depth of the water that there might be an appropriate
liability limit if you're operating at 140 feet.
It would be a quite different liability limit if you're
operating at 5 or 6 thousand feet. There may be a point at
which time no liability limit is appropriate because the
potential damage is so serious. If we had a liability limit and
isn't strictly applied to these deep water situations you can
anticipate there's going to be a lot of victims who won't
receive appropriate compensation for their losses or that the
Federal taxpayers will be asked to come and fill the gap.
Neither of those are acceptable outcomes.
Senator Murkowski. I thank you for that.
We introduced legislation last session that would address a
dozen risk factors as you have laid out. I know that Senator
Landrieu has looked at that approach as well. But I think it is
important to recognize that when you are drilling offshore
there are places that are a little bit riskier. Some are a lot
more risky than others. It's appropriate to access liability
taking those into account.
Mr. Chairman, I thank the gentlemen for their testimony
this morning. I have no further questions.
The Chairman. Senator Shaheen.
Again thank you both very much for your excellent testimony
and this excellent report.
We also want to extend special thanks to Richard Lazarus
who is your Executive Director of the Commission and the fine
staff of the Commission for the good work that they have done.
Also note that Shirley Neff who used to be with us here on
the committee staff was part of your Commission staff and we
know of her good work.
So we thank you very much. We will do our best to take your
good recommendations and move ahead with them.
Mr. Reilly. Thank you, Mr. Chairman.
The Chairman. That will conclude our hearing.
[Whereupon, at 11:30 a.m. the hearing was adjourned.]
APPENDIX
Responses to Additional Questions
----------
Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions
From Senator Bingaman
THE ROLE OF API AND INDUSTRY IN DEVELOPING SAFETY STANDARDS
Question 1. In your testimony, you mention that the American
Petroleum Institute should not be the organization that writes
standards and handles the safety enterprise of the offshore drilling
industry. Did you and your Commission staff look into other
possibilities for organizations who might be better suited, or was it
your recommendation that the new Bureau for Safety and Environmental
Enforcement write and enforce new safety regs, exclusive of industry
input?
Answer. The Commission concluded that the safety of offshore
drilling could best be achieved by having both government and industry
create independent entities designed to ensure the safety of offshore
drilling operations. For industry, we recommended the creation of an
independent self-policing entity for offshore oil and gas akin to the
Institute of Nuclear Power Operations (INPO), which the nuclear power
industry created in the immediate aftermath of the accident at Three
Mile Island in 1979. We did not find any pre-existing industry entity
within the oil and gas industry capable of taking on the self-policing
function that the Commission concluded is necessary. Nor is this
surprising because none exists, any more than it did for the nuclear
power industry before they formed INPO . For government, we recommended
the creation of an independent safety authority within the Department
of the Interior, roughly analogous to the Nuclear Regulatory
Commission, which the federal government created to enhance its own
oversight abilities in response to Three Mile Island.. Of course, that
new safety authority would, like other agencies with rulemaking
authority, provide industry and other parties with relevant information
with meaningful opportunity to comment on proposed rules and to provide
other forms of input during the agency's decision-making process.
RESEARCH & DEVELOPMENT
Question 2. On p. 21 of your testimony, you mention the need for
public-private partnerships as well as tax credits for R&D for improved
spill response technology development. Did you also consider how to
best implement an R&D program for safety prevention equipment? Did you
consider existing R&D programs and how to best leverage those to create
the R&D program that appears to be greatly needed in light of the
industries inability to advance safety technologies beyond their own
proprietary technologies? Can you elaborate more on the R&D program(s)
that you would envision to better prevent and prepare for oil spills of
any magnitude?
Answer. Although the Commission did not make a recommendation
focused specifically on safety technology research and development,
many of its recommendations require operators to improve offshore
safety, including by investing in better safety technologies. For
instance, the Commission recommends that BOEMRE put into place new
prescriptive safety regulations that are at least as rigorous as those
of peer oil-producing nations. Other nations, unlike the United States,
require a minimum of at least two tested well barriers. They also have
requirements for specific riser disconnection capacity and backup
activation systems for blowout preventers. The Commission further
recommends that BOEMRE implement a proactive, risk-based performance
approach to regulating specific individual facilities--similar to the
``safety case'' approach used in the North Sea--that would require
operators to take more responsibility for the risk management process.
And the Commission recommends that industry create its own safety
institute in the mold of INPO, which would lead industry, in policing
itself, to push for everimproved safety of offshore operations. Each of
these steps would create incentives for operators to develop new, more
effective safety technologies.
The Commission also recommends creating regulatory and monetary
incentives to advance spill response technology research and
development. Spill response technologies barely improved during the 20
years following the Exxon Valdez spill. Similarly, although the Nixon
administration had recognized the need for subsea containment
technology as early as 1969, no deepwater containment technology had
been developed prior to the Deepwater Horizon spill.
There are a host of reasons that spill response research and
development has lagged behind the development of exploration and
production technology. Congress has never appropriated even half of the
$28 million per year authorized by the Oil Pollution Act of 1990 for
spill response research and development, and the amount Congress did
appropriate generally decreased over time as the Exxon Valdez spill
receded in the public's mind. In the past, MMS review of industry oil
spill response plans was cursory, and the agency did not require
operators to demonstrate capacity for subsea containment. Coast Guard
and BOEMRE regulations for oily water discharge do not account for
efficiency of skimmer technology and therefore do not incentivize
improved efficiency. And EPA's permit-process for open-water testing of
spill response technology is inefficient at best.
The Commission's recommendations take on these reasons for limited
response research and development over the last 20 years. The
Commission recommends a congressionally structured funding mechanism
that assures adequate and sustained funding for this critical dimension
of improved safety. A possibility would be congressional approval of
using a portion of the royalties from deepwater production for this
specific purpose or sanctioning funds raised through lease provisions
to be utilized for this specific purpose without the necessity of
annual appropriations for spill response research and development to
ensure adequate funding and to remove it from the vagaries of the
annual appropriations process. The Commission recommends interagency
review and approval of industry spill response plans to better ensure
that operators can live up to the representations about response
capacity that they make in their plans. The Commission recommends that
operators be required to demonstrate containment capacity in their
response plans. The Commission recommends reforming Coast Guard and
BOEMRE regulations to encourage development of more efficient skimmers
and streamlining of EPA's permitting process for open water testing.
And the Commission recommends the use of a targeted tax credit and
public-private partnerships aimed at developing improved spill response
technologies. Rather than prescribing specific new developments in
response technology, the Commission recommends incentivizing research
and innovation in the public and private sectors. With those incentives
in place, experts in spill response can develop the technologies that
will maximize spill response capacity.
Congress could play a critical role by holding regular, at least
annual oversight hearings on the safety of offshore oil and gas
development with research and development initiatives and advances as a
significant part of that hearing agenda.
FLOW RATES
Question 3. You mention on p. 24 of your testimony that new
protocol for calculating and estimating flow rates needs to be
developed in advance of any future spills. I agree that this is
critical for planning purposes, but how do you propose to do this in
light of the requirement that operators do not have to submit their
logging and geophysical data until 30 days following the completion of
the well? In the case of Macondo, it took quite a long time for the key
technical experts within the Department of Energy and Interior to
receive the data necessary to correctly calculate an accurate flow
rate. Surely the industry could also work on a way of fitting
technology to any new containment equipment or response that could
measure flow rates out of a damaged wellhead like that of Macondo.
Answer. The Commission recommends that the government create a
protocol to obtain accurate estimates of flow rate or spill volume from
the outset of a spill. This protocol need not rely upon logging or
geophysical data provided by operators. U.S. Geological Survey Director
Marcia McNutt, who heads the government's Flow Rate Technical Group,
has stated that, in a future deepwater blowout, the government will be
able to quickly and reliably estimate oil flow using the
``[o]ceanographic gear'' successfully deployed by the Woods Hole
OceanographicmInstitution during the Deepwater Horizon spill.\1\ The
Woods Hole team used a remotely operated vehicle mounted with sonar and
acoustic sensors to determine the volume and velocity of the outflow
from the Macondo well. This method of calculating flow rate does not
depend upon logging or geophysical data, nor does it require physical
contact with the blowout preventer or other subsea equipment.
---------------------------------------------------------------------------
\1\ Transcript, Deepwater Blowout Containment Conference (September
22, 2010), http://www.doi.gov/news/video/Deepwater-Blowout-Containment-
Conference.cfm (Director McNutt stated as follows: ``So we now know
exactly what we do if this ever happens again, what technique we would
use first, under what circumstances, and we could have the right
technology in the field within hours to days of a blowout and have a
flow rate that we could put forward to the American people, and we
would trust that answer and we would not need multiple methodologies to
have a good flow rate. . . . What we found were the best techniques
actually were in the ocean. It was important to get equipment into the
bottom of the ocean. Oceanographic gear was the best way to do it.'').
---------------------------------------------------------------------------
In addition, the Commission recommends that the government protocol
require the responsible party to provide the government with all data
necessary to estimate flow rate or spill volume. Thus, when a spill
occurs, a responsible party should provide the government with any
information in its possession that could assist the government in
calculating the flow rate. The Commission further recommends that well
components, including blowout preventer stacks, be equipped with
sensors or other tools to obtain accurate diagnostic information--for
example, regarding pressures and the position of blowout preventer
rams. If this recommendation is implemented, responsible parties--and
therefore the government--would have access to data on well pressures
and conditions within the blowout preventer at the outset of a spill,
which would be helpful in estimating the flow rate.
RISK ASSESSMENT/MANAGEMENT FOR OFFSHORE DRILLING
Question 4. There has been considerable discussion in the time
since the oil spill about more adequately characterizing risk and
planning for high risk scenarios. I see a major challenge to risk
management in the industries unwillingness to share proprietary data
that is required to more accurately assess how risky a given situation
is. How would you suggest that regulators and industry overcome this
barrier?
Answer. The problem of industry reluctance to share proprietary
business information does present challenges, but not insurmountable
ones. Both industry and the government have faced similar challenges in
other areas where risk regulation is required and have overcome those
issues in those other contexts. We are confident they can do so for the
offshore industry as well.
The challenges, while substantial, are not qualitatively different
and are similarly surmountable. For instance, relevant lessons can be
borrowed from the techniques used by the EPA to regulate risks
presented by chemicals, while protecting confidential business
information submitted to the federal government by businesses, and by
the protections provided by INPO to operators of nuclear power plants
who are subjected to rigorous and intensive inspections. In all of
these analogous settings, meaningful risk regulation requires some
exposure of confidential business information and a commensurate need
to ensure that government regulators and industry selfpolicing entities
protect that information from unauthorized release.
CUBA
Question 5. On pg. 37 of your testimony, you highlight a growing
concern for environmental safety in the Gulf--it is the oil and gas
exploration that is taking place in Cuban waters to the northwest of
Cuba. The Cuban oil industry is quite young--it only recently came
about in the mid-90's. They do not have the experience in regulating
that we do here in the US. It is also unclear that they would have the
preparedness should a big oil spill event occur in their waters. This
poses a huge safety risk for the rest of the Gulf. You state that the
US should ``negotiate now with these neighbors to agree on a common,
rigorous set of standards, a system for regulatory oversight, and
operator adherence to an effective safety culture''. In light of the
embargo that the US has in place for Cuba, US oil companies cannot even
conduct businesses in Cuba. Some of the US companies have the strongest
safety record for working in the Gulf. How would you suggest that we go
about undertaking this very critical, time sensitive task of assisting
our neighbors with their growing offshore energy development when our
own companies cannot collaborate and work with the Cuban government?
Answer. The need to ensure safe offshore drilling in the Gulf is
clearly compelling, and exists regardless of whether that drilling
falls under the immediate jurisdiction of Cuba or Mexico. A major spill
in a drilling operation anywhere in the Gulf could have disastrous
economic or environmental consequences for the United States. That is
why we were heartened when, as Co-Chair Reilly testified, Mexican
officials informally approached Mr. Reilly to express an interest in
working with the United States to forge safe drilling standards that
would be uniformly applicable throughout the Gulf and, to that same
end, entering into direct conversations with Cuba with which Mexico,
unlike the US, has close diplomatic relations. The Commission has not
had occasion to determine precisely the best way to ultimately achieve
the desired result over the long term, but the Co-Chairs believe that
entering into these discussions with Mexico is an important, immediate
first step.
BLOWOUT PREVENTER
Question 6. Your testimony and report note that the blowout
preventer was not available for your examination. How were you able to
do a thorough investigation and determine the causes of the accident
without being able to examine this piece of equipment?
Answer. The Commission could do so for the straightforward reason,
explained in our Final Report, that even if the blowout preventer did
fail, that failure did not cause the explosion that killed 11 men on
April 20th. As our report explains, the rig crew realized too late what
was happening and thus activated the BOP too late to have prevented an
explosion. By the time the crew tried to activate the BOP, gas had
already flowed above the BOP and was rocketing up the riser. That gas
is what ignited on the 20th.
By contrast, as the Commission report further explains, if the crew
had heeded warning signs earlier in the day, they could easily have
prevented the explosion from happening. These included misinterpreting
the negative pressure test used to check the integrity of the cement
job. In the hour or so before the explosion, there were several other
odd and unexpected pressure readings that the crew should have realized
were signs of a problem, but unfortunately did not. If they had
properly recognized these signs, they could easily have closed in the
well.
To be sure, the blowout preventer failures may potentially have
played a part in the severity of the oil spill, but the disaster as a
whole was due to a rather staggering series of errors by the three
companies, all of which our investigation has documented. These errors
can be addressed through better regulation, better training for
workers, and a strong commitment to safety by both the companies and
the regulators. Examples of key mistakes by BP, Halliburton, and
Transocean as identified by the Commission's investigation include
Failure to get a good cement job
Failure to understand that the negative pressure test
indicated that the cement was instable
Problems with BP's temporary abandonment procedures, in
particular, its decision to displace mud from the riser before
setting additional barriers to back up the cement at the bottom
of the well. This left the faulty cement at the bottom of the
well as the only physical barrier that could prevent the flow
of hydrocarbons into the well
Failure to understand that a kick was occurring, even though
there were several odd and unexpected pressure readings in the
hour or so leading up to the explosion that the crew should
have realized signaled a problem
Failure to respond appropriately once mud and gas began
spewing onto the rig floor. The crew should have diverted the
gas overboard instead of diverting it through the mud-gas
separator. While it is not entirely clear this would have
prevented the explosion, it could have at least limited its
impact.
For these reasons, the blowout preventer analysis, while important,
will not change the Commission's conclusions that a failure of
management led to numerous risky and unnecessary decisions made by the
companies involved, each of which led to the occurrence of the blowout.
The blowout preventer can, like a seatbelt, reduce the amount of harm
that is caused, but in the circumstances of the Macondo well, even a
properly functioning blowout preventer was not a root cause of the
accident and its immediate tragic consequences for those on the rig on
the night of April 20th.
INDUSTRY SAFETY RECORD
Question 7. The industry has drilled over 40,000 wells in the Gulf
of Mexico without an accident of this magnitude. Yet your report
suggests that the safety issues related to this accident are systemic
and not the result of an anomalous, isolated incident. How do you
square that finding with the industry's safety record?
Answer. The problems we identified that led to the Macondo well
blowout reveal an industrywide failure to manage and plan for the
heightened risks presented by deepwater drilling, which represent only
a small fraction of those 40,000 wells drilled in the past. The
Commission was appropriately concerned not with the past but the
present and the future. It is in the deep waters of the Gulf where the
most oil is to be found and, for that reason, where most future
drilling in the Gulf is now headed. It is also where, because of those
same high volumes of oil and heightened safety risks, the potential for
another environmental catastrophe is greatest.
What our investigation revealed is that the industry as a whole
had, because of the lack of past accidents in less risky waters, failed
systematically to manage the risks presented by deepwater or to plan
for the contingency of an accident there. The systemic nature of the
lack of risk management was underscored by the role played in the
Macondo well blowout not just by the largest operator of deepwater
drilling in the Gulf--BP--but also by the involvement of two of the
largest service contractors--Transocean and Halliburton--upon which
most of the entire industry is dependent. The Commission's conclusions
were further bolstered by the fact that none of the oil companies was
in fact prepared to contain and respond to an oil spill of the
magnitude of the Deepwater Horizon spill even though they each had
submitted plans to the federal government claiming that they were. None
of those claims was in fact true.
Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions
From Senator Murkowski
ARCTIC
Question 8. Regarding the recommendations for additional Coast
Guard facilities and infrastructure in the Arctic: do the commissioners
agree that this additional capacity would be a wise investment even
without the prospect offshore drilling, as shipping lanes open up and
Arctic fisheries become a possibility in the future?
Answer. The Commission did not have occasion to consider the need
for these additional resources outside the context of offshore drilling
because that question was not fairly within the President's charge to
the Commission, which was strictly limited to the offshore drilling
context. Certainly, however, nothing in the Commission's
recommendations, which were to increase those Coast Guard resources, is
inconsistent with the conclusion that such additional resources would
be appropriate wholly apart from the compelling need for their presence
in support of offshore drilling.
Question 9. The report recommends that the US take the lead in
developing international agreements for standards for Arctic offshore
oil and gas drilling. As of the submission of these questions, the US
is not competitively producing or even exploring its Arctic resources.
So, do we have evidence that other producing nations (i.e. Russia and
Canada) would be interested in proceeding on our timeline?
Answer. We know that other nations are actively considering
offshore drilling in the Arctic and that the U.S has a compelling
interest in ensuring safe drilling practices within the Arctic for the
straightforward reason that unsafe drilling by any nation there could
have disastrous economic and environmental consequences for U.S.
territory. The same mutual incentives exist for those other nations as
well, which provides the essential ingredient for active engagement
with those nations in developing in an expeditious fashion
international agreements for uniformly applicable Arctic drilling
standards.
Question 10. This same point applies to the Gulf of Mexico, where
not only Cuba is actively leasing very close in to Florida's waters,
but also where Mexico as a nation is, for the first time ever, allowing
private companies to contract for drilling in its almost entirely
untapped offshore areas, including deepwater. Are there any indications
of a willingness to proceed at the same pace of the US, and what
specific commitments have been contemplated in your discussions with
these foreign governments?
Answer. As described in his testimony, Commission Co-Chair Bill
Reilly has had informal discussions with Mexican government officials,
who have expressed an interest in working with the United States now to
develop common standards applicable to drilling in the Gulf, as
necessary to ensure safe drilling practices. Mexico would like to work
with Cuba as well, which is also contemplating offshore drilling in the
Gulf.
Question 11. If Mexico, Canada, Russia, or Cuba proceed with
offshore drilling either in a way that the US government has
insufficient information about, or in a way we believe to be unsafe or
environmentally irresponsible, what steps does the Commission
contemplate the US might take?
Answer. The Commission never had occasion to address that
particular hypothetical. The Commission's recommendations were directed
instead at how best to minimize the chances of that hypothetical
becoming a reality. We recommend that the federal government act now to
work with other nations in the Arctic and the Gulf to develop
international safety standards that would uniformly apply to all
drilling in those waters.
SCOPE OF THE PROBLEM
Question 12. Has industry always and consistently been opposed to
changes in its regulatory regime?
Answer. The Commission has never suggested that industry has been
opposed to every change in regulations that apply to its operations.
What the Commission found was that industry impeded the implementation
of the kind of vigorous, pro-active risk management approach that other
nations adopted decades ago, and that aspects of which would have
provided for safer drilling operations in the United States. The
Commission further found, based on its investigation, including
interviews with officials from major oil companies, that the American
Petroleum Institute systematically favored regulatory standards that
reflected current practices and often the least common denominator
within industry, rather than best industry practices.
Question 13. In Chapter 3, this report found that industry has been
historically resistant to change. Did the commission find any instances
of the offshore industry actually suggesting stronger safety standards
for Interior to implement? Have such recommendations ever been made and
accepted?
Answer. The Commission does not doubt that there have been
occasions when industry has favored government adoption of stricter
standards. The Commission has never suggested that it found that
industry has reflexively and consistently opposed every proposal for
stricter regulation. What the Commission found was that industry
resisted certain, significant reform efforts that would have provided
for greater safety and that, as a general matter, the American
Petroleum Institute, which frequently speaks for the industry as a
whole, promoted safety standards that reflected current practices
achievable by all rather than the best practices achieved within the
industry.
INTERAGENCY VETOES AND PARALLEL REGIMES
Question 14. The commission seems to recommend a stronger role for
cooperating agencies in the five year planning process, with some
additional administrative reasoning requirements for the Interior
Department in the consideration of comments from other interested
agencies. Does the report favor giving agencies outside the Interior
Department full overriding veto authority over Interior's decisions on
OCS leasing, plan approval, and permitting? (Please discuss why or why
not.)
Answer. The Commission deliberately stopped short of providing any
other agency with veto authority over the Department of the Interior's
leasing decisions. The Commission found that Interior had failed to pay
adequate attention to other expert agencies in the past, especially
NOAA, which is why the Commission recommended adoption of a decision-
making process in which NOAA was provided a greater voice and Interior
was required to explain its reasons for rejecting NOAA's
recommendations on certain leasing decisions. The reason that the
Commission stopped short of providing any other agency, including NOAA,
with veto authority, is that the Commission concluded that it was
important to have one agency ultimately responsible for leasing
decisions and that Interior was the appropriate agency for that
decisionmaking responsibility.
Question 15. The Commissioners' testimony cites the adherence to
the ``safety case'' regime of peer producing nations as a modest and
relatively simple additional layer of compliance for US operators. Did
the commission find any parallel legal and statutory hurdles in the UK
and Norway that result in protracted or costly litigation similar to
levels in the US? Specifically, are there similar mechanisms for
citizen/NGO lawsuits challenging administrative decisions in these
nations?
Answer. The Commission is not aware of any protracted litigation
relating to the introduction of the ``safety case'' method in those
other nations, but the Commission also has no reason to anticipate that
there would be such litigation in the United States should this nation
embrace the kind of pro-active risk management system that the
Commission has recommended. In the United States, the litigation that
has existed has historically occurred and on occasion, delayed
exploration and production offshore has been directed to the leasing
and sale stages. Such litigation has not been directed at the
individual drilling permit stages and there is no reason to assume that
there is anything about the Commission's recommendations regarding the
propriety of risk management that, if adopted, would change the nature
of such litigation.
Question 16. Did the Commission examine or find in peer regimes
similar statutes to NEPA, the Endangered Species Act, the Clean Air
Act, or the Clean Water Act?
Answer. Most nations have environmental protection and pollution
control laws analogous to those here in the United States. The
Commission did not believe that any differences in those regulatory
regimes, none of which relate directly to drilling safety, had any
major relevance to our own nation's need to improve drilling safety in
U.S. waters.
Question 17. Did the commission examine comparative costs of labor,
corporate and income taxes, and other significant financial elements
contributing to the cost portfolio of offshore production in peer
regimes?
Answer. The Commission and its staff engaged in multiple
conversations with leading officials in the oil and gas industry,
including API, about the need for tougher prescriptive standards and a
risk-management approach that borrowed aspects from the ``safety case''
method used by other nations. In none of those many conversations did
any industry representative suggest that such possible cost
differences, assuming they exist in terms of labor or taxes or other
matters, made it economically infeasible for companies operating
offshore in the United States to conduct their operations in a manner
as safe as their operations offshore in other nations. The United
States need not have a safety regime less protective than that provided
for in other nations.
Question 18. Does the Commission suggest or contemplate a ``safety
case'' requirement as a substitution for any single existing statutory,
legal, or regulatory hurdle that may exist in the US but does not exist
in any parallel regime?
Answer. The Commission has not recommended that the United States
adopt wholesale the ``safety case'' regime used in other nations. As
explained in the Commission's final report, the Commission recommends
adoption of selected aspects of that kind of regime, coupled with
technical safety regulations at least as protective as those applied in
other nations.
SAFETY
Question 19. The report contends that our fatality rate in the US
offshore is four times worse than European waters. This is attributed
to a culture of complacency onboard the rigs and among the regulators
and companies overseeing those rigs. Were any of these fatalities due
to accidents that occurred away from the rigs, where jurisdictional
lines change?
a. If many or of the fatal accidents the commission cites
occurred in helicopter accidents, why are there no additional
safety recommendations where the FAA can play a role?
b. If many or most of the fatalities the commission cites
occurred in helicopter accidents, how is it fair to attribute
the safety culture onboard drilling rigs, and the regulatory
capacity of a Department whose jurisdiction does not cover
aviation, for those accidents?
c. Should BOEMRE inspectors board and inspect industry
helicopters?
Answer. The statistics reported to the International Regulators
Forum (IRF) upon which the Commission relied include fatalities and
injuries that occur only at or near rigs. MMS had one reported fatality
in the last three years as a result of a helicopter accident, but this
fatality is not included in the IRF statistics. In addition, the
fatality and injury statistics are per million hours worked and,
accordingly, they reflect only the relative risks to workers at or near
rigs and platforms in United States waters, compared to other
countries. For that reason, the difference cannot be explained simply
because the number of hours worked offshore the United States might be
greater.
Because the scope of the accidents upon which the Commission was
relying for its analysis of safety did not extend broadly to all
helicopter accidents and was instead confined to the relatively few
that occurred at or near rigs, the Commission did not have reason to
investigate the safety of helicopters more broadly or to make
recommendations regarding helicopter safety to the Federal Aviation
Administration. That inquiry was beyond the Commission's charge. Nor
did the Commission have reason to consider whether BOEMRE inspectors
should board and inspect industry helicopters.
HISTORICAL RECORD OF BALANCING OCEAN USES
Question 20. Does the commission feel that, up until the Deepwater
Horizon spill at least, a proper balance had been achieved between
offshore oil development and the valuable fishing and tourism
industries in the Gulf?
Answer. The Commission concluded that prior to the Macondo well
blowout, neither government nor the offshore oil industry were taking
adequate measures to reduce the risk of a well blowout in deepwater,
and the only question was not whether a potentially catastrophic event
would happen, but when it would happen. The Gulf Coast and the valuable
fishing and tourism industry were, for that same reason, fortunate that
no accident had happened. On April 20, 2010, that luck ran out.
Question 21. Were the fishing and tourism industries, prior to the
Deepwater Horizon spill, productive and healthy?
Answer. The fishing and tourism industries were far more healthy
before the Deepwater Horizon spill than after the spill, which caused
billions of dollars of damage to both.
MISCELLANEOUS
Oil budget
Question 22. As reported in the press, there is some controversy
over the report's characterization of the ``oil budget'' and the actual
amount spilled. It seems that NOAA had an issue with referring to
dispersed oil as ``gone,'' but once it is fully dispersed, would the
commissioners want to clarify any more apt adjectives for describing
the remaining oil particles?
Answer. As laid out in the Commission's report (pages 167-69), the
Commission does not take issue with how the original Oil Budget
(released August 4, 2010) or the revised Oil Budget (released November
23, 2010) described dispersed oil. The Oil Budget documents
differentiated between ``chemically dispersed'' and ``naturally
dispersed'' oil, but the documents nowhere suggested that such oil was
``gone.'' The Commission did conclude that Carol Browner, Director of
the White House Office of Energy and Climate Change Policy,
inaccurately characterized the Oil Budget's findings when she stated
during the Budget's rollout that ``the vast majority'' of the oil--
including dispersed oil--was gone. As documented in the Commission's
report, NOAA Administrator Jane Lubchenco emailed Browner's Deputy
immediately following Browner's statements in an effort to correct the
record. Like Dr. Lubchenco, the Commission views the Oil Budget
documents as accurate in describing dispersed oil as ``dispersed''
rather than gone.
The Oil Budget does not distinguish between ``dispersed'' and
``fully dispersed'' oil because all dispersed oil, even at low
concentrations, remains in the environment. Dispersed oil is, however,
subject to biodegradation, which does remove the oil from the
environment altogether. Neither version of the Oil Budget attempted to
quantify the rate of biodegradation of Macondo oil, which remains the
subject of ongoing scientific research.
Oil Spill Liability Trust Fund
Question 23. As you know, the Oil Pollution Act of 1990 created the
Oil Spill Liability Trust Fund, which assesses an 8 cent per barrel fee
that is deposited into what has accrued to a more than $1 billion fund.
In the Commission's view, what are the appropriate uses of moneys paid
into this Oil Spill Liability Trust Fund? Specifically, is it
appropriate to use it as a ``pay-for'' in unrelated legislation, as we
saw happen repeatedly late last year? Is it appropriate to use the fund
for its original legislative purposes?
Answer. The money in the Oil Spill Liability Trust Fund (Trust
Fund) is authorized for many uses, including removal costs incurred by
federal and state governments, damages caused by a spill, and spill
response research and development. The Commission did not take a
position on the full range of appropriate uses of the Trust Fund. The
Commission did, however, make recommendations about research and
development, and per incident damage payments, that are relevant.
First, the Commission recommends the adoption of a structured
funding mechanism for spill response research and development to ensure
adequate funding and to remove it from the vagaries of the annual
appropriations process. The Oil Pollution Act of 1990 authorizes $28
million from the Trust Fund to be spent annually on oil spill response
research and development. Since the passage of that Act, however,
Congress has never appropriated even half of that amount, and the
amount Congress did appropriate generally decreased over time as the
Exxon Valdez spill receded in the public's mind. Creating a mandatory
appropriation would ensure funding of response research and development
at a level intended by the Oil Pollution Act.
Second, the Commission recommends increasing the available per
incident payout from the Trust Fund, which is currently limited to $1
billion. An increase in this limit, in conjunction with an increase in
the Oil Pollution Act's liability cap and financial responsibility
limit for offshore facilities, will help ensure that adequate
compensation is available to those who suffer from spills.
Budget Resources
Question 24. Your report to the President includes a chart showing
MMS' budget over the past 25 years. After reaching a low in 1997, the
agency's budget has increased by about 40 percent. Your report calls
for a reorganization of the agency, similar to what Interior has
already undertaken, but also for considerably more resources for the
agency. That brings up that the agency received about $180 million last
year. How much more does the Commission advise the agency's budget
needs to grow before it will have sufficient resources?
Answer. The Commission received testimony from BOEMRE Director
Michael Bromwich several times as to the resource needs to ensure both
an adequate and competent staff. The Administration requested a
supplemental increase to the FY11 budget of $91 million. This included
a certain amount associated with the reorganization to eliminate the
conflicts of interest between leasing, revenue collection and ensuring
safety. The agency must both hire and retain a sophisticated
engineering staff as well as skilled inspectors who will require
ongoing training as well as continuous improvements in technical and
management systems. A significant cost for the offshore program is
leasing helicopters. To the extent those costs increase, they must all
be covered as well
Implementation of Recommendations
Question 25. Some of the early news stories on your report
suggested that the President could implement many of your
recommendations by issuing executive orders, rather than signing
congressional legislation into law. Can the Commission describe which
of your recommendations it considers suitable and proper to be carried
out by executive order in a legally defensible way?
Answer. As a general matter, it is preferable to have Congress
enact legislation to implement many of the reforms recommended by the
Commission. Comprehensive reform legislation, however, necessarily
takes time for Congress to enact and, at least as an interim measure to
get the offshore oil and gas industry up and running as quickly and
safely as possible, there are many things the President could do in the
near term.
A few illustrative examples of such reforms the President could
achieve, pending further legislative action, include:
The Secretary of the Interior could, and indeed already has
since the Commission issued its Final Report, separate
Interior's safety regulatory authority from the revenue
generating office, including those responsible for their
supervision at Interior. The Secretary possesses authority to
separate even further those two functions, as the Commission
has recommended be done.
Interior could require that industry meet safety
requirements that reflect best industry drilling practices and
could couple this with a pro-active risk management approach
designed to ensure the safety of individual operations
Interior could require that industry design wells in a
manner that allows for expeditious well containment in the
event of a well blowout and that industry include
instrumentation that allows for accurate flow measurements in
the event of such a blowout and spill
EPA and the Coast Guard could bolster state and local
involvement in oil spill contingency planning and create a
mechanism for citizen involvement in planning and response.
Interior could require that an applicant for a drilling
permit demonstrate that it has access to readily available
resources for containment and response in the event of a well
blowout and spill
Interior could use its existing authority in the drafting of
new offshore leases to impose fees on lessees as necessary to
defray the costs of their regulatory oversight
Lost Production
Question 26. I understand--and appreciate--that your report focuses
on ways to improve the safety of offshore drilling operations. As a
policymaker, however, we have to examine whether recommendations could
reduce offshore production and have energy security implications. One
interim rule from BOEMRE included analysis in which reduced offshore
production would simply be replaced with supply from OPEC. Does the
Commission agree that the policy response to the Deepwater Horizon
spill should not render us any more dependent on foreign oil?
Answer. The Commission does not anticipate that any of the reforms
that it recommends will render the United States more dependent on
imports of oil and gas. Just the opposite is true. The purpose of the
Commission's recommendations is to allow the significant oil and gas
resources that are available domestically to be explored, developed,
and produced, but to be done so more safely. Although it was beyond our
Presidential assignment, the Congress might consider the development of
a comprehensive petroleum policy which could place issues of
production, national security and longevity of domestic resources in a
broader context than that which was available to the Commission.
Question 27. Would the Commission recommend that Congress consider
steps to increase onshore and/or shallow water production, in areas we
know we can produce with smaller potential consequences, if reform
policies are likely to crimp deepwater exploration?
Answer. Nothing in the Commission's recommendations is inconsistent
with Congress's deciding to take such steps. Deepwater, however, is
where the most significant domestic resources currently are, which is
why the Commission sought to develop recommendations to allow for those
significant resources to be explored, developed, and produced safely.
To the extent, moreover, that there are issues not addressed by the
Commission's final report, the Commission is not able to consider
further recommendations. By Executive Order, the Commission ends no
later than March 11, 2011 and the Commission cannot, consistent with
the Federal Advisory Committee Act, deliberate on the new
recommendations within the limited time available.
Question 28. Does the Commission have a position on whether the US
ought to produce a higher than current percentage of the oil it does
use, or a lower percentage?
Answer. The Commission did not take a position on that issue in its
final report.
Economic Burden
Question 29. Again understanding that your principal focus was
safety, as it should be, have the Commissioners conducted any sort of
economic analysis to determine the employment and revenue impacts that
the Commission's recommendations might have?
Answer. Nothing in the Commission's research suggested that
economic costs would make it economically infeasible for companies
operating in the Gulf to comply with the enhanced safety requirements
contemplated by the Commission's recommendations. The Commission, for
instance, learned during its investigation that many of the same oil
companies operating in the Gulf were already complying with very
similar safety requirements in waters offshore of other nations. The
Commission perceived no reason why companies should be operating in a
less safe manner in U.S. waters.
Time to Drill
Question 30. To what extent did the Commission consider the length
of time it takes to drill an offshore well when making its
recommendations? Is it possible that your recommendations would
frustrate the ability of companies to commence drilling within their
lease terms? Please provide the Committee with an example of how much
time it takes to drill the average deepwater well today, as compared to
the amount of time it is likely to take to drill a deepwater well with
all of your Commission's recommendations--including new environmental
analyses, multiple new agencies involved in the approval of permits,
and any other item that could change the amount of time it takes to
drill a well.
Answer. There is no reason why implementation of the Commission's
recommendation would frustrate the ability of companies to commence
drilling within their lease terms. Oil companies comply with comparable
drilling safety requirements in waters offshore other nations without
unreasonable delays. The Commission also does not believe that its
recommendations will, taken together, necessarily delay, in particular,
the time required in drilling a deepwater well. The Commission's
recommendations are aimed ultimately at streamlining the process by
providing for more able and expeditious government oversight than
exists today. The industry's current delays in obtaining the necessary
permits in the Gulf, for instance, are caused by an underfunded
government regulator that lacks the resources necessary to ensure
drilling safety in an expeditious manner. By providing for a fully
funded and expert agency overseer, the Commission's recommendations may
well enable industry to obtain the necessary permits more quickly than
it can today once industry has made the necessary demonstration that it
possesses the containment and response capacities that it lacked at the
time of the Macondo well blowout.
Macondo Blowout
Question 31. Chapters 1 and 4 of the report explain how a series of
tragic management missteps, mistakes, and oversights led to the Macondo
well blowout. In looking at the Chapter 9, however, to what degree are
the Commissioners certain that the recommendations of the Commission
would have prevented the disaster from occurring?
Answer. Had those in charge of the drilling operations at the
Macondo well last April been subject to a regulatory regime consistent
with the Commission's recommendations, we are confident (although one
can never be completely certain) that the mistakes that ultimately led
to that well blowout would not have occurred. There would have been
procedures in place that would have guarded against, among other things
(i) the use by BP of an unstable cement slurry supplied by Halliburton;
(ii) the failure by rig personnel to interpret the results of a
negative pressure test, which showed the well's instability; (iii) the
adoption of temporary abandonment procedures that unreasonably
increased the risk of a well blowout; and (iv) the failure of rig
personnel to respond to an instrumentation reading that showed that
hydrocarbons were entering the well in an uncontrolled fashion and
thereby signaled an impending well blowout.
Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions
From Senator Sanders
Question 32. In your report, you find that ``scientific
understanding of environmental conditions in sensitive environments in
deep Gulf waters, along the region's coastal habitats, and in areas
proposed for more drilling, such as the Arctic, is inadequate.'' Yet
your report also concludes that we should continue to open up new areas
for offshore drilling, even in areas such as the Pacific and Atlantic
where the Administration has reinstated a moratorium and where there is
not widespread public support for new drilling. How can you conclude
that we should open up new areas for drilling when by your own finding,
we lack necessary scientific understanding of the environments in which
new offshore drilling is proposed?
Answer. The Commission recommends that the need for new information
should not, standing alone, serve as a basis for a moratorium on new
drilling. The Commission did not otherwise determine whether, when, or
where drilling should occur in the Arctic, Pacific, or the Atlantic,
concluding that those decisions should be made by the appropriate
government officials based on a series of principles outlined in the
Commission's final report.
Question 33. The Energy Information Administration has found that
opening up the Pacific, Atlantic, and areas around Florida not
currently open for drilling would only save consumers 3 pennies per
gallon by 2030. That contrasts with the fact that according to the
Union of Concerned Scientists we can save consumers the equivalent of a
dollar or more per gallon in 2030 just through the Obama
Administration's current fuel economy standards of 35 miles per gallon
by 2016. Would you agree that our nation should put priority on
increasing fuel economy standards to reduce our dependence on oil and
save consumers money, as opposed to opening up areas in the Pacific and
Atlantic for new drilling even when states in those regions do not
support it?
Answer. The Commission has not previously addressed this issue in
its prior deliberations and its final report and, in light of the
Commission's termination date of March 11, 2011 and the requirements of
the Federal Advisory Committee Act, is not now able to take on any new
issues for the purpose of making a recommendation.
Question 34. The oil industry's largest corporations have recorded
record-breaking profits over the last decade. On page 257 of your
report, you recommended that the off shore oil industry pay for its own
regulation, similar to what is required of the telecommunication
industry. In your estimation, how much money would this save the
American taxpayer?
Answer. We do not have a precise number but the cost would be in
the order of only a few hundred million dollars per year, at most,
which is a small fraction of the profits earned by the offshore
industry. There is no reason why the American taxpayer, rather than
industry, should pay for that cost of doing business on property owned
by all Americans.
Question 35. In his State of the Union address, President Obama
laid out a plan to move to generating 80 percent of the nation's
electricity from clean energy sources by 2035, and to pay for the clean
energy technology development by eliminating the billions in taxpayer
dollars we currently give to oil companies. In your considered view, is
the President's plan to convert to far greater use of clean energy
sources, and to eliminate giveaways and tax breaks to oil companies, a
sensible way for this nation to proceed?
Answer. The Commission has not previously addressed this issue in
its prior deliberations and its final report and, in light of the
Commission's termination date of March 11, 2011 and the requirements of
the Federal Advisory Committee Act, is not now able to take on any new
issues.
Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions
From Senator Sessions
Question 36. Alabama's economy, specifically the coastal counties,
has been severely impacted by the tragedy in the Gulf. Tourism dropped
dramatically last summer, and continues to suffer as our usual visitors
choose other vacation locations. The Commission's report recommends 80
percent of the Clean Water Act fines return to the Gulf States for
``Gulf restoration.'' Does the Commission recommend these funds be
allocated solely toward environmental restoration, or are economic
concerns also being considered?
Answer. The Commission recommends that this particular source of
funds be allocated exclusively for ecological restoration. The
Commission's rationale for this limitation is that there will be other
sources of funds that will compensate individuals suffering those
exceedingly serious adverse economic consequences. As importantly, and
as noted in the Commission's Report (p. 213), ``[t]he economies of the
Gulf--fisheries, energy, and tourism--are as rooted in the environment
as any in the developed world. Restoration, or restored resilience,
represents an effort to sustain these diverse, interdependent
activities and the environment on which they depend for future
generations.''
Question 37. On page vii of the Summary Document of your
Recommendations, you state ``the immediate causes of the Macondo well
blowout can be traced to a series of identifiable mistakes made by BP,
Halliburton, and Transocean that reveal such systemic failures in risk
management that they place in doubt the safety culture of the entire
industry'' So can we conclude the majority of your recommendations are
based primary on your doubt, or can you provide detailed analysis of
these mistakes versus the former operations on over 4,000 other
deepwater wells drilled in the Gulf of Mexico to truly show
statistically that the safety culture of the Industry is weak?
Answer. The detailed analysis of the nature of the mistakes made
are summarized in Chapter 4 of the Commission's Final Report and set
forth in the detail that you seek in a several hundred page report to
be released by the Commission's Chief Counsel in mid-February. The
reasons why these errors support our conclusion that there is a
systemic problem in industry even though this is the first major
blowout of a deepwater well in the Gulf are several fold.
First, the wells being drilled in deepwater in recent years, and
that will continue to be drilled in the foreseeable future, are
significantly riskier than the vast majority wells that have been
drilled in the past, which is why one cannot rely on past safety
records to predict the safety of future deepwater drilling in the Gulf.
The Commission was appropriately concerned not with the past but the
present and the future and it is in the deeper waters of the Gulf where
the most oil is to be found and, for that reason, where most drilling
in the Gulf is now headed. It is also where, because of those same high
volumes of oil and heightened safety risks, the potential for another
environmental catastrophe is greatest.
More broadly, what our investigation revealed is that the industry
as a whole had, because of the lack of past accidents in less risky
waters, failed systematically to manage the risks presented by
deepwater or to plan for the contingency of an accident there. The
systemic nature of the lack of risk management was underscored by the
role played in the Macondo well blowout not just by the largest
operator of deepwater drilling in the Gulf--BP--but also by the
involvement of two of the largest service contractors--Transocean and
Halliburton--upon which most of the entire industry is dependent. The
Commission's conclusions were further bolstered by the fact that none
of the oil companies was in fact prepared to contain and respond to an
oil spill of the magnitude of the Deepwater Horizon spill even though
they each had submitted plans to the federal government claiming that
they were. None of those claims was in fact true. The fact that all of
the major oil companies failed to have in place meaningful oil spill
response plans and similarly failed to have adequate containment and
response capacity to deal with a deepwater well blowout make clear the
lack of the kind of industry-wide commitment to safety culture that
Americans can and should expect of those given the privilege of
developing the nation's energy resources on public properties.
Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions
From Senator Cantwell
REPAIRING ENVIRONMENTAL DAMAGE
The Commission's recommendations talk about the need for a Natural
Resources Damage Assessment (NRDA) process to provide ``transparent and
appropriate'' restoration to compensate for the damage done by the oil
spill to the natural resources and habitats in the Gulf of Mexico
Region (pg 37). As a separate recommendation you also call for 80
percent of the Clean Water Act (CWA) penalties from the BP Deepwater
Horizon spill to be dedicated to long term restoration in the Gulf to
restore decades of ecological degradation that preceded the spill.
Question 38. Can you explain further how these two restoration
efforts--one through the NRDA process and one funded by the CWA
penalties--are different and how they should fit together?
Answer. There is a distinction between legal action to recover
costs for damages to natural resources and enforcement actions aimed at
imposing civil or criminal penalties on the responsible party under an
environmental statute. Both actions may be pursued, under separate
authority, by states and the federal government in response to an event
such as an oil spill. In bringing an enforcement action for civil or
criminal penalties, the Department of Justice--on behalf of EPA, the
Coast Guard, or another agency--acts in the role of prosecutor. By
contrast, when the Department of Justice and/or states sue to recover
natural resource damages, they are acting on behalf of the ``natural
resource trustees'' with jurisdiction over the injured resources and
the action is in many ways similar to a tort action.
As a general rule, funds recovered as a result of civil or criminal
enforcement actions under federal environmental statutes are deposited
in the federal treasury and may not be used to redress the harms caused
by the pollution event or incident. Under the Clean Water Act, the
recovered funds would normally be deposited in to the Oil Spill
Liability Trust Fund and would be available primarily for uses other
than restoration of injured Gulf resources. Congressional action is
required to redirect these funds to the Gulf.
The authority to recover costs for damages to natural resources, on
the other hand, is unique in that the funds recovered from responsible
parties must be used to restore the resources injured by the event. The
NRDA funds will be available for the purpose of ``restoring,
rehabilitating, replacing or acquiring the equivalent of, the damaged
natural resources'' injured by the spill. The measure of damages is
based on the injuries resulting from the spill and is generally tied to
``baseline'' conditions existing just prior to the spill.
The Commission's proposal to direct 80% of penalties to Gulf
restoration recognizes that there are many causes of degradation of the
Gulf that have existed for decades, including flood control projects
and energy development. The Deepwater Horizon spill was only one cause
of coastal and marine degradation, but its effects have added to the
deteriorating health of the Gulf.
The Commission recognizes that NRDA funding should be directed at
its legal purpose of restoring coastal and marine damages resulting
from the spill, but recommends that the potential Clean Water Act
penalties and fines could go toward addressing the systemic ecological
damages that are not related to the spill, and that have drawn
increasing attention over the last 20 years and are predicted to worsen
over time. The Commission recommends, in particular, that the key
criteria for funding include: national significance, contribution to
achieving ecosystem resilience, and the extent to which national
policies, such as those related to flood control, oil and gas
development, agriculture, and navigation directly contributed to the
environmental problem. Because Clean Water Act penalties would
otherwise be deposited into the Oil Spill Liability Trust Fund,
congressional action is necessary to direct those funds to Gulf
restoration.
Question 39. Given that the CWA penalties are penalties from an
environmental statute to address environmental damage, do you agree
that these penalties should be directed towards environmental
restoration in the Gulf?
Answer. The Commission does agree and, to that end, has recommended
that 80% of those penalties be allocated to environmental restoration
in the Gulf.
Question 40. Your recommendations discuss the need for a Gulf-wide
restoration approach that is rooted in science and informed by input
from Gulf citizens and stakeholders. Can you elaborate on why a Gulf-
wide approach is important? What role can Congress play to ensure that
such an effort moves forward and is efficient and effective?
Answer. Scientists and policymakers view the Gulf as an ecosystem--
an interconnected web of ecological functions and resources whose
individual survival depends on the health of the whole. The largest and
most formidable challenges are to bring balance and efficiency to the
Gulf's shared marine resources, and to address the rapid and continuous
loss of wetlands, barrier islands, and shorelines comprising the
Mississippi Delta and associated Chenier Plain of southwestern
Louisiana. Beyond restoration of Delta and other coastal ecosystems, a
broader restoration effort--guided by new research and an understanding
of what long-term damages may be resulting from the spill--seeks to
improve the environmental quality of the marine habitat. These issues
link a complex web of problems (including the annual appearance of the
low oxygen dead zone in waters of the Louisiana-Texas continental
shelf) with the continued efforts to conserve the biodiversity and
resources of offshore ecosystems.
Restoration in the Gulf has been the subject of continued piecemeal
efforts to fund and implement individual restoration projects. Funding
has been authorized but not appropriated, and projects have stopped and
started due to insufficient funding. Lack of sustained and predictable
funding, project coordination and long term planning have resulted in
incomplete and often ineffective efforts to restore the Gulf.
Despite policies that have allowed continual degradation of the
coast and marine ecosystems of the Gulf decade after decade, the
economies of the Gulf--fisheries, energy, and tourism--are rooted in
the environment. The Gulf region produces more than one-third of the
nation's domestic seafood supply, including most of the shrimp,
crawfish, blue crabs, and oysters; provides one-third of all domestic
oil; and claims four of the top seven trading ports by tonnage. The
northern Gulf also provides diverse fish nursery and feeding grounds in
the form of expansive marshes, mangrove stands, swamp forests, and
seagrass beds, and boasts some of best beaches and waters in the United
States for recreation and tourism. Coastal tourism and commercial
fisheries generate more than $40 billion of economic activity annually
in the five Gulf States.
Congress needs to act in order to move a Gulf-wide restoration
effort forward. First, congressional action is required to direct a
significant stream of funding to restoration of the Gulf. Redirecting
80% of the Clean Water Act civil and criminal penalties paid by the
responsible parties would ensure funding at the scale needed to begin
achieving restoration. If Clean Water Act penalties are not directed
toward Gulf ecosystem restoration, Congress should consider other
mechanisms for a dedicated funding stream not subject to annual
appropriations.
Second, Congress should enact legislation to establish a joint
state-federal Gulf Coast Ecosystem Restoration Council with authority
to determine how restoration funds should be spent. The Council should
set short-and long-term goals for restoration and establish specific,
binding criteria for projects that would be eligible for expenditure of
funds. A Gulf Coast Task Force is now in place, but it lacks the
authority to set binding goals and priorities. Legislation could ensure
this critical next step.
Question 41. The Commission's recommendations note that
historically most applications of the NRDA process have focused on
coastal restoration, as opposed to restoration in water column or on
the sea floor (pg 37). Would focusing primarily on coastal restoration
be appropriate in this case? What suggestions do you offer for how to
address the damage offshore, which you note is ``unprecedented and
unknown'' (pg 36).
Answer. The Commission's note that most applications of the NRDA
process have focused on coastal restoration is directly related to the
fact that most, if not all, past oil spill damages resulting in a NRDA
have been to coastal habitats, surface waters, and animals. Since most
spills occur at nearshore facilities, such as transfer stations, or on
the ocean surface, as in tanker spills, the resulting damage to the
deeper water column, if it exists at all, is often insignificant to
warrant dedicated restoration. For example, small injuries to water
column species such as zooplankton could be restored through salt marsh
(coastal) restoration, because it improves the water quality and food
sources necessary for zooplankton to thrive.
The Deepwater Horizon spill, with its depth, volume, and duration
creates a new challenge for Natural Resource Trustees charged with
``acquiring, replacing or restoring the equivalent'' to the injured
resource. The potentially large injury to water column species, many of
which may reside 50 miles offshore and more than one mile deep cannot
quickly be restored through coastal restoration projects. For example,
we know that the Deepwater Horizon spill occurred during spawning
season for many marine species, including oysters, blue crab, and
bluefin tuna. The result could be a reduction in future populations due
to a significant loss in juveniles and larvae. There is also emerging
evidence that oil-laden organic material is settling on the deep water
coral and other benthic communities causing (as yet unquantified)
damage to these communities. Without direct and timely restoration of
these resources, they may never recover to pre-spill conditions.
Therefore, the Commission, while recognizing the challenge of
marine restoration, concluded that focusing solely on coastal
restoration would not be appropriate in this case. Potential
restoration projects that may be implemented to directly benefit
injured water column and benthic resources include coral reef
restoration, expanded marine protected areas, and more comprehensive
observing systems.
As the question notes, much of the nature and extent of the damage
to marine resources is as yet unknown. The Commission offers several
recommendations to advance restoration of marine areas, including:
Any potential settlement agreement between the responsible
party and the Trustees provide for long-term monitoring of
affected resources for a period of at least three to five
years.
As a part of the restoration efforts in the marine
environment, greater attention be given to new tools for
managing ocean resources, including monitoring systems and
marine spatial planning. In this vein, the Commission
recommends expansion of the Gulf of Mexico Integrated Ocean
Observing System, including the installation and maintenance of
an in situ network of instruments deployed on selected
production platforms.
A Gulf Coast Ecosystem Restoration Science and Technology
Program be established and funded to address science needs in
three ways: (1) by creating a scientific research and analysis
program, supported by the restoration fund, that is designed to
support the design of scientifically sound restoration
projects; (2) by creating a science panel to evaluate
individual projects for technical effectiveness and consistency
with the comprehensive strategy; and (3) by supporting adaptive
management plans based on monitoring of outcomes scaled both to
the strategy itself and to the individual projects or
categories of projects included in it.
`FUNDAMENTAL TRANSFORMATION' OF THE INDUSTRY
In addition to calling for sorely-needed improvements in government
oversight and regulation, the Commission focused a great deal on the
need for a transformation within the oil and gas industry itself. Your
report stated [quote]:
Government oversight must be accompanied by the oil and gas
industry's internal reinvention: sweeping reforms that
accomplish no less than a fundamental transformation of its
safety culture.
Question 42. What are the top three big, tangible steps the
industry needs to take to show the American public that they mean
business about achieving the `sweeping reforms' the Commission is
calling for?
Answer. The industry needs first, to create a self-policing entity,
akin to what the nuclear power industry did in establishing INPO in the
immediate aftermath of the Three Mile Island accident in 1979. Second,
industry needs to make readily available the technology capable to
ensure containment of a deepwater well blowout within a few days of
such an event. Finally, the offshore industry needs to create and fully
fund an entity that will undertake the kind of sustained, significant
research and development in oil spill response technology that industry
promised in the aftermath of Exxon Valdez in 1989, but in fact failed
to maintain.
Question 43. If the oil and gas industry falls short of the
fundamental transformation you are calling for, do you believe the
industry has the right to ask for the trust of the American people in
the future?
Answer. We believe, based on our conversations with the oil and gas
industry officials over the past several months, that those leaders
understand the compelling need to transform industry safety culture,
and that they will do just that.
WEST COAST DRILLING BAN
As you may know, Senator Wyden and I and our other West Coast
colleagues yesterday reintroduced legislation to permanently ban
offshore drilling along the West Coast of the United States. This
legislates the Department of Interior's conclusions in its five-year
drilling plan that the West Coast is inappropriate for offshore
drilling.
Question 44. We all hope that government and the oil and gas
industry make drilling much safer in the future. But even if it does
become safer in the future, isn't it is still appropriate for the
Administration and for Congress to say ``no'' to offshore drilling in
areas where we think the risks don't outweigh the benefits?
Answer. Nothing in the Commission's recommendations is inconsistent
with the Administration and Congress deciding to disallow offshore
drilling in any particular offshore area.
Question 45. Will offshore oil drilling ever become totally
riskless? As long as there is offshore drilling, can we ever totally
guarantee that a tragedy like the BP oil spill will never happen again?
Answer. There is no such thing as risk-free offshore drilling. In
fact, almost no industry is totally risk-free. What the Commission
nonetheless believes, however, is that the risks of such drilling,
including in deepwater, can be reduced to reasonably acceptable levels
if the appropriate safeguards are undertaken.
UNREALISTIC OIL SPILL RECOVERY PLANS
The Commission report points out that BP's oil spill response plan
for this well had blatant inaccuracies and made completely unrealistic
assumptions about a worst-case scenario and BP's ability to respond.
Question 46. Do you believe that this problem is still ongoing
right now? Are there response plans currently in place that are
inaccurate and have unrealistic assumptions?
Answer. BP was not the only major company to have submitted oil
spill response plans applicable to the Gulf based on blatantly
inaccurate and unrealistic information. In the immediate aftermath of
the Deepwater Horizon disaster, it quickly became apparent that other
major oil companies had similarly flawed plans. Indeed, many of these
plans repeated verbatim the same mistakes. The Commission has, for this
reason, made a series of recommendations designed to ensure that oil
companies do not continue to submit such plans in the future, but is
not aware to what extent in recent months, oil companies have already
begun on their own initiative to correct their prior safety lapses in
this important respect.
ROOT CAUSE ANALYSES OF FAILURES
In a technical paper presented by Transocean employee Earl Shanks
at the Offshore Technology Conference in 2003, he wrote that:
because of the pressure on getting the equipment back to
work, root cause analysis of the [blowout preventer] failures
is generally not performed.
This echoes the Commission's finding that BP has had a history of
utilizing a `band-aid' approach and failing to conduct effective root
cause analysis procedures to identify systemic causal factors following
past accidents.
Question 47. Isn't industry's failure to investigate the root
causes of blowout preventer failures and other mishaps a long-term
safety risk?
Answer. The Commission concluded that BP in particular, and
industry as a whole lacked sufficient commitment to ensuring safety in
deepwater drilling operations. Without a doubt, any such commitment
would have to ensure the reliable operation of blowout preventers.
Question 48. Which of the Commission's recommendations do you
believe are particularly important for fundamentally and permanently
shifting away from this `band-aid' mentality not just for blowout
preventers, but for all drilling systems?
Answer. It is hard to single out any one Commission recommendation
because so many of the Commission recommendations are directed to this
common end: some directed to changing government oversight and some
more directed to industry self-policing. Two of the more significant,
however, include the establishing of an independent and autonomous
safety authority within the Department of the Interior and the
establishment by the offshore oil and gas industry of a self-policing
entity akin to that established successfully by the nuclear power
industry in the aftermath of the Three Mile Island accident in 1979.
BLOWOUT PREVENTER FAILURES
A 1999 MMS study that revealed 117 blowout preventer failures over
two years also revealed that those failures were often not fixed. The
study stated:
for many of the failures observed. . . it was decided not to
repair the failure after MMS had granted a waiver (MMS granted
twelve such waivers). The failures in question were typically
failures in components that were backed up by another component
in the BOP stack.
Question 49. If the status quo is to not fix blowout preventer
failures when they happen, do you believe the status quo is acceptable?
Answer. It is never acceptable to fail to take all reasonable and
necessary steps to ensure the safety of well operations. And blowout
preventers clearly play an important role in ensuring well safety.
Question 50. Even if a failed component is supposedly backed up,
doesn't intentionally not fixing a broken component increase the risk
that the overall blowout preventer will fail in an accident?
Answer. Blow-out preventers, like all other aspects of well
operations, should always be maintained so as to ensure their reliable
operation.
RELIABILITY STANDARDS
A paper presented by Transocean employee Earl Shanks at the 2003
Offshore Technology Conference outlined how reliability standards for
blowout preventers were not explicitly part of industry's thinking, and
were generally just assumed to be improving. It stated:
A brief investigation into the specifications given to
blowout preventer control vendors revealed that rarely was any
equipment performance requirements given. . . Reliability was
assumed to be as good as the previous systems built. Or, in the
case of a new design, it was assumed better than before.
Question 51. Isn't it dangerous to simply assume that newer systems
are safer and more reliable if the industry and regulators are not
making reliability standards an explicit requirement that is tested and
measured?
Answer. The reliability of equipment used in well operations is
always essential to the safety of those operations. And, the mere fact
that equipment is new is not the functional equivalent of such
equipment also being reliable, especially reliable is frequently
determined over time.
Question 52. Should blowout preventer reliability standards be made
an explicit part of decisionmaking by both the industry and regulators?
Answer. Both industry and government should always take all
reasonable and necessary steps to ensure that equipment used in well
operations, including blowout preventers, is operating reliably and
therefore safely.