[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



                      THE 2006 PRUDHOE BAY SHUTDOWN:
                     WILL RECENT REGULATORY CHANGES
           AND BP MANAGEMENT REFORMS PREVENT FUTURE FAILURES?

=======================================================================

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                              MAY 16, 2007

                               ----------                              

                           Serial No. 110-46


      Printed for the use of the Committee on Energy and Commerce
                       energycommerce.house.gov







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                     THE 2006 PRUDHOE BAY SHUTDOWN:
                     WILL RECENT REGULATORY CHANGES
           AND BP MANAGEMENT REFORMS PREVENT FUTURE FAILURES?

=======================================================================

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 16, 2007

                               __________

                           Serial No. 110-46


      Printed for the use of the Committee on Energy and Commerce
                        energycommerce.house.gov

                                -------

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                    COMMITTEE ON ENERGY AND COMMERCE

                  JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California          JOE BARTON, Texas
EDWARD J. MARKEY, Massachusetts          Ranking Member
RICK BOUCHER, Virginia               RALPH M. HALL, Texas
EDOLPHUS TOWNS, New York             J. DENNIS HASTERT, Illinois
FRANK PALLONE, Jr., New Jersey       FRED UPTON, Michigan
BART GORDON, Tennessee               CLIFF STEARNS, Florida
BOBBY L. RUSH, Illinois              NATHAN DEAL, Georgia
ANNA G. ESHOO, California            ED WHITFIELD, Kentucky
BART STUPAK, Michigan                BARBARA CUBIN, Wyoming
ELIOT L. ENGEL, New York             JOHN SHIMKUS, Illinois
ALBERT R. WYNN, Maryland             HEATHER WILSON, New Mexico
GENE GREEN, Texas                    JOHN B. SHADEGG, Arizona
DIANA DeGETTE, Colorado              CHARLES W. ``CHIP'' PICKERING, 
    Vice Chairman                    Mississippi
LOIS CAPPS, California               VITO FOSSELLA, New York
MICHAEL F. DOYLE, Pennsylvania       STEVE BUYER, Indiana
JANE HARMAN, California              GEORGE RADANOVICH, California
TOM ALLEN, Maine                     JOSEPH R. PITTS, Pennsylvania
JAN SCHAKOWSKY, Illinois             MARY BONO, California
HILDA L. SOLIS, California           GREG WALDEN, Oregon
CHARLES A. GONZALEZ, Texas           LEE TERRY, Nebraska
JAY INSLEE, Washington               MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
MIKE ROSS, Arkansas                  SUE WILKINS MYRICK, North Carolina
DARLENE HOOLEY, Oregon               JOHN SULLIVAN, Oklahoma
ANTHONY D. WEINER, New York          TIM MURPHY, Pennsylvania
JIM MATHESON, Utah                   MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina     MARSHA BLACKBURN, Tennessee
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana

                                 ______

                           Professional Staff

                 Dennis B. Fitzgibbons, Chief of Staff
                   Gregg A. Rothschild, Chief Counsel
                      Sharon E. Davis, Chief Clerk
                 Bud Albright, Minority Staff Director

                                  (ii)
































              Subcommittee on Oversight and Investigations

                    BART STUPAK, Michigan, Chairman
DIANA DeGETTE, Colorado              ED WHITFIELD, Kentucky
CHARLIE MELANCON, Louisiana              Ranking Member
    Vice Chairman                    GREG WALDEN, Oregon
HENRY A. WAXMAN, California          MIKE FERGUSON, New Jersey
GENE GREEN, Texas                    TIM MURPHY, Pennsylvania
MIKE DOYLE, Pennsylvania             MICHAEL C. BURGESS, Texas
JAN SCHAKOWSKY, Illinois             MARSHA BLACKBURN, Tennessee
JAY INSLEE, Washington               JOE BARTON, Texas (ex officio)
JOHN D. DINGELL, Michigan (ex officio)























                             C O N T E N T S

                              ----------                              
                                                                   Page
 Hon. Bart Stupak, a Representative in Congress from the State of 
  Michigan, opening statement....................................     1
Hon. Ed Whitfield, a Representative in Congress from the 
  Commonwealth of Kentucky, opening statement....................     5
Hon. Charlie Melancon, a Representative in Congress from the 
  State of Louisiana, opening statement..........................     6
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     7
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     8
Hon. Jan Schakowsky, a Representative in Congress from the State 
  of Illinois, opening statement.................................    10
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................    11
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, prepared statement......................................    62

                               Witnesses

Carolyn Merritt, chair and chief executive officer, U.S. Chemical 
  Safety and Hazard Investigation Board..........................    13
    Prepared statement...........................................    15
    Answers to submitted questions...............................   267
Richard Fairfax, Director, Directorate of Enforcement Programs, 
  Occupational Safety and Health Administration, U.S. Department 
  of Labor.......................................................    24
    Prepared statement...........................................    27
    Answers to submitted questions...............................   277
Jonne Slemons, coordinator, Petroleum Systems Integrity Office 
  Division and Oil Gas, Alaska Department of Natural Resources...    36
    Prepared statement...........................................    39
    Answers to submitted questions...............................   306
Stacey Gerard, Acting Assistant Administrator, Chief Safety 
  Officer, Pipeline and Hazardous Materials Safety 
  Administration, U.S. Department of Transportation..............    46
    Prepared statement...........................................    49
    Answers to submitted questions...............................   314
Robert A. Malone, chairman and president, BP America, 
  Incorporated, Houston, TX......................................    82
    Prepared statement...........................................    85
    Answers to submitted questions...............................   319

                           Submitted Material

Subcommittee on Oversight and Investigations exhibit binder......   117










 
 THE 2006 PRUDHOE BAY SHUTDOWN: WILL RECENT REGULATORY CHANGES AND BP 
              MANAGEMENT REFORMS PREVENT FUTURE FAILURES?

                              ----------                              


                        WEDNESDAY, MAY 16, 2007

              House of Representatives,    
                  Subcommittee on Oversight
                                and Investigations,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:30 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Bart 
Stupak (chairman) presiding.
    Members present: Representatives Melancon Green, 
Schakowsky, Inslee, Dingell, Whitfield, Walden, Burgess, and 
Barton.
    Staff present: John Sopko, Scott Schloegel, Chris Knauer, 
Richard Miller, Rachel Bleshman, Alec Gerlach, Jodi Seth, Alan 
Slobodin, Dwight Cates, and Matthew Johnson.

  OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Stupak. The hearing on the ``2006 Prudhoe Bay Shutdown: 
Will Recent Regulatory Changes and BP Management Reforms 
Prevent Future Failures?'' will come to order. Each Member will 
be recognized for 5 minutes for an opening statement. I 
apologize to everyone. We are waiting for one or two Members 
who are stuck in traffic. They should be here soon, including 
chairman of the full committee, as he wants to participate in 
this hearing. So we started a little bit late today. I will 
begin with my opening statement.
    On March 2, 2006, BP discovered that oil was leaking from a 
major transmission pipeline responsible for connecting its west 
oil field with the Trans-Alaskan Pipeline. Almost 200,000 
gallons of crude spilled out of the pipeline and became the 
largest spill in Prudhoe Bay history. Prudhoe Bay oil field is 
the Nation's largest and most strategic oil field producing 
400,000 barrels a day. What started as a single oil spill ended 
in the shutdown of the entire Prudhoe Bay oil field. As a 
result, the Nation faced a significant reduction, almost 8 
percent, of its domestically-produced oil supply. This shutdown 
caused a severe spike in oil prices.
    This committee's investigation into the failures of BP's 
Alaska operations began shortly after the Department of 
Transportation issued its March 15, 2006 Corrective Action 
Order. The CAO mandated that BP smart pig a number of key 
pipelines, including the Western Operating Area and the Eastern 
Operating lines.
    At last year's September 6 Oversight and Investigations 
Subcommittee hearing, a number of key questions were posed to 
BP about its Alaska pipeline maintenance and safety. Among the 
key questions raised at that hearing was: ``What role did cost-
cutting play in managing the field and did it have any affect 
on whether to smart pig or maintenance pig the critical transit 
lines that ultimately led to the field's shutdown?'' The 
committee members also posed a number of organizational and 
management question on how BP's pipeline maintenance decisions 
were made. Members were assured by BP that cost cutting 
measures did not affect maintenance and a lack of maintenance 
did not cause the oil leak.
    Today's hearing was originally intended to be an update as 
to what corrective actions BP, as well as State and Federal 
agencies, had taken to improve conditions at Prudhoe Bay. 
Unfortunately, as a result of recent documents produced to the 
committee, we will also need to revisit the issue of what 
caused the leaks.
    In the 6 months since our last hearing, a number of new 
developments have occurred, including a reorganization of BP's 
Alaska management structure and personnel, as well as the 
engineering and rebuilding of key pipelines. Evidence shows 
that severe cost cutting pressures existed between 1999 and 
2005, which may explain why pipeline corrosion mitigation 
activities were never undertaken.
    Several thousand documents recently provided by BP shed 
additional light on how the Prudhoe Bay oil field was managed. 
Some of these documents were actually available to BP officials 
before, before the September 6 hearing, yet BP failed to 
disclose this information to the committee. These documents 
show that cost cutting pressures on Prudhoe Bay operations were 
sever enough that some BP field managers were considering 
reducing or halting the range of actions related to preventing 
or reducing corrosion.
    For example, some documents detail proposals to cut funding 
for corrosion inhibitor. These documents show that proposals 
were made between 1999 and 2004, and in such locations as the 
``produced water'' lines which we understand are highly 
susceptible to corrosion. Documents also suggest that corrosion 
monitoring efforts such as smart pigging, coupon pulling and 
digging up crossroads for visual inspections were reduced or 
put on hold because of budgetary pressures. This was occurring 
while BP received more than $106 billion in profits. The 
documents further show that BP's Corrosion, Inspection and 
Chemicals Group, CIC Group, was under extreme pressure to 
constantly find new ways to cut costs.
    For instance, one e-mail from October 2001 said, and I 
quote,

    As you know, we are under huge budget pressure for the last 
quarter of the year and therefore we have to take some rather 
disagreeable measures. Can you please implement the following 
changes/reviews:
    Shut down the PW, this is produced water lines, inhibition 
systems for the remainder of the year.
    Discontinue the additional corrosion inhibitor for velocity 
control.
    These need to happen as soon as possible.

    The author of this e-mail refused to testify at the 
September 6 hearing and instead took the fifth amendment. While 
it is not known if specific activities as referenced in this e-
mail occurred, other e-mails and documents show BP field 
managers were being asked to choose between saving money and 
critical maintenance.
    BP recently released to the committee a major audit 
conducted by Booz Allen Hamilton which attempted to answer key 
questions on why last year's shutdown occurred. The audit 
assessed both management and processes which led to the 
corrosion and the failures of the Oil Transit Lines. The Booz 
Allen Hamilton report also found weaknesses in the way BP's 
Alaska unit was structured. The Booz Allen Hamilton findings 
included the following:
    There was no formal holistic risk assessment for pipeline 
integrity.
    BP's corrosion management strategy was developed in the 
late 1990's and had not been substantially reviewed or revised 
until recently, despite specific direction to do so in a 2004 
internal audit.
    BP's Alaska team often operated in vertical silos and there 
was little sharing of technical knowledge outside of Alaska or 
even across key business segments within Alaska.
    BP's information technology infrastructure was fragmented 
and weak, making data analysis on key areas of the system 
difficult or impossible.
    While some credit should go to Booz Allen Hamilton for 
identifying a number of weaknesses in BP's management of 
Prudhoe Bay operations, it also failed to answer why certain 
decisions were made or more importantly, not made. It also 
failed to explain why some of the field's key operational 
assets, such as the transit lines, were allowed to corrode and 
were not smart-pigged.
    Two other reports about BP were also finalized since our 
last hearing. These include the Report of BP U.S. Refineries 
Independent Safety Review Panel, known as the Baker Panel 
Report, and the U.S. Chemical Safety and Hazard Investigation 
Board, CSB, report.
    These reports focused on the 2005 Texas City refinery 
explosion, which resulted in 15 deaths and 180 injuries, as 
well as the other four BP refineries in the United States. The 
findings of these two reports have relevance to BP Alaska 
operations and they also explain what went wrong at Prudhoe 
Bay. We will hear today from the Chemical Safety Board that 
``There are striking similarities in the reported causes of the 
2006 pipelines and the 2005 explosion at the BP Texas City 
refinery.'' In fact, as reported by the Chemical Safety Board, 
most, if not all the seven root causes that BP consultants 
identified for the Prudhoe Bay incidents have strong echoes in 
Texas City. These include the checkbook mentality of cost 
cutting where budgets and funding were largely based on 
affordability as opposed to necessity and were not supported by 
an analytical process to prioritize risk.
    It is the committee's understanding that considerable 
design and construction work has already gone into rebuilding 
the systems that failed at Prudhoe Bay. BP should be applauded 
for their reconstruction. Nevertheless, we will hear from 
Department of Transportation and the State of Alaska on how 
these efforts are progressing, whether it believes BP's 
physical problems have been solved and how it will prevent 
future failures.
    Within the past month, for example, the State of Alaska 
created the Petroleum Systems Integrity Office, which will 
attempt to serve as a bridge between the various State and 
Federal agencies now responsible for regulating Prudhoe Bay 
operations. The coordinator for that office will also testify 
today. We look forward to understanding how this new 
organization differs from what was used in the past and whether 
it will be more effective in regulating pipeline and oil 
production operations.
    Roughly 6 months ago, BP president Bob Malone made a 
commitment to this committee that he would return to provide a 
progress report. I am pleased that he is before us, but I want 
to know is about Booz Allen report's findings; how senior 
management intends to restructure Prudhoe Bay operations so 
pipeline failures are not repeated and how the contributing 
factors which led to the tragic Texas City explosion reflect on 
the failures at Prudhoe Bay. Also, one of the primary findings 
in the Chemical Safety Board report was that cost cutting and 
budget pressures from BP executive managers impaired process 
safety at Texas City. BP's Health, Safety and Environment 
Business Plan for 2005 warned that the refinery would ``kill 
someone in the next 12 to 18 months if changes were not made.'' 
Nonetheless, BP's Group Refining Management executives issued a 
25 percent reduction challenge.
    An internal BP document found and again, I quote, ``A 
culture that evolved over the last years at Texas City seemed 
to ignore risk, tolerated non-compliance and accepted 
incompetence.'' It found that the Group Vice President for 
Refining ``was well aware of under-investment at'' Texas City 
refinery and failed to draw the necessary inferences from the 
warning signals, such as a 2002 report which found that there 
was potential for a major site incident. Isn't under-investment 
essentially a polite way of saying we will cut costs without 
regard to safety? Similarly, documents made available to this 
subcommittee suggest that BP field managers were under extreme 
pressure to cut costs in Alaska. E-mails and budget challenges 
paint an environment of extensive cost cutting to save money in 
the Prudhoe Bay operations.
    While some may argue that these activities did not relate 
to the shutdown or any given spill, my review of the mountain 
of circumstantial evidence can only lead me to conclude that 
severe pressure for cost cutting did have an impact on 
maintenance of the pipelines. With such severe pressure to 
reduce costs, would a pipeline manager have been able to 
propose excavating the low points to examine for corrosion? 
Would a manager be allowed to smart pig or maintenance pig the 
oil transit lines? These corrosion maintenance activities are 
very expensive. In an atmosphere where managers were 
contemplating shutting down corrosion inhibitor to save money, 
I doubt the high costs associated with these proposals would 
have been tolerated.
    This investigation has been difficult. Documents which 
should have been produced half a year ago were not made 
available to us until a few weeks ago and more seem to roll in 
each day. In fact, over 800 pages were provided to committee 
staff at 8:00 p.m. last night. The committee's findings thus 
far paint a picture of how cost cutting impacted the way the 
oil field was run. There are dozens of documents showing how 
employees, because of budget pressure from management, 
struggled to make the right call when it came to meeting the 
bottom line or to maintain pipeline integrity.
    Perhaps most cynically, budget pressure was being exerted 
during the 1999-2006 time period when BP earned more than $106 
billion in after-tax profits. As a result of BP's poor 
management of Prudhoe Bay, the public are the ones who 
ultimately are left footing the bill as the costs of supply 
interruptions are passed on to them in the form of higher 
prices at the pump. This practice of record high corporate 
profits coupled with continued cost cutting and neglect of 
infrastructure must end. The atmosphere of little 
accountability, minimal penalties and no financial risk due to 
the fact that oil companies merely heap their additional costs 
onto the backs of consumers at the pump, will not continue to 
be tolerated by this Congress or the American consumers.
    This committee will continue to investigate BP's management 
of this strategic oil field and as more documents become 
available, additional hearings may be warranted. I just hope BP 
does not turn into the Los Alamos of the north.
    And with that, I would yield time for opening statement to 
my friend, Mr. Whitfield, from Kentucky.

  OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

    Mr. Whitfield. Thank you, Chairman Stupak, and this morning 
we revisit the topic that the Oversight and Investigation 
Subcommittee examined at some length last fall at a September 
7, 2006 hearing. BP was and remains today responsible for the 
operation and integrity of the transit lines as they move crude 
oil from the wells on the north slope to the Trans-Alaska 
pipeline system. Specifically, BP-Alaska has operational unit 
known as the Corrosion, Inspection and Chemicals Group that is 
directly responsible for monitoring and mitigating pipeline 
corrosion.
    During our investigation last year, we learned that a key 
component of this corrosion control program had been neglected 
with respect to the transit lines, a practice known as pigging, 
where devices are placed into the pipelines to clean out 
sludge, sediment, sand and other material. Smart pigs, on the 
other hand, provide pipeline operators with a comprehensive 
picture of internal and external corrosion of the pipelines. 
The western transit pipeline that leaked in March 2006 had not 
been pigged since 1998 and the eastern transit pipeline that 
leaked in August 2006 had last been pigged in 1991.
    Documents recently produced to the committee by BP reveal 
that employees had discussed pigging the transit lines on many 
occasions, but the idea was routinely rejected. We were stunned 
that BP's transit pipelines, which transport one of the 
country's most vital domestic resources of crude oil, had been 
allowed to deteriorate to such a state. BP testified that they 
thought their corrosion and monitoring program was state-of-
the-art and that pigging transit lines was not imperative. 
Obviously, that judgment was wrong.
    In fact, some of the testimony by Admiral Barrett, the head 
of DOT's Pipeline and Hazardous Materials Safety Administration 
at that time, is worth repeating here. He said typically, up on 
the north slope and generally in the industry, he would see 
maintenance pigs every couple of weeks, certainly every couple 
of months, but never on these lines. Last year we sought to 
understand exactly what BP knew and when they knew it and what 
steps the company would take to adequately respond to the 
concerns raised by its own employees, as well as others.
    We wanted to know why the transit pipelines were not 
properly maintained and did budget pressures lead to decisions 
that resulted in the neglect of these lines. BP has recently 
provided the committee with over 5,000 pages of documents 
related to these questions and as Chairman Stupak pointed out, 
many of these documents were available to them last September. 
And so we are disappointed that BP decided to withhold these 
documents for so long. However, the documents do provide 
insight on the cost pressures faced by pipeline safety managers 
that may have led to bad decisions on corrosion management. And 
these questions need to be explored more fully today.
    We also look forward to testimony from the representatives 
of the Pipeline and Hazardous Materials Safety at DOT today, as 
well as the Chemical Safety Board and OSHA, as well as the 
Alaska Department of Natural Resources is represented here 
today, as well. We look forward to their testimony. We also 
welcome back Mr. Bob Malone, president of BP America and look 
forward to what he will say about BP's plans for future 
operations at Prudhoe Bay and at BP facilities around the 
country.
    At a time when the American people are paying the highest 
prices for gasoline in a long time, and when the American 
people are consuming around 22 million barrels of oil every 
day, we do not have any margin of error for maintenance 
problems in this industry. And we want to make sure that the 
production and the transportation and the refining and the 
distribution is working the way it is supposed to work in order 
to protect our economy and to shield the American people from 
higher fuel prices.
    So we look forward to the testimony as we all work together 
to address the serious issues facing our country and thank you 
again, Chairman Stupak, for having this hearing. I yield back 
my 19 seconds. Thank you, Mr. Chairman.
    Mr. Stupak. Mr. Melancon for an opening statement.

OPENING STATEMENT OF HON. CHARLIE MELANCON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Melancon. Thank you, Mr. Chairman. I appreciate it. 
Prudhoe Bay is an important component of our Nation's domestic 
energy supply, producing roughly 8 percent of domestic oil and 
gas. I do have an understanding of energy producing regions of 
the country and of energy production. As you may know, I 
represent much of the energy producing Gulf Coast of Louisiana, 
as my friend, Mr. Green, next to me, and we produce roughly 30 
percent of our domestic supply of oil and gas out of the Gulf 
of Mexico.
    The impact of shut in production during Hurricanes Katrina 
and Rita rippled across our Nation's economy in the form of 
higher prices at the pump for all Americans. Similarly, a 
shutdown of the distribution system in the oil fields of 
northern Alaska have disrupted supply. The Prudhoe Bay shutdown 
pushed the price of oil above $70 a barrel and gasoline above 
$3 a gallon. Because of tightly balanced supply and demand in 
the world markets and a lack of refining capacity in the United 
States, even a small disruption in supply can impact all our 
constituents' wallets.
    As we speak, retail gasoline is climbing above a $4 
threshold in parts of the country. Continued high prices have 
created a market dependent on production in unstable and 
dangerous regions of the world. We live in a time when a crude 
oil pipeline explosion in Nigeria will impact the downstream 
prices at the pump in New York City. Our energy supply is 
intertwined, tightly balanced and vulnerable to events far 
beyond our control. Because of geopolitical instability and 
consistent volatility in the prices, I believe that securing 
our domestic energy supply should be one of our Nation's top 
priorities. America's enemies know that creating a supply 
disruption like the refinery explosion in Texas City can take 
as much as 400,000 barrels a day out of the market.
    What we have learned from the Chemical Safety Board 
investigation in Texas City, the Baker Panel Report on BP's 
five U.S. refineries, the BP-sponsored Management 
Accountability Project evaluation related to the Texas City 
refinery explosion and the Booz Allen report on Prudhoe Bay 
pipeline leaks is that the same kind of supply disruptions 
threatened by terrorists can result from underinvestment in 
basic refining maintenance, corrosion protection of critical 
pipelines and management's failure to keep hydrocarbons inside 
the pipes using long established process safety management.
    Prudhoe Bay and the Gulf must keep producing, no matter 
what, in order for our economy to enjoy prosperity and our 
energy supply to remain secure. That means that BP and its 
working interest owners should not be making short-terms 
tradeoffs between cost cutting to boot the bottom line, and 
necessary investments in safety and pipeline integrity. I am 
glad that BP has been accessible in its dealings with the 
subcommittee and your recent efforts to disclose information 
requested is appreciated. However, I share some concerns of the 
committee about the speed in which documents have been 
produced.
    Furthermore, I understand that many answers still remain 
illusive and we will ask many questions here today and hope 
that we will get honest and deliberative answers. I would like 
to thank the witnesses for appearing today and I am looking 
forward to learning more about the Prudhoe Bay and Texas City 
incidents and what BP is doing to learn from these past 
mistakes. Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Melancon. Mr. Walden, please, 
for an opening statement.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Thank you, Mr. Chairman. Thank you for 
providing this hearing for us, a follow-up from the one that I 
chaired last year. The leaks we deal with here in Washington 
generally don't hurt the environment, but leaks in oil 
pipelines in Alaska and elsewhere can and do and that is why we 
are here today, to figure out what went wrong, why did it go 
wrong and how do we make sure it doesn't happen again, to the 
best of our human ability. Because we want to make sure the 
environment is protected and that the flow of oil can proceed 
safely and efficiently. So I look forward to learning more 
about what went wrong, why it went wrong and what we can do to 
fix it so it doesn't happen again.
    Why were alarms ignored when they went off? Why is somebody 
driving along the pipeline has to sniff out the hydrocarbons, 
since they are already leaking? How do we make sure that 
doesn't happen again? So Mr. Chairman, I look forward to 
hearing from our witnesses and the questions that we have to 
ask them and I thank you again for holding this hearing.
    Mr. Stupak. Thank you, Mr. Walden. Mr. Green for an opening 
statement.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, for holding the hearing 
and I want to welcome our panelists today. I especially want to 
welcome Ms. Merritt and thank you for the job you have done and 
your staff has done at the Chemical Safety Board on this 
particular issue. This issue is probably one of the most 
important in the district I represent in Texas, where we have 
both refineries, chemical plants and pipelines that play such 
an important part of our life and our local economy and of 
course, in the economy of our Nation.
    As the father of two children, I have tried to teach them 
many life lessons; one of them, the most important, is when you 
make a mistake, you find out why you made that mistake and you 
learn from that experience. We must ask ourselves what went 
wrong and how can we improve and how can we emerge stronger 
than before. I hope today's hearing helps shed some light on 
whether BP America, the Occupational Safety and Health 
Administration and other industrial players learn from the 
mistakes of the past to help protect the health and safety of 
America's workers and maintain the integrity of our Nation's 
critical energy infrastructure.
    Although unfortunately, I do not believe all the lessons 
have been learned from the accident in Prudhoe Bay nor the 
accident that hit home in Texas City. On March 15, 2005 an 
explosion at BP's Texas City refinery took 15 lives. One of 
them was a constituent of mine from Baytown, Texas, and injured 
180 others. This was the worst workplace disaster since 1990, 
one that still affects the lives of these families who lost 
loved ones in the blast.
    And I believe we look back at 1990, there was a chemical 
facility in Pasadena, TX, that is in our district, that 
exploded, which means this I take very seriously and I think 
between Charles Melancon and I, there is not two Members who 
are closer to the energy industries, because it is our tax base 
and our job base. But if you are making lots of money like BP 
does, no matter what company you are, and you are cost cutting 
and you are causing the lives of 15 people to be lost or 
product to be left out on the tundra in Alaska, you have to be 
answerable for it and that is why we are here today and I just 
wish we also had oversight in our committee on OSHA, because 
obviously they are not doing their job, either. But I will let 
the Committee on Education and Labor take care of that with our 
encouragement.
    The U.S. Chemical Safety Board, an independent agency that 
investigates major chemical accidents, completed the most 
thorough investigation in its history of the accident in Texas 
City and came up with several important conclusions. Cost 
cutting, failure to invest and production pressures from BP 
management, in the safety performance, BP did not provide 
effective oversight of its safety culture and major accident 
prevention program.
    BP lacked an effective culture to report safety concerns 
and OSHA should increase inspection and enforcement at all U.S. 
refineries and chemical plants should require these 
corporations to evaluate the safety and impact of mergers, 
reorganizations and downsizing. As a result of the 
investigations, CSB has made new recommendations to BP board of 
directors, OSHA and others to rectify inherent flaws and 
discrepancies that led to the disaster.
    I hope today's testimony and the question and answer will 
determine that those recommendations are followed. Although I 
have to admit, last summer I was at a plant in my district and 
I asked, touring that plant, I said seems like that 
construction shack is pretty close to the unit and I was told 
we are getting ready to move that. I said this last year at the 
hearing and I am saying it today, BP cost 15 peoples' lives and 
180 injured. Those of us who work and live in the energy 
industry need to know we need to learn from the mistakes that 
BP made. And if they haven't moved those shacks now, that 
should be done; should have been done right afterwards.
    After reviewing the recommendations, I introduced H.R. 141 
in this 110th Congress and it seeks to require more accurate 
injury and accident logs for all employees, including contract 
workers at these sites across the country. These site logs, I 
believe, will better enable OSHA to determine which sites need 
inspection to protect workers' safety. When I found out that in 
the energy industry, so much of our work is now done by 
contract workers, but when that injury for that worker or death 
is not counted on that site, something is wrong.
    One of the most startling conclusions I have come to 
realize, since reviewing BP's two major accidents, is many of 
the fundamental causes in Texas City and the exact same causes 
found in Prudhoe Bay almost 1 year later and obviously, we have 
a lesson that is lost. Whether BP's operations are in Alaska or 
Texas or anywhere in our country, Congress expects BP to invest 
in the necessary resources to protect human life and the 
environment and our economy and we should do all we can to 
ensure the commitment be followed through for the American 
people. These actions come at a most unfortunate time. One of 
the Congress's top priorities includes addressing climate 
change and believe an important part of this piece will be 
ensure adequate oil and natural gas production to provide 
affordable, reliable energy for U.S. consumers.
    Incidents such as we are going to discuss today breeds on 
that distrust citizens already have in the high energy prices 
and apparent neglect that certain energy companies are 
providing to their workers in the infrastructure. Mr. Chairman 
and ranking member, thank you again for holding this hearing 
and I know we held one last year and I hope we will continue to 
do this because we make things in my district that are volatile 
and I want to make sure we use every safety precaution we can 
to protect my constituents, and I yield back my time.
    Mr. Stupak. Thank you. Mr. Burgess for an opening 
statement, please.
    Mr. Burgess. Thank you, Mr. Chairman. I have a prepared 
statement that I will put into the record, but let me just say, 
when we had this hearing last September and we specifically 
left out anything that dealt with the Texas City accident. I 
thought that was an oversight by the Oversight Committee. I 
thought we should have included the fact that there were 15 
people lost in Texas. We should have included the facts of that 
accident as part of our hearing last September, so I am 
grateful that now we do have the chairman of the U.S. Chemical 
Safety Board to testify before us this morning and certainly, 
in reading through that testimony in preparation for this 
hearing, it does come up that there apparently were striking 
similarities between the accident that occurred in Texas City 
and the conditions that led to the non-inspection of the 
transfer lines in the Prudhoe Bay area that led to the 
hydrocarbon leaks on the north slope.
    So I think this is getting at the essence of the critical 
heart of the problem. I obviously am anxious to hear BP's 
answer to some of the issues that have been raised, but I agree 
with my colleague from Texas that it is not just because those 
were Texans that were lost, but we all have an obligation to 
protect lives and safety and welfare of our constituents and 
while energy is of vital importance to our country and at no 
time in our country's history has it been more important than 
it is right now, we must not ignore the safety concerns for the 
people who provide us the ability to have that energy. So thank 
you, Mr. Chairman, for holding the hearing and I will yield 
back the balance of my time.
    Mr. Stupak. Thank you, Mr. Burgess. Texas City, as I made 
in my opening statement and we will hear today, there were so 
many similarities of management between what happened in Texas 
City and Prudhoe Bay, I think that is why you see greater 
emphasis upon it at this hearing and appreciate your input at 
this hearing.
    Mr. Inslee, I think, is next for an opening statement, 
please.
    Mr. Inslee. Thank you. I will reserve my time, Mr. 
Chairman.
    Mr. Stupak. Ms. Schakowsky.

 OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Just a couple of things. I was at the 
hearing last September and so of course, I am very much looking 
forward to seeing the kinds of changes that were made, but I am 
looking now at the reports that BP commission from Booz Allen 
to examine the root causes of both Prudhoe Bay and the Texas 
City disaster. The No. 1 cause would be of deep concern and 
great surprise to my constituents who are now paying $3.49-
$3.59 in Chicago for gasoline. The first is BP had a ``deeply 
ingrained cost management ethic'' as a result of low oil 
prices. That was last year and oil prices, gas prices were 
still pretty high then and for the Prudhoe Bay and for Texas 
City, cost cutting and budget pressures from BP Group executive 
managers impaired the process.
    Really, we are talking about record high oil prices and 
that is not new this year. We had this surge in prices last 
year, as well. I think people who are filling their tanks are 
expecting a little bit more, perhaps a lot more from British 
Petroleum, from BP, in the way of spending the necessary money 
to prevent these kinds of accidents and devastating oil leaks 
that do such damage to our environment. So I am looking forward 
to seeing what progress has been made and I want to commend our 
chairman. All too often we have hearings on a topic and reveal 
a problem, but sometimes we don't get back and check up and see 
how things have progressed, so I really appreciate this hearing 
today, Mr. Chairman, and I yield back my time.
    Mr. Stupak. I thank the gentlelady. Seeing no other Members 
who wish to be recognized, at this time I am going to ask 
unanimous consent, if it is OK with you, Mr. Whitfield, to, if 
Mr. Dingell or Mr. Barton comes for an opening statement, we 
will accommodate them when they arrive? Without any objection, 
so ordered.
    That concludes the opening statements by members of the 
subcommittee and I will call our first panel of witnesses. 
Stacy Gerard, Assistant Administrator of the U.S. Department of 
Transportation Pipeline and Hazardous Materials Safety 
Administration; Ms. Jonne Slemons, coordinator of the Petroleum 
Systems Integrity Office at the Alaska Department of Natural 
Resources; Ms. Carolyn Merritt, Chair and CEO of the U.S. 
Chemical Safety and Hazard Investigation Board; Mr. Richard 
Fairfax, Director of the Enforcement Programs at the Department 
of Labor's Occupational Safety and Health Administration.
    I welcome the witnesses to the committee. It is the policy 
of this subcommittee to take all testimony under oath. Please 
be advised that witnesses have the right under the rules of the 
House to be advised by counsel during their testimony. Do any 
of our four witnesses before us wish to be represented by 
counsel at this time? All indicating no. Therefore, I would ask 
if you would please rise and raise your right hand and take the 
oath.
    [Witnesses sworn.]
    Mr. Stupak. Let the record reflect that the witnesses 
replied in the affirmative. They are now under oath. We will 
begin with our opening statement. Ms. Merritt, you are on my 
left. We will start with you, please, if you would, for 5 
minutes.
    Ms. Merritt. Thank you.
    Mr. Stupak. Excuse me a minute. We said that we would 
accommodate either Mr. Dingell or Mr. Barton. Chairman Dingell, 
has arrived and he has been very active in this investigation, 
so if you may, I will ask you to hold a minute. We will turn to 
the chairman of the full committee, Mr. Dingell, for an opening 
statement. Please, sir.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Chairman Dingell. You are most gracious. Thank you.
    The hearing today was supposed to be a simple follow up of 
last September's hearing that concerned the shutdown of the 
Prudhoe Bay field. This committee was preparing for today's 
hearing at that time. However, a number of documents were 
recently discovered by British Petroleum and turned over to us; 
for that, we commend them. These documents clearly shed new 
light on the cause of the Prudhoe Bay failures and raise 
questions about the testimony of BP officials who appeared 
least year.
    They suggest that cost cutting drove many key management 
decisions in the Prudhoe Bay field and dovetail with a number 
of reports that surfaced since last year's hearings that also 
raise serious questions about BP management. One study 
conducted by the Chemical Safety Board found that severe cost 
cutting contributed to the refinery explosion in Texas City 
that killed 15 people.
    These new documents and reports strongly suggest that BP 
field managers were asked to consider trimming key activities 
related to halting or mitigating corrosion to meet very tight 
safety and maintenance budgets. For example, we recently found 
an e-mail that discusses corrosion inhibitor and how it would 
prevent corrosion in the produced water lines. It reads, in 
part, that, and I quote now,

    Due to budgetary constraints, the decision has been made to 
discontinue the inhibitor currently being injected at Gathering 
Center 2 and Gathering Center 3. The bulk tank should run out 
within the next 2 days and will not be refilled.

    What is particularly interesting is a follow-up e-mail that 
suggests that BP staff were aware that this would increase 
corrosion. The e-mail reads as follows, in part:

    FYI-We have conducted the field trial of the produced water 
inhibition chemical and found it to be very successful at 
cleaning up the system and arresting corrosion activity. 
Unfortunately, we did not budget a full year's chemical 
expense. We are now at a point where the original monies for 
this program are used up, so we will be shutting it down until 
year's end. In the meantime, the produced water system may be 
subject to increased corrosion activity and fouling.

    Mr. Chairman, these e-mails are quoted because they capture 
the essence of what went wrong with Prudhoe Bay. Workers were 
often forced to forego safety measures to save money and to 
ultimately increase BP's profits. Other e-mails that we 
recently uncovered refer to stopping or halting other key 
corrosion inspection programs, including smart pigging, looking 
for corrosion under the insulation that covers and thus hides 
the pipe, and digging up key road crossings where corrosion can 
be a significant problem. These are all key activities in 
running a safe field. Yet these programs, in many cases, appear 
to have been halted or cut due to budgetary reasons.
    This is the core of what we have learned about the way 
British Petroleum managed Prudhoe Bay. Until BP fully 
acknowledges the role cost cutting and budget pressure played 
in creating this mess, I fear other problems like this may be 
occurring at other BP facilities throughout the United States. 
At a time when oil and gas prices are again squeezing 
consumers, it is critical that we keep a vigilant eye on how 
these precious resources are managed. As the largest oil field 
in North America, oversight of Prudhoe Bay's management is a 
wise investment of the committee's time and attention.
    I thank you for holding this hearing, Mr. Chairman, and I 
look forward to today's testimony. I yield back the balance of 
my time.
    Mr. Stupak. Thank you, Mr. Chairman, for your opening 
statement.
     Ms. Merritt, we will begin with you now. I remind the 
witnesses that they are under oath, including your opening 
statement. Please start.

    TESTIMONY OF CAROLYN MERRITT, CHAIR AND CHIEF EXECUTIVE 
  OFFICER, U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD

    Ms. Merritt. Thank you, Mr. Chairman, Ranking Member 
Whitfield and the distinguished members of the committee. I am 
Carolyn Merritt, Chairman of the U.S. Chemical Safety Board. 
The Chemical Safety Board is an independent, non-regulatory 
Federal agency that investigates major chemical accidents. 
Today, I speak as an independent member of that board.
    The CSB recently completed a 2-year investigation of the 
disaster at the BP Texas City refinery, which killed 15 
workers, injured 180 and was the worse U.S. workplace accident 
since 1990. On March 23, 2005 a distillation tower and blowdown 
drum were flooded with highly inflammable hydrocarbons, causing 
a massive explosion and fire that filled workers in a nearby 
trailer. This accident was the direct result of organizational 
and safety deficiencies at all levels of the BP Corporation.
    At the committee's request, we reviewed the Booz Allen 
Hamilton report on Prudhoe Bay and compared its findings with 
our own. Mr. Chairman, there are striking similarities in the 
reported causes of the BP Prudhoe Bay pipeline incident and the 
BP Texas City explosion. Virtually all of the seven root causes 
identified for the Prudhoe Bay incidents have strong echoes in 
Texas City. Both reports point to the significant role of 
budget and production pressures in driving BP's decision-making 
and ultimately harming safety. Our report describes what BP 
itself called a ``checkbook mentality.'' Budgets were not large 
enough to control known risks, but spending was nonetheless 
limited to the budgets provided.
    Cost considerations led to drastic staffing and training 
cuts and even dissuaded BP from replacing its antiquated 
blowdown drums with an inherently safer flare system, which 
likely would have prevented this accident. Both investigations 
found deficiencies in how BP managed the safety of process 
change. The Booz Allen report speaks of a ``normalization of 
deviance where risk levels gradually crept up due to evolving 
operating conditions.''
    In BP Texas City, abnormal startups were not investigated 
and became routine, while critical equipment was allowed to 
decay. By the day of the accident, the distillation equipment 
had six key alarms, instruments and controls that were 
malfunctioning. Trailers had been moved into dangerous 
locations without appropriate safety reviews.
    In Prudhoe Bay, BP's internal audit findings faced ``long 
delays in implementations, administrative documentation of 
close-out even though remedial actions were not actually taken, 
or simple non-compliance.'' In Texas City, the closure rate for 
action items from incident investigations was only 33 percent 
and maintenance personnel were authorized to close job orders 
even if no work had been completed. Other common findings 
include flawed communication of lessons learned, excessive 
decentralization of safety functions and high management 
turnover. BP focused on personal safety statistics but allowed 
catastrophic process safety risks to grow. I describe all these 
commonalities in greater detail in my written statement.
    Finally, the CSB investigation included an analysis of 
OSHA's role in enforcing safety rules at refineries and 
chemical plants. We found that OSHA did not conduct any 
comprehensive, planned process safety inspections at the Texas 
City Refinery or any U.S. refinery for at least 10 years prior 
to this event. Other jurisdictions, including the United 
Kingdom, and California's Contra Costa County, are doing 
comprehensive regular inspections each year of major oil and 
chemical facilities every 3 to 5 years. Those are models that 
we should emulate at the Federal level. The CSB therefore 
recommended that OSHA conduct more comprehensive inspections 
and train more specialized inspectors.
    Mr. Chairman, more stringent Federal oversight will help 
protect our workers and our communities from chemical 
disasters. Improved process safety also protects the American 
public from gasoline supply disruptions that analysts say cost 
millions of dollars a day at the pump. I thank the committee 
for convening this important hearing today and will be pleased 
to answer your questions. Thank you.
    [The prepared statement of Ms. Merritt follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Stupak. Thank you. Mr. Fairfax, please, opening 
statement.

    TESTIMONY OF RICHARD FAIRFAX, DIRECTOR, DIRECTORATE OF 
     ENFORCEMENT PROGRAMS, OCCUPATIONAL SAFETY AND HEALTH 
            ADMINISTRATION, U.S. DEPARTMENT OF LABOR

    Mr. Fairfax. Thank you, Chairman Stupak, Ranking Member 
Whitfield and Congressman Dingell and members of the 
subcommittee. I appreciate the opportunity to appear today 
before you to discuss OSHA's efforts to protect health and 
safety at America's refineries.
    My name is Richard Fairfax. I am the director of OSHA's 
Enforcement Program and I have been with the agency for 29 
years. As a side note, I just would like to point out, prior to 
joining OSHA, I worked in refineries in both California and 
Texas as a pipe fitter and welder, so I am somewhat familiar 
with those industries. Twenty-one States and Puerto Rico have 
chosen to exercise the option given to them by the OSH Act to 
operate their own occupational safety and health program. These 
State programs conduct inspections in their own jurisdictions. 
Alaska, where BP's Prudhoe Bay facility is located, is a state-
plan State and not covered by Federal OSHA.
    We believe that OSHA's efforts to address workplace safety 
and health are achieving results, as evidenced by all-time low 
occupational injury and illness rates and fatality rates. The 
overall workplace injury and illness rate is 4.6 per 100 
employees in 2005. That is the lowest rate since the Bureau of 
Labor Statistics began collecting data in 1973. Since 2002, the 
injury and illness rate has fallen by more than 13 percent and 
the fatality rate has fallen by about 7 percent.
    Enforcement is a key component to our strategy and let me 
be perfectly clear in stating that compliance with OSHA 
standards is mandatory, not voluntary, and all employers are 
responsible for ensuring the safety and health of the employees 
at their worksite. Since 2001, OSHA has proposed more than 
three quarters of a billion dollars in penalties for safety and 
health violations and we have made 56 criminal referrals to the 
Department of Justice since 2001. The refinery industry is a 
major focus for us. Last year we and our State partners 
conducted 98 inspections in refineries.
    When OSHA encounters a company that repeatedly ignores its 
legal obligations and places employees at risk, the agency 
employs it Enhanced Enforcement Program. This program targets 
employers with serious violations related to worker fatalities 
or multiple and willful repeated violations of various laws 
that we have. For these employers, OSHA schedules mandatory 
follow-up inspections and negotiate comprehensive settlement 
agreements and provisions in those agreements to protect the 
workforce and we will conduct inspections of other work places 
of that same employer.
    As to the inspection that killed 15 workers at BP Products 
in Texas City, OSHA conducted the most extensive inspection of 
a refinery in the agency's history. In a settlement agreement 
with BP, BP Products paid more than $21 million in penalties 
and agreed to abate all cite hazards and agreed to extensive 
additional monitoring analysis of safety operations at the 
Texas facility. In January 2006 OSHA referred this case to the 
Department of Justice to determine if criminal charges should 
be pursued against the company.
    To determine whether similar conditions existed at other BP 
facilities, OSHA issued and enhanced enforcement alert to all 
its regional offices and state-plan States. OSHA's inspection 
at the BP facility refinery in Oregon, OH, under this alert, 
identified a number of violations very similar to those found 
in Texas City. Using the Enhanced Enforcement Program, OSHA 
penalized the company more than $2.4 million and this 
inspection resulted in 32 willful violations. Similar to Texas 
City, the violations found employees located in vulnerable 
buildings and found numerous ignition sources that compound the 
risk of fire and explosion; again, very similar to BP in Texas 
City.
    Additionally, under this alert, with assistance from our 
staff and OSHA's region 5, Indiana-OSHA, which is a state-plan 
State, conducted an inspection of BP Products facility in 
Whiting, Indiana. That inspection resulted in over $300,000 in 
penalties and we issued several willful violations in that 
inspection. We are currently conducting a follow-up inspection 
at Texas City, including an investigation of an incident last 
month in which more than 100 workers were taken to the hospital 
after complaining of flu-like symptoms.
    Since OSHA has begun enforcing the Process Safety 
Management Standard, there has been a steady decline in the 
number of fatality and catastrophe events. These are the types 
of incidents which the Process Safety Management Standard was 
promulgated to prevent. The number of fatal or catastrophic 
events related to PSM has declined from 24 in 1995 to five in 
2005.
    To address refinery safety and to address some of the 
recommendations of the Chemical Safety Board, prior to the 
event in Texas City, we began working on a National Emphasis 
Program for refineries. That program, our national program, is 
very close to being ready to be released. The emphasis program 
will use a new inspection strategy which frankly, I am quite 
proud of that we will use to yield better results in our 
inspections. OSHA will encourage its State partners to 
implement the emphasis program and/or to create their own 
emphasis program. Our agency will inspect, in the next 2 years, 
all 81 refineries under OSHA's jurisdiction under this program.
    OSHA currently provides three course on Process Safety 
Management at its training institute. More than 200 of our 
compliance officers have received instruction in one or more of 
these classes. We project that by the time we complete our 
Advanced Process Safety Management Course this fall, we will 
have trained more than 280 workers or employees of OSHA.
    Mr. Chairman, although we have made considerable progress 
in reducing injuries and illnesses in the American workplaces 
over the last 36 years, any fatality, including those at petrol 
and chemical companies is one death too many. We are aware of 
the devastation wrought by refinery explosions and fires in the 
communities where they are located. Our staff has met with the 
families of these workers and seen the toll that it takes. Our 
agency is using all its resources to reduce the dangers and 
risk in the refinery industry, as well as all companies 
nationwide.
    Mr. Chairman, that concludes my testimony and I would be 
happy to answer your questions.
    [The prepared statement of Mr. Fairfax follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Stupak. Thank you, Mr. Fairfax. Ms. Slemons, if you 
would for an opening statement, 5 minutes.

  TESTIMONY OF JONNE SLEMONS, COORDINATOR, PETROLEUM SYSTEMS 
  INTEGRITY OFFICE DIVISION AND OIL GAS, ALASKA DEPARTMENT OF 
                NATURAL RESOURCES, ANCHORAGE, AK

    Ms. Slemons. Chairman Stupak, Representative Whitfield, 
Vice Chairman Melancon and distinguished members of the 
committee, thank you for the opportunity to appear here today. 
My name is Jonne Slemons. I am the acting coordinator of the 
new State of Alaska Petroleum Systems Integrity Office.
    The March 2006 pipeline corrosion in the Prudhoe Bay Unit 
led to a spill of approximately 200,000 gallons of oil from a 
transit line onto the tundra. Five months later, a different 
transit line on the same unit leaked 735 gallons onto the 
tundra. After the August spill, BP determined that the Prudhoe 
field, which accounts for 8 percent of domestic output, had to 
be partially shut down, reducing by half the field's production 
of 400,000 barrels of oil a day, directly affecting gasoline 
prices nationwide and costing the State of Alaska approximately 
a million dollars per day.
    BP acknowledge problems when the leaks were discovered that 
called into question their assumptions and decisions regarding 
corrosion monitoring. Those events have been and continue to be 
carefully investigated. Remedial actions are underway and the 
flow of oil has resumed. But the spills and shutdown 
demonstrated to the State and to the Nation that preventive 
safeguards in both operator performance and government 
oversight were lacking. I would like to describe to you the 
actions being instituted by the State of Alaska in response to 
those events.
    First, the Department of Environmental Conservation has 
promulgated regulations for oversight of flow lines upstream of 
the separation facility, pipelines not regulated by the 
Pipeline and Hazardous Materials Safety Administration. Those 
regulations were approved shortly after the events of 2006 and 
are now in phased implementation with full implementation 
scheduled for 2009.
    Second, and on a much broader scale, on April 18th, 
Alaska's governor, Sarah Palin, signed Administrative order 
234, which created the Petroleum Systems Integrity Office or 
PSIO. We believe that the PSIO will have a significant and 
long-term effect on preventing future incidents such as those 
described above.
    The PSIO resides within Alaska's Division of Oil and Gas, a 
division of the Alaska Department of Natural Resources. The 
division conducts oil and gas lease sales, issues oil and gas 
leases, performs royalty accounting, administers the creation 
and operation of oil and gas units, approves surface activities 
and facilities, conducts inspections and reviews to ensure 
protection of coastal resources and compliance with the lease 
terms and stipulations. Traditionally, the division has not 
engaged in the review, approval or inspection of maintenance 
programs or practices. As is common throughout the country, the 
division has relied on the ``enlightened self-interest'' of 
operators to maintain their equipment properly in order to 
maximize the safe and continuing production of oil and gas 
resources.
    The events of 2006 in the Prudhoe Bay Unit taught us that 
we cannot rely on ``enlightened self-interest'' to ensure that 
prudent maintenance practices are carried out. We also learned 
of several regulatory gaps in oversight of oil and gas 
infrastructure. The PSIO addresses these findings.
    Governor Palin's Administrative order establishes that the 
PSIO resides within the Division of Oil and Gas, the State's 
landlord, and there the body responsible for ensuring that 
State leases are properly maintained. The PSIO will utilize the 
broad authorities vested in the division through our oil and 
gas leases.
    The order also establishes that the Alaska Department of 
Natural Resources Commissioner shall be the lead official for 
communication and coordination with all Federal agencies 
relative to oversight of oil and gas exploration, production 
and transportation on State lands.
    It further establishes that the Coordinator of the PSIO 
shall be the lead official in exercising oversight of 
maintenance of oil and gas facilities, equipment and 
infrastructure.
    And finally, it establishes that designated State agencies 
coordinated by the PSIO shall participate in interagency 
activities and provide technical assistance as requested by the 
PSIO. Those designated State agencies are the Alaska 
Departments of Natural Resources, including the Office of 
Habitat Management and Permitting, the Office of Project 
Management and Permitting, the Division of Mining, Lands and 
Water, and the State Pipeline Coordinator's Office. It also 
includes the Alaska Oil and Gas Conservation Commission and the 
Departments of Environmental Conservation, Fish and Game, 
Public Safety, Revenue, Transportation and Public Facilities, 
Labor and Workforce Development, Law and the Washington, DC 
Governor's Office.
    In regard to the PSIO's coordination with Federal agencies, 
we have conducted introductory meetings with the U.S. Coast 
Guard and the U.S. Army Corps of Engineers and we have met 
several times with the Pipeline and Hazardous Materials Safety 
Administration of the U.S. Department of Transportation. 
Further, we have established a Letter of Intent with PHMSA to 
document our mutual commitment to work cooperatively in the 
regulation and oversight of oil and gas productions and 
transportation in Alaska. As part of that agreement, the State 
and PHMSA will delineate clear jurisdictional roles and develop 
a unified strategic plan for the oversight of oil and gas 
production and transportation, including risk assessment, 
standards, inspections and overall, communication.
    In addition to coordinating the efforts of State agencies 
and providing a point of contact for Federal and local 
government coordination, the Administrative order also directs 
specific actions. Two primary tasks are identified as a 
starting point.
    First, a regulatory gap analysis, which will assess the 
authorities and practices of State and Federal agencies 
regarding oil and gas oversight to avoid duplication and 
identify any regulatory gaps.
    The second task is the evaluation and approval of 
operators' maintenance and oversight programs, including 
inspections, to ensure compliance with approved programs.
    The regulatory gap analysis is underway. When it is 
complete, the PSIO will commence the assessment of operators' 
maintenance programs, beginning with that of the Prudhoe Bay 
Unit. I expect both of these efforts to be substantially 
completed within the calendar year. Follow-up tasks, such as 
development of regulations to address oversight gaps and 
assessment of the maintenance programs of other oil and gas 
units will be designed and implemented based upon the results 
of the gap analysis and the initial maintenance assessment. 
Concurrent with these efforts, a comprehensive risk assessment 
of all oil and gas facilities and infrastructure is planned to 
be conducted by an independent third part. This risk assessment 
will identify and prioritize areas of risk and will provide 
valuable direction to our focus going forward.
    Alaska is the only State in the country to require industry 
to allow regulator access to operator facilities in order to 
ensure compliance with their own maintenance programs. We look 
forward to breaking this new ground and to cooperative efforts 
with our Federal partners, and in doing so, maximizing the safe 
and stable flow of our oil and gas resources to the Nation. 
Thank you.
    [The prepared statement of Ms. Slemons follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Stupak. Thank you. Mr. Gerard, your opening statement, 
please.

  TESTIMONY OF STACEY GERARD, ACTING ASSISTANT ADMINISTRATOR, 
 CHIEF SAFETY OFFICER, PIPELINE AND HAZARDOUS MATERIALS SAFETY 
       ADMINISTRATION, U.S. DEPARTMENT OF TRANSPORTATION

    Ms. Gerard. Thank you. Chairman Stupak, Ranking Member 
Whitfield, members of the committee, I am Stacey Gerard, the 
Chief Safety Officer of PHMSA, the Pipeline and Hazardous 
Materials Safety Administration. Thank you for the invitation 
to appear today. I am pleased to discuss PHMSA's actions to 
oversee the safe continued operations of BP Exploration Alaska. 
I would also like to thank the committee for its leadership in 
advancing the important safety legislation we know as the PIPES 
Act. PHMSA is moving forward with several rulemakings, 
including extending full, regulatory protection to low-stress 
hazardous liquid pipelines. Just yesterday we posted a 
supplemental notice proposing new additional requirements for 
low-stress pipelines.
    We do have some progress report concerning our oversight of 
BPXA. Based on our ongoing monitoring and the degree of control 
over BP, we exercise, through orders, our confidence in 
engineering, operations and maintenance of the existing transit 
lines is cautiously increasing. BP has begun replacement of the 
Prudhoe Bay transit lines and is beginning to address 
management problems that contributed to the failures they 
experienced last year. They have a long road ahead to address 
these concerns.
    We also are improving coordination with the State of 
Alaska, which will result in better oversight of future BPXA 
activities in Alaska. Earlier this week, as Ms. Slemons 
mentioned, we did sign a Letter of Intent to confirm our new 
and approved commitment, recognizing the impact on nationwide 
crude production following the shutdown of the system this past 
year. PHMSA maintained a monitoring presence on the north slope 
through the process of both getting a better understanding of 
the transit line conditions and controlling their safe 
operation. A review of the data from testing has been 
extensive.
    It took an extraordinary effort to get BPXA ready to pig 
the transit lines, but it is done now. The end line inspection 
results, along with other external test findings, indicated 
that the lines are ``fit'' for continued use until the new 
pipelines are ready next year. Any damaged observed was not 
significant enough to warrant immediate repair, but PHMSA is 
requiring aggressive corrosion control and continuous 
monitoring. We issued a third amendment to our order on April 
27 to that point.
    Additionally, we are requiring that these lines be pigged 
on a 12-month cycle, that is smart pigged, and provide us with 
the results for review. We have continued our examination of 
corrosion to improve our understanding of how the leaks 
occurred and the risk of further line degradation. PHMSA is 
reviewing and analyzing the pipeline designs, maintenance 
policies, corrosion monitoring methods, inspection procedures 
and operating practices.
    Last September, we believed that internal corrosion induced 
by microbial activity caused the western, the WOA, pipe to 
deteriorate at the low section at the Caribou Crossing. 
Additional testing since then reinforces that assessment. We 
have found evidence of an environment conducive to microbial 
sulfur reducing bacteria leading to localized corrosion.
    Additionally, sludge likely reduced the effectiveness of 
any corrosion inhibitors that were being used prior to the 
cleaning regime we have required. Given the many risk factors 
on the north slope environment, including use of water in the 
production process, the chemistry of the crude oil product 
itself, and the varied geological factors in the production 
field, we believe that BPXA should have been running cleaning 
pigs on these lines on a regular basis to reduce the potential 
for this microbial process.
    PHMSA has reviewed BPXA's plans for rebuilding the eastern 
and western pipelines and we oversee the construction. The 
plans reflect many upgrades over the existing system and 
construction of the new pipeline is underway. The new lines are 
designed to PHMSA code. Smaller pipe diameters to increase 
fluid velocity should minimize solids and microbial growth. 
Pipe elevation will be higher, providing better access for 
inspection and maintenance and reducing collection of water and 
solids. Better coatings and insulation will help to reduce 
external corrosion. A dedicated chemical injection system will 
provide greater effectiveness.
    All segments will have pipe launching and receiving 
facilities that are appropriate to the harsh climate. BP's 
schedule calls for all of the new oil transit systems to be in 
operation by the end of December 2008. If the project 
milestones were to change, we would require BP to resolve 
issues with us. PHMSA requires a strong space systems approach 
to ensure pipeline safety and reliability. Our Integrity 
Management approach continues to show positive results. IMP, as 
we call it, is our primary strategy to protect infrastructure 
and people and managed system risks through processes that 
improve safety performance.
    Integrity Management is solidly based on process safety 
management principles. IMP is the operator's responsibility. 
Company leaders must communicate this IM to all employees and 
know the approach is understood, executed and measured. 
Transparency is critical throughout the organization and 
identifying risks, choosing controls and evaluating program 
effectiveness. As risks change, the operator needs to be 
vigilant. They need to use the best data on risk, make the best 
risk control decisions and employ resources to the greatest 
risk, worst first.
    We have championed this message for 15 years. More 
recently, we have looked at the lessons from the Texas City 
refinery accident as determined by the Chemical Safety Board 
and other reports. The Process Safety Management message should 
be highly instructive to BP. If safety demands, it is BP's 
responsibility to go beyond Integrity Management minimums. Top 
management must have and share safety values throughout the 
organization. Safety has to be integrated into business 
priorities. Employees need a trusting and open environment for 
the discovery and resolution of safety problems.
    Emphasis needs to be on looking forward on what could 
happen, rather than solely through the rear view mirror on what 
has happened. We are currently working with BPXA and 
establishing leading indicators on improved processes to help 
track how safety programs are working. We will address how risk 
assessment and risk management can become more effective. BP is 
putting all their jurisdictional pipelines into the Integrity 
Management Program, a good first step. This is a change and 
they have a way to go. We will be monitoring this process 
carefully and for a long time.
    I also want to highlight the commitment of the Department 
and the State of Alaska to coordinate our efforts. We believe 
better insights on improved safety, environment and reliability 
performance will be derived from a holistic systems 
perspective, looking at all oil and gas operations through the 
same lens. We foresee good opportunity for progress through 
improved coordination of our programs. Thank you. I would be 
pleased to answer any questions.
    [The prepared statement of Ms. Gerard follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Stupak. Thank you, Ms. Gerard. Before we go to 
questions, I see the ranking member of the full committee, Mr. 
Barton, is here. Mr. Barton, would you care to make an opening 
statement?
    Mr. Barton. Thank you, Mr. Chairman, but in the interest of 
time, I want to apologize for being late. We have got another 
hearing going upstairs, so I have to shuttle back and forth.
    [The prepared statement of Mr. Barton follows:]

  Prepared Statement of Hon. Joe Barton, a Representative in Congress 
                        from the State of Texas

    Mr. Chairman, I am very pleased that you have continued our 
investigative work on this issue, because more work is needed 
to get to the bottom of what went wrong last year.
    At our subcommittee hearing last September, I had hoped 
that the committee would get to the bottom of what caused the 
leaks that led to the shut-down of Prudhoe Bay oil field last 
August. I had hoped that the subcommittee could make sure that 
all the facts were in the public domain on what caused the 
corrosion that led to the spills in both the east and west 
transmission lines on the North Slope of Alaska.
    BP left many questions unanswered last September. The 
subcommittee issued a subpoena to Mr. Richard Woollam--the BP 
executive in charge of corrosion control and the individual 
most knowledgeable about what went wrong--but Mr. Woollam 
asserted his fifth amendment right against self-incrimination 
and declined to provide testimony or answer questions before 
the subcommittee.
    After the hearing, the subcommittee discovered that BP 
failed to produce important documents that were its possession 
before the hearing. In October, we sent BP a letter demanding 
an explanation on why some of these documents were not 
provided. Finally, just last month, the floodgates opened and 
BP provided thousands of documents responsive to several 
written requests from the committee from last year and that 
should have been provided much earlier.
    I had hoped that this hearing could focus on BP's path 
forward, the company's plans to replace corroded transit lines, 
and BP's efforts to rebuild the public trust in its North 
American operations.
    But how do we know that BP has taken the necessary steps to 
correct its past mistakes? Instead, BP and its lawyers have 
withheld important information from the committee throughout 
our investigation. And now it looks like the company had plenty 
to hide. The recently provided documents reveal questionable 
corrosion management decisions in the years leading up to the 
leaks in 2006. Until these concerns are fully understood and 
addressed, no one should conclude that BP has turned the 
corner.
    In addition to problems in Alaska, BP has experienced more 
serious problems at its refinery in Texas City. The U.S. 
Chemical Safety Board recently investigated the Texas City 
Refinery explosion that killed 15 people in March 2005. That 
report found ``organizational and safety deficiencies at all 
levels of the BP Corporation.'' I am glad the CSB is here today 
to discuss their findings.
    I look forward to the testimony today from chairman and 
president of BP America Mr. Bob Malone. I believe Mr. Malone 
has taken several positive steps since he took over last 
summer, and I am confident that he wants to set things right. 
His company got off to a bad start and then it made things 
worse. Now would be a good time to demonstrate that BP can be a 
reliable producer of petroleum and a reliable producer of 
truth, too.
    I thank the chairman and I yield back.
                              ----------                              

    Mr. Stupak. I understand and there are a number of 
hearings. I know I will be shuffling back and forth as well, 
and Mr. Melancon will have to take over.
    Mr. Whitfield asked unanimous consent that the binders--
which I will be asking questions from--be made part of the 
record. Without objection, so ordered.
    Members will have 10 minutes for questions.
     Ms. Merritt, if I may start with you, please, with my 
questions. On page 25 of your Chemical Safety Board's 
Investigation Report on the Texas City refinery explosion, the 
first finding is cost cutting and budget pressures from BP 
Group executive managers impaired process safety performance at 
Texas City. Is that correct? And how deeply had BP cut and for 
how long? I mean, was this recent, did it go back at this Texas 
City refinery? Could you explain a little bit more on page 25 
of your report?
    Ms. Merritt. Thank you. Yes, that is correct. How far back 
did it go? Well, actually, 1999 we know that the first 25 
percent operating budget cut was issued.
    Mr. Stupak. So 1999, that is when BP just purchased it from 
Amoco?
    Ms. Merritt. That is correct. And that was issued by Lord 
Browne.
    Mr. Stupak. OK. And Mr. Browne, at that time, was the CEO 
of BP, right?
    Ms. Merritt. That is right.
    Mr. Stupak. In your testimony you state there are striking 
similarities in the reported causes of the 2006 events 
involving BP's Prudhoe Bay pipelines and the 2005 explosion at 
the BP Texas City refinery. What are those similarities?
    Ms. Merritt. Well, there were a number of them. One of them 
is management had changed efficiencies. One of the things that 
we found in our investigation was that changes were made in 
processes, procedures and operations without an appropriate 
evaluation of those risks. Failure to close action items from 
audit; there were many audits that were conducted at Texas 
City, as well as is reported in the Booz Allen report, and 
items that were identified in those audits that should have 
been red flags were not evaluated by management and they were 
not properly addressed, investigated or corrected.
    Inadequate communications and excessive decentralization; 
the organization at BP was highly decentralized. There were a 
lot of people responsible for a lot of things, but it was 
almost impossible to find a chain of accountability for process 
safety in the organization.
    Mr. Stupak. The committee asked you to take a look at the 
Booz Allen Hamilton report and on page 2, and you alluded a 
little bit to this in your testimony, the Booz Allen Hamilton 
report found that, and I quote, ``budgets and funding levels 
were largely based on affordability versus necessity and were 
not supported by an analytical process to prioritize risk.'' Is 
this finding essentially identical to a checkbook mentality, 
the words you used, found by the Chemical Safety Board in their 
audit of BP?
    Ms. Merritt. Yes, exactly. Budget cost cutting became the 
driving factor in management bonuses and recognition and as a 
result, short-term cost cuts were often made at the risk of 
long-term risks, so we found that consistent with the BP 
investigation.
    Mr. Stupak. You said bonuses. Did the bonuses, I take it, 
for the executives, were they based upon profitability of the 
company? I know I brought up $106 billion over the years; we 
are talking about from 1999 to 2006. So if you cut your 
maintenance costs, which increases the risk factors, but if you 
cut costs, therefore there is more money, therefore more 
profits, i.e. bigger bonuses, is that fair?
    Ms. Merritt. That was the plan. Their performance standards 
focused only 10 percent on safety and that was based on a lost 
time incident rate rather than a recognition of risk, of 
growing catastrophic risk.
    Mr. Stupak. Thank you. Ms. Slemons, there should be a 
binder there with a bunch of tabs. Can you go to No. 28 for me?
    Ms. Slemons. Yes, sir.
    Mr. Stupak. And No. 28, if you will, is an August 31 letter 
to Mr. Malone from this subcommittee signed by Mr. Barton, Mr. 
Dingell, Mr. Whitfield and myself. Again, this is back in 
August 2006. There is another letter, October 4, from Mr. 
Whitfield and if we go on there, in the letter of--all letters 
are there and in order as they were written. There is a letter 
of October 28 and attached to it is the Compliance Order by 
Consent before the State of Alaska Department of Environmental 
Conservation.
    Ms. Slemons. What was the date of the letter, sir?
    Mr. Stupak. October 28. But it would be CBOC there. The 
compliance order, Compliance Order by Consent.
    Ms. Slemons. Yes, sir, I am looking for it. I don't see it 
here. Tab 28, correct?
    Mr. Stupak. Yes.
    Ms. Slemons. I have the Compliance Order by Consent.
    Mr. Stupak. OK, there you go. Let me ask you this. On that 
compliance order, when I take a look at it here--I am on page 
5, paragraph 23. It says in order to address the violations 
outlined, count 1 through 4, specifically, BPXA agrees to 
perform the following tasks by the dates indicated herein. Then 
there are about eight items they have to do, two of them which, 
No. 3 was take EOA, that is the Eastern Operating Area 
pipeline, from FS1 launcher to Skid 50 by 6/30/02 right 
underneath there.
    The next one, No. 4, pig WOA, Western Operating Area, 
pipeline segments, if necessary, by 9/30/02. Then we find they 
are required to do the pigging. Now, this is going back some 
time. Yet, Alaska reversed this requirement. It was a consent 
agreement. BP agreed to pig these two operating areas, Eastern 
and Western, by 2002, but then suddenly there was an agreement 
not to do it, not to do the pigging. Do you have any reason why 
that was rescinded by the State of Alaska after they agreed to 
do it in a compliance order?
    Ms. Slemons. I have asked the Department of Environmental 
Conservation for the reasons for that decision. The intent of 
the consent order by decree, as I understand it, was to 
identify the actions that BP needed to take prior to testing a 
leak detection system, specifically. Sediments were raised as 
an issue that could affect test performance and were the prime 
reason for requiring the pigging. This consent order by decree 
took quite some time to actually accomplish and to move through 
and there were several actions that took place over the course 
of, as I understand it, about a year.
    Approximately 1 month before the leak detection test was to 
be performed, BP responded to the various issues identified and 
noted that sedimentation would not affect the leak detection 
test results, therefore the pigging was not necessary. And in 
conversations with the Department of Environmental 
Conservation, it is my understanding that DEC did consider that 
issue to be addressed and that it would not affect the leak 
detection system test, which was their primary goal.
    Mr. Stupak. But was anyone aware that even at that date, it 
was probably 10 years before that, it was the Eastern line, I 
think it was, had not been pigged for 10 years?
    Ms. Slemons. I can't answer to what the DEC officials' 
knowledge was at that time.
    Mr. Stupak. What about the solids in the pipeline? Wouldn't 
that affect the flow and the integrity of those pipelines?
    Ms. Slemons. One would think, of course.
    Mr. Stupak. And isn't the standard now every 3 years you 
have to pig a pipeline, transit oil pipeline?
    Ms. Slemons. Yes. And in fact, they are pigged quite 
frequently.
    Mr. Stupak. You said this took a long time to put together. 
This consent order was issued in May 2002 and then on August 9, 
2002, BP asked to eliminate the requirement of piggings for the 
lines and then let us say in a month later, actually 5 days 
later, State of Alaska agreed to it. It seems like it takes a 
long time to put together but then as soon as they want 
something, snap, quick, it is done, it is resolved and that is 
a critical element of maintaining the integrity of these lines, 
were they not?
    Ms. Slemons. I agree that it is a critical element, yes, 
sir.
    Mr. Stupak. OK, thank you.
     Ms. Gerard, in your testimony, you said something there 
about the--and I want you to explain a little bit more--the 
sludge build up makes the corrosion inhibitor that we have been 
talking about ineffective. Explain that a little bit more for 
us, if you would, please.
    Ms. Gerard. The corrosion inhibitor should be able to reach 
the wall of the pipeline, but if sludge and sediment is 
adhering to the wall of the pipeline, then the inhibitor 
doesn't have a good chance to do its job.
    Mr. Stupak. So how would you get the sludge that is 
adhering to the wall of the pipeline, how would you get it out?
    Ms. Gerard. By regular cleaning of the pipeline.
    Mr. Stupak. By pigging, is that correct?
    Ms. Gerard. Usually by cleaning pigs, yes, sir.
    Mr. Stupak. Ms. Slemons, I know you weren't there at the 
time, but any reason why Alaska didn't require them to do it 
then? I mean, we had it in the order, they rejected the order; 
no explanation why other than they didn't think it was 
necessary. I mean, if you get the sludge building up, you know 
you have to get it out. You have got to pig it. They were told 
to do it and less than a month later, you were told you don't 
have to do it.
    Ms. Slemons. Mr. Chairman, it has been explained to me that 
the entire focus of the COB was the leak protection system and 
that the explanation that BP offered regarding the sediment and 
the requirement of pigging, that the pigging was not a 
requirement to address the leak detection system was sufficient 
at the time. Beyond that, I am afraid that is just beyond my 
expertise. I would be happy to find any answers that I can for 
you and provide them later.
    Mr. Stupak. When you have sludge building up on the side 
walls, the corrosion inhibitors are not working and then you 
don't pig, that pipeline is going to leak eventually, right?
    Ms. Slemons. And so we saw that it did, sir.
    Mr. Stupak. Thank you. My time has expired. Mr. Whitfield 
for questions, please.
    Mr. Whitfield. Thank you, Mr. Chairman.
     Ms. Gerard, Mr. Malone took over the reins of BP America 
sometime last year, after the event at Prudhoe Bay, and my 
understanding that he replaced the entire management team in 
Alaska and I am assuming that you all, and I would ask all of 
you involved, that new team, I am assuming, has been more 
responsive than certainly they were before. Would that be 
accurate?
    Ms. Gerard. The new team has been extremely responsive.
    Mr. Whitfield. And have you been involved with them at all?
    Ms. Slemons. No, sir.
    Mr. Whitfield. Ms. Slemons, I am sure you have.
    Ms. Slemons. Yes, I have, sir.
    Mr. Whitfield. And what is your assessment of the new team?
    Ms. Slemons. I also find them to be extremely responsive 
and cooperative.
    Mr. Whitfield. OK. Now, in your testimony, you mentioned 
that Prudhoe Bay taught you that you cannot rely on enlightened 
self interests to ensure that prudent managed maintenance 
practices are carried out and by that, I am assuming that you 
meant that the company took on that responsibility and no one 
really monitored it at all, is that correct?
    Ms. Slemons. That is correct. That has traditionally been 
the status.
    Mr. Whitfield. And prior to the formation of the integrity 
group that you are now with, what authority did the State of 
Alaska have over these pipelines?
    Ms. Slemons. Over the specific pipelines, we did not have 
oversight authority. The Department of Environmental 
Conservation has authority, generally, throughout the State, 
for environmental concerns, protection of land, water and air.
    Mr. Whitfield. Right. But you had no authority over the 
actual maintenance of these low-stress pipelines?
    Ms. Slemons. That is correct. We believe that to be the 
fact.
    Mr. Whitfield. And DOT, prior to the passage of the PIPES 
Act by Congress last year, you had no authority over the low-
stress pipelines, Ms. Gerard?
    Ms. Gerard. That is not exactly correct. We had authority 
that we had not exercised over the low-stress pipelines in 
rural areas. We had the authority prior to the PIPES Act. The 
PIPES Act gave us some specific additional requirements.
    Mr. Whitfield. And so that is when you did this correction 
action order or----
    Ms. Gerard. We did the correction action order the week 
following the accident.
    Mr. Whitfield. And Ms. Merritt, did your agency have any 
oversight or responsibility for these pipelines and safety 
issues or do you primarily become involved after an accident?
    Ms. Merritt. Yes. Well, we have authority to investigate 
hazards, but normally, the pipeline would not have been 
something we have looked at.
    Mr. Whitfield. And Mr. Fairfax, what about OSHA? What 
responsibility did you all have prior to the leakage?
    Mr. Fairfax. Alaska is a state-plan State, so we had no 
really involvement or authority, although I will point out if 
there is a complaint related to pipeline safety, that way we 
would have jurisdiction for investigating the complaint of the 
whistleblower related to pipeline safety.
    Mr. Whitfield. OK. Well, looking back in retrospect, I 
mean, obviously BP had some major problems and some major 
failures in their maintenance program, but in retrospect, did 
government fail in any way in this process? Yes, Ms. Gerard.
    Ms. Gerard. We regret that we did not have the regulation 
of rural low-stress pipelines in effect before the accident 
occurred. We had regulation on low-stress pipelines in 
populated areas and of course, all high-pressure pipelines, but 
we had just begun the process of public meetings and proposing 
regulation just about the time the accident occurred.
    Mr. Whitfield. So you had the authority to oversee these, 
but the regulations were not in effect?
    Ms. Gerard. That is correct.
    Mr. Whitfield. But they are in effect today?
    Ms. Gerard. We have just issued a supplemental notice that 
adds to our original proposal the additional requirements that 
the PIPES Act mandates for all low-stress pipelines. The PIPES 
Act broadened areas of coverage to include all low-stress 
pipelines and all parts of part 195 of the Federal Pipeline 
Safety Code. That is a bit broader than what the administration 
had proposed.
    Mr. Whitfield. And if you had had those regulations in 
place prior to this event, what steps would you have taken to 
be more up to speed on the maintenance and the condition of 
those pipelines?
    Ms. Gerard. If this was a regulated pipeline, we would have 
been conducting a comprehensive Integrity Management 
inspection, operator qualification inspections and all other 
types of inspection of our code that we routinely do for all 
regulated pipelines.
    Mr. Whitfield. And how many miles of pipelines do you 
regulate today? Do you have any idea?
    Ms. Gerard. All pipelines in the United States.
    Mr. Whitfield. And pigging is a regular maintenance step 
that is taken on all those pipelines, correct?
    Ms. Gerard. We believe that most operators routinely clean 
their pipelines in order to be able to maintain them in a safe 
condition. The Pipeline Safety Code doesn't specifically use 
the word cleaning. We do require smart pigging in high-
consequence areas to be able to assess condition of pipeline.
    Mr. Whitfield. And how expensive is that for a company, 
say, smart pigging? Do any of you on this panel have any idea 
of the cost of that?
    Ms. Gerard. I would say an average segment of pipeline 
would be about $50,000 to $80,000 to pig, to smart pig, based 
on the length, the condition, the type of pig.
    Mr. Whitfield. I see. Now, it is my understanding that the 
Western and the Eastern pipelines are now in operation and yet 
there is a construction project going on for 16 miles of 
pipeline, is that correct, Ms. Slemons?
    Ms. Slemons. Yes, that is correct.
    Mr. Whitfield. And do you feel confident that BP can 
operate the old transit lines safely over the next few years as 
they try to complete this new pipeline?
    Ms. Slemons. We are confident in census assessment that 
those lines are fit for use and we are keeping a close eye.
    Mr. Whitfield. And does the State of Alaska have the 
authority to impose fines or take other actions to see that 
that is done?
    Ms. Slemons. The Department of Environmental Conservation 
has recently promulgated new regulations that address flow 
lines, which are those lines that extend from the wellhead to 
the production facilities and those regulations are in phased 
implementation now and do include several different layers of 
penalty, including fines. For the OTL lines, themselves, the 
State of Alaska does not have fining capabilities. PHMSA 
regulates those lines.
    Mr. Whitfield. Oh, so you have no authority to enforce on 
those lines, the OTL lines?
    Ms. Slemons. We believe that the broad authority in our oil 
and gas leases allow us to assert ourselves and exercise 
oversight wherever that is necessary, however it is our policy 
not to duplicate oversight where it is sufficient and PHMSA's 
oversight of those lines is what we rely on at this time.
    Mr. Whitfield. And since BP acquired these lines from Amoco 
in 1999, have there been any additional spills in Alaska other 
than this one, what, it was 210,000 gallons, is that correct? 
Is that the only spill that you are aware of?
    Ms. Slemons. Since 1999 there have been several very small 
spills, most of them below the reporting threshold, some at the 
reporting threshold. There have not been, to my knowledge, any 
major spills other than those.
    Mr. Whitfield. And my understanding is that BP operates, 
what, five refineries in the U.S., is that correct, today or is 
it four?
    Ms. Merritt. Five.
    Mr. Whitfield. Five? And they operated the Texas City 
refinery, as well, correct?
    Ms. Merritt. That is correct.
    Mr. Whitfield. And that refinery is not in operation today 
or----
    Ms. Merritt. Yes, it is in operation. However, the unit 
where the explosion occurred in 2005, I believe, is not 
operational.
    Mr. Whitfield. Yes. Now, I know that Lord Browne resigned. 
I am not sure if he resigned or he was asked to resign as 
chairman of BP International, but I am assuming that part of 
that probably came about because of these events at Prudhoe Bay 
and the Texas City refinery and just that culture of problems 
relating to maintenance and so forth. Are you all aware of that 
from your personal knowledge?
    Ms. Merritt. No.
    Mr. Whitfield. OK. I yield back my 25 seconds.
    Mr. Stupak. Can I use your 25 seconds? Ms. Gerard, I asked 
Ms. Slemons about the Compliance Order by Consent on Alaska. 
You issued compliance orders, do you not, DOT?
    Ms. Gerard. Yes, we do, under our statutory authority.
    Mr. Stupak. In fact, on this one, you are requiring them to 
pig every 12 months, if I remember correctly, right?
    Ms. Gerard. That is correct.
    Mr. Stupak. Do you ever waive, after you ask them, if it is 
part of a consent order, do you ever go back and waive the 
pigging requirements, like Alaska did? I just find that highly 
unusual, because that is such a critical part of maintaining 
integrity of a line.
    Ms. Gerard. We would not waive pigging requirements.
    Mr. Stupak. OK, thank you. Mr. Melancon.
    Mr. Melancon. Thank you, Mr. Chairman. Let me start by 
asking, if I could, each one of you, and I think I understand 
Alaska does not have the ability to fine on the pipeline 
incident because of the spills?
    Ms. Slemons. We do not have regulatory fining authority for 
those pipelines, however the Department of Law is investigating 
both civil and criminal suits as we speak.
    Mr. Melancon. OK. You have the ability to fine, is that 
correct? I am sorry.
    Ms. Gerard. We have the ability to fine for violations of 
our regulations.
    Mr. Melancon. And to date, how much have you fined BP?
    Ms. Gerard. We have reserved the right to fine BP and have 
not completed that enforcement action yet.
    Mr. Melancon. What is the preliminary estimates of fines?
    Ms. Gerard. It would be preliminary to say what the 
preliminary fine was.
    Mr. Melancon. So then, maybe I should ask you if BP is 
consulting with you to determine how much it is going to be.
    Ms. Gerard. I would not say that, but the fines are 
established in statute.
    Mr. Melancon. They are in statute?
    Ms. Gerard. Yes, they are.
    Mr. Melancon. On the chemical safety, the fines for the 
refinery, after these incidences that BP has had, what are the 
total fines that have been issued against BP?
    Ms. Merritt. The OSHA fine was--and Mr. Fairfax probably 
could answer that better than I can.
    Mr. Melancon. Yes, I will go to him first.
    Ms. Merritt. I think it was $21.6 million.
    Mr. Melancon. OK. And that is from your agency?
    Ms. Merritt. No, no, we do not issue fines or penalties or 
write regulations. We are an investigative board, similar to 
the National Transportation Board; make recommendations.
    Mr. Melancon. I have got you. Then, Mr. Fairfax, on the 
issue of fines, we have got at one plant five dead, I believe, 
another plant 15 dead, 180 people injured. What was the total 
fines against BP for these?
    Mr. Fairfax. The total fine for the British Petroleum for 
the explosion was a little bit over $21 million and then we 
followed up with an inspection at the Oregon, Ohio facility and 
the penalties issued in that one were a little bit in excess of 
$2.4 million.
    Mr. Melancon. Do you recall the profits of BP in these 
specific years? Do you know?
    Mr. Fairfax. No, no. I heard it mentioned earlier but I 
just don't remember what was quoted.
    Mr. Melancon. Just based upon what I have seen of earnings 
of all companies, in recent years, and I have been in support 
of them, $21 million sounds like kind of a low ball to me.
    Mr. Fairfax. Well, that is the highest penalty ever issued 
by OSHA.
    Mr. Melancon. Maybe we, as legislators, need to review it. 
Is that by statute or is that by rule or regulation?
    Mr. Fairfax. It is in the statute.
    Mr. Melancon. It is in the statute. Ms. Gerard, last 
September the Pipeline Hazardous Materials Safety 
Administration proposed new regulations to cover low stress oil 
transit lines such as the Texas City refinery to Prudhoe Bay. 
Yet, 7 months later, these regulations have not been issued. 
Why haven't they been issued?
    Ms. Gerard. The passage of the PIPES Act did significantly 
expand the original proposal that we issued and we are required 
to do regulatory analysis to consider the additional mileage 
and the effect on small business, the effect on the Nation's 
energy supply. Comments on the docket, in fact, have indicated 
that there could be an adverse impact for western States who 
may not be able to keep pipelines in operation if these 
requirements were imposed, so we have to address those 
requirements in going to a final rule. The supplemental notice 
that we published yesterday, or we posted yesterday, picks up 
all the additional requirements of the PIPES Act and seeks 
comment on that, which is required by due process.
    Mr. Melancon. Now, the PIPES Act was effective when?
    Ms. Gerard. In December.
    Mr. Melancon. This past December?
    Ms. Gerard. Just this past December.
    Mr. Melancon. But this goes back to 2006 when we started 
the problem with the Prudhoe Bay issue?
    Ms. Gerard. Well, the PIPES Act that passed at the end of 
December only at the end of December gave us clear additional 
requirements that we needed to add to our regulatory proposal, 
so those new requirements were only effective, basically, at 
the beginning of this year.
    Mr. Melancon. OK. So you have got all of these regulations 
that have been issued?
    Ms. Gerard. They have been proposed and we were required to 
propose additional requirements to be consistent with the new 
law that passed in December. We have to get comments on those 
in the next 30 days and we will be proceeding with all due 
haste to meet the statutory deadline in the PIPES Act, to be 
complete within a year.
    Mr. Melancon. Within a year. Now is that year going to be 
back to 2006, because I think we have past a year.
    Ms. Gerard. It would be a year from December 2006. But in 
the meantime, BP is--they are protected by the compliance order 
that PHMSA has issued and amended three times, so we have 36 to 
37 specific requirements which we can enforce using our 
statutory authority.
    Mr. Melancon. Do you find that the approval is a slow in 
coming or is this normal? I understand. How much did you add 
into it with the PIPES Act?
    Ms. Gerard. It was quite significant to consider all the 
additional regulations in the Federal Code, in addition to the 
requirements that we have proposed and given the fact that 
there is a lot of small operators in parts of the United 
States, we had to hear their comments and issues with, for 
example, the high cost of doing assessments like pigging and 
consider the effect on their operations, particular an issue in 
the Rocky Mountain States.
    Mr. Melancon. It is kind like I tell my son, if you can't 
afford Mercedes, you get a Chevrolet because buying is the 
cheap part. It is the maintaining that is the problem.
    Ms. Gerard. Well, we have to be concerned about drinking 
water supply and if the pipelines operators chose not to 
operate, whether it would be as safe in a truck on a Rocky 
Mountain road.
    Mr. Melancon. Is there no regulations for preconstruction 
of ownership and maintenance and requirements of bonds, none of 
that?
    Ms. Gerard. Until we bring the rural low-stress operator 
under regulation, they are not regulated, but we expect them to 
have good corporate stewardship no matter whether they are 
regulated or not.
    Mr. Melancon. Now, BP is under compliance under audit 
presently?
    Ms. Gerard. That is correct.
    Mr. Melancon. And how long on the Prudhoe Bay issue do we 
plan to keep them under audit?
    Ms. Gerard. As long as it is necessary.
    Mr. Melancon. Meaning?
    Ms. Gerard. Years.
    Mr. Melancon. Years?
    Ms. Gerard. As long as it is necessary.
    Mr. Melancon. So what do we do during those years, are we 
going to be checking them or are they going to be pigging these 
things or are they going to be cleaning these lines? What 
exactly is the agency going to be doing?
    Ms. Gerard. Well, first of all, when this low-stress 
regulation is final, any of the system that is still low stress 
would be regulated. With the rebuilding of the pipelines, the 
majority of the lines we expect will no longer be low stress 
and they will become regulated when they are rebuilt and 
operational and they are a higher stress. In the meantime, 
PHMSA maintains, on-duty, several inspectors who are on site to 
witness all the required activities, including in the 
construction activities. And so they are required to assess and 
maintain corrosion protection, patrol, surveil, basically 
continuously understand the threats and address those threats 
on a priority basis.
    Mr. Melancon. BP indicated that the reason why this 
replacement line they were building in Alaska, because of lack 
of steel, they asked for a deferment or something to that 
effect. When did they make that request?
    Ms. Gerard. I am not sure what request you are referring 
to. I know that there was a commitment to have the new 
construction done sooner than December 2008, but we reviewed 
their plans and for the significance of the upgrades that they 
have proposed, and pig launching and receiving, design to code, 
corrosion inhibitor systems, replacing the pipelines on new 
supports, deeper and stabilizing the soil, we believe that the 
rebuilding plan is worth the time of the December 2008 
deadline.
    Mr. Melancon. So next year, 2008?
    Ms. Gerard. December 2008.
    Mr. Melancon. Thank you, Mr. Chairman. I yield back my 
time.
    Mr. Stupak. For questions, Mr. Barton, please.
    Mr. Barton. Thank you, Mr. Chairman. My first question is 
to you, Mrs. Gerard. We passed what we call the PIPES Act last 
fall, on a bipartisan basis, giving more authority to regulate 
some of these low-stress, low-pressure lines. From what I can 
tell, that authority, you are attempting to use it but your 
final rule has not been implemented yet because of some problem 
at OMB. Is that correct or incorrect?
    Ms. Gerard. No, sir, we published a supplemental notice 
yesterday which picks up the additional requirements that you 
PIPES Act, and I want to say thank you very much for giving us 
the PIPES Act. It is a great improvement for safety. So with 
that supplemental notice being out and getting public comment 
in the next 30 days from operators, about any additional 
burdens or operational problems we might need to consider, we 
expect to get the final rule on time, in accordance with the 
statutory deadline you gave us, sir.
    Mr. Barton. So you think that is going to be implemented in 
the time we fashioned?
    Ms. Gerard. Yes, sir.
    Mr. Barton. OK. Now to you and the rest of the group, I 
know we have got a different mix of regulatory authorities, 
both State and Federal. Is there any additional Federal 
legislation that this committee or other committees need to 
implement to help you do your jobs?
    Ms. Merritt. One of the things I would like to comment on 
is that the process safety rule, which was implemented in 1993, 
was well thought out and an excellent rule. From the industry 
perspective, I have been in process engineering in many 
different industries for a long time. It was needed but it hit 
the nail on the head. There are two sides to that. One is the 
14 elements that industry is required to implement, but the 
other side of that is the enforcement element that is written 
into the rule. OSHA has the authority to do program quality 
verifications and the way it was conceived is that these would 
be conducted as multi-day, possibly multi-week investigations 
by multiple inspectors who have education in engineering, 
refineries, chemical facilities, and they know what they are 
looking at. If this part of the rule had been implemented, 
which it was not, these program quality verifications would 
have done a lot to have sustained the implementation of PSM in 
industry. In 1993, I was part of the requirement, both at 
corporate and facility levels, to put it into place and I can 
tell you that the perspective of having a PQV audit did a lot 
to help us with that implementation.
    Mr. Barton. Is that something that you want Congress to 
take a look at legislatively, or is that something you just 
want somebody in the administration to arbitrate between you 
and OSHA?
    Ms. Merritt. Well, I don't think it is between us and OSHA, 
but the necessity for implementation and enforcement of the 
process safety rule is certainly necessary and the provision is 
there if OSHA were to implement it to have the authority to do 
the PQV audits. Our recommendation is that OSHA conduct the PQV 
audits. These are not the same thing as just a one-day 
inspection.
    Mr. Barton. OK. Thank you. We will continue that. Now you, 
ma'am. I think you represent Alaska?
    Ms. Slemons. I do, the State of Alaska. Thank you for the 
question. I would like to speak to OSHA funding, if I could. 
You opened the door about improvements to Federal legislation.
    Mr. Barton. We will stipulate that you can always use more 
money. I mean, if that is what you are going to say, I can save 
you 2 minutes.
    Ms. Slemons. It is not, sir.
    Mr. Barton. OK.
    Ms. Slemons. The problem that we see with the OSHA funding 
is not that we need more, as you know, because everyone could 
always use more, but one of the problems is that Federal 
funding does not keep pace with increasing costs and it is our 
understanding that legislation does not allow it to do so. 
Increasing funding can be interpreted in several ways. We 
interpret it as not applying to simply inflation proofing the 
funding that we get. Over time, the funds available to Alaska, 
for both consultation and the enforcement arm of Alaska OSHA, 
have been eroded to the point where inspector positions are 
kept vacant in order to free up those funds for day-to-day 
business. So the ability to inflation proof the OSHA funding 
that comes our way would be important to the State of Alaska.
    Mr. Barton. Thank you.
    Ms. Slemons. Thank you, sir.
    Mr. Barton. Well, I have only about 4 full minutes, so I am 
going to kind of cut to the chase. In response to either Mr. 
Whitfield or Mr. Stupak's question about how BP was 
cooperating, everybody gave an affirmative answer, that you 
thought BP was trying to cooperate. That is a little bit 
surprising to me, since the number one person, Mr. Richard 
Woollum, who was their corrosion manager, as far as I can tell, 
BP is putting on leave, he is still being fully paid, but he is 
not allowed to talk to anybody. Have any of you folks or your 
designees been able to interview Mr. Woollum? That doesn't 
sound like cooperation to me. The guy that is most responsible 
for the program, who apparently is part of a criminal 
investigation, I say apparently, because I don't know that for 
a fact, and he won't--his attorneys won't let him to talk to 
the committee staff. He took the fifth amendment, which he has 
every right to take. But if I had a full-time employee working 
for me and I was cooperating, I would at least let that 
individual who worked for me, while protecting his individual 
rights under the Constitution, I would at least make him 
available to be interviewed, especially if the company says he 
is fully cooperative.
    Now, I have got also a list of things here in the committee 
memo that, since the investigation started in this subcommittee 
back in September of last year, kind of a timeline of what has 
been going on, and a retired U.S. District Court judge, who has 
been tasked with interviewing all of the complaints that the 
employees of BP have on safety. They have looked at 11 so far. 
In nine cases, the judge said they were substantiated, one is 
still to be determined and one was unsubstantiated. It says, 
our committee staff believes that the Alaska BP managers have 
resisted recommendations by the ombudsman and as a result, 
problem resolution has been delayed. That doesn't sound like 
cooperation to me.
    I am also made aware, in October 2006, we finally got a 
copy of an Alaska Department of Environmental Conservation 
consent order, by decree, that BP was aware of sediment buildup 
in the oil transit lines. This is back in 2002. They did not 
provide that document to our subcommittee staff. Everything 
that is in this document, it looks like BP is trying to do the 
right thing in public and they are fighting like a tiger in 
private, but not implementing. So I know Mr. Malone is in the 
audience and he has been in to see me and I assume he has seen 
Mr. Stupak and Mr. Whitfield and Mr. Dingell and I will 
stipulate that he is trying to do the right thing, but it sure 
seems to me that everybody below him is resisting at least the 
implementation phase. Am I wrong? Are these staff reports that 
are given to me just incorrect?
    Ms. Gerard. The answer that we gave on responsiveness 
related to new executive leadership put in place in December-
January timeframe. We have under orders requested actions in 
about 37 areas under corrective action orders, and the company 
has been responsive to those. We are beginning to pursue 
inquiry with the BP on the extent to which the system BP has 
put in place to address employee concerns, how it is working, 
how it is organized, and we have notified BP that we intend to 
pursue investigation in that area.
    Mr. Barton. How strongly are you pursuing interviewing 
Richard Woollum?
    Ms. Gerard. We have not attempted to interview Richard 
Woollum. We have been working with Mr. Bill Hedges and his team 
and we have requested required sampling of pipe wall, pipe 
fluids, solids, extensively and we have gotten access to the 
materials, we have done the analysis, we have looked at the 
results and we feel that the response we are getting from the 
current corrosion management leadership team is acceptable.
    Mr. Barton. Well, my time has expired, Mr. Chairman. I am 
going to yield back. I hope that we can continue to pursue 
this. I know it is a difficult balancing act between the rights 
of the individuals and also, frankly, the rights of the 
corporation. But the Booz Hamilton report that BP authorized 
talks about a ingrained corporate culture and systemic 
management failure. And that is not congressional investigation 
words. Those are words of their own consulting company. And 
these folks that represent the regulatory authorities at the 
State and Federal level can do the very, very best that they 
are allowed to do by law and if the entity in question, in this 
case British Petroleum, doesn't admit the problem and willingly 
agree to redress it, you are just going to shuffle the deck 
chairs. You are not going to really get the change that you 
need to in order to operate the BP facilities, not only 
efficiently and profitably, but safely. And this is an issue of 
a safety and we had numerous people killed. We have had a 
complete shutdown, at least temporarily, of the largest 
oilfield in North America, because of, apparently, a management 
culture that just refuses to get it, or at least did refuse to 
get it. And I don't know how we get to the bottom of that, but 
I hope, on a bipartisan basis, we will continue to try. And 
with that, I yield back.
    Mr. Stupak. I thank the ranking member. You know me, I am 
persistent and I will get the answers and I am sure we will 
have another hearing. I said in my opening that I hope that BP 
did not become the Los Alamos of the north, but you never know. 
I think we are headed for another hearing. We have three votes 
on the floor, but I think we can still get in Mr. Green for 10 
minutes.
    Mr. Green. Thank you, Mr. Chairman. Mr. Fairfax, I want to 
appreciate Occupational Safety being before the Energy and 
Commerce Committee and Oversight Committee. I know our 
jurisdiction is elsewhere. But you heard my opening statement 
and I have similar plans along the use of ship channeling and I 
want to make sure that we learn from those mistakes. The Texas 
City Refinery experience and the extraordinary high number of 
deaths, 23 workers over 30 years, 10 workers died during the 
previous 20 years, yet in your testimony you state that, prior 
to the explosion at BP Products in Texas City in March of 2005, 
there were no incidents at the Texas City Refinery that caused 
OSHA to employ the Enhanced Enforcement Program, a program OSHA 
uses to identify companies that repeatedly place its workers at 
risk. How can a refinery that, we know now, has one of the 
worst safety records in America not raise that red flag at 
OSHA?
    Mr. Fairfax. Well, the Enhanced Enforcement Program 
actually started in October of 2004, so an incident before that 
did not get picked up in the program. That was a program we 
launched.
    Mr. Green. There wasn't any effort to look at previous 
safety records?
    Mr. Fairfax. No, we always look at previous safety records 
and the incidents that happened previous to the 2005 explosion, 
we certainly investigated, we have issued citations and 
penalties in those incidents, the Enhanced Enforcement Program 
we have was not in place at that time, so the 2005 inspection 
was really the first one where we launched that effort and did 
an alert for British Petroleum and conducted several other 
inspections.
    Mr. Green. The Chemical Safety Board reported on the Texas 
City accident and found that, while OSHA did conduct a few 
unplanned inspections of the refinery in response to accidents 
or referrals, OSHA did not conduct a comprehensive planned 
process safety inspections at the refinery. In addition, from 
1995 to 2005, OSHA only conducted nine such inspections 
anywhere in the country and none in the refinery section. How 
do you explain this low inspection record on the refinery 
industry, which statistically has more fatalities and 
catastrophe problems than the next three industry sectors 
combined?
    Mr. Fairfax. I would have to go back and look at the data. 
I don't think I really agree with that. We have certainly done 
program inspections. I will agree that we haven't done as many 
as we should have, particular in the Texas area during that 
time period. We were focusing a lot on chemical plants, which 
you have and in Louisiana, have a lot of chemical plants. We 
had a local emphasis program at that time and it was focusing 
on process safety management in the chemical industry. One 
thing I want to make clear, I have been listening and it sounds 
like everyone seems to think that process safety management 
only applies to refineries. It doesn't. It applies to lots and 
lots of facilities, poultry plants, meatpacking plants, 
chemical facilities. We are doing inspections under that 
program in all of them. Just prior to the explosion in 2005, we 
did start putting together an national emphasis program and you 
know, I certainly appreciated the recommendations from Chem. 
Board, because that helped us in further developing a program. 
I will say that the Secretary just approved that program 
yesterday and we will be launching it shortly and under that 
program we will be doing process safety management inspections 
in every refinery under our jurisdiction for the next 2 years.
    Mr. Green. Well, I know budget is always the issue, but it 
seems like, in our area, in Texas, the particularly the Houston 
area and Texas City, if there is an accident, it is not just 
somebody in a meatpacking plant that may have a problem, it is 
one person, but we make volatile chemicals. Unless you are very 
safe, they are going to blow up and they are going to kill 
people, plus the pollution, and that is why I think the 
emphasis ought to be looking at where the most injuries and the 
most damage could be done. So I am glad it was started. When 
did you say it was started?
    Mr. Fairfax. Just before the explosion.
    Mr. Green. OK. The Chemical Safety Board has made several 
major recommendations to OSHA, some of which OSHA has acted 
upon. And in 2002, after a 2-year study, the Chemical Safety 
Board recommended that OSHA expand the process safety 
management standard to include reactive chemicals, which could 
possibly prevent such reactive chemical accidents in and near 
our district. What is the status of that recommendation at 
OSHA, and why hasn't OSHA moved forward on that recommendation?
    Mr. Fairfax. We have actually moved forward on the 
recommendation. We evaluated that recommendation, as we do 
every recommendation we get.
    Mr. Green. You have been reevaluating, though, since 2002?
    Mr. Fairfax. No, we have gotten, I think, 16 
recommendations from the Chem. Board and we have implemented, 
Carol may know better, but I think nine of those 
recommendations. I am the one dealing with reactive chemicals. 
We did evaluate, at the time, the recommendation that came. We 
did not feel that we needed to open up the rulemaking for the 
Process Safety Management Standard. We have developed, and it 
is not done yet, but we have developed a directive for dealing 
with interpretation and inspections for reactive chemicals. We 
think that will cover the recommendation, plus some other 
things.
    Mr. Green. Let me ask you, I had the impression in 2002, 
after the two-study, that CSB recommendation to OSHA, on the 
process safety management, PSM. Has it not been 5 years since 
you recommended that?
    Ms. Merritt. Yes, just about almost exactly 5 years.
    Mr. Green. Mr. Fairfax, as I sit here today, in 5 years, do 
you know how many plants that should have been looked at that, 
again, are very volatile unless everything works right? And we 
need those chemicals, we need those refined products and I want 
to--their jobs and out tax base, but I also know that if there 
is not oversight from the Federal agency for inspections for 
job safety, 5 years is way too long to act on a recommendation.
    Mr. Fairfax. I certainly hear you. In fact, you missed my 
oral testimony earlier. I used to work in the refineries in 
your area many years ago, so I am familiar with it, but it is 
not just to say that just because we haven't completed a 
directive on reactive chemicals, that we haven't been doing 
anything. We have been doing a lot in the area and we certainly 
can do more in our refinery emphasis--points to that. But we 
have done a tremendous amount of process safety work. We are 
retraining all of our investigators and we have done 
inspections. As I mentioned earlier, we had a local emphasis 
program where we were targeting the chemical plants in your 
area as well as in Louisiana and throughout what we call our 
region 6, which is the Texas area.
    Mr. Green. Well, I know OSHA has and I have plants that 
have been awarded, because of their safety record, and so I 
appreciate that OSHA is proactive on that side. But I also 
know, if there is a problem, like whether it is Texas City or 
some other plant that is in my area, I want to be very 
proactive so we don't end up having another loss of 15 lives. 
And I guess the frustration is, and like I said in my opening 
statement, as Democrats, we are a minority here on energy 
legislation and what happens up here with this, this flies in 
the face when you see BP's profits, even in the years that they 
were doing the cost cutting, whether it is in Alaska or in 
Texas City, and we see that. So if we can't depend on the 
management to do it, that means the Federal agency has to do 
it. And again, 5 years is way too long, because I would hope 
that I don't go home tomorrow or Friday and see another 
tragedy, but it is just frustrating to see that.
    Mr. Fairfax. I understand, Congressman. Let me just say a 
couple of things. First off, every workplace death that comes 
in that happens in this country comes across my desk and we 
prepare a condolence letter for that. It deeply affects me. But 
as far as reactive chemicals, under the Process Safety 
Management Standard, we are working on a directive to implement 
and it will deal with reactive chemicals and deal with that on 
our inspections, but also the Process Safety Management 
Standard incorporates the NFPA standards that deal with 
reactive chemicals and we are addressing it through those 
industry consensus standards, which direct how industry should 
be applying and dealing with reactive chemicals.
    Mr. Green. Well, I appreciate the condolence letter, but I 
would rather it be done before the fact.
    Mr. Fairfax. I understand.
    Mr. Green. And I have been a legislator both on the State 
level and the Federal level for my area and I have watched, 
when the accident happens, the people who feel the worse are 
the plant managers, because they are also under the pressure. 
And I have also watched what has happened. The same thing that 
happened at BP/Texas City, it happened at ARCO, in Sheldon and 
Channelview in the 1980's. They start writing big checks to 
survivors, but it is real difficult to explain that to a 6-
year-old child, that you have a million dollars, son, to take 
care of your education, but you don't have a father, and that 
is what OSHA is tasked to do and that is our job to make sure 
that if you are not doing it, we do whatever we can to 
encourage you to do it, whether it is funding or statutory law, 
and I guess that is the frustration that, again, Congressman 
Melancon and I both have that problem and we want those 
chemicals and we want that refined product, but we also want it 
done safely.
    Mr. Fairfax. That is our same goal, also.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Stupak. Before I yield back, Mr. Fairfax.
    Mr. Fairfax. Yes, sir?
    Mr. Stupak. When Ms. Merritt talked about the PVQ Audit 
Program, is OSHA in favor of that?
    Mr. Fairfax. It is the PQV.
    Mr. Stupak. PQV.
    Mr. Fairfax. It is program quality verification .
    Mr. Stupak. OK.
    Mr. Fairfax. That is a targeting system and process safety 
management evaluation that we launched when the Process Safety 
Management Standard came out. Yes, we are in favor and yes, I 
agree with it, but we found, in launching that program, that it 
ended up being too open-ended and resource intensive. The 
inspections just took too long and we weren't doing our job 
elsewhere.
    Mr. Stupak. In order to get the safety that Mr. Green and 
we all insist upon, you almost have to do it, do you not?
    Mr. Fairfax. We do but the new program we are getting ready 
to launch, I think it is far better than anything we have ever 
had before.
    Mr. Stupak. Can you do this PQV plus your new program?
    Mr. Fairfax. The new program is basically an improvement of 
the PQV. We will cancel the PQV program and replace it with 
this new one, which incorporates the elements of the PQV system 
that we did. And you know, it allows us to more effectively, 
and with better use of resources, address process safety 
management in the refinery industry, and once we are done with 
the inspections, we plan on expanding that. I think it is a 
better system. It is one of the best emphasis programs I have 
ever seen developed. I have been with OSHA 29 years, so----
    Mr. Stupak. OK, we will be interested in seeing that. We 
have got three votes on the floor. We will hold this committee 
in abeyance for the next half-hour. We should be back by 12:10. 
Then they promised us, for 3 hours we don't have any votes. We 
should be able to finish this hearing. You are not excused. We 
would like you to come back because we have got a couple more 
Members yet who would like to ask questions, OK, before this 
panel here. Then we will go to Mr. Malone after that. Thanks.
    [Recess]
    Mr. Stupak. Before we hear questions from Mr. Inslee, a 
couple of housekeeping matters. I talked with Mr. Whitfield, 
with unanimous consent, to submit the Chemical Safety Board of 
March 23, 2007, the Booz Allen Hamilton report. It is a very 
thick report but I will now make it part of the record; the 
management of change document received last night. It is 13 
pages. I provided it to you earlier, Mr. Whitfield. In the 
upper right-hand corner, the work order No. is 29314644. And 
last but not least, the March 12, 2003 VECO Alaska report. That 
report will also be entered, with unanimous consent, into the 
record. Without objection and hearing none, those four 
documents will be entered.
     Next, I would turn to Mr. Inslee for questions, please. 
Ten minutes, sir.
    Mr. Inslee. Ms. Slemons, I want to ask you about the 
compliance order by consent situation. In May 2002, the State 
of Alaska required BP to determine sediment levels and to 
commencing pigging. On August 9, BP asked for that elimination. 
On August 14, the State of Alaska sent a letter removing that 
requirement. It is well understood that suspected sediment 
buildup is really a red flag and I listened to your testimony 
saying, well, this wasn't your requirement, originally. It was 
not related to issues of corrosion. But I am having a hard time 
understanding how you could have and why you would have 
required, originally, pigging for reasons of preventing 
corrosion, if that is the reason you do it, and then think it 
is not important enough. How could that have happened?
    Ms. Slemons. I was not present in the discussions that were 
held between DEC and BP. I was also not present at the 
discussions internal to DEC determining what they would require 
and why. All I can report to you today is what they have 
reported to me, which is that leak detection was their focus. I 
share your concern about the change in that decision and I do 
intend to look into this. What I find, I will be happy to 
provide to you afterwards, but I simply don't have that 
information now.
    Mr. Inslee. Well, I appreciate that and if you would 
provide us any more, I would appreciate it, because I am 
continually flabbergasted of the failure to do pigging after 
our loss in Bellingham, WA, a loss to these kids. We have been 
asking the industry to do pigging because it is the most 
acceptable, most reliable way. The industry has come back with 
news and said, oh no, we have other sort of abstract models to 
do it. But models don't prevent corrosion, always, as we have 
found out and so we expect our regulators to be aggressive on 
this and if you could provide us more information, and 
hopefully you will take back to the State of Alaska that we 
want you to be aggressive on this and we will back you with 
aggressive on this. I hope that you will continue to do so. I 
want to ask you if you could turn to tab 24 to talk about the 
budget issues and the lack of corrosion inhibitor. On tab 24 
there is an e-mail of October 2005 and it says, ``attached, 
please find a list of potential budget control objects broken 
out by chemicals and manpower.'' Do you have that before you?
    Ms. Slemons. I do.
    Mr. Inslee. And the next page is a spreadsheet which is 
attached to the e-mail and it talks about a proposal to reduce 
the injection rates of corrosion inhibitor. It would save 
$400,000 a month. Do you see that?
    Ms. Slemons. Yes, sir.
    Mr. Inslee. And then another line item says reduce biocide 
frequency to every 2 weeks. Projected savings of $36,000 a 
month. And of course, biocide is used to prevent organisms from 
eating away the walls, when it does, right?
    Ms. Slemons. Yes.
    Mr. Inslee. And then at both of those items you will see a 
column marked risk category and it is rated as high. In other 
words, BP has seemed to understand that that reduction or that 
safety measure would create a high risk and yet they decided to 
take that risk anyway, for cost reasons. Does that appear 
pretty clear to you of what happened there?
    Ms. Slemons. It does.
    Mr. Inslee. OK. If you look at tab 16 now. At tab 16, it 
talks about CIC grew 2002 budget challenge $1 million 
opportunities, which I assume mean the things listed there are 
opportunities to save a million dollars. And it shows in the 
third line 40H chemical ops, corrosion, and below that, about 
halfway down in the notes it says 10-percent reduction in 
inhibition levels would result in a 30-percent increase in 
corrosion rate. Could you explain what that means?
    Ms. Slemons. I can take a guess at it. It appears to me 
that the relationship in the reduction in inhibition levels, 
the use of that particular chemical is not linear and that, in 
fact, a small reduction in the use of that chemical would 
reduce--would result in a larger increase in corrosion rate 
than the actual reduction.
    Mr. Inslee. In the dangerous side of the nonlinear side, 
you get a larger risk factor than you do a linear cut in 
expenditures.
    Ms. Slemons. That is my interpretation, yes.
    Mr. Inslee. Now I want to ask, in relationship to the 
budget pressure issue, I want to ask what you have done to 
prevent budget pressures, in regard to executive compensation, 
from allowing these kinds of decisions to happen again. Has the 
State done anything to address the issue of executives 
increasing their bonuses by making decisions like this?
    Ms. Slemons. We have not, Congressman, and I would explain 
that answer. Our oil and gas leases give us very broad 
authorities on several issues, especially regarding access to 
plans for construction, operations, maintenance plans and 
performance logs and records of the operators. Our authorities 
do not address the intent of management decisions. Neither do 
they allow us to go in and look at the internal decision-making 
processes of the company. To the extent that PHMSA has a window 
into the operational management system of BP and into the 
similar systems in other companies, with our letter of intent, 
we will be looking at that information. The State of Alaska 
does not have the authorities that allow us to do that.
    Mr. Inslee. And do you know if the Department of 
Transportation is looking at that issue? The concern is, if you 
have an executive compensation system that rewards danger and 
increasing risk in a nonlinear fashion, you are going to have 
problems no matter how observant and the regulatory ambitions 
you have. Do you know, is anyone else looking at that 
potential?
    Ms. Slemons. I certainly understand the concern and we 
share that concern. I am told by Mr. Nard that, in fact, they 
are looking at that, which encourages me that we too will be 
able then to see that information.
    Mr. Inslee. OK. Could you go to tab 13, if you will, 
please? Tab 13, a part of this, it says ideas for saving money. 
It is on page 18 and I will just read it. You don't have to 
follow around. ``Ideas for saving money, in no particular 
order, to turn off PW, produced water and chemical and OBCQ--
will help out here.'' Then on page 6 it says, ``as you know, we 
are under huge budget pressure from the last quarter of the 
year and therefore we have to take some rather disagreeable 
measures. Can you please implement the following changes-shut 
down the PW innovation systems for the remainder of the year-
discontinue the addition of corrosion inhibition for velocity 
control.''
    So it looked to me like BP was changing their existing 
status quo maintenance protocol in a way that would create a 
known increased risk. Does your regulatory scheme prevent 
companies from going backwards from the status quo on 
maintenance? In other words, do you have something that would 
prevent them from going backwards from existing maintenance 
protocols, or at least require your approval from doing so?
    Ms. Slemons. Yes, we will. We don't currently because this 
program is just getting off the ground. But one of the tasks 
that was identified in the administrative order is the 
development by operators of maintenance plans or quality 
assurance plans that come to the PSIO for review and approval. 
Where we find them weak, we will require that they be beefed up 
before they are approved. Once those plans are approved, then 
there is an open and transparent, if you will, agreement. The 
operators know what they are conforming to and we know what we 
are inspecting to, and any changes to that maintenance regime, 
those plans that are included in that document, would require 
our approval before we would sign off on it.
    Mr. Inslee. And will that regime be in place?
    Ms. Slemons. For BP, we have asked for their preliminary 
documentation in July. We will be looking at the Prudhoe Bay 
unit first and then we will be proceeding to look at other 
units around the State, in a priority order based on risk.
    Mr. Inslee. Ms. Gerard, could you address this issue of 
executive compensation and how it is tied to safety decisions 
and whether or not the regulatory arm or arms of the Federal 
Government should do something to prevent that from being an 
incentive for risk taking?
    Ms. Gerard. Our integrity management requirements today are 
focused on the assessment of the condition of the pipeline, 
identification of risk, prioritization of that risk, 
remediation and evaluation. Up until this point in time, we 
have not established requirements that go to cultural issues. 
However, as it relates to our ongoing relationship with BP and 
oversight under our corrective action order, we have had 
discussion with BP about a number of organizational and 
cultural program activities that we believe is necessary for us 
to oversee, as part of their implementation of their OMS, 
Operating Management System. One of the items involves 
identification of metrics related to safety culture, creating 
transparency in the organization, as it regards all employees' 
participation in hazard identification, for example, and we 
believe that there should be metrics that are part of the 
executive performance plan; that we believe that we should be 
able to take a look at how executives are doing at meeting 
those metrics as part of their annual----
    Mr. Inslee. Are you going to insist on having that, then?
    Ms. Gerard. That is the plan.
    Mr. Inslee. Because I have respected some of the things BP 
has done. They have done some good things in energy and I have 
admired some of the things they have done. But obviously there 
is a cultural failure here that was rather broad-based and to 
deal with it you need something sort of intrinsic in the 
organization. Thank you.
    Mr. Melancon [presiding]. I think that concludes the 
questions. I want to thank the panel for coming here and I will 
apologize for the delay in our process if you all can move your 
process a little quicker. Thank you so much for being with us 
today.
    The committee will call before it Mr. Robert Malone, 
chairman and president of BP America, please. Thank you, Mr. 
Malone, we appreciate you being here today. It is the policy of 
this subcommittee to take all testimony under oath. Please be 
advised that witnesses have the right under the rules of the 
House to be advised by counsel during your testimony. Do you 
wish to be represented by counsel?
    Mr. Malone. No, sir.
    Mr. Melancon. Then, if you would please rise and I would 
swear you in?
    [Witness sworn]
    Mr. Melancon. Let the reflect that the witness replied in 
the affirmative. You are now under oath. You may proceed with 
your opening statement.

   TESTIMONY OF ROBERT A. MALONE, CHAIRMAN AND PRESIDENT, BP 
                         AMERICA, INC.

    Mr. Malone. Mr. Chairman and members of the subcommittee, 
my name is Bob Malone and I am chairman and president of BP 
America. We are privileged to be the Nation's largest producer 
of domestic oil and gas and we take our commitments here 
seriously.
    When I accepted the position in the summer of 2006, BP was 
facing the biggest challenge we have ever had. I agreed to take 
this job to move BP forward and I set six goals: (1) do all I 
can to ensure that BP never again experiences a tragedy like 
Texas City, or allows portions of the critical North Slope 
pipeline to degrade to the point that we must shut it down. (2) 
to create a culture in which workers are confident that their 
concerns and ideas will make a difference. (3) to provide our 
people with the skills, the systems and the support they need 
to ensure that budget pressures never compromise the safety or 
integrity of our operations. (4) put in place a central team of 
auditors and process safety experts to monitor our operations, 
identify gaps and ensure that they are closed. (5) restore 
trust in BP America by ensuring that we deliver on the promises 
we have made to workers, to regulators and the communities in 
which we operate; and (6) to work with employees and regulators 
to make BP America an industry leader in process safety and 
integrity management.
    I am encouraged by the changes I have seen during my visits 
to BP operations around the Nation. I am pleased with the 
progress we are making, but there is still much to do. Today, I 
want to assure you that we get it. We have learned the lessons 
of the past. Thanks to the State of Alaska, DOT, OSHA, other 
regulators, the Baker Panel, the U.S. Chemical Safety Board, 
our own investigations, recent reviews by independent 
consultants and input from this committee, we have a far deeper 
understanding of the gaps in our operations than ever before. 
Some of these assessments have been harsh and they have been 
deeply troubling, but we recognize that unless we understand 
the cause of what happened, we cannot make the necessary 
changes to ensure that it doesn't happen again.
    The reports were based on in-depth reviews of our 
operations. Hundreds of interviews of members of our workforce 
and reviews of the written records and documentation requested 
by investigative teams. I have reviewed all of these reports 
and some of the supporting documentation. It is apparent from 
reading these reports, from visiting our operations and talking 
to our employees, that process safety and integrity management 
was not given sufficient priority or focus in our operations. 
That finding is a common theme throughout the reports and my 
own assessment.
    I have also read some of the key e-mails selected from 
thousands of pages that we provided to this committee. It is 
disturbing to me if even one person in our organization thought 
of options of placing budget considerations over the safety and 
the integrity of our operations. It is clear that budget 
impacted our culture and that we stopped being curious. We 
asked our people to keep our operations cost competitive and 
safe and we failed to provide them with the systems and the 
skills required to recognize and mitigate all of the risks that 
are inherent in operating complex facilities. Adequate risk 
assessment tools were not applied with the type of rigor and 
challenge that we now expect.
    There were many reasons for the budget pressures that exist 
in Alaska, including a 17-year, 75 percent decline in Prudhoe 
Bay and years of low wellhead prices. And although the 
corrosion program spending increased ever since 2001, it 
appears as though our corrosion team members developed options 
for operating within budget. Some workers expressed opposition 
to some of the measures being considered. The cause of the 
level of frustration evident in some of the e-mails is 
absolutely unacceptable to me and I am encouraged that our 
workers did make their concerns known. It is important that we 
communicate the risks they see associated with any reduction in 
budget or activity levels so that accountable managers can make 
sound decisions. However, I am not going to be satisfied until 
no one feels it is necessary to suggest cost-cutting options 
that he or she believes compromises the safety of our 
operations.
    As to the cause of the leaks on the oil transit line that 
occurred last year, the fact is, is that our corrosion team had 
an unwarranted sense of confidence in their own program. They 
believed that they were appropriately managing risk, but they 
did not have the right tools to challenge their own 
assumptions. Booz Allen Hamilton concluded that without better 
risk assessment processes sensitive to changing conditions in 
the field, larger corrosion program budgets alone would not 
have prevented these leaks.
    When I appeared before this committee last September, I 
made a number of commitments. As promised, I have retained a 
panel of corrosion and large infrastructure maintenance experts 
to recommend improvements in the way we manage corrosion. We 
increased operations in maintenance spending in Alaska and 
Texas City and our other U.S. refineries. I appointed to Judge 
Stanley Sporkin as our U.S. Ombudsman and assigned his office 
responsibility for responding to current concerns as well as 
reviewing all of the employee concerns raised since 2000. I 
created an internal operations advisory board and recruited an 
external advisory council. I built a team of internal safety 
and operations and compliance and ethics experts and we have 
engaged with employees and contract workers at all levels 
across the organization. We have also conducted safety culture 
assessments and are addressing work environment changes.
    Progress on another commitment to replacement of the 
Prudhoe Bay OTL system is well underway. Rather than just 
replacing old pipe for new, we opted to design a new $250 
million system, sized for the future Prudhoe Bay production. 
During the winter, more than 600 workers constructed 8 miles of 
ice roads, completed 1,250 wells and they did it all in subzero 
conditions without a single lost-time accident. I was there in 
March to check on the project and I can guarantee you that it 
was well below 40 degrees. About 8 miles of new pipe had been 
installed and we are on track to commission this system in late 
2008. Full implementation of our new corrosion strategy is 
going to take time. We are adding more engineers, we are 
meeting with the teams at each of the facilities, and we are 
identifying areas of concern to operators and to technicians 
working on the front line. The plan is to finish these reviews 
by October of this year and to complete all of the follow-up 
inspections by year-end. If there are problems, we are going to 
find them and we are going to fix them.
    We are using BP's new operations management system to drive 
change in a way that the company approaches four key areas: 
people, plant, process and performance. We want the right 
people with the right skills in the right places. The members 
of the new Alaska and Texas City leadership team have deep 
operating experience. Our two top operating managers for the 
North Slope have each been involved in oilfield operations for 
more than 30 years. We are expanding and renewing our Alaska 
workforce and during 2006 and 2007, we will add nearly 400 BP 
employees. We have changed the structure of the organization, 
creating what we call a technical directorate that sets 
engineering and operation standards and verifies that they are 
met and adequately resourced. The head of the technical 
directorate reports to the head of BP Alaska and to me. We are 
making a significant culture change across our operations, 
ensuring that all employees feel free to raise concerns and 
ideas and that their contributions are taken into consideration 
in how we do business.
    Under plant we are focusing on all of the conditions of our 
process facilities and pipelines. The OTL replacement is part 
of a larger renewal program designed to extend the Prudhoe Bay 
oil and gas production another 50 years. Under process we are 
working to become an industry leader in process safety and 
integrity management. And under performance our new operating 
management systems defines what is expected from our team in 
Alaska, in the areas of plant integrity, process safety and 
safety culture.
    It is impossible to visit Texas City, Prudhoe Bay or other 
BP locations across this country and not be impressed by what 
has already been done, what is being done, and by the people 
that are doing it. I believe that when embedded in Alaska our 
U.S. refineries, the operating management system and the right 
safety culture will deliver sustainable change and make BP an 
industry leader in these critical areas. Please know we get it. 
We know what is wrong. We have a plan for fixing it. We have 
the people and the funding. We just need time to make these 
changes. Thank you and I would be happy to answer any 
questions.
    [The prepared testimony of Mr. Malone follows:]

                     Statement of Robert A. Malone

    My name is Bob Malone and I am Chairman and President of BP 
America Inc. BP America and its subsidiaries employ more than 
36,000 people and produce 666,000 barrels of crude oil and 2.7 
billion cubic feet of natural gas per day. We operate five 
refineries with a capacity to process nearly 1.5 million 
barrels a day of crude oil, and a system of pipelines and 
terminals throughout the United States that supply over 70 
million gallons per day of gasoline and distillate fuels to 
customers in 35 States.
    We are privileged to operate the largest oil field in North 
America--Prudhoe Bay on Alaska's North Slope (exhibit 1). The 
Texas City Refinery is our largest and most complex refinery 
(exhibit 2). Our charge is to operate these assets in a safe, 
efficient and environmentally responsible way for the benefit 
of neighboring communities, our business partners, our 
customers, our employees and our shareholders. The public's 
faith in us has been tested over the last two years by the 
tragic explosion, fire and deaths at Texas City and by 
corrosion in the oil transit pipeline system that moves 
processed crude oil from Greater Prudhoe Bay to the Trans 
Alaska Pipeline System (TAPS).
    These experiences have changed BP and all of us who work 
for the company. We are determined to learn from what happened 
and to become a better, stronger company. I was sent here in 
July 2006 by our Group CEO and the BP Board, to lead that 
effort. I came with a set of principles that guide my work in 
the U.S. We are making progress towards our goals. However, 
there is much to do and accomplishing all that needs to be done 
will take time.
    I was asked by Chairmen Dingell and Stupak to address 
whether budget pressures led to the corrosion and leaks which 
occurred last year on the oil transit lines at Prudhoe Bay. 
Additionally, they asked whether we suspended the use of 
corrosion inhibitor chemicals for extended periods of time due 
to budget pressures.
    We have found there was false sense of confidence in the 
effectiveness of the existing corrosion management program and 
in the condition of the oil transit lines. BAH concluded that 
in the absence of better risk assessment processes, budget 
increases alone would not have prevented the leaks. Our own 
work has revealed that the workforce did not have an adequate 
process to challenge their own assumptions.
    This question is also addressed in a recent investigation 
conducted for me by Booz Allen Hamilton (BAH). Their report, 
and other documents produced to this subcommittee, makes it 
clear there was a concerted effort to manage the costs in 
response to the continuing decline in production at Prudhoe 
Bay. The documents also reveal that the effort to manage costs 
frustrated some workers who were accountable for delivery of 
certain aspects of the corrosion management program.
    Booz Allen Hamilton concluded, however, that the leaks that 
occurred on the OTL system last year resulted not from budget 
pressures, but primarily from the lack of a formal, holistic 
risk assessment process that was sensitive to changing 
operations and conditions in the field.
    We are making the corrosion management program improvements 
recommended by Booz Allen Hamilton. We are adding people and 
resources. And most importantly, we are revamping our corrosion 
management strategy. At the heart of that strategy will be a 
comprehensive risk assessment process sensitive to changing 
operating conditions. The strategy will apply to all Greater 
Prudhoe Bay facilities and systems and will utilize an industry 
recognized, proven and commercially available risk based 
inspection (RBI) program.
    We understand that budget pressures, poorly managed, can 
impact the culture of an organization. It can lead to a ``make 
do/can do'' mentality. It can dampen the willingness of people 
to raise concerns or think in new or different ways--especially 
if they believe they will not be heard or that there is no 
money to spend on their idea or concern.
    We now know as a result of the studies done at both Texas 
City and Alaska and from our own employee surveys that we must 
change the way we identify, assess, understand and communicate 
risk. We also recognize that we must do a better job of 
listening to and resolving employee concerns. And finally, we 
understand that we must change the way we integrate what we 
have learned into our operations and our budget decisions.
    Better communication and better risk assessments will mean 
better budget decisions. The foundation of this risk management 
process is to understand that occupational safety, process 
safety and environmental standards cannot be compromised. The 
next step is to be equally clear that budget discussions 
recognize and address our priority of safe, reliable 
operations.
    BP America is committed to safety, and the expectation of 
our management is that budget guidelines should never result in 
a compromise in safety performance. That is and has long been 
our philosophy, but we believe we can improve the way we 
receive and resolve employee concerns and enhance the way we 
identify, assess, eliminate and/or manage risk, and that, by 
doing so, we can make sure that that philosophy is more than 
just words.
    Chairman Dingell referred us to several email 
communications from the Alaska workforce that BP America has 
provided to the committee regarding budget pressures and 
considerations about ways to lower budgets or limit budget 
overruns. We are researching the situations described to 
determine how the issues raised in those emails were ultimately 
resolved. The frustration evident in some of those emails 
causes me concern. It is clear to me the employees were 
troubled by some of the cost-saving options identified for 
consideration. I am encouraged, however, that they were making 
their concerns known.
    Regarding the use of corrosion inhibitor chemicals, an 
investigation is being conducted by the BP Ombudsman, Judge 
Stanley Sporkin. This investigation will include a review of 
documents and interviews with personnel and is expected to be 
completed in July. I expect that Judge Sporkin will keep you 
apprised of his progress, and I will share his final report 
with the committee upon completion. However, we are not waiting 
on the outcome of this investigation to take action. BP America 
has initiated a review of our inspection programs for all North 
Slope facilities and systems. This will verify the current 
condition of the pipelines and processing facilities, identify 
concerns in each operating area and inform the implementation 
of the comprehensive RBI program.
    I am here today to provide you with an update on the 
commitments I made at the hearing last September; update you on 
the status of the Greater Prudhoe Bay Oil Transit Line 
replacement project; share what we have heard and learned from 
the reports and studies of the incidents; and outline the 
actions we are taking to reestablish BP as an industry leader 
in the area of process safety and to restore the faith and 
confidence of the American people in our operations.September 
2006 Commitments
    I committed to initiate a number of actions to drive 
operational and safety change within BP America, and I am 
pleased today to report back to you on the progress we have 
made in fulfilling these commitments:
     I retained three of the world's foremost experts on 
corrosion and infrastructure management. They have received 
unhindered access to review our corrosion management system on 
the North Slope and to suggest management and operational 
changes to improve it. Their report will be complete this 
summer. We will apply what we learn to all of our pipeline 
operations.
     BP America committed to significant spending increases to 
upgrade all aspects of safety at our refineries. We have 
publicly committed to spend $7 billion to improve those 
operations. In addition, we have more than doubled our spending 
on major maintenance projects in Alaska.
     I appointed retired U.S. District Court Judge Stanley 
Sporkin, as Ombudsman, reporting directly to me. He has 
initiated a review of all worker allegations that have been 
raised on the North Slope since 2000 and has conducted other 
reviews to investigate concerns raised by our employees.
     I created an Operational Advisory Board, composed of 
fifteen senior business leaders in BP America, to lead our 
effort on safety, operational integrity and compliance. This 
group meets quarterly and each member has committed to 
implementing a different, holistic approach to managing U.S. 
operations.
     I have recruited an External Advisory Council to assist 
and advise me on all aspects of BP America's US businesses and 
to focus in particular on safety, operational integrity, 
compliance and ethics. We have met as a Council twice, most 
recently two weeks ago. That meeting included a day at the 
Texas City refinery.
     I have built my own team of internal experts on employee 
safety, safety culture, process safety, operational integrity, 
and compliance and ethics to assist me in monitoring these 
aspects of our business.
     I continue to meet with employees to reinforce my 
expectations of them: that they must ensure that our operations 
are safe, that they understand they have both a right and 
responsibility to shut down any process they feel is unsafe or 
operationally unsound, and that they are encouraged to raise 
concerns on any issue. This engagement has been through town 
hall meetings, site visits, conferences, email and internal 
company publications. I have even created my own web blog to 
communicate with employees.
     These conversations have provided me with encouragement 
that we are on the right path. In fact, in a survey now being 
conducted on the North Slope by the Ombudsman's office, 98 
percent of respondents would report issues that impact health, 
safety or environmental protection; and the safety culture 
survey indicates that 97 percent of employees believe they have 
the ability to report and to stop any unsafe operation. 
Further, 92 percent felt comfortable reporting concerns 
directly to their supervisors or line managers. Similarly, 
across refinery operations, we have initiated a ``Stop Work If 
You Think It Is Unsafe'' program as a condition of unit 
startups.
    I have also been to Texas City and the North Slope a number 
of times and the work I have witnessed demonstrates that all of 
us are unified behind the need and the desire to improve. The 
milestones achieved at Texas City and Alaska are significant. 
At Texas City, those milestones include:

     Nearly 300,000 hours of leadership and other 
training;
     A total rebuilding of the training program with 
more than 30 new instructors;
     More than 400 new people hired;
     15.5 million man-hours worked in 2006--3 times the 
average U.S. refinery--under entirely new safety systems;
     An infrastructure renewal program so large that it 
requires scaffolding sufficient to scale Mt. Everest 7 times; 
and
     A complete overhaul and safe re-commissioning of 
the 27-mile steam system.

    Similar achievements have been made on the North Slope 
during this past Arctic winter:

     Since the incident we have completed 21,000 
ultrasonic tests on the oil transit lines;
     Since the incident we have removed insulation and 
inspected and re-insulated more than 43,000 ft (8 miles) of 
pipe;
     Since August 2006, we have increased BP employees 
on the North Slope by more than 10 percent; and
     We had 110,000 construction man-hours worked this 
winter on oil transit line replacement without a lost time 
accident or recordable injury.

                   Oil Transit Line (OTL) Replacement

    Prudhoe Bay's oil transit line system is undergoing a major 
upgrade, initially focusing on rebuilding the field's most 
critical pipe segments, a phase that will take until the end of 
next year. By then, we will have installed approximately 16 
miles of oil transit lines from the flow stations and the 
gathering centers to Skid 50, near the starting point of TAPS.
    The winter 2007 construction season recently ended. I am 
pleased to report that approximately 8 miles of new pipe has 
been installed. This feat is impressive given that during the 
3-month construction season more than 600 workers constructed 8 
miles of ice roads, installed 680 vertical support members, 
performed 1,250 welds and installed this nearly 42,000 feet of 
new pipe all in sub-zero arctic conditions.

                Who has informed BP America's thinking?

    The progress made in Alaska and the actions taken at Texas 
City are among the many examples that prove that BP America is 
a different company than it was six months ago. This change has 
only been accomplished with the support of our employees, 
management, and the entire BP Group. And, this is why I am 
confident that we are on the right path to distinguish 
ourselves as a leader in personnel safety, process safety and 
operational integrity.
    However, these early actions are just the starting point. 
There is much more to do to drive renewal within BP America. 
The first step of renewal was to assess the incidents, take the 
learnings and then develop a set of actions to respond. Since 
the Texas City tragedy and the Alaska pipeline incidents, BP 
America has commissioned a number of studies and also received 
third-party reports that have assisted us in our efforts. These 
reports and studies have been freely shared with State and 
Federal regulators and Congress and are supporting the changes 
occurring within BP America.
    I would like to briefly describe the nature of these 
reports; how they were received by BP America and the actions 
we have taken or are contemplating as part of our operational 
renewal plans within the U.S.

                       Booz Allen Hamilton Study

    I commissioned Booz Allen Hamilton (BAH), as an independent 
third party, to identify any organizational, process, 
information systems and/or governance issues that may have 
contributed to the March and August 2006 oil transit line (OTL) 
leak incidents. BAH conducted its study between November 2006 
and January 2007and recently delivered its final report. BAH 
received BP's full cooperation during its review. The 
consultants interviewed past and present members of the Alaska 
management and Corrosion Inspection and Chemicals (CIC) teams 
and were provided all documents they requested as part of their 
review. I understand that some questions about the report have 
recently been raised by the committee, and we are working with 
Booz Allen Hamilton to provide the answers.

              Independent Corrosion Assessment Team Study

    I initiated this study in August 2006, just after the 
shutdown of the Eastern Operating Area (EOA) of the Prudhoe Bay 
field, to provide an independent assessment of our Alaskan 
operation's current corrosion management program and to make 
recommendations needed to firmly establish the program up to an 
industry-leading position. This is a ``forward looking'' study 
that is intended to meet the needs of our commitment to a 
fifty-year future in Alaska.
    To develop recommendations, an Independent Corrosion 
Assessment Team (ICAT) was assembled comprised of two 
internationally recognized experts in corrosion mechanisms and 
an internationally recognized expert in large asset management. 
The ICAT will issue its final report this summer.
    Additionally, a BP Alaska Corrosion Strategy--overviewed by 
members of the ICAT--is complete and is being implemented.

                     Legacy Employee Concerns Study

    During the hearings last year, I committed to review all 
employee concerns raised at our Alaska operations since 2000 to 
determine whether there were any unresolved issues or whether 
the resolution of concerns adequately addressed matters that 
presented health, safety or environmental questions. This task 
was assigned to the Ombudsman's office, and they retained MPR, 
Inc., an independent engineering firm, to assist in the review 
and disposition of the technical issues.
    The initial task was the collection, review and 
categorization of the historical employee issues. There are 
approximately one thousand concerns in the Legacy Review Issue 
process at this time. While none of the issues has been 
identified by the Ombudsman's office as representing an 
imminent safety threat, the analysis work is ongoing.
    The committee staff has had an ongoing dialogue directly 
with my Ombudsman regarding his investigations. A final report 
from the Ombudsman's office on the Legacy Issue Review will be 
provided with identification of issues needing further 
evaluation or corrective action. The target date for completion 
of this project is July, 2007.

                      No Tolerance for Retaliation

    On the broader issue of employee retaliation, BP was asked 
to ensure that there is no tolerance for retaliation against 
workers who raise safety and health concerns and to provide a 
transparent mechanism to ensure concerns are resolved in a 
timely manner.
    BP does not tolerate retaliation against workers who raise 
safety concerns. It is prohibited by our Code of Conduct and I 
have made it clear that I expect appropriate action to be taken 
to anticipate and prevent, or mitigate, any such incidents or 
behaviors that may discourage workers from raising safety, 
environmental or other concerns. However, I also recognize that 
tackling long term behaviors takes time and training.
    BP America has a number of systems and processes for 
resolving employee concerns including the BP ``Open Talk'' 
Program and the Ombudsman's office. BPXA currently has seven 
different avenues--we are evaluating how to streamline these 
avenues for greater effectiveness and efficiency, but for now 
we would rather have more opportunities than fewer.

               Compliance Order by Consent (COBC) review

    Following the hearing in September 2006, the Oversight and 
Investigations Subcommittee asked BP America to investigate 
whether BPXA failed to disclose information regarding its 
awareness of sediment in the OTLs to the Congressional staff 
prior to the hearings, and, if so, to explain that failure.
    This concern arose because of the post-hearing 
identification of a 2002 Compliance Order by Consent (COBC) 
entered into between BPXA and the Alaska Department of 
Environmental Conservation (ADEC) that referred to the 
existence of sediment in the lines.
    In November 2006, I asked Billie Garde, as a consultant, to 
conduct an investigation on behalf of BP America and to provide 
a report to me. An interim report has just been completed and a 
briefing of the interim findings has been provided to committee 
staff, at its request. The investigation found that our 
preparation for the September, 2006 hearing was not based on 
all information available to the corporation, and thus neither 
I nor the committee staff had information that may have been 
helpful for the hearing. For that, I apologize.

Fatal Accident Investigation Report--Isomerization Unit Explosion Final 
                        Report (Mogford Report)

    Following the March 23, 2005 incident at the Texas City 
Refinery, BP assembled an incident investigation team, led by 
John Mogford, to identify the underlying root causes of the 
incident. On May 17, 2005, the team released an interim report 
to communicate its preliminary findings. The team released its 
final report on December 9, 2005. The report was intended to 
deepen understanding of the causes of the incident; to 
recommend corrective actions to prevent recurrence of a similar 
incident; and to improve safety performance at the site. The 
investigation used the BP root cause methodology supplemented 
by guidance issued by the Center for Chemical Process Safety.
    The interim report made recommendations in the areas of: 
(1) People and Procedures; (2) Control of Work and Trailer 
Siting; and (3) Design and Engineering. The final report 
augmented those recommendations and made a significant number 
of additional detailed, site-specific proposals for corrective 
actions designed to address the root causes and underlying 
cultural issues identified by the investigation team.

    BP U.S. Refineries Independent Safety Review Panel (Baker Panel)

    Pursuant to a recommendation from the Chemical Safety and 
Hazard Investigation Board (CSB), BP convened an independent 
safety review panel, chaired by former U.S. Secretary of State 
James A Baker III to assess process safety management systems 
and safety culture at its five U.S. refineries.
    The Panel carried out its work throughout 2006 and reported 
its findings in 2007. The report is hard-hitting and unique. We 
have committed to implement all of the report's 
recommendations, and many measures have already been taken, or 
are underway, a fact the Panel recognized when it observed that 
``since March 2005, BP has expressed a major commitment to a 
far better process safety regime, has committed significant 
resources and personnel to that end, and has undertaken or 
announced many measures that could impact process safety 
performance at BP's five U.S. refineries.''

          U.S. Chemical Safety and Hazard Investigation Board

    The CSB report addressed the causes of the Texas City 
incident. We recognize and appreciate the effort CSB put into 
this investigation.
    BP America will implement actions consistent with the 
recommendations of the CSB and will communicate this to 
Chairman Merritt within the next few days.

                               Learnings

    What did these reports teach us and how have they informed 
our changes? We have spent considerable time analyzing the 
findings of these studies and integrating their recommendations 
into a cohesive plan to help BP America grow to become an 
industry leader in process safety. We found these reports to 
contain several common themes that have been incorporated into 
our new operating management system (exhibit 3). These common 
themes and some corresponding observations are shown below:
     Communications and Leadership--The reports indicated that 
some concerns were either not communicated effectively or 
sufficiently heard. The organizational culture must 
consistently encourage greater upward and cross-functional 
communication. The Mogford report regarding Texas City, for 
example, noted that a ``lack of leadership visibility and poor 
communication through the complex siloed organization did not 
assist in delivering the right messages'' regarding the 
priority of safety at the site.
     Management's Technical Knowledge--As observed in the Booz 
Allen Hamilton report, because the corrosion group ``was 
hierarchically four levels down from senior leadership, 
corrosion risk management had less visibility.'' As a result, 
``the technical evaluation of corrosion risk was not challenged 
by senior management to fully understand the tradeoffs made 
within CIC and at the Field Operation level.'' Regarding 
management knowledge at Texas City, the Mogford report stated 
``there needs to be a greater line management understanding and 
ownership of process safety management.''
     Accountability and Clarity of Expectations--BP America's 
entrepreneurial culture engendered significant discretion and 
autonomy to its business unit leaders, and expectations, 
responsibilities or accountabilities were not always well 
understood. Greater organizational clarity must be pursued to 
ensure understanding of operational accountabilities.
     Knowledge, Expertise, and Training--Technical and 
institutional knowledge in some businesses rested with a few 
key individuals. Greater depth and technical capability needs 
to be embedded more consistently across the organization. BP 
America has begun to substantially increase the number of 
hires, training and the knowledge base across the U.S.
     Risk Identification and Assessment--BP America businesses 
have always conducted risk assessment across their operations 
but those assessments were not always the result of a 
comprehensive, systematic risk assessment process that was 
consistently applied throughout the businesses. The Mogford 
Report observed that the Texas City site had ``no comprehensive 
and consistent business plans focused on the systemic reduction 
of process risks.'' The Booz Allen Hamilton Report found that 
``there was no formal, holistic risk assessment process for 
pipeline integrity.''
     Effective Process Safety/Integrity Management System--As 
operational and environmental conditions changed, BP America's 
systems and processes haven't been sufficiently sensitive to 
make the corresponding adjustments. These processes must be 
more flexible and subject to greater input and challenge from 
the organization.
     Sufficiency of Resources--We now know as a result of the 
studies done at Texas City and Alaska and our own employee 
surveys that we must make changes in the way we identify, 
assess, understand and communicate risk. We must also change 
the way we integrate that knowledge into our operations and our 
spending decisions. I believe that better risk assessments will 
lead to improved budget discussions and spending decisions will 
be better as a result.
    BP has a strong cost-focused performance culture. We made a 
virtue out of doing more for less. The mantra of more-for-less 
says that we can get 100 percent of the task completed with 90 
percent of the resources. This approach needs to be deployed 
with great judgment and wisdom. When it isn't, we run into 
trouble.
    We are committed to safety and the expectation of our 
management is that budget guidelines should never result in a 
compromise in safety performance.-- We believe we can come 
closer to always achieving this goal by improving the way we 
receive and resolve employee concerns and by enhancing the way 
we identify, assess, eliminate or manage risk. Safety must be 
the overriding priority in all we do--and it will be.
     Audit, Compliance, and Monitoring--We have several 
different systems for monitoring and auditing performance and 
compliance. Enhanced rigor must be applied together with common 
standards, appropriate capabilities and adequate resources to 
follow up and address identified concerns. According to the 
Mogford Report ``[audit] action items did not appear to be 
tracked and effectively closed.'' The Booz Allen Hamilton 
Report observed that ``a number of key assurance processes 
(e.g., Audit, Management of Change) were not `closed loop' to 
ensure that required changes were truly implemented and 
documented.''
     Process Safety as a Core Value--Process safety must be 
instilled as a core value. BP America has always held safety as 
a core value as reflected in the company's concerted effort to 
continually reduce the number of workplace injuries and 
fatalities across its operations. The success of this effort 
can be seen in our occupational safety performance metrics. At 
Texas City, the company reduced OSHA injury rates by more than 
70 percent in the five year period before the March 23 
explosion. We relied on these metrics as an indicator of 
process safety as well. We now understand that this reliance 
was a mistake.
    In addition, we are taking action in the area of worker 
fatigue and overtime, adherence to formal processes and 
incident investigations and reporting.

                    The Operating Management System

    We are folding BP America's Health, Safety & Environment 
management system into a broader, comprehensive operating 
management system. This new system is based on the 
International Standards Organization's management system 
framework and is designed to support a more rigorous approach 
to compliance and risk management. Implementation of the 
system, which will be introduced to BP operations worldwide, is 
first taking place in U.S. refineries, Alaska and other 
selected locations.
    This enhanced framework provides clear guidance in what we 
have defined as the eight elements of operating in BP America: 
risk; procedures; assets; optimization; organization; 
leadership; results; and privilege to operate.
    At its core, the framework helps define and add clarity to 
the people, plant, process and performance measures facilities 
need to undertake to ensure reliable, safe operations. We have 
begun to implement this new system in Alaska through the 
``Renewal'' program and at Texas City through the ``Focus on 
the Future'' program. In both cases, we are integrating the 
learnings from the expert studies and analyses and adopting 
action plans that focus on critical operational components.

                How has OMS influenced BP's Operations?

    The operating management system framework is changing the 
way BPXA approaches the people, plant, process and performance 
issues that influence our operations (exhibit 3).

                                 People

    The new head of BPXA has assembled a new leadership team 
since last September with a renewed emphasis on operational 
capability and clarity in their accountabilities. An example of 
this is the separation of technical assurance from operations.
    To achieve this, BPXA created and staffed a Technical 
Directorate organization of 150 technical experts that are 
responsible for setting and verifying the standards to which 
BPXA will operate. The Directorate will review budgets of the 
line and provide assurance that major risk items are adequately 
funded. They are independent of the line organization and have 
direct accountability to both me and the President of BPXA.
    Similarly, the oil transit lines will now be managed as a 
system by a single area manager. This will ensure better 
oversight and accountability over their operation.

                                 Plant

    When we committed to replace the 16 miles of oil transit 
line serving Greater Prudhoe Bay, we could have approached the 
project as simply a repair and maintenance project. That is, 
replace the existing pipe with new pipe of the same composition 
and quality using existing associated infrastructure. In fact, 
our preliminary plan announced in August 2006 reflected just 
that scenario. However, upon further analysis and with a view 
to the future, we decided to incorporate additional 
technologies into the project to ensure oil transit line 
integrity and long-term safe operations.
    An important component of this project was the engagement 
and involvement of the field operations staff in the planning 
and design of the new pipeline facilities. In addition, we re-
designed the project to incorporate best available technology 
designed both to enhance daily operations and streamline its 
use. The OTL system will include a range of leading technology 
and equipment, such as improved corrosion-resistant pipe 
(insulated carbon steel with special epoxy coating) and 
elevated vertical support members where possible, upgraded 
ancillary pipeline facilities, addition of permanent pipeline 
pigging facilities, improved corrosion monitoring and new leak 
detection systems.

                 New above-ground structure (exhibit 4)

    To protect the fragile tundra environment and wildlife, the 
project is installing hundreds of Vertical Support Members 
designed to hold the pipeline higher above the tundra. Where 
possible, the new 7-foot clearance will protect the permafrost, 
accommodate wildlife movement, discourage snowdrifts and 
support more effective and efficient pipeline maintenance 
activities.
    Better ancillary pipeline facilities
    Pipeline facilities throughout the system will be equipped 
with best available technology, operator-friendly equipment. 
Twenty new modules will support operations and enhanced 
maintenance of the pipeline, built with an eye toward the 
future and easy worker access to equipment.
    Key elements of this system include equipment to measure 
and remove factors associated with corrosion that can lead to 
pipeline leaks. The factors associated with the recent leaks--
stagnant water, sediment buildup, and bacteria--have been 
``engineered'' out of the new pipeline system.
    The infrastructure will include the necessary facilities to 
support use of ``maintenance pigs,'' capsule-shaped devices 
that run through the pipeline to clear out sediment and 
stagnant water; ``smart pigs,'' devices that measure pipeline 
wall thickness; equipment that injects corrosion-inhibiting 
chemicals directly into the oil transit lines; and a 
demonstration project to determine if a new, highly sensitive 
leak detection technology that allows detection of even small 
leaks, will work in above-grade Arctic piping.

              New permanent pigging facilities (exhibit 5)

    The OTL project upgrade includes permanent, heated 
facilities that accommodate maintenance and smart pigs, as well 
as newer higher-quality equipment. The new facilities, designed 
for access to all equipment, will include new pig ``launchers'' 
at upstream locations and ``receivers'' at downstream locations 
so a maintenance pig can be inserted into a stream of oil to 
clean out the pipe or a smart pig can be inserted to inspect 
and diagnose internal and external pipeline corrosion.
    The new modules will allow us to run maintenance and smart 
pigs regularly. Maintenance pigs, run on a routine basis, will 
help to reduce water and sediment build-up. Any solids 
resulting from regular runs will be analyzed for bacteria 
growth and/or sediment build-up to help identify changing 
conditions in the pipeline system. Pipeline and corrosion 
specialists will then make appropriate adjustments in 
operations or inspections.

            New equipment to support ``chemical-injection''

    By cleaning the inside of the pipe through pigging and 
``sweeping'' fluid velocities, corrosion-inhibiting chemicals 
are much more effective at adhering to the pipe surfaces where 
they both coat the internal pipe and are toxic to bacteria. We 
are installing equipment that will inject these chemicals 
directly into the transit lines, rather than relying on carry-
over from upstream applications. This equipment will work hand-
in-hand with our corrosion-monitoring techniques.

                       Leak detection (exhibit 6)

    Complementing pigging and corrosion control is a new leak 
detection system to measure the volume of flow in the line. 
This new equipment will be installed as the primary system for 
the entire OTL renewal project.
    The primary method will use several types of meters, 
including a new software program, to read the volume of liquid 
going into and coming out of the pipeline segments. This system 
is designed to detect leaks as small as 1 percent of the flow 
rate, as well as catastrophic leaks.
    The secondary pilot system uses a chemical analysis method 
that passes an air sample past a hydrocarbon analyzer, which 
indicates whether any crude oil has escaped from the pipe and, 
if this has happened, triggers an alarm. This method is 
intended to detect pinhole leaks, such as the ones experienced 
in 2006.

                                Process

    Underlying these new investments and organizational changes 
is the adoption of new risk assessment and management 
procedures. These tools will allow us to better identify, 
evaluate and target concerns with adequate budget support. BP 
has already initiated risk-based inspections for its entire 
North Slope operation and modified its operating and 
maintenance practices on the OTLs. For example, CIC staff has 
been doubled and they have expanded their work to include 
greater interaction with operations personnel and with in-field 
inspectors including face-to-face dialogue and more rigorous 
hands-on-pipe visual and other inspection protocols.

                              Performance

    Management assurance has been facilitated by the adoption 
of a new closed-loop safety and operations integrity management 
system. This new system will incorporate clear leading and 
lagging indicators, enhanced communication and transparency up 
the line, formal reporting and clear authorities and 
accountabilities that are properly linked to incentives. The BP 
Group Safety Culture & Leadership initiative is well underway 
for Greater Prudhoe Bay, and is beginning at other facilities. 
Culture change is among the goals of the OMS process.
    While it is clear that OMS has begun to drive renewal in 
Alaska, behaviors have also begun to change elsewhere in the 
organization. Recently, the steam provider to our Toledo 
refinery experienced a plant upset causing a loss of steam to 
the refinery. The refinery initiated emergency shut-down 
procedures as designed and without incident. A day later, as 
Toledo began normal restart, personnel noticed a leak on one of 
the overhead lines from a process unit. The refinery was again 
taken down and upon inspection, it was determined that a stress 
fracture had occurred on a pipe weld during the initial steam-
provider induced refinery shut-down. We could have performed a 
spot repair on the unit and continued restart operations but, 
informed by a comprehensive risk assessment, we are performing 
additional unit inspections to properly identify any other 
impacts, perform repairs and initiate safe restart. This is 
exactly the behavior that OMS drives and what I am reinforcing 
throughout BP America's operations.

                               Conclusion

    Much of my job over the past year as Chairman and President 
of BP America has been to assess and develop new standards of 
operation and to ensure that the standards we have set are met.
    When I appeared before the committee last September, I 
asked that we be measured by ``what we do, not what we say.'' 
We have made tremendous progress over the past several months 
due to the deep commitment of BP America's management and 
employees to this renewal process. I am pleased with the 
progress but not yet satisfied.
    Renewal is taking hold. We are investing for the future but 
the process of renewal will take a number of years to fully 
realize. Similarly, culture change will require the same 
sustained commitment of management for employees to embrace BP 
America's new OMS model. I know that BP America and its 36,000 
employees are up for the challenge. My commitment is to make 
this all happen.

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Mr. Melancon. Mr. Malone, thank you and I am going to 
apologize for the second time in one day. We are going to 
suspend to go vote and then we will reconvene as soon as we can 
get back up here. Thank you.
    [Recess]
    Mr. Stupak [presiding]. I call the subcommittee back to 
order. I apologize again. There is procedural games being 
played on the floor, so we think we have a couple hours. 
Another motion arose. But since we are through all the rules in 
that, there will be no intervening votes for a while, so maybe 
we can get through this, so I appreciate your patience. It is 
just hard getting continuity going in testimony or questions. 
Mr. Malone, if I may, there should be a document there. Does he 
have it, the hazardous review statement, the one we put in by 
UC?
    Mr. Malone. Yes, sir, I have it.
    Mr. Stupak. OK. If you would go to page, well, in the upper 
right-hand corner on the fax, page 7, if you would. Hazardous 
review statement. My concern is this: I am sorry I was in and 
out on your opening statement. I did have a chance to see it. 
As I ran to the floor, they handed me a copy of it and I am 
encouraged about what you said about cooperation and things 
like this, but I am a little concerned. This document before 
us, which is 13 pages long, if you read it, it talks about this 
chemical change does pose HSE, that is Health Safety and 
Financial risk. Are you with me?
    Mr. Malone. Yes, I am.
    Mr. Stupak. OK. And the last paragraph says suspending the 
supplemental injection into the PW system is, therefore, 
unlikely to cause loss of contaminant of equipment material in 
the short term, 1 or 2 years; however, it will shorten the life 
of the system, resulting in either abandonment or expensive 
repair or replacement in the medium to long term, 3-plus years, 
and this is 1999. The concern I have is, if it is one person or 
two persons, it seems to be systemic throughout the whole BP 
organization; cut maintenance, increase profits, and whether 
you get bonuses or whatever you guys have, the $106 billion in 
profits during this period of time. But we got this document 
last night. In response to us, you said you have this database 
of 20 million documents, so everything will be in there and you 
will peruse it and make sure we have everything, but this isn't 
in the database. So while I am encouraged by your testimony, I 
don't know how we can be assured that we are going get the 
documents we need. And you end up your statement by saying 
judge me by what we do, not what we say, but yet we still have 
to go outside of even your folks to get documents we need to 
ask questions on. Why wouldn't this have been in your main 20 
million and all of that? Are there other documents like that? 
You heard Chairman Barton rather frustrated today about what is 
going on. Do you care to respond on that?
    Mr. Malone. Well, this is the first time I have seen this 
document. I was told that it was found during our ombudsman 
review that he is doing, Judge Sporkin is doing currently, and 
it was provided to the committee.
    Mr. Stupak. But why isn't Judge Sporkin's documents in part 
of those 20 million we are supposed to have access to?
    Mr. Malone. Mr. Chairman, I don't have an answer for that. 
We have populated the database with something over 20 million 
documents and I heard earlier this week, we think we have them 
all in there, but obviously we do not, but I can't say why this 
one wasn't in the database.
    Mr. Stupak. Well, around here, especially where we sit on 
this side of the dais, it is not unusual for departments and 
agencies to dump documents on us the night before and hope we 
miss something, but this committee staff on both sides is very 
good and they are going to go through this. If you will, you 
have got that binder in front of you, walk with me through 
these documents, if you will. And something you probably won't 
have to look at, and you have heard about them and I sure you 
are familiar with them. If you go to page 82 on tab 10, that is 
the Booz Allen Hamilton report, and in there they say the 
report is the folly in finding poor corrosion management at 
Prudhoe Bay. OK, Booz Allen is a separate binder. I am sorry, 
sir. There should be a separate binder, Booz Allen, page 82, 
table 10.
    Mr. Malone. Yes, sir, I have it.
    Mr. Stupak. OK. I am looking at the second one, risk 
management. Budgets and funding were largely based on 
affordability versus necessity and were not supported by an 
analytical process to prioritize risk. Senior management 
incentives were based on cost and production. And if you go to 
tab 4, page 2, on the bottom, this is an 1991 e-mail from John 
Todd in the CIC group and it concerns the halting of use of the 
corrosion inhibitor in produced water lines and here is what it 
says: ``Due to budgetary constraints, the decision has been 
made to discontinue the PW inhibitor currently being injected 
at GC-2 and GC-3. The GC-2 bulk tank should run out within the 
next 2 days. It will not be refilled.''
    Mr. Malone, in fact, if you go to page 1 of that same tab, 
No. 4, you will see how this was viewed by superiors. This e-
mail is from the head of the CIC group, Richard Woollum, the 
gentleman who refused to testify. It says, ``John and Rick, my 
impression from the FMT meeting is that we will not be getting 
any relief on the budget. They all think that PW--is the right 
thing to do, but no one is prepared to let loose the purse 
strings.'' That is 1999 when the profits of BP was $5.1 
billion. If you go to tab 16, this document is a 2002 budget 
challenge document for the corrosion group. On the third line 
down they suggest a reduction of the use of inhibitor to save 
money. What is troubling is that there is also a note which 
states, ``A10-percent reduction in innovation levels would 
result in a 30-percent increase in corrosion rate.'' This is 
2002 when your profits were $6.9 billion.
    If you look at tab 20 in your binder, you will find a 
spreadsheet, Greater Prudhoe Bay/2004 Field Lifting Cost 
Challenge, Maintenance and Reliability. Essentially, each year 
various groups within the CIC group were asked to search for 
ways to save money. Mr. Malone, the second entry states, and I 
read, ``cancel partial PW inhabitation at GC gathering centers. 
That action could save the company $670,000.'' That is 2004. 
Your profits were $17.2 billion that year. If you go to tab 13, 
page 8, this is now 2001 and this e-mail sent to Richard 
Woollum from a person named Dominic, who we know from the first 
document I showed you, is a corrosion engineer. Dominic says, 
this document was from the 2003 time period and yet again, 
there is discussion about halting the injection of corrosion 
inhibitor in the produced water lines, in order to save money 
and meeting tight budget. And it states, ``ideas for saving 
money, in no particular order: turn off PW chemical and halt 
PCQ inhibitor will help out here.'' Again, in 2001, your profit 
was $8 billion.
    Then finally, if you go to tab 13, page 6, towards the 
bottom is a similar e-mail from Richard Woollum. He is 
advocating shutting down the inhibitors to save money, but even 
he acknowledges that this is a very disagreeable measure to 
take. Here is what he has to say. ``As you may know, we are 
under a huge budget pressure for the last quarter of the year 
and therefore we have to take some rather disagreeable 
measures. Can you please implement the following changes to 
reduce: shut down the PW inhibitor for the remainder of the 
year, discontinue the addition of corrosion inhibition for 
velocity control.'' Again, in 2001, your profits were $8 
billion.
    Here is the part that bothers us, Mr. Malone. Having looked 
at all of these six examples, these six e-mails, will you agree 
with me that there is a pattern of cost-cutting pressure during 
a time of healthy profits?
    Mr. Malone. Mr. Chairman, as my opening statement said, we 
recognized there were extreme budget pressures at Prudhoe Bay, 
yes, sir.
    Mr. Stupak. OK. Will you agree with me that this cost-
cutting pressure could have contributed to a culture that 
disincentifies or discourages preventive maintenance?
    Mr. Malone. Mr. Chairman, not only could, we believe it 
did.
    Mr. Stupak. As has been said a couple of times today, you 
have over $106 billion in profits during this time period. Was 
it really necessary to skimp or save on this maintenance, 
especially when we talk about the health, safety and welfare? 
And I know, in your opening, you mentioned Texas City and you 
mentioned Prudhoe Bay, but you see the same thing in Ohio and 
some of the other places that we have talked about. All four of 
them, your other locations that the reports have been on, the 
Baker report, they all indicated the same thing. At what point 
is your corporate responsibility where you put maintenance to 
make sure that it is safety, not just for healthier workers, 
but also to make sure that strategic oilfields are not shut 
down. Where the corporate responsibility where profits are 
secondary to really your responsibility to the American people?
    Mr. Malone. Mr. Chairman, if I could. I followed most of 
the documents and I apologize. The last couple I was not able 
to follow the tabs with you, but I understand. There are two 
important comments for me to make, is that I need to make sure 
that we understand the time of the Prudhoe Bay and the cost 
budget pressures that we had at that time. This was a time when 
the field was declining. It declined over 75 percent over that 
time period. And also the price of oil was, I think, on average 
about $15 a barrel. That is what I have been told. Yes, there 
were budget pressures because we had a huge infrastructure, a 
very expensive infrastructure, built for artic environment and 
as the production level dropped, so did we need to find the 
facilities to match up against that production level.
    Mr. Stupak. I don't disagree, but you knew that field was 
dropping when you bought it, because you have been partners up 
there for some time and you bought it from ARCO shortly before 
1999, right?
    Mr. Malone. No, we started it with ARCO.
    Mr. Stupak. Right, but then you bought them out. When did 
you buy out ARCO? 2000. So you knew that had to be declining 
and therefore, as you get declining quality of oil, you get 
more water and you get more sediment. So therefore that would 
increase costs of maintaining the pipe, not lessen the cost of 
maintaining corrosion inhibitors and smart pigs and maintenance 
pigs from going down. You had to have a due diligence to report 
or something, before you purchased out ARCO or something. I 
would think they would say the last time they pigged a pipe, 
because it is what, 16 years and we now find out. So 10 years 
before, they didn't even pig before you bought it.
    Mr. Malone. Well, Mr. Chairman, I wanted to at least give 
that as the backdrop--excuse me--of the climate that we had 
during that time. What I am not saying to you is that we don't 
recognize that the budget pressures that existed created on our 
employees a very difficult situation and I would say that we 
see these e-mails and that is what we have asked on the 
inhibitor. As you know, I have asked Judge Sporkin to look at 
that. I can't respond to the complete picture of that. We have 
a review going on there. On the OTLs, we asked that it be 
looked at by Booz Allen Hamilton and their conclusion, which 
you have, was that even with more money, they wouldn't have 
pigged the line. They were that confident in what they were 
doing on that pipeline.
    Mr. Stupak. But Booz Allen, in the March 2007 report, says 
on page 72, budget pressure eventually led to de-scoping some 
projects and deferring others. For example, the plan to run a 
smart pig in the OTL you just talked about was dropped in 2004 
and 2005. So that sort of counters what you just said. That is 
in the Booz Allen report, March 2007.
    Mr. Malone. Mr. Chairman, I have been told that Booz Allen 
Hamilton has sent a correction in to the committee on that.
    Mr. Stupak. See, here is my problem. Whether it is this 
one, Booz Hamilton, or else Billie Garde's report, when 
something comes up that is critical and proves the point that 
you dropped maintenance which led to this leak which led to the 
shutdown of the field, it gets whitewashed. This was your final 
report. The other witnesses who appeared before us on the first 
panel, and I know you listened to them, especially Ms. Merritt, 
you lied on the Booz Allen report. Now, when Booz Allen comes 
to the committee and we dig through it and we find a line that 
is pretty damning of BP, suddenly Booz Allen Hamilton wants to 
pull back that report and drop that line. I get real 
suspicious. My time is up but I am sure we will probably go 
another round. I will to Mr. Whitfield.
    Mr. Whitfield. Thank you, Mr. Chairman. And Mr. Malone, 
thanks for being with us today. When did you actually become 
the president and chairman of BP America?
    Mr. Malone. July 1 of last year, but it feels like an 
eternity.
    Mr. Whitfield. And where were you prior to that?
    Mr. Malone. I was the chief executive of BP Shipping 
Limited. I was based on London, England.
    Mr. Whitfield. Yes. And I am glad to hear you acknowledge 
that decisions were made frequently on budgetary reasons rather 
than on safety reasons and so forth, and I think that is 
certainly reflected and it is refreshing that you acknowledge 
that. But when you look at the Baker Panel report and the 
Chemical Safety Board's report and the internal reports that 
you all did and Booz Allen and others, when you look at all of 
the shortcomings of the culture and management at BP America, 
it is really quite disheartening that such a large company 
could, for example, they talk about problems in leadership and 
trusting and open communication and management technical 
knowledge and accountability and clarity of expectations and 
worker fatigue and excessive overtime and process safety is a 
core value. All of those things came up lacking. And so when 
you came in and from your perspective, trying to move off in a 
new direction now, in your experience as a manager, what did 
you find most perplexing in the culture of BP Petroleum for you 
to deal with?
    Mr. Malone. I think there are two things that are very 
important, which is I want to highlight that we are looking at 
all of those reports and we have looked at all of the 
recommendations and we are incorporating all of those report 
recommendations and if they supplement or assist us in moving 
forward--excuse me--we are going to use those recommendations. 
The direct answer to your question, the most striking to me was 
the rigor around process safety management and the Baker Panel, 
Congressman, gave us a real gift and that is that we didn't 
have that embedded in our culture and that was striking to me 
coming back.
    Mr. Whitfield. It is so important that, particularly with 
companies being in oil today, they have some management 
principles and be above board and be transparent and be honest 
and straightforward, because there is a large segment of the 
American people who, particularly with fuel prices being what 
they are, are looking for a culprit and you are the ideal 
culprit to look at and particularly when you have this kind of 
history. And you feel quite confident moving forward, though, 
with the new management changes in Alaska and elsewhere, that 
you all can address some of these problems.
    Mr. Malone. I am. It is going to be a long process. This is 
not something that is going to occur in the next year or two. 
To embed process safety management under our system, it is 
going to take years, but I am very encouraged with, as I go to 
Alaska and as I go to Texas City, the new management in both of 
those locations have embraced process safety management and our 
Alaskan team, which is essentially a brand new team, I have 
been very impressed with their commitment to get this right.
    Mr. Whitfield. And do you all operate, is it five 
refineries in the United States?
    Mr. Malone. Yes, sir, five.
    Mr. Whitfield. And what is the capacity of those five 
refineries? Or the total capacity would you say per day?
    Mr. Malone. I thought I might be asked that. Right now, 
when they are full capacity, we can produce, for example, crude 
rate at each one of the refineries, I going to--if you don't 
mind, I will just try to do a quick add. The crude capacity is 
almost 3 million barrels a day.
    Mr. Whitfield. Three million barrels a day?
    Mr. Malone. That is correct.
    Mr. Whitfield. Of those five refineries?
    Mr. Malone. Yes, sir.
    Mr. Whitfield. Now, has BP given any thought to building 
additional refineries in the United States?
    Mr. Malone. No, sir, we have not. What we have been doing, 
Congressman, is trying to expand our existing refinery capacity 
and we have been doing that over the last 10 or 15 years.
    Mr. Whitfield. So it is your intention to continue to 
expand where you are located today?
    Mr. Malone. Yes, Congressman, and in fact, we announced 
about less than a year ago that we were taking our Whiting 
refinery and we were expanding capacity there to be able to 
take heavy crude from Canada and that goes as planned, it is 
about 1.2 million gallons of gasoline more a day.
    Mr. Whitfield. Yes. Let me just ask you, if you were at a 
Rotary Club in a rural part of the country and you had given 
your remarks and someone stood up and asked you the question 
and they said, Mr. Malone, you are the chairman and president 
of a large oil company and I personally think that your 
salaries are too high and your performance awards are too high 
and that oil companies are gouging us consumers down here and 
the amount of money that we pay for gasoline is just 
outrageous, although we recognize that in other parts of the 
world, they pay more than here. But how would you respond to 
the charge that the oil companies are gouging the American 
people today?
    Mr. Malone. Well, we have been trying to do an education 
right now--excuse me--because right now we depend on imports to 
meet our demand here in the United States and if you look at 
the last few months, and this is what I talk to people about, 
one, our actual consumption was higher in the first quarter of 
this year, 2 percent higher than the year before and normally 
that is the time when consumption is down of gasoline. It has 
actually risen. The economy is strong; people are driving. The 
second thing is that we have less turn around time, so a lot of 
our refineries were down and also, at the same time, we have a 
lot of refineries that had bad incidents and there are still 
down. And third, the imports, turn around is going on in Europe 
at the same time, so there is not the volume of gasoline to 
come in. So what has happened, price has risen strictly based 
on supply and demand.
    Mr. Whitfield. I have no further questions.
    Mr. Stupak. Now, for Members, we have got another quorum 
call, I understand. If we have a real vote, I will go there, 
but I am not going to go with this quorum call, so I am going 
to keep this hearing moving. Mr. Melancon for 10 minutes for 
questions.
    Mr. Melancon. Thank you, Mr. Chairman, I appreciate it. Mr. 
Malone, thank you for being patient with us on the floor. Mr. 
Malone, when you were asked away, were you--before, I bet there 
are days you wished you were back.
    Mr. Malone. I know I shouldn't say this, but I remember my 
shipping company. It was a great job.
    Mr. Melancon. One of the things that, and as I look at what 
transpired, the explosion in Texas City, the spill in Prudhoe 
and I look at the profits that year. Do we or has anybody 
provided us with the executive bonus packages were those 2 
years, or what the dividends that were paid to the stockholders 
during those periods? And if not, I would like to request, if 
you could, that we could get that information. The President 
was up at Wall Street a couple of weeks and talking about 
executive salaries. He wasn't very warmly received and I am not 
one for fooling with them, but if you are going to be cutting 
safety for the workers in your company, then it is a concern to 
me if, in fact, there--and I would like to see that, if I 
could, maybe on a 5-year spread, just to see, was the 
management back then, or executives, trying to just keep a 
steady bonuses or dividends going to your stockholders.
    I have been a person that defends the oil and gas industry. 
As Mr. Green mentioned and I think you were here, it is 
difficult for me to try to convince Democrats on my side of the 
aisle that oil companies are doing a good job in the Gulf of 
Mexico and offshore when things like this occur. As a matter of 
fact, I am sure some of them are giggling around, saying 
Melancon says everything is cool. But one of the things I guess 
caught my attention early is Mr. Woollum and you know, your 
testimony was about working with us and trying to bring the 
company and move it in the right direction and do the right 
things, and I have heard of witness protection, but usually it 
is for the prosecutors and not the defendant. And so I guess my 
question is simply who has made that determination that no one 
can talk to Mr. Woollum?
    Mr. Malone. Congressman, Mr. Woollum, as you may know, in 
September, chose to take the fifth [amendment] at the hearing. 
That was his choice. He was represented by counsel. So the 
reasons for that would have been addressed with he and his 
counsel. I am not in a position to do that.
    Mr. Melancon. I heard earlier the lady from Alaska talk 
about that there has been no fines and no penalties. As a 
matter of fact, it almost sounded like everything went away. 
That bothers me. I mean, I am from Louisiana. We have been 
accused of everything, so I thought every other State was doing 
everything right. Does anybody in your executive chain know 
what has led to just no fines, no penalties? Is there something 
in their statutes that deal with criminal negligence and 
whether you can continue to operate in the State if it is found 
such? That bothers me.
    Mr. Malone. Well, Congressman, I know there are actions to 
be taken by the Federal Government and I think we have heard 
that today. I don't know the status with the State, but I will 
get that for you.
    Mr. Melancon. One of the things, and if you will go to tab 
20, the spreadsheet called the Greater Prudhoe Bay/2004 Field 
Lifting Cost Challenge, Maintenance and Reliability. This 
spreadsheet appears to be part of the budget challenge process 
employees seem to go through each year. The first item listed 
is the CIC, Corrosion Inspection Chemicals group. Cancel 2004 
smart pig program. If you follow over to the right of the 
spreadsheet, you see that this could save the company $250,000. 
Do you know that this cut was made and again, why are they 
talking about having to cancel something as important as a 
smart pig to save money?
    Mr. Malone. Congressman, I don't know what they are 
speaking of here, whether it is the oil transit lines or the 
flow lines or produced water lines, I don't know. If it is 
using inhibitor, as I mentioned earlier, we do have someone 
looking at that. If it was on the OTL, I had Booz Allen look at 
that. I am happy to take a look at that for you, but I don't 
have any information today.
    Mr. Melancon. Yes. Looking just at that first question and 
with all due respect, maybe we ought to have some people that 
are down further in your organization in Alaska or the United 
States operation that were there and that were part of what 
transpired at those times. Is there any problems with us 
requesting those folks, some of those folks, and can you help 
us identify those?
    Mr. Malone. Congressman, the answer is we will work with 
Congress, absolutely.
    Mr. Melancon. Also in the same document, tab 20, there is a 
line item, cut all Sunday barbeques, CPS fund runs, CPS safety 
fair booths. BP was examining a $25,000 cut in areas intended 
to boost employee morale and promote safety. I mean, it got 
that bad? How much money did they make that year, $17.2 
billion?
    Mr. Malone. We will put this fund run back in right away, 
sir.
    Mr. Melancon. I am not a runner but you know----
    Mr. Malone. Congressman, it was difficult in Alaska. If I 
could just say that we recognized that those budget pressures 
put our employees in a very difficult place and if that goes on 
long enough, we know that you create a culture, and as I said 
in my opening statement, where the word I used was curious, but 
it where people no longer begin to challenge and think. And 
what we need to do and what we are working on is to establish a 
culture where every employee will raise an issue and will have 
a comprehensive risk assessment. That means it takes all the 
risk, water in the lines, solids, all the expertise we can get 
and run it through a comprehensive risk to understand what that 
risk is and then have a management process to allow that a 
decision gets made at the right level around the risk and that 
every employee has a voice, and that is our ultimate objective 
in what we are trying to do in Alaska and in Texas City and 
across all our businesses.
    Mr. Melancon. And I realize that you run just the American 
operations for BP and their worldwide company. They made $17.2 
billion. Did they lose money in the Alaska operation that year 
or in the next year? Did you lose money in the American 
operations when the Texas City facility exploded or, I think, 
the year before when the other facility exploded with five 
people killed?
    Mr. Malone. We normally don't record that way. I can get 
that answer for you, sir.
    Mr. Melancon. OK. I guess where I am coming from there is 
you are big multinational corporation. You would expect that, 
at some points in time, with justifiable information, for 
instance, the downturn in the production out of the Prudhoe 
field, that corporate would say we understand why things are 
tight and you maybe cut a little bit, and that is where I keep 
trying to get to. Who specifically made those recommendations? 
Was it up the chain or at the bottom of the chain? It appears 
that it was more up the chain. And can you help identify those 
folks so we can maybe find out what actually took place on the 
ground before and after these events?
    Mr. Malone. Congressman, the way BP's management system 
works, that ultimately local management is accountable for its 
budget and it is held accountable for its production and its 
safety and integrity. That rests with the business unit. And a 
business unit is our language for Alaska or Texas City.
    Mr. Melancon. I guess if I was in Alaska I would say you 
sent me here. Move me elsewhere. I don't want to do this.
    Mr. Malone. Well, Congressman, we have a new head of 
Alaska. His name is Doug Suttles and he has assembled an 
outstanding team in the last few months that is moving the 
process that I had talked with you about forward. We have a new 
refinery manager at Texas City, a gentleman named Keith Casey. 
They are committed to process safety management and to getting 
this right through the culture and both of them are actively 
engaged in moving us forward.
    Mr. Melancon. Well, with the price of a barrel of oil, they 
ought to be able to get this thing cleaned up, I would hope. I 
think my time has run out. Thank you. I yield back the balance 
of my time.
    Mr. Stupak. I thank the gentleman. Mr. Green for questions.
    Mr. Green. Thank you, Mr. Chairman. And welcome again from 
all of us, Mr. Malone. I have a district in Houston not too far 
from Texas City and one of my constituents was a contract 
worker there and died in 2005. I also understand that BP and 
other companies have that similar philosophy that the plant 
manager is responsible. But I also know the criteria comes from 
the home office, wherever it is at, whether it is for Exxon 
Mobil in Las Gallinas or wherever. And I have dealt with a lot 
of plant managers on the use of the ship channel in 20 years 
and they are given that criteria and they are under pressure to 
cut that, not for themselves, but for above. And to say that I 
am glad you have new people at both places, but I also know 
they need the support and the encouragement from the folks 
above them so they don't get these hard and fast numbers that 
say this is what you need to cut, whether it is the smart pigs 
in Alaska or some of the safety inspections or safety things in 
Texas City. So you could put anybody there, but if you don't 
give them support from the upper management, their bosses, it 
doesn't do you any good. The main plate capacity at Texas City 
Refinery is 460,000 barrels a day, as far as you know?
    Mr. Malone. Yes, sir.
    Mr. Green. Do you know how many barrels are currently being 
produced?
    Mr. Malone. About half that. We are about 130,000 right 
now.
    Mr. Green. OK. Do you know, is there a plan for being able 
to get up to the capacity safely?
    Mr. Malone. Yes, and if I could, just for the record, I am 
an engineer but my math is pretty poor and I just noticed that 
I took total and added the backup. So in answer to your 
question, the capacity of our refinery system is 1.525.
    Mr. Green. OK.
    Mr. Malone. Congressman, yes, we do have a plan. We are 
hoping to have Texas City back at full production by the end of 
the year.
    Mr. Green. OK. I know you have five other refineries in the 
United States. Are any of them operating at full capacity now?
    Mr. Malone. Right now our Carson and our Cherry Point 
refineries are operating near capacity. Carson is main-plated 
to 265. It is operating currently at 265 and operating at 235. 
Cherry Point is 235; operating at 225. And Texas City, 465; 225 
now. Lido is at 155. It was up 30, but we had an incident. And 
Whiting, 405; it is currently operating at 225.
    Mr. Green. Well, next week we will put on a different hat 
in our committee and ask about production capacity in not only 
BP, for other refineries. And I wanted to ask you before our 
chairman did from northern Michigan, but----
    Mr. Malone. I thought that, maybe, it was where the 
question was coming from.
    Mr. Green. At the last hearing last year, Mr. Marshall, who 
was then president of exploration in Alaska, responded to a 
question I asked him, stating, safety and integrity spending at 
BP are their highest things. They don't get cut. They are the 
things that get through the budget and cost is not a 
consideration. However, the Booz Allen report for Prudhoe Bay, 
the CSB report for Texas City, and the Baker Panel report for 
all five of BP's U.S. refineries, all concluded that cost 
cutting and budget pressures impaired safety performance at 
your refineries. Mr. Marshall is not here, but since you are, 
is there a disconnect from what he told us last year?
    Mr. Malone. Well, I can't speak for Mr. Marshall, but what 
I would tell you is that we have learned a lot. As I said in my 
opening statement, we have learned a lot since this last 
hearing and we now recognize that there were pressures on our 
employees.
    Mr. Green. I understand. But after the 2005 accident in 
Texas City, BP conducted what is termed the management 
accountability review to determine responsibility. Isn't it 
true that various current BP executives and safety officials 
that were interviewed in private during this process believe 
that budget cuts were one of the major causes of the Texas City 
Refinery accident?
    Mr. Malone. I am sorry, I can't answer that question. I 
have read the report but I can't answer that.
    Mr. Green. After the March 2005 accident, I also understood 
that BP pledge about $7 billion to upgrade equipment in U.S. 
refineries and I think that tells us some concern about what we 
needed to do to have that kind of investment in those 
refineries. What improvements have been made since that 
commitment over a year ago now?
    Mr. Malone. Well, I think those expenditures were what we 
think, over the next four or 5 years, I believe, we would be 
spending in order to get process safety management and our 
integrity management in place at our refining system in Alaska, 
so I think you will see progress being made in all our 
refineries as we are taking out, and this has been highlighted, 
blow-down stacks and putting in flares, as we are moving 
trailers out, as we are putting in explosion-proof buildings. 
You will see that activity taking place across our refining 
system.
    Mr. Green. I don't know if you heard my questions of the 
first panel. Having spent a lot of time at both refineries and 
chemical plants in my area, I hope that a lot of your 
competitors and some colleagues are listening and responding to 
what you are doing because, like I said, I was at a plant last 
year, it was a chemical plant, and there was a portable 
building much closer than it should have been to a unit. And I 
asked them at that time, I said I hope you all have learned 
from what happened. You don't want to go through what BP is 
going through. And I hope the rest of the industry is hearing 
that, because it just does so much damage, not only to BP, but 
also to the industry as a whole.
    Mr. Malone. Congressman, if I could just make one comment 
on that. We found the industry to be very, very interested and 
I am told are in contact with us and I know they read the Baker 
Panel report and it has been distributed widely. We put it on 
the web so that everyone had it.
    Mr. Green. Mr. Chairman, I have no other questions right 
now, but there are some I would like to submit for the record. 
I know we have a vote and I don't know if you and I have 
already missed that vote or not.
    Mr. Stupak. It is a quorum call and it is still open and I 
am not going to go back. I want to get through this hearing. It 
will probably be followed by a vote and we will have to do it 
because will be a recorded vote. You yield back? OK. The record 
shall reflect that Congresswoman Sheila Jackson Lee is here and 
she has been throughout these hearings monitoring them and even 
on the floor she catches Members and shares her concerns about 
the health and welfare of BP and its employees, so I am always 
glad to have her here.
    It has been requested that we put in a Vinson & Elkins 
report, dated February 22, 2007, entitled ``BP Comments on 
Chemical Safety Board's Draft of Final Report of March 23, 2005 
Explosion at the BP Products Texas City Refinery''. Without 
objection, we will enter that.
     I would also like to put in the interim report of 
investigation on failure to disclose sealed BP documents to a 
congressional subcommittee, and other issues prepared on behalf 
of BP America by Billie Garde. So without objection, those two 
will be entered.
     I have a couple me questions, if I may. I would ask you 
just at the end of my questions about those budget pressures 
found on page 72 of the final report of March 30 of Booz Allen 
Hamilton, and you said that line is going to be taken out. Is 
it going to be replaced with anything, do you know, or is it 
just going to be scratched out?
    Mr. Malone. I do not know. It is Booz Allen's report and 
they have not told me.
    Mr. Stupak. OK. Those 29 words, if it is Booz Allen's 
report that we received to explain those 29 words, 159 pages 
from BP's attorneys, not Booz Allen. So that is why I was 
wondering if they are going to. I just think a little overkill. 
As I said earlier, 159 pages to explain 29 words and it is not 
coming from Booz Allen, it is coming from Vinson & Elkins. So 
let me ask you this. If you go to Booz Allen report page 80, 
after seeing this you will probably want to take this out too. 
But it says, page 80, ``Because no leading risk indicators or 
root causes were studied when the product composition changed, 
it was not flagged as an important corrosion management issue. 
This led to an increase in corrosion risk on the oil transit 
lines that ultimately precipitated the two incidents.'' Now, 
you don't disagree with that statement, right?
    Mr. Malone. And which paragraph?
    Mr. Stupak. The second paragraph, the second line. However, 
it starts, ``because no leading risk indicators or root causes 
were studied when the production composition changed'' and that 
was that oil makeup you were talking about, ``it was not 
flagged as an important corrosion management issue. This led to 
an increase in corrosion risk on the OTL that ultimately 
precipitated the two incidents.'' Do you see that there?
    Mr. Malone. I do.
    Mr. Stupak. OK. You don't disagree with that statement? 
Basically it says, because of lack of maintenance, we had the 
two leaks.
    Mr. Malone. Again, Congressman, when Booz Allen concluded 
that had we--the answer is that if we pigged the line, and 
which we now know in hindsight, it could have prevented the 
leak.
    Mr. Stupak. Or even a corrosion inhibitor would have been 
maintained, maybe, or extended the life of that line a little 
longer, at least.
    Mr. Malone. My understanding is that we were using 
corrosion inhibitor.
    Mr. Stupak. Correct. But as the earlier panel said, 
corrosion inhibitor doesn't work if you have got so much sludge 
in the pipeline, therefore it doesn't get to the walls and 
cleans it out.
    Mr. Malone. I understand.
    Mr. Stupak. Yes, OK. And you basically testified that the 
lack of maintenance did in fact cause the two leaks, correct? I 
don't mean to put word in your mouth.
    Mr. Malone. No, what we found in both cases, that had Booz 
Allen found for me that had we given them more money, they 
would not have pigged the line; that they believed they had a 
system that was preventing corrosion. They believed they knew 
what they were doing in order to prevent those leaks. So Mr. 
Chairman, that is the data I have to go on, is what Booz Allen 
has found. We now know----
    Mr. Stupak. But if you go to page 72, before you drop those 
29 words where Booz Allen said the plan to run the smart pig in 
the OTL, oil transit lines, was dropped 2004 and 2005.
    Mr. Malone. Mr. Chairman, I only know----
    Mr. Stupak. You dropped that.
    Mr. Malone. What I heard was that, again, this is what I 
have been told, is that was not for the OTLs. It was for the 
other pipelines, not for the--which is why what they misread. 
This was actually a flow line, which is above the gas handling.
    Mr. Stupak. Yes, I know, we have got 159 pages trying to 
explain that, but I still--it is no more confusing than 
anything, but let go here. Here is the point I am trying to 
make. Carolyn Merritt of the Chemical Safety Board testified 
that there were striking similarities in the reported causes of 
the 2006 events involving BP's Prudhoe Bay pipelines and the 
2005 explosion at BP Texas City Refinery. And in her statement 
she said the lack of investment in maintenance and new 
equipment was compromising safety in Texas City and leaving the 
site at risk for a major accident. It goes on. The Chemical 
Safety Board, page 147, changes to the safety organization 
resulted in cost savings, but to a diminished process safety 
management function. What this is all telling me, whether it is 
Ms. Merritt or the Chemical Safety Board or whether it is all 
of this testimony that we have had today, if you would have 
increased maintenance, we might not have had these problems. So 
my question is, today, what percentage of BP's budget goes to 
maintenance of your refineries? You have five refineries, the 
one in Texas, Texas City, California, Indiana, Washington, 
Ohio, and then you have the Alaska or North Slope. So what 
percentage? Has that percentage gone up?
    Mr. Malone. I don't know. I will find that for you.
    Mr. Stupak. As your profits go up, will your maintenance 
budget increase?
    Mr. Malone. Take our commitment that we made to spend, Mr. 
Chairman, $7 billion over the next few years on our refinery 
system as an indication to commit.
    Mr. Stupak. But if I remember correctly, you spent $1.5 
billion at Texas City and that is only at 50-percent capacity, 
so you could spend $7 billion right at Texas City just to get 
back to the capacity you were at before the explosion, and all 
of the rest of your maintenance in your fields up in the North 
Slope and the other four refineries would still be in bad 
shape. Ohio obviously is in bad shape when you have got a $24 
million fine or they wouldn't have investigated that. So I want 
to make sure the whole operation, as your profits increase, I 
would hope your maintenance and safety would increase in the 
same proportion. Let me ask you this, if I may. Now VECO, you 
are familiar with the VECO report, this one right here? It is 
March 12, 3003.
     VECO was a contractor, QBP. The finalized report, which 
estimated cost of installing--excuse me--pig launching and 
receiving facilities at 71 locations identified in the 
aforementioned pigging facility priority list, that pigging 
facility priority list included three sections of the eastern 
operating area line, which hadn't been pigged for 16 years, and 
it was one of the three lines listed. It was one of the lines 
that was severely corroded and found leaking in August 2006. 
Why was the VECO report prepared for BP in 2003? Why did BP 
want to a VECO report?
    Mr. Malone. I don't have an answer to that.
    Mr. Stupak. OK. The VECO report, can you get us one in 
writing, if you can, who wanted it and why? The VECO report 
provided a range of estimates from $164 million to $643 million 
to install these 71 pig launchers and receivers. The staff was 
told that this report went nowhere because of cost. Do you know 
if that is true?
    Mr. Malone. No, I do not.
    Mr. Stupak. Will you check that out for us and get back to 
us? The day before this hearing, the committee received 
communications from your staff, BP's staff, I should say, 
indicating that the VECO report was promising to install pig 
launchers and receivers in locations where BP already had pig 
launchers and receivers. Is BP now suggesting that VECO was 
sent off to prepare cost estimates for work that didn't need to 
be done and that the corrosion inspections and chemical group 
was so unaware of the assets under its stewardship that it 
prepared a pigging priority list which contained launchers 
which already had fully functional launchers and receivers? I 
mean, we were--reports. VECO does a report and when we asked 
questions from staff, your staff, BP's staff, they say, oh no, 
we didn't need it because we already had it. Why would you 
spend all of that money for a report if you already knew you 
had it?
    Mr. Malone. I can't answer that, Mr. Chairman.
    Mr. Stupak. OK.
    Mr. Malone. Mr. Chairman, if I could? I tried to have, as I 
committed to this committee, to have Booz Allen do an extensive 
review of interviews and materials that related to the transit 
line and then to produce its report, and that is what I have 
done and I am going on their recommendation on my----
    Mr. Stupak. And we hope that BP is not pressuring Booz 
Allen to change their reports when they get a little critical. 
Let me ask you this one because I think this is actually one of 
your documents. Tab 29 in your folder there. BP gave us a 
document showing where each of the many of the reports that BP 
needed to make to progress in several key areas, and it is 
right there. It is a colored chart, a one-pager.
    Mr. Malone. Yes, sir.
    Mr. Stupak. Did you prepare this? I was told you prepared 
it.
    Mr. Malone. My team prepared that with me.
    Mr. Stupak. OK. All right. So according to this document, 
it is the various reports, they say that BP needs to make 
progress in almost every item with the exception of one. Does 
this suggest that BP U.S. operations are in need of a major 
overhaul? I mean, look, you have got the Baker Panel, the 
Chemical Safety Board, Mogford, Booz Allen Hamilton, and the 
map, and everything needed to be improved upon. Did you guys 
need a major overhaul?
    Mr. Malone. Mr. Chairman, we tried to take all of these 
reports, which we did voluntary most of them, to try to learn 
from both of these tragedies. We looked across all of these and 
we said where are the common elements that we can learn in 
order so that we can design our forward program and cover all 
of the gaps? This was meant to show that we listened to 
everyone, CSB, Baker Panel, everyone, in designing that forward 
program. But there were similarities in what we found in these 
reports between Texas City and Alaska.
    Mr. Stupak. Mr. Whitfield, questions?
    Mr. Whitfield. No, sir.
    Mr. Stupak. Mr. Melancon? I guess with that, we have 
completed. I thank you very much for your time. I think it is 
safe to say that, after this hearing, there will probably be 
another one. When I said earlier that I hope you don't become 
the Los Alamos of the north, I sincerely mean that. But we have 
a number of things we are still looking for and we are still 
receiving documents. As I said, we received some last night and 
we want to see what the final Booz Allen says. So with that, 
you are excused, sir. Thank you for your time and we look 
forward to your questions and answers to some of your questions 
you provide to this committee and make sure they will be 
followed up in writing. Thank you.
    Mr. Malone. Thank you, Mr. Chairman.
    Mr. Stupak. That concludes our questions. I want to thank 
all of our witnesses for coming today and your testimony. I 
apologize again for the disruptions because of the procedure 
votes on the floor. I ask for unanimous consent that the 
hearing record will remain open for 30 days for additional 
questions for the record. Without objection, the record will 
remain open. That concludes our hearing. The subcommittee is 
adjourned. Thank you.
    [Whereupon, at 2:45 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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