[Senate Hearing 111-1071]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 111-1071
 
                 THE GULF OF MEXICO OIL SPILL: ENSURING
                   A FINANCIALLY RESPONSIBLE RECOVERY
                             PART I AND II

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


                                HEARINGS

                               before the

                FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                   INFORMATION, FEDERAL SERVICES, AND
                  INTERNATIONAL SECURITY SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                       JUNE 16 AND JULY 22, 2010

                               __________

         Available via the World Wide Web: http://www.fdsys.gov

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs




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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
JON TESTER, Montana                  LINDSEY GRAHAM, South Carolina
ROLAND W. BURRIS, Illinois
EDWARD E. KAUFMAN, Delaware

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
         Patricia R. Hogan, Publications Clerk and GPO Detailee
                                 ------                                

 SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, 
              FEDERAL SERVICES, AND INTERNATIONAL SECURITY

                  THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan                 JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           JOHN ENSIGN, Nevada
ROLAND W. BURRIS, Illinois

                    John Kilvington, Staff Director
    Bryan Parker, Staff Director and General Counsel to the Minority
                   Deirdre G. Armstrong, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper............................................... 1, 35
    Senator McCain...............................................     3
Prepared statements:
    Senator Carper...............................................61, 66
    Senator McCain...............................................64, 68

                               WITNESSES
                        Wednesday, June 16, 2010

Hon. Frank R. Lautenberg, a U.S. Senator from the State of New 
  Jersey.........................................................     4
Darryl Willis, Vice President for Resources, BP America, Inc.....     6
Steven Newman, Chief Executive Officer, Transocean Ltd...........     8
Craig Bennett, Director, National Pollution Funds Center, U.S. 
  Coast Guard....................................................    11
Susan A. Fleming, Director, Physical Infrastructure, U.S. 
  Government Accountability Office...............................    12

                        Thursday, July 22, 2010

Kenneth R. Feinberg, Administrator, Gulf Coast Claims Facility...    37
James T. Hackett, Presdient and Chief Executive Officer, Anadarko 
  Peteroleum Corporation.........................................    38
Naoki Ishii, President, MOEX Offshore 2007 LLC, accompanied by 
  Fujiko Sato, Interpreter.......................................    39

                     Alphabetical List of Witnesses

Bennett, Craig:
    Testimony....................................................    11
    Prepared statement...........................................    83
Feinberg, Kenneth R.:
    Testimony....................................................    37
    Prepared statement...........................................   115
Fleming, Susan A.:
    Testimony....................................................    12
    Prepared statement...........................................    90
Hackett, James T.:
    Testimony....................................................    38
    Prepared statement...........................................   117
Ishii, Naoki:
    Testimony....................................................    39
    Prepared statement...........................................   120
Lautenberg, Hon. Frank R.:
    Testimony....................................................     4
    Prepared statement...........................................    70
Newman, Steven:
    Testimony....................................................     8
    Prepared statement...........................................    78
Willis, Darryl:
    Testimony....................................................     6
    Prepared statement...........................................    72

                                APPENDIX

Notes requested by Senator Tester appears in the appendix on page   122
James W. Ferguson, Sr. Vice President and Deputy General Counsel, 
  Halliburton, prepared statement for June 16, 2010 hearing......   123
Responses to Senator Carper's letter of June 10, 2010 from David 
  C. Nagel, Executive Vice President, BP America Inc., with 
  attachments....................................................   126
Questions and responses from the Congressional Research Service 
  (CRS) for the June 16, 2010 hearing............................   149


                     THE GULF OF MEXICO OIL SPILL:
                   ENSURING A FINANCIALLY RESPONSIBLE
                            RECOVERY--PART I

                              ----------                              


                        WEDNESDAY, JUNE 16, 2010

                                 U.S. Senate,      
        Subcommittee on Federal Financial Management,      
              Government Information, Federal Services,    
                              and International Security,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 3:31 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, McCaskill, and McCain.
    Also Present: Senator Pryor, McCaskill, and Tester.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The Subcommittee will come to order. I want 
to welcome our colleague, Senator Frank Lautenberg from New 
Jersey, my neighbor across the Delaware River. Before I call on 
him as the first witness to address us on the first panel, I 
would like to give an opening statement, and once we are joined 
by other colleagues, if Senator McCain joins us before I 
recognize Senator Lautenberg, Senator McCain will be asked to 
give his opening statement. I will then call on Senator 
Lautenberg, and then as other Members of our Subcommittee show 
up, if they show up before our second panel, they will have an 
opportunity to give opening statements. Otherwise, they can 
submit their statements for the record.
    Welcome, one and all. For 58 days, the American people have 
watched a tragedy unfold in slow motion before our eyes. It was 
nearly 2 months ago when we first heard the horrific news of an 
explosion on an oil rig in the Gulf of Mexico and the loss of 
11 American citizens. While today we will be discussing the 
financial costs of the oil spill to the American taxpayers, 
there is no value that one can place on the tremendous loss of 
human life in this catastrophe. These were sons, these were 
brothers, these were husbands and fathers, and for those who 
they left behind, my colleagues and I extend our most sincere 
and heartfelt prayers.
    While there is nothing we can do, unfortunately, to bring 
back these men to their families and friends who love them, we 
can make sure that the communities and industries that they 
helped to build survive and again thrive.
    As we all know, the coasts and wetlands, the bogs and 
fisheries of much of the Gulf have sustained enormous damages. 
These vital natural resources are the lifeblood of an economy 
and a way of life. They are national treasures that must be 
protected, and we will demand that they be fixed, if you will, 
by those who broke them.
    Today this Subcommittee will explore how we can ensure that 
America is made whole again without putting a hole in our 
pockets. From the beginning, President Obama and senior members 
of his Administration took this disaster seriously, as they 
should. The White House deployed Cabinet members to help manage 
the response, dispatched the Coast Guard and in some cases the 
National Guard, and brought together stakeholders and industry 
experts in an ongoing effort to get the damaged well plugged as 
quickly as possible and to coordinate the clean-up response.
    As I like to say, however, if it is not perfect, let us 
make it better. And it is clear that there is more that the 
Federal Government can do to make things right in the Gulf. 
There is also more that BP and others can do as well.
    I hope today that we will gain a better understanding of 
how much the BP Deepwater Horizon oil spill has cost and may 
continue to cost American taxpayers and how we intend to 
recover the money from those responsible for this disaster.
    Earlier today, the President and BP officials announced the 
establishment of a $20 billion independent trust fund to ensure 
that BP continues to pay claims in the future as they have to 
date. This is something that my colleagues and I called for, 
and I look forward to exploring how such a fund might work 
today at this hearing.
    It is clear that the financial mechanisms we have in place, 
including the Oil Spill Liability Trust Fund, were simply not 
designed to handle something of this magnitude. I look forward 
to hearing from the Government Accountability Office (GAO), 
about the risks and vulnerabilities of the trust fund that they 
have found in the past and how this spill encompasses a perfect 
storm of factors that will easily make it the most expensive 
ever.
    In addition to the enormous financial burden the spill has 
placed on citizens and businesses in the Gulf, the Federal 
Government has been incurring costs in other government units, 
too.
    To date, over $120 million has been spent by the Federal 
Government on ships and personnel to respond to this incident, 
and much of it has been billed to BP and the other responsible 
parties.
    This past Friday, I understand that BP wired their second 
payment of over $69 million to the Federal Government. I also 
understand that the Coast Guard will be sending their third 
bill--this one for roughly $50 million--to BP and to the other 
responsible parties perhaps even today. I am sure that American 
taxpayers appreciate BP's prompt notice and payment, and I hope 
we will continue to see similar responses as those costs mount.
    While we have seen several checks from BP and others, I 
hope to find out today how the other responsible parties view 
themselves--and one another--when it comes to paying for this 
disaster. We are pleased to see Mr. Newman of Transocean here 
today. I understand he has come all the way from Geneva, 
Switzerland, and we are grateful. I look forward to hearing 
about how he views Transocean's role in these ongoing efforts.
    We also invited Anadarko Petroleum to today's hearing, 
which owns a 25-percent stake in the Gulf well, and MOEX 
Offshore, which owns, I believe, a 10-percent stake in the 
well. Their names are also on the bill from the Federal 
Government. Unfortunately, they declined to send witnesses 
today. I am disappointed that they chose not to attend. It was 
my hope to have all the responsible parties at our table. We 
hope that they can find some time in the very near future to 
come to discuss these issues with us and with the American 
people.
    The hole we are trying to plug is, as you know, some 5,000 
feet under the surface of the water, but men and women whose 
livelihoods and communities have been disrupted by this 
disaster live in many cases right down the street. Surely we 
can do a better job of protecting not only the Gulf, but our 
entire Nation from the costs and impacts of this spill.
    The spill has now lasted, as I said earlier, 58 days--
nearly 3 weeks longer than it rained during Noah's flood in the 
Book of Genesis. If the story of Noah tells us anything, it 
tells us that with faith, a dedication to do what is right, and 
hard work, we too will find something akin to a rainbow at the 
end of this calamity. I do not know that we will find a 
rainbow, but my hope is that at the end of the day we will find 
the end, and my hope is that at the end of the day this sad 
chapter in our Nation's history will somehow serve as a 
catalyst to convince us to change course as a Nation and to 
focus our energy maybe less on recovering petroleum and more on 
finding ways to become independent of petroleum, independent of 
foreign oil, independent of fossil fuels, to make ourselves 
more energy independent and enhance our security and maybe 
launch a whole new generation of technologies and innovations 
in business that will enable us to build a different kind of 
economy for our country as we go forward.
    We have been joined by our Ranking Member, Senator McCain. 
Senator, you are recognized, and after you have spoken, we will 
turn to Senator Lautenberg for his comments, and then we will 
recognize others on our Subcommittee. Thank you all for joining 
us.

              OPENING STATEMENT OF SENATOR MCCAIN

    Senator McCain. Well, thank you, Mr. Chairman, and thank 
you for holding this hearing today. I do not need to repeat how 
outraged and saddened all of us are by the Deepwater Horizon 
rig explosion that killed 11 people and spewed millions of 
gallons of oil into the Gulf of Mexico. I think every American 
is aware of that situation now and the catastrophe.
    As of June 14, BP estimated that the cost of the oil spill 
had reached $1.6 billion, including the cost of the spill 
response, containment, relief well drilling, grants to Gulf 
States, claims paid, and Federal costs. The company's CEO, Tony 
Hayward, has publicly assured the Federal Government and the 
American people that BP will fully meet its obligations from 
the spill and pay all legitimate claims even if aggregate 
claims exceed the $75 million legal liability limit.
    Despite the government's unfortunate response at the outset 
of the oil spill, it has incurred substantial costs in recovery 
and response operations. Since the explosion, the Federal 
Government has sent two invoices totaling nearly $71 million 
for reimbursement to responsible parties. Another invoice of 
approximately $50 million is expected to be issued imminently.
    The disaster should provide many lessons for all of us, 
including the Administration and Congress, including a reminder 
that the Jones Act should be repealed. Within a week of the 
explosion, 13 countries, including several European nations, 
offered assistance from vessels and crews with experience in 
removing oil spill debris. However, the Jones Act, a 
protectionist law enacted in the 1920s, prevents foreign-
flagged vessels from operating and transporting merchandise 
between points abroad and the United States. The Administration 
may grant a waiver to any vessel, just as the previous 
Administration did during Hurricane Katrina so the 
international community could assist in recovery efforts. But 
they have not done so.
    There are other concerns. For example, U.S. Attorney 
General Eric Holder also made an unprecedented announcement 2 
weeks ago that the Department of Justice (DOJ) has opened 
criminal and civil investigations on the Gulf of Mexico oil 
spill. However, if a civil settlement results from the 
investigations, the settlement charges may receive favorable 
tax treatment depending on how the settlement is drafted. 
Effectively, the Federal Government and the American taxpayers 
could indirectly pick up a portion of the tab for the 
responsible parties' mess. Obviously, that is unacceptable.
    BP failed to prevent this catastrophic disaster from 
occurring while the Minerals Management Service failed to 
exercise robust enforcement of safety standards. We cannot 
allow the cost of their failures to be placed on the backs of 
American taxpayers.
    I am pleased--and I think you may have noted, Mr. Chairman, 
a recent wire story, ``BP OKs $20 billion escrow fund.'' That 
is certainly a step in the right direction.
    I thank you, Mr. Chairman. I thank you for holding this 
hearing.
    Senator Carper. I am delighted that we could be here 
together, Senator McCain.
    Let me turn to our first witness, our colleague from New 
Jersey, someone who serves on the Environment and Public Works 
Committee, a senior member, and we are delighted to welcome him 
here today for his comments. Then we will turn to our other 
colleagues for their opening statements.
    Senator Lautenberg, please proceed.

 TESTIMONY OF THE HON. FRANK R. LAUTENBERG,\1\ A U.S. SENATOR 
                  FROM THE STATE OF NEW JERSEY

    Senator Lautenberg. Thanks, Mr. Chairman and Senator 
McCain. I join you to express my condolences to those families 
who lost loved ones in this horrendous catastrophe, and I thank 
you for giving me the opportunity to appear before the 
Subcommittee on this critical issue.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Lautenberg appears in the 
Appendix on page 70.
---------------------------------------------------------------------------
    Last night, the President spoke to the country, and he 
could not have been clearer. The needs of Gulf families, 
fishermen, business owners, must not and will not take a back 
seat to BP's bottom line. That is why I am pleased that earlier 
today President Obama secured an agreement for BP to put $20 
billion into an escrow account to pay for the damage from the 
spill and to remove BP from deciding which claims are valid. I 
commend the President for his strong leadership on this 
disaster, and I know he is determined to do everything in his 
power to hold BP accountable.
    The behavior of this company and its executives could not 
be more reprehensible. Their greed led them in the first place 
to gamble with the lives of workers on a rig, the marine life 
in the Gulf, and the economy and culture of the entire region. 
And when the inevitable happened and the Deepwater Horizon 
exploded, burned, and sank, BP's leaders downplayed the true 
size of the spill, and we learned that they lied about their 
ability to contain it.
    Mr. Chairman, we have seen this kind of catastrophe before. 
It has been more than 20 years since the Exxon Valdez went 
aground, and oil is still contaminating the soil there. Now, I 
was in Alaska within 3 days of the Exxon Valdez crash, and I 
saw the destruction caused by that oil spill firsthand.
    When the press coverage was intense, Exxon issued a string 
of apologies. It promised to do the right thing by the 
communities, and it vowed to make sure that the way of life 
these Alaskans knew would resume. But as soon as the cameras 
were turned off, Exxon changed its tune, and it fought the 
communities, the families, and the fishermen over every penny. 
Instead of making those victims whole, Exxon chose to make its 
lawyer rich. Exxon drew things out for years and knocked down a 
punitive damage claim from $5 billion to $500 million, and we 
cannot let history repeat itself. And every 4 days--we are just 
reminded that the spill the size of the Exxon Valdez spill 
occurs every day--every 4 days. Every 4 days we are witnessing 
the size of a spill that took place at Exxon Valdez.
    And that is why I proposed an amendment to last month's 
emergency supplemental bill to make it clear that companies 
responsible for the oil spill must reimburse the American 
taxpayer for every dollar the government spends on clean-up. 
And while the amendment was not considered on the floor, the 
Administration made it clear that BP will pay the bill. 
Americans are fed up with hollow words and false assurances and 
broken promises, and that is why we also must pass legislation 
to eliminate a measly $75 million liability cap on monetary 
damages from these spills. Big oil, with enormous profits every 
month, can afford to pay for their recklessness.
    I want to thank you, Mr. Chairman, and the rest of the 
Subcommittee for inviting me to speak today and, more 
importantly, for holding this critical hearing. I hope that we 
are going to hear honest and candid answers from BP and the 
other executives about how they are going to live up to their 
obligations.
    Thank you again, Mr. Chairman.
    Senator Carper. Senator Lautenberg, thank you. Thanks for 
joining us. Thank you for lending your voice to this hearing as 
well.
    I think in terms of who should go first--Senator Tester?
    Senator Tester. I will make it easy for you, Mr. Chairman. 
I am going to forgo opening remarks for the questions. I will 
defer to the good Senator from Arkansas.
    Senator Carper. All right. Fair enough. Thanks so much. 
Thanks for coming.
    Senator Pryor. Mr. Chairman, thank you. I do not have an 
opening statement.
    Senator Carper. I think with that we can turn to our second 
panel, and if the witnesses will make their way to the table, 
that would be good.
    [Pause.]
    Senator Carper. I have had a chance to already welcome the 
witnesses individually, and now I am pleased to welcome you 
collectively to testify. I will just provide a very brief 
introduction for each of you. Our lead-off witness will be 
Darryl Willis. Mr. Willis is Vice President for Resources for 
BP America. He has been with BP for 18 years and is currently 
leading the claims process efforts for BP. Thank you for 
joining us.
    Steve Newman is our second witness. He is the President and 
Chief Executive Officer for Transocean, Ltd. Mr. Newman has 
worked, I am told, for Transocean for 14 years and first served 
in his current position as President and CEO in 2008. Welcome.
    Our third witness is Craig Bennett. Mr. Bennett is the 
Director of the U.S. Coast Guard's National Pollution Funds 
Center. The National Pollution Funds Center oversees the Oil 
Spill Liability Trust fund and tracks the direct Federal costs 
of the oil spill. Mr. Bennett has served in the U.S. Coast 
Guard for over 20 years, and prior to his appointment as 
Director, he served as the Chief of the Financial Management 
Division of the National Pollution Funds Center.
    Finally, our final witness is Susan Fleming, Director of 
the Physical Infrastructure team at the Government 
Accountability Office. Before joining GAO, Ms. Fleming served 
as a financial analyst for General Electric. Good to see you. 
Thank you for joining us.
    Your entire statements will be made a part of the record. 
We invite you to proceed. I would ask you to try to stay fairly 
close to 5 minutes. If you run a little bit over that, that is 
OK. If you run a lot over that, it is not OK.
    Mr. Willis, if you will just lead us off, please. Thank 
you. Thank you all for coming.

TESTIMONY OF DARRYL WILLIS,\1\ VICE PRESIDENT FOR RESOURCES, BP 
                         AMERICA, INC.

    Mr. Willis. Thank you, Mr. Chairman. Chairman Carper, 
Ranking Member McCain, Members of the Subcommittee, I am Darryl 
Willis, Vice President of Resources for BP America. On April 
29, I accepted the role of overseeing BP's claims process, 
which was established in the wake of the explosion and fire 
aboard the Deepwater Horizon drilling rig and ensuing oil 
spill. I am here to share information with you about the claims 
process.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Willis appears in the Appendix on 
page 72.
---------------------------------------------------------------------------
    This horrendous incident, which killed 11 workers and 
injured 17 others, has profoundly touched all of us. There has 
been tremendous shock that such an accident could have happened 
and great sorrow for the lives lost and the injuries sustained.
    I would like to make one thing very clear. BP will not rest 
until the well is under control and we discover what happened 
and why in order to ensure that it never, ever happens again. 
As a responsible party under the Oil Pollution Act of 1990, we 
will carry out our obligations to mitigate the environmental 
damage and economic impact of this incident.
    I would also like to underscore that the causes of the 
accident remain under investigation, both by the Federal 
Government and by BP itself. So I am prepared today to answer 
your questions regarding the claims process and our 
reimbursement of Federal response costs. I cannot, however, 
respond to inquiries about the incident itself or the 
investigation.
    Above all, I want to emphasize that the BP claims process 
is integral to our commitment to do the right thing. We will be 
fair and expeditious in responding to claims. We have already 
paid out over $90 million in claims as of today, and we 
understand how important it is to get this right for the 
residents and businesses as well as for State and local 
governments.
    To that end, we have established 33 walk-in claims offices 
operating in Louisiana, Mississippi, Alabama, and Florida. And 
we have a call center that is operated 24 hours a day, 7 days a 
week. We have also established an online claims filing system 
to further expand and expedite our capacity to respond to 
potential claimants. Altogether we have approximately 1,000 
people handling claims and over 660 experienced claims 
adjusters on the ground working in the impacted communities. We 
will continue adding people, offices, and resources as required 
and are committing the full resources of BP to making this 
process work for the people of the Gulf coast.
    Our early focus was on individuals and small businesses 
whose livelihoods have been directly impacted by the spill and 
who are temporarily unable to work. These are the fishermen, 
the crabbers, the oyster harvesters, and shrimpers with the 
greatest immediate financial need. BP is providing expedited 
interim payments to those whose income has been interrupted. 
Approximately 18,000 claims have already been paid, as I said, 
totaling $90 million to date. And we have recently begun 
sending out second advance payments to individuals and 
businesses.
    We are also working hard to address business loss claims. 
Over the last few days, we have paid out over $16 million in 
business claims.
    The claims process was established to fulfill our 
obligations as a designated responsible party under the Oil 
Pollution Act of 1990 (OPA). Thus, we are guided by the 
provisions of OPA 90 as well as the U.S. Coast Guard 
regulations when assessing claims. I am not an attorney and, 
therefore, cannot speak to the particular legal interpretations 
or applications of OPA 90. I can, however, reiterate that BP 
does not intend to use the $75 million cap in the OPA 90 
statute to limit our obligation to pay these claims. We have 
already exceeded it and will not seek reimbursement from the 
Oil Spill Liability Trust Fund.
    As an additional means of ensuring a fair and transparent 
process, today an independent mediator, Kenneth Feinberg, has 
been appointed to oversee the claims process, and BP has 
committed to setting aside $20 billion in an escrow fund to pay 
legitimate claims.
    I would also like to briefly discuss the reimbursement of 
the Federal Government response costs. To date, the Coast Guard 
has sent BP and other responsible parties two invoices for 
Federal Government costs totaling slightly more than $70 
million. BP has paid these invoices promptly by wire transfer.
    In closing, I would like to add a personal note. My ties to 
the Gulf coast run deep. I was born and raised in Louisiana. I 
went to high school there, college there, and graduate school 
there. My family spent many summers on the Gulf coast. My 
mother lost her home of 45 years in Hurricane Katrina, and the 
recovery process was sometimes time-consuming, and at many 
times it was incredibly frustrating. I know firsthand that the 
people in this region cannot afford lengthy delays in 
addressing economic losses caused by this spill.
    I volunteered for this assignment because I am passionate 
about the Gulf coast. It is the place I call home, and I want 
to be a part of the solution. With that, I welcome your 
questions.
    Senator Carper. Thank you for adding that to the close of 
your testimony. Thanks very much.
    Mr. Newman, welcome. Please proceed.

    TESTIMONY OF STEVEN NEWMAN,\1\ CHIEF EXECUTIVE OFFICER, 
                        TRANSOCEAN LTD.

    Mr. Newman. Chairman Carper, Ranking Member McCain, and 
other Members of the Subcommittee, I want to thank you for the 
opportunity to speak with you today. My name is Steven Newman. 
I am the Chief Executive Officer of Transocean. Transocean is a 
leading offshore drilling contractor with more than 18,000 
employees worldwide and more than 4,500 employees in the United 
States. I am a petroleum engineer by training, and I have spent 
considerable time working on and with drilling rigs. I have 
been with Transocean for more than 15 years.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Newman appears in the Appendix on 
page 78.
---------------------------------------------------------------------------
    Since April 20, 2010, the heartache I and my company feel 
for the 11 crew members who died, including nine Transocean 
employees, and their families is with us constantly. The safety 
of our employees and crew members is of the utmost importance 
to us, and the loss of lives on the Deepwater Horizon is 
devastating to us and to their families. I also salute the 
courage of the 115 crew members who were rescued from the rig 
and the extensive response team that has worked tirelessly 
since the event.
    Transocean has been actively involved in the activities 
since April 20, including providing support and comfort to the 
families of the lost men, and I would like to provide the 
Subcommittee with more details about these efforts.
    Transocean is a people-focused company. Since the events of 
April 20, our human resource (HR) teams have focused on 
providing grief counseling and a range of benefits and employee 
services to those directly and indirectly affected. We are 
currently taking a number of steps, including providing the 
families of the nine Transocean men who were lost continued 
full pay and benefits, providing injured crew and those 
receiving ongoing counseling continued full pay and benefits. 
Compensation for personal possessions lost in the incident was 
offered to all crew and families and accepted by most.
    On May 25, we held a memorial service in honor of the men 
lost in the Horizon tragedy. It was attended by all 11 
families, by many Transocean personnel, and by people from 
across the industry. It was a moving event and an opportunity 
for all of us to celebrate the lives of these exceptional men. 
Our goal is to continue our support of the families and our 
employees as we all move forward.
    As I have said many times in the past, we believe that we 
have the most advanced equipment in the offshore drilling 
industry, but our people are the real reason for the success of 
Transocean. This belief has been articulated through the 
guiding principles of our company which go by the acronym FIRST 
(Forum of Incident Response and Security Teams). My written 
testimony provides additional details about these principles, 
so today I will focus on the R, which stands for respect for 
employees, customers, and suppliers, and the S, which stands 
for safety.
    Our respect for our employees and our goal to be a 
responsible employer guided our actions before April 20, and 
will continue to do so in the future. This respect is borne out 
in a number of ways.
    For example, Transocean provides our employees with 
extensive training for all offshore and shore-based activities. 
We work with employees who seek supervisory positions and 
management roles and provide flexible work hours and monetary 
assistance for education to maintain or improve job skills, to 
increase competencies and qualifications for future 
opportunities.
    Our company's culture of safety has long guided our 
actions. Transocean was a key partner in developing the U.K. 
North Sea's Safety Case methodology and then in developing the 
IADC's Safety Case guidelines. We subsequently applied what we 
learned to our operations around the world, even where no 
formal Safety Case is required. We have also implemented a 
Major Accident Hazard Risk Assessment across all Transocean 
operations.
    Transocean's full commitment to environmental and social 
stewardship is demonstrated by our active participation in a 
range of scientific, social, and conservation research programs 
around the world, including the Gulf of Mexico. We have 
invested millions of dollars over the past few years in 
projects aimed at better understanding the environment in which 
we work and the communities that support our operations.
    One such example is our support of a global program 
addressing scientific and environmental issues associated with 
remote-operated vehicles. For over 7 years, we have been using 
our rigs as places of research to allow scientists to explore 
the deepwater environments with cutting-edge technology to 
better understand the largely underexplored deepwater area of 
the ocean.
    Another example is our membership in the Gulf of Mexico 
Foundation through which Transocean supports a range of coastal 
restoration projects and educational efforts across all five 
Gulf States, Mexico, and the U.S. Virgin Islands. Many of these 
projects are in collaboration with NOAA's Coastal Restoration 
Program along with other federally funded programs.
    With respect to the events of April 20, immediately after 
the explosion Transocean began working with BP and the Unified 
Command in the effort to stop the flow of hydrocarbons. Our 
operations and engineering teams have been working around the 
clock under BP to identify and pursue options for stopping the 
flow as soon as possible. Our drilling rigs are actively 
engaged in drilling the relief wells at the site, and our drill 
ship is involved in crude oil recovery operations. We will 
continue to support BP and the Unified Command in all of these 
activities.
    Throughout this time we have also been working hard to get 
to the bottom of what happened on the night of April 20. There 
are critical questions that need to be answered in the coming 
weeks and months, but we simply do not have all of the data to 
know the answers at this point. To understand what led to the 
April 20th explosion, we must work together in a collaborative 
effort to collect information and to recommend any corrective 
measures. We remain committed to this effort.
    As the Subcommittee Members are likely aware, the Oil 
Pollution Act of 1990 makes clear that we are responsible for 
fluids originating from the rig above or below the waterline, 
but not for fluids emanating from the well. Once the extent of 
these liabilities for any materials or substances allocated to 
the rig are understood, Transocean will continue our 
cooperation with the National Pollution Funds Center to fulfill 
any OPA obligations applicable to our operations and to process 
any relevant claims.
    To support this effort, we have conducted sampling to 
determine the potential presence and any potential impacts that 
may have been caused by diesel released from the rig. At this 
time the presence of diesel released from the rig has not been 
detected. However, we will continue to work to verify this as 
well as to determine whether or not there is any diesel fuel 
still contained in the rig's tanks on the bottom of the ocean.
    Additionally, as the National Resource Damage Assessment 
has barely begun, it is too early to ascertain the company's 
responsibilities in that context. As that process advances, we 
will cooperate with the NRDA trustees and will stand ready to 
fulfill any potential obligations that may be found to 
originate from our duties under OPA.
    Regardless, Transocean will continue to lend our expertise 
to the spill containment and relief well drilling efforts 
currently underway. The foundation of our company's strengths 
has always been the people who work at Transocean and the 
communities where we live and operate. Our commitment to both 
has been regularly demonstrated over the years, and I believe 
our continued commitment throughout this incident is evident. 
We remain ready and willing to assist the Subcommittee and all 
involved as the work progresses.
    Thank you for the opportunity to speak to you today, and I 
am happy to answer your questions.
    Senator Carper. Thank you very much for coming today and 
for your testimony.
    Mr. Bennett, please proceed.

  TESTIMONY OF CRAIG BENNETT,\1\ DIRECTOR, NATIONAL POLLUTION 
                 FUNDS CENTER, U.S. COAST GUARD

    Mr. Bennett. Good afternoon, Chairman Carper and 
distinguished Members of the Subcommittee. I am grateful for 
the opportunity to testify today about the Oil Pollution Act of 
1990 and financial responsibility. As someone who graduated 
from high school in southern Louisiana, who met his wife and 
was married in Houston, Texas, and who later raised two 
children for a while in St. Petersburg, Florida, I have a deep 
appreciation for the people and environment of the Gulf coast.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Bennett appears in the Appendix 
on page 83.
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    My role as the Director of the National Pollution Funds 
Center (NPFC), in this response covers four areas:
    First, I fund Federal response using amounts Congress has 
made available from the Oil Spill Liability Trust Fund, the so-
called emergency fund.
    Second, I ensure the responsible parties are advertising 
its availability to pay claims for removal costs and damages. 
If claimants are not fully compensated by a responsible party, 
they may present their claims to the NPFC for payment from the 
fund.
    Third, I recover Federal response costs and claims paid by 
the fund from any and all responsible parties.
    Finally, I administer the Certificate of Financial 
Responsibility Program which ensures that vessels operating in 
U.S. waters have demonstrated that they are financially able to 
pay their obligations under OPA.
    With respect to response costs, the cost of the Federal 
response to this event as of this morning was $217 million. 
These costs include the funding of over 27 Federal entities as 
well as over $12 million that has been given to States for 
their response efforts.
    A key element of the OPA liability and compensation regime 
is that the polluter pays, not the taxpayer. All of the costs 
incurred against the fund will be billed to the responsible 
parties. As has been mentioned, two bills for a total of $70.9 
million have been sent, and both have been paid by BP and both 
were paid in less than 5 days. A third bill for over $50 
million is being sent this afternoon. At the end of the event, 
the fund balance will not be impacted because all response 
costs will have been reimbursed by the responsible parties.
    With respect to claims, the National Incident Commander, 
Admiral Thad Allen, met with BP executives at the National 
Pollution Funds Center last Wednesday to direct faster progress 
and more transportation regarding the claims process. I met 
with BP officials in Louisiana last Thursday, and my staff has 
worked with the BP claims people over this past weekend to 
oversee the progress on the expectations set forth by Admiral 
Allen. These expectations included getting more detail and 
context in the reports that we receive from BP, as well as 
acceleration of the payment for business claims. Progress has 
been made, and as Mr. Willis said, BP has in the last week paid 
$17 million in 337 checks to small businesses.
    Also, based on the operational concept of no wrong door, 
the National Incident Commander has established an integrated 
services team to monitor BP claims and coordinate delivery of 
Federal programs that can provide social services and small 
business assistance to individuals, families, and small 
businesses affected by the oil spill. The team is made up of 
two parts: A national-level team located in Washington, DC, to 
coordinate strategic policy-level issues, as well as to provide 
support and issue resolution for the field-based teams.
    Field-based teams are established in each impacted Gulf 
coast State to identify gaps in the claims process for 
resolution by BP and to provide residents with full, 
streamlined access to all Federal assistance programs. Each 
field team is led by a Federal resource coordinator with a 
State point of contact identified by the governor.
    Individuals, communities, and businesses have suffered as a 
result of this spill. The OPA liability and compensation regime 
is working to ensure a robust Federal response that those 
damaged from the spill are compensated and that the polluter 
pays. The Department and the Administration are working to 
ensure a full recovery throughout the affected States.
    Thank you for the opportunity to testify today, and I look 
forward to your questions.
    Senator Carper. Mr. Bennett, we thank you for joining us. 
Thanks for your work and for your comments. Ms. Fleming, please 
proceed.

     TESTIMONY OF SUSAN A. FLEMING,\1\ DIRECTOR, PHYSICAL 
     INFRASTRUCTURE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Fleming. Mr. Chairman and Members of the Subcommittee, 
thank you for the opportunity to discuss the costs of major oil 
spills. The recent disaster in the Gulf coast not only caused 
the tragic loss of 11 lives, but also untold economic and 
environmental damage to Gulf coast communities. This spill has 
reminded us that, despite the fact that major oil spills are 
infrequent, they can happen at any time across coastal and 
inland waters of the United States. It has also reminded us 
that vessels involved in the petroleum industry are not the 
only risk. Cargo, fishing, and other types of vessels also 
carry substantial fuel reserves, and as we are now keenly 
aware, mobile offshore drilling units like the Deepwater 
Horizon also represent a threat. Besides being potentially 
lethal and damaging the environment, spills can be expensive, 
with considerable costs to the Federal Government and the 
private sector.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Fleming appears in the Appendix 
on page 90.
---------------------------------------------------------------------------
    My testimony today has three parts: I will discuss the 
factors that affect major oil spill costs, how oil spills are 
paid for, and the implication of major oil spill costs on the 
Oil Spill Liability Trust Fund.
    First, there are a number of factors that combine in unique 
ways and affect the cost of spills: Location, time of year, and 
type of oil. Although we have not evaluated the current spill 
or the factors affecting its costs, some of these and the 
magnitude of the spill will likely drive costs.
    For example, the spill occurred in the spring in an area of 
the country, the Gulf coast, that relies heavily on tourism as 
well as commercial fishing industry revenues. One estimate puts 
the loss of revenue from suspended commercial and recreational 
fishing at about $144 million a year. In addition, spills that 
occur in proximity of tourism destinations, like beaches, can 
result in additional removal costs in order to expedite spill 
clean-up or because there are stricter standards for clean-up 
which increases the cost.
    Another factor affecting spill cost is the type of oil. The 
oil that continues to spill into the Gulf of Mexico is a light 
oil, specifically a light sweet crude oil, that is very toxic 
and can create long-term contamination of the shorelines and 
also, as we have seen, harm waterfowl and fur-bearing mammals. 
According to the U.S. Fish and Wildlife Service, many species 
of wildlife face grave risk from this spill as well as 36 
wildlife refuges that may be affected. In recent testimony the 
EPA Deputy Administrator described the Deepwater Horizon spill 
as a ``massive and potentially unprecedented environmental 
disaster.''
    I will now turn to my second point. The Oil Pollution Act 
established a ``polluter pays'' system that places the primary 
burden of liability and the cost of oil spills on the 
responsible party. Under this system, the responsible party 
assumes up to a specified limit the burden of paying for spill 
costs, which can include both removal costs and damage claims. 
Above the specified limit, the responsible party is no longer 
financially liable. The fund was established to pay the costs 
above this limit or potentially all costs a responsible party 
does not pay or cannot be identified. The fund, as you know, is 
financed primarily from a per barrel tax on petroleum products.
    Now I will move on to my final point, the implications of 
major oil spills for the trust fund. To date, the fund has been 
able to cover the costs not paid for by responsible parties, 
but the fund's future viability may be at risk. In particular, 
the fund is at risk from claims that significantly exceed 
responsible parties' liability limits. We reported, in 2007, 
that the current liability limits for certain vessel types, 
such as tank barges, are disproportionately low relative to 
costs associated with such spills.
    The fund faces other potential drains on its resources, 
including ongoing claims from existing spills, claims related 
to sunken vessels that could leak oil, and as in the case with 
the Deepwater Horizon, the threat of a catastrophic spill. As 
of early June, the response costs for this spill had already 
tolled over $1 billion, and to date, the spill has not been 
fully contained. As a result, the Gulf spill is likely to 
eclipse the Exxon Valdez, becoming the most costly offshore 
spill in U.S. history.
    The fund is currently authorized to pay up to $1 billion 
per spill with up to $500 million for damage claims. Its 
current balance of about $1.6 billion may not be sufficient to 
pay such costs for a spill that is likely to have catastrophic 
consequences.
    While BP has said--and we heard it today--that it intends 
to pay all legitimate claims associated with the spill, should 
the company decide it will not or cannot pay for these costs 
exceeding its limit of liability, the fund will have to bear 
these costs. Given the magnitude of the spill, the cost could 
result in a significant constraint on the fund.
    In closing, major oil spills are rare, but the risk of such 
spills exists daily. Further, spills are expensive, with 
significant costs to the Federal Government, the private 
sector, the environment, the economy, and the public at large. 
Although the fund has been able to cover non-catastrophic 
liabilities, the uncertainties and unprecedented nature of the 
current spill and potential future spills could threaten the 
fund's viability.
    Mr. Chairman, this concludes my statement. I look forward 
to our discussion and would be pleased to answer any questions 
you or Members of the Subcommittee have.
    Senator Carper. Good. We look forward to it as well. Thank 
you so much for coming today.
    We will be providing each member 7 minutes for questions in 
this first round, and we will take it from there on a second 
round.
    I want to start off with a couple questions--or at least 
one question, if I could, for Mr. Willis and for Mr. Newman. 
And then my next question will probably be for you, Mr. 
Bennett, and then one for Ms. Fleming.
    Mr. Willis, as you and Mr. Newman, I think, know we invited 
representatives from Anadarko and from MOEX Offshore here 
today. They declined to join us. This is an invoice, a bill 
that the Federal Government sent to the responsible parties on 
June 2, asking for the reimbursement of some $69 million. 
Anadarko's and MOEX's names are right here on the front 
alongside of BP and Transocean.
    How do your companies view Anadarko's and MOEX's role in 
helping to pay for this disaster? That is the first part of my 
question. How do you view their role in helping to pay for this 
disaster? Have you communicated with these companies to clarify 
what they feel is their role in paying for this disaster? Mr. 
Willis, do you want to go first?
    Mr. Willis. Mr. Chairman, our commitment from the very 
beginning of this incident was to make sure that any legitimate 
claim or costs associated with this spill, that we honor that 
obligation and our commitment to make those payments. My focus 
since being involved in the claims process has been on making 
sure that when something is submitted to us and when it is 
substantiated, that we pay those bills quickly. The focus has 
not been at this point on working through any issues with 
partners, but making sure that we, as BP, do the right thing 
and live up to the commitment we have made, which is to honor 
our legitimate claims and to pay them quickly.
    Senator Carper. That is commendable. Let me just go back to 
my question. How does your company view Anadarko's and MOEX's 
role in helping to pay for this disaster? Have you communicated 
with these companies to clarify what they believe to be their 
role in paying for it?
    Mr. Willis. Our view is that there will be plenty of time 
to sort that out, but in the meantime, when the bills come in 
and we look them over and they are legitimate and associated 
with the spill, they need to be paid, and we are going to pay 
those bills.
    Senator Carper. Thank you. Mr. Newman.
    Mr. Newman. Senator, my understanding of the framework that 
Congress has established would put the well owner and the well 
owner's partners--in this case, Anadarko and MOEX--in line as 
responsible parties for damage resulting from fluids emanating 
from the well bore. And so if I apply that framework to BP, 
Anadarko, and MOEX, I think they are all in that comparable 
tier. Transocean is a member of the subcontractor community 
that BP hired to carry out the well construction process, and 
so we are subordinate to BP in their role as responsible party 
for the fluids emanating from the well bore.
    Senator Carper. OK. And when you say ``we,'' that includes 
Anadarko and MOEX?
    Mr. Newman. No. I put Anadarko and MOEX and BP all as well 
owners or partners of the well owner. Transocean is one of the 
many subcontractors that BP hired to carry out the well 
construction process.
    Senator Carper. Before I turn to Mr. Bennett, Mr. Newman, 
let me just ask you a follow-up. Can you explain to us how does 
Transocean view itself in terms of responding financially to 
the costs associated with this oil spill? I think you alluded 
to that in your comments. What sort of discussions have you had 
between your company and BP to discuss what Transocean might or 
might not be liable for?
    Mr. Newman. Transocean's liability under the Oil Pollution 
Act, as I understand it, relates to fluids that emanate from 
the rig, either above or below the surface of the water. And so 
we continue to monitor the drilling rig on the seabed, and so 
far there has been no indication of any fluids escaping from 
the drilling rig. But we will continue to monitor the drilling 
rig, and we stand ready to meet our obligation for any fluids 
that emanate from the drilling rig.
    Senator Carper. Mr. Willis, do you share that view with 
respect to Transocean's liabilities?
    Mr. Willis. Mr. Chairman, honestly, we are focused on 
making sure that the costs associated with this clean-up and 
spill in the Gulf of Mexico are paid and that the people who 
have been hurt along the Gulf coast are compensated for their 
losses and any Federal costs that are associated with the 
clean-up are paid back to the American people. And that is what 
we are going to do.
    Senator Carper. All right. Thank you.
    Mr. Bennett, the next question for you. Again, I hold up 
the invoice, the first one I believe to be sent to the 
responsible parties, including BP and Anadarko and MOEX all 
received this invoice. Let me just ask, how does your office 
view these two companies and what communications have you had 
with them to ensure that they understand their responsibility 
here? And perhaps a more important question is: What is their 
responsibility here?
    Mr. Bennett. Mr. Chairman, I would be glad to answer that 
question. When we go to issue bills during a response or after 
a response to reimburse the fund for any costs that come out of 
the fund, we send the bill to any and all of the responsible 
parties that have been identified up to that point in time. As 
you know, it is joint and several liability, although in this 
case there is sort of tiered liability, as has been mentioned, 
and there could be different amounts of liability that 
different partners might have, depending on their relationship. 
The lessees are generally in this case responsible for the 
ocean floor release, which is clearly the biggest part of the 
release in this case, so that is why BP and the minority 
lessees would probably have the most liability. But early on we 
do not worry about trying to sort it out. We send the bill to 
all responsible parties. It is not uncommon in a case like this 
for the majority responsible party or major insurance company 
to set up, pay the bills, and then they work it out behind the 
scenes amongst themselves, and we do not really typically have 
a lot of visibility on that as long as somebody is paying the 
bill. If one person pays it or if they all decide to split it 
up, as long as I get repaid, that is what we care about.
    Senator Carper. All right. Thank you.
    Mr. Willis, one more quick question for you and then I will 
turn to Senator McCain. A little over an hour or two ago, the 
President and BP announced the creation of a $20 billion fund, 
an independent escrow fund, out of which claims would be paid 
to those damaged by the oil spill, and we commend you for that. 
This fund will be administered by Ken Feinberg, who oversaw the 
September 11, 2001, victim compensation fund, and he has done a 
number of other things as well. It would seem that this new 
fund and claims process would replace the current BP claims 
process of which you are, I believe, in charge.
    What discussions, if any, have you had with your colleagues 
at BP and with the Federal Government about this proposal, how 
it might work, and how your team would transition to this new 
process?
    Mr. Willis. As you mentioned, Mr. Chairman, this was 
recently announced after conversations between our executive 
team and the Administration. There are lots of discussions that 
will be taking place over the next few days and weeks to 
determine how the transition will take place. But at this time, 
I do not have those details.
    Senator Carper. I understand. All right. Senator McCain, 
thank you.
    Senator McCain. Thank you, Mr. Chairman.
    Just to follow up on the Chairman's question, Mr. Newman, 
you stated that you feel that your liability is only that may 
have been caused by diesel released from the rig, either above 
or below the surface. Is that correct?
    Mr. Newman. Yes, sir, that is my understanding of the 
company's responsibility under the OPA.
    Senator McCain. Ms. Fleming, do you have a view of that?
    Ms. Fleming. This is beyond my level of expertise, but it 
is our understanding that the Coast Guard interprets BP and 
Transocean to be responsible parties. However, there may be 
contractual relationships as well that come into play. But it 
is definitely beyond my level of expertise.
    Senator McCain. Mr. Bennett.
    Mr. Bennett. Senator, that is correct. They are all 
responsible parties, but ultimately how much each of them might 
be liable for will be determined as a result of really the 
investigations and how it all settles out. They might not all 
be equally responsible for all the damages, and it is too early 
to know what that might be.
    Senator McCain. Well, since we are paying claims, it might 
be nice to try to start figuring that out pretty quick, because 
BP is paying all the bills right now. Is that right, Mr. 
Willis?
    Mr. Willis. That is correct.
    Senator McCain. So there are other entities, including two 
who refused to testify here today, that may have some 
liability. So what do we have to go through to find out who is 
responsible and the extent of their responsibility? Mr. Newman, 
if his position holds, then they really are not going to be 
liable for anything, so to speak.
    Mr. Bennett. Senator, under OPA they are all joint and 
several liable, so if we get the payment, we do not typically 
look beyond that. Now, in this case----
    Senator McCain. Who is supposed to determine it then?
    Mr. Bennett. I suspect the Administration and Department of 
Justice will be following up with the investigation on all 
those questions and looking at that.
    Senator McCain. Well, Mr. Chairman, I think we ought to get 
some readout of the liability here. I am not holding any brief 
for BP, but if they are the only ones paying the bills and 
there are others who were involved, maybe some of them should 
be paying some of the bills, too.
    Do you share that view, Ms. Fleming? Or is that above your 
pay grade as well?
    Ms. Fleming. Well, I mean, I think that the biggest concern 
is we do not know what the true costs of this spill are going 
to be. We are dealing with an unprecedented spill.
    Senator McCain. That was my next question.
    Ms. Fleming. And the impact of the spill on the fund, how 
it is going to affect the fund's ability to pay for future 
spills, as well as some of the ongoing claims. So there is a 
lot at stake here.
    Senator McCain. Well, you did not answer my question, but 
it does not matter. The Oil Spill Liability Fund, henceforth 
known as ``the fund,'' that is clearly going to be exhausted. 
Right?
    Ms. Fleming. Well, I think that this oil spill's 
catastrophic consequences could have a severe strain to the 
fund. There are other risks that come into play as well. 
However, as we heard today, if BP honors its commitment to pay 
all those costs, even those above the liability limits, then 
the risk to the fund could be minimal. But if they will not or 
cannot pay, and/or if the other responsible parties will not or 
cannot pay, then that could threaten the fund's viability, 
quite frankly.
    Senator McCain. In your statement, you mentioned that in 
2007 you identified areas which further attention to the 
liability limits appear warranted and made recommendations to 
the Commandant of the Coast Guard regarding both to adjust 
limits periodically in the future to account for significant 
increases in inflation and the appropriateness of some current 
liability limits, but nothing was ever done on that?
    Ms. Fleming. The limits were adjusted for inflation. 
However, in the Coast Guard's recent report, which was very 
much in line with our findings as well, they note that for 
certain vessel types, notably tank barges and cargo vessels, 
the limits of liability are disproportionately low relative to 
their historic spill costs. But they stopped short of making 
recommendations as to how the limits should be adjusted. 
Obviously, having the limits out of whack costs tens of 
millions of dollars to the fund, and now we are dealing with an 
unprecedented spill on top of those additional risks.
    Senator McCain. Mr. Willis, I think you were asked this, 
but you do not know whether your company has the ability to 
deduct from taxable U.S. income payments resulting from civil 
claims?
    Mr. Willis. Senator McCain, I will preface my comments by 
saying that I am not a tax attorney. My understanding is that 
there are deductions that are available to us, and we will take 
them within the constraints of the law.
    Senator McCain. Well, maybe you could have your legal 
department provide for the record what your corporation's view 
is on the ability to deduct from taxable U.S. income payments 
that result from civil claims. Could you provide that for the 
record for us?
    Mr. Willis. I will definitely take that away as an action, 
sir.

                       INFORMATION FOR THE RECORD

    Section 162 of the Internal Revenue Code (the ``Code'') 
provides that ordinary and necessary expenses that arise out of 
the conduct of a trade or business are currently deductible 
when paid or incurred, including payments made pursuant to a 
settlement or judgment relating to the conduct of such trade or 
business activities. See 26 U.S.C.  162(a). Exceptions to this 
general principle of immediate deductibility include expenses 
that are (1) disallowed as deductions, such as fines or 
penalties, or (2) capitalized, for example inventory costs, in 
which case they are deductible over time. See 26 U.S.C.   
162(f), 263 and 263A. BP believes that payments of alleged 
costs and damages pursuant to Section 1002 of the Oil Pollution 
Act relate to the conduct of its trade or business activities 
and are thus deductible under the Code. Whether any particular 
expense must be capitalized is a separate, and extremely fact-
specific, inquiry that BP will determine in accordance with 
applicable federal and state laws.

    Senator McCain. So, obviously, even though this is the 57th 
or 58th day, you still have not sorted out the liability issue 
of the various entities who were associated with the rig. Is 
that a correct statement?
    Mr. Willis. What I can tell you is that what we have been 
focused on over the last 50-plus days is making sure that we 
got a claims process that was up and running, making sure that 
we got money into the hands of the folks along the Gulf coast 
who needed it the most--the fishermen, the shrimpers, the folks 
who work in the restaurants, the seafood processors. That has 
been the primary focus.
    Senator McCain. I understand that. The answer I guess is 
no.
    Mr. Bennett, have we made any progress in that area?
    Mr. Bennett. Sir, I want to make sure I have the question 
right. Is it the area of identifying who is liable for what?
    Senator McCain. Yes.
    Mr. Bennett. No, sir. As I said, we bill them all, we get 
payment, and we expect them to sort it out in court if they do 
not agree on how those payments came.
    Senator McCain. Ms. Fleming, do you have a view on that?
    Ms. Laufe. We have done some preliminary research in this 
area--
    Senator Carper. I am sorry. Would you identify yourself, 
please? Ms. Fleming, will you introduce her?
    Ms. Fleming. She is general counsel at GAO, Hannah Laufe.
    Senator Carper. Go ahead and just have a seat for a moment, 
please, and identify yourself again with your name.
    Ms. Laufe. My name is Hannah Laufe. I am an assistant 
general counsel at GAO.
    Senator Carper. And the last name?
    Ms. Laufe. Laufe.
    Senator Carper. Thank you.
    Ms. Laufe. We have been doing some investigations in this 
area, but it is preliminary to really say anything for certain 
because there are a lot of legal implications to this. And we 
have contacted MMS, and we are going to be looking at the lease 
to identify the names on the lease, and that will help us make 
some determinations about responsible parties. But it is very 
preliminary to say anything at this point.
    Senator McCain. Do you have any preliminary conclusions?
    Ms. Laufe. No, I do not. It is my understanding that 
Anadarko and MOEX are partners, but I really cannot say more at 
this point.
    Senator McCain. Well, thank you. When you do, again, I hope 
you will provide the Subcommittee with that.
    Ms. Laufe. We definitely are working on that and we will do 
that.
    Senator McCain. When we are talking about the extent of the 
costs here, which, as we all know, are unprecedented, I think 
that should be sorted out fairly quickly so that we can 
expedite the claims for all the reasons that I do not have to 
explain. I thank you very much. Thank you, Mr. Chairman.
    Senator Carper. Thank you to both witnesses from GAO.
    Senator Tester, welcome.
    Senator Tester. Thank you, Mr. Chairman. I do not want to 
go back to this, but I have just got to--whose responsibility 
is it to determine liability? Is it the GAO's responsibility? 
Whose responsibility is it?
    Ms. Fleming. No, not GAO's.
    Senator Tester. It is not GAO's?
    Ms. Fleming. No.
    Senator Tester. Is it the Coast Guard?
    Mr. Bennett. I believe we do it. I mean, when there is a 
spill, my staff will----
    Senator Tester. Determine liability and the percentage that 
the liability applies to which company?
    Mr. Bennett. I do not determine percentage.
    Senator Tester. Who determines percentage?
    Mr. Bennett. We will bill them all for all costs.
    Senator Tester. I know. But if BP says, ``Forget it, I am 
not paying anymore,'' who determines percentage?
    Mr. Bennett. A judge will.
    Senator Tester. A judge will?
    Mr. Bennett. If we do not get paid, then the Department of 
Justice takes them all to court, and a judge will decide.
    Senator Tester. OK. Just for clarity. There are a couple of 
things I have to ask, and, Mr. Bennett, I will just ask you.
    Mr. Bennett. Yes, sir.
    Senator Tester. There are about 51,000-plus claims; 26,000 
have been paid in regards to this event as of June 14. Are you 
familiar--does that sound about right?
    Mr. Bennett. Yes.
    Senator Tester. Now, those folks who got paid, is their 
legal recourse done?
    Mr. Bennett. No. Nobody that has been paid has been asked 
to do a release for any payments or give away any right. Most 
of those payments are interim payments for loss of wages or 
incomes, primarily to fishermen. They can continue to get 
interim payments, and they can continue to make other claims as 
it goes on.
    Senator Tester. OK, thank you.
    Mr. Willis, there is a whole bunch of information out there 
on BP and violations with OSHA and previous incidences that 
have happened. Could you tell me if there were any shortcuts 
that were taken because this project was over budget?
    Mr. Willis. Senator Tester, I am actually over the claims 
process, and that has been my focus for the last 50 days, and I 
can answer any questions you might have about the claims 
process.
    Senator Tester. But not about this issue? Mr. Newman, maybe 
you can answer the question. You were punching the hole, right? 
Ocean Energy was punching the hole?
    Mr. Newman. Transocean was hired----
    Senator Tester. Transocean. I am sorry.
    Mr. Newman. That is all right. Transocean was hired to 
provide the drilling rig and the people to operate the rig's 
machinery.
    Senator Tester. OK. Are you aware if this project was over 
budget?
    Mr. Newman. I received a copy of a letter written by 
Congressman Waxman and Congressman Stupak that did make 
reference to a concern about the financial status of the 
project, yes.
    Senator Tester. So it was over budget.
    Mr. Newman. That was referenced in Chairman Waxman's 
letter.
    Senator Tester. OK. I am not asking whether Senator Waxman 
or Representative Waxman said it.
    Mr. Newman. Senator, the budget is not Transocean's. It is 
a BP budget. And so I cannot comment on what the original 
budget was, and I have no idea where they were with respect to 
that.
    Senator Tester. OK. So that is a different issue for BP.
    Mr. Willis, can you tell me--I mean, there are all sorts of 
stuff out here that needs to be cleared up. For example--and 
this, by the way, it would not point a finger at you guys--
well, it kind of would, but not in a real bad way. There were 
inspectors out there, and maybe pay attention to this, too, Mr. 
Newman, because it might end up in yours. But there were 
inspectors--or maybe even Mr. Bennett's. I do not know. But 
there were inspectors out there that I have been told were on 
fishing trips, going to LSU games, college football games, that 
were not doing their job. Can you shed any light on that?
    Mr. Willis. Senator Tester, I am the claims guy, and I have 
been involved in----
    Senator Tester. That is OK. I understand. Mr. Newman, can 
you shed any light on that? Because if you are out there 
drilling a well if the inspectors are doing their job or not. 
Were they doing their job?
    Mr. Newman. From Transocean's perspective, the MMS 
regularly visits our drilling rigs. They conduct inspections of 
those drilling rigs. They leave notes with our people that 
result from those inspections, and that is the nature of the 
relationship between Transocean and the MMS.
    Senator Tester. Did they inspect your drilling rig?
    Mr. Newman. They were last on the Deepwater Horizon on 
April 1.
    Senator Tester. Did they leave any notes?
    Mr. Newman. I do not know whether they left a visit report 
from the April 1 visit.
    Senator Tester. Who would know?
    Mr. Newman. Certainly somebody in our operations group 
would know the answer to that question. We can certainly 
provide that information back to the Subcommittee.
    Senator Tester. That would be great. Can you tell us what 
is on those notes?\1\ You can tell me when they get back to the 
contact----
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    \1\ Notes requested by Senator Tester appears in the appendix on 
page 122.
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    Mr. Newman. We will make the results of those visits 
available.
    Senator Tester. That would be great.
    Ms. Fleming, we have $20 billion, which seems like a lot of 
dough, in an escrow account now, and you talked about we do not 
know what the damages are. I believe it was you who said 
ultimately we do not know what the extent of the damage is. In 
your expert opinion, do you think that is going to be adequate?
    Ms. Fleming. I think it is going to take months or even 
years until we really have a good sense of the total economic 
and environmental impact to the gulf coast. So we do not know. 
Also, I think the devil is in the details, too, in terms of how 
this escrow account will work, and how it will be administered, 
and implemented.
    Senator Tester. As long as you are going down that line, it 
is supposed to be implemented by a third-party administrator?
    Ms. Fleming. Yes.
    Senator Tester. Right now the money that is--with the 
question I asked Mr. Bennett, BP has claims processors on the 
ground now doing it. Is it going to be BP's claims processors 
that deal with this $20 billion escrow account?
    Ms. Fleming. I do not know.
    Senator Tester. Does anybody know?
    Ms. Fleming. We have not looked in great detail on this.
    Senator Tester. Mr. Willis, maybe you know.
    Mr. Willis. Senator Tester, this information is hot off the 
press. These are the conversations that will be taking place 
over the next few days and weeks to work out the details of how 
the process is actually going to be run.
    Senator Tester. OK. Are you going to advocate for BP to 
have their claims processors? Or is BP going to allow a third-
party administrator to determine that?
    Mr. Willis. I would like to start by saying, Senator 
Tester, that the primary concern we have is making sure that 
the resources are available and that the people who need the 
money get the money as quickly as they can.
    Senator Tester. Yes.
    Mr. Willis. And we will work with the details around how 
and who is going to do the actual on-the-ground management of 
the--how the on-the-ground management of the claims process is 
going to work.
    Senator Tester. OK. One last question, because I have only 
about 15 seconds left. You talked about an investigation. You 
cannot talk about the investigation. You can talk about the 
claims process. Can you tell me where they are at in the 
investigation?
    Mr. Willis. I cannot. I am 100 percent focused on cutting 
checks for the folks of the Gulf Coast.
    Senator Tester. OK. Sounds good. I appreciate your 
commitment to that. I appreciate all the people being here to 
testify today. This is one hell of a mess that we need to get 
our arms around, get cleaned up, and get the people held 
harmless as soon as possible. Thank you all for being here.
    Senator Carper. Senator Tester, thank you very much for 
being here.
    Mr. Willis, in our business we like to say that you are on 
message. [Laughter.]
    That is not a bad thing. I spoke with the U.S. claims 
monitoring team this morning, the integrated services team. 
They were appointed by Admiral Allen, and this team has been 
working hard to oversee BP's claims process on behalf of the 
Federal Government and the American people.
    I was concerned to find out, however, that BP still has not 
provided Admiral Allen and his team the entire claims databases 
they have requested. In fact, I am told that they requested 
this information over a week ago, and without this information 
we are told that they are unable to determine the extent of the 
claims or what the waiting period is for those who have asked 
for and who need assistance.
    Mr. Willis, can you just share with us, if you know, why 
hasn't this data been provided to the government? And when can 
we expect it to be provided?
    Mr. Willis. Mr. Chairman, I can tell you that I actually 
attended that meeting last Wednesday with Admiral Allen and was 
a part of that conversation. And on Thursday, members from the 
integrated services team and from our claims team met via phone 
to talk about how and what data we needed to make sure was 
captured and incorporated into future claims reports.
    In addition, our software engineers worked over the weekend 
to reconfigure systems to make sure we can extract the 
appropriate data. Some of that date we are already capturing, 
but in many cases, based on a letter that the Admiral sent to 
our chairman, our CEO, the new data that will have to capture.
    On Monday of this week, I was in Biloxi, Mississippi, with 
members from the integrated services team, and our groups got 
together again to finalize the details, and I can tell you they 
are working hard to get that completed and into the hands of 
the appropriate people ASAP. That work is underway, and the 
teams are working closely together.
    Senator Carper. OK. So I think you responded to the first 
half of the question, and I appreciate that. I think your 
response to the second half of the question--And when can we 
expect it to be provided?--you are saying ASAP.
    Mr. Willis. If that has not happened, I would expect it 
within this week.
    Senator Carper. All right. Thank you.
    A question, if I could, both for you, Mr. Willis, and this 
one you can share with Mr. Bennett. I understand that any 
claims denied by BP or that have not been handled in, I think, 
90 days can then be brought to the government's Oil Spill Trust 
Fund. I believe no claims have been denied to date, which 
really I find hard to believe. Are you telling us that no one 
person has tried to take advantage of this system, that no one 
has put forth some sort of false claim? If they have, can you 
provide us with some examples and tell us why they have not 
been denied?
    Mr. Willis. What I can tell you is that we have not denied 
any claims to date. We have had thousands of claims put into 
the system. We have paid, as I mentioned in my testimony, $91 
million worth of claims, and no claim has been denied. We have 
a variety of claims in the system, everything from a boat 
captain to a deckhand to a waitress to a lawn man, and we are 
looking at every claim we get carefully, and we are being fair 
and reasonable and practical in our evaluation of those claims.
    I also can tell you, Mr. Chairman, that you are right that 
we have up to 90 days to pay a claim, but so far, from the time 
a person calls our 1-800 number to the time they receive a 
check, once they have provided us with the documentation that 
substantiates their income or loss, for an individual it is 
running about 4 days on average, and for a business that has a 
claim less than $5,000, it is running about 6 days from phone 
call to actually walking out of the claims center with a check.
    So we are working hard to make sure the process is fair and 
expeditious, and I always preface my comments by saying that we 
have not denied any claims yet, because I suspect with the 
number of claims in our system that there will be some denials. 
But none have been denied to date.
    Senator Carper. All right. Thanks.
    Ms. Fleming. Mr. Chairman, may I add to that?
    Senator Carper. Yes, Ms. Fleming, please do.
    Ms. Fleming. I just wanted to note that for our ongoing 
work for you, we will be delving more deeply into the claims 
process. However, it is not unusual, when you are dealing with 
large catastrophes such as Hurricane Katrina, that the 
likelihood of improper payments and claims can occur. So it is 
really important that you have a framework in place so that you 
have reasonable assurance that an improper payment could be 
identified or detected. But at the same time, you also have to 
balance the need to have that structure with the need to try to 
make sure that your claims process is working effectively and 
efficiently. So you have to have that balance. We are going to 
delve deeply into this for you.
    Senator Carper. Well, good. There is a tension----
    Ms. Fleming. There is a tension.
    Senator Carper. One, trying to be responsive; second, 
trying not to be foolish.
    Ms. Fleming. Yes.
    Senator Carper. Mr. Bennett, could you respond to this 
question I have asked of Mr. Willis?
    Mr. Bennett. Mr. Chairman, I would like to do that, because 
I have been asking BP as well--I would like to see some denials 
because I know that with 56,000 claims, there has got to be 
some. And what I found, my staff working with their staff and 
also information that comes in to us, we have a 1-800 number 
that is out there. Also, it is communicated to claimants when 
they get information from BP, if they have questions or 
concerns.
    Interesting to note, out of the 56,000 claims that have 
been submitted, we have had 256 calls in the last 5 weeks; 210 
of those calls were really not about claims. They were about 
people's opinions about how the response is going. The 40 of 
the calls that were about claims, we contacted BP or we 
followed up with the people that called. We have been able to 
reach about half of them, about 20 of the 40 people, and then 
we worked with BP to find out what the situation is. What we 
are finding working with BP is that in most cases there is 
either an incomplete claim or not all the information is there, 
and it would appear to us that BP is trying to give the 
claimant every opportunity to get the right information and to 
understand how the process works before they deny. But I had a 
conversation this morning with some of Mr. Willis' folks about 
I want to see some denials because I want to understand it, 
because certainly when we start getting claims, if we get any, 
we will have the internal controls to make sure there is no 
waste, fraud, or abuse. And I have encouraged BP to do the same 
thing. I know they are.
    So I do not think it is an indication that they are not 
acting on it. They are just bending over backwards to make sure 
that before they deny, the claimant really did understand and 
had all their ducks in the row.
    Senator Carper. All right. Thank you. Thanks for that 
clarification.
    Mr. Willis, back to you, if I might. Going back to the 
conversation I had this morning with the folks in the U.S. 
claims monitoring team earlier today, they told me of some 
concerns they had involving the reported lack of denials, and 
we talked a little bit about this here. Specifically, there 
have been reports of individuals who come to BP with a claim 
that are being told that the claim--just are sort of told up 
front that the claim will not be covered, and so they never 
file it. In some of these, there might be claims that are 
actually coverable. And if so, maybe we are not really getting 
an accurate picture of the claims that are being accepted or 
denied, because ultimately people hearing that their claim is 
not coverable, they just do not make the claim.
    Have you heard of any such reports? And to what extent do 
you think this might be happening or not happening? And, Mr. 
Bennett, I would really appreciate it if you would sort of 
chime in on this as well.
    Mr. Willis. Mr. Chairman, I have not heard any reports like 
that, but I can tell you, given the fact that we have gone in 
the last 50 days from zero to 33 claims offices and from zero 
checks cut to thousands of checks cut and from zero to $90 
million, that the process we have put in place is not perfect. 
And we have taken some steps to make sure people are aware in 
our offices that fraud is not going to be tolerated. We have 
posted signs in offices in English, Vietnamese, Spanish, and 
Khmer languages. And the process is not perfect, but I have not 
heard of any instances.
    I can also tell you that our process is an open claims 
process, and anyone who feels like they have been damaged, have 
property that has been damaged, or if they feel like they have 
lost income or wages as a result of the spill has a right to 
call our 1-800 number, go onto our Web site, or walk into one 
of those 33 offices and file a claim. And they should not be 
denied that right.
    Senator Carper. All right. Thank you.
    Mr. Bennett, do you want to take a shot at this again?
    Mr. Bennett. Yes, Mr. Chairman. One thing I would add, in 
addition to my earlier comments, is when we started asking 
about the number that was claimed, it is really cases opened, 
because you see this 56,000 number and then you see that there 
has only been 27,000 that have been paid. And the question that 
jumps to your mind is that there must be a lot of claims that 
have not been acted on. What we are finding is--and I do not 
know the number, and that is why we are working with BP to get 
more transparency. But what we are finding is that a number of 
claims--and we are finding this from the people that call us--
the claimants do not even--have not provided in some cases a 
dollar amount for what their damage is, so they filed the 
claim, but under OPA, if the claim were to come to us, there 
has to be a sum certain. You have to say what the dollar amount 
was, and you have to document what the loss was.
    So a certain number--and I do not know what the percent 
is--of those open claims are really--they are kind of tickets 
that somebody took, and a good example I know of is a hotel 
early on thought that you have to get in early because the $75 
million is going to run out. So they took a ticket, they called 
the claims center to submit a claim. They are actually full 
from responders, so they have not suffered any loss yet. But 
they are holding, in case the response winds down and maybe 
later in the season they do suffer, then they can submit a 
claim for the actual demonstrated losses later in the season. 
But that ticket is sitting there open on the books, and that is 
why we are working really hard to try to get better 
transparency on what is happening with those claims and those 
tickets.
    Senator Carper. OK. Thanks.
    A question, if I could, both for Ms. Fleming and for Mr. 
Bennett. I do not know if it was Mr. Bennett or Ms. Fleming, 
but in the testimony of one of you, you state that BP may also 
choose to pay a claim with less documentation than the 
government would be required to obtain. I would like you to 
both take a moment and explore that comment a bit further. If 
that statement is true that BP is providing payments for claims 
that the government would not pay, what might that mean for the 
independent trust fund? And could this third-party process, 
following your office's guidelines, actually be maybe less 
liberal in its payments than BP?
    Mr. Bennett. Mr. Chairman, I can first address that, and we 
do know that BP is paying for things that are not necessarily 
OPA-compensable. They are entertaining personal injury claims, 
which are specifically precluded, and also because it is a 
private entity, they are not bound to the same Federal laws and 
even OPA. If they want to pay a claim, they can pay a claim. So 
they are leaning forward very hard, and if people are harmed 
from the event, whether it is really strictly OPA or not, it 
would appear that BP is being liberal. And at least in some 
cases, I am sure there are people that are not happy and 
getting paid. So we know that there are claims that have been 
paid that we probably could not pay under OPA.
    Senator Carper. All right. Ms. Fleming, do you want to 
comment on what Mr. Bennett has said in any way?
    Ms. Fleming. Well, he certainly has more insight into the 
current claims process, but it is my understanding that it is 
certainly within BP's prerogative to pay beyond the OPA-
compensable costs. But as I highlighted earlier, BP has said 
that they will pay for all legitimate claims. But if for some 
reason that changes and they cannot or will not, then the trust 
fund could be threatened because we do not really know at this 
point the true costs of the spill. We will not know for many 
months or years to come. The spill has still not been 
contained, and we already know that the number keeps growing 
each day, in terms of the volume that is being spilled. So this 
is obviously an unprecedented spill, where the costs are 
already in the billions.
    Senator Carper. OK. Another question just for you, Ms. 
Fleming. How does the Deepwater Horizon spill compare to prior 
spills in terms of its special circumstances and sheer 
magnitude?
    Ms. Fleming. Well, I just highlighted a couple. It is my 
understanding that this has been the worst offshore platform 
spill in U.S. history. It still has not been contained. Exxon 
Valdez, by comparison, spilled about 11 million gallons and 
took a little over about $2.2 billion just to clean up. BP is 
at about $1.6 billion already, in terms of response costs as 
well as damage claims. It is going to take many months and 
years to really have a sense of the true costs of this spill 
and the impact to the environment and economy in those areas, 
as I do not think we have a good grasp on the full effects of 
this spill. However, but it is definitely unprecedented, and 
the magnitude will drive these costs. And as I said earlier in 
my opening remarks, there are so many factors besides the 
magnitude that come into play, including the location of the 
spill--which may have affected many species since it is the 
time of year when they migrate and breed. Additionally, the 
type of oil is a factor that affects costs. It is the type of 
oil that is very toxic and creates long-term contamination to 
the shores. So all these factors will influence and drive the 
costs of this spill.
    Senator Carper. I think your statement discussed factors 
that can affect the cost of cleaning up an oil spill like this. 
How do these factors come into play in the Deepwater Horizon 
spill?
    Ms. Fleming. Well, again, I think it is the location, along 
the Gulf Coast. It is an area that is in proximity to about 36 
wildlife refuges. It is at a time of year when many birds 
migrate. Also, the location and the time of year are going to 
have and are already impacting the fishing and the tourism 
communities. Another factor is the type of oil that is being 
spilled, it is a light sweet crude oil, which is very highly 
toxic and long-term contamination effects. And top of it, you 
have just this unprecedented magnitude of oil and the fact that 
it still has not been contained.
    So all of these factors will interplay and will ultimately 
impact the final costs of the spill, which, again, may take us 
a long time to determine.
    Senator Carper. How much did you say was spilled in the 
Valdez accident?
    Ms. Fleming. It is my understanding that it was 11 million 
gallons, but----
    Senator Carper. Does that sound about right, Mr. Bennett?
    Ms. Fleming. Mr. Bennett has confirmed----
    Mr. Bennett. That is correct.
    Senator Carper. All right. And how much money was 
ultimately paid out?
    Ms. Fleming. Well, my understanding is that it is about 
$2.2 billion for the clean-up costs. I am not sure what the 
claims amount is. Mr. Bennett may have a better handle on this, 
and I am not sure if it is fully settled, quite frankly.
    Mr. Bennett. Yes, Mr. Chairman, Exxon has reported that 
they spent $3.5 billion for the response and claims and 
damages. And we would not know the details because since they 
paid the bill and did not submit a claim for any kind of limit, 
all we know is what they report.
    Senator Carper. All right. So that was, I think you said, 
11 million gallons. And do you know in terms of the amount of 
oil that has leaked to date--can anybody help me with how much 
we believe has actually leaked today? It seems like the amount 
of the leak has grown, as you know, over time. Now at least it 
looks pretty small from the first day, but now it is going to 
be enormous, and despite our efforts, despite BP's and other 
efforts. But somebody help me out. In terms of comparing this 
to the Valdez, 11 million from Valdez, 11 million gallons, and 
where are we today, with the meter still running? Anybody know? 
No. All right.
    So $3.5 billion from Exxon Valdez. Was that everything all 
in?
    Mr. Bennett. That is what has been reported by Exxon 
according to our records, yes, Senator.
    Senator Carper. And they paid that?
    Mr. Bennett. They paid that.
    Senator Carper. They paid that.
    Mr. Bennett. Yes, that was Federal response cost then, as 
now, and Exxon reimbursed the Federal Government for those 
costs.
    Senator Carper. All right. That was about 20 years ago, and 
we are 20 years later with a different amount of oil, and most 
people are saying more this time than last time, maybe even in 
more fragile areas of our country.
    I would just ask Ms. Fleming--and others are welcome to 
respond, if they would like--do you find comfort in a $20 
billion independent fund? That seems like a lot of money. Is 
your reaction that ought to be enough, that might be enough? Do 
you have any thoughts?
    Ms. Fleming. Well, I think when we are dealing with such an 
unprecedented spill that it is likely to have catastrophic 
consequences, all options needs to be considered. And I think 
that anything that will both make the communities whole and at 
the same time to try to preserve the viability of the trust 
fund is certainly a step in the right direction. But I would 
say that it is going to be important with the details how it is 
implemented. I think the legal structure in terms of the laws 
and regulations and whether or not the liabilities are 
impacted, all these things are still questions that need to be 
addressed and answered. How this new process will interact with 
the existing process that is in place that BP and NPFC have 
established, I think these are all questions that probably need 
to be explored and addressed.
    Senator Carper. All right. Anybody else want to take a shot 
at that one?
    Mr. Bennett. Mr. Chairman, I would just say that over the 
last 19 years since the National Pollution Funds Center was 
stood up after the Exxon Valdez, there has been over 11,000 
spills that have accessed the fund. In every single one of 
those until now, there was a defined amount. A container, a 
ship can only hold so much oil. So in every single one of 
those, there was an event, there was a spill, and then we 
commenced the clean-up.
    This is unprecedented because we are still in the middle of 
the spill. It is still spilling. So this is really more than an 
event. This is a campaign. And that is what really makes this 
so different and so hard to anticipate and measure and forecast 
because it is unprecedented. And I would say the $20 billion 
that the President got in an agreement with BP last night is--I 
would say it is a very good assurance to the American people 
that BP intends to stay in this for the duration. Whether it is 
enough or not, I think it is too early to tell.
    Senator Carper. Yes. All right. Thank you.
    Mr. Willis, BP has promised, I think since the beginning, 
that the $75 million liability cap that we have been talking 
about here would essentially be irrelevant. And with the 
discussions and negotiations at the White House, I guess 
yesterday and today, do you know if BP and the Federal 
Government entered into any kind of contractual agreement to 
this effect?
    Mr. Willis. Mr. Chairman, I do not know.
    Senator Carper. All right. A question, if I could, for Mr. 
Newman. Last month, Mr. Newman, you filed a petition in Federal 
court under the Shipowners' Limitation of Liability Act to 
limit your liability for the Deepwater Horizon accident to $27 
million. As the owner of this facility, shouldn't you bear some 
more, some additional responsibility greater for the cleaning 
up of the damage that is being caused by the oil spill? We 
talk, on the one hand, about a trust fund of as much as $20 
billion, and that BP and the other owners of the well would be 
assuming. And your company has suggested that your liability is 
limited to $27 million.
    Mr. Newman. If I could offer a couple of comments to 
clarify that, Mr. Chairman.
    Senator Carper. Please.
    Mr. Newman. First of all, the filing of the limitation of 
liability action was done as a result of two things:
    First of all, a direct instruction from our insurance 
underwriters to file that action; and in terms of the company's 
ability to meet our obligations, the preservation of our 
insurance program is a vital asset of the company. And so we 
responded, we complied with our insurance underwriters' 
directive to file that limitation action.
    The second reason we filed the action was to consolidate 
all of the non-environmental claims, all of the numerous 
personal injury lawsuits that are being lodged against the 
company in multiple venues, from States, Federal court. The 
limitation of liability action serves to consolidate all of 
those non-environmental claims into one venue.
    So there were two reasons we filed that. The number that 
the Chairman referred to, the $27 million, is a calculation, 
according to the statute, and so we applied the statute and we 
applied the methodology in the statute to calculate that 
number, and that $27 million is an outcome of that calculation.
    Senator Carper. All right. I am not quick enough on my feet 
to be able to figure out what percent of $20 billion $27 
million would be, but it has got to be a small percentage.
    Mr. Newman. The limitation of liability applies to non-
environmental claims, so it is only in response to personal 
injury claims. The environmental claims are handled under the 
OPA process that Mr. Bennett has laid out.
    Senator Carper. All right. Thank you.
    Mr. Bennett, another one for you, if I may. Your office is 
in charge of the government's Oil Spill Liability Trust Fund 
and manages any claims made to that fund. I understand you have 
been in pretty much constant contact with BP claims officials 
since the whole process began. Is that a fair statement?
    Mr. Bennett. That is a fair statement.
    Senator Carper. What instructions has the White House given 
you about how this newly created independent trust fund might 
interact with your office and with the current claims process 
being led by BP?
    Mr. Bennett. Mr. Chairman, we are still working the details 
of that out, so we do not have anything to say about that right 
now because that was done at a pretty high level and just in 
the last day or two. I think in the coming days we will be 
meeting and working out the details.
    Senator Carper. OK. Do you expect that process to start 
right away?
    Mr. Bennett. I cannot say.
    Senator Carper. All right. Thank you.
    Mr. Newman, if I could for you, please. I understand that 
Transocean has rejected a claim of, I think it is called, force 
majeure from Anadarko yesterday. As I understand it, force 
majeure relieves a company from liability when it cannot 
fulfill contractual obligations because of natural and 
unavoidable catastrophes. Could you just go back and explain 
for us why Anadarko made this claim and why Transocean rejected 
it?
    Mr. Newman. I believe, Chairman, that Anadarko's claim of 
force majeure would be in response to the Administration's 
moratorium on deepwater drilling activity in the Gulf of 
Mexico. And, because those are ongoing discussions between 
Transocean and Anadarko, I would prefer to let those 
conversations carry through to their conclusion, before I 
comment too freely on the current state of those conversations.
    Senator Carper. All right. Another question for you, and 
then I have one for Ms. Fleming, and then maybe a closing 
statement.
    You have heard your colleagues at this panel give their 
testimony. You have heard them respond to the questions that 
have been asked of them, and you have given an opening 
statement. I am going to ask you to give just a very brief 
closing statement and any reflections or any additional 
comments you would like to bring, particularly in response to 
what you have heard others say, or not say. But be thinking 
about that, please.
    Meanwhile, for Mr. Newman, I understand that State 
lawmakers both I think in Louisiana, I think in Mississippi 
have invited officials from Transocean to participate in 
hearings that they are holding to examine the spill's effects 
on residents in those States. I also understand that Transocean 
has declined to send any representatives to those hearings. And 
while I understand how busy you and your team have to be right 
now and I appreciate very much your appearance before our 
Subcommittee today. Why has Transocean decided not to send 
representatives to those hearings? And could you commit for us 
today to work with local lawmakers to provide the answers that 
they are seeking from Transocean?
    Mr. Newman. Mr. Chairman, we were unable to participate in 
the Mississippi hearing, and despite our inability to 
participate, we have been responsive to the Mississippi 
lawmakers' request for information. We have provided them with 
all the same documentation that we have provided to the Federal 
Administration and to Congress.
    We have a representative who is attending the Louisiana 
hearing, which I believe is taking place tomorrow. So we are 
able to participate in the Louisiana hearing. We were unable to 
participate in Mississippi.
    Senator Carper. Well, again, we appreciate your being here 
today. You said you have somebody at the Louisiana hearing?
    Mr. Newman. We will have somebody at the Louisiana hearing 
tomorrow.
    Senator Carper. We appreciate that, and I am sure they 
appreciate that in Louisiana. I would urge you to continue to 
work with the local folks down there to provide the answers 
that they are seeking.
    Finally, a question for Ms. Fleming. How does the Deepwater 
Horizon spill--no, I am not going to ask that. I think we have 
beaten that one enough.
    I would just ask you to think, reflect back on the 
conversation we have had here today, the questions that have 
been asked, some of the responses given, maybe some of the 
questions not asked, and just make some short closing thoughts 
for us before I close it out.
    Ms. Fleming. I think we have covered the fact that we are 
dealing with a spill that is----
    Senator Carper. Let me just interrupt. For you especially, 
a question that my colleagues and I should have asked that we 
did not, if you can think of that before we adjourn here, that 
would be good, too. But go ahead. I am sorry I interrupted you.
    Ms. Fleming. OK. Sure. I think we basically have covered 
the fact that we are dealing with a spill that is unprecedented 
in nature. It is clear that it is going to take many years 
until we have a real good sense of the costs. We already have 
determined that it is probably going to be of greater magnitude 
than we have seen in history.
    The trust fund is in place to cover liability costs for 
parties, responsible parties that cannot be identified or 
cannot pay costs. We have heard and BP continues to say that it 
will honor and pay all legitimate claims, the $20 billion 
escrow account is certainly a step that can be a vehicle for 
that and to try to make the communities whole. If for some 
reason the costs just get to be a point where they cannot or 
will not, I think the trust fund is threatened or could be 
threatened, and that obviously comes into play in terms of 
future spills or even being able to pay the claims that we are 
still seeing from the 2007 San Francisco spill and others.
    Senator Carper. All right. Thanks. Mr. Bennett, any closing 
thoughts you would like to leave us with?
    Mr. Bennett. Mr. Chairman, I would just like to say that 
the Coast Guard and all of our Federal partners and State and 
county and parish partners on this response are unrelenting. I 
spent 4 days down in the Gulf at the end of last week and 
through the weekend. The work is phenomenal. We know the 
American people are not happy. We know not everybody feels that 
they have been treated well and that the right thing is 
happening. The National Incident Commander, Admiral Allen, is 
moving heaven and earth to respond to these things, to be more 
transparent, to get answers to questions that people have. We 
know we owe it to the American public, and we are doing what we 
can to do that.
    Senator Carper. All right. Thank you.
    Mr. Newman, a closing thought, please?
    Mr. Newman. Thank you, Mr. Chairman. The closing thought I 
would like to leave is the way business is conducted on the 
outer continental shelf is pretty fundamental. And it is a 
result of the statutory framework that Congress has 
established, it is a result of historical industry practices, 
and it is a result of the contractual relationships between the 
parties. So if you think about the process that the well owner 
goes through in identifying and securing the lease through an 
arrangement with the Federal Government, in developing an 
exploration program for that lease, in designing a well or 
wells to carry out that exploration program, in hiring a number 
of subcontractors to help them execute that well design, and 
then benefiting from assessing the commercial quantity of 
hydrocarbons in those wells, and then benefiting from the 
production of those hydrocarbons--all of that creates a process 
of ownership and control for the well owner. And the well owner 
derives all the benefits from that ownership and control.
    So in terms of establishing that framework as it applies to 
liabilities, I think it is appropriate for the well owner who 
derives benefit from the production to also bear the risk if 
those hydrocarbons are released into the environment 
inadvertently.
    Senator Carper. OK. Thank you. Mr. Willis.
    Mr. Willis. Mr. Chairman, what I would say is that I am 
here as a representative of BP, but I am also here as a 
representative of the Gulf Coast. And as much as BP is counting 
on me, the members and citizens of the Gulf Coast are counting 
on me as well. And we have said from the beginning that we 
would do the right thing, and I am confident that we will. We 
have an obligation to pay for the damage that has been caused 
by this spill, and we will. And we are serious, and we have to 
continue to demonstrate a seriousness to the response that we 
have underway in the Gulf of Mexico. And hopefully through 
things like the block grants that were given to the States, for 
$175 million, the $70 million for tourism, the $90 million in 
claims we paid to date, and today the announcement of the $20 
billion escrow fund, we are demonstrating our seriousness to 
fixing the challenges that have been created as a result of 
this spill along the Gulf Coast. We will do the right thing. We 
will do the right thing not only because it is the right thing 
to do, but because the folks of the Gulf Coast are counting on 
us to do the right thing. And we realize at the end of the day 
our company will be judged by how we respond to this spill.
    Senator Carper. I expect you are right.
    I will close with just reflecting, if I could, what you 
just said that caused me to think of this. The four core values 
that I have tried to instill in any organization I have been 
privileged to lead, whether it was in the U.S. Navy or State 
government or the Federal Government, really fourfold: One, 
figure out the right thing to do and just do it; Two is to 
treat other people the way we would want to be treated if we 
were in their place; the third is really to focus on 
excellence. I like to say if it is not perfect, make it better. 
I know everything I do I can do better. And, last, just do not 
give up. And I think those are actually four pretty good core 
values to bring to bear to this catastrophe that we face and 
are dealing with in the Gulf of Mexico today.
    We have, sadly, in this country an enormous dependence on 
foreign oil. We have, I guess, 60 percent or so of our oil that 
we consume in this country, use in this country, comes from 
other places around the world, some of it from unstable 
nations, undemocratic nations, and I fear as we fill up our gas 
tanks in our cars, trucks, and vans every week that we end up 
inadvertently sending money to some places, some people, 
leaders like Ahmadinejad in Iran and Chavez down in Venezuela. 
And I am convinced some of those countries use our money to 
hurt us. We have found in this country that some of the low-
hanging fruit, some of the easier-to-recover oil, we have 
extracted that. And a lot of the oil that is available today is 
in hard-to-reach places, as we found out all too dearly here in 
the Deepwater Horizon spill and some places where we invite not 
just danger but calamity, disaster.
    We have to be smarter than this, and I realize that we are 
going to be dependent on petroleum in this country for some 
time, but I hope, if nothing else, that we will use this awful 
experience to do what Einstein encouraged when he said, ``In 
adversity lies opportunity.'' And in the midst of all this 
adversity, to find the opportunity not just to stand up and 
meet your obligations, as I think, Mr. Willis, you are 
attempting to do on behalf of BP, but that we will find a way 
to move away from our dependence on fossil fuels, on petroleum, 
especially the stuff that is in these unstable countries around 
the world and in place where it is hard to extract, and that we 
will find some opportunity and a way to move our economy in a 
new direction. I think there is that opportunity, and we just 
have to be smart enough, as we like to say in Delaware, carpe 
diem, to seize the day. We need to seize the day.
    First, we have to get through this day, through these days 
and these weeks and these months in a way that gives not just 
the people in the Gulf of Mexico but the people of this country 
the satisfaction that our best has been done and will continue 
to be done on behalf of those who have been harmed and that we 
do our dead level best to make sure this just does not happen 
again.
    Our thanks to each of you for joining us today, for your 
testimony, and for your responses to our questions, and some 
other Members of our Subcommittee will want to ask questions 
for the record. They will have that opportunity. They have 2 
weeks to submit those questions, and we would ask that you 
respond to them promptly.
    Again, our thanks, and with that this hearing is adjourned. 
Thank you.
    [Whereupon, at 5:12 p.m., the Subcommittee was adjourned.]


                     THE GULF OF MEXICO OIL SPILL:
                   ENSURING A FINANCIALLY RESPONSIBLE
                           RECOVERY--PART II

                              ----------                              


                        THURSDAY, JULY 22, 2010

                                   U.S. Senate,    
        Subcommittee on Federal Financial Management,      
              Government Information, Federal Services,    
                              and International Security,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, McCaskill, McCain, and Ensign.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The Subcommittee will come to order, 
please. Well, good afternoon, or as we say in Delaware, 
konnichiwa.
    A week ago today, BP successfully placed a containment cap 
on the Gulf of Mexico oil well which had blown out nearly 86 
days before. It is a welcome development and one which many in 
our Nation were probably beginning to doubt they would ever 
see. While this accomplishment brings us cautious hope, that 
cautious hope is tempered by the harsh reality of what is left 
in the wake of this disaster: The 11 men who lost their lives 
on the Deepwater Horizon rig and who leave behind families who 
are forever altered by this horrific accident; the over 185 
million gallons of crude oil dumped into the Gulf of Mexico, 
which blackened beaches and damaged countless wildlife 
habitats; and the businesses and communities which some fear 
may not be fully rebuilt for a generation or more.
    Indeed, while we may have removed the bull from the china 
shop with the capping of this well, we have a lot of pieces 
left to pick up. Last month, our Subcommittee held a hearing to 
explore how we were ensuring America would be made whole again 
following this disaster--without putting a hole in our pockets.
    We learned that the U.S. Coast Guard has been tracking the 
Federal costs in responding to the oil spill and sending bills 
to the responsible parties for reimbursement. To date, the 
Federal Government has billed the responsible parties for over 
$222 million in incurred costs. The most recent bill--totaling 
over $99 million--was sent last week. At our hearing last 
month, we learned that BP had been cutting the checks for these 
invoices, and they promised us that they would continue to do 
so for as long as we continued to send them.
    While BP is the principal owner and operator of the oil 
well and is recognized by the government as the primary 
responsible party, there are other companies who have also 
received these bills and have obligations under Federal law--
among them, Anadarko Petroleum Corporation, which owns a 25-
percent stake in the oil well, and MOEX Offshore, which owns a 
10-percent stake. But while the Federal Government has received 
payments from BP for taxpayers' costs, we still have not heard 
back from Anadarko or MOEX.
    This Subcommittee has obtained invoices that BP sent these 
two companies asking them to share in the costs of responding 
to the spill so far. We have also received the companies' 
responses to those bills, and it is clear that they have 
declined to date to pay them. In the event that BP is unwilling 
or unable to continue carrying the full weight of this spill's 
costs, the American people will want to know who else is 
responsible.
    Under the law, Anadarko and MOEX are responsible and liable 
for this spill. Today I hope to hear more from them about how 
they view their relationship with BP and their roles in 
responding to and helping to pay for this disaster. Our hearing 
last month also featured testimony from the Government 
Accountability Office, which reported significant ongoing risks 
and vulnerabilities related to the Oil Spill Liability Trust 
Fund. This fund is responsible, as you know, for claims made by 
individuals and businesses who are denied or left unsatisfied 
by BP's claims process.
    Since that time, President Obama and senior BP officials 
have announced a new independent claims process that would be 
created and funded by a $20 billion escrow fund established by 
BP. Kenneth Feinberg, who joins us here today--former Special 
Master of the 9/11 Victim Compensation Fund, among other 
distinctions--was named by the Administration to be the 
Administrator of this new claims regime. Today I look forward 
to hearing from Mr. Feinberg about his progress to date and how 
the fund he manages will interact with the statutory framework 
that already exists within the Oil Spill Liability Trust Fund.
    Our collective sigh of relief due to the good news coming 
from the Gulf in recent days should not distract us from the 
significant challenges that lie before us. And while the well 
may now be capped, this spill will continue to play out at the 
kitchen table of every American whose livelihoods and way of 
life have been affected by this calamity. My colleagues and I 
will do whatever it takes to get residents of the Gulf Coast 
back on their feet again, to protect our Nation from the costs 
and impacts of this spill, and to make sure that those who are 
responsible for this disaster are held to account.
    As my friends at the witness table may have noticed, we 
were joined briefly by Senator McCaskill, and my guess is she 
is going to be rejoining us here in just a moment. And rather 
than wait until that moment occurs, what I am going to do is 
begin the process of witness introduction, and this will not 
take too long, so hopefully she will beat the clock and be 
ready to make a statement, if she would like, before witness 
statements begin.
    On panel one our first witness today is Kenneth Feinberg, 
Administrator of the Gulf Coast Claims Facility. The Gulf Coast 
Claims Facility site the new independent claims process funded 
by a $20 billion escrow fund established by BP. Prior to his 
appointment as Administrator, Mr. Feinberg served as Special 
Master of the September 11th Victim Compensation Fund and 
Special Master for Compensation. Welcome.
    Mr. Feinberg. Thank you, Mr. Chairman.
    Senator Carper. Our next witness is James Hackett. Mr. 
Hackett is Chairman and Chief Executive Officer of Anadarko 
Petroleum Corporation. Anadarko, as many know, is one of the 
world's largest independent oil and natural gas exploration and 
petroleum companies and owns a 25-percent interest in the 
Deepwater Horizon oil well.
    And our final witness today is Naoki Ishii, President of 
MOEX Offshore 2007. Mr. Ishii has worked with Mitsui Oil 
Exploration, MOEX's parent company, for nearly 20 years. MOEX 
Oversight owns a 10-percent interest in the Deepwater Horizon 
oil well, and we welcome you to our country and particularly to 
this hearing today. Thank you for coming. Domo arigato.
    All right. Mr. Feinberg, and to our witnesses, I am going 
to ask you to lead off for us. Each of you will be given 
roughly 5 minutes. If you go a little bit beyond that, I will 
not complain, but I would ask you to try to stick fairly close 
to that. If you go way over that, we will have to rein you back 
in. But your entire statement will be made part of the record, 
and I would ask you to proceed at this time.

TESTIMONY OF KENNETH R. FEINBERG,\1\ ADMINISTRATOR, GULF COAST 
                        CLAIMS FACILITY

    Mr. Feinberg. Thank you, Mr. Chairman. I understand the 
rules governing the 5 minutes. As a former special counsel to 
the Senate Judiciary Committee and former chief of staff to a 
colleague of yours, Senator Edward Kennedy, it is good to 
return to the Senate to testify.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Feinberg appears in the Appendix 
on page 115.
---------------------------------------------------------------------------
    I want to thank you for this opportunity to testify. Yes, I 
am the independent--and I want to emphasize ``independent''--
Administrator of the Gulf Coast Claims Facility. Now, that was 
a facility established by agreement between the Administration 
and BP to set up a process, a voluntary process to invite any 
claimant in the Gulf, or elsewhere, that has an eligible claim 
arising out of the spill to voluntarily come in, have their 
claim evaluated, and if it is found eligible and calculated 
correctly, that individual or that business would be entitled 
to compensation out of a $20 billion escrow fund that was 
established by BP and the Administration. I am not part of that 
escrow fund. I did not create it. I have not negotiated it. I 
am strictly drawing on it, beginning next month, in order to 
pay all eligible claims.
    Now, hopefully the $20 billion will be sufficient to cover 
all claims not only from my facility but also government 
claims--Federal, State, local--which I have no jurisdiction 
over. Any government claim must be filed by that governmental 
entity against BP. The facility that I have been asked to 
administer will deal with individual claims--wages, etc.--small 
and large private businesses--business interruption, lost 
profits, etc. So I am in charge of a facility that will draw on 
the $20 billion, but I am not the exclusive distributee. 
Governments will also draw on it.
    Now BP has stated, as you know, Mr. Chairman, that if the 
$20 billion is insufficient, it has stated publicly that it 
will honor any and all eligible financial obligations above the 
$20 billion. So it is not a capped amount in terms of BP's 
financial obligation to pay claims.
    Now, as I get ready to transition from the BP claims 
process, I note with some degree of credit that BP has already 
paid over $200 million in claims without my involvement, 
without this new facility. So they have set up 35 claims 
offices throughout the four-State Gulf region to process claims 
and have been doing so. I believe we will do better. I think we 
will accelerate the claims process, make it more efficient, 
allow people to file online on the Internet without ever even 
visiting a claims process. But I am confident that when the 
claims facility is up and running next month, it will have a 
seamless transition from BP, which will be out of the private 
claims business and will be part of this facility.
    There are difficult challenges ahead. What constitute 
eligible claims for damages? How are those damages going to be 
proven? I mean, you cannot just file a claim without any 
corroboration. But I will work with the people of the Gulf. I 
am not beholden to the Administration. I am not beholden to BP. 
I am working for the people and the businesses in the Gulf to 
try and make sure that equity is done, that justice is done, 
and that I distribute the funds that are available as soon as I 
can.
    I want to note with gratitude the staff of this 
Subcommittee. I have been working with the staff of this 
Subommittee over the past few weeks in trying to listen to 
concerns that have been expressed by you and other Members of 
the Subcommittee, by citizens of the Gulf. I have been 
coordinating with the staff and will continue to do so.
    So I am fairly confident that, despite the challenges 
ahead, we will be able to make this facility function the way 
it should independently so that the citizens of the Gulf are 
served by this program.
    Thank you, Mr. Chairman.
    Senator Carper. Thanks very much, and I think I speak for 
my colleagues to say thank you for taking on this 
responsibility.
    Mr. Hackett, welcome. We are delighted that you are here. 
Please proceed. Thank you for joining us.
    Mr. Hackett. Thank you, Mr. Chairman.
    Senator Carper. Again, your full statement will be made 
part of the record, and feel free to summarize.

TESTIMONY OF JAMES T. HACKETT,\1\ PRESIDENT AND CHIEF EXECUTIVE 
            OFFICER, ANADARKO PETROLEUM CORPORATION

    Mr. Hackett. Thank you. I am eager to be here to answer 
questions. I am Jim Hackett. I serve as Chairman and Chief 
Executive Officer of Anadarko Petroleum. I just wanted to make 
some brief oral comments that are consistent with the written 
comments that we gave to your Subcommittee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hackett appears in the Appendix 
on page 117.
---------------------------------------------------------------------------
    The Deepwater Horizon explosion has been an unprecedented 
environmental disaster, as well as has impacted many families 
of the 11 men lost. And our feeling is that this pain continues 
in terms of the Gulf Coast region and the communities in that 
region. And while BP's capping of the well has, I think, 
brought guarded hope that the situation may soon be brought 
under control, we must continue to keep the people of the Gulf 
in our hearts and prayers until the environment and the economy 
there have recovered.
    We, along with others in the industry, have continued to 
support the response effort of the Unified Area Command, 
offering technical expertise, providing specialist equipment, 
and pledging to donate any net revenues from any oil we receive 
to local charities and civic organizations in the Gulf region.
    We share the desires of all Americans that we are arriving 
at a point where efforts can now turn to restoring the Gulf 
region as quickly as possible. The Gulf has already suffered 
significance losses, and the Subcommittee is rightly concerned 
that American taxpayers must not pay the costs associated with 
the spill.
    We appreciate BP's recognition of its central role as 
operator of the well and its frequently stated public 
commitment to continue to pay all legitimate claims in order 
that the American taxpayers are not burdened.
    To prevent that from happening as well, we are committed to 
meeting our obligations under the Oil Pollution Act. Let me 
reemphasize the central point for the Members of the 
Subcommittee and you today. I strongly believe that the 
taxpayers of America should not be stuck with the bill for the 
tragedy in the Gulf. I am before you today because Anadarko was 
a non-operating investor in the Macondo well. According to 
longstanding industry practice and standard contractual 
arrangements, as a non-operator we are essentially a passive 
investor in the Macondo well. Although we receive some limited 
information regarding plans and progress, all day-to-day 
operational decisions were made by the operator, BP.
    Our company and our industry have many highly skilled and 
committed individuals that work hard every day to safely 
deliver the energy resources America needs. All energy 
resources must be found, developed, and produced safely and in 
a manner that protects the environment. We all agree the well 
must be plugged, those that have suffered related losses must 
be compensated, and the Gulf must be restored. I and the 4,300 
employees of Anadarko are eager to help make that happen.
    I look forward to your questions.
    Senator Carper. Good. Mr. Hackett, thanks for that 
testimony. Mr. Ishii, please proceed.

TESTIMONY OF NAOKI ISHII,\1\ PRESIDENT, MOEX OFFSHORE 2007 LLC, 
            ACCOMPANIED BY FUJIKO SATO, INTERPRETER

    Mr. Ishii. Chairman Carper, Ranking Member McCain, thank 
you for the opportunity to testify at today's hearing. I am 
Naoki Ishii, President of MOEX Offshore 2007 LLC, based in 
Houston, Texas. MOEX Offshore 2007 LLC has a 10-percent non-
operating interest in the lease on which the Deepwater Horizon 
rig was drilling.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Ishii appears in the Appendix on 
page 120.
---------------------------------------------------------------------------
    We are deeply saddened by the tragedy of the Deepwater 
Horizon accident. Our thoughts and prayers go out to the 
families of those who were lost and to all of those who have 
been affected by this spill. We understand the significance of 
this matter to the people of the Gulf Coast. MOEX Offshore will 
continue to cooperate with all of the parties who are 
responding to and investigating this accident.
    MOEX Offshore does not conduct actual field operations or 
activities to develop oil and gas. MOEX Offshore had no role in 
the selection or operation of the Deepwater Horizon rig. We are 
a minority non-operating investor.
    MOEX Offshore shares the Subcommittee's concerns about 
these tragic events. We are closely monitoring the ongoing 
investigations. We look forward to working in good faith with 
Congress. MOEX Offshore will work with all levels of government 
to assist in their efforts to restore the Gulf Coast.
    I have submitted written testimony to the Subcommittee that 
supplements this statement. I look forward to answering your 
questions.
    Thank you again for the opportunity to share MOEX 
Offshore's view. Thank you very much.
    Senator Carper. Thank you for your oral testimony and for 
your written testimony. I have been joined by Senator McCain 
and Senator Ensign. I have asked Senator McCain if he wanted to 
make any brief statements, and he has declined. And, Senator 
Ensign, would you like to as well? OK.
    Mark this day as an unusual day when we have my colleagues 
on either side declining that opportunity, but we will get 
right into the questions. I am glad my colleagues are here. I 
will just lead off with a question for Mr. Hackett and Mr. 
Ishii. Let us do 7 minutes for questions, if we could, for each 
Member.
    Mr. Hackett and Mr. Ishii, as you both know, your 
companies, Anadarko and MOEX, have received, I believe, four 
bills from the Federal Government for costs related to this 
spill. It appears under the law that your companies are liable 
for these costs. However, we have yet to see any reimbursement 
for these costs from your companies.
    Could you please tell the Subcommittee and the American 
taxpayers watching us today why Anadarko and why MOEX believe 
that you do not have to pay? Mr. Hackett, would you like to go 
first?
    Mr. Hackett. I would be happy to, Senator Carper. The 
important thing to note is that the taxpayers are being paid, 
and this operates very similar to the Superfund legislation on 
which the Oil Pollution Act was based or formed from, and that 
is that the operator or the lessee is the primary payer, and 
then the allocation of liability occurs behind that payment. So 
we view this as a very good process, a very standard process in 
terms of billing, and the important thing is the American 
taxpayer is being kept whole.
    Senator Carper. Let me ask you again: Why do you feel you 
do not have to pay? Just one more time explain it. Why do you 
feel that Anadarko does not have to pay in response to billings 
from the Federal Government?
    Mr. Hackett. The Federal Government is being paid. BP is 
paying the Federal Government, has stated that they want to 
continue to do that. Should the American taxpayer be paid 
double? As long as there is a paying party--and this is the 
same way it works under the Superfund regulation as well, and 
the Administration. And I think even the testimony from the 
government witnesses to your Subcommittee in the earlier 
hearing ascribed to the same principle. As long as the American 
taxpayer is kept whole, that is the key. And then the 
allocation of reimbursement is done behind that payment between 
the parties involved.
    Senator Carper. All right. Mr. Ishii, the same question, if 
I can. Can you please explain to our Subcommittee and to the 
American taxpayer watching us today why you feel that MOEX does 
not have to pay in response to the billings presented to it by 
the Federal Government? And we understand, to those who have 
joined us in person here or through the media, that Mr. Ishii 
gave his testimony orally in English. He will be working 
through an interpreter to respond to our questions.
    Mr. Ishii [through interpreter]. Mr. Chairman, regarding 
the invoice from the Coast Guard, there is a contract in place 
among the partners, and that contract states that BP, as the 
operator, would make the payments in the first instance. And, 
therefore, based on that contract provision, BP has been making 
the payments.
    Senator Carper. All right. A question again to follow up, 
if I could, for you, Mr. Hackett, and for you, Mr. Ishii. Have 
either of your companies contacted the National Pollution Fund 
Center to contest what we describe or call a Notice of 
Designation? In other words, have you told the Federal 
Government really to stop sending you these bills? Mr. Hackett.
    Mr. Hackett. We have not, Senator.
    Senator Carper. Could you explain why or do you anticipate 
what your anticipation is in terms of contesting this notice or 
reaching out to the Federal Government to ask them to stop 
sending the bills?
    Mr. Hackett. No. We actually have stated publicly that we 
view ourselves as being a responsible party under the Oil 
Pollution Act, so we do not see a need to send that note.
    Senator Carper. All right. Mr. Ishii, if I may, the same 
question. Has your company, has MOEX contacted the National 
Pollution Fund Center to contest the Notice of Designation? And 
have you told the Federal Government to stop sending your 
company these billings?
    Mr. Ishii [through interpreter]. Mr. Chairman, I do not 
have any recollection that we have been contacted by them, nor 
of any response that we made to them.
    Senator Carper. I see. May I ask you to go beyond your 
recollection and respond to us in writing for the record, 
please?
    Mr. Ishii [through interpreter]. Mr. Chairman, I 
understand. I will do that.
    Senator Carper. Thank you.
    Next question, again for Mr. Hackett and Mr. Ishii. Our 
Subcommittee received documents, I am told, this week that show 
BP has now sent your companies two bills for a share of the 
costs that have been incurred. I believe that the most recent 
bill to Anadarko totaled some $900 million and to MOEX I 
believe about $400 to $450 million. I think I know the answer 
to this question, but I will ask it anyway. Will either of your 
companies be paying these bills? Mr. Hackett.
    Mr. Hackett. Senator Carper, as has been reported, we have 
withheld reimbursement to BP. Again, the taxpayer is being kept 
whole, which is the important thing. We have a dispute behind 
our own agreement between the parties that I think is better 
left to the parties, and that is where we stand, and we are in 
discussions with BP on that.
    Senator Carper. All right. Mr. Ishii, same question, 
please.
    Mr. Ishii [through interpreter]. Mr. Chairman, regarding 
the invoice from BP, what we are most interested in is, first, 
to try to find out why this tragic accident occurred, and so we 
need to first clarify the cause of the accident. I think it is 
a little too early to talk about things that would follow 
because we have to wait for the cause to be clarified.
    However, we have properly stated that any proceeds that 
would be obtained from the recovered crude oil should be used 
for the people in the Gulf Coast impacted by this accident. 
And, therefore, we have relinquished our rights to those 
proceeds.
    Senator Carper. All right. To my colleagues, I indicated we 
would go 7 minutes. I am going to go one more minute, and then 
everyone will have at least 10 minutes.
    Just to follow up, if I could, again, for Mr. Hackett and 
Mr. Ishii, as a responsible party under the Oil Pollution Act, 
your companies are joint and severally liable for damages 
relating to the Deepwater Horizon incident. If BP begins to pay 
only their share, what they believe to be their share of the 
bills received from the Federal Government, will Anadarko and 
MOEX pay their respective shares in the interim? Or will you 
wait to litigate this issue with BP? Mr. Hackett.
    Mr. Hackett. Senator, I think that the arrangement that is 
currently underway, as I mentioned, is very typical and I think 
the right arrangement for the government to have with the 
operator. We expect, as BP has committed to and as the 
government has suggested they will do, that those arrangements 
will stay in place. We think it is the best thing for the 
American public. We think it is the best thing for the 
taxpayer. And I think that the contractual issues between the 
parties can be sorted out separately.
    Senator Carper. Have there been communications between 
Anadarko and BP on this issue as to whether or not they intend 
to continue to pay 100 percent of the billing or if at some 
point in time they anticipate saying that is enough and to 
invite their partners to pay their share?
    Mr. Hackett. We understand--we have not asked them for any 
modification of their public, frequently repeated commitment to 
pay all bills first.
    Senator Carper. All right. I will stop there and yield, if 
I could, to Senator McCain. Thanks for joining us today, 
Senator McCain.
    Senator McCain. I thank the witnesses.
    Mr. Hackett, BP has set aside $20 billion in an escrow 
fund. Has your company set aside any funds?
    Mr. Hackett. We have not, Senator McCain.
    Senator McCain. Why not?
    Mr. Hackett. We do not think it is necessary to do so.
    Senator McCain. Look, here are the following facts: The 
Federal Government has named four companies as ``responsible 
parties'': Deepwater Horizon/Transocean, BP, Anadarko, and 
MOEX. And under the Oil Pollution Act, responsible parties, 
which you have been named one of, are obligated to pay all 
cleanup costs and economic damages. So right now, my 
understanding of the law is that responsible parties have to 
pay. But you are not paying. Is that right?
    Mr. Hackett. Senator McCain, if I can go back again, the 
issue is one----
    Senator McCain. Are you paying or not paying?
    Mr. Hackett. We are not paying.
    Senator McCain. And you have not set any money aside.
    Mr. Hackett. We have not set any money aside, but we have 
substantial assets.
    Senator McCain. You have been billed for $900 million. What 
would be wrong with going ahead and paying that, and then if 
you can prove gross negligence or willful misconduct from BP, 
you would then get that money back? Because right now the 
people who are in the Gulf need the money, not the litigation.
    Mr. Hackett. Senator, as I understand it, nobody is being 
disadvantaged today from our lack of setting up that sort of 
fund.
    Senator McCain. Because BP is paying the whole bill.
    Mr. Hackett. BP is paying the bill, and they have committed 
to doing that, and----
    Senator McCain. Even though you are designated as a 
responsible party.
    Mr. Hackett. We may be confusing two different issues. 
Under that Oil Pollution Act, I think that any proceedings 
there, as I mentioned, traditionally have occurred similar to 
the Superfund where the operator pays the bills first, and then 
they allocate the responsibility amongst the parties.
    Senator McCain. Well, let me turn to Mr. Feinberg. By the 
way, thanks for all your good work. Your reward will be in 
heaven, not here on Earth, Mr. Feinberg. We thank you for all 
your great work.
    Mr. Feinberg. Well, your praise helps heaven. Thanks. 
[Laughter.]
    Senator McCain. Mr. Feinberg, do you agree with me that 
there are ``responsible parties'' here under the Oil Pollution 
Act?
    Mr. Feinberg. I do not know. All I know is that the 
Administration and BP entered into an agreement to set up an 
escrow account for $20 billion, which I will draw on. I do not 
know. And it can be on that.
    Senator McCain. You do not know anything--do you want to 
venture an opinion?
    Mr. Feinberg. No, I am not an expert in the field, and I 
would not dare venture an opinion.
    Senator McCain. Now, Mr. Feinberg, you have ventured many 
opinions of which you are--and so have I, on which we are not 
experts. But, anyway, let me, Mr. Feinberg, again thank you and 
thanks for going down and meeting with the people and talking 
with them. I think that is really vital, and I thank you for 
doing that. I have seen a lot of clips of you because they not 
only need support, financial support, but they need sympathy 
and understanding, so thank you for doing that.
    Mr. Feinberg. Thank you.
    Senator McCain. Do you believe that local government should 
be compensated for lost tax revenue and reimbursed for 
additional expenditures related to the response and cleanup 
efforts?
    Mr. Feinberg. Yes.
    Senator McCain. You do.
    Mr. Feinberg. Yes, I do.
    Senator McCain. And where should that come from?
    Mr. Feinberg. Under the arrangement entered into on this 
Gulf Coast Claims Facility Center that I am setting up, any 
government claim--local, State, Federal--does not go to me. By 
agreement, it goes to BP. I have no jurisdiction yet--maybe it 
will change, but I have no jurisdiction over reviewing and 
authorizing payment for government claims, but they do come out 
of the $20 billion escrow account.
    Senator McCain. OK. During one of your town hall meetings, 
you were asked about claimants who work or operate in all-cash 
businesses and do not necessarily have tax returns, profit and 
loss statements, and check stubs. You were quoted in a July 16 
article as saying, ``Well, tell the captain of the boat or your 
priest to vouch for you.'' Does that maybe open the door for a 
little bit of fraud here?
    Mr. Feinberg. I have reminded everybody down there I will 
bend over backwards to try and authorize emergency payments to 
people in need down there. Now, I agree with you, Senator, as I 
usually do, that it does raise a real serious question. I have 
told everybody in the Gulf that even if I authorize payments, I 
must send them by law a 1090, tax verification. Hopefully we 
will find a way to prove those claims without at the same time 
encouraging fraud. That is a challenge.
    Senator McCain. And so do you have a policy or a way that 
you could preemptively take measures or steps to prevent fraud?
    Mr. Feinberg. Yes. First, we have been in constant 
communication with the Department of Justice, Criminal Fraud 
Division. As you will recall, Senator, in the 9/11 Victim 
Compensation Fund, there were 7,300 applications, and there 
were only 35 fraudulent applications. It worked. With the help 
of the Department of Justice and with my own internal auditing 
program, I am confident that we will be able to prevent or 
deter fraudulent claims. We have to do that.
    Senator McCain. Have you got a handle on yet or a rough 
estimate of what the costs are going to be here?
    Mr. Feinberg. No, because the oil just stopped. We will 
have in the next 30 days for you, Senator, a budget as to what 
we think the infrastructure will cost to administer the program 
and how many claims there will be and how many eligible claims, 
whether the $20 billion will be sufficient--unclear as yet 
until we see the claims.
    Senator McCain. Have you got a guess as to whether $20 
billion is sufficient? You have no guess?
    Mr. Feinberg. I have no guess. I would hope $20 billion 
would be sufficient. I would hope so. But, fortunately, as you 
know, BP has stated that if $20 billion is not sufficient, they 
will step up and honor all additional claims that may be 
eligible and compensable.
    Senator McCain. Mr. Ishii, do you have a contingency fund, 
an escrow fund set aside for payment of damages as a result of 
the oil spill?
    Mr. Ishii [through interpreter]. Senator, MOEX has not 
established a fund.
    Senator McCain. Well, look, let me just say, here we have a 
situation where at least the Federal Government has named both 
of you as ``responsible parties.'' Obviously, BP feels that you 
should pay a share of the repayments that are necessary to try 
to fix and repair the damages from this terrible disaster. You 
have not paid anything, and you have not even put any money 
aside. I do not think that is the right thing to do. It is 
pretty clear what you are going to do is litigate as to whether 
BP had gross negligence or willful misconduct caused by the 
accident. So I strongly recommend that you step forward, 
frankly, as BP has--I did not think very often I would be 
praising BP. But I strongly recommend that you set aside funds 
and that you start paying some bills so that the people will 
know that you are a responsible organization whose first 
obligation is--if indeed you are responsible parties, which is 
what you have been designated and you are going to have to 
prove that you are not--that you start paying some of these 
bills and set up an escrow fund. And I think it would be in the 
best interest of the people of this country and, frankly, the 
image of your corporations.
    I thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator McCain. Welcome, Senator 
McCaskill.
    Senator McCaskill. Thank you very much.
    Mr. Feinberg, I am curious about what is compensable and 
what is not, and it is not clear to me what is compensable and 
what is not in this situation. Let me draw on your experience, 
and I do think that you are a remarkable, talented lawyer. And 
lawyers hardly get any praise around these parts, so let me 
just tell you that I think you are a remarkable lawyer.
    Mr. Feinberg. Thank you.
    Senator McCaskill. Tell me, after the tragedy of September 
11, 2001, as you administered that claim fund, were there non-
pecuniary damages available to the surviving spouses? Were they 
able to access loss of consortium--which for lay people means 
the value of your loss of companionship, your inability to have 
more children, those kinds of damages--and punitive damages? 
Was that available to the surviving spouses of the tragedy in 
New York?
    Mr. Feinberg. By statute, punitive damages, no, unless you 
opted out of the fund and wanted to litigate.
    Senator McCaskill. Right.
    Mr. Feinberg. Virtually 97 percent came into the fund 
voluntarily. No punitive damages.
    Pain and suffering, emotional distress, yes, if and only if 
that pain and suffering and emotional distress was accompanied 
by either: A, death of a loved one; or, B, physical injury. You 
could not recover by statute just for loss of consortium, pain 
and suffering, emotional distress. It had to be part of a 
physical injury or death arising out of the attacks.
    Senator McCaskill. I am sure you are aware, because I am 
sure you have researched and had lots of folks help you get a 
handle on the law, that we have what I think is a terribly 
unfair situation here in that the Jones Act limits the 
liability for the surviving spouses of the men who lost their 
lives in this tragedy. And I think, if my research is correct, 
I think Senator McCain helped take the airplane exemption out 
after a tragedy air crash. This used to apply to the seas, the 
air, all kinds of methods of transportation that were not 
landlocked. But we did not remove this unfair limit for 
vessels, and so these women, many of them with small children, 
many of them who live day in and day out knowing that their 
spouses were engaged in--and, frankly, I think some of them 
even have some evidence that will come to light that some of 
their spouses were worried about this particular rig and the 
problems they were having. I am curious as to your take on that 
limit. And is it fair that, depending on where you lose your 
spouse, if it is on the water, you cannot recover, but if it 
was on land you could?
    Mr. Feinberg. I would urge the survivors of those who lost 
their lives to first voluntarily come into this fund. They are 
eligible to come into the Gulf Coast Claims Facility. Deaths 
are included, as well as physical injury. I am not limited by 
the Jones Act or any other law in terms of my ability to at 
least calculate damage, if eligible, and to offer voluntarily 
some sort of compensation. No one is obligated to take that 
compensation, so it is sort of a free preview.
    So I am sure that all of these widows that you reference 
have excellent lawyers who are well regarded, but I would urge 
them to first consider voluntarily providing an application to 
me to review, which could take into account not only existing 
law but equity and what would be fair and just.
    Senator McCaskill. So you can do a complete equitable 
decision without any limitations of existing Federal law?
    Mr. Feinberg. That is correct.
    Senator McCaskill. Well, would you think that if someone 
who--it is certainly their right. If they decide that they want 
to go into the courts and have justice the old-fashioned way 
that we do it in this country, is it fair that their limit on 
damages would be in place, whereas if there was an airplane 
crash or if there was a building that was blown up, they would 
not have that limitation, do you think?
    Mr. Feinberg. I am not an expert in the Jones Act, but I 
would question the legitimacy of making that distinction.
    Senator McCaskill. And I question it also. I think it is 
something that we need to look at quickly in Congress just as a 
matter of pure fairness that these women should not have that 
limitation. I understand the point you are making about a free 
preview. It is almost like a non-binding dispute resolution--in 
fact, it is a non-binding dispute resolution. That is exactly 
what it is, and I think that would be something that is 
available to them. But at the same time, I think they should 
have every mechanism in the law that any other surviving spouse 
would have after this kind of problem, regardless of the 
location of the tragedy.
    Mr. Feinberg. I would also say that under the facility as 
it currently is planned, anybody who is eligible can receive 
immediately from this facility up to 6 months of emergency 
payments without any obligation, without any requirement to 
waive any legal rights. If you are eligible and we calculate 
that loss and it is provable, we will immediately issue up to 6 
months' emergency compensation.
    Senator McCaskill. For businesses that have gone out of 
business as a result of this crisis, that have actually lost 
their businesses, are you able to do blue sky value also?
    Mr. Feinberg. I would consider it. I am not sure how blue 
sky value exactly would apply here, but such businesses who are 
now defunct are certainly eligible.
    Senator McCaskill. OK. Mr. Hackett, I am curious. You had 
to know going into this hearing that you were going to get some 
tough questions, both you and Mr. Ishii, about the failure to 
set up a fund or to set aside any money to address whatever 
part of this you may have some responsibility for. And if you 
say you have plenty of resources to do that, and if it is never 
tapped into, I am just curious why, just from a public 
perception, would you resist this. I mean, you look like that 
you are not stepping up. It looks like you are not taking 
responsibility to the members of this panel and to the American 
people. Why would you suffer that kind of public relations 
disaster if it is not going to make a difference in terms of 
how much money you might be called upon to pony up for your 
share of any responsibility for this occurrence?
    Mr. Hackett. Senator, I think we start with the fact that 
the American taxpayer is being kept whole, so we do not view it 
as a situation where they are not being kept whole.
    The second place we start is what legal position we should 
take.
    The third position is, frankly, to do what is right, and we 
feel very strongly about this, for our shareholders, our 
employees, and our industry.
    What we have learned in public testimony--and we withheld 
any opinions for 2 months--causes us grave concern. We have 
contractual dispute mechanisms within the joint operating 
agreement that we think we are entitled to exercise. We 
understand from many decades of practice that the Oil Pollution 
Act, modeled after the Superfund legislation, operates in a 
fashion where the operator pays the bills, and then we 
apportion liability.
    We do not feel it is right for us to have to pay first. We 
think it is right that BP pay first. They publicly stated they 
are committed to doing it.
    Senator McCaskill. Well, nobody is asking you to pay 
anything. I mean, I guess what I am saying is obviously the 
lawyer department won out over the public relation department.
    Mr. Hackett. I think I said what is right, ma'am. I did not 
say that the lawyers won out.
    Senator McCaskill. Well, no one here is saying that you 
should have to be paying something right now. I understand that 
there are liability issues that have to be determined, and 
there are going to be some real cat fights among lawyers, among 
all of the four parties, as to how that liability ultimately 
plays out. BP knows that they have primary liability. They have 
stepped up--after the President asked them to, I think, in a 
show of strong leadership--and they put $20 billion cash on the 
nose. I think that is appropriate, and I think frankly it has 
gone a long way with the American people that they understand 
this.
    I guess what I am saying is, if no one is asking you to pay 
anything, if all we are asking you to do is to acknowledge 
somewhere in your corporate accounting that there may be a day 
that you might have to pay something, and to show the American 
people and to show these Senators and to show the people in the 
Gulf that, if that day came, you are prepared to address it. If 
it is not going to make any difference in your bottom line 
right now, why on God's green Earth wouldn't you do it?
    Mr. Hackett. Just as a piece of information on the 
Department of Justice, as you know, they had sent us a letter 
regarding any extraordinary transactions that would compromise 
that asset position. We have committed to them that we will 
fully inform them of that. We have a very strong balance sheet. 
There is cash on hand. We do not believe that an escrow fund is 
required for us to show bona fides with regard to our ability 
to pay.
    We are going to be very careful about not compromising that 
position because we understand the concern you have.
    Senator McCaskill. Well, I do not think you completely 
understand it because I think you are so focused on what it 
might signal in terms of liability that you are losing sight of 
what it might signal in terms of acknowledging that there may 
be a day that others might have to pay something besides BP. I 
think you have made a mistake. I think you have come to this 
hearing in a much weaker position because of it. I think both 
of your companies have. And I would certainly ask you to 
reconsider that.
    No one is going to make you pay anything unless you are 
liable for something. BP is paying because they know they would 
be liable, and they believe that what they are gaining in the 
short run by a cooperative agreement and by working with Mr. 
Feinberg in long run is going to serve their company, and I 
think they are spot on. And I think both of your companies have 
made a mistake, but we do appreciate you being here today. And, 
Mr. Feinberg, wherever that place is in heaven that you find, I 
hope there is someone there that has a dispute that you can 
negotiate.
    Mr. Feinberg. Thank you.
    Senator Carper. Senator Ensign.
    Senator Ensign. Thank you, Mr. Chairman. Thanks for holding 
this important hearing. I want to start with Mr. Feinberg.
    You mentioned before that the local governments and State 
governments do not have jurisdiction over those payments. Who 
has jurisdiction over those payments? It comes out of the $20 
billion, correct?
    Mr. Feinberg. It comes out of the $20 billion, but those 
claims should be submitted, right now at least, directly to BP.
    Senator Ensign. And then BP would draw from that money, and 
they would authorize the payments? The point of the question 
is, if we are getting down toward the end of that money and you 
have governments over here claiming they are owed money and you 
have the private sector over here claiming they need the money, 
who gets that money?
    Mr. Feinberg. Well, there is $20 billion to hopefully defer 
any argument. There is no priority. Whoever has a claim, first 
in, first considered. The claims have to be proven, of course. 
And finally, BP has, again, made it clear that if the $20 
billion proves to be insufficient--and I hope it will not be 
insufficient. But if it is, BP has stated publicly it will 
honor any additional financial obligations that are proven.
    Senator Ensign. OK. Taxes will be owed, I would imagine, on 
those if they have State and local income taxes on that money 
to be paid.
    Mr. Feinberg. Sales taxes--oh, I see. Yes, it is the 
equivalent of wages or lost income, yes.
    Senator Ensign. These are questions that probably need to 
be answered. What if you have a hotel and part of that lost 
revenue is from rooms, but now that local government does not 
get room tax?
    Mr. Feinberg. I assume that local government is going to 
submit a claim for lost room taxes, sales taxes, ad valorem 
real estate taxes. I can see some innovative claims.
    Senator Ensign. Right. The reason for the question is, if 
they submit that to BP, then do you deduct that value because 
the hotel would have had to pay those taxes? In other words, 
are you just going to be looking at the net?
    Mr. Feinberg. That is right. I think I have to mitigate if 
there are other sources of income, yes.
    Senator Ensign. OK. One of the concerns you always have 
during these times, when you have massive potential lawsuits 
and things like that--and I know you are a lawyer, so maybe you 
are going against your own interests here--but, how do we 
minimize fees going to lawyers so that the money actually gets 
to the victims?
    Mr. Feinberg. Well, that is a controversial question. I am 
a lawyer. First of all, I want to remind--Senator McCain will 
recall that in the September 11, 2001 fund, we had over 1,500 
lawyers who worked pro bono to help September 11, 2001 victims. 
I am committed to setting up in this program some sort of pro 
bono program so that lawyers can represent claimants without 
fee.
    When it comes to any private arrangement that a claimant 
has with a lawyer, that is not on my watch. That is a private 
contractual understanding.
    I would say that when I calculate awards under the $20 
billion, those awards are the damage awards that are owed the 
claimant, and there will be no add-on or gross-up for lawyers' 
fees.
    Senator Ensign. OK. Try to give us some idea how you 
determine who is eligible. This is very difficult, and I 
understand you have a monumental task ahead of you. There is no 
question, you are probably going to get criticized some day 
because there will be some fraud.
    Mr. Feinberg. You say ``some day''?
    Senator Ensign. Yes. It is impossible not to have some 
fraud in there, and you have to try your best to minimize that. 
There are going to be some shysters out there and people trying 
to take advantage, and there will be stories on cable news and 
the Internet and blogs and you will be made to look bad because 
you were not doing your job. I think it is impossible to not 
have that.
    But try to give this Subcommittee an idea of some of the 
criteria that you are going to be looking at for legitimate 
claims.
    Mr. Feinberg. Let us start as a base point, what does the 
law of Louisiana, Alabama, Mississippi, Florida, and especially 
the Federal Pollution Control Act say about who is eligible? 
That is the first question. That is a base point. ``Mr. 
Claimant, you are ineligible and, frankly if you litigate, you 
will be declared ineligible.'' So I am trying to use as a base 
point what the law would say. Then, above that, I want to try 
and do better. I think equitably I want to try and do better.
    So the problem is going to come, there are the easy cases, 
Senator, the easy cases. Oil on the beach, I cannot fish in 
these waters, I cannot shrimp, I cannot harvest oysters--those 
claims are relatively straightforward, pay them 100 percent 
under any fair reading of law.
    Senator Ensign. Except that you do not know how long this 
is going to last.
    Mr. Feinberg. Well, that is a separate question, which is 
there is no oil on the beach yet. Now, fortunately, the well is 
capped, so we are starting to get a handle on where that oil 
may be----
    Senator Ensign. No, but what we do not understand is maybe 
the damage that was done by the dispersants and some of the 
other things on the oyster beds, on the shrimp, and we do not 
know 2 years from now, 3 years from now, the potential damage 
that could be done to the industry.
    Mr. Feinberg. I am going to have to get some expertise and 
some help on that. This program will be up and running for 3 
years. Hopefully we will have a pretty good handle on that.
    You have focused exactly on one of the big problems: The 
indirect claims: ``Mr. Feinberg, I have a motel four blocks 
from the beach. There is no oil on the beach. None. But because 
of the publicity and the tourism, I am off 30 percent. Here are 
my records from the past. Here are my records post-spill. I 
have a claim. Pay me.''
    You are absolutely right, I am going to have to draw some 
lines and some distinctions, make those distinctions well 
known, and try and do equity as best I can.
    Senator Ensign. Are there types of businesses that you will 
not give claims to?
    Mr. Feinberg. Well, I do not know off the top what those 
businesses might be. There are some types of businesses I 
obviously will pay: Fishermen, shrimpers, oyster harvesters, 
motels right on the beach. The problem is going to be--there 
may be a restaurant that is right on the beach that is 
dependent for its livelihood on the shrimp from the Gulf. What 
do I do with a restaurant in Las Vegas who writes a claim and 
says, ``We have lost 30 percent of our business because here in 
Vegas we are the only restaurant that has that Gulf shrimp,'' 
and now it is gone and people are not coming to that 
restaurant? Where the proximity is so far removed from the 
Gulf, where do you draw the line? And I am trying to figure 
that out now.
    Senator Ensign. One of the reasons I ask, I actually just 
thought of this. Some people might have a problem with you 
because you have casinos in Gulfport and down in Biloxi and 
everything that can be affected by this. Do you have a problem 
with reimbursing if a casino is down 20 percent of their 
revenues?
    Mr. Feinberg. Not if they can demonstrate that they are on 
the beach, that they are down 20 percent, that people come to 
gamble but they also use the beach, they go on fishing 
charters, they sightsee. I mean, I will look at each claim. But 
I do not have a problem with tourism being compensable under 
this program. The question is: What tourism? And exactly what 
you are saying, where do you draw that eligibility line?
    Senator Ensign. OK. Thank you, Mr. Chairman.
    Senator Carper. I have one question, if I could, for Mr. 
Feinberg.
    Mr. Feinberg, I want to go back to a point by Senator 
McCain, if I could. The President signed in a signing ceremony 
today at the White House legislation that I had introduced with 
the support of a number of my colleagues, Democrat and 
Republican, on this Subcommittee, and that legislation is 
called the Improper Payments Act of 2010. Last year, we learned 
that almost $100 billion of Federal funds were improperly paid 
to payees--in some cases mistakes, honest mistakes; in other 
cases, fraud. And the legislation that the President just 
signed into law today says, Federal agencies across the board 
from A to Z, we want you to: One, report improper payments; 
two, we want you to stop making improper payments; and three, 
for the improper payments that have been made, we want you to 
go out and recover as much of that money as you can for the 
Treasury Department or in some cases for the Medicare Trust 
Fund.
    I just want to underline again the concern that we have, 
especially on the same day that this law has been signed into 
effect, that you be diligent. And there is a tension here 
between being diligent and trying to make sure that we protect 
ultimately the fund from which these monies are going to be 
paid, but at the same time trying to be fair.
    You spoke to this once before, but could you just respond 
to it again?
    Mr. Feinberg. Mr. Chairman, nothing will undercut the 
credibility of this fund that I am administering more than 
fraud. Nothing. And if it gets around that $20 billion is being 
wasted, there are fraudulent payments, it will destroy the 
credibility of the program in the eyes of the public, and 
frankly, in the eyes of the claimant.
    So I am determined, as I was with the 9/11 Victim 
Compensation Fund, to make sure that fraud is addressed 
promptly, quickly, efficiently, that we deter any fraudulent 
payments. And I have the cooperation of the Department of 
Justice, Criminal Division--no better than them--and also we 
will have internally in the infrastructure that I am designing, 
we will have anti-fraud mechanisms to deal exactly with the 
problem you are raising.
    Senator Carper. Good. Thanks. Eternal vigilance. Continue 
to be vigilant. Thank you.
    Mr. Hackett, again for you, please, you have said publicly 
that you believe BP may have acted with willful misconduct or 
with gross negligence as the operator of the Deepwater Horizon 
rig. This has been Anadarko's primary argument for withholding 
payments, I believe, to BP. Could you please take a moment and 
tell us what evidence or information you have that has led 
Anadarko to that conclusion?
    Mr. Feinberg. Yes, Senator. The information we have 
gathered has been through testimony and investigations and 
through public disclosures, because we have not received any 
root causes directly from the operator.
    The majority of the things that we make that likely gross 
negligence statement surrounding were covered in Congressmen 
Waxman-Stupak letter to BP prior to Tony Hayward's testimony.
    Senator Carper. All right. A question again, if I could, 
for you and also for Mr. Ishii, please. The joint operating 
agreement between your companies and BP spells out, I believe, 
certain data, certain information about the well's operation 
that Anadarko and MOEX were to be given access to on a regular 
basis. In fact, some information was to be provided, I am told, 
on a real-time basis.
    In addition to this information that your companies 
received or should have received, you also had to approve, I 
believe, certain expenditures for work on the well. It would 
seem that if BP had been doing something wrong, you would have 
known about it, and I would just ask am I correct in that 
assumption.
    Mr. Hackett. Would you like me to answer, Senator?
    Senator Carper. Please.
    Mr. Hackett. The standard industry practice is that you do 
get a budget description of a model or template well design. 
That is then altered, depending on what the drilling results 
are. You also get real-time on the geological prognosis so that 
once you have TD'd a well, which occurred on April 9 in this 
case, you then have logging runs which occurred, I think, up to 
the middle of April, or around April 13.
    At that point the real-time data is not--we do not go to 
the real-time data because the geological prognosis is done, 
and it should be a fairly routine process at that point then to 
finish the well.
    What you then get up until they no longer give you reports 
is a daily drilling report which is generally very broad, very 
high level, about actual events as opposed to procedures used 
or designs that were used. The last one of those we received 
was on the morning of April 20 for the activities on April 19.
    Senator Carper. All right. Mr. Ishii.
    Mr. Ishii [through interpreter]. Mr. Chairman, we receive 
daily reports from BP, and these reports are received with a 1-
day delay. And in addition, we have the right to access some of 
the technical or detailed data.
    We are committed to complying with all of our legal 
obligations. When we made the decision to participate in this 
well, the drilling had already started at that time, and that 
drilling was started based on the government approving the 
drilling plan. We felt that BP, as the operator, would properly 
operate the well, and based on that information, we decided to 
participate in this project. And, therefore, we feel the same 
as all of the people who have suffered in this great tragedy in 
that we would like to know and determine why this accident 
occurred, and we would like to have that properly clarified. 
Until that is investigated and determined, we feel that it is 
too early to discuss anything further.
    Senator Carper. All right. Mr. Ishii, in America we like to 
play baseball. As it turns out, in your country your people 
like to play baseball, too. Some of your best players actually 
end up playing here in this country, as you know. We have a 
term in baseball that we use outside of baseball, and it is 
called a pitch that is well telegraphed. The idea behind the 
concept of a pitch well telegraphed is that you kind of know 
what the pitch--fast ball, curve ball, split-fingered, change-
up--you know what the pitchers are going to pitch because he 
has telegraphed that in the past.
    I want to kind of drill down, if I can, on the 
communications between BP with Anadarko and with MOEX in the 
days leading up to April 20. Were you taken by surprise on 
April 20 when the accident occurred? Was this a pitch well 
telegraphed? Had you been receiving updates from the primary 
operator of the well that there were problems?
    We have received, as you may know, communications between 
BP and I believe in this case Anadarko that indicate, according 
to one on April 9, ``We have been aggressively fighting losses 
as the drilling has gone forward.'' Another one: ``I will try 
to post a well space shortly. We are troubleshooting some MDT 
issues this morning, having a difficult time getting a good 
seal around the well bore wall.'' And, ``It looks like LCM''--
what is LCM?
    Mr. Hackett. Senator, it is loss circulation material.
    Senator Carper. Loss circulation material ``may be the 
culprit.'' That was 8 days before the blowout. Just 
characterize for us, please, the kind of communications flowing 
back from BP, the primary operator of the well, to your 
companies as to how things were going in the days leading up to 
the incident. Mr. Hackett, do you want to go first? And then we 
will go to Mr. Ishii, please.
    Mr. Hackett. Certainly. As you state in the dates on the 
documents, that is that period when we were talking real time 
about the well. None of those pressure issues are unique to 
this particular part of the Gulf of Mexico. Again, this was not 
an extraordinary well either in terms of depth or complexity.
    What then happens is the most critical----
    Senator Carper. You are saying a well at 5,000 feet below 
the surface of the water with this great distance under the 
sub-surface is not a unique or unusual circumstance?
    Mr. Hackett. I apologize if I am underestimating that in 
the American people's minds because it appears, as one person 
said, like NASA science to many people. But Anadarko itself is 
one of the most active deepwater drillers in the world. We have 
drilled in water depths twice this deep, wells that are nearly 
twice as deep, in terms of total depth. So this, again, is not 
an extraordinary well for the industry.
    The activities that occur after the period in which you 
spoke to are really the ones that are very critical, and that 
is, when you actually go to finish the well. Again, pressure 
response is not an issue with regard to our business. It is 
something you control and take care of when you go to finish 
that well.
    Senator Carper. Mr. Ishii, please.
    All right. Ms. Sato, if you got all that, you are pretty 
good. [Laughter.]
    Ms. Sato. Thank you.
    Mr. Ishii [through interpreter]. Mr. Chairman, when we 
decided to participate in this project, BP had already obtained 
government approval for the drilling plan and the drilling had 
already started based on this approved plan.
    About 1 week before April 20, BP sent an email, and in that 
email BP said that, based on some safety concerns, they thought 
it would be difficult to continue further drilling in this 
well, so they were going to stop the drilling.
    Now, this Deepwater Horizon project was the first Gulf of 
Mexico project that we were involved in; whereas, BP is the 
largest operator in that area and the largest producer. So they 
have a lot of experience and a track record in that area. And, 
therefore, since BP started the drilling based on the 
government-approved plan, we placed trust in that and in them 
when we participated. And then we received that notice about 1 
week prior to the accident. And since we are a 10-percent 
minority interest investor, we were not involved in any direct 
decisionmaking with BP. So we relied on BP's experience, and we 
trusted that they had been operating properly.
    Senator Carper. All right. Thank you. Senator McCain, thank 
you for your patience.
    Senator McCain. Thank you.
    Mr. Hackett, have you provided personnel to help clean up 
the shores?
    Mr. Hackett. We have offered to do so, Senator. We have 
also provided technical expertise to the well control efforts. 
We have provided specialized equipment from other fields for 
the control efforts of the well as well.
    Senator McCain. Those assets have been committed or 
offered?
    Mr. Hackett. They have been offered and in some cases 
committed.
    Senator McCain. Have you sent boats or skimmers to the 
affected waters?
    Mr. Hackett. We have not been asked to do so. And we do not 
control those, Senator. Those would be provided by their 
people. They are usually contracted for.
    Senator McCain. You have not been asked to send boats or 
skimmers?
    Mr. Hackett. No, sir.
    Senator McCain. Mr. Feinberg, you mentioned that you had 
1,500 lawyers volunteer their services in the compensation 
issue associated with September 11, 2001. And how much money 
was that?
    Mr. Feinberg. For September 11, 2001, we expended, taxpayer 
money, a little over $7 billion.
    Senator McCain. And here we are talking about considerably 
more.
    Mr. Feinberg. Yes.
    Senator McCain. Have you sent out the call yet for 
volunteers to come and assist you in this project?
    Mr. Feinberg. Yes. We are working right now with the ABA, 
with the Alliance of Trial Lawyers, with local bar 
associations, and law schools in the region in an effort to 
make sure there is plenty of pro bono assistance.
    Senator McCain. And the response has been?
    Mr. Feinberg. Positive. We are setting it up now.
    Senator McCain. So you are confident that you will have 
sufficient legal assistance, because as you mentioned, fraud is 
always a very significant issue but not the most significant 
issue. So we thank you for your hard work. It is great to have 
the opportunity to see you again, and I am sorry we took you 
away from your very busy schedule. And we feel very confident, 
Mr. Feinberg, with this issue under your stewardship, and I 
think I speak for the American people when I say that. Thank 
you.
    Mr. Feinberg. Thank you.
    Senator McCain. Thank you, Mr. Chairman.
    Senator Carper. Thank you, Senator McCain.
    Mr. Hackett, as I understood one of your earlier comments, 
Anadarko in this case is a partner with MOEX and also with BP. 
In this case, the primary operator is BP. And there are other 
instances where Anadarko is presumably the primary partner in 
some cases. I presume you drill these wells and you are the 
only participant in other cases. Did you ever partner with 
others, other companies?
    Mr. Hackett. We do that as a normal course of business, 
Senator. It is actually very atypical to drill a well 100 
percent in our business. It is a way of managing financial and 
technical risk. So most of the deepwater, there are partners. 
And there is a very distinct relationship with the operator 
being the decisionmaker.
    Senator Carper. And are there other situations in these 
deep wells Anadarko has drilled where you may have a couple of 
other partners?
    Mr. Hackett. Yes, sir.
    Senator Carper. In most of those situations, would Anadarko 
be the majority partner, and you may have a couple of others, 
like we have here, with a 25-percent participant and a 10-
percent participant?
    Mr. Hackett. Yes. In fact, we might have less interest than 
BP had in this well, in fact, as an operator.
    Senator Carper. Do you have many situations where you are 
the lead but you do so not as the majority but, if you will, in 
our terms here, a plurality, have a 45-percent stake or 40-
percent stake rather than a 50- or 51-percent stake?
    Mr. Hackett. Yes, we do have situations like that where we 
have multiple partners, but that 40 or 45 percent is usually 
determinant as being the primary interest.
    Senator Carper. OK. In a situation--let us sort of put the 
shoe on the other foot here for a moment. Let us say in this 
case Anadarko was the lead and that you were the primary party, 
the primary responsible party. And we will just say you were a 
65-percent participant. In a situation where they ran into 
trouble and had this kind of blowout and accident, and you were 
called upon to help set up a fund, a $20 billion fund in this 
case, to meet the demands by the government for reimbursement 
by individuals, by families, by businesses, and you were being 
billed by the Federal Government, and so were your partners, 
and you were ponying up and they were not, sort of putting the 
shoe on the other foot and keeping in mind the Golden Rule--I 
know you are a person of faith, but treating other people the 
way we would want to be treated--how does that mesh with 
treating other people the way we would want to be treated?
    Mr. Hackett. Senator, I think it is very consistent. I do 
not think my beliefs are at all compromised in this instance. 
We were not consulted on the escrow agreement that was set up. 
It was very particular to BP's circumstances, I suspect both 
corporately and on this well. We stand ready to honor our 
obligations. If BP fails, we are a responsible party under the 
Oil Pollution Act. We do not want the taxpayers to be on the 
hook for this, and we stay committed to that, sir.
    Senator Carper. All right. I do not pretend to understand 
well the financial condition or strength of both of your 
companies. I believe you are successful companies and 
profitable companies. Are you both publicly traded companies?
    Mr. Hackett. We are a publicly traded company, yes, sir.
    Senator Carper. Mr. Ishii.
    Mr. Ishii [through interpreter]. MOEX is not a publicly 
traded company.
    Senator Carper. I see. Since you are a publicly traded 
company, Mr. Hackett, could I just follow up with this 
question? BP, looking at the prospect of if the full $20 
billion were drawn down upon, looking for an--maybe the 
obligation to pay the whole bill, to foot the whole $20 
billion, if this apportionment would occur, 25 percent to 
Anadarko and 10 percent to MOEX, their obligation would be--
what?--$13 billion. Their thinking would say, well, Anadarko 
should handle $5 billion and MOEX would handle, I guess, about 
$2 billion. I think that is the way it would work out.
    Could you just talk with us about the ability of your 
company to meet that kind of demand for payment over a period 
of time?
    Mr. Hackett. Yes, sir. Understanding that those payments, 
as you mentioned, would be over a period of time, we generate 
as a company somewhere around $5 billion a year.
    Senator Carper. Is that gross revenue?
    Mr. Hackett. No. That is cash flow, sir, that is available 
for spending, and what we generally do is put that right back 
into drilling for more resources for America. That is typical 
of the independents in this country. And we are doing so again 
this year. The cash on the balance sheet at the end of the 
first quarter was over $3 billion, and we also had an undrawn 
credit facility of over $1 billion. We also have net book 
equity of about $20 billion.
    Senator Carper. All right. Thank you.
    Mr. Ishii, could you respond as well, to the extent that 
you are able to, given the fact that you are not a publicly 
traded company?
    Mr. Ishii [through interpreter]. Mr. Chairman, first of 
all, I would like to say that we will honor all of our legal 
obligations. However, before we discuss that any further, it is 
important that we properly investigate and find out why this 
accident occurred. And, therefore, any discussion about that 
is, I think, a bit too early now.
    Senator Carper. All right.
    Mr. Hackett, can you just share with us how--what role does 
insurance play in this, and to what extent can your company or 
another company in a similar situation cover these kinds of 
expenses through insurance or reinsurance?
    Mr. Hackett. I think it is a critical issue with regard to 
where we craft legislation going forward, Senator, that if, in 
fact, we have pilot error like this occur again, we have to 
make certain, obviously, for the American public and probably 
for global society that we are prepared to answer this in a 
better way than we were this time. So I think a number of us 
have learned lessons in that regard.
    The insurance market historically has not been terribly 
deep. You and I had a conversation about that not too long ago. 
We had probably per revenue unit for our company as much as 
anybody in our industry, and we might have been able to get 
another--more than that, as it turns out, maybe double that. 
But as we have publicly stated, that amounts to about $176 
million per incident on a 25-percent work interest, about $776 
million gross. And what you have to do then is make certain 
that people have balance sheets to back it up beyond that, 
which we do. And so I think we have to be, crafting the oil 
spill legislation properly where we both have liability limits, 
properly determined contributions to the fund, and also an 
ability to get an insurance exchange working that makes this 
very important resource for domestic production available to 
all of us long term.
    Senator Carper. I am going to come back on that point in 
just a moment, if I could.
    Mr. Feinberg, we are going to have the opportunity in the 
Senate to take up, perhaps next week, energy legislation that 
will attempt to conserve energy, will attempt to reduce 
somewhat our independence on petroleum and fossil fuels, 
especially on foreign oil. And we will attempt to do something 
with respect to addressing the cap, this cap for oil spill 
liabilities.
    Let me just ask you your recommendation or your advice, if 
you feel comfortable in giving it. As we take up looking at the 
current law on the oil spill liability cap, the actually rather 
modest liability that exists under the current law, then a 
larger fund contributed to by companies like Anadarko, like 
MOEX--I think it is about a billion and a half dollars where 
the fund is, and then beyond that it is basically, I think, on 
the taxpayer. BP, to their credit has stepped forward and said, 
``no, we are good for at least $20 billion,'' and they 
certainly want to have other partners to share in that. But as 
we try to craft in the next week or two legislation revisiting 
the Oil Spill Liability Fund, what should we keep in mind?
    Mr. Feinberg. Well, I cannot really speak to the 
legislation. I am not aware of it, so I do not know the 
language, I do not know the public policy.
    Senator Carper. If you will, just keep in mind what the 
current law calls for in trying to say what is good or bad 
about that and what might we think about in changing it. 
Because I think it is pretty clear we are going to change it.
    Mr. Feinberg. All I can say--and it probably is not very 
helpful, Senator--is that at least in this case the cap is sort 
of irrelevant because BP on its own has stepped up to make the 
cap sort of an irrelevant consideration. Whether the cap ought 
to be raised--I remember I was on a commission that looked at 
Price-Anderson involving nuclear power years ago. That is for 
others to think about, but I think that at least in this case, 
fortunately, the cap has not been a barrier to compensation.
    Senator Carper. Mr. Hackett, any advice for us as we 
revisit this issue legislatively?
    Mr. Hackett. Again, I would just restate that--and I think 
Mr. Feinberg's reference to the nuclear industry and perhaps 
the marine industry is relevant. We have to, for this very 
important American source of energy, come up with a workable 
plan that allows us to have liability caps that work for the 
public, that have insurance capability that works for the 
public, oil spill response capability that works for the 
public, and there is a lot of detail and complexity around 
that, but none of them should be dealt with in isolation, in my 
view.
    Senator Carper. All right. Mr. Ishii, would you like to 
respond briefly to my question, please?
    Mr. Ishii [through interpreter]. Mr. Chairman, I am very 
sorry, but could I have you repeat your question?
    Senator Carper. Yes. A number of years ago, legislation was 
enacted that established an Oil Spill Liability Fund that 
called for oil companies to pay into that fund and set a cap or 
a limit out of which monies could be paid from that fund, but 
said if there is a party that is primarily responsible, that 
they would have first responsibility to pay, and I am trying to 
remember what the amount was--yes, $75 million. In a situation 
like this, obviously $75 million does not go very far. Frankly, 
neither does one and a half billion. We are going to change 
that law, and we are going to start working on it very 
seriously probably on the Senate floor next week. And I was 
asking Mr. Feinberg and Mr. Hackett if they had any advice for 
us as we assume that legislative responsibility, and if you 
have a thought on that, we would welcome hearing it. And you 
may not. That is OK.
    Mr. Ishii [through interpreter]. Mr. Chairman, I believe 
that is a political issue, and so we are not in a position to 
comment on it.
    Senator Carper. All right. Fair enough.
    I have referred to this already, but while there was some 
communication information exchanged between BP and Anadarko and 
MOEX related to the well drilling and the challenges that were 
being encountered in the days before the accident, there also 
appear to be some lapses on BP's part. I am told on April 19--
that is the day before the rig exploded--a geological adviser 
for Anadarko emailed a BP official asking why they were no 
longer receiving any drilling reports. In fact, they said that 
they had not received reports for 5 days.
    Mr. Ishii, I think you personally appeared to have had 
problems communicating with BP exactly what was going on with 
the well in the days leading up to this disaster.
    Let me ask both of you, Mr. Hackett and Mr. Ishii, to 
please give us a sense of the problems that your companies had 
in receiving information in the days prior to the accident. And 
if you do not mind starting off, Mr. Hackett, I would 
appreciate it. Thank you.
    Mr. Hackett. Senator, I am not aware of that particular 
issue, but in my review of the drilling reports myself, there 
is nothing that we would have received through that final 
report on April 19, that would have been a red flag for us to 
warn BP about. We did not have anybody on the rig, we were not 
consulted, and there was nothing in the materials that I have 
read all the way through April 19, that would have been a red 
flag for us.
    Senator Carper. Is it common or uncommon for a minority 
partner, in this case a 25-percent partner, not to have someone 
on the rig? Is that common practice?
    Mr. Hackett. It is very common practice to not have someone 
on the rig.
    Senator Carper. All right.
    Mr. Hackett. It is rare that anybody has somebody on the 
rig.
    Senator Carper. Fair enough. Mr. Ishii, would you care to 
respond to the same question, please?
    Mr. Ishii [through interpreter]. Mr. Chairman, we have the 
right to access the technical data from BP. However, I do not 
have an engineering background, and, therefore, we had a 
service agreement with our parent company whereby the engineers 
from our parent company would receive the reports from BP and 
monitor their progress. And, therefore, today I am not in a 
position to comment on that.
    Senator Carper. All right. The last question I will have is 
this: I used a baseball analogy earlier, a pitch well 
telegraphed. I will use a football analogy. They do not play 
much football in Japan, I am told, but I will use a football 
analogy. The concept of being a Monday morning quarterback is 
something that we talk about here in this country. We play 
college football games usually on Saturdays, we play 
professional football games on Sundays, and we talk about being 
Monday morning quarterbacks. It is a lot easier to be a 
quarterback on Monday morning looking back than it was to be 
that quarterback on Saturday or Sunday.
    I want to ask you to put on your Monday morning quarterback 
hats for us, and knowing now what you know, what might you have 
done differently, what should have been done differently to 
have averted this disaster that we are facing and are going to 
be facing for some time? Mr. Hackett.
    Mr. Hackett. Senator, I think proper procedures and 
practices need to be followed, and our view is that this 
accident was preventable, this tragic accident. Our answer to 
that is that you need to use the proper engineering practices 
and procedures, and it is clear that we have lessons learned 
from this for the industry, where if we do have, in fact, this 
series of bad engineering decisions ever happen again--and we 
hope to goodness we never do--is that we are in a position to 
assure the public that there is a better response capability.
    Senator Carper. All right. Mr. Feinberg, do you want to 
venture anything on that one?
    Mr. Feinberg. Just that what this tragedy has led to is one 
more example, fortunately rare, where policymakers and private 
individuals think out of the box and come up with a remedy, 
like this fund that I am administering, which will work in a 
way that hopefully will avoid protracted uncertainty and 
litigation and overhead costs and will provide a quick, 
efficient remedy for people in need down in the Gulf.
    Senator Carper. Mr. Ishii.
    Mr. Ishii [through interpreter]. Mr. Chairman, as I said 
before, when we participated in this project, the drilling had 
already been started based on the government-approved plan, and 
for us this was the first deepwater drilling project. However, 
BP is the largest player and had experience in this area, 
whereas we are only a 10-percent minority interest non-
operator. Therefore, we were not involved in any of the 
decisionmaking. We relied on BP because BP has the experience 
and the drilling technology, so we placed trust in them and 
participated.
    Senator Carper. All right. Any closing comments from our 
witnesses? Mr. Feinberg, just a brief closing comment? No? All 
right. Mr. Hackett, a brief closing comment?
    Mr. Hackett. No, sir. Thank you.
    Senator Carper. Mr. Ishii, a brief closing comment? All 
right.
    Well, let me close, if I may. First of all, thank you all 
for taking this much time in your day to travel here and to be 
with us today to testify.
    Mr. Feinberg, our thanks to you for taking on this 
responsibility.
    Mr. Hackett, we are somewhat comforted by the fact that you 
have the wherewithal to--your company appears to have the 
wherewithal, if called upon, to participate in providing the 
resources needed to help not in cleanup but pay damages. It 
sounds like you are in a position to do that. I know you 
probably do not want to, but it sounds like it is comforting to 
know that you do have that wherewithal.
    And, Mr. Ishii, it means a lot to us that you would travel 
this far and to participate today in this testimony.
    This challenge is not going to go away. A lot of lessons 
learned and legislation to be worked on next week and probably 
implemented in the months to come.
    Again, our thanks to each of you, and we look forward to 
working with you on this to make sure it does not happen again, 
and to try to make sure that the right thing is done to those 
who are affected by this disaster.
    Thank you very much, and with that, this hearing is 
concluded.
    [Whereupon, at 4:07 p.m., the Subcommittee was adjourned.]


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                PREPARED STATEMENT OF SENATOR LAUTENBERG

    Mr. Chairman, Thank you for giving me the opportunity to 
appear before this Subcommittee on this critical issue.
    Last night, the President spoke to the country, and he 
could not have been clearer: The needs of Gulf families, 
fishermen and business owners must not and will not take a 
backseat to BP's bottom line.
    I commend the President for his strong leadership on this 
disaster, and I know he will do everything in his power to hold 
BP accountable.
    The behavior of this company and its executives could not 
be more reprehensible.
    Their greed and impudence led them to cut corners and 
gamble with the lives of workers on the rig, the marine life in 
the Gulf, and the economy of an entire region.
    And when the inevitable happened and the Deepwater Horizon 
exploded, burned, and sank, BP's leaders downplayed the true 
size of the spill and lied about their ability to contain it.
    So we cannot trust them when they promise to pay for all 
the damage they have done.
    We cannot simply take their word--not when BP's CEO has 
repeatedly said the spill isn't that serious, calling the 
environmental impact ``very, very modest.''
    Not when BP said before the spill that they had the tools 
to stop a leak at this well.
    and not when the company's top executives promise to pay 
only for ``legitimate claims.''
    Since the Deepwater Horizon rig exploded, as much as 50 
million gallons of oil have poured into the Gulf of Mexico--
it's threatening to turn the beaches, marches and coastlines of 
the Gulf into toxic waste sites.
    We've seen this kind of catastrophe before.
    It's been more than 20 years since the Exxon Valdez went 
aground, and oil is still contaminating the soil there.
    That contamination does not only continue to hurt the 
fishermen there--it is still damaging the area's ground, water, 
and marine life to this very day.
    I was one of the first senators to visit Alaska after the 
Exxon Valdez crash, and I saw the destruction caused by that 
oil spill firsthand.
    When the press coverage was intense, Exxon issued a string 
of apologies, it promised to do right by the communities, and 
it vowed to make sure the way of life these Alaskans knew would 
resume.
    But as soon as the cameras were shut off--Exxon changed its 
tune.
    It fought the communities, the families, and the fishermen 
over every penny.
    Instead of making those victims whole, Exxon chose to make 
its lawyers rich.
    Exxon drew things out for years and knocked down claims 
from $5 billion to $500 million.
    We cannot let history repeat itself.
    That is why I proposed an amendment to last month's 
emergency supplemental bill to make it clear that the companies 
responsible for the oil spill must reimburse the American 
taxpayer for every dollar the government spends on cleanup.
    While the amendment was not considered on the floor, the 
Obama Administration has made it clear that it will send BP the 
bill.
    Pollutters--not taxpayers--should pay these government 
expenses.
    When you make a mess, you have to pay to clean it up--it's 
that simple.
    I want to put the oil executives here on notice: We will 
not accept any answer from you that smacks of something like 
the check is in the mail.
    Americans are fed up with hollow words, false assurances 
and broken promises.
    That is why BP should start putting money into an escrow 
account to pay for the damage from this spill--and not pay over 
$10 billion in dividends to its shareholders.
    And that is why we've got to take the critical step of 
eliminating the measly $75 million liability cap on monetary 
damages from oil spills.
    I joined Senator Menendez right after the Deep Horizon rig 
exploded to lift that cap--and it's time our colleagues on the 
other side of the aisle let us move that legislation forward.
    Big Oil makes so much in profit every month--they can 
afford to pay for their recklessness.
    I want to thank the Chairman and the rest of the 
Subcommittee for inviting me to speak today, and more 
importantly, for holding this critical hearing.
    And I hope we will hear honest and candid answers from BP 
and the other executives about what they are going to do to 
live up to their obligations.

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