    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                        FINAL REPORT OF THE PRESIDENT'S

                          NATIONAL COMMISSION ON THE

                           BP DEEPWATER HORIZON OIL

                          SPILL AND OFFSHORE DRILLING

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

                               OVERSIGHT HEARING

                                   before the

                         COMMITTEE ON NATURAL RESOURCES
                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                          Wednesday, January 26, 2011

                                   __________

                                Serial No. 112-1

                                   __________

           Printed for the use of the Committee on Natural Resources

      Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                                   index.html
                                       or
              Committee address: http://naturalresources.house.gov

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    20402-0001

                         COMMITTEE ON NATURAL RESOURCES

                           DOC HASTINGS, WA, Chairman
                 EDWARD J. MARKEY, MA, Ranking Democrat Member

    Don Young, AK                        Dale E. Kildee, MI
    John J. Duncan, Jr., TN              Peter A. DeFazio, OR
    Louie Gohmert, TX                    Eni F.H. Faleomavaega, AS
    Rob Bishop, UT                       Frank Pallone, Jr., NJ
    Doug Lamborn, CO                     Grace F. Napolitano, CA
    Robert J. Wittman, VA                Rush D. Holt, NJ
    Paul C. Broun, GA                    Raul M. Grijalva, AZ
    John Fleming, LA                     Madeleine Z. Bordallo, GU
    Mike Coffman, CO                     Jim Costa, CA
    Tom McClintock, CA                   Dan Boren, OK
    Glenn Thompson, PA                   Gregorio Kilili Camacho Sablan,
    Jeff Denham, CA                          CNMI
    Dan Benishek, MI                     Martin Heinrich, NM
    David Rivera, FL                     Ben Ray Lujan, NM
    Jeff Duncan, SC                      Donna M. Christensen, VI
    Scott R. Tipton, CO                  John P. Sarbanes, MD
    Paul A. Gosar, AZ                    Betty Sutton, OH
    Raul R. Labrador, ID                 Niki Tsongas, MA
    Kristi L. Noem, SD                   Pedro R. Pierluisi, PR
    Steve Southerland II, FL             John Garamendi, CA
    Bill Flores, TX                      Colleen W. Hanabusa, HI
    Andy Harris, MD
    Jeffrey M. Landry, LA
    Charles J. ``Chuck'' Fleischmann,
        TN
    Jon Runyan, NJ
    Bill Johnson, OH

                           Todd Young, Chief of Staff
                          Lisa Pittman, Chief Counsel
                    Jeffrey Duncan, Democrat Staff Director
                       Rick Healy, Democrat Chief Counsel
                                     ------

                                    CONTENTS

                                  ----------
                                                                       Page

    Hearing held on Wednesday, January 26, 2011......................     1

    Statement of Members:
        Flores, Hon. Bill, a Representative in Congress from the
          State of Texas, Prepared statement of......................    52
        Hastings, Hon. Doc, a Representative in Congress from the
          State of Washington........................................     1
            Prepared statement of....................................     3
        Holt, Hon. Rush D., a Representative in Congress from the
          State of New Jersey, Prepared statement of.................    69
        Landry, Hon. Jeffrey M., a Representative in Congress from
          the State of Louisiana, Prepared statement of..............    70
        Markey, Hon. Edward J., a Representative in Congress from the
          State of Massachusetts.....................................     4
            Prepared statement of....................................     5
        Wittman, Hon. Robert J., a Representative in Congress from
          the State of Virginia, Prepared statement of...............    70

    Statement of Witnesses:
        Graham, Hon. Bob, Senator, Co-Chairman, National Commission
          on the BP Deepwater Horizon Oil Spill and Offshore Drilling     9
            Prepared statement of....................................    11
            Joint response to questions submitted for the record.....    71
        Reilly, Hon. William K., Former Administrator of the
          Environmental Protection Agency, and Co-Chairman, National
          Commission on the BP Deepwater Horizon Oil Spill and
          Offshore Drilling..........................................     7
            Prepared statement of....................................    11
            Joint response to questions submitted for the record.....    71

    Additional materials supplied:
        Wall Street Journal editorial ``Gulf Political Spill'' dated
          January 13, 2011, submitted for the record.................    66

       OVERSIGHT HEARING ON THE FINAL REPORT OF THE PRESIDENT'S NATIONAL
    COMMISSION ON THE BP DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING.

                                  ----------

                          Wednesday, January 26, 2011

                         U.S. House of Representatives

                         Committee on Natural Resources

                                Washington, D.C.

                                  ----------

        The Committee met, pursuant to call, at 2:19 p.m., in Room
    1324, Longworth House Office Building, Hon. Doc Hastings
    [Chairman of the Committee] presiding.
        Present: Representatives Hastings, Young, Bishop, Lamborn,
    Wittman, Fleming, Coffman, McClintock, Thompson, Denham,
    Benishek, Rivera, Duncan of South Carolina, Tipton, Gosar,
    Labrador, Southerland, Flores, Harris, Landry, Fleischmann,
    Runyan, Johnson, Markey, Pallone, Grijalva, Boren, Lujan,
    Christensen, Sarbanes, Tsongas, and Hanabusa.

        STATEMENT OF THE HON. DOC HASTINGS, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF WASHINGTON

        The Chairman. The Committee on Natural Resources will come
    to order.
        The Committee is meeting today to hear testimony on the
    report by the President's National Commission on the BP
    Deepwater Horizon Oil Spill and Offshore Drilling.
        Under Committee Rule 4(f), any oral opening statements at
    hearings are limited to the Chairman and the Ranking Minority
    Member. This will allow us to hear from our witnesses sooner
    and help keep Members on their schedules. If other Members have
    statements, they can be included in the hearing record under
    unanimous consent.
        So I ask unanimous consent that all Members' opening day
    statements be made a part of the hearing record if they are
    submitted to the Chief Clerk by 5:00 p.m. today. Hearing no
    objection, so ordered.
        We have two witnesses today, and I will make the formal
    introductions after our opening statements, but I am very
    pleased that they are here. They are spending all day on the
    Hill. The first part of the day was spent on the other side of
    the Capitol, and now they are here, and I will welcome them
    formally in a moment.
        It has been 9 months since the horrific explosion and oil
    spill in the Gulf of Mexico that resulted in the death of 11
    men and the burning and the sinking of the Deepwater Horizon.
    Since then, nearly 5 million barrels of oil spilled into the
    Gulf, resulting in the economic displacement of tens of
    thousands of fishermen, tourist workers, and people connected
    to the offshore energy industry.
        The oil spill was a terrible tragedy and the effects are
    still being felt today. As this Committee proceeds with its
    oversight duties, we must be mindful of how we respond because
    that response could significantly impact American energy policy
    in the future. The response to this event could be the
    difference between making offshore drilling the safest in the
    world or locking up our resources, putting more Americans out
    of work and further relying on foreign countries for our energy
    needs.
        It is because of these serious implications that I have
    stressed from day one the need to have all of the facts and
    information surrounding the cause of this incident before there
    is a rush to judgment or a rush to legislate. When President
    Obama announced that he was personally appointing an oil spill
    commission, many in Congress and around the country were deeply
    concerned with both the makeup and the mandate of the
    Commission.
        There were concerns that the President's Commission didn't
    have enough experts in engineering or experience in the oil and
    gas industry and that it was comprised of individuals who had
    dedicated a significant portion of their career to opposing oil
    and gas drilling. While understanding these concerns, I kept
    and am keeping an open mind on the recommendations of the
    President's Commission.
        This is why this is the first scheduled Committee hearing
    in this Congress, and I am anxious to hear from the Co-Chairs.
    This report provides further insight into the accident and will
    be a factor in Congress' discussions. However, even with the
    Commission's report, we still don't know precisely what caused
    the explosion or why the blowout preventer failed to work. Now,
    there will be additional reports from the joint Coast Guard-
    BOEM Marine Board hearings and the Chemical Safety Board
    hearings. And hopefully they will provide answers to these
    lingering questions among others.
        Through this uncertainty, what I do know for sure is that
    America needs American-made energy. We need to keep and create
    American jobs. And we need to mitigate America's dependence on
    foreign energy that threatens potentially our national
    security. The oil spill, as I mentioned, was a terrible
    tragedy, but it should not be used as an excuse to further
    reduce America's access to our energy resources.
        Some in Congress view this bill as an opportunity to shut
    down offshore drilling. To me, that is not a solution. That is
    giving up. Legislation aimed at this goal was introduced last
    year and will predictably be proposed again in this Congress--
    this despite the strong support among the American people for
    continued offshore energy productions.
        Republicans want to make offshore energy drilling the
    safest in the world. We believe in the need to make smart,
    effective reforms that are centered on improving safety,
    putting people back to work and allowing responsible drilling
    to move forward. The right response to this bill is to focus on
    making drilling safe, not impossible.
        The importance of this Committee's future work cannot be
    understated. Gas prices are steadily rising. Iran has assumed
    the presidency of OPEC, and rigs are leaving the Gulf for
    foreign countries like Cuba, Brazil and Mexico, taking American
    jobs with them. This isn't speculation. It is happening.
        My colleagues from the Gulf can attest to the real economic
    pain being felt by people and businesses due to this
    Administration's drilling moratorium. Production in the Gulf of
    Mexico has already fallen by more than 200,000 barrels per day,
    and it is predicted by the Energy Information Administration to
    fall by more than 500,000 barrels per day by 2012. Every barrel
    that we don't produce from the Gulf means more lost revenue to
    the Federal Government, more lost jobs, and an additional
    transfer of American wealth to hostile nations.
        I believe in American ingenuity, and I know that we can get
    this right. The answer is to address what went wrong and make
    smart reforms and allow drilling to resume. The stakes are too
    high to give up. Our economic competitiveness, American jobs,
    and national security are on the line.
        And with that, I recognize the distinguished Ranking
    Member.
        [The prepared statement of Chairman Hastings follows:]

              Statement of The Honorable Doc Hastings, Chairman,
                         Committee on Natural Resources

        It's been nine months since the horrific explosion and oil spill in
    the Gulf of Mexico that resulted in the death of 11 men and the burning
    and sinking of the Deepwater Horizon rig. Since then nearly five
    million barrels of oil spilled into the Gulf; resulting in the economic
    displacement of tens of thousands of fishermen, tourism workers, and
    people connected to the offshore energy industry.
        The oil spill was a terrible tragedy and the effects are still
    being felt today.
        As this Committee proceeds with its oversight duties, we must be
    mindful of how we respond, because that response could significantly
    impact American energy policy in the future. The response to this event
    could be the difference between making offshore drilling the safest in
    the world . . . or locking-up up our resources, putting more Americans
    out of work, and further relying on foreign countries for our energy
    needs.
        It is because of these serious implications that I have stressed
    from day one the need to have all the facts and information surrounding
    the cause of this incident before there is a rush to judgment . . . or
    a rush to legislate.
        When President Obama announced that he was personally appointing an
    Oil Spill Commission, many in Congress and around the country were
    deeply concerned with both the make-up and mandate of the Commission.
        There were concerns that the President's Commission didn't have
    enough experts in engineering or experience in the oil and gas industry
    and that it was comprised of individuals who had dedicated a
    significant portion of their career to opposing oil and gas drilling.
        While understanding these concerns, I kept, and am keeping, an open
    mind on the recommendations of the President's Commission. This is why
    it is the first scheduled Committee hearing of this Congress and I'm
    eager to hear from its Co-Chairs.
        This report provides further insight into the accident and will be
    a factor in Congress' discussions. However, even with the Commission's
    report, we still don't know precisely what caused the explosion, or why
    the blowout preventer failed to work.
        Additional reports from the joint Coast Guard-BOEM Marine Board
    hearings and the Chemical Safety Board are forthcoming and I'm hopeful
    they will provide answers to some of the lingering questions.
        Through all this uncertainty, what I do know for sure is that
    America needs American-made energy.
        We need to keep and create American jobs.
        And we need to mitigate America's dependence on foreign energy that
    threatens our national security.
        The oil spill was a terrible tragedy, but it should not be used as
    an excuse to further reduce America's access to our energy resources.
    Some in Congress view this spill as an opportunity to shut down
    offshore drilling. That is not a solution . . . that is giving up.
        Legislation aimed at this goal was introduced last year and will
    predictably be proposed again this Congress. This despite the strong
    support among the American people for continued offshore energy
    production.
        Republicans want to make offshore drilling the safest in the world.
    We believe in the need to make smart, effective reforms that are
    centered on improving safety, putting people back to work, and allowing
    responsible drilling to move forward. The right response to this spill
    is to focus on making drilling safe . . ., not making it impossible.
        The importance of this Committee's future work cannot be
    understated. Gas prices are steadily rising, . . . Iran has assumed the
    Presidency of OPEC, . . . and rigs are leaving the Gulf for foreign
    countries--like Cuba, Brazil and Mexico--taking American jobs with
    them. This isn't speculation . . . it's happening.
        My colleagues from the Gulf can attest to the real economic pain
    being felt by people and businesses due to this Administration's
    drilling moratorium.
        Production in the Gulf of Mexico has already fallen by more than
    200,000 barrels per day, and is predicted by the Energy Information
    Administration to fall by more than 500,000 barrels per day by 2012.
        Every barrel we don't produce from the Gulf means more lost revenue
    to the federal government, more lost jobs, and an additional transfer
    of American wealth to hostile nations.
        I believe in American ingenuity and I know we can get this right.
    The answer is to address what went wrong, make smart reforms and allow
    drilling to resume. The stakes are too high to give up. Our economic
    competitiveness, American jobs and natural security are on the line.
                                     ______

     STATEMENT OF THE HON. ED MARKEY, A REPRESENTATIVE IN CONGRESS
                    FROM THE STATE OF MASSACHUSETTS

        Mr. Markey. I thank the Chairman very much, and we thank
    you.
        And on behalf of the Democratic Members of the Committee,
    please accept our sincere congratulations on your appointment
    as Chairman.
        We, on this side of the aisle, look forward to a productive
    working relationship with you and with the majority,
    occasionally punctuated by knockdown drag-out fights over
    issues that we all care about deeply.
        While I applaud the Chairman for holding this hearing
    today, I am also deeply saddened that this hearing is
    necessary. Industry and Federal regulators assured the American
    public that a disaster like the BP Deepwater Horizon spill
    could not happen. The events of last April and the subsequent
    investigations have demonstrated that those assurances were
    worthless. The American people are left to count the economic
    and environmental costs and 11 families are left without their
    loved ones.
        It is vital to our Nation's energy future that we examine
    the causes of this tragedy with clear eyes, assess the lessons
    to be learned with open minds, and commit ourselves to
    fundamental reform with firm resolve.
        In the testimony submitted for this hearing, the Commission
    Co-Chairmen--and we thank you both so much for your service to
    our country--point out that ``the United States has the highest
    reported rate of fatalities per hours worked in offshore oil
    and gas drilling among its international peers.''
        Mr. Chairman, that shocking statistic does not mean that BP
    or Transocean or Halliburton operate unsafely. It means that
    the entire American offshore oil and gas industry operates
    unsafely compared to its international peers.
        To quote from our witnesses again: ``The central lesson to
    be drawn from the catastrophe is that no less than an
    overhauling of both current industry practices and government
    oversight is now required.''
        Mr. Chairman, this is not a time for half measures or
    tinkering around the edges. This is a time for bold reforms.
    The lives lost and the damage done as a result of this tragedy
    require nothing short of fundamental change in the way we
    conduct the business of offshore oil and gas development and
    production.
        I am proud that Democrats in the House took a major step
    toward such an overhaul by passing the Consolidated Land,
    Energy and Aquatic Resources Act in the last Congress, known as
    the CLEAR Act. The legislation included many of the
    recommendations contained in the Commission's report.
        While my colleagues on the Republican side may not have
    liked all that was in that legislation, it is my hope that now
    the Commission has made many of the same recommendations, that
    we can work together in a bipartisan effort to craft new
    legislation.
        To that end, I have joined with Ranking Members Waxman and
    Rahall, Miller and Johnson, along with Energy Ranking Member
    Rush Holt and other Members to introduce new legislation
    combining the best elements of the CLEAR Act with
    recommendations from the Commission. We welcome review of that
    legislation by the Commission and by our colleagues on both
    sides of the aisle.
        If we are shortsighted and complacent, today's hearing will
    be an end. If we are visionary and engaged, today's hearing is
    only the beginning of having America have the safest and most
    productive oil and natural gas industry. That should be our
    goal. And that is the goal I think every American should be
    aiming to achieve in any legislation we pass.
        In closing, again, let me offer my sincere gratitude to
    Senator Graham; to you, Administrator Reilly; and to all of the
    Commission members and the staff for their Herculean effort and
    their willingness to take on this investigation and their
    dedication to completing it in such a short period of time and
    with such thoroughness.
        This Committee and the American people are in your debt,
    and I thank you for your efforts. And I thank the Chairman for
    extending me those few extra seconds.
        [The prepared statement of Mr. Markey follows:]

         Statement of The Honorable Edward J. Markey, Ranking Member,
                         Committee on Natural Resources

        Thank you Chairman Hastings and on behalf of the Democratic members
    of the Committee, please accept our sincere congratulations on your
    appointment as Chairman. We on this side of the aisle look forward to a
    productive working relationship--punctuated by knock-down, drag-out
    fights over issues we all care about deeply.
        While I applaud the Chairman for holding this hearing today, I am
    also deeply saddened that this hearing is necessary. Industry and
    federal regulators assured the American public that a disaster like the
    BP Deepwater Horizon spill could not happen.
        The events of last April and the subsequent investigations have
    demonstrated that those assurances were worthless. The American people
    are left to count the economic and environmental costs and eleven
    families are left without their loved ones.
        It is vital to our nation's energy future that we examine the
    causes of this tragedy with clear eyes, assess the lessons to be
    learned with open minds, and commit ourselves to fundamental reform
    with firm resolve.
        In the testimony submitted for this hearing, the Commission Co-
    Chairmen point out that, ``the United States has the highest reported
    rate of fatalities per hours worked in offshore oil and gas drilling
    among its international peers.''
        Mr. Chairman, that shocking statistic does not mean that BP or
    Transocean or Halliburton operate unsafely; it means that the entire
    American offshore oil and gas industry operates unsafely, compared to
    its international peers.
        To quote from our witnesses again, ``the central lesson to be drawn
    from the catastrophe is that no less than an overhauling of both
    current industry practices and government oversight is now required.''
        Mr. Chairman, this is not a time for half measures or tinkering
    around the edges; this is a time for bold reforms. The lives lost and
    the damage done as a result of this tragedy require nothing short of
    fundamental change in the way we conduct the business of offshore oil
    and gas development and production.
        I am proud that Democrats in the House took a major step toward
    such an overhaul by passing the Consolidated Land, Energy, and Aquatic
    Resources Act in the last Congress. Known as the CLEAR Act, that
    legislation included many of the recommendations contained in the
    Commission's report.
        While my colleagues on the Republican side opposed that effort, it
    is my hope that, now that the Commission has made many of the same
    recommendations, we can work together in a bipartisan effort to craft
    new legislation. To that end, I have joined Ranking Members Waxman,
    Rahall, Miller, and Johnson, along with Energy Subcommittee Ranking
    Member Holt and other Members, to introduce new legislation combining
    the best elements of the CLEAR Act with recommendations from the
    Commission. We welcome review of our legislation by the Commission and
    by our colleagues on both sides of the aisle.
        If we are shortsighted and complacent, today's hearing will be an
    end. If we are visionary and engaged, today's hearing is only the
    beginning.
        In closing, let me offer my sincere gratitude to Senator Graham,
    Mr. Reilly, and all the Commission members and staff for their
    willingness to take on this investigation and their dedication in
    completing it so thoroughly. This committee and the American people are
    in your debt.
                                     ______

        The Chairman. I thank the gentleman.
        And I thank the gentleman for his opening comments. I, too,
    look forward to working with you. And I want to welcome the two
    witnesses here today. I know that since this event happened and
    since the appointment of the Commission, there is a lot of work
    done by both of you.
        The Honorable Bill Reilly is a former Administrator of the
    EPA and, of course, on the Hill people do remember the Florida
    Senator, Bob Graham, and former Governor, if I am not mistaken,
    of the State of Florida. So certainly there is expertise.
        So, with that, I would just remind you that under Committee
    rules, you have 5 minutes for your oral testimony. However,
    your full statement will appear in the record.
        You note that over here, we have these little boxes that
    have green lights, yellow lights and red lights. When the red
    light comes on, you know you are at 5 minutes. When the yellow
    light is on, you are up to 4.5 minutes and you have 30 seconds.
        With that, we will allow both of you to testify and then we
    will open up to questions to an eager Committee that wants to
    talk.
        So, with that, I will first introduce Mr. Reilly. Mr.
    Reilly, you are on.

         STATEMENT OF THE HONORABLE WILLIAM K. REILLY, FORMER
       ADMINISTRATOR OF THE ENVIRONMENTAL PROTECTION AGENCY, CO-
     CHAIRMAN, NATIONAL COMMISSION ON THE BP DEEPWATER HORIZON OIL
                      SPILL AND OFFSHORE DRILLING

        Mr. Reilly. Thank you, Mr. Chairman, Ranking Member Markey,
    members of the Committee, it is a privilege and an honor for us
    to appear before you as it has been for us to serve on this
    Commission, particularly for me to serve with my distinguished
    friend and long time, long time friend and colleague, Bob
    Graham. I will make a brief statement and ask that my testimony
    be included in the record.
        I want to begin by saying that with respect to oil and gas,
    we need the resource. It is vital to the economy, to our
    mobility, to our way of life. It is itself, the oil and gas
    industry, a significant contributor to productivity, to jobs,
    to our GDP and to avoiding even more necessity to import from
    the international oil market.
        This Commission believes that we can develop offshore oil
    and gas resources safely; we can do it in the deep water, and I
    would signal that the deep water is where it is. That is where
    the industry has been going and will be going in an even more
    significant way in the years to come.
        But the country's confidence in offshore oil and gas
    development has been shattered. The Commission determined that
    the government and industry both were characterized by an aura
    of complacency. That has attracted a good deal of attention and
    some criticism. I would just say very briefly that, as I
    learned from Tony Hayward, the CEO of BP, the week after I took
    office as Commission Co-Chairman, when you learn from him that
    there is effectively no subsea containment technology or
    capability, when you look at response plans that talk about
    protecting walruses in the Gulf of Mexico, when you see the
    wholly inadequate response technology that has not evolved
    since I oversaw it 20 years before in Prince William Sound, and
    when you see that there have been 79 instances of loss of well
    control between 1996 and 2009 in the Gulf and that we have, as
    was mentioned, a fatality rate that is 5 times that of the
    North Sea in a much more punishing environment--and then
    finally that you have key omnipresent contractors who are
    deeply implicated in the bad decisions that contributed to the
    high risk that we uncovered--you have to conclude both that
    there was an aura of complacency--and so many industry leaders
    have said, which I would have said myself, we didn't think this
    was possible, and we didn't think this could happen--but also
    that contractors who have supplied faulty cement to a BP rig or
    who have failed to detect gas rising in the drill pipe on a BP
    rig, it is inconceivable given their presence in all of the
    oceans in the world where oil and gas are developed, it is
    inconceivable to us that this would only have been confined to
    one company, to a rogue company, which was my own conviction,
    my own premise starting out.
        So we did conclude this is a systemic problem that has been
    characterized by an atmosphere of complacency.
        I want to signal one more thing and that is the history of
    the budget of the government regulatory agency of which we are
    quite hard, we are quite critical of its effectiveness, its
    capability, its lack of professionalism, to carry out the
    assignment that the law gives it to monitor and control and
    regulate this industry. The budget for MMS, the predecessor to
    the Bureau of Ocean Energy Management, Regulation and
    Enforcement (BOEMRE), has gone down 20 percent since 1984,
    while offshore oil and gas production has tripled.
        So to address these issues, we have three principal
    proposals: First is for a safety authority within the Interior
    Department entirely walled off from political interference with
    a Director appointed for a term much like the FBI Director and
    adequately resourced and budgeted, provided for.
        We recommend that industry establish a safety institute.
    The high-risk industries that have had catastrophes have
    learned from them: The chemical industry after Bhopal with
    Responsible Care and the nuclear industry after Three Mile
    Island with the Institute for Nuclear Power Operations (INPO).
    Those should be focused on best practice and should bring up
    the game for everybody and allow the best companies to have
    some means of ensuring that one laggard company, one bad
    performer does not bring everybody down and cause all their
    rigs to be shut down in the Gulf, as was the case last summer.
        Finally, I just want to signal the international dimensions
    of our issue. If you look at a map of the Gulf of Mexico, the
    United States has sovereign jurisdiction over far less than all
    of it. We now know Mexico intends to go into deep water in two
    years, Cuba within the next year or two, and we need some kind
    of international understanding or treaty with respect to the
    standards that will apply to those activities.
        We also need it in the Arctic, where Russia is intending to
    go into its Arctic waters with BP and Rosneft. Canada. Denmark
    has already begun, and Greenland last summer. We need the same
    kind of attention on the part of our State Department to ensure
    that the Arctic waters are given the kind of special protection
    that they deserve. We make a number of recommendations
    particularly relevant to science and the science that is needed
    to pursue oil and gas development in those very different
    waters with all of the high risks that special storm action,
    fog and deep cold entail.
        Well, those are some of the principal recommendations I
    wanted to cover, Mr. Chairman. I would only say that they are
    relatively modest in my view, in terms, both of money,
    certainly in terms of bureaucracy and disruption. To reorganize
    the Interior Department will not take much in the way of money.
    To budget adequately the BOEMRE, it will take some, but it is
    relatively small in lieu of both the huge cost of the accident
    we just experienced and the overall revenues that the United
    States receives from offshore oil and gas development leases
    and royalties. I think it is money that would be well invested,
    and we look forward to your questions and recognize that from
    the point of view of the Commission, we are just about done. So
    it really is over to you.
        Thank you, sir.
        The Chairman. Thank you, Mr. Reilly. I appreciate very much
    your testimony.
        Senator Graham, you are on.

     STATEMENT OF THE HONORABLE BOB GRAHAM, SENATOR, CO-CHAIRMAN,
     NATIONAL COMMISSION ON THE BP DEEPWATER HORIZON OIL SPILL AND
                           OFFSHORE DRILLING

        Mr. Graham. Thank you very much, Mr. Chairman, Ranking
    Member Markey and other members of this Committee.
        And I know many of you are commencing your service in
    Congress, and let me extend my congratulations. You are
    beginning a journey which will have immense gratification and
    personal pleasure. I congratulate you and wish you well in your
    service.
        Mr. Chairman, our Commission was established in May of last
    year. We were given three responsibilities: First was to
    determine the cause of the Deepwater Horizon explosion; second,
    to evaluate the response to that disaster; and third to advise
    the Nation about future energy exploration, particularly in the
    offshore environment.
        On January 11th, we submitted our report, called ``Deep
    Water: The Gulf Oil Disaster and the Future of Offshore
    Drilling.'' We had been initially subject to some criticism.
    One was that we lacked independence. In the course of our
    investigation, we were able to make just about everybody mad at
    us. From time to time, the industry was mad, and the White
    House was mad. Maybe this Committee escaped that. I believe we
    established the fact that we were looking at this from the
    perspective of the American people's interest and none other.
        Second, there was some criticism that we weren't competent
    to carry out this task. It would be immodest to try to defend
    our competency. I would just submit our report, its findings
    and recommendations, and you can evaluate whether you think
    that we had the skills, both among the seven commissioners and
    in an excellent staff led by Mr. Richard Lazarus, who gave us
    tremendous support throughout this endeavor.
        I would like to make one general comment before I turn to
    the two areas that I am particularly going to discuss, and that
    is that there is a difference in the offshore of the Gulf from
    what we knnw well, which is onshore oil and gas production.
    Onshore oil and gas production is a combination of drilling on
    privately owned land and public land. All of the drilling in
    the Gulf of Mexico is on publicly owned land, land which
    belongs to the people of the United States of America.
        So I think the way to look at this is not just as a
    regulator, a government regulating a private enterprise going
    about its private business. We also are in the role of a
    landlord. We have an obligation to protect this asset that
    belongs to all of the people of America and to be able to
    continue to draw upon it for a variety of purposes. Yes,
    energy, but also it is a major source of American seafood, and
    it is one of our major tourist areas, just to mention three of
    the benefits that we derive from the Gulf. So are we fulfilling
    our responsibility to be a prudent landlord?
        I am going to discuss the area of response and containment
    and then the issue of, where do we go from here in terms of
    restoration of the Gulf?
        My good friend, Bill Reilly, has already mentioned that the
    response to this event was, to say the least, very
    disappointing. Although there were some respondents who acted
    quickly, some heroically, the Commission concluded that neither
    BP nor the Federal Government was prepared to conduct an
    effective response. There was a failure to plan in advance for
    such an event, a failure to coordinate, particularly between
    Federal agencies and State and local officials. In addition,
    neither the industry nor the Federal Government had invested in
    the research to understand in an anticipatory way what we would
    be facing if we had such an event as the Macondo blowout.
        Much of the technology that we were able to bring to this
    problem was the same technology that had been used 20 years
    earlier in the Exxon Valdez, which is to say there was almost
    no technological advances taken as a result of the experience
    of Exxon Valdez.
        We have made a number of recommendations on response and
    containment, including that the Department of the Interior, in
    consultation with other agencies, should develop a more
    rigorous set of requirements for industry response plans. No
    more polar bears or walruses in the response plans for the Gulf
    of Mexico.
        The EPA and the Coast Guard should involve State and local
    governments as significant players; the Congress should provide
    adequate and sustained funding for oil spills, including and
    particularly research into how to mitigate oil spills; and the
    industry should fund a private organization to develop, adopt
    and enforce standards of excellence to assure continuous
    improvement in the technology for oil spill response.
        The second area is restoration. The day before this event
    was April 19, 2010. If we define our goal as being to restore
    the Gulf to the condition that it was in on April 19th, we have
    missed an enormous opportunity. Frankly, the Gulf on April 19th
    was a degraded area. It had suffered from decades of misuse and
    most dramatically shown by the marshes of Louisiana, which have
    been receding at a rate of over one football field every 30
    minutes.
        We felt that this was a chance to begin a major process of
    restoring this very important part of our Nation. We have
    recommended that 80 percent of the fines and penalties that we
    anticipate will be assessed under the Clean Water Act be
    directed at Gulf restoration. That will require your approval.
    Only Congress can make that commitment of those fines and
    penalties. But we believe that it would be money well spent.
        We recognize that it will require a significant amount of
    time, probably in the range of 20 to 30 years, to complete an
    effective restoration. We believe that these funds would be the
    basis of a major down payment toward that objective.
        I would like to conclude my remarks--and I got the signal,
    Mr. Chairman--that drilling is inherently risky. We can never
    reduce it to zero. But we believe the steps that we have
    recommended will substantially reduce the probabilities of a
    repeat Macondo and, should that happen, will significantly
    enhance our capacity to restrain its consequences.
        Mr. Chairman, I will submit my full report. I appreciate
    your willingness to receive it. I look forward to responding to
    your questions.
        [The joint prepared statement of Mr. Reilly and Senator
    Graham follows:]

    Statement of The Honorable Bob Graham and The Honorable William Reilly,
    Co-Chairmen, National Commission on the BP Deepwater Horizon Oil Spill
                             and Offshore Drilling

    I. Introduction
        Chairman Hastings, Ranking Member Markey, and members of the
    Committee, thank you for the opportunity to testify today on behalf of
    the National Commission on the BP Deepwater Horizon Oil Spill and
    Offshore Drilling.
        The explosion that tore through the Deepwater Horizon drilling rig
    last April 20, as the rig's crew completed drilling the exploratory
    Macondo well deep under the waters of the Gulf of Mexico, began a
    human, economic, and environmental disaster.
        Eleven crew members died, and others were seriously injured, as
    fire engulfed and ultimately destroyed the rig. And, although the
    nation would not know the full scope of the disaster for weeks, the
    first of more than four million barrels of oil began gushing
    uncontrolled into the Gulf--threatening livelihoods, the health of Gulf
    coast residents and of those responding to the spill, precious
    habitats, and even a unique way of life. A treasured American
    landscape, already battered and degraded from years of mismanagement,
    faced yet another blow as the oil spread and washed ashore. Five years
    after Hurricane Katrina, the nation was again transfixed, seemingly
    helpless, as this new tragedy unfolded in the Gulf. The costs from this
    one industrial accident are not yet fully counted, but it is already
    clear that the impacts on the region's natural systems and people were
    enormous, and that economic losses total tens of billions of dollars.
        On May 22, 2010, President Barack Obama announced the creation of
    the National Commission on the BP Deepwater Horizon Oil Spill and
    Offshore Drilling (the ``Commission''): an independent, nonpartisan
    entity, directed to provide thorough analysis and impartial judgment.
    The President charged the Commission to determine the causes of the
    disaster, and to improve the country's ability to respond to spills,
    and to recommend reforms to make offshore energy production safer. And
    the President said we were to follow the facts wherever they led.
        This Commission report (the ``Report''), which we ask be made part
    of the hearing record in its entirety, is the result of an intense six-
    month effort to fulfill the President's charge. As a result of our
    investigation, we conclude:
              The explosive loss of the Macondo well could have
            been prevented.
              The immediate causes of the Macondo well blowout can
            be traced to a series of identifiable mistakes made by BP,
            Halliburton, and Transocean that reveal such systematic
            failures in risk management that they place in doubt the safety
            culture of the entire industry.
              Deepwater energy exploration and production,
            particularly at the frontiers of experience, involve risks for
            which neither industry nor government has been adequately
            prepared, but for which they can and must be prepared in the
            future.
              To assure human safety and environmental protection,
            regulatory oversight of leasing, energy exploration, and
            production require reforms even beyond those significant
            reforms already initiated since the Deepwater Horizon disaster.
            Fundamental reform will be needed in both the structure of
            those in charge of regulatory oversight and their internal
            decision-making process to ensure their political autonomy,
            technical expertise, and their full consideration of
            environmental protection concerns.
              Because regulatory oversight alone will not be
            sufficient to ensure adequate safety, the oil and gas industry
            will need to take its own, unilateral steps to increase
            dramatically safety throughout the industry, including self-
            policing mechanisms that supplement governmental enforcement.
              The technology, laws and regulations, and practices
            for containing, responding to, and cleaning up spills lag
            behind the real risks associated with deepwater drilling into
            large, high-pressure reservoirs of oil and gas located far
            offshore and thousands of feet below the ocean's surface.
            Government must close the existing gap and industry must
            support rather than resist that effort.
              Scientific understanding of environmental conditions
            in sensitive environments in deep Gulf waters, along the
            region's coastal habitats, and in areas proposed for more
            drilling, such as the Arctic, is inadequate. The same is true
            of the human and natural impacts of oil spills.
        We reach these conclusions, and make necessary recommendations, in
    a constructive spirit: we aim to promote changes that will make
    American offshore energy exploration and production far safer, today
    and in the future.
    II. The Root Causes of the Explosion
        The Commission examined in great detail what went wrong on the rig
    itself. Our investigative staff uncovered a wealth of specific
    information that greatly enhances our understanding of the factors that
    led to the explosion. The results of that investigation are described
    in detail in Chapter 4 of the Report. The separate report of the chief
    counsel, to be published soon, will offer the fullest account yet of
    what happened on the rig and why. There are recurring themes of missed
    warning signals, failure to share information, and a general lack of
    appreciation for the risks involved. In the view of the Commission,
    these findings highlight the importance of organizational culture and a
    consistent commitment to safety by industry, from the highest
    management levels on down.
        To summarize, the Macondo blowout happened because a number of
    separate risk factors, oversights, and outright mistakes combined to
    overwhelm the safeguards--promised by both government and by private
    industry--to prevent just such an event from happening. But most of the
    mistakes and oversights at Macondo can be traced back to a single
    overarching failure--a failure of management by BP, Halliburton and
    Transocean. Set out below are what Commission investigative staff
    determined were ``key facts.''
        Key Facts: The investigation team identified several key human
    errors, engineering mistakes and management failures including:
              A flawed design for the cement slurry used to seal
            the bottom of the well, which was developed without adequate
            engineering review or operator supervision;
              A ``negative pressure test,'' conducted to evaluate
            the cement seal at the bottom of the well, identified a
            cementing failure but was incorrectly judged a success because
            of insufficiently rigorous test procedures and inadequate
            training of key personnel;
              Flawed procedures for securing the well that called
            for unnecessarily removing drilling mud from the wellbore. If
            left in place, that drilling mud would have helped prevent
            hydrocarbons from entering the well and causing the blowout;
              Apparent inattention to key initial signals of the
            impending blowout; and
              An ineffective response to the blowout once it began,
            including but not limited to a failure of the rig's blowout
            preventer to close off the well.
        Key Findings: The ``key facts'' led investigators to make the
    following ``key findings'':
              Errors and misjudgments by at least three companies--
            BP, Halliburton and Transocean--contributed to the disaster.
              Management failures included:
                Inadequate training of key personnel.
                Inadequate management of numerous late-stage well
            design decisions.
                Poor communication within and between the companies
            involved.
                Inadequate risk evaluation and risk mitigation
            measures.
              The disaster could have been prevented. Notably,
            workers on the rig incorrectly interpreted clear warning signs
            of a hydrocarbon influx during the negative pressure test. If
            recognized, those warning signs would have allowed them to shut
            in the well before the blowout began.
              Government regulations did not address several key
            causes of the blowout, and regulators lacked the resources or
            technical expertise to address others.
              Whether purposeful or not, many of the risk-enhancing
            decisions that BP, Halliburton, and Transocean made saved those
            companies significant time (and money).
        The Commission's investigation concludes that these failures were
    preventable. Errors and misjudgments by at least three companies--BP,
    Halliburton and Transocean--contributed to the disaster. Federal
    regulations did not address many of the key issues. For example, no
    regulation specified basic procedures for the negative pressure test
    used to evaluate the cement seal or minimum criteria for test success.
    The chapter also notes that, '' . . . whether purposeful or not, many
    of the decisions that BP, Halliburton, and Transocean made that
    increased the risk of the Macondo blowout clearly saved those companies
    significant time (and money).''
        Attached to this testimony is a table that sets out decisions that
    increased risk at Macondo, while potentially saving time.
    III. Regulatory Oversight and the Need for Reform
    Regulatory Oversight
        The responsibilities assigned to the Minerals Management Services
    (MMS) in an effort to regulate the offshore oil and gas industry have
    created conflicts of interest and have been subject to pressure from
    political and industry interests. MMS was not only responsible for
    offshore leasing and resource management; it also collected and
    disbursed revenues from offshore leasing, conducted environmental
    reviews, reviewed plans and issued permits, conducted audits and
    inspections, and enforced safety and environmental regulations.
        Over the course of many years, political pressure generated by a
    demand for lease revenues and industry pressure to expand access and
    expedite permit approvals and other regulatory processes often combined
    to push MMS to elevate revenue and permitting goals over safety and
    environmental goals. As a result, the safety of U.S. offshore workers
    has suffered. The United States has the highest reported rate of
    fatalities per hours worked in offshore oil and gas drilling among its
    international peers (the U.K., Norway, Canada, and Australia) but has
    the lowest reporting of injuries. This striking contrast suggests a
    significant under-reporting of injuries in the United States.
        These problems were compounded by an outdated organizational
    structure, a chronic shortage of resources, a lack of sufficient
    technological expertise, and the inherent difficulty of coordinating
    effectively with all of the other government agencies that have had
    statutory responsibility for some aspect of offshore oil and gas
    activities. Besides MMS, the Departments of Transportation, Commerce,
    Defense, and Homeland Security, and the Environmental Protection Agency
    (EPA) were involved in some aspect of the industry and its many-faceted
    facilities and operations, from workers on production platforms to
    pipelines, helicopters, drilling rigs, and supply vessels.
    Reorganization Needed
        To remedy this conflict of interest, Congress should create an
    independent agency with enforcement authority to oversee all aspects of
    offshore drilling safety (operational and occupational) as well as the
    structural and operational integrity of all offshore energy production
    facilities, including both oil and gas production and renewable energy
    production. The roles and responsibilities of BOEMRE should be
    separated into three entities with clearly defined statutory
    authorities.
            (1)  The Offshore Safety Authority would have primary statutory
            responsibility for overseeing the structural and operational
            integrity of all offshore energy-related facilities and
            activities, including both oil and gas offshore drilling and
            renewable energy facilities. Congress should enact an organic
            act to establish its authorities and responsibilities,
            consolidating the various responsibilities now under the OCSLA,
            the Pipeline Safety Act, and Coast Guard authorizations. This
            should include responsibility for all workers in energy related
            offshore activities.
            (2)  The Leasing and Environmental Science Office would be
            charged with fostering environmentally responsible and
            efficient development of the Outer Continental Shelf, and would
            act as the leasing and resource manager for conventional
            renewable energy and other mineral resources on the OCS. The
            Office would also be responsible for conducting reviews under
            the National Environmental Policy Act (NEPA).
            (3)  The Office of Natural Resources Revenue would be
            responsible for revenue collection and auditing.
        Congress should review and consider amending where necessary the
    governing statutes for all agencies involved in offshore activities to
    be consistent with the responsibilities functionally assigned to those
    agencies. The safety-related responsibilities of the new offshore
    safety agency should be included in a separate statute.
        Since the Commission issued its final report on January 11th,
    Secretary of the Interior Ken Salazar has already announced changes in
    the organization within Interior that reflect many of the Commission's
    recommendations. Other Commission recommendations will require
    congressional action, especially those recommendations that seek to
    promote the independence of the Offshore Safety Authority from
    politics. For instance, the Commission recommends that the head of the
    Safety Authority be appointed to a fixed term that cuts across any one
    Presidential Administration, a change that can be accomplished most
    effectively only by statute.
    Regulation to Better Manage Risk
        The Commission also recommends a more comprehensive overhaul of
    both the leasing program and the regulatory policies and institutions
    used to oversee the safety and environmental protection of offshore
    activities. The goals must be to reduce and manage risk more
    effectively, using strategies that can keep pace with a technologically
    complex and rapidly evolving industry, particularly in high-risk and
    frontier areas, and to secure the resources needed to execute the
    leasing function and provide adequate regulatory oversight. To
    accomplish these goals the Commission offers the following three
    recommendations:
              The DOI should promulgate prescriptive safety and
            pollution-prevention standards that are developed and selected
            in consultation with international regulatory peers and that
            are at least as rigorous as the leasing terms and regulatory
            requirements of peer oil-producing nations.
              The Department of the Interior (DOI) should develop a
            proactive, risk-based performance approach specific to
            individual facilities, operations, and environments, similar to
            the ``safety case'' approach in the North Sea which requires
            drilling rigs to be certified and have safety management
            obligations separate and apart from the operator.
              Working with the International Regulators' Forum and
            other organizations, Congress and the DOI should identify those
            drilling, production, and emergency-response standards that
            best protect offshore workers and the environment, and initiate
            new standards and revisions to fill gaps and correct
            deficiencies. These standards should be applied throughout the
            Gulf of Mexico, in the Arctic, and globally wherever the
            international industry operates. Standards should be updated at
            least every five years, as under the formal review process of
            the International Organization for Standardization (ISO). (See
            below for expansion on the development of international
            regulations.)
        BOEMRE currently relies heavily on prescriptive regulations
    incorporating a number of industry technical standards. Prescriptive
    regulations must be the basis of an effective regulatory system, but
    given the many variables in deepwater drilling, prescriptive rules can
    never cover all cases. The federal agency responsible for offshore
    activity must have a regulatory approach that integrates more
    sophisticated risk assessment and risk management practices into its
    oversight of energy developers operating offshore. The focus should
    shift from prescriptive regulations covering only the operator to a
    foundation of augmented prescriptive regulations, including those
    relating to well design and integrity, supplemented by a proactive,
    risk-based performance approach that is specific to individual
    facilities (production platforms and drilling rigs), operations, and
    environments. Both the operator and the drilling rig owners would have
    a legal duty to assess and manage the risks of a specific activity by
    engaging all contractors and subcontractors in a coordinated safety
    management system.
        To ensure that Interior has the ability to provide adequate leasing
    capabilities and regulatory oversight for the increasingly complex
    energy-related activities being undertaken on the OCS, budgets for
    these new offices as well as existing agencies should come directly
    from fees paid by the offshore industry, akin to how fees charged to
    the telecommunications industry pay for the expenses of the Federal
    Communications Commission, the Nuclear Regulatory Commission, the
    Office of Pipeline Safety which are essentially fully funded by such
    regulated industry payments. Through this mechanism, Congress, through
    legislation, and DOI, through lease provisions, could expressly oblige
    lessees to fund the regulation necessary to allow for private industry
    access to the energy resources on the OCS, including renewables.
    IV. Environmental Review
        As part of its inquiry into the existing regulatory structure for
    offshore drilling, the Commission reviewed existing mechanisms for
    protecting the environment. In its work on this question, the
    Commission focused on two issues: (1) the application of National
    Environmental Policy Act (NEPA) requirements to the offshore leasing
    process and (2) the need for better science and greater interagency
    consultation to improve decision-making related to management of
    offshore resources.
    NEPA
        Based on the Commission's review of leasing and permitting
    processes in the Gulf of Mexico before the Deepwater Horizon incident,
    the Commission concluded that the breakdown of the environmental review
    process for OCS activities was systemic and that Interior's historical
    approach to the application of NEPA requirements for offshore oil and
    gas activities needs significant revision. In particular, the
    application of tiering, use of categorical exclusions, the practice of
    area-wide leasing, and failure to develop formal NEPA guidance all
    contributed to this breakdown. The Commission recommends that the
    Council on Environmental Quality and the Department of the Interior
    revise and strengthen the NEPA policies, practices, and procedures to
    improve the level of environmental analysis, transparency, and
    consistency at all stages of the OCS planning, leasing, exploration,
    and development process.
    Improved Interagency Consultation and Environmental Science
        Under OCSLA, it is up to the Secretary of the Interior to choose
    the proper balance between environmental protection and resource
    development. In making leasing decisions, the Secretary is required to
    solicit and consider suggestions from any interested agency, but he or
    she is not required to respond to the comments or accord them any
    particular weight. Similar issues arise at the individual lease sale
    stage and at the development and production plan stage. As a result,
    NOAA--the nation's ocean agency with the most expertise in marine
    science and the management of living marine resources--effectively has
    the same limited role as the general public in the decisions on
    selecting where and when to lease portions of the OCS. The Commission
    recommends a more robust and formal interagency consultation process in
    which NOAA, in particular, is provided a heightened role, but ultimate
    decision-making authority is retained at DOI. The Commission further
    recommends the creation of an Office of Environmental Science, led by a
    Chief Environmental Scientist, with specified responsibilities in
    conducting all NEPA reviews, coordinating other environmental reviews,
    and whose expert judgment on environmental protection concerns would be
    accorded significant weight in leasing decision-making.
    V. Reforming Industry Safety Practices
    Changing Business As Usual
        Without effective government oversight, the offshore oil and gas
    industry will not adequately reduce the risk of accidents, nor prepare
    effectively to respond in emergencies. However, government oversight
    alone cannot reduce those risks to the fullest extent possible.
    Government oversight must be accompanied by the oil and gas industry's
    internal reinvention: sweeping reforms that accomplish no less than a
    fundamental transformation of its safety culture.
        Even the most inherently risky industry can be made much safer,
    given the right incentives and disciplined systems, sustained by
    committed leadership and effective training. The critical common
    element is an unwavering commitment to safety at the top of an
    organization: the CEO and board of directors.
    Industry Self-Policing as a Supplement to Government Regulation
        One of the key responsibilities of government is to regulate--to
    direct the behavior of individuals and institutions according to rules.
    Many businesses and business groups are involved in internal standard
    setting, evaluation, and other activities that constitute self-policing
    or self-regulation. But even in industries with strong self-policing,
    government also needs to be strongly present, providing oversight and/
    or additional regulatory control--responsibilities that cannot be
    abdicated if public safety, health, and welfare are to be protected.
        Industry-standard setting and self-policing organizations are
    widespread in the United States and in most industrialized nations--
    typically for operations marked by technical complexity, such as the
    chemical, nuclear power, civil aviation, and oil and gas industries,
    where government oversight is also present. These processes coexist
    where there are relatively limited numbers of people with the requisite
    expertise and experience, making it hard for government to be able to
    rely solely on its own personnel (especially when government cannot
    compete with private-sector salaries for those experts). Support for
    standard setting and self-policing also arises in industries whose
    reputations depend on the performance of each company, and where
    significant revenues are at stake. However, industry self-policing is
    not a substitute for government but serves as an important supplement
    to government oversight.
        After Three Mile Island, the nuclear power industry established the
    Institute of Nuclear Power Operations (INPO), a nonprofit organization
    with the ambitious mission ``to promote the highest levels of safety
    and reliability--to promote excellence--in the operation of commercial
    nuclear power plants.'' The oil and gas industry, like the nuclear
    power industry, has both the substantial economic resources and the
    necessary economic incentive to make it happen. INPO was formed because
    doing so was in the industry's self-interest. As the Deepwater Horizon
    disaster made unambiguously clear, the entire industry's reputation,
    and perhaps its viability, ultimately turn on its lowest-performing
    members. If any one company is involved in an accident with widespread
    and potentially enormous costs, like those that followed the Macondo
    blowout, everyone in the industry--companies and employees--suffers, as
    do regional economies and the nation as a whole. No one, in industry or
    in government, can afford a repeat of the Macondo explosion and spill.
        Like the nuclear power industry in 1979, the nation's oil and gas
    industry needs now to embrace the potential for an industry safety
    institute to supplement government oversight of industry operations. To
    be credible, any industry-created safety institute would need to have
    complete command of technical expertise available through industry
    sources--and complete freedom from any suggestion that its operations
    are compromised by multiple other interests and agendas. As a
    consensus-based organization, the American Petroleum Institute (API) is
    culturally ill-suited to drive a safety revolution in the industry. For
    this reason, it is essential that the safety enterprise operate apart
    from the API. API's longstanding role as an industry lobbyist and
    policy advocate--with an established record of opposing reform and
    modernization of safety regulations--renders it inappropriate to serve
    a self-policing function.
        The INPO experience makes clear that any successful oil and gas
    industry safety institute would require in the first instance strong
    board-level support from CEOs and boards of directors of companies for
    a rigorous inspection and auditing function. Such audits would need to
    be aimed at assessing companies' safety cultures and encouraging
    learning about implementation of enhanced practices. The inspection and
    auditing function would need to be conducted by safety institute staff,
    complemented by experts seconded from industry companies. There would
    also need to be a commitment to share findings about safety records and
    best practices within the industry, aggregate data, and analyze
    performance trends, shortcomings, and needs for further research and
    development. Accountability could be enhanced by a requirement that
    companies report their audit scores to their boards of directors and
    insurance companies.
        The industry's safety institute could facilitate a smooth
    transition to a regulatory regime based on systems safety engineering
    and improved coordination among operators and contractors--the
    principles of the U.K.'s ``safety case'' that shifts responsibility for
    maintaining safe operations at all times to the operators themselves.
    It should drive continuous improvement in standards and practices by
    incorporating the highest standards achieved globally.
        The industry also needs to benchmark safety and environmental
    practice rules against recognized global best practices. The Safety and
    Environmental Management Program Recommended Practice 75 (API RP 75)
    developed in 1993 by the API and incorporated by reference in the
    Department of the Interior's new workplace safety rules, adopted in
    October 2010, is a reasonable starting point.
    VI. Response and Containment
        As part of its charge from President Obama, the Commission looked
    at the effectiveness of the response to the spill. There were
    remarkable instances of dedication and heroism by individuals involved
    in the rescue and cleanup. Much was done well--and thanks to a
    combination of good luck and hard work, the worst-case scenarios did
    not all come to pass. But it is impossible to argue that the industry
    or the government was prepared for a disaster of the magnitude of the
    Deepwater Horizon oil spill. Twenty years after the Exxon Valdez spill
    in Alaska, the same blunt response technologies--booms, dispersants,
    and skimmers--were used, to limited effect. On-the-ground shortcomings
    in the joint public-private response to an overwhelming spill like that
    resulting from the blowout of the Macondo well are now evident, and
    demand public and private investment. So do the weaknesses in local,
    state, and federal coordination revealed by the emergency.
        Neither BP nor the federal government was prepared to conduct an
    effective response to a spill of the magnitude and complexity of the
    Deepwater Horizon disaster. Three critical issues or gaps existed in
    the government's response capacity: (1) the failure to plan effectively
    for a large-scale, difficult-to-contain spill in the deepwater
    environment; (2) the difficulty of coordinating with state and local
    government officials to deliver an effective response; and (3) a lack
    of information and understanding concerning the efficacy of specific
    response measures, such as dispersants or berms. Moreover, the
    technology available for cleaning up oil spills had improved only
    incrementally since 1990. The technologies and methods available to cap
    or control a failed well in the extreme conditions thousands of feet
    below the sea were also inadequate. Although BP was able to develop new
    source-control technologies in a compressed timeframe, and the
    government was able to develop an effective oversight structure, the
    containment effort would have benefitted from prior preparation and
    contingency planning.
    Improved Oil Spill Response Planning
        The Department of the Interior should create a rigorous,
    transparent, and meaningful oil spill risk analysis and planning
    process for the development and implementation of better oil spill
    response. Several steps are needed for implementation:
              Interior should review and revise its regulations and
            guidance for industry oil spill response plans. The revised
            process should ensure that all critical information and spill
            scenarios are addressed in the plans.
              In addition to Interior, other agencies with relevant
            scientific and operational expertise should play a role in
            evaluating spill response plans to verify that operators can
            conduct the operations detailed in their plans. Specifically,
            oil spill response plans, including source-control measures,
            should be subject to interagency review and approval by the
            Coast Guard, EPA, and NOAA. Other parts of the federal
            government, such as Department of Energy national laboratories
            that possess relevant scientific expertise, could be consulted.
            Plans should also be made available for a public comment period
            prior to final approval and response plans should be made
            available to the public following their approval.
              Interior should incorporate the ``worst-case
            scenario'' calculations from industry oil spill response plans
            into NEPA documents and other environmental analyses or
            reviews.
    Spills of National Significance
        The Gulf oil spill presented an unprecedented challenge to the
    response capability of both government and industry. Though the
    National Contingency Plan permitted the government to designate the
    spill as one of ``national significance,'' this designation did not
    trigger any procedures other than allowing the government to name a
    National Incident Commander.
        EPA and the Coast Guard should establish distinct plans and
    procedures for responding to a ``Spill of National Significance.''
    Specifically, EPA should amend or issue new guidance on the National
    Contingency Plan to:
              Increase government oversight of the responsible
            party, based on the National Contingency Plan's requirement
            that the government ``direct'' the response where a spill poses
            a substantial threat to public health or welfare.
              Augment the National Response Team and Regional
            Response Team structures to establish additional frameworks for
            providing interagency scientific and policymaking expertise
            during a spill. Further, EPA, NOAA, and the Coast Guard should
            develop procedures to facilitate review and input from the
            scientific community--for example, by encouraging disclosure of
            underlying methodologies and data.
              Create a communications protocol that accounts for
            participation by high-level officials who may be less familiar
            with the National Contingency Plan structure and create a
            communications center within the National Incident Command--
            separate from the joint information center established in
            partnership with the responsible party--to help transmit
            consistent and complete information to the public.
    Strengthening State and Local Involvement
        The response to the Deepwater Horizon disaster showed that state
    and local elected officials had not been adequately involved in oil
    spill contingency planning, though career responders in state
    government had participated extensively. Unfamiliarity with, and lack
    of trust in, the federal response manifested itself in competing state
    structures and attempts to control response operations that undercut
    the efficiency of the response overall.
        EPA and the Coast Guard should bolster state and local involvement
    in oil spill contingency planning and training and create a mechanism
    for local involvement in spill planning and response similar to the
    Regional Citizens' Advisory Councils mandated by the Oil Pollution Act
    of 1990.
        In addition, a mechanism should be created for ongoing local
    involvement in spill planning and response in the Gulf. In the Oil
    Pollution Act of 1990, Congress mandated citizens' councils for Prince
    William Sound and Cook Inlet. In the Gulf, such a council should
    broadly represent the citizens' interests in the area, such as fishing
    and tourism, and possibly include representation from oil and gas
    workers as ex-officio, non-voting members.
    Research and Development for Improved Response
        The technology available for cleaning up oil spills has improved
    only incrementally since 1990. Federal research and development
    programs in this area are underfunded: In fact, Congress has never
    appropriated even half the full amount authorized by the Oil Pollution
    Act of 1990 for oil spill research and development.
        Specifically, Congress should provide mandatory funding (i.e.
    funding not subject to the annual appropriations process) at a level
    equal to or greater than the amount authorized by the Oil Pollution Act
    of 1990 to increase federal funding for oil spill response research by
    agencies such as Interior, the Coast Guard, EPA, and NOAA. In addition,
    Congress and the Administration should encourage private investment in
    response technology more broadly, including through public-private
    partnerships and a tax credit for research and development in this
    area.
    Dispersants
        Prior to the blowout, the federal government had not adequately
    planned for the use of dispersants to address such a large and
    sustained oil spill, and did not have sufficient research on the long-
    term effects of dispersants and dispersed oil to guide its decision-
    making.
        EPA should update and periodically review its dispersant testing
    protocols for product listing or pre-approval, and modify the pre-
    approval process to include temporal duration, spatial reach, and
    volume of the spill. EPA should update its dispersant testing protocols
    and require more comprehensive testing prior to listing or pre-
    approving dispersant products. The Coast Guard and EPA should modify
    pre-approvals of dispersant use under the National Contingency Plan to
    establish procedures for further consultation based on the temporal
    duration, spatial reach, or volume of the spill and volume of
    dispersants that responders are seeking to apply. EPA and NOAA should
    conduct and encourage further research on dispersants.
    Containment
        The most obvious, immediately consequential, and plainly
    frustrating shortcoming of the oil spill response set in motion by the
    events of April 20, 2010 was the simple inability--of BP, of the
    federal government, or of any other potential intervener--to contain
    the flow of oil from the damaged Macondo well.
        At the time of the blowout on April 20, the U.S. government was
    unprepared to oversee a deepwater source-control effort. Once the
    Secretary of Energy's science team, the U.S. Geological Survey, the
    national laboratories, and other sources of scientific expertise became
    involved, the government was able to substantively supervise BP's
    decision-making, forcing the company to fully consider contingencies
    and justify its chosen path.
        The National Response Team should develop and maintain expertise
    within the Federal government to oversee source-control efforts. The
    National Response Team should create an interagency group--including
    representation from the Department of the Interior, Coast Guard, and
    the Department of Energy and its national laboratories--to develop and
    maintain expertise in source control, potentially through public-
    private partnerships.
    Industry's Spill Preparedness
        Beyond attempting to close the blowout preventer stack, no proven
    options for rapid source control in deepwater existed when the blowout
    occurred. The Department of the Interior should require offshore
    operators to provide detailed plans for source control as part of their
    oil spill response plans and applications for permits to drill.
        These plans should demonstrate that an operator's containment
    technology is immediately deployable and effective. In applications for
    permits to drill, the Interior should require operators to provide a
    specific source-control analysis for each well. As with oil spill
    response plans, source-control plans should be reviewed and approved by
    agencies with relevant expertise, including the Interior and the Coast
    Guard.
    Improved Capability for Accurate Flow Rate Estimates
        Early flow rate estimates were highly variable and difficult to
    determine accurately. However, the understated estimates of the amount
    of oil spilling appear to have impeded planning for and analysis of
    source-control efforts like the cofferdam and especially the top kill.
        The National Response Team should develop and maintain expertise
    within the federal government to obtain accurate estimates of flow rate
    or spill volume early in a source-control effort. The National Response
    Team should create an interagency group--including representation from
    Interior, the Coast Guard, the national laboratories, and NOAA--to
    develop and maintain expertise in estimating flow rates and spill
    volumes. In addition, EPA should amend the National Contingency Plan to
    create a protocol for the government to obtain accurate estimates of
    flow rate or spill volume from the outset of a spill. This protocol
    should require the responsible party to provide all data necessary to
    estimate flow rate or spill volume.
    More Robust Well Design and Approval Process
        Among the problems that complicated the Macondo well-containment
    effort was a lack of reliable diagnostic tools and concerns about the
    well's integrity. The Department of the Interior should require
    offshore operators seeking its approval of proposed well design to
    demonstrate that:
              Well components, including blowout preventer stacks,
            are equipped with sensors or other tools to obtain accurate
            diagnostic information--for example, regarding pressures and
            the position of blowout preventer rams.
              Wells are designed to mitigate risks to well
            integrity during post-blowout containment efforts.
    Industry Responsibilities for Containment and Response
        Industry's responsibilities extend to efforts to contain any big
    spills as quickly as possible and to mitigate the harm caused by spills
    through effective response efforts. Both government, which must be
    capable of taking charge of those efforts, and industry were woefully
    unprepared to contain or respond to a deepwater well blowout like that
    at Macondo. All parties lacked adequate contingency planning, and
    neither had invested sufficiently in research, development, and
    demonstration to improve containment or response technology.
        From now on, the oil and gas industry needs to combine its
    commitment to transform its safety culture with adequate resources for
    containment and response. Large-scale rescue, response, and containment
    capabilities need to be developed and demonstrated--including
    equipment, procedures, and logistics--and enabled by extensive
    training, including full-scale field exercises and international
    cooperation.
        To that end, at least two industry spill containment initiatives
    have emerged that build on ideas and equipment that were deployed in
    response to the Macondo blowout and spill. The nonprofit Marine Well
    Containment Company was created in July 2010 by four of the major,
    integrated oil and gas companies. The second spill containment
    initiative is being coordinated by Helix Energy Solutions Group, which
    played a role in the Macondo well containment efforts.
        Yet neither the Marine Well Containment Company's planned
    capabilities nor Helix's go past 10,000 feet despite the fact that
    current drilling technology extends beyond this depth. Also it seems
    that neither is structured to ensure the long-term ability to innovate
    and adapt over time to the next frontiers and technologies. What
    resources, if any, either initiative will dedicate to research and
    development going forward is unclear.
        The primary long-term goal of a spill containment company or
    consortia should be to ensure that an appropriate containment system is
    readily available to contain quickly spills in the Gulf of Mexico with
    the best available technology. Any spill containment company or
    consortia should ensure that it remains focused on this goal, even when
    doing so potentially conflicts with the short-term interests of its
    founding companies, in the case of MWCC, or the parent company, in the
    case of Helix. An independent advisory board, with representatives from
    industry, the federal government, state and local governments, and
    environmental groups could help keep any spill containment initiative
    focused on innovative, adaptive, effective spill response over the long
    term.
    VII. Financial Responsibility
        Oil spills cause a range of harms, including personal, economic and
    environmental injuries, to individuals and ecosystems. The Oil
    Pollution Act makes the party responsible for a spill liable for
    compensating those who suffered as a result of the spill--through human
    health and property damage, lost profits, and other personal and
    economic injuries--and for restoring injured natural resources. The Act
    also provides an opportunity to make claims for compensation from a
    dedicated Oil Spill Liability Trust Fund. The Oil Pollution Act,
    however, imposes limits on both the amount for which the responsible
    party is liable, and the amount of compensation available through the
    trust fund. In the case of the Deepwater Horizon spill, BP (a
    responsible party) has placed $20 billion in escrow to compensate
    private individuals and businesses through the independent Gulf Coast
    Claims Facility. But if a less well capitalized company had caused the
    spill, neither a multi-billion dollar compensation fund nor the funds
    necessary to restore injured resources, would likely have been
    available.
        Liability for damages from spills from offshore facilities is
    capped under the Oil Pollution Act at $75 million, unless it can be
    shown that the responsible party was guilty of gross negligence or
    willful misconduct, violated a federal safety regulation, or failed to
    report the incident or cooperate with removal activities, in which case
    there is no limit on damages. Claims up to $1 billion for certain
    damages can be made to, and paid out of, the Oil Spill Liability Trust
    Fund, which is currently supported by an 8-cent per-barrel tax on
    domestic and imported oil.
        The Oil Pollution Act also requires responsible parties to
    ``establish and maintain evidence of financial responsibility,''
    generally based on a ``worst-case discharge'' estimate. In the case of
    offshore facilities, necessary financial responsibility ranges from $35
    million to $150 million.
    Inadequacy of Current System
        There are two main problems with the current liability cap and
    financial responsibility dollar amounts. First, the relatively modest
    liability cap and financial responsibility requirements provide little
    incentive for oil companies to improve safety practices. Second, as
    noted, if an oil company with more limited financial means than BP had
    caused the Deepwater Horizon spill, that company might well have
    declared bankruptcy long before paying fully for all damages. In the
    case of a large spill, the Oil Spill Liability Trust Fund would likely
    not provide sufficient backup. Thus, a significant portion of the
    injuries caused to individuals and natural resources, as well as
    government response costs, could go uncompensated.
        Any discussion of increasing liability caps and financial
    responsibility requirements must balance two competing public policy
    concerns: first, the goal of ensuring that the risk of major spills is
    minimized, and in the event of a spill, victims are fully compensated;
    and second, that increased caps and financial responsibility
    requirements do not drive competent independent oil companies out of
    the market. A realistic policy solution also requires an understanding
    of the host of complex economic impacts that could result from
    increases to liability caps and financial responsibility requirements.
    Options for Reform
        As this Committee and others in Congress consider options for
    addressing these problems, the Commission recommends that first,
    Congress significantly increase the liability cap and financial
    responsibility requirements for offshore facilities. To address both
    the incentive and compensation concerns noted above, Congress should
    significantly raise the liability cap. Financial responsibility limits
    should also be increased, because if an oil company does not have
    adequate resources to pay for a spill, the application of increased
    liability has little effect. Should a company go bankrupt before fully
    compensating for a spill, its liability is effectively capped. If,
    however, the level of liability imposed and the level of financial
    responsibility required are set to levels that bear some relationship
    to potential damages, firms will have greater incentives to maximize
    prevention and minimize potential risk of oil spills and also have the
    financial means to ensure that victims of spills do not go
    uncompensated.
        Second, the Commission recommends that Congress increase the limit
    on per-incident payouts from the Oil Spill Liability Trust Fund. If
    liability and financial responsibility limits are not set at a level
    that will ensure payment of all damages for spills, then another source
    of funding will be required to ensure full compensation. The federal
    government could cover additional compensation costs, but this approach
    requires the taxpayer to foot the bill. Therefore, Congress should
    raise the Oil Spill Liability Trust Fund per-incident limit. Raising
    the Oil Spill Liability Trust Fund's per-incident limit will require
    the Fund to grow through an increase of the per-barrel tax on domestic
    and imported oil production. An alternative would be to increase the
    Trust Fund through a surcharge by mandatory provisions in drilling
    leases triggered in the event that there are inadequate sums available
    in the Fund.
        Third, the Commission recommends that the Department of the
    Interior enhance auditing and evaluation of the risk of offshore
    drilling activities by individual participants (operator, driller,
    other service companies). The Department of the Interior, insurance
    underwriters, or other independent entities should evaluate and monitor
    the risk of offshore drilling activities to promote enhanced risk
    management in offshore operations and to discourage unqualified
    companies from remaining in the market.
        The Interior Department currently determines financial
    responsibility levels based on potential worst-case discharges, as
    required by the Oil Pollution Act. Although the agency's analysis to
    some degree accounts for the risk associated with individual drilling
    activities, it does not fully account for the range of factors that
    could affect the cost of a spill, and thus the level of financial
    responsibility that should be required. Interior should analyze a host
    of specific, risk-related criteria when determining financial
    responsibility limits applicable to a particular company, including,
    but not limited to: geological and environmental considerations, the
    applicant's experience and expertise, and applicable risk management
    plans. This increased scrutiny would provide an additional guard
    against unqualified companies entering the offshore drilling market.
    VIII. Spill Impacts and Gulf Restoration
        Even before the highly visible damages caused by the spill became
    clear, many crucial Gulf economic and ecological resources--fisheries,
    transportation, tourism--faced long-term threats. First, more than
    2,300 square miles of coastal wetlands--an area larger than the State
    of Delaware--have been lost to the Gulf since the United States raised
    the massive levees along the lower Mississippi River after the
    devastating Great Flood of 1927. Exceptionally powerful hurricanes,
    always a threat to the region, struck the coast in 2005 (Katrina and
    Rita) and 2008 (Gustav and Ike), causing even more wetland loss.
    Second, low-oxygen bottom waters were in the process of forming a
    massive ``dead zone'' extending up to 7,700 square miles during the
    summer of 2010. Referred to as hypoxia, this phenomenon has intensified
    and expanded since the early 1970s as a result of nutrient pollution,
    mainly from Midwestern agriculture. And finally, the Deepwater Horizon
    disaster made matters worse: 11 rig workers killed in the explosion and
    17 injured; many thousands of people exposed to contaminated waters,
    coasts, beaches, and seafood; thousands out of work; birds and sea
    animals killed and significant habitats damaged or destroyed. The
    Commission's investigation made plain that existing authorities are not
    adequate to redress these significant harms and ensure restoration of
    the Gulf.
    Human Health Impacts
        The National Contingency Plan overlooks the need to respond to
    widespread concerns about human health impacts. For smaller oil spills,
    the response effort is generally carried out by trained oil spill
    response technicians, but given the scale of the response to the
    Deepwater Horizon spill and the need to enlist thousands of previously
    untrained individuals to clean the waters and coastline, many response
    workers were not screened for pre-existing conditions. This lack of
    basic medical information, which could have been collected if a short
    medical questionnaire had been distributed, limits the ability to draw
    accurate conclusions regarding long-term physical health impacts. EPA
    should amend the National Contingency Plan to add distinct procedures
    to address human health impacts during a Spill of National
    Significance. Spills of this magnitude necessarily require a
    significant clean-up effort, potentially exposing workers to toxic
    compounds in oil and dispersants.
    Consumer Confidence
        Images of spewing oil and oiled beaches in newspapers and on
    television set the stage for public concern regarding the safety of
    Gulf seafood. Additional factors contributed to the lingering
    impression that the public could not trust government assurances that
    the seafood was safe: the unprecedented volumes of dispersants used,
    confusion over the flow rate and fate of the oil, frustration about the
    government's relationship with BP in spill cleanup, and lawsuits filed
    by fishermen contesting the government's assurance of seafood safety.
    The economic blow to the Gulf region associated with this loss of
    consumer confidence is sizable. BP gave Louisiana and Florida $68
    million for seafood testing and marketing, as well as money to assess
    impacts on tourism and fund promotional activities. As of early
    December 2010, BP was considering a similar request from Alabama.
        In future spills, however, there is no guarantee that a responsible
    party will have the means or the inclination to compensate such losses.
    Such indirect financial harms are currently not compensable under the
    Oil Pollution Act. Nevertheless, losses in consumer confidence are real
    and Congress, federal agencies, and responsible parties should consider
    ways to restore consumer confidence in the aftermath of a Spill of
    National Significance.
        The Commission recommends that Congress, federal agencies, and
    responsible parties take steps to restore consumer confidence in the
    aftermath of a Spill of National Significance.
    Lack of Sustained Funding for Gulf Restoration
        A lack of sustained and predictable funding, together with failed
    project coordination and long-term planning, has resulted in incomplete
    and often ineffective efforts to restore the Gulf's natural
    environment. No funding source currently exists to support regional
    restoration efforts. While cost estimates of Gulf restoration vary
    widely, according to testimony before the Commission, fully restoring
    the Gulf will require $15 billion-$20 billion, or a minimum of $500
    million per year, over 30 years. A number of different sources
    currently provide funding to individual states for restoration, however
    none of these sources provides funds for Gulf-wide coastal and marine
    restoration, and none is sufficient to support the sustained effort
    required. Most policymakers agree that without a reliable source of
    long-term funding, it will be impossible to achieve restoration in the
    Gulf.
        Several Gulf States and the federal government have filed or are
    expected to file suit against BP and other companies involved in the
    spill, which will likely create opportunities to direct new restoration
    funds to the region. In some cases, congressional action will be
    required to ensure that funds are directed to this purpose. The
    Commission recommends that 80 percent of any Clean Water Act penalties
    and fines be directed to Gulf restoration. Should such penalties and
    fines not be directed to the Gulf, Congress should consider other
    mechanisms for a dedicated funding stream not subject to annual
    appropriations. Although such mechanisms face hurdles, the fact remains
    that resources are needed if progress on coastal restoration is to
    continue. Inaction is a prescription for further degradation. Should
    CWA penalties not be redirected to Gulf restoration, Congress should
    consider other mechanisms for a dedicated funding stream not subject to
    annual appropriations.
    Decision-making Body for Expediting Work
        In order for funding to be most efficiently directed at long-term
    restoration, a decision-making body is needed that has authority to set
    binding priorities and criteria for project funding. The Gulf Coast
    Ecosystem Restoration Task Force is now in place, as recommended by the
    September 2010 report on restoration from Secretary of the Navy Ray
    Mabus to the President, and subsequently established by Presidential
    Executive Order. According to the Executive Order, the job of the Task
    Force is to begin coordinating the different restoration projects being
    undertaken by various jurisdictions in the Gulf, coordinating related
    science activities and engaging stakeholders. However, as many in
    Congress and the Administration have suggested, the Task Force lacks
    some features necessary to effectively direct long-term restoration
    efforts in the Gulf--most importantly the ability to set binding goals
    and priorities.
        The Commission recommends that Congress establish a joint state-
    federal Gulf Coast Ecosystem Restoration Council. The Council should
    implement a restoration strategy for the region that is compatible with
    existing state restoration goals. Experience in major restoration
    endeavors, including those in the Gulf, has shown that, absent binding
    goals to drive the process, restoration projects are insufficiently
    funded, focused, or coordinated. Therefore, the restoration strategy
    should set short- and long-term goals with binding criteria for
    selecting projects for funding. Key criteria should include national
    significance; contribution to achieving ecosystem resilience; and the
    extent to which national policies--such as those related to flood
    control, oil and gas development, agriculture, and navigation--directly
    contributed to the environmental problem. Congress should also ensure
    that the priorities and decisions of the Council are informed by input
    from a Citizens Advisory Council that represents diverse stakeholders.
    Restoration Rooted in Science
        Finally, but essentially, restoration decisions must be rooted in
    science. An approach that draws heavily on information and advice from
    scientists will result in project selection and funding allocations
    that are more likely to lead to an effective region-wide restoration
    strategy. Such an approach will also advance transparency in decision-
    making and enhance credibility with the public.
        The Commission accordingly recommends the establishment of a Gulf
    Coast Ecosystem Restoration Science and Technology Program that would
    address these issues in three ways: (1) by creating a scientific
    research and analysis program, supported by the restoration fund, that
    is designed to support the design of scientifically sound restoration
    projects; (2) by creating a science panel to evaluate individual
    projects for technical effectiveness and consistency with the
    comprehensive strategy; and (3) by supporting adaptive management plans
    based on monitoring of outcomes scaled both to the strategy itself and
    to the individual projects or categories of projects included in it.
    Managing Ocean Resources
        The Commission recommends that as a part of management and
    restoration efforts in the marine environment, greater attention should
    be given to new tools for managing ocean resources, including
    monitoring systems and spatial planning. Marine scientists have emerged
    from the Deepwater Horizon incident with more precise questions to
    investigate, as well as a better sense of monitoring needs in the Gulf
    of Mexico, which because of its multiple uses and economic value should
    be a national priority. To that end, the National Ocean Council, which
    the President initiated in July 2010, should work with the responsible
    federal agencies, industry and the scientific community to expand the
    Gulf of Mexico Integrated Ocean Observing System, including the
    installation and maintenance of an in situ network of instruments
    deployed on selected production platforms. Participation in this system
    by industry should be regarded as a reasonable part of doing business
    in nation's waters.
        Coastal and marine spatial planning has the potential to improve
    overall efficiency and reduce conflicts among ocean users. Congress
    should fund grants for the development of regional planning bodies at
    the amount requested by the President in the fiscal year 2011 budget
    submitted to Congress. Ocean management should also include more
    strategically sited Marine Protected Areas, including but not limited
    to National Marine Sanctuaries, which can be used as ``mitigation
    banks'' to help offset harm to the marine environment. Given the
    economic and cultural importance of fishing in the Gulf region--and the
    importance of Gulf seafood to the rest of the country--scientifically
    valid measures, such as catch share programs, should be adopted to
    prevent overfishing and ensure the continuity of robust fisheries.
    IX. The Future of Offshore Drilling
        The central lesson to be drawn from the catastrophe is that no less
    than an overhauling of both current industry practices and government
    oversight is now required. The changes necessary will be transformative
    in their depth and breadth, requiring an unbending commitment to safety
    by government and industry to displace a culture of complacency.
    Drilling in deepwater, however, does not have to be abandoned. It can
    be done safely. That is one of the central messages of the Commission's
    final report. The Commission's recommendations are intended to do for
    the offshore oil and gas industry what new policies and practices have
    done for other high risk industries after their disasters. The
    Commission believes that the potential for such a transformation to
    ensure productive, safe, and responsible offshore drilling is
    significant, and provides reason for optimism even in the wake of a
    disaster.
        The significance of the Deepwater Horizon disaster, however, is
    broader than just its relevance to the future of offshore drilling. The
    disaster signals the need to consider the broader context of the
    nation's patterns of energy production and use, now and in the future--
    the elements of America's energy policy. The explosion at the Macondo
    well and the ensuing enormous spill--particularly jarring events
    because of the belief they could never happen--force a reexamination of
    many widely held assumptions about how to reconcile the risks and
    benefits of offshore drilling, and a candid reassessment of the
    nation's policies for the development of a valuable resource. They also
    support a broader reexamination of the nation's overall energy policy.
        Important decisions about whether, when, where, and how to engage
    in offshore drilling should be made in the context of a national energy
    policy that is shaped by economic, security, pace of technology,
    safety, and environmental concerns. Offshore drilling will certainly be
    an important part of any such policy, but its relative importance today
    will not, and should not, be the same a half-century from now. The
    nation must begin a transition to a cleaner, more energy-efficient
    future. Otherwise, its security and well-being will be increasingly
    dependent on diminishing supplies of nonrenewable resources and on
    supplies from foreign sources.
        Drilling for oil in the Gulf of Mexico, however, is not solely a
    matter for U.S. consideration. Both Mexico and Cuba have expressed
    interest in deepwater drilling in the Gulf in the near future.
    Potential sites are close enough to the United States--Cuba's mainland
    lies only 90 miles from Florida's coast and the contemplated wells only
    50 miles--that if an accident like the Deepwater Horizon spill occurs,
    fisheries, coastal tourism, and other valuable U.S. natural resources
    could be put at great risk. It is in our country's national interest to
    negotiate now with these neighbors to agree on a common, rigorous set
    of standards, a system for regulatory oversight, and operator adherence
    to an effective safety culture, along with protocols to cooperate on
    containment and response strategies in case of a spill.
    Frontier Areas
        Our Commission also examined prospects in so called ``frontier
    areas.'' On December 1, in the wake of the Deepwater Horizon
    experience, Interior Secretary Ken Salazar announced that the
    Administration would not proceed with drilling in areas where there are
    ``no active leases'' during the next five-year leasing plan. As a
    result, exploration and production in certain frontier areas--the
    eastern Gulf and off of the Atlantic and Pacific coasts--are deferred.
    The Secretary also indicated that plans for 2011 drilling in Alaska's
    Beaufort Sea would be subjected to additional environmental
    assessments.
        The major interest in offshore Alaska reflects the likelihood of
    finding significant new sources of oil there. The Chukchi and Beaufort
    Sea off Alaska's north coast rank behind only the Gulf of Mexico in
    estimated domestic resources. But finding and producing those
    potentially important supplies of oil offshore Arctic Alaska requires
    the utmost care, given the special challenges for oil spill response
    and containment, and heightened risks associated with this frontier,
    especially its extreme cold, extended seasons of darkness, hurricane-
    strength storms, and pervasive fog--all affecting access and working
    conditions--and the extraordinary richness of its ecosystems and the
    subsistence native communities dependent upon their protection. To deal
    with these serious concerns about Arctic oil spill response,
    containment and the heightened environmental stakes the Commission
    recommends three approaches before the Department of the Interior makes
    a determination that drilling in a particular area is appropriate.
    First, the Department should ensure that the containment and response
    plans proposed by industry are adequate for each stage of development
    and that the underlying financial and technical capabilities have been
    satisfactorily demonstrated in the Arctic. Second, the Coast Guard and
    the oil companies operating in the Arctic should carefully delineate
    their respective responsibilities in the event of an accident--
    including search and rescue--and then must build and deploy the
    necessary capabilities. Third, Congress should provide the resources to
    establish Coast Guard capabilities in the Arctic, based on the Guard's
    review of gaps in its capacity.
        The Arctic is shared by multiple countries, many of which are
    considering or conducting oil and gas exploration and development. The
    extreme weather conditions and infrastructure difficulties are not
    unique to the U.S. Arctic. Damages caused by an oil spill in one part
    of the Arctic may not be limited to the waters of the country where it
    occurred. As a result, the Commission recommends that strong
    international standards related to Arctic oil and gas activities be
    established among all the countries of the Arctic. Such standards would
    require cooperation and coordination of policies and resources.
        Bringing the potentially large oil resources of the Arctic outer
    continental shelf into production safely will require an especially
    delicate balancing of economic, human, environmental, and technological
    factors. Both industry and government will have to demonstrate
    standards and a level of performance higher than they have ever
    achieved before.
        Creating and implementing a national energy policy will require
    enormous political effort and leadership--but it would do much to
    direct the nation toward a sounder economy and a safer and more
    sustainable environment in the decades to come. Given Americans'
    consumption of oil, finding and producing additional domestic supplies
    will be required in coming years, no matter what sensible and effective
    efforts are made to reduce demand--in response to economic, trade, and
    security considerations, and the rising challenge of climate change.
        The extent to which offshore drilling contributes to augmenting
    that domestic supply depends on rebuilding public faith in existing
    offshore energy exploration and production. We have proposed a series
    of recommendations that will enable the country and the oil and gas
    industry to move forward on this one critical element of U.S. energy
    policy: continuing, safe, responsible offshore oil drilling to meet our
    nation's energy demands over the next decade and beyond. Our message is
    clear: both government and industry must make dramatic changes to
    establish the high level of safety in drilling operations on the outer
    continental shelf that the American public has the right to expect and
    to demand. It is now incumbent upon the Congress, the executive branch,
    and the oil and gas industry to take the necessary steps.
                                      _____

                                     [GRAPHIC] [TIFF OMITTED] 63876.001

        .epsThe Chairman. Thank you very much.
        And I thank both of you. For the record, it was not me that
    cleared my throat that you responded to. But nevertheless, I
    appreciate that.
        Mr. Graham. The message was clear.
        The Chairman. I did want both of you to finish your
    remarks, and I allowed that, but we do want to try to stay as
    closely as we can.
        I just have an observation and a question that I want to
    ask both of you. Right from the get-go, when this event
    happened and I was asked to respond, I said something on the
    order: Number one, we need to stop the leak; number two, we
    need to hold BP accountable; and number three, we need to make
    sure that the restoration can get that part of the country back
    to normalcy, however you describe that.
        I have been saying that right from day one. You have spent
    a great deal of time on it in your report. Your testimony
    talked about what should be done in the future, and I alluded
    to this in my opening statement. I would like you both to
    respond to it. We still don't know what caused the explosion,
    unless I missed something, and we don't know how or why the BOP
    malfunctioned, if that was the case. And I would like both of
    you to respond to that, and is there maybe a time in the future
    when you are going to answer that, or do we wait for other
    reports to come in before we draw conclusions? Whoever wants to
    go first. I would like both of you to respond to that.
        Mr. Graham. Well, what we know is that the event occurred,
    and we know a great deal about why the event occurred. We have
    identified in our report nine instances, nine human decisions
    that were made in the hours before the Macondo explosion, which
    we think were the precipitating cause of this immediate event.
        It is true that no one at this point has had the benefit of
    the full forensic examination of the blowout preventer. It is
    at a NASA facility in New Orleans being closely examined. But
    what we do know is that it didn't perform as it should have. If
    it had been able to perform at an optimal level, it is
    questionable whether that would have avoided the explosion
    because the gas had already gotten beyond the blowout preventer
    at the time that it would have gone into effect.
        So I believe that our report adequately, accurately,
    comprehensively addresses both the immediate cause and then the
    context in which that occurred, which was a long period in
    which government had done a very inadequate job of regulation,
    at which the industry had fallen into this culture of
    complacency, and where the consequences have been an enormous
    economic and environmental cost to the people of the United
    States.
        Mr. Reilly. I would just add, Mr. Chairman, we know enough.
    We know what happened. We know that the negative pressure test,
    which was supposed to determine whether cementing had
    effectively sealed off the well; we know that inconsistent
    information came from the kill line and the drill pipe. And the
    good news was accepted that while the conflicting information
    was rejected in the drill pipe itself, indicating that had not
    been a seal, the cementing had failed. We know that. We know
    that as gas did rise in the drill pipe, it was not noticed,
    although we have the documentation of the instrumentation, the
    record that should have been recognized by a professional
    monitoring that instrumentation to indicate that gas was coming
    up the riser. It was not recognized until it was too late. So
    we know those things. Those are a couple of examples.
        A number of decisions were made by people who are not
    alive, and we cannot but speculate on how they came to make
    some of those decisions or to have missed some of the
    information that they did have.
        And if you look at page 125 of our report, we list about
    nine decisions, seven of which had the corollary benefit of
    saving time. No doubt they were identified as more efficient
    ways to proceed, but there were alternatives to most of them,
    and they weren't chosen. So the immediate proximate cause was a
    series of bad decisions, very hard to understand decisions on
    the day of April 20th and leading up to it with respect to
    Halliburton's supply of cement which failed three of its own
    tests and nine tests that were subjected to by our Commission
    by Chevron's laboratory for testing cement. So we do know those
    things. And I am quite confident that we have established the
    facts here.
        The Chairman. Since my time is running out, I would just
    make this observation. What you have alluded to, both of you,
    is the fact that somewhere along the line, there is human
    error; something wasn't read. We heard that in testimony,
    frankly, from the industry when they were here shortly after.
    They said, we don't know what happened, but we suspect that
    this is going to be the case. And that you have confirmed.
        But we still don't know what mechanically or whatever else
    broke down, and I just wanted to thank you for responding to
    that.
        Mr. Markey.
        Mr. Markey. Thank you, Mr. Chairman, very much.
        Thank you for this report. This report is a blistering,
    scalding indictment of the practices engaged in by the industry
    and by regulators that created the conditions that made this
    accident possible. My question to you is if your
    recommendations are not adopted or provisions similar to those
    which you recommend, do you think we run the risk of repeating
    that catastrophe once again in the waters of the United States?
        Mr. Graham. Yes. As I said, even if all of the
    recommendations were adopted, no one could issue an insurance
    policy that there would be no repetition.
        But I could issue an insurance policy that the likelihood
    of a repetition and the consequences of the repetition will be
    significantly less if these recommendations are adopted.
        One of the things that characterizes these recommendations
    is they are not from outer space. Most of them are from the
    North Sea, a place which has a more punishing environment than
    the Gulf of Mexico, yet has a dramatically different record in
    terms of fatalities. We believe that some of the experience
    there--and ironically, the same companies that are operating in
    the Gulf are operating under those standards in the North Sea.
    So it is not a mystery or a new set of standards for those
    companies themselves.
        And as I said in my report, I am concerned that if we don't
    act, if we are timorous and if we have an enhanced likelihood
    similar to the Macondo, that we are all going to be pointed at
    as to why we were unable to recognize and why we were unwilling
    to act in the public interest.
        Mr. Markey. Do you agree, Mr. Reilly?
        Mr. Reilly. I do agree. And I would add that this is a very
    dynamic industry, which has transformed itself in the last 25
    years as it has moved from shallow water into deep water, which
    is a much more high-risk environment. It has not adapted its
    own risk protections, its management systems adequately to
    either prevent or to respond to a problem of this sort.
        And I will tell you one of the things that--well, it is
    reassuring that BOEMRE has issued new prescriptive regulations
    to try to govern a lot of the activities that would take place
    in the future, and that gives us some encouragement. Frankly
    speaking, we don't consider that agency as it is now staffed,
    formed, trained and compensated adequate to the task that they
    have; and that if it is not strengthened, I suspect that we
    will again see an incongruity grow between the sophistication
    of the industry and its dynamism and the failure of inspectors
    even to understand some of the basic technologies to stay on
    top of it.
        Mr. Markey. Let me follow up on that then because you have
    recommendations here that can be implemented administratively
    by the Obama Administration, but there are other
    recommendations here that really need congressional action so
    that we change the laws. Do you think it would be wise for us
    not to act legislatively to give that authority to the
    government so that they can change business as usual? Would we
    be running a risk if we did not pass legislation?
        Mr. Reilly. I think you would be running a big risk. There
    are two crucial moves that I believe the Congress has to take.
    One is to reorganize the Interior Department, simply to ensure
    that leasing revenue concerns of the sort that animated the
    agency over several administrations and three MMS Directors
    testified to before our Commission, that those no longer infect
    safety and environment regulation. And the way to do that is
    statutorily, the way to do it on any kind of sustainable basis,
    by creating a walled-off regulator within the Department of the
    Interior with a term appointment for the Director.
        And the second, the second requirement--and the first
    doesn't cost anything--the second requirement is to adequately
    fund the BOEMRE to carry out the responsibilities that it has.
        Mr. Markey. Thank you.
        Just to note here, BP had 760 OSHA fines--versus one for
    ExxonMobil--so we can understand that there is something
    fundamentally wrong here that a company like that was allowed
    to continue to operate.
        Senator Graham, your recommendation on legislation?
        Mr. Graham. Well, I would agree with those two points, and
    then the third is the one I made relative to restoration, that
    only Congress can designate a portion of these fines and
    penalties for the specific purpose of restoration, which we
    think, in terms of the national interest in this region of
    America, the fact that many of the problems that have led to
    the degradation of the Gulf of Mexico had the Federal
    Government at least as a partner if not the primary indicted
    figure.
        Mr. Markey. And can I just say very quickly, some people
    say, well, it is just BP and that the other actors didn't play
    a role, including the government, that the other companies
    didn't play a role; true or not true?
        Mr. Graham. In the area of response, it was not just BP
    that was incapable. If this same thing had happened on
    virtually any of the rigs in the Gulf, we would have had the
    same response because we had the inadequate, unplanned-for
    capabilities that made this such an unnecessarily significant
    impact on the economy and the environment of the Gulf of
    Mexico.
        Mr. Markey. I thank you both for your service.
        The Chairman. I thank the gentleman.
        Mr. Young of Alaska.
        Mr. Young. Thank you, Mr. Chairman. I thank the witnesses.
        Mr. Chairman, I have reviewed the report, and I have also
    reviewed the members of the Commission. And I have statements
    from every one of the members of the Commission that do not
    support offshore drilling, including the two witnesses before
    us.
        And that concerns me because I cannot figure out how this
    can be a report that was supposed to look for the cause is now
    trying to ask us to pass legislation when their basic goal is
    against offshore development. In your statement you said you
    were for it; you know the importance. But one gentleman said we
    can establish 75 years as the goal for independence. To meet
    that goal, we would have to reduce domestic production, not
    increase it.
        I am just questioning the Commission and the sincerity of
    really seeking a solution to a needed commodity, which is oil.
        Now, I personally have another question because of this
    Administration. From either one of you, from the technical
    perspective, what makes drilling in the deepwater Gulf of
    Mexico so different? And are these conditions typical of the
    other areas of the U.S. OCS? What is different between the Gulf
    and Alaska?
        Mr. Reilly. Well, the difference between the Gulf and
    Alaska is the deep water that we are involved with in the Gulf,
    5,000--we are going to 10,000 feet. Three rigs have been
    commissioned that will take----
        Mr. Young. That I know and I appreciate your answer. I
    appreciate your answer.
        But as I read your report, your position on Arctic drilling
    with the President is, in fact, we have to step forward with
    caution; we have to make sure it can't be done too rapidly, et
    cetera, et cetera.
        But it is 150 feet versus 2,000 some odd feet or, excuse
    me, 20,000 feet, 18,000 feet. And I am worried about this
    country. We are going to spend about $400 billion again to buy
    our oil. And this Commission--the make up of this Commission,
    they are all against the development of offshore drilling and
    onshore, by the way. Some on the Commission voted against
    opening ANWR; 39 billion barrels were 74 miles from the
    pipeline.
        We are facing bankruptcy because we have not been able to
    develop our fossil fuels. And yet the Commission, the majority
    of them, in fact all of them, their intent is not to have
    fossil fuels. And I think that is inappropriate.
        Now, last, if I can suggest one thing, Mr. Chairman, we
    have drilled in the Gulf about 42,000 wells, including 2,500
    deepwater wells. No where do you report in your report or
    suggest why that was successful. We have had one big spill
    since Santa Barbara. Now, how do you answer that? Was there any
    credit given for what was done before and for those who did it?
    Question. Answer.
        Mr. Reilly. Well, I referred to 79 losses of well control.
    I think many of those contributed to accidents and several
    contributed to fatalities. That is the record that we have for
    the Gulf, and it is not a pretty one.
        Mr. Young. How many spills? How many spills?
        Mr. Reilly. I don't know how many spills were associated
    with those, but if you look at that list in the report, if they
    weren't spills, they were near misses and close calls and
    enough to kill people, and there were fires.
        Mr. Young. Just like driving down the street, slipping on
    the ice.
        Mr. Reilly. I would like to say that again with respect to
    ice.
        Mr. Young. Like driving down the street, slipping on the
    ice. There is going to be a chance. There is no fail-safe way
    to do anything.
        Mr. Reilly. No. And it can be done better. As Senator
    Graham said, you cannot eliminate risk; you can reduce it
    significantly.
        I would point out to you, Mr. Young, that--first of all,
    when you say what we really believe--what we really believe is
    in this report. And it is pretty detailed, and I think we have
    a lot of authority and documentation behind the recommendations
    and findings that are in here. So I actually would suggest that
    instead of interpreting comments made by Commissioners perhaps
    in an earlier time without this mission, you look at this as a
    definitive record of where we really stand.
        And we are for offshore oil and gas development. We think
    it can be done safely. And we also specifically recommend
    against a moratorium in Alaska in the Arctic.
        Mr. Young. And that means that you, in fact, want us to go
    forth?
        Mr. Reilly. Yes, sir.
        Mr. Young. Will you express that in your report? It doesn't
    say that.
        Mr. Reilly. This Commission believes that we can go forward
    to drill in the offshore the Chukchi and Beaufort Seas, but it
    recommends a series of scientific analyses of Coast Guard
    search-and-rescue movements, of a range of activities that will
    have to be supplied--either by government or the industry--to
    ensure over the long term that it will be done safely. But we
    specifically say that should not be a barrier to moving
    forward.
        Mr. Young. It does say, then, you are supporting Arctic
    drilling in the report?
        Mr. Reilly. Yes, sir.
        Mr. Young. I didn't read that. And if you do so, I wish you
    would explain that to the President.
        Mr. Reilly. You said in your remarks that we recommended it
    be done with caution and that is certainly true. We have a
    distinctive set of challenges that are being presented there.
        Mr. Young. That is what happens, though. We have the
    studies--for 40 years, we have been drilling in the Arctic,
    just not Prudhoe Bay. We had been drilling there when we had
    the PET-4, when we had the new line operation. We have been
    doing the drilling, and we have done the studies. We have done
    the work. And all of the sudden now we have that moratorium in
    place by someone that doesn't believe in fossil fuels.
        You heard him last night on the Floor. He doesn't believe
    in fossil fuels. And I think it is wrong for this country. I
    want all forms of power, but all of the sudden, we have a
    Commission report I don't believe that really suggests we can
    do without a big long delay. But we will send the money
    overseas.
        Mr. Chairman, my time is up.
        The Chairman. Thank you very much.
        Mr. Pallone from New Jersey.
        Mr. Pallone. Thank you.
        Thank you, Chairman Hastings and Ranking Member Markey, for
    having the hearing today.
        The report in front of us today is clear in my opinion that
    we cannot drill safely off our shores under the current system
    and that our coastal communities need protection from
    untrustworthy big oil.
        Only big oil will claim that they can drill safely and look
    to expand drilling in the wake of our country's worst
    environmental disaster and the finding of their systematic
    failures.
        Now, since the Deepwater Horizon disaster, the President
    has reversed course and, thankfully, taken drilling in the
    Atlantic off the table, at least for the next five years, and I
    commend him for that action and believe we must make that
    policy permanent. Only then can we be safe from the greed of
    the oil industry.
        Also, House Democrats passed the CLEAR Act to prevent
    another catastrophic spill, and at that time, my Republican
    colleagues opposed the legislation, saying we needed to wait
    for this Commission's report. Now that we have it, it is time
    to take action to prevent big oil from wreaking havoc on our
    environment, and that is why I introduced the No New Drilling
    Act to prevent the expansion of offshore drilling, which I
    believe must be the policy, at least until we can be certain
    another Deepwater Horizon incident will not happen again.
        I represent a district along the Jersey Shore. I live along
    the Jersey Shore, as well. I have all my life. And one of the
    things I wanted to ask the two members of the panel is that I
    believe very strongly that the farther you go out and the
    deeper you are, the more dangerous it becomes. In arguing
    against the need for reform, the oil and gas industry likes to
    make the argument that the BP spill was like an outlier, and
    they point to the long history of drilling in the Gulf.
        But in reality, isn't it true that the vast majority of the
    oil and gas industry's offshore drilling in the Gulf has been
    in shallow water where drilling is much less complicated than
    in the ultra-deep water where the Deepwater Horizon was
    operating? So, basically, as we go farther out--and certainly
    my understanding is that the Atlantic is strictly deep water,
    not in shallow water--the danger is greater, and that is even
    one more reason why the recommendations that you put forth are
    crucial. I am asking either of you if you could answer that
    question.
        Mr. Graham. Well, the answer is clearly there is a
    relationship between the danger and risk the deeper you go. And
    it is also true that up until about 1990, virtually all of the
    drilling that had ever taken place in the Gulf of Mexico was in
    waters of less than 1,000 feet, which is the definition of
    shallow drilling, so that the circumstances have dramatically
    changed. And at the same time that the industry was developing
    a technology that can, frankly, only be analogized to the
    technology of the space program and its sophistication, there
    was an enormous burst of the offensive capability to drill in
    deeper areas. There was not a commensurate increase in the
    defensive capability to respond should there be an accident and
    to create the safety environment that would reduce the
    prospects, not to zero but to the degree possible, that there
    would not be accidents.
        In the materials that have been distributed, there is a
    chart, which is called ``MMS Budget and Gulf of Mexico Crude
    Oil Production, 1984 to 2009.'' It is on page 73 of our report.
    And you can see the degree to which the production in the Gulf
    of Mexico has gone from being shallow water production now not
    only to deep water, but the greatest increase has been in what
    is described as ultra-deep water, where the risks are even more
    significant.
        Mr. Pallone. Mr. Reilly, did you want to respond?
        Mr. Reilly. No. just to reenforce what Senator Graham said,
    the formations are deeper in the deepwater. That is, they are
    well under even very often--certainly in the case of Macondo--
    they were down at 18,000 feet, which is 13,000 feet below the
    mud level. The formations are under much greater pressure,
    something up in the range of 30,000 pounds per square inch,
    which means all sorts of things in terms of the complexity of
    dealing with a well situation that also involves, of course,
    robots, which are the only way you can actually monitor and
    maintain and improve or repair technology down at that level.
        So, for all of these reasons, it is a much more challenging
    enterprise. And that is why the industry in our view needs to
    improve its capacity, recognize that they are in a different
    era from the one that characterized shallow water drilling and
    establish the kind of safety institute we recommend.
        Mr. Pallone. Thank you, gentlemen.
        The Chairman. I thank the gentleman.
        Mr. Lamborn from Colorado.
        Mr. Lamborn. Thank you, Mr. Chairman.
        I want to the thank both of the distinguished witnesses for
    being here today and giving your testimony.
        You said earlier that you do not know why the blowout
    preventer did not work, and I am very concerned that you didn't
    even wait until you knew what the cause of it not working was
    before issuing your report.
        Why didn't you wait until we knew why that blowout
    preventer didn't even work? Because that is a key element in
    this whole chain of events.
        Mr. Reilly. Yes, sir. This was clear from the start, when
    the President created us with an executive order, he gave us a
    timetable of 6 months. In our early conversation with him, we
    made clear to him we didn't expect the blowout preventer to be
    pulled out before late August, which is about I think when it
    was taken up, and still hasn't been forensically analyzed. So
    it was always understood that the blowout preventer would not
    be a part of our report; we would not have access to it and not
    be able to make any judgments about it.
        But the failure of the blowout preventer to work is itself
    known; as to specifically why it didn't work, that remains to
    be seen. I think all other aspects of this spill, though, were
    subject to our investigatory analysis, and we were able to make
    the judgments that give us confidence that we know what
    happened.
        Mr. Lamborn. Thanks for that answer. I think you or the
    President should have had the patience to know why it didn't
    work, and your report would have been much more significant in
    my opinion had we had that information.
        Mr. Reilly. As commissioners, we, sir, didn't have that
    option.
        Mr. Lamborn. Second, in a Wall Street Journal editorial
    from two weeks ago, it states that not a single member of your
    Commission was a drilling engineer or an expert in oil
    exploration technology or practices. Don't you think that the
    Commission would have been improved had you had people with
    that kind of expert background on your board?
        Mr. Graham. Frankly, I think that was a relevant question
    to ask in the summer of 2010. Today, we have submitted an
    almost 400-page report. We would like our competence to be
    judged on this report.
        And if there are areas that you think demonstrate a lack of
    capacity to make the judgments that we did, we would be pleased
    to know what those are, and we would attempt to provide a
    response or an admission of our naivety.
        I would say that I believe even if you took the most
    extreme explanation of why the blowout preventer failed to
    function, that doesn't trump the other nine factors that we
    have identified that were contributing causes to this.
        So while I am curious to know what the BOP did, I don't
    think it would change the findings or the recommendations that
    we have made.
        We certainly wouldn't withdraw our recommendations that the
    oil and gas industry should adopt, as the nuclear power
    industry has, some form of internal capability to assess
    safety.
        We would not change our position that we need to have an
    effective, competent Federal agency that can oversee the
    industry.
        We would not change our recommendation that that agency
    should be protected by independents within the Department of
    the Interior.
        Those are our key safety recommendations, and I don't think
    there is any evidence that is going to come from the forensic
    examination that is currently going on at a NASA facility in
    New Orleans of the blowout preventer that would alter those
    recommendations.
        Mr. Lamborn. Well, I will move on to my next question here.
        In its undertaking of the investigation of the Deepwater
    Horizon incident, the National Academy of Engineering and the
    National Research Council announced that they would not be
    issuing their final report until it has been peer-reviewed,
    which is their standard practice for reports issued by the
    National Academies. Has your report been submitted for peer
    review to any other kind of body or experts or--
        Mr. Graham. It is a public document, so it is not just
    submitted to peers, it is submitted to the American people for
    their comment and evaluation.
        Mr. Reilly. I would just say that it has been pretty well
    reviewed and pretty well received and commented on by experts
    in the field.
        And I also want to note that we say in our formal testimony
    that our senior technology and science advisor on this
    enterprise was Richard Sears, who has 33 years of experience,
    senior experience with Shell Oil, and he was present through
    all of our deliberations on technology.
        And I would also like to acknowledge publicly, we had
    strong cooperation from industry, from three companies in
    particular that spent several hours with us--Chevron, Shell,
    and ExxonMobil--and cooperation, obviously, from the
    Departments of the government, from BOEMRE and Director
    Bromwich, and Secretary Salazar.
        So I think we had a full range of input and plenty of
    opportunity on the part also of the scientific agencies, NOAA,
    the Coast Guard, to ensure that what we say is grounded in good
    science and respectable technology.
        And I must say we have become a little impatient, Bob and
    I, with the criticisms of our competence, or the credentials of
    our Commissioners, which maybe was OK to raise 6 months ago,
    but the proof is here. If there is something wrong or if there
    are people who have objections to the findings or think they
    are wrong or to the recommendations, we would be very happy to
    debate on that point.
        But it seems to me now a little churlish to refer back to
    the credentials without saying in some way how they are
    connected to the inadequacies in the report, which nobody seems
    to be doing.
        Mr. Lamborn. Thank you.
        The Chairman. Thank you.
        Mr. Grijalva from Arizona.
        Mr. Grijalva. Thank you, Mr. Chairman.
        Gentlemen, if the current offshore policy is based on some
    similar assumptions, as I understand it, one was the blowout
    preventers actually worked. That was an assumption. The
    assumption was that the industry had the ability to contain
    spills. The assumptions were that spills offshore won't ever
    hit onshore. There was an assumption based that rigs are
    operated as safely as possible.
        And I read through your report that brought into question
    those assumptions. So, as a result, just for both of you
    gentlemen, don't we have to rewrite our offshore policy based
    on the fact that we don't have assumptions we can make right
    now? Senator?
        Mr. Graham. Well, I think some of the assumptions are that
    drilling in the offshore is going to be a continuing and
    increasing part of America's energy supply; number two, that
    its acceptability to the American people will be closely
    aligned with its safety.
        You may recall that when Three Mile Island blew, almost 25
    percent of America's electricity was coming from nuclear power,
    and there was an expectation that that percentage was going to
    grow, maybe even to where France is, which is over 70 percent.
    But that one incident so chilled the public toward nuclear
    power, that we have had effectively a 30-year hiatus of any
    expansion. And therefore, the percentage of electricity from
    nuclear power is dramatically less than it was 30 years ago.
        Now, whether the continued activities in the Gulf, more
    Macondos, could have the same effect as Three Mile Island, as a
    singular event had on the nuclear power industry, we can all
    speculate. But I think it is in everybody's interest that we
    conduct this industry to the highest standards.
        Would anyone answer the question, why should drilling for
    offshore oil in the Gulf of Mexico be at a lower standard of
    safety and environmental protection than it is in the North
    Sea? If there is some explanation as a matter of public policy,
    why we should accept a lower standard, then I think we could
    have a very good debate. No one has come forward making that
    assertion.
        Mr. Grijalva. The other point I think you called the
    liability cap arbitrary in the report. The question is, lifting
    the cap entirely as a means to assure that the taxpayer doesn't
    get stuck with any bill beyond the cap; and two, as incentive
    to meet the highest standards that the Senator just mentioned
    for drilling, any reactions to no cap at all on liability?
        Mr. Graham. We have recommended that the cap be lifted. We
    did not go beyond that. Clearly the $75 million cap, which is
    now 21-years old, just this year the change in the value of
    money as a result of inflation over 21 years would cause you to
    believe that 75 million was not adequate. Second, as Bill
    pointed out, when that cap was established, virtually all of
    our offshore drilling was in known, comparatively safe, low-
    pressure areas. And today the largest share of our drilling is
    in much riskier, deeper water.
        Now, I am now going beyond what the Commission recommended
    and just saying my own feeling is that if we have liability
    caps, the rationale is to maintain a competitive marketplace in
    the Gulf of Mexico, that we don't want only the largest oil
    companies in the world to be able to drill, but we also don't
    want to have financially incapable companies causing enormous
    consequences.
        So that would lead me to feel that the Congress might be
    able to fashion a policy built around liability limits in
    relationship to risk. It is one thing to have a liability limit
    for 100 feet of water than 18,000 feet of water. Today, the law
    applies the same standard to both of those two cases.
        Mr. Reilly. I would just add if I might, Congressman, that
    the establishment of some kind of liability cap that both
    ensures a continuing capacity of independence to operate in the
    Gulf, that doesn't just restrict to leasing or bidding to a few
    majors, but also protects the public against being handed a
    bill for major damages caused is something that is going to
    take more time than we had in the 6 months and probably more
    involvement of the insurance industry, since I assume an
    insurance consortium of some sort would be necessary to address
    this.
        I also would note that the liability cap in Canada is $35
    million. I think it is 50 million pounds in Britain. And it
    does strike me, too, that particularly with respect to those
    resources, such as the Gulf and the Arctic, where other
    countries' activities are also involved, there might be some
    merit in trying to work out a uniform system of liability which
    applies systematically to all oil and gas development in these
    areas.
        Mr. Grijalva. Thank you, Mr. Chairman.
        The Chairman. Mr. Fleming from Louisiana.
        Dr. Fleming. Thank you, Mr. Chairman.
        And thank you, panel members, for being here today and your
    service. This was, no question about it, a disaster. And like
    any disaster, even though we don't know the precise cause of
    the blowout, we do know some things happened that are typical
    of disasters.
        Because this is a high-risk operation, much like many other
    things we do, travel in space, flying in airplanes, rarely is
    one thing the cause of the disaster. It is usually a number of
    different situations and occurrences and bad decisions that
    align themselves which probably over time have occurred, but
    because of some backup or redundancy, the disaster was
    prevented. And that can sometimes be a bad thing because what
    happens is we become, in your words complacent. If I make a
    mistake, there is a backup system that will solve that problem
    for me. And obviously that is something that on the industry
    side and on the government side we need to bear in mind going
    forward.
        But it was a disaster to Louisiana, my home State, in two
    ways: One, to our ecology, no question about it; but maybe even
    worse and longer term in jobs. Louisiana has now lost tens of
    thousands of jobs. Because these rigs are so expensive, they
    have left our shores in some cases, and more will come, to go
    to Brazil and Africa and other places.
        And you know what is interesting is that they are going to
    other parts of the world that have less standards than we do.
    So I think that is a real issue we need to look at.
        Now, the President lifted the moratorium, and I have been
    researching this. I cannot find one single permit for deepwater
    drilling that has been issued since the lifting of the
    moratorium, and we don't know when they ever will.
        So what I am concerned about and I would like to have your
    reaction to this, I see recommendations for more legislation,
    but I think we need to be careful about just moving the chairs
    on the deck. For one thing, we are asking NOAA to sign off on
    things, and that is a good thing. But is that going to make the
    permit process even slower and more difficult?
        So I would love to have the reaction from both you
    gentlemen. Is this really going to get us where we need to be,
    and how is this going to affect the jobs, which are so
    desperately needed, and, finally, the price of gasoline and oil
    that is going up because of the loss in supply?
        Mr. Reilly. I would say two things. I would agree with you
    completely to the degree that we restrict our own domestic
    production, we are essentially, given our demand on supply,
    intending to get more oil and gas from risky places, like the
    Niger Delta or Venezuela. That is a given. And I think we have
    to take an international perspective on the whole issue and
    also recognize that the environment in those places counts,
    too, and it has been very badly abused, particularly in the
    Niger Delta; some 2,500 accidents over the last 10 years. That
    is a perfectly fair point, and I think it is one that ought to
    underlie our approach to many of these questions.
        With respect to the moratorium itself, Senator Graham and I
    were pretty specific early on. We did not understand it,
    thought that it was excessive and considered that a more
    selective approach that did not penalize those companies with
    good records, particularly after they had once been inspected,
    as they all were in the weeks following the Macondo disaster.
    Once those few infractions that were found were corrected for,
    it struck us that it would have been reasonable to resume
    drilling at that time. But that has not happened.
        I would say that going forward, to the degree that we
    continue to under-staff, under-prepare, under-reform, and
    under-finance the regulatory agency, we probably are going to
    find that it is more reluctant to issue permits, less confident
    about signing a name to a permit, and less able to get us back
    into business.
        Mr. Fleming. Senator, do you have a response?
        Mr. Graham. I would just add that what Bill said at the end
    happens to be the position of the major petroleum companies in
    Great Britain, that they actually affirmatively support a
    strong, well-financed, competent regulator as a key part of
    their ability to do their business. I believe they are right,
    and I hope that we will come to the same conclusion as to the
    industry here in the United States.
        Mr. Fleming. Can I get a commitment from you gentlemen--and
    Mr. Reilly has already suggested that the President not only
    lift the official moratorium, but actually allow permits--
    should we do away with what we have now, which is a de facto
    moratorium? Would you both agree that the President should move
    forward and begin to allow the issuance of permits?
        Mr. Graham. As I understand it, there is a news story today
    that states the reason--or at least a primary reason for the
    delay in issuing permits for those rigs that have met the
    individual standards, rig by rig--is that the industry has not
    demonstrated that it has the capability to respond and contain
    such an event or, if it does, those standards have not yet been
    incorporated in the permit applications.
        If that is the case, that actually, in my judgment, is a
    positive signal that we are now down to essentially one issue.
    And there also is some indication that the ability to meet that
    standard of adequate response and containment is near an end.
        The Chairman. I thank the gentleman. Mr. Boren of Oklahoma.
        Mr. Boren. Thank you, Mr. Chairman. I want to thank the
    members of the Commission for being here today and for your
    work. Thank you, Mr. Reilly, Senator Graham. It was mentioned
    earlier that there was some question about the qualifications
    of the Commission. I want to say that I have a high regard for
    the members of the Commission. Senator Graham--Chairman Graham
    of the Intelligence Committee, you and my father were chair of
    the Intelligence Committee about the same time, and we have a
    warm regard for you and your work. So I want to thank you for
    your service. I want to touch on a couple of things that were,
    you know, in this book that we have here before us. I think a
    vast majority of the recommendations--actually, a lot of the
    industry would say that they don't really have a problem with.
    You know, you are listening to someone who is a big supporter
    of the oil and gas industry coming from Oklahoma.
        But some of the verbiage, sometimes even just the words,
    just to pick out of the report, I kind of have some concerns
    about. One was the use of the term ``systemic,'' that there are
    these systemic problems in the industry. And if you look at the
    30-year history, you know, over the last 30 years, the history
    of offshore oil and gas production, there have been some
    incidents but I think a major incident is very rare. And if you
    compare it with, you know, the airline industry or the commuter
    train industry or any other industry, the oil and gas industry
    has done quite a good job. The last few years, we have seen
    documentaries like ``Gasland'' on hydraulic fracturing. A lot
    of this that is out there is driven by a motion. It really
    isn't driven by facts or science. And so I am really concerned.
    The rhetoric, even the State of the Union last night, about,
    oh, these oil and gas companies are making all this money.
    Let's throw some more taxes on them. There are a lot of good
    quality jobs that are created in States like Oklahoma,
    Louisiana, all across this country, and they want to do the
    right thing. They want to do the right thing for the
    environment, as do most Americans.
        I do have one question about the CLEAR Act legislation that
    was brought out earlier about the cap on liability. And I have
    a lot of independent oil and gas producers in Oklahoma that
    have this question. We have been talking quite a bit about
    this. But given such liability requirements, did your staff or
    the Commission ask the insurance industry if any independent
    operators would be able to obtain an insurance policy under
    such guidelines or circumstances? And the reason why I ask that
    question is, I am worried--and you kind of touched on this
    earlier with Mr. Grijalva. If we only have one or two
    companies, U.S. companies that do the drilling, we are going to
    have the Chinese be the only folks that can drill these wells.
    I would like to see--I am not talking about a mom and pop
    company.
        I am talking about, you know, Devon Energy is a huge
    company in Oklahoma, but it is not as large as some of the big
    majors. These are thousands of employees. They are very well
    capitalized. These are types of companies that could do this
    drilling without any problem. Are you all worried about that?
    And did you talk to the insurance industry about whether or not
    these smaller companies could, in fact, do this?
        Mr. Reilly. We are worried about it, and it is why we did
    not select a number with respect to an increase. We said it
    should be increased but we didn't say how much. And we knew
    that it would require insurance company consultation and advice
    and help and didn't, frankly, have time to get it. So we did
    not meet with the insurance industry on the liability cap. But
    for all the reasons you mention, and our own sense that it is a
    valued contribution that independent operators make to the
    economy, to the culture, to the industry in the Gulf, we did
    not want to make an irresponsible choice without adequate
    information that might, in any way, inhibit their activities,
    or possibly even cause them to move to other jurisdictions
    where their liability cap is lower even than it is in the
    United States.
        Mr. Boren. Senator, do you have the same opinion?
        Mr. Graham. I would agree with that statement. We tried to
    operate within our areas of confidence. So the specific
    recommendations we made, we are prepared to defend them. Where
    an issue was outside of what we thought was our regional
    component, such as the role of insurance companies in
    determining the liability cap and how the role of insurance
    companies might be a means of giving some assurance that we
    would not be limited to just a handful of companies. We didn't
    feel competent to comment on that. We did feel that on its
    face, the $75 million liability cap across the board for
    activities that are as divergently risky as shallow and ultra-
    deep water needed to be lifted and re-examined.
        We also were aware that the Congress is going to make that
    ultimate decision, and we did not feel that we had anything
    additional to add to your consideration of that.
        Mr. Reilly. Mr. Boren, if I could add, I knew your dad too.
    I served in the EL Corporation with him for 6 years. And I know
    your district some. I serve on the board of an oil company who,
    half of which used to be based, headquartered in Bartlesville.
    And the senior executives there--
        Mr. Boren. ConocoPhillips?
        Mr. Reilly. Yes, sir.
        Mr. Boren. OK. Great.
        Mr. Reilly. --are stung by the use of the term
    ``systemic,'' and yet are perfectly willing to acknowledge they
    didn't see this coming and weren't prepared for it, didn't
    think it could happen, and had a response plan which the
    Chairman acknowledged was embarrassing to him because it had
    the same characteristics as the other response plans.
        So I would just say, we do not by any means intend to
    disparage the safety or environmental standards of some of our
    leading iconic oil and gas companies, whether the majors or the
    independents. But the facts, I think, speak for themselves with
    respect to this particular disaster. And they led us to report
    all we did.
        The Chairman. Thank you, Mr. Chairman. Mr. McClintock,
    California.
        Mr. McClintock. Gentlemen, thank you for being here today.
    When the Challenger exploded, we knew only one thing for sure
    after the accident. We knew that the launch vehicle had failed
    catastrophically. The Rogers Commission was impaneled. It was
    filled with technical experts. It painstakingly recovered the
    wreckage from underneath the ocean. It reassembled that
    wreckage. It then determined the precise cause of the disaster,
    and it then recommended changes so that the space program could
    move forward.
        The one thing we know for sure in this disaster was that
    the blowout preventer failed. Let me ask you quite directly,
    did you determine why the blowout preventer failed?
        Mr. Graham. The answer is ``no'' for the reasons that we
    have given.
        Mr. McClintock. Did you look?
        Mr. Graham. Can I finish answering the question?
        Mr. McClintock. It is a yes-or-no question. It is my time,
    Senator. It is limited. So please. Did you even look at the
    blowout preventer?
        Mr. Graham. No.
        Mr. Reilly. Most of the time we were at work, we would have
    taken a robot to go down and get us there.
        Mr. McClintock. Well, let me read you The Wall Street
    Journal that took you apart for ideological bias, for a lack of
    expertise, credibility, lack of thoroughness. And this is what
    they said, Unable to name what definitely caused the well
    failure, the Commission resorts to a hodgepodge of speculation.
    Adding to the confusion, it acknowledges it could find no
    evidence that BP or its contractors consciously chose a riskier
    alternative. And so forth.
        The Commission didn't even wait to get an autopsy of the
    failed blowout preventer--and again, this is coming directly
    from The Wall Street Journal--which is rusting on a Louisiana
    dock. Why should we take your report seriously if you have not
    even made that modicum of effort to determine the actual cause
    of the disaster?
        Mr. Graham. Well, as Mr. Reilly said to an earlier
    question, we had a Presidential 6-month charter. We knew early
    on that that charter was going to run out before the forensic
    examination of the--
        Mr. McClintock. Did you ask for an extension of your
    deadline?
        Mr. Graham. We did not.
        Mr. McClintock. So you just participated in a rush to
    judgment without even looking at the cause of the failure that
    created this entire disaster?
        Mr. Graham. Well, I would just direct your attention to
    page 125 of our report which lists the nine steps that we
    assessed that contributed and cascaded.
        Mr. McClintock. I understand that. But that would be like
    the Rogers Commission issuing its report without looking at any
    of the wreckage--
        Mr. Reilly. Congress, the cementing failed. The cement job
    failed to contain the well free from hydrocarbons. We said
    that. Is that not enough?
        Mr. McClintock. Let me get to the question of ideological
    bias because this is also an indictment in The Wall Street
    Journal editorial. They said, The conclusions in your report
    were, ``all too predictable given the political history of
    Commission members. Former Democratic Senator Bob Graham fought
    drilling off Florida. William Reilly is the former head of the
    anti-drilling World Wildlife Fund, and Frances Beinecke ran the
    Natural Resources Defense Council, which is opposed to carbon
    fuels. Not a single member was a drilling engineer or expert in
    oil exploration technology or practices.'' Why should we take
    you seriously?
        Mr. Reilly. Congressman, I would just say the use of the
    word ``predictable'' is surprising to me because what was
    predictable in the view of The Wall Street Journal when they
    wrote their first critical editorial was that we would
    recommend against future offshore oil and gas development,
    which we very definitively did not.
        Mr. McClintock. You are recommending a whole new level of
    bureaucracy on top of an obviously already failed bureaucracy
    with the obvious aim of indefinitely delaying of the production
    of our Nation's energy reserves. What is the economic damage
    caused by this disaster? Do we have a figure on that yet?
        Mr. Reilly. We know it is in the tens of billions.
        Mr. McClintock. I have an estimate here of a worst-case and
    base-case analysis of the economic damage caused by the
    moratorium, and it runs from $279 billion all the way up to
    $341 billion.
        Mr. Reilly. Billion?
        Mr. McClintock. Billion, I believe.
        Mr. Reilly. I haven't seen those numbers before, sir.
        Mr. Graham. Could we have an opportunity to evaluate those
    numbers?
        Mr. McClintock. Absolutely. Absolutely.
        Mr. Reilly. I would only say, with respect to the
    bureaucracy question, I made clear in my opening statement, I
    think that--and certainly the report goes into detail on this--
    that the reorganization of the Interior Department should be
    cost-free. We do want to segregate the leasing, the revenue
    generating, and managing functions from the environment and
    safety regulation. That is a matter of straightforward
    reorganization.
        Second, the degree to which we add anything is intended to
    provide more capability, more expertise, more professionalism
    in an agency that then I would fully expect, based on my own
    history at the Environmental Protection Agency, of facilitating
    more confident permitting and a better regulatory oversight of
    the industry. I don't think that it would work to delay. I
    think it would work to improve and create more efficiency in
    the relationship between the regulator and the industry.
        The Chairman. Mr. Lujan from New Mexico.
        Mr. Lujn. Mr. Chairman, thank you very much. And I know
    this important hearing is going to outlie the recommendations
    to prevent another Deepwater Horizon disaster from happening
    again, which is why I think we are here. It is not to debate
    whether one supports or opposes offshore drilling. It is to
    make sure that we don't let this happen again, and that we all
    understand the roles that we have to play to get there.
        And I want to thank the Commission for the work that they
    did because this was a tough job, and you have a tough set of
    circumstances with many critics. Many of us being those critics
    as well. And I hope that we truly listen closely to your
    recommendations and that we see what we can do to find common
    ground to be able to get to that point.
        By the time this Committee had convened last year to hear
    testimony from BP executives, it had already become clear what
    led to the Deepwater Horizon explosion was the culmination of
    systemic failures. It was the failure of companies who
    knowingly refused to implement the necessary safeguards to
    prevent this disaster, and it was a failure of governmental
    policies and regulators that did not apply the proper oversight
    to minimize the risk of the disaster. BP has shown itself to be
    negligent in safety violations and environmental protections.
        We should not forget what happened in 2005 with the
    explosion in Texas and the lives that were lost, 15 people.
    200,000 gallons of crude oil and a pipeline that ruptured in
    northern Alaska. These are real incidents.
        But what is most significant about the Commission's report
    is that it reveals the culture of undermining safety standards.
    It is not just an issue for BP, but an epidemic failure facing
    the entire offshore drilling industry. Quoting directly from
    the report, ``The blowout was not the product of decisions made
    by a rogue industry or government officials. Rather, the root
    causes are systemic, and absent significant reform in both
    industry practices and government policies, might well recur.
        The Bipartisan Commissions report only confirms that
    Congress must take action, do our part to prevent the disasters
    like this from happening again. During the 111th Congress, this
    Committee put in a lot of work to develop safeguards that would
    modernize safety and environmental protections for Federal
    offshore leasing programs in the CLEAR Act. Many expressed an
    interest to see the report before we moved forward.
        We now have that report. And as we hear from witnesses of
    the Bipartisan Commission today, we have to ask ourselves, What
    are we going to do? What is our role as Congress to make sure
    this never happens again? Are we going to sit back and allow a
    failed system to continue? We cannot turn a blind eye on this
    issue. The Commission's report clearly outlines that Congress
    needs to act quickly to protect the safety of people, the
    welfare and livelihoods of communities, and the habitat of
    fragile wildlife.
        Only 7 months ago, we saw the horrific images of the
    explosion that killed workers, the plumes of oil that
    devastated marine life, local seafood industries, vulnerable
    wetlands, and the waters of the Gulf. Over 205 million gallons
    of oil were spilled in the Gulf because of the Deepwater
    Horizon spill. Let us never forget the people who were impacted
    and the families who lost so many of their loved ones.
        It is in everyone's best interest, including industry, to
    not let this happen again, and to truly understand the
    responsibility that we all have to do our part to prevent that.
        The first question I have is a yes-or-no question. We also
    learned during the spill how woefully under-prepared the
    Federal Government was to estimate the actual flow rate of oil
    spewing from the well. In fact, the Federal response was
    initially entirely dependent on misleading flow rate estimates
    provided by BP, which had every reason to low-ball them because
    we knew that the liability was tied to the calculations on a
    per-barrel basis.
        The legislation Democrats introduced today creates a
    permanent scientific group which includes scientists from the
    National Laboratories in the Department of Energy that will
    maintain expertise needed to estimate flow rates. Is this
    consistent with your recommendation?
        Mr. Reilly. It is consistent. Yes, it is. We determined
    that one consequence of the structure of our laws is that the
    responsible party takes the lead in overseeing response, and we
    want to keep liability fixed there. But one part of it which
    government should have independent capability to carry out is
    determination of the flow rate and the USGS Director, Marcia
    McNutt, has now said that will not be an issue next time.
        Mr. Lujn. And one last question, Mr. Chairman, to get on
    the record and we can get this answered later is, the report
    reveals that the cause of the spill was corporate
    mismanagement, inadequate government regulation, and a lack of
    political will to ensure proper oversight of the offshore oil
    industry as they pushed offshore drilling into deeper waters.
    You describe in the report that this problem is pervasive
    across the entire offshore drilling industry. So my question
    is: What will be the consequences if reforms fail to be
    prioritized, including the passage of proper legislation to
    minimize the chances of a disaster like this from ever
    happening again.
        And Mr. Chairman, I know we are going to run out of time. I
    want to be respectful of the other members. So we could ask the
    witnesses, Senator, to maybe send those back to us because I
    think that there is a very thoughtful answer that we need as a
    part of that. Thank you, sir. Thank you, Mr. Chairman. I yield
    back.
        The Chairman. I thank the gentleman. Mr. Fleischmann of
    Tennessee.
        Mr. Fleischmann. Thank you, Mr. Chairman. Gentlemen, thank
    you for being here today. It is a privilege. In addition to
    serving on this distinguished Committee, I also serve on the
    Small Business Committee. And my first question to you all in
    this group is in this regard.
        Gentlemen, what would you all say to the owners of the
    small businesses in this region struggling to survive until
    operations are restored in the Gulf? These people have lost
    most of their revenue streams, if not all of their revenue
    streams. They have made extraordinary personal and professional
    sacrifices to retain their employees and to preserve their
    businesses. But they cannot hold on indefinitely. I would like
    you all to address that, please.
        Mr. Graham. Well, of course, what you just described
    describes a number of the industries that are dependent on the
    Gulf. There were thousands of fishermen who lost their ability
    to acquire their income and there was a degradation of the
    brand of Gulf seafood, a 20 percent to 30 percent drop almost
    overnight in the consumption of Gulf seafood which has not yet
    been overcome. We make some specific recommendations on that
    subject. The tourism industry, which depends upon people's
    feeling that they are going to go to a place that is clean and
    healthy and enjoyable.
        It also suffered tremendous damage. So the consequences of
    an event like this have rippling effects. Mr. Reilly has
    described the fact that we believe that there needs to be a
    safe industry, that there can be a safe industry but that there
    needs to be an offshore oil industry in order to meet the
    energy requirements of the United States. And we sympathize
    with all the small business, whether they be fishermen,
    restaurant owners, or suppliers to the oil and gas industry.
    And we hope that we can get back in business as rapidly as
    possible with the safety measures that will protect all of
    those interests.
        Mr. Fleischmann. Thank you. Mr. Reilly.
        Mr. Reilly. Congressman, I don't know if you have had this
    experience. But I ordered some oysters in New York some time in
    September, I think, and asked whether they were from the Gulf,
    and was reassured very confidently by the waitress, no, we
    would not serve any seafood from the Gulf. That problem
    persisted through the fall. I understand it has not entirely
    disappeared now. People continue, the seafood processors, the
    fishermen to suffer because of that. I remember talking to the
    Governor just around Memorial Day, the Governor of Mississippi,
    who told me that there wasn't any oil within 60 miles of the
    beaches of Mississippi but there was 30 percent occupancy in
    what is usually the most important vacation tourism weekend of
    the year in Mississippi. Those stories and the Europeans
    canceling trips to Key West where the oil never approached are
    very poignant stories. The Vietnamese fishermen I think
    impressed me more than those of any other in my experience when
    I was in the Gulf. And we had hearings. Our first hearing was
    in New Orleans. We became very familiar with the problems you
    describe, and they are as serious as you say.
        Mr. Fleischmann. Thank you, gentlemen. I have a follow-up
    question. In a lot of the additional fees and proposed taxes on
    industry, what would the total government take-away be,
    including royalties, severance taxes, property taxes, income
    taxes, lease bonuses, and the proposed additional fees and
    taxes mentioned in the report?
        Mr. Reilly. I don't think we have costed those numbers in
    total. The only thing I would say is that it is really
    important to keep in perspective the amount of revenues the
    government takes in from offshore oil and gas development,
    anywhere from $6 billion to $8 billion in one year up to, I
    think, $18 billion in 2008. It is the second largest revenue
    generator after the IRS, and we can afford to spend some very
    small proportion of that which would be in dollar numbers
    reasonably significant, ensuring that it is better done and
    that it has been done by the government.
        Mr. Graham. According to the chart which appears on page 73
    of our report, in the year 1984, the budget of the MMS was
    approximately $250 million. And in the year 2009, it was
    something south of 200. At the same time, the industry, as the
    same chart displays, has moved from being a relatively well-
    known shallow water industry to increasingly a deepwater, high-
    risk industry. You would have thought that the lines of cost of
    effective regulation would have coincided with the increased
    risk. So I can't tell you exactly what the number is, but it
    would be hard to justify what appears to be about a $60 million
    to $70 million a year reduction in the capability of the
    regulatory agencies at the time the industry is going into more
    risky areas.
        Mr. Fleischmann. Thank you, Senator.
        The Chairman. Dr. Christensen.
        Mrs. Christensen. Thank you, Mr. Chairman. And I want to
    thank our panelists for being here. I too want to commend you
    and the broad array of contributors to this very comprehensive
    report. And among the many areas of concern, I too have to say
    that I could never understand why the U.S. permitting standards
    were lower than other countries and specifically lower than the
    U.K., if I remember correctly, where BP is actually based.
        Ours should be the highest in the world. And I also want to
    support, before I get to my question, Senator Graham's response
    on the moratorium. Because according to my reports, the
    Department of the Interior, since June of last year, has
    approved 28 permits to drill offshore in shallow water of 500
    feet or less, and there are only four or five shallow water
    permits currently pending. On deepwater drilling, the
    moratorium was lifted on October 12, and gas operators have to
    comply with new regulations to show that they have a strategy
    in place to actually contain a bailout. According to the
    Interior Department, thus far, no one has been able to
    demonstrate that actually, although I know that they are
    working on it, and that is the holdup--not the Department, but
    the fact that the companies are not able to respond adequately
    at this time. The good news though is that according to the
    Department, some companies are getting close, as you said, to
    being able to demonstrate that ability, and I do share the
    majority's hope that this can happen as quickly as possible.
        My first question, if I can get to it, I wanted to follow
    up on Mr. Boren's question. In saying that a systemic failure
    occurred, did you mean systemic in this case, of the three
    companies in their management of the Deepwater Horizon drilling
    and MMS? Or did you mean to apply it to the entire industry and
    say that the entire industry has been complacent? So I just
    want to understand what you meant by systemic?
        Mr. Graham. Well, we did not mean parity, that is that all
    companies were equally subjected to this culture of
    complacency. In fact, there are some companies that have a very
    strong record. What we meant to say was that there was evidence
    that the industry had not responded to the recognition that
    there were some outlier companies that needed to be sanctioned.
    You are a medical physician. If there were a physician in the
    U.S. Virgin Islands who was known by the other physicians to be
    performing at a rate that put people's lives at risk, I would
    assume it would be your professional responsibility to bring
    that to the attention of someone in authority. Well, we do not
    feel that the industry carried out its obligation for self-
    policing and, thus, in part, the recommendation for the INPO-
    type organization.
        Second, the example of response. Response is an industry-
    wide obligation. We don't expect every company to have all the
    equipment that is necessary to respond, but we expect the
    industry at large to have the capacity to respond, and it was
    clear that not only was there not that capacity, but that there
    had been relatively little investment in the technology or
    research and development, the understanding of the environment
    that would have put them in a position to have produced a
    response.
        Mr. Reilly. I will just comment on your point about the
    U.K. experience. We have discovered--and, of course, in our
    research that companies and industries get serious about
    reforming practices and improving them when they have their
    catastrophe. The U.K. had a very serious catastrophe. It cost
    187 lives in 1989, Piper Alpha. Our chief counsel was
    intimately involved in investigating that accident. It was
    after that that the regulator separated revenues from
    regulation, just as we are proposing here. And it was after
    that that they developed a different mode of regulation which
    is known as the Safety Case where the particular risks that are
    likely to be entailed in a particular well situation--that is,
    with acknowledgement of the formation, the depth, the pressures
    and all the rest, be explained by the company and the way in
    which the company proposes to address those risks, he made
    clear to the regulator. That is their system now.
        Norway has a similar system and they came to it after their
    catastrophe. Australia today, dealing with a blowout that
    occurred last year, has had a commission of inquiry, and they
    are reforming their own practices.
        Mrs. Christensen. Are you seeing that happening now?
        Mr. Reilly. We know that the industry is very seriously
    examining the possibility and the practical challenges to
    creating the safety institute of the sort we recommend. We very
    much look forward to having the results of those inquiries, and
    we very much hope that they will do something along the lines
    that we have recommended. We think that it is very possible
    that they will. We certainly know that several CEOs of major
    companies take it seriously.
        Mrs. Christensen. Thank you.
        The Chairman. I thank the gentlelady. Mr. Coffman of
    Colorado.
        Mr. Coffman. Thank you, Mr. Chairman. First of all, thank
    you so much for your work and what you have accomplished. I
    think you mentioned some things that need to be done from your
    perspective, some kind of international agreement so there are
    uniform standards. I think you talked about responsibility to a
    spill or an accident if it occurs, having a better definition
    of that. And perhaps some insurance requirements for viewing
    that, liability issues. And I think what I am hearing from you
    is that in terms of prevention--so the two aspects. One is
    responding and the other one is prevention.
        So in terms of prevention, I guess my question to you is,
    did adequate regulations exist? But was it merely the
    enforcement of the regulations that was a problem? Because
    certainly we know that MMS had very significant problems. I
    think there was an IG report in 2008 that talks about how
    dysfunctional MMS was, and I think that we heard in this
    situation here how the inspection simply didn't occur in the
    manner that they were prescribed and were supposed to occur.
        So sometimes we have problems I think where we actually
    have laws on the books, regulations on the books but they are
    simply not being enforced. So I think that when we look at what
    is now the Bureau of Ocean and Energy Management, Regulation
    and Enforcement that, Mr. Reilly, you know, it is reported that
    you yourself said that personnel working for this agency are
    ``often badly trained.''
        Secretary Salazar has said that he has already considered
    and executed some of the suggestions that your report has
    highlighted. Hopefully effective training and a cultural shift
    at his organization were implemented as well.
        Do you believe that these reforms, among the others that
    Secretary Salazar has said to have made, would have been
    sufficient to correct the missteps that were made by MMS prior
    to enduring the cleanup of the Deepwater Horizon spill? Let's
    just go into the prevention. I mean, if, in fact, we had a
    functional regulatory organization that was enforcing the
    existing rules, would that have been adequate to prevent the
    incident that occurred?
        Mr. Reilly. Let me say, I think that the recommendations in
    the new policies for scripted regulations that the Secretary
    and the BOEMRE's Director Bromwich have imposed are very
    desirable and likely to be effective. Negative pressure tests
    are now prescribed. They were not before. There are a whole
    range of new requirements that appear to us to make sense. But
    the reality is that the existing personnel complement entails
    an inspector for every 55 rigs. In California, it is one for
    every six. The answers given to a series of interrogatories of
    questions posed by the Interior Department, and the Coast Guard
    in their investigations make clear that basic petrochemical
    technologies, oil and gas technologies, like cementing and
    centralizing negative pressure tests, are not really
    understood, are not mastered by many of the inspectors who have
    said, frankly, that they take industry's lead on those
    technologies, that they have been evolving over time.
        And we simply have to provide better formation, better
    training, and I think better compensation for the people who
    are conducting that work. So even if today the regulations are
    sufficient to guard against the repetition of this set of
    problems, I worry that in a fast evolving industry in 3 to 5
    years, they may be outdated. And in order to keep them up to
    date, I think we are going to have to bring up the game among
    the professionals at the agency.
        Mr. Coffman. Senator Graham.
        Mr. Graham. Yes. I would agree with that. And I believe
    that our recommendations, such as the independence of the
    safety function within the Department of the Interior, are as
    important as the decisions that Congress made a number of years
    ago to make the FBI a quasi-independent agency within the
    Department of Justice. Just like the FBI, the safety function
    within the Department of the Interior is susceptible to
    political interference. And in fact, in the case of MMS, it was
    rampant interference. And we think that it is a combination of
    good regulations, competent capacity, adequate capacity, and
    then insulation from inappropriate external influences that are
    all part of what is necessary to get us up to world-class
    standards of safety in this industry.
        Mr. Coffman. Thank you, Mr. Chairman. I yield back.
        The Chairman. The time of the gentleman has expired. Mr.
    Sarbanes of Maryland.
        Mr. Sarbanes. Thank you very much, Mr. Chairman. Thank you
    all for being here. I know it has been a long day.
        I first wanted to commend you on the report. I haven't had
    a chance to read it from beginning to end, but I did look at a
    summary. And I think your recommendations based on the findings
    you have made are very, very helpful and will be for a lot of
    us going forward.
        My understanding, you have gotten some criticism about
    whether you had everything in front of you, whether you had the
    blowout preventer and so forth. But as I look at the
    recommendations, they seem to me all to be confined to a kind
    that you could make with a lot of confidence without having
    that extra piece of information at your disposal. It doesn't
    strike me that anything about your recommendations will be
    changed in any kind of significant way based on other
    information that comes forward because you have really derived
    it from what you saw before you.
        There was also a comment about your recommending layering
    another bureaucracy on top of a failed bureaucracy. But as I,
    again, read your recommendations, I think what you are doing is
    suggesting a reasonable set of regulatory oversight which in
    many ways will substitute for what has been a failed
    bureaucracy.
        On the issue of bureaucracy, I will ask you to respond to a
    proposal. This is something I suggested in earlier iterations
    of legislation suggesting the oil spill. It was a provision
    that we tried to include in the CLEAR Act. And this would be a
    requirement that the CEO of these corporations, these companies
    would certify--personally certify with the potential for
    liability to the adequacy and safety of the response plan, for
    example. You talked about, and many have alluded to how these
    response plans that were developed really across industry. It
    was highlighted in BP's particular oil spill response plan but
    were wholly inadequate.
        So I would like you to speak to whether you think we ought
    to give meaningful consideration, as I would like to see, to a
    requirement on the part of the corporate CEO to certify that
    these plans are, in fact, good plans and that they have done
    due diligence in creating those plans. And you could do more in
    terms of changing the culture of those companies with that one
    sort of piece of leverage than a whole new bureaucracy could
    do. So if you could speak to that, I would appreciate it.
        Mr. Reilly. My own sense is that the way such
    certifications would occur practically is the head of offshore
    or North America would sign a certification. The chief
    financial officer might sign a certification. The chief safety
    and environment vice president would sign a certification. And
    if all of those signatures were present, then the CEO would
    sign. And I don't know that it would enhance the liability
    assignment that you would like to see.
        It might, from a personal point of view, more closely
    involve, more intimately include a CEO in a decision that is
    made; but as Mr. Hayward said, he didn't know anything about
    the problems that characterized that well situation. He did not
    know that it had been a troublesome well. He hadn't been
    particularly involved in making decisions for it or apparently
    didn't even know that it was coming in late. It is a very large
    company. So I am not confident myself, based on my own
    experience with boards of directors, that that would contribute
    that much positively to safety, frankly.
        Mr. Sarbanes. Do you think he would have bothered to know
    more if he had been required to personally certify the safety
    and adequacy of these plans?
        Mr. Reilly. Well, he would have probably have had to sign
    scores and scores of certifications without any individual
    personal knowledge of the degree to which the characteristics
    of the well situations were familiar to him. And so, I have
    reservations about that particular recommendation. I had a
    conversation with Mr. Waxman about it. I know that it was
    strongly supported on the part of the Committee. But from my
    point of view--it is not that common in other high-risk
    industries either to try to fix the responsibility at the very
    top. It is there anyway if the company encounters a $10 to $20
    to $30 billion expense, obviously. And now I think everybody's
    attention is very focused on liability. And to my knowledge,
    every company has stood down to examine their own
    vulnerability, their own risk and get their practices improved.
    But that is my personal judgment. I actually consulted our
    senior technology adviser on that particular issue, and we gave
    it some consideration within the Commission and did not go
    forward with it.
        Mr. Sarbanes. Mr. Chairman, can I get the Senator's answer
    to that question?
        The Chairman. If the Senator can do it in 15 seconds, which
    is a test.
        Mr. Graham. Your question was, would this be something
    worthy of exploring. I think the answer to that question is,
    yes. My colleague has done some of that exploring and has come
    to the conclusion that he has but I think it is an issue. And
    frankly, your father has given us the opportunity to move this
    from being a theory to reality, and that it hasn't changed the
    behavior of corporate executives, that under his legislation,
    they now are required for public companies to sign personally
    as to the accuracy of their financial statements. It would be
    interesting to do some oversight and see what effect that has
    been. And then you might be in a better position to evaluate
    the potential applicability of offshore oil drilling.
        The Chairman. You didn't quite do it, Senator. But
        nice try.
        Mr. Graham. Well, I got a little bit off.
        The Chairman. Well, that is all right. You were talking to
    the son of a Senator. I can understand why that happened there.
        Mr. Duncan from South Carolina.
        Mr. Duncan of South Carolina. Thank you, Mr. Chairman. And
    gentlemen, thank you for being here. I sat by this graph all
    afternoon and I have studied it. And I want to comment on it.
        Mr. Reilly. You are the only one who can read it.
        Mr. Duncan of South Carolina. You have referenced it
    several times today, and you have come to some conclusions that
    I think are flawed and here is why. I spent some time on the
    MMS OCS 5-year planning subcommittee where we looked at oil and
    natural gas leases and came up with recommendations for the
    next 5-year plan on where those leases would be granted. And it
    struck me during the time that the only areas that we could
    even talk about within that committee was deepwater western
    Gulf of Mexico and deepwater Alaska. And nearshore--the 1,000
    foot and shallower areas on that grid--were off-limits for us
    to even talk about for the next 5-year period.
        So when you see an increase in activity in deepwater
    exploration and production, I think it is directly attributable
    to the fact that policies of the U.S. Government have pushed
    oil exploration and production away from the shore, away from
    the marshes and the rivers and other things to deep water.
        So I think some of the conclusions you have come to based
    on that chart that your graphics were flawed. So I want to make
    those comments. Mr. Chairman, I hope that us on the Energy and
    Minerals Subcommittee or this Committee will continue to look
    at the policies that are in place that pushed it to deep water
    and continue to look at nearshore, onshore, and other resources
    going forward.
        A couple of questions for you based on your report that are
    on a whole different line of thinking, so bear with me. In your
    report, you provide a short review of the fire-fighting efforts
    and response to the disaster. And I want to commend the guys
    that went out there on the rescue effort with our Coast Guard
    and others. And this line of questioning has no bearing on
    their efforts. But the lack of attention to this critical part
    of the disaster has left many of us confused.
        In the report, you state that others are going to study in
    issue more completely. Can you tell me first--and there are
    going to be three questions here--can you tell me first, in
    your opinion, if you believe the fire-fighting efforts were
    properly coordinated? That is number one. The second thing many
    believe that fire fighting contributed to the sinking of the
    rig and was there a possibility of saving the rig? And would
    the rig not sinking have permitted the sub-sea blowout that we
    saw? Was there a possibility to let the oil continue burning
    and work on shutting off the flow of oil that was contributing,
    that was the source of fuel for the fire? Or was the structural
    integrity of that rig in jeopardy anyway? So if you could
    answer those. And either one.
        Mr. Graham. Well, I said that one of the lessons learned
    was that we were very ill-prepared to respond, particularly in
    the critical first hours and days of this. And I would suggest
    that that included our ability to restrain fire under these
    circumstances. If I could, I would like to go back to your
    first comments. I think you have to also look at the issue of
    depletion. We have been heavily mining for oil and gas in
    shallow waters since 1938 and continue to do so today.
        I believe that these charts are as much a function of the
    reality that most of where the oil is today--the so-called
    elephants of offshore oil--are not at 1,000 feet. They are more
    likely to be at 5,000 or 10,000 feet, and that is why that is
    where the industry is moving. But that might be a question that
    your subcommittee could examine as to what are the factors that
    have gone into----
        Mr. Duncan of South Carolina. We will pursue that at a
    later time. Let's get back to the fire-fighting efforts and
    what may have attributed. Because there are a lot of questions
    in my district and around South Carolina and across the land
    that I have heard. Do you think the fire-fighting efforts were
    coordinated? Do you think that the rig could have sat there and
    burned until we shut off the flow of oil underwater? And the
    structural integrity of the rig, was it in jeopardy? Do you
    have any input on that?
        Mr. Reilly. The only thing I would say without wanting to
    characterize a lot of activities that occurred in the chaos of
    the fire and the response is that there were moments at various
    times when well control could still possibly have been
    established, when even the gases that were rising in the drill
    pipe could have been diverted over the side and perhaps not
    come into contact with the ignition source and not caught fire,
    but that once the fire began, when we looked at transcripts of
    reports of what it was like on that rig and how it seemed like
    a jet airplane or a fast-moving train had just come out of the
    drill pipe, I am not sure that there was a great deal that
    could have been done that would have averted the disaster that
    did occur.
        It does occur to us, however, that the degree to which the
    response to the emergency immediately was characterized by a
    lot of chaos of one of the rescue boats leaving a number of
    people still on the rig who then jumped into the water and did,
    in fact, survive, people who made that choice and then
    discovered those who were in the evacuation boat that they
    couldn't get away from the rig, as it looked like it was going
    to topple on them. And they discovered it was because they were
    tethered by a rope and no one was allowed to have a knife on
    the rig. So they had to look for a means of severing the rope.
    It didn't appear to us--and I think the documentation supports
    this--that there had been the kind of drills, simulations,
    practices that would have been appropriate and I think probably
    will be insisted upon in the industry in the future. And that
    is one more change that needs to occur that we have really
    learned a lesson from.
        Mr. Duncan of South Carolina. Do you think the rig would
    have continued burning.
        The Chairman. The time of the gentleman has expired. Mr.
    Landry of Louisiana.
        Mr. Landry. Thank you, Mr. Chairman. Just for the record, I
    did raise the Commission's credentials on my campaign to get
    here. Maybe they weren't raising it here in June, but I sure
    was in Louisiana.
        Considering the industry's performance record in the Gulf
    of Mexico, where over 42,000 wells have been drilled in
    addition to 2,500 deepwater wells without any significant
    incidents, in my opinion, reflects a successful risk
    management, were these safety factors--and these are yes or no
    questions--were these facts the success and history of all of
    these wells that had been drilled out in the Gulf of Mexico,
    were they taken into account when you did this report?
        Mr. Reilly. Yes, sir.
        Mr. Graham. Yes.
        Mr. Landry. OK. Was there any economical analysis done
    during the course of this report in terms of the impact on not
    only the Gulf economy, but on the national economy as well? Was
    that taken into account?
        Mr. Graham. We know that tens of billions of dollars of
    damage was done to the environment and the economy primarily of
    the Gulf as a result of this spill.
        Mr. Landry. So you say yes?
        Mr. Graham. The answer is yes.
        Mr. Landry. The President charged his Commission to
    determine the cause of the disaster to improve the country's
    ability to respond to spills and recommend reforms that make
    offshore energy production safer. Prior to the accident, there
    existed multiple layers of environmental reviews, including
    multiple EISs at all of the different phases that DOI uses,
    NEAs, environmental impact statements and environmental
    assessments. These included an EIS during the development of
    the 5-year review, and again, prior to the lease sales. Where
    does the Commission receive both the authority and conclusion
    that the need for review warrants any additional changes as I
    find that no conclusion that had contributed to the accident or
    to the impact of the cleanup?
        Mr. Graham. Well, I think that the increasing emphasis on
    NOAA, the Coast Guard, other agencies that represent the best
    science in government, and our proposal to use best science
    from outside the government all go to our interest in enhanced
    safety, including understanding what are the risks at the
    individual sites that are being suggested and what are the
    potential adverse effects on the safety of those who will be
    operating in that area and the environmental quality of the
    Gulf. So the answer to your question is yes, we took those into
    account as part of our overall assessment. We are aware of the
    fact that the industry, and particularly certain companies
    within the industry, have had a very strong safety record.
        We are not saying that everybody was the same. But we are
    saying that we think that the overall record in the Gulf is
    stunningly below what is in the standard of the world. If our
    aviation industry had a record by a 3-to-5-to-1 ratio, we were
    killing more people in airplanes than, for instance, Great
    Britain was, we would be pretty upset about why this was
    happening. That happens to be about the case in this industry
    between Norway and Great Britain and the U.S. We believe it is
    in the spirit of America to want to be the best.
        Mr. Landry. I am glad you brought that up, Senator.
        Mr. Graham. And these recommendations will move us.
        Mr. Landry. I am also confused that you would make the
    suggestion of underreporting incidents in the U.S. because the
    numbers are low. Are you aware that the industry, as a whole,
    regards the European standards of reporting incidents much less
    reliable than the U.S. standards?
        Mr. Graham. I am not aware of the assessment of that by the
    U.S. industry. I am familiar with the fact that our fatality
    accident ratio is significantly different than it is in the
    North Sea, which raises questions as to whether we are
    capturing all of the accidents that, in fact, are occurring. I
    am unaware of any evidence that would indicate that there
    should be such a significant differential between the
    fatalities and accidents in the Gulf and in the North Sea.
        Mr. Landry. I will be supplementing some questions to you
    all.
        Mr. Reilly. If I could just add, we are aware that there
    are very different ways of categorizing incidents, accidents,
    fatalities, days lost and so forth, total recordables in the
    North Sea versus the Gulf, different jurisdictions even between
    the U.K. and Norway.
        So some of those data need to be very closely scrutinized
    to determine that you are dealing with oranges and oranges and
    not apples and oranges.
        Mr. Landry. On both sides you would agree, though?
        Mr. Reilly. Yes, I would.
        Mr. Landry. I want to make sure that it is not just a one-
    way street.
        Mr. Reilly. But the less disputable number is the fatality
    number. It is a little harder to hide the bodies. So I think we
    are confident that those numbers are as we found and that they
    are disturbing.
        The Chairman. The time of the gentleman has expired. Mr.
    Flores from Texas.
        Mr. Flores. Mr. Chairman, thank you for holding today's
    hearing. And Chairman Reilly, Chairman Graham, thank you for
    joining us today. I know you have put in a lot of work on your
    report and study and we appreciate you being here today. I have
    an opening statement that I would like to give to the Chairman
    for the record. I will dispense with that for now.
        [The prepared statement of Mr. Flores follows:]

                    Statement of The Honorable Bill Flores,
              a Representative in Congress from the State of Texas

        Mr. Chairman, thank you for holding today's hearing, and let me
    also take this opportunity to thank Chairman Reilly and Chairman Graham
    for appearing before us today.
        It has been nine months since the Macondo Well tragedy, and we all
    grieve for the families who lost loved ones and for the environmental
    and economic impacts along the Gulf coast. We can all agree that both
    industry and the federal government need to examine all the facts
    surrounding this incident and take the appropriate steps to ensure that
    we continue to produce American energy with safe, environmentally sound
    practices. Please know that I also lost a brother in an oilfield
    accident, so I want the oil and gas industry to operate in a safe and
    responsible manner. At the same time we should make sure that we
    facilitate a robust oil and gas industry to fuel our economy and jobs.
        For the past year and a half, the top concern that I've heard from
    all Americans is jobs, economic growth, and balancing the federal
    budget. We all know that our economic health is dependent on the energy
    sector, especially as we see gas prices rising to more than $3.00 per
    gallon. That being said, I'm afraid that the Obama Administration is
    taking us in the wrong direction--locking away our own energy resources
    and making us more dependent on foreign energy from unstable parts of
    the world. Even our Treasury is taking a direct hit. With production in
    the Gulf down due to the Obama Administration's moratorium, it is
    costing them at least $3.7 million each day in lost revenue.
        I look forward to hearing from our witnesses today and to working
    with my colleagues on the committee to take what we've learned from the
    Macondo Well incident and ensure that we have a robust domestic energy
    sector that contributes to our economic recovery.
                                     ______

        Mr. Flores. It has been 9 months since the Macondo well
    accident and we all grieve for the 11 families that lost loved
    ones and for those that were injured and for the impact on the
    families along the Gulf Coast. I want you to know from a
    personal standpoint that I lost a brother in the oil drilling
    business, so I have as much interest in conducting this
    industry as safely as possible as anybody in this room. But
    that said, I want to make sure that we facilitate a robust oil
    and gas industry because it is integral to our economic
    security and our military security. And as a person who is
    actively involved in the offshore energy business for over 30
    years, I am keenly concerned about the recommendations in the
    Commission's report.
        I think it is interesting that you use the Three Mile
    Island analogy because, as you pointed out, after Three Mile
    Island, we have not started and completed the construction of a
    nuclear power plant in 30 years. It appears we are headed down
    the same road today with offshore drilling. We have a permit
    moratorium, a de facto moratorium in deep water, and we have an
    incredible slowdown in shallow water drilling.
        Mr. Flores. And we are already seeing that show up in
    higher oil prices, higher gasoline prices, and reduced economic
    activity along the Gulf Coast.
        Here is the issue. Congress has passed legislation. You
    want Congress to consider legislation. The Department of the
    Interior has issued new regulations. Lease sales have been
    canceled. Other areas of potential offshore activity have been
    put off-limits again. And it is all based on a report that
    doesn't provide a full postmortem of what happened.
        And here is the key phrase that is used that causes the
    concern. You keep referring to systemic industrywide failure.
    In chapter 4 of the report dated January 6th, you have
    following key finding: The well blew out because a number of
    separate risk factors, oversights, and outright mistakes
    combined to overwhelm the safeguards meant to prevent just such
    a happening.
        But most of the mistakes and oversights in Macondo can be
    traced back to a single overarching failure: a failure of
    management. Better management by BP, Halliburton, and
    Transocean would almost have certainly prevented the blowout by
    improving the ability of individuals involved to identify the
    risk they faced and to properly evaluate, communicate, and
    address them.
        So how can you reconcile between what has happened in the
    offshore energy business today to calling a systemic failure--a
    systemic industrywide failure to report, which really just gets
    down to three companies. And we put the entire Nation's economy
    in peril by doing this.
        Let me give you an example. What if we find out after we
    get the blowout preventer fully evaluated, it takes a $10 bolt
    that could cure the problem 99.999 percent of the time, and
    then this accident would essentially never happen. And that is
    about the ratio of accidents to wells drilled that we have in
    deep water. So, you know, we have gone overboard.
        So why did we use those words, systemic industrywide
    failure? Because that is what has caused the paranoia here.
        Mr. Reilly. In 1963, Congressman, it was a single weld, as
    I understand it, that sank the Thresher submarine. And the
    SUBSAFE system was developed, and we have not lost a SUBSAFE
    submarine since. We lost one every third year, on average, in
    peacetime before that.
        The reason that we concluded it is systemic--and I didn't
    come in believing it was a systemic problem. I thought it was a
    single company that had blundered fatally because of the very
    large presence of those three companies throughout the oil and
    gas industry in the deepwater and in the shallow water
    throughout the world, BP is, I think, the largest explorer of
    offshore oil and gas development. Transocean is the largest rig
    operator. And Halliburton is the largest supplier of resource
    help, such as cementing.
        It is no longer possible for most companies to test the
    cement, for example, that they are provided by Halliburton.
    They no longer have the research capacity. Chevron does. Maybe
    one or two more do. But most decided in the 1980s and 1990s to
    contract that out. So the cement that is provided is the cement
    that gets used. And the cement that was provided by the test
    that Halliburton itself conducted and our commission had
    conducted was faulty.
        It is simply inconceivable to us that this was a problem so
    exclusive, so specially circumstantial with respect to one rig,
    especially since we know in Australia the cementing failed in
    the Montara well, just a year and a half or so ago, also.
        This is something that caused us to believe--and, again,
    most of the people on that rig were Transocean employees, the
    people who were responsible for responding to the emergency, as
    I just described. That is the largest rig operator and owner in
    the world. It operates for everybody. Everybody hires
    Transocean. They also are implicated in this, in significantly
    failing to detect gas rising in the drill pipe.
        We concluded from that that all companies are at risk if
    they are using these two contractors, or BP, itself, is
    probably at risk in other places.
        Now, we did hear--and we asked the Norwegian regulators,
    are you taking any actions against BP? The answer was somewhat
    surprising: ``No, we are not because we do not see issues in
    the North Sea with respect to BP operations. And, therefore, we
    have taken no action to discourage their continued operation.''
        That posed the question to us, well, what is it about the
    North Sea and the Gulf that has our companies operating safely
    and protectively in the North Sea, subject to a different set
    of regulators, and not in the Gulf? And that caused us to look
    very closely at the degree of oversight, the quality of
    regulation, and the capacity of the regulators, which we also
    fault.
        The Chairman. The time of the gentleman has expired. I
    wanted to let that response come because that, I know, is very
    important to the gentleman from Texas.
        Mr. Rivera from Florida.
        Mr. Rivera. Thank you, Mr. Chairman.
        Thank you, gentlemen, for being here today.
        Commissioner Graham, Senator Graham, as a Floridian and, I
    believe, as my neighbor, are you still living in the Lakes, are
    you still in Miami Lakes?
        Mr. Graham. I am, yes.
        Mr. Rivera. West of the Palmetto?
        Mr. Graham. Yes.
        Mr. Rivera. Well, I am right there with you, in Doral,
    right down the road. So, as my distinguished constituent--as my
    distinguished constituent and fellow Floridian, I know we share
    a great concern for the economy and the environment of our
    State of Florida.
        One of the recommendations that you make in your report
    addresses the need for greater international scrutiny,
    international standards. As a representative from south
    Florida, I am deeply concerned about the ongoing development
    off the coast of Florida, ongoing oil development off the cost
    of Florida, off the coast of Cuba in particular.
        As you know, as we speak, there are a number of companies,
    including Repsol, interested in drilling in the waters off of
    Cuba. And I wanted to ask you, do you believe that this Cuban
    drilling between the coast of Florida and Cuba will be done
    safely? And what could the U.S. do to ensure that any lax Cuban
    oversight doesn't threaten Florida and the Southeastern United
    States?
        Mr. Graham. I am concerned about the safety, the relative
    lack of experience of the Cubans, in terms of being able to
    oversee this activity. The record of some of the companies that
    are being brought in to do this work is not comforting.
        I believe that something analogous to what Mr. Reilly has
    said, that we feed to have a Gulf of Mexico-wide set of safety
    standards that would apply to any country touching the Gulf, is
    the best assurance that the United States has against
    inappropriate, unsafe practices in our backyard.
        And I believe that there is sufficient interest, at least
    between the United States and Mexico, to move forward in that
    direction. And, as Mr. Reilly has indicated, the Mexicans have
    suggested, at least, that they might be the interlocutory to
    Cuba, to get it involved.
        To me, it also underscores the importance of the United
    States having the highest standards. If you go into a
    negotiation and you are urging the other parties to take their
    game up a notch and you have not already done that, your
    persuasiveness is limited. To me, for our own protection and
    for our ability to raise the standards in the Gulf, we need to
    adopt policies such as those we have suggested.
        Mr. Rivera. Well, to that end, following through on that,
    do you believe that responsible domestic development in the
    eastern Gulf of Mexico would result in additional oil spill
    response capabilities being staged in Florida that could be
    used to respond to a potential spill off of Florida from the
    Cuban dictatorship's oil-drilling efforts?
        Mr. Graham. You say in the eastern Gulf. Do you mean in the
    U.S. waters or the Cuban waters?
        Mr. Rivera. No, U.S. waters.
        Mr. Graham. I don't know what the ultimate treaty might
    say, but I would be surprised if it did not make it the
    sovereign responsibility of each of the countries to provide
    that kind of capability for those wells within their own area.
        And I certainly don't think the United States ought to be
    depending upon Mexico, providing them the containment and
    response capability. We ought to do that. The Mexicans ought to
    do it. And if the Cubans proceed with their plan, they ought to
    do it.
        So the answer would be no.
        Mr. Rivera. Thank you.
        The Chairman. The time of the gentleman has expired.
        Another gentleman from Florida, Mr. Southerland.
        Mr. Southerland. Thank you very much, Mr. Chairman.
        And thank you for your report. Thank you for appearing
    before us today.
        I am from Panama City, Florida. My district is the 2nd
    District of Florida. I took my baby steps on the beaches of
    Panama City. And I love our environment. And a day with my
    family, with my children on Shell Island is a little piece of
    heaven for me.
        I will tell you, my community, dear friends of mine, were
    deeply affected by this disaster. I just wanted to ask some
    brief questions.
        Number one, how much responsibility, in light of this
    disaster, how much responsibility do you believe that the
    government bears after having cited 790 violations? How much
    responsibility do they bear?
        Also, by refusing to waive the Jones Act and bringing in
    oil ships that had the ability to clean up that oil, OK, by oil
    leaders around the world that had produced those ships, how
    much responsibility should be beared by this government?
        Mr. Reilly. We did inquire into the application of the
    Jones Act and the allegations that have been made, particularly
    by the Europeans and a couple of commissioners of the European
    Union, that we were keeping out Belgian and Dutch response
    capability. And the response we received from the Coast Guard
    is that their offers of help were looked at, largely not taken
    into account, I guess mostly not taken into account, because
    they were not considered necessary at the time or useful for
    the particular task.
        But I know that, in Mississippi, there were from France a
    series of skimmers, six or eight skimmers or something, that
    were brought in and were used. So it was possible, in other
    words, to get out help from other countries.
        My sense, frankly is that the Coast Guard was sufficiently
    preoccupied with its own response, that vetting applications
    from other companies and countries and other technologies was
    probably something that in realtime they didn't have an awful
    lot of time to give.
        Mr. Graham. If I can just say, I think this goes back to a
    theme of today, and that is, you don't do basic research while
    fire is out of control. If you haven't done it before the fire,
    it is not likely to be very effective. So I think that things
    like the----
        Mr. Southerland. I understand, Senator. But when you have a
    neighbor that is willing to bring a boatload of hoses, you
    accept those hoses, and you say, you know what? My first
    priority is to put out the fire. OK?
        And I have to tell you, I get angered when I think of the
    pain that we have experienced along that Gulf Coast, and I
    think of my dear friends who are no longer in business. It
    angers me. And yet today we want to talk about the
    responsibility of BP and how they should self-regulate their
    industry. When 790 violations were noted, that is incompetent.
    And yet, you know, we have the idea that we are going to have
    CEOs stand up and sign a letter of certification certifying
    liability. I want Secretary of the Interior and regulatory
    department heads to sign those same documents. OK?
        The American people are tired of sending their money to
    Washington, D.C., and Washington be the problem. I am angered
    by the response of this government in light of this disaster. I
    am angered by the same government that failed in its response
    to Katrina.
        And until we start looking inward and take personal
    responsibility for the lives we are destroying instead of
    assessing blame, it has to be somebody else's fault. The
    responsibility is here. The buck stops here.
        And I am bothered that this commission--Qdecisions, there
    should be 10 down here. In the bottom, I wrote, ``government's
    decision to aid and abet.'' Was there a less likely alternative
    available? Yes. Less time than alternative? Yes, they save
    time--decisionmakers--the Federal Government--onshore.
        And I am bothered, OK, that we are just going to add to the
    bureaucracy when the bureaucracy was the problem, in many ways.
        Mr. Reilly. May I answer that question, Mr. Chairman?
        The Chairman. You sure can.
        Mr. Reilly. You raise an important question that we address
    with respect to safety and personal safety, occupational safety
    and health on the rigs themselves. Presently, when a rig is
    under sail or in motion, it is the responsibility of the Coast
    Guard to ensure safety.
        We recommend that BOEMRE has the full responsibility on the
    rig for safety personnel and that it understand and have the
    capability to enforce that, so that there is not a division of
    responsibility or a confusion about whether this is a delegated
    responsibility from OSHA to the Coast Guard and the role of MMS
    in all of this, that it be amalgamated in one agency.
        On the Jones Act, the key issue, in my view, is to have
    procedures in place ahead of time so that the extensive
    permitting reviews and approvals by the State Department are
    not necessary once the catastrophe may have occurred.
        Mr. Graham. And that was what I was going to say, is that
    you need to anticipate. And I would suggest that this Committee
    could make a significant contribution in doing some serious
    thinking about what are the questions, what are the resources,
    what are the potential impediments when we have the next
    disaster. It won't be exactly like this one, but we will have
    more disasters. And how can we, by anticipating, take actions
    that will avoid the hoses not being delivered.
        Mr. Southerland. Yeah.
        The Chairman. The time of the gentleman has expired.
        The gentleman from Pennsylvania, Mr. Thompson.
        Mr. Thompson. Thank you, Mr. Chairman.
        Gentlemen, thank you for your testimony.
        Someone had offered an airline analogy earlier. And as I
    have looked at and read through and tried to synthesize this
    commission's recommendations, if I applied the Commission's
    recommendations to the airline industry, essentially, with one
    airplane crash, we would shut down all airplanes and, frankly,
    all airports.
        I apologize for being late. I was in a workforce hearing,
    and I had an opportunity to question Governor McDonnell from
    Virginia. And, specifically, my questions were about the impact
    of the Administration's response and shutting down offshore as
    a result of this.
        Here are some of the statistics. And I will be quick with
    this, and then I have my questions. He indicated that, you
    know, this industry would create more than 1,900 new jobs just
    in Virginia, increase the State's gross domestic product by
    $365 million annually, and generate approximately $19.48
    billion in Federal, State, and local revenues.
        Senator Graham, Secretary Reilly, page 2 of your testimony
    states, quote, ``But most of the mistakes and oversights of
    Macondo can be traced back to a single overarching failure--a
    failure of management by BP, Halliburton, and Transocean,'' end
    quote.
        And under the key facts, you also stated that the
    investigation team identified several human errors, engineering
    mistakes, and management failures.
        You know, based on those statements, a logical person would
    conclude that it wasn't the lack of adequate science and
    engineering but the proper application of science and
    engineering by those on the rig that resulted in the Deepwater
    Horizon Macondo tragedy.
        Basically yes or no, do you agree with that conclusion?
        Mr. Graham. Well, I think part of the responsibility of
    effective management is to understand the risk and take steps
    to mitigate the risk. The fact is that there was no effective
    plan in place or capability to implement a plan before this
    accident occurred.
        Mr. Thompson. So it sounds that you agree, it was
    management.
        Mr. Graham. I think that is a failure of management to do
    effective risk analysis and take steps to mitigate the risk.
        Mr. Thompson. Great. Thank you.
        Secretary, any thoughts?
        Mr. Reilly. I would support that. Yes, sir.
        Mr. Thompson. OK. Thank you.
        On page 7 of your testimony, you state, under the headline
    of ``Reforming Industry Safety Practices,'' quote, ``Government
    oversight must be accompanied by the oil and gas industry's
    internal reinvention, sweeping reforms that accomplish no less
    than a fundamental transformation of its safety culture,'' end
    quote.
        Internal reinventions, sweeping reforms, and fundamental
    transformation, you know, frankly, of an entire industry is
    what the implications are of the result of these
    recommendations, frankly are words of alarm and cast a very
    wide net. I assume they are based on a thorough review of the
    hundreds of companies involved in U.S. energy production and
    not just three companies, despite how large they are, that were
    mentioned in the report.
        Did the Commission conduct such a review?
        Mr. Reilly. We conducted a review of the incident itself,
    of accident data----
        Mr. Thompson. So your review----
        Mr. Reilly.--through the industry.
        Mr. Thompson. I think if you answer my question, your
    review was of three companies out of perhaps thousands.
        Mr. Reilly. Well, it is of 79 losses of well control in the
    last, whatever, 20 years or so, affecting a very large number
    of companies operating in the Gulf.
        Mr. Thompson. No, I understand. So the review--frankly,
    there are 3,500--the number I looked at--3,500 rigs in offshore
    production and thousands of companies engaged in production,
    but the conclusion was really based on looking at three
    companies?
        Mr. Reilly. Well, the inferences drawn for the likelihood
    of entailed risk with those three companies largely rest upon
    what we learned from the experience of those three companies.
    But we had significant data about many other companies and
    their experiences that caused us to use the term ``systemic.''
        Mr. Thompson. And I appreciate, you know, that you are
    taking that inference from there, but, essentially, the
    inference is drawn from three companies but, frankly, casting a
    pretty wide net with your recommendations, impacting thousands
    of companies.
        Mr. Graham. But if I could add to that, you made the
    allusion to, and I had suggested, if the United States had a
    four-fatalities-to-one ratio in airline accidents versus, let's
    say, Norway or the United Kingdom, I believe the American
    public would be outraged. That is the situation between the
    North Sea and the Gulf of Mexico. And I don't think that one
    company----
        Mr. Thompson. If I can reclaim my time, because I know I am
    going to get gaveled out here--I am new on the Committee.
        I think the American people would also be pretty irate--
    they would be saddened with the loss of one life in an airplane
    accident, no doubt about it, and they would be concerned with
    that airplane crash. But they would also be irate if the
    Federal Government essentially shut down the entire airplane
    industry, as opposed to really focusing on drilling down, no
    pun intended, and systematically determining the root cause of
    that airplane crash.
        And I, obviously, am out of time.
        Mr. Reilly. Congressman, neither Senator Graham nor I nor
    our commission are here to defend the moratorium, not for a
    minute.
        Mr. Thompson. Very good.
        The Chairman. The time of the gentleman has expired.
        That completes the first round, but several Members have
    expressed an interest to follow up on their first questions.
        And, Senator Graham, while I didn't ask you, I asked Mr.
    Reilly, and he says, ``I have all the time in the world.'' So
    he is going to have to answer to you if that is--you know,
    however you want to work that.
        Let me start--Mr. Grijalva had a follow-up, so let me
    recognize Mr. Grijalva for 5 minutes.
        Mr. Grijalva. Thank you very much.
        And let me, at the outset, thank the gentlemen for your
    presence here and for a compelling report.
        The only question, I think--page 142 to 143 in your report,
    you deal with the issue of the Jones Act that came up, that it
    was not, indeed, an impediment to getting foreign assistance or
    outside assistance to come to the aid of that spill. Also,
    there are comments there, after the Governor insisted on those
    berms, that they probably created more problems than they
    solved.
        But the question, I think, has to deal with the word that
    some of my good friends found offensive, and that is the issue
    of ``systemic.'' We have here--and I think your report is
    compelling because it deals with the role of government and the
    lack of oversight on the part of the Federal Government as a
    contributing factor to the laxness that we found. And it deals
    very directly with systemic issues that occur within the
    management and the operation of the industry.
        I think the report is compelling insofar as something needs
    to be done. And if we want to raise the standard of oil
    production offshore, where it is safe, both for life and for
    the environment, then this report needs to be responded to.
        The recommendations that you made for legislative action
    are sound. I don't agree with all of your recommendations, nor
    do I assume every Member agrees with everything in there. It is
    a sound framework. There are principles in there that we must
    deal with. I want to thank you for that, for the time that you
    took and for, I would assume, the seriousness in which we are
    going to take this report.
        So thank you for your time, and thank you for the report.
    As I said, compelling, necessary, and timely.
        Thank you.
        Mr. Reilly. Thank you, sir.
        Mr. Graham. Thank you.
        The Chairman. OK. I thank the gentleman.
        Let me go to Mr. Landry of Louisiana.
        Mr. Landry?
        Mr. Landry. Thank you, Mr. Chairman.
        I am having trouble understanding how you all can come to
    the conclusion that there are these systemic failures by using
    those three companies and claiming that because those three
    companies do such a large percentage of the work in the Gulf of
    Mexico, that every time they go on a job they are using the
    same protocols in engineering for the different customers that
    they are doing business with.
        That simply is not true. There are different well designs
    that are in place by different oil and gas companies. Some of
    those well designs, I might add, have been around since the
    inception of deepwater drilling.
        And so I don't understand how you came to this decision of
    a systemic failure. Why not look at those oil and gas companies
    who have drilled successfully, without incident, looking at the
    well design and saying, this type of well design seems to be
    the safest? In my opinion, it certainly would save the
    taxpayers a lot of bureaucracy if you all took a look at those
    different designs.
        Did you all take a look at the different well designs? And
    did you take in mind that they did not--that when those
    contractors work for different oil and gas companies, they
    don't follow the same protocols and engineering specs?
        Mr. Reilly. We did look at the design of this particular
    well, and at least two companies made clear to us that they
    would not have chosen the design that BP did for that formation
    in that place.
        Mr. Landry. But, Mr. Reilly--and I apologize for cutting
    you off, but you told me earlier that you all took into account
    the 2,500 wells that were drilled in deep water. You told me
    you took into account their history and their success. But yet,
    now you are telling me you only took into account the well
    design on BP, on BP's Macondo well.
        Mr. Reilly. Well, the conclusion that the well design that
    was used by BP at Macondo was not an appropriate one or is one
    that created more risks than were necessary in the eyes of at
    least two companies is based upon a judgment about alternative
    well designs of the sort that you suggest.
        Mr. Landry. Well, I am trying to clarify your answer. I
    mean, did you look at the other well designs and take into
    account that, when you issued your report telling us that there
    is a systemic failure in the industry and that we have to
    create these additional levels of bureaucracy, costing the
    taxpayers hundreds of millions of dollars, when you made that
    recommendation, did you or did you not look at the history of
    the other deepwater wells, the 2,500 or so, that have been
    drilled in the Gulf of Mexico when you took into account
    issuing this report?
        Mr. Reilly. Yes. Yes, sir, we did.
        And let me say, from the point of view of someone who
    considers 1 in 2,500 not so impressive, frankly, if it is going
    to cost $40 billion or $50 billion to the economy of the area
    and to the company involved, I think we are drawing a different
    conclusion from the success rate.
        I regulated at the Environmental Protection Agency, with
    respect to a number of issues, one in a million, which was the
    maximum acceptable impact or fatality, mortality, premature
    death associated with a certain kind of decision, a pesticide
    decision, for example. So 1 in 2,500 doesn't impress me as a
    very positive record, frankly.
        Mr. Landry. Well, I certainly would like you to look in the
    eyes of the people who are losing their jobs down in Louisiana,
    who have built this industry, who have basically been drilling
    since 1947 off of that coast, and tell them that. I can tell
    you, from living down there, that safety is number one. It has
    been for a very, very long time.
        Mr. Reilly. Congressman, the decision to deny them their
    jobs and to shut down every rig in the deepwater area, every
    exploration rig, is one that I think is highly contentious,
    excessive, and hard to justify. And I have made that clear, as
    has Senator Graham, from the outset.
        We would have approached this in a more selective fashion
    so as not to penalize those companies that had not been
    specifically implicated in the disaster after some short period
    of review and inspection which did, in fact, take place, and
    they were cleared.
        So we are not here to defend the denial of jobs or against
    the resumption of activity in the Gulf. Very much we want to
    see it resume, but we want to see it resume safely and
    effectively.
        Mr. Landry. And may I put your name in as a recommendation
    to take Ms. Browner's place then?
        Mr. Graham. Congressman, I have to take some exception to
    the statement that you made about that we are recommending
    hundreds of millions of dollars of additional regulation. Yes,
    we are recommending that there be an adequate, competent,
    politically insulated safety function within the U.S.
    Department of the Interior. I don't think those are radical
    suggestions.
        Number two, we are recommending that the industry, as other
    high-risk industries have done, assume more responsibility for
    their own evaluation of safety. That is no cost to the U.S.
    Government and, I think, is a very prudent suggestion to the
    industry and one which will contribute to the industry's long-
    term viability.
        So I would just--if you see something in our report that
    you think is hundreds of billions of dollars, or millions of
    dollars, of additional expense and an excessive addition to
    bureaucracy, I would like to be directed toward that, because
    that was not our intention.
        The Chairman. The time of the gentleman has expired.
        Mr. Flores?
        Mr. Flores. Thank you, Mr. Chairman.
        With the backdrop that I introduced earlier today, and that
    is that we have lease sales that have been canceled, offshore
    areas that have been taken off the availability list to be
    drilled on in the future, higher gas prices, lower domestic oil
    production, lost jobs, a hurt economy, with that--and a lot of
    that is because this report is being relied upon to continue
    moratoria, either de facto or regulatory or however they want
    to be described. And it goes back to this ``systemic,
    industrywide failures'' comment.
        Co-Chairman William Reilly stated, in your January 6th
    release, on chapter 4's release, ``My observation of the oil
    industry indicates that there are several companies with
    exemplary safety and environmental records. So a key question
    posed from the outset of this tragedy is, do we have a single
    company''--that being BP--``that blundered with fatal
    consequences, or a more pervasive problem of a complacent
    industry? Given the documented failings of both Transocean and
    Halliburton, both of which served the offshore industry in
    virtually every ocean, I reluctantly conclude that we have a
    systemwide problem.'' That is your quote.
        Now, Mr. Reilly, based on what I see of the internal
    inconsistency and the weight which this report is being given
    and the energy future of this country, I would respectfully ask
    the Commission if they will amend the report to remove the
    words ``systemwide industry failure.'' Will you do that?
        Mr. Graham. Congressman, how would you defend the presence
    of walrus protection and polar bears in a response plan? Or how
    would you defend Mr. Hayward's telling me there is no subsea
    containment capability? Or the inadequacy of the response
    technology and the failure to invest in it over the last 20
    years after we experienced the disaster in Prince William
    Sound? I think these speak for themselves.
        And the response plans were not confined to the three
    companies. All the majors that we looked at had literally the
    same response plans and the same concern for walruses and the
    dead expert and all the other things we know. And several CEOs
    have said they found it embarrassing and were humiliated by it.
    And that had a lot to do with their decision to create the
    Marine Well Containment Corporation, which is a very
    significant and positive step on the part of the industry.
        So I don't think that you can infer anything other than,
    ``Well, it sure looked like complacency.'' And when people say,
    ``We never thought it could happen''--and I include myself in
    that--we were complacent. I think the government was, the
    industry was, I was.
        Mr. Flores. Well, again, the application for permits that
    are filed are based on pretty much cookie-cutter requirements
    that the MMS--or what was formally called MMS used to issue.
        Mr. Reilly. And I don't exempt them from the criticism.
        Mr. Flores. OK. And so, maybe there was a regulatory
    failure----
        Mr. Reilly. Uh-huh.
        Mr. Flores.--as part of it. I think we all agree that there
    was. And we all agree that BP had an integral part to play in
    this failure.
        But, unfortunately, what has been condemned here is the
    entire industry, as well as the energy security of this
    country, going forward. And I think it goes back to those
    words, ``industrywide, systemic failure.''
        And I just--I would respectfully disagree with you. I don't
    think that we have that type of a failure. And I would like to
    state for the record, I think those words ought to be struck
    from the report.
        Mr. Reilly. Well, let me just say that our report is 11
    days old, and the degree to which there has been a delay in
    issuing permits or a de facto moratorium that has been referred
    to, I don't think has anything to do with this report. And we
    certainly don't expect or didn't intend that we would
    contribute to that.
        We, in fact, were assuming that a number of these
    recommendations could be implemented coterminously with the
    resumption of activity on the part of the companies that
    weren't in any way involved in the Macondo disaster.
        Mr. Flores. Thank you.
        I yield back.
        Mr. McClintock. [presiding.] The gentleman yields back.
        Congressman Thompson?
        Mr. Thompson. Thank you, Chairman.
        Just one additional question. On page 6 of your testimony,
    under the heading ``Environmental Review,'' you state that the
    Commission recommends, quote, ``a more robust and more formal
    interagency consultation process in which NOAA, in particular,
    is provided a heightened role, but ultimate decision-making
    authority is retained by the Department of the Interior,'' end
    quote.
        And my question--and I wanted to get your rationale behind
    it. Obviously, you know, the role of NOAA was of great concern
    to the Commission. My question actually is, shouldn't the
    Departments of Energy and Commerce have an equal, if not
    greater, voice in NOAA in the formulation of rules and
    regulations that certainly have a great influence on our
    domestic energy production?
        Mr. Graham. Well, just let me clarify. NOAA is part of the
    Department of Commerce. So, I assume, through NOAA----
        Mr. Thompson. Commerce was involved. How about Energy?
        Mr. Graham. Yeah, Department of Commerce would be involved.
        What we were focusing on there, I mentioned it in my
    opening statement. A key fact to understand is that the
    relationship of the U.S. Government to the offshore oil
    industry is not just as a regulator. It is not like the
    relationship of the Department of Transportation to the bus
    industry of America. It is also the relationship of the owner
    of the property. All of that property out there in the Gulf of
    Mexico, beyond the State limits, belongs to the people of the
    United States of America.
        We have made a decision that we will lease portions of that
    to oil companies under certain conditions to evaluate and, if
    found, extract oil and gas. We have the same interests that, if
    you owned a small shopping center, you don't want to have a
    tenant in your center who is trashing it and is going to make
    it impossible for other tenants to have a profitable
    enterprise.
        So I think we need to put ourselves in the position of,
    what should we be doing to assure that our children and
    grandchildren will have a Gulf of Mexico that is of a quality
    that we would be proud to hand over to them as our inheritance.
        I think these recommendations, and particularly the
    recommendations of bringing the best science--and we think the
    Department of Commerce and NOAA represents the best science in
    this area--to bear, in terms of what should be the conditions
    of our proposed tenant to lease our property, is not an
    imprudent thing to do.
        Mr. Thompson. OK.
        Well, one of the--as I came to Congress 2 years ago, one of
    the things that just appalled me--and, you know, this is over
    different administrations, different parties--is the absolute
    lack of a national energy plan in this country. And when we are
    talking about the Outer Continental Shelf and offshore
    resources or onshore resources, you know, frankly, the Energy
    Department was formed for that very purpose, to achieve energy
    independence, I guess, in the 1980s when it happened. It has
    failed miserably. But I think one of the proper steps,
    obviously, would be involved in this type of a process.
        Mr. Graham. I am completely in agreement with that. In
    fact, it was my position, and I think this is reflected in the
    report, that you can't answer the question, ``What is the
    future of the offshore industry?'' without answering the larger
    question, ``What is our energy policy in the United States?''
        I was telling Bill, and he had already seen it, that in
    yesterday's newspapers there were some articles about the fact
    that the RAND Corporation had raised questions about whether
    the U.S. military could convert to a less fossil-dependent
    Navy, Air Force, Army. And they raised serious doubts about
    whether that could be done, which, to me, just underscores the
    importance of this industry for our fundamental national
    security.
        Mr. Thompson. Great. Well, thank you.
        Thank you, gentlemen, for your testimony. I have additional
    questions, but we will forward those along. Thanks.
        Mr. McClintock. Thank you.
        Mr. Grijalva?
        Mr. Grijalva. Thank you.
        And this, gentlemen, I swear, are the last questions. We
    all need to be outside, enjoying the blizzard that is
    happening.
        Mr. McClintock. Why not stay here? There is no place else
    to go.
        Mr. Grijalva. Gentlemen, both of you have said that the
    resumption and full production of offshore drilling, in terms
    of energy production, is something that you want to see and
    that could be occurring as we make the other kinds of
    adjustments that we have to make to make this industry safer
    and our role as a government stronger.
        And one of the key recommendations that the Commission made
    is that the Federal oil and gas regulators that have been
    underfunded--I think they are getting less now than they did 20
    years ago--that we create a dedicated funding stream for oil
    and gas fees to fund this, so it is well-trained, professional,
    a level of--an insulation of independence.
        And yet, as we are talking about this and the critical need
    to deal with the production issue that has come up consistently
    here by my colleagues, we are also talking about reductions to
    2006 levels, to 2008 levels, based on the resolutions that we
    are dealing with on the Floor.
        So, at some point, this full production restoration idea
    and concept that you support as commissioners, with the
    backdrop of not ever meeting the Commission report in terms of
    providing a robust oversight regulatory function for government
    that is independent, how do you reconcile that one opinion with
    the lack of resources on the other end?
        Any comment would be fine.
        Mr. Graham. Well, it is our recommendation that, like is
    the case with most other industries, industries who don't have
    this additional characteristic of being our tenants, we expect
    the airline industry, the telecommunications industry, across
    the board virtually, to pay for their own regulation. They are
    self-funded regulation. We did not see any compelling reason
    why that should not be true of this industry. So that would be
    our basic recommendation.
        That would take action by the Congress if, for instance,
    there were--as there is now for the oil liability fund--a fee
    attached to each barrel of oil. I believe that is for both
    imported as well as domestically produced, which goes into that
    fund. Maybe we need to have a supplemental stream to go into a
    fund for the regulation of the industry so that we can assure
    to the industry that we will have a competent, sustained
    ability to assure safety and----
        Mr. Grijalva. Well, Senator, on my question, if I may, you
    see a linkage and not an either/or proposition?
        I21Mr. Graham. I mean, either/or----
        Mr. Grijalva. Either you have the regulatory capacity and
    the resources to deal with the demand for full production, and
    if that linkage doesn't occur, is it an either/or proposition?
        Mr. Graham. No, my----
        Mr. Grijalva. Can you have one without the other?
        Mr. Graham. Well, the answer is, I don't think it is in the
    interest of the American people not to have adequate standards,
    again, in part, because we have just seen what the consequences
    are to a lot of very innocent people, and we have seen what the
    consequences are to an important piece of real estate that
    belongs to all of the people of America.
        Mr. Grijalva. Yeah, I think the question is, reducing
    Interior's levels to 2006-2008 that directly impact your
    recommendation, in terms of building up the resource capacity
    and the overall capacity of regulators and oversight, that, I
    think, does not help the safety demands for offshore drilling
    that is also a part of the recommendations.
        Mr. Reilly. We are quite clear that the quality of
    regulation has been insufficient; that an industry which did
    not used to be a high-risk industry, as it has proceeded so
    heavily into deep water, has become that. The industry, itself,
    needs to take the steps that are suggested by this catastrophe,
    but so does government.
        Other governments have done so after their own
    catastrophes. We have mentioned the United Kingdom and Norway,
    which responded to very severe accidents that they had by
    separating the revenue-generating function from the regulatory
    function and significantly improving the quality of their
    regulator.
        Senator Graham mentioned that, in the United Kingdom, the
    oil and gas industry lobbies for more appropriations for the
    regulator, because they recognize that quality in the
    regulator--as did Mr. Tillerson, the Chairman of ExxonMobil, in
    his testimony before us, and Mr. Odum, the President of Shell
    USA. Both of them mentioned the quality of regulation as
    essential to the quality of industrial activity.
        That is all we are really suggesting. So, to try to save
    money at BOEMRE, at this point, having seen that budget go down
    20 percent over the last 20 years as the oil and gas production
    in the Gulf went up 300 percent, is really penny-wise and
    pound-foolish.
        Mr. Grijalva. Thank you, sir.
        The Chairman. [Presiding.] The time of the gentleman has
    expired.
        Mr. McClintock of California?
        Mr. McClintock. Thank you, Mr. Chairman.
        First, I would like to ask unanimous consent to insert into
    the record the Wood-MacKenzie report commissioned by the
    American Petroleum Institute, entitled, ``The Impact of Gulf of
    Mexico-Deepwater Permit Delays on U.S. Oil and Natural Gas
    Production, Investment, and Government Revenue,'' dated
    December 2010, which I cited earlier. And I have souvenir
    copies for our lucky panelists.
        The Chairman. Without objection, so ordered.
        Mr. McClintock. Thank you.
        [NOTE: The report entitled, ``The Impact of Gulf of Mexico-
    Deepwater Permit Delays on U.S. Oil and Natural Gas Production,
    Investment, and Government Revenue'' has been retained in the
    Committee's official files.]
        Mr. McClintock. I would also like to ask unanimous consent
    to include the Wall Street Journal editorial which I
    referenced.
        The Chairman. Without objection, so ordered.
        [The Wall Street Journal editorial follows:]

                              Gulf Political Spill

    Wall Street Journal
    Editorial dated January 13, 2011
        President Obama's drilling commission released its 398-page report
    on the causes of the Gulf oil spill this week, and talk about a lost
    opportunity. After six months of hearings and interviews, the
    commission still doesn't know what caused the accident but does think
    it knows enough to condemn all and sundry.
        The disaster, we are told, was primarily the result of
    ``overarching failure of management'' \1\ by BP, Transocean and
    Halliburton--which is hardly news to anyone who's been paying
    attention. Yet the commission didn't stop with the companies that
    managed the Macondo well, going on to blame the highly unusual blowout
    on a ``system-wide problem'' of failed regulation and a complacent
    industry that requires ``significant reform.''
    ---------------------------------------------------------------------------
        \1\ Page 90 of the full Obama Spill Commission Report
    ---------------------------------------------------------------------------
        These sweeping conclusions are remarkable from a commission that
    admits to knowing so little. The report cites several questionable
    decisions made by Macondo drillers as the ``immediate causes'' of the
    blowout, only to acknowledge it can't say which, if any, were the
    cause:
          ``It is not clear whether the decision to use a long
    string well design contributed directly to the blowout.'' \2\
    ---------------------------------------------------------------------------
        \2\ Page 115
    ---------------------------------------------------------------------------
          ``The evidence to date does not unequivocally establish
    whether the failure to use 15 additional centralizers was a direct
    cause of the blowout.'' \3\
    ---------------------------------------------------------------------------
        \3\ Page 115
    ---------------------------------------------------------------------------
          ``Whether ... `unconverted' float valves contributed to
    the eventual blowout, has not yet been, and may never be, established
    with certainty.'' \4\
    ---------------------------------------------------------------------------
        \4\ Page 116
    ---------------------------------------------------------------------------
        Unable to name what definitely caused the well failure, the
    commission resorts to a hodgepodge of speculations. Adding to the
    confusion, it acknowledges it could find no evidence that BP or its
    contractors ``consciously chose a riskier alternative because it would
    cost the company less money.'' The commission didn't even wait to get
    an autopsy of the failed blowout preventer, which is rusting on a
    Louisiana dock.
        The report's one firm conclusion boils down to this: In the hours
    preceding the explosion, crew members missed ``critical signs'' that
    something was wrong. ``The crew could have prevented the blowout--or at
    least significantly reduced its impact--if they had reacted in a timely
    and appropriate manner.'' \5\ This is called human error, in this case
    with tragic consequences to those who erred.
    ---------------------------------------------------------------------------
        \5\ Page 120
    ---------------------------------------------------------------------------
        Yet it's hardly evidence that the entire drilling industry is an
    accident waiting to happen, as the commission insists. Its section
    ``The Root Causes: Failures in Industry and Government'' \6\ uses
    questionable decisions made by the Macondo players to suggest, with no
    evidence, that such behavior is the industry norm.
    ---------------------------------------------------------------------------
        \6\ Page 122
    ---------------------------------------------------------------------------
        The report fails to reconcile this indictment with the industry's
    prior safety record, or with the fact that many countries have modeled
    their drilling technology and practices on those of the Gulf. For a
    better account of how unusual the Macondo practices were, we recommend
    the June 11, 2010 letter to the editor in this newspaper from Terry
    Barr, the president of Samson Oil and Gas.
        The commission nonetheless offers an array of recommendations, most
    of which would severely restrict oil and gas drilling. Despite
    President Obama's promises that the new Bureau of Ocean Management
    (formerly the Minerals and Management Service) is now a shipshape
    regulator, the commission recommends that Congress create another
    agency to supervise drilling. Now, there's a new idea--another layer of
    bureaucracy to supervise the bureaucracy that failed.
        The report also advocates toughening the National Environmental
    Policy Act to make it harder for companies to obtain drilling leases.
    Another section doubts it is possible ever to drill safely in Alaska or
    the Arctic--a hardy perennial of the anti-oil lobby.
        This was all too predictable given the political history of
    commission members. Former Democratic Senator Bob Graham fought
    drilling off Florida, William Reilly is the former head of the
    antidrilling World Wildlife Fund, and Frances Beinecke ran the Natural
    Resources Defense Council, which is opposed to carbon fuels. Not a
    single member was a drilling engineer or expert in oil exploration
    technology or practices.
        Compare this to the Rogers Commission, which investigated the
    Challenger space shuttle disaster of 1986. Led by former Secretary of
    State William P. Rogers, that group included theoretical and solar
    physicists, engineers and aeronautics specialists. The commission
    located the exact cause of the disaster (failed O-rings) and prescribed
    precise safety changes. The preface of the Rogers report states that
    the only way to deal with such a failure is to investigate, correct and
    ``continue the program with renewed confidence and determination.''
        The unbalanced, tendentious nature of the commission report
    vindicates those who suspected from the start that this was all a
    political exercise. The White House has been pounded on the left for
    agreeing to ease drilling restrictions before the spill, and now it is
    looking for support to walk that back. Though the Administration
    officially lifted its Gulf drilling moratorium and issued new safety
    rules two months ago, it has refused to permit a single new well.
        U.S. gasoline prices are now above $3 a gallon, and the decline in
    Gulf drilling will not help supply. Forecasters predict domestic
    production will fall at least 13% this year due in part to the Gulf
    lockdown. Meanwhile, last week the British Parliament rejected a
    drilling moratorium in U.K. waters on grounds it would cause
    ``expertise to migrate,'' decrease ``security of supply'' and harm the
    British economy.
        The BP spill was a tragedy that should be diagnosed with a goal of
    preventing a repeat, not in order to all but shut down an industry that
    is vital to U.S. energy supplies and the livelihood of millions on the
    Gulf Coast.
                                     ______

        Mr. McClintock. Mr. Chairman, if I were to summarize what
    we have learned today, it is this: We faced an engineering
    issue. A blowout preventer failed, and it failed
    catastrophically. It caused enormous environmental and economic
    devastation.
        Before this commission was empaneled, we did not know why
    that blowout preventer failed. After the Commission concluded
    its work and issued this report, we still don't know why that
    blowout preventer failed. We don't know why it failed because
    the Commission never even bothered to look at the blowout
    preventer, which, according to the Wall Street Journal, is
    rusting on a dock in Louisiana.
        We have never had a blowout failure like this one. Until we
    find out why it failed, it could happen again. It could happen
    at any time. And the Commission has not advanced our
    understanding of how to prevent it one bit.
        The contrast between this commission's work and the Rogers
    Commission after the Challenger disaster is staggering. If the
    Rogers Commission had operated in the same manner, we would
    still have no idea what caused the Challenger to explode or how
    to prevent it in the future.
        We have before us a report offering bureaucratic
    prescriptions to an engineering problem, authored by
    bureaucrats, rather than an engineering prescription authored
    by engineers.
        I don't know exactly how the Committee would advance the
    issue from here. I certainly seek the Chairman's guidance. But
    I would recommend that we take whatever action is necessary to
    empanel a panel of engineering experts to go down to that dock
    in Louisiana, retrieve that blowout preventer, tear it apart
    piece by piece, find out what caused it to fail, and do so
    before it happens again.
        Mr. Reilly. Would the gentleman yield? I would just respond
    to that, if I might.
        Sir, I think that you can draw an analogy between the
    blowout preventer and a seatbelt in an automobile accident. It
    is obviously important to the survival of someone that the
    seatbelt wasn't fastened, but it doesn't really explain why the
    accident occurred.
        We explained why the accident occurred. We fingered and
    identified, I think, all of the major contributors, the
    decisions, and their technological consequences, their
    engineering consequences that led to the disaster.
        Examining the blowout preventer is not going to cause those
    other facts that we uncovered to go away. They are there. They
    are distressing. They do have implications for policy, and we
    tried to draw them.
        The Chairman. Well, I want to thank both of your witnesses
    for being here today. I know you had a long day. You started at
    10 o'clock in the Senate. And I very, very much appreciate your
    willingness to stay here so some of our Members could have
    another explanation or a clarification of what is going on.
        I know that there will be some other questions that
    Members, probably on both sides, would like to ask you. And if
    you would agree to respond in writing to those questions, we
    would very much appreciate that.
        Mr. Reilly. We will do that, Mr. Chairman. We have a staff
    I think for another 5 weeks, 4 weeks.
        The Chairman. OK, great.
        Mr. Reilly. And we will use them to the very end, to the
    extent they allow that.
        I would just like to say, we very much appreciate the
    attentiveness, the interest of this Committee, the thoroughness
    of the kinds of questions that we received, and understand the
    seriousness of different kinds of concerns about our report and
    about the conclusions that we drew.
        We hope it is helpful to the deliberations of the Committee
    and that the relatively modest proposals we have made are
    looked at seriously and perhaps implemented. As I mentioned, I
    think they are modest in terms of cost and bureaucracy
    disruption.
        The Chairman. Well, I thank you for that.
        And let me just mention and, again, reiterate what I said
    at the start of this, at the start of when the BP well broke,
    that we had to find out what went wrong. We will continue to do
    that. And, as I mentioned in my opening statement, there are
    two more reports out. We will look at what they have to say and
    draw, hopefully, some conclusions from that.
        But I also will reiterate what I also said in my opening
    response. What we do here will send a very, very strong signal
    into what I think is very, very critical long term. And long
    term is the energy security of our country. You alluded to
    that. So the balance we have to make is make sure that we
    continue to have a robust industry, especially in a down
    economy.
        So, with that, I want to thank all of the Members again for
    being here, and especially for the two of you to stay for this
    long time.
        And, with that, if there is no further business, the
    hearing stands adjourned.
        [Whereupon, at 5:16 p.m., the Committee was adjourned.]

        [Additional material submitted for the record follows:]

        [The prepared statement of Mr. Holt follows:]

                   Statement of The Honorable Rush D. Holt,
           a Representative in Congress from the State of New Jersey

        Thank you Chairman Hastings and Ranking Member Markey for holding
    this hearing today on the final report of the National Commission on
    the BP Deepwater Horizon Oil Spill and Offshore Drilling. I look
    forward to hearing from the distinguished co-chairs of the Commission;
    Senator Graham and Mr. Reilly on the findings of the Report.
        Although the oil has stopped gushing into the Gulf, the crisis is
    far from over. The Report to the President from the Commission made one
    point all too clear. The BP Deepwater Horizon Spill is not an isolated
    incident. As long as we continue to drill for gas and oil off our
    shores it is not a question of if, but when the next oil spill is going
    to happen.
        Our existing regulatory system is inefficient, plagued with loop-
    holes for big oil companies, and all too often lets polluters off the
    hook while exposing taxpayers to economic harm.
        One of the issues that I am pleased that the Commission addressed
    in the Report is that of liability limits for oil and gas companies as
    the result of an oil spill. Since the spill began I have been concerned
    about the fisherman, the hotel owner, the tourism operator and those
    whose livelihoods depend on the Gulf. Under the Oil Pollution Act (OPA)
    of 1990, oil companies are required to cover the full costs of
    ``removal.'' However the law set a $75 million cap for economic and
    natural resources damages.
        Many of us breathed a sigh of relief when BP established a $20
    billion escrow account to compensate individuals and businesses for the
    damages inflicted by the spill. So far they have paid over $2.5 billion
    in economic damages from the spill, demonstrating that the current $75
    million liability cap remains a laughable amount.
        When the next spill occurs--and it's a matter of when, not if--
    there is no guarantee that the next oil company can or will cover all
    damages. We shouldn't wait for that spill to occur to make the
    necessary legal changes to ensure that companies like BP pay for every
    last cent of the mess they made.
        This is why today I, along with 17 of our colleagues, introduced
    the Big Oil Bailout Prevention Act which would eliminate the liability
    cap for economic and natural resources damages.
        The report reinforces the need for this legislation, finding that
    the current liability cap ``limits liability well below levels that
    might actually be incurred'' and that the ``cap distorts the incentives
    of industry participants to adopt cost-effective safety precautions.''
        The liability cap is just one of the issues that need to be
    addressed by Congress in the wake of this report. The Commission's
    Report states that without Congressional action, we cannot ensure that
    the Department of Interior will have the tools necessary to protect
    America's coastal communities economic and environmental interests, or
    guarantee the safety of our nation's oil and gas rigs for workers. I am
    proud to be a cosponsor of legislation introduced by Ranking Member
    Markey today that would implement all of the much needed reforms cited
    in the Report. I look forward to hearing from our distinguished
    speakers today and to work with my colleagues to implement these much
    needed reforms.
                                     ______

        [The prepared statement of Mr. Landry follows:]

                 Statement of The Honorable Jeffrey M. Landry,
            a Representative in Congress from the State of Louisiana

        Thank you, Chairman Hastings, for calling this hearing and for
    starting this Congress off on the right foot with responsible and
    meaningful oversight. I can think of no better way to start a new
    tradition of oversight than reviewing the BP Deepwater Horizon Oil
    Spill Commission Report.
        Many thanks to the Chairman for also giving me time to express the
    views of many of my constituents who have not had an opportunity to
    make known their grievances with the recommendations of the Commission.
        I would also like to thank Senator Bob Graham and the Honorable
    William Reilly for coming before this committee to answer, what I
    believe will be tough but fair and very important questions.
        Let me state that the tragic accident of April 20, 2010 cannot be
    ignored nor minimized. This disaster killed eleven workers and
    generated one of the largest oil spills in United States history. Many
    Louisianans were affected by the explosion on the Gulf and the
    subsequent waves of oil that blanketed our coastline.
        While this accident cannot be ignored, it can also not be employed
    as justification for debasing the entire offshore drilling industry.
        My first priority is always the safety and economic well-being of
    my constituents in Coastal Louisiana. After analyzing and evaluating
    the Commission's broad range of recommendations, I have some concerns
    that I would like for our witnesses to address today.
        First, I would like to express my concerns with the Commission's
    recommendation of continued overlapping of new and existing regulatory
    agencies within the Department of Interior. I believe that more
    agencies at the Department of Interior and at the Bureau of Ocean
    Energy Management, Regulation and Enforcement (BOEMRE) will ultimately
    create more red tape without improving human or environmental safety.
        Moreover, the proposed regulations will delay offshore oil
    production and will prolong Louisiana's high unemployment rate. Thus,
    the Commission's recommendations are diametrically opposed to the
    Administration's own stated goals of reducing unemployment and
    lessening our dependence on foreign oil.
        Furthermore, I am disappointed that the Commission does not address
    the economic and labor impacts of actually implementing all the
    Commission's recommendations.
        A scant eight days ago, President Obama signed an Executive Order
    stating that government regulations should ``take into account benefits
    and costs'' and ``further economic growth, innovation, competitiveness
    and job creation.'' Again, the Commission's report runs directly
    counter to the Administration's own stated goals.
        Specifically, I am frustrated that the Commission failed to address
    the economic factors of the President's offshore drilling moratorium--
    including the number of lost jobs, wages and oil revenue to the United
    States Treasury. The moratorium has already reduced United States oil
    production and has cost numerous Louisiana jobs. I believe these facts
    needed to be fully addressed in the report.
        Finally, I believe we need to make sure that effective, efficient
    reforms are made to improve safety while still allowing drilling to be
    conducted in the Gulf of Mexico. Rest assured, I will continue to work
    with my fellow like-minded colleagues on the Natural Resources
    Committee to create and keep jobs in the offshore energy sector.
                                     ______

        [The prepared statement of Mr. Wittman follows:]

                 Statement of The Honorable Robert J. Wittman,
            a Representative in Congress from the State of Virginia

        Chairman Hastings, thank you for holding this important oversight
    hearing. Senator Graham and Administrator Reilly thank you for your
    presence here today and for your efforts leading the President's
    National Commission on the BP Deepwater Horizon Oil Spill and Offshore
    Drilling.
        The fire, sinking and loss of the 11 crewmembers of the Deepwater
    Horizon drilling rig was a true tragedy. The Gulf region is still
    recovering from the economic and ecological impact of the oil spill.
        We must make every effort to ensure that federal agencies are
    effectively structured to regulate offshore drilling, while protecting
    the environment and meeting our nation's energy demands.
        Since the oil spill significant steps have already been taken to
    improve safety standards for the oil and gas industry. Structural
    reforms at the Department of Interior by Secretary Ken Salazar have
    fundamentally altered the regulatory body responsible for offshore
    drilling. These new regulations and structure address many of the key
    government oversight failures that led to the Gulf oil spill.
    Additionally, the oil and gas industry has taken steps to develop
    advanced technology that would lessen the likelihood of similar
    catastrophic blowouts. These and other steps have already made the
    offshore industry safer.
        It is appropriate to carefully review and ensure that offshore
    energy production is appropriately regulated and conducted in a safe
    and environmentally sensitive manner. However, it is also critical that
    we promote responsible American made energy, including oil, natural
    gas, nuclear, coal, and renewable energy. Unfortunately, the
    Commission's report on balance includes proposals that would ultimately
    restrict domestic energy production with little measurable increases in
    safety. Of particular concern is the Commission's implicit support for
    the Administration's ongoing moratorium on energy development in the
    Atlantic Ocean.
        Virginia has the opportunity to develop offshore energy in an
    environmentally friendly manner and lead the nation in improving our
    energy security and creating thousands of jobs. The economy of Virginia
    will benefit tremendously from the demand for goods and services
    created by offshore development.
        Promoting offshore oil and gas development is one tool in an ``all
    of the above'' energy strategy that is necessary to meet our nation's
    growing needs. In addition to oil and gas, Virginia has the potential
    to develop offshore windmills and other types of renewable energy. All
    of these forms of energy are necessary to meet the challenges of the
    21st Century.
        I look forward to continuing to move Virginia towards energy
    independence, offshore energy development and job creation.
                                     ______

        [The response to questions submitted for the record by Mr.
    Reilly and Senator Graham follows:]

        Response to questions submitted for the record by the National
     Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling

    Chairman Doc Hastings (WA-R)--Questions
     Question: Acknowledging that the U.S. will have less domestic
            production from the OCS in the foreseeable future; does the
            Commission have any recommendations as to where Congress should
            promote domestic oil and gas development to offset those
            losses?
        Response: The Commission does not foresee that any of its
    recommendations will lead to less domestic production from the OCS in
    the foreseeable future. The Commission instead concluded that the
    Macondo well blowout was fully preventable and that deepwater drilling
    in the Gulf can be done safely in the future with appropriate
    safeguards, all of which are readily achievable. The only threat to
    domestic production from the OCS would be the failure of industry and
    government to take those necessary steps to restore safe drilling to
    the Gulf.
     Question: The Commission dealt primarily with offshore production,
            would the Commission encourage greater onshore oil and gas
            production from federal lands where an oil spill would be less
            complex to clean up and mitigate?
        Response: The Commission did not consider the comparative safety of
    onshore and offshore drilling because the President's charge to the
    Commission was limited to the viability of offshore drilling,
    especially in deep waters. Because, moreover, the Commission concluded
    that deep water drilling in the Gulf can be done safely and those deep
    waters are where significant oil and gas resources exists, the
    Commission never had occasion to determine whether onshore production
    was needed as a substitute for offshore drilling.
     Question: According to press reports, after the Commission released
            some of its findings, companies came forward with information
            that rebutted specific statements in the Commission's report.
     Since the Commission doesn't appear to have incorporated the new
            information provided after the press leak in the final report,
            how will that new information be utilized and made available to
            the public?
        Response: The Commission has received no information from companies
    since the release of the Commission's final report that has refuted any
    of the Commission's findings and conclusions concerning the causes of
    the Macondo well blowout and the resulting Deepwater Horizon rig
    explosion. Chapter 4 of the Commission's final report summarized those
    findings and conclusions. As promised by that report, moreover, the
    Commission's Chief Counsel has since released a detailed and full
    account of those same findings and conclusions in a 350 page technical
    report. That Chief Counsel's Report describes in exhaustive detail all
    the engineering and management mistakes made by the three companies
    that resulted in the well blowout and rig explosion.
        The Chief Counsel, the Commission's Chief Scientist, and the Chief
    Counsel's investigation team met repeatedly with representatives of the
    three companies principally involved in the blowout--BP, Halliburton,
    and Transocean--and other oil and gas companies. Indeed, for much of
    the investigation, those companies were all extremely cooperative and
    provided invaluable information. The Chief Counsel asked BP,
    Halliburton, and Transocean to review his draft final report to the
    Commission prior to its publication to give them the opportunity to
    correct misstatements and provide additional information. The Chief
    Counsel took that same precaution in late October 2010, immediately
    prior to holding a public hearing in which he detailed for the
    Commission his preliminary findings and conclusions. Each of the three
    companies was provided a preview of that presentation, again, in order
    to allow them to correct misstatements and provide additional
    information.
        In short, the Commission's Chief Counsel gave the companies
    extraordinary opportunities to comment on the Chief Counsel's findings
    and conclusions prior to their release because the Chief Counsel was
    determined to provide the Commission and the American public with the
    most comprehensive and accurate accounting of the causes of the Gulf
    oil spill disaster. The Commission's investigation has never been aimed
    at determining legal responsibility or allocating blame for the
    blowout. The companies involved may nevertheless believe that the Chief
    Counsel's and Commission's findings could be relevant to the outcome of
    other proceedings. It is therefore understandable that they would
    advocate factual positions that would, if accepted, minimize their
    potential liability.
     Question: Did any controversial findings require corroboration?
        Response: The Commission does not view its findings as
    controversial or in any manner as unsupported. The Commission's
    exhaustive investigation identified precisely the mistakes made that
    caused the well blowout and rig explosion. Both the Commission's final
    report and the Chief Counsel's report to the Commission provide
    detailed corroboration for each of the Commission's findings and
    conclusions regarding the causes of the blowout and explosion. The
    Commission's final report provides that description and corroboration
    in a more summary fashion as part of the Commission's overall report,
    and the Chief Counsel's report to the Commission sets it forth in
    greater detail, in over 350 pages of text, figures, and footnotes. That
    accounting properly identifies areas where there is unavoidable
    uncertainty. Any remaining uncertainty, however, has no bearing on the
    strength of the Commission's ultimate recommendations for changes in
    government and industry practices, which are more than amply supported
    by what the Commission concluded with certainty.
     Question: What record of proof was considered sufficient to support a
            particular finding?
        Response: The Commission did not assume the role of a judge or
    jury, applying a strict legal standard of proof, such as the
    ``preponderance of evidence test'' applied in civil liability lawsuits
    or the ``beyond reasonable doubt'' standard applied in criminal
    prosecutions. The President's Executive Order to the Commission
    expressly instructed the Commission not to apply formal legal standards
    that might intrude upon potential civil litigation or criminal
    prosecution. For that reason, the Commission instead applied a standard
    of reasonable certainty, meaning whether the evidence allowed the
    Commission to conclude with reasonable certainty what had happened and
    whether the action taken was either an engineering mistake or failure
    in management.
     Question: How did Commission staff resolve conflicts between witness
            accounts?
        Response: As a practical matter, by the time the Commission staff
    had completed its investigation, there were very few witness accounts
    of facts that differed in ways that affected the Commission's ultimate
    findings and conclusions regarding the causes of the well blowout. The
    Commission's investigation instead found striking common ground
    regarding the basic facts and the Commission consulted its own Chief
    Scientist and a team of expert engineers and scientists, many of whom
    work with industry, to evaluate those facts in identifying the mistakes
    made by the three companies.
        When the Chief Counsel discovered an important factual or
    analytical dispute that was central to the Commission's investigation,
    he took the steps to resolve the dispute. For instance, after BP called
    into question the stability of the Halliburton cement slurry, and
    Halliburton refuted those claims, the Chief Counsel obtained from
    Halliburton the cement recipe used at Macondo as well as materials for
    testing the recipe. The Chief Counsel then obtained the services of
    Chevron, one of the world's leading experts on cement, to test the
    stability of that formula. Those tests revealed that Halliburton's
    cement, based on that formula, was in fact unstable. This was a major
    fact finding achieved by the Commission.
        Finally, to the extent that the Commission concluded that the facts
    were uncertain, the Commission expressly acknowledged that uncertainty
    and explained to what extent, if any, that uncertainty affected the
    Commission's finding and conclusions. Such candor was consistent with
    the Commission's charge: to provide the American people with a full and
    comprehensive accounting of the blowout. Such an accounting invariably
    includes acknowledgement of remaining uncertainties.
     Question: What standards did the staff apply to determine whether a
            particular statement was credible or not? For example, was
            hearsay considered reliable?
        Response: The Commission staff considered the full context of any
    statement in determining its reliability, including but not limited to
    the credibility of the person making the statement, his or her relative
    expertise, and corroborating documentary evidence. As a general matter,
    the Commission sought to rely primarily on statements of facts offered
    by those with firsthand knowledge of factual assertions being made.
    And, for that same reason, hearsay as a general matter was discounted.
    In some instances, however, the Commission staff had no choice but to
    rely on hearsay, for example, to investigate the statements and actions
    of several men who died on the rig. In such circumstances, hearsay is
    the only available evidence. When such hearsay was the basis of the
    Commission's findings, the Commission sought, as fact finders
    traditionally do in such circumstances, corroboration of those
    statements by more than one source. In addition, the Commission always
    made clear in its report the full basis of its factual finding so
    others could weigh it accordingly.
        As described in response to an earlier question, however, as a
    practical matter, factual disputes were not a major problem for the
    Commission staff investigation. The Commission's factual investigation
    resulted in a factual accounting regarding the drilling of the Macondo
    well and the response and containment efforts about which there is very
    little meaningful dispute about what happened.
        On occasion, there were disputes regarding the engineering or
    scientific significance of certain facts and data. In some instances,
    representatives of the companies principally involved disputed the
    importance of certain data or undisputed facts. In cases of analytic
    disputes, the Chief Counsel's staff consulted an extensive array of
    industry and academic experts before reaching conclusions, and noted in
    the Chief Counsel's report any meaningful differences between our
    findings and those of others.
     Question: How did the staff conduct its deliberations?
        Response: There were no formal deliberations by staff. Staff met
    frequently and informally to discuss facts, analyses, and written work
    products. In addition, they prepared draft written work products, which
    were reviewed by staff team leaders and ultimately by the Executive
    Director and/or Chief Counsel prior to submission to all the
    Commissioners. The Commissioners, by contrast, did deliberate and, as
    required by the Federal Advisory Committee Act, Commissioner
    deliberations took place in public.
     Question: Who was present?
        Response: There were no formal meetings in which staff deliberated.
    Of course, there were informal conversations between staff on a
    consistent basis over the course of their research and investigation.
     Question: Were they confidential?
        Response: There were no staff deliberations. Internal staff
    discussions that occurred regularly on an informal basis during staff
    research and investigation were not open to the public. As discussed
    above, staff frequently invited technical experts from the companies
    involved in the blowout to discuss and explain facts and data.
     Question: If they were not confidential, will you make the
            deliberations public?
        Response: Because there were no formal staff deliberations, there
    is no information to be made public. There are no minutes or written
    account of the myriad informal conversations that staff had with each
    other during staff research and investigation. The work product that
    resulted from staff research and investigation were draft staff working
    papers, draft staff findings and recommendations, and draft staff
    chapters, all of which were submitted to the Commissioners. Draft staff
    working papers submitted to Commissioners were published on the
    Commission website. Draft staff findings and recommendations were
    presented to the Commissioners at a hearing open to the public at a
    December deliberative meeting. And, finally both the Commission's final
    report, which was based on the Commission's written work and the final
    staff working papers have all been released to the public, as has the
    Chief Counsel's Report to the Commission.
     Question: Some individuals have raised concerns about the
            investigative techniques practiced by the staff working on the
            Commission's report. In order to better understand the reasons
            behind the investigative techniques employed by the staff,
            please answer the following questions:
     Why did the staff conduct ``group interviews,'' that is, interview
            more than one person at a time, thus allowing the perspective
            of one person to influence that of another?
        Response: The Commission staff conducted interviews both on an
    individual basis and on a group basis. Both types of interviews can be
    effective in fact finding. At the November hearing, the Chief Counsel
    engaged in some group interviews because that was an effective means of
    resolving and highlighting for the Commissioners and the American
    public significant differences in viewpoints expressed by witnesses.
    Staff also conducted several group interviews with teams of technical
    experts (as opposed to fact witnesses) to facilitate a robust
    discussion of technical issues.
     Question: Why did the staff announce preliminary findings publicly,
            thus allowing witnesses and subjects of the investigation to
            adjust their rendition of events prior to the final findings
            being published?
        Response: The purpose of announcing preliminary findings when the
    Commission staff did so was to ensure the accuracy of the staff's final
    proposed findings for submission to the Commissioners. Such a procedure
    allowed, and the Commission staff encouraged, anyone with information
    relevant to the preliminary findings to submit that information prior
    to the issuance of any final staff proposed findings. Like any fact
    finder, the staff can discount the persuasiveness as appropriate of
    efforts by witnesses and subject to investigation to adjust their
    rendition of facts in light of those preliminary staff findings.
     Question: Why did the Chief Counsel paraphrase and summarize testimony
            during the Commission's public hearings instead of quoting
            witness statements as a means of ensuring an accurate record?
        Response: The transcript of the hearing already provided a verbatim
    record of what witnesses said. The purpose of the Chief Counsel's
    paraphrasing and summarizing was to provide the full Commission with
    the benefit of the Chief Counsel's considered judgment concerning what
    had been learned from the two days of testimony the Commissioners had
    heard. The Commission has publicly posted all transcripts of witness
    testimony on its website for public review.
     Question: The Commission's recommendations state that pollution
            prevention standards should be developed in consultation with
            international regulatory peers. Are you familiar with the joint
            work of the International Oil Spill Conference? Is that an
            adequate international working group?
        Response: The Commission is aware of the International Oil Spill
    Conference and Commission staff had occasion in their research to
    review some of the papers and abstracts presented at every
    International Oil Spill Conference from 1969 to 2008. The Commission
    has taken no view on whether that particular organization would be
    sufficient for the development of the necessary standards.
     Question: The Commission has made it clear that all of industry has
            the same ``safety culture'' that was practiced on board the
            Deepwater Horizon and that the failure of the ``safety
            culture'' as evidenced by the explosion and subsequent oil
            spill are systemic and overarching.
     How many drilling contractors operate in the Gulf and what percentage
            of those operators did the Commission interview and which of
            these operators safety records and cultures did the Commission
            analyze?
        Response: The question is based on an incorrect premise. The
    Commission made no such statement regarding the safety culture of the
    offshore oil and gas industry. The Commission's final report instead
    makes clear that many companies have exemplary safety records. And the
    Commission further expressly praised those companies not only in the
    Commission's final report but in public hearings held this past
    November.
        The basis for the Commission's conclusion that the offshore
    drilling industry suffered from a ``systemic'' problem was very
    different, as the Commission's report makes clear. That conclusion was
    based on the nature of the mistakes that the Commission found were the
    cause of the Macondo well blowout and rig explosion as well as the
    identity of those making the mistakes. The Commission did not discover
    one or two isolated mistakes but a pattern of repeated mistakes in well
    drilling operations that revealed a fundamental failure of risk
    management and safe drilling practices. In addition, those making the
    mistakes were not just three insignificant companies. They included the
    largest operator of deepwater drills in the Gulf (BP); the largest
    supplier of cement for all deepwater wells, not just to BP but to all
    operations in the Gulf (Halliburton); and the largest operator of
    deepwater drilling rigs in the Gulf that services not just BP but all
    major operators (Transocean). In addition, the Commission staff
    investigation revealed that BP was not the only company that had failed
    to plan for a possible deepwater well blowout;BP did not maintain
    resources adequate to contain and respond to such a blowout, as
    promised by the oil spill response plans BP had submitted to the
    government. None of the other oil companies was prepared for such a
    blowout, notwithstanding their formal and repeated claims to the
    government that they were prepared. Indeed, all of their oil spill
    response plans were riddled with inaccuracies and false promises. It
    was on this firm basis that the Commission concluded that the offshore
    industry as a whole suffered from a culture of complacency that had
    assumed away, rather than effectively planned for a possible deepwater
    well blowout.
     Question: The report includes a ``loss of well control graph'' showing
            79 accidents in the Gulf of Mexico between 1996 and 2009.
     How many wells were drilled during that time period?
        Response: According to the Bureau of Ocean Energy Management,
    Regulation and Enforcement, operators drilled 13, 359 wells in the Gulf
    between January 1, 1996 and December 31, 2009.
     Question: What does the Commission believe constitutes a safe
            industrial record?
        Response: A loss of well control does not, by itself, indicate that
    an operator was engaging in unsafe drilling practices. Some risk is
    inevitable in offshore drilling, especially in deep water. The purpose
    of the chart in the report describing the 79 incidents of loss of well
    control is not to suggest that each of those incidents demonstrates
    unsafe drilling practices. It is instead simply to document the
    inherent risks of offshore drilling and the reason why it is so
    essential that industry always be on guard to ensure that such
    incidents do not result in the kind of major disaster that occurred
    with the Macondo well blowout.
     Question: Does the Commission believe it is possible to eliminate
            human error from the disaster equation?
        Response: No, it does not. Safe drilling practices, however,
    require anticipating the potential for such human error and building in
    safeguards both to minimize its occurrence and its consequences. The
    human error that caused the Macondo well blowout was entirely
    preventable and was not the result of unavoidable human error.
     Question: Since taking office one of Secretary Salazar's primary
            efforts has been to ensure that oil and gas companies ``use or
            lose'' their leases. This effort has included changes in rental
            payments, reducing the length of leases, and greater regulatory
            attention to the speed of the development of leases. You have
            highlighted in your report that many of the steps taken by BP
            in the development of this well were done to save time.
     Considering the Department's pressure to speed development, does the
            Commission believe that BP felt obligated to use these time
            saving measures to meet the Department's demands?
        Response: The Commission has insufficient information upon which to
    form a belief concerning BP's motivations for saving time and whether
    they might have been related to Department of the Interior policies.
     Question: Does the Commission believe that we should consider
            extending the length of leases to allow companies and
            regulators additional time to conduct environmental and safety
            studies?
        Response: The Commission did not consider that issue and neither a
    decision to extend or a decision not to extend the length of leases
    would, accordingly, be inconsistent with the Commission's
    recommendations.
     Question: UCSD Economics Professor James Hamilton has written that
            ``nine out of ten of the U.S. recessions since World War II
            were preceded by a spike up in oil prices.'' In fact, he has
            recently written that it was high oil prices that caused a
            significant decline in personal spending and new car purchases
            that contributed to our current recession.
     Did the Commission look at the impact of reduced domestic oil and gas
            production on gasoline prices, the GDP, or the Nation's balance
            of trade?
     If high gasoline prices and oil price spikes are known to do
            significant harm to the U.S. economy, should the U.S. ensure
            that adequate domestic production is available to prevent
            significant price spikes and declines?
     Did the Commission conduct an analysis on the economic impacts of
            higher gasoline prices and declining domestic production on the
            lower income brackets of the U.S. population?
        Response: The Commission did not undertake a detailed analysis of
    the relationship of the nation's economy to oil and gas prices because
    such an inquiry was outside the Commission's charge, as described by
    the President's Executive Order creating the Commission. Consistent
    with that Executive Order, the Commission identified the root causes of
    the oil spill and made recommendations concerning how to prevent future
    spills and mitigate their consequences.
     Question: Did the Commission at any time receive direction on policies
            to consider or recommendations that should be made from:
            a.  Ms. Carol Browner, Special Assistant to the President?
            b.  Mr. Steve Black, Counselor to the Secretary of the
            Department of the Interior?
            c.  The Honorable Ken Salazar, Secretary of the Department of
            the Interior?
            d.  Mr. Michael Bromwich, Director, Bureau of Ocean Energy
            Management
            e.  The Honorable Steven Chu, Secretary Department of Energy?
            f.  Would the Commission please provide any directions or
            instructions from these individuals that were provided to the
            Commission to the Committee? (These requests include emails,
            letters, phone logs, and other communications)
        Response: The only direction or instruction that the Commission
    received from anyone outside the Commission itself concerning the
    proper scope of the policies and recommendations for the Commission's
    consideration was contained in the President's Executive Order
    establishing the Commission. That Executive Order defined the scope,
    purpose, structure, and timetable for the Commission's work. The
    Commission neither received nor entertained any other instructions or
    directions concerning what the Commission should consider or recommend.
    No one, including any of the listed individuals, purported to direct or
    instruct the Commission on policies or recommendations or otherwise to
    exercise supervisory or managerial authority over the substantive
    nature of the Commission's work. Any such assertion, moreover, of
    supervisory or managerial authority would have been antithetical to the
    independence of the Commission's investigation and recommendations and
    for that reason rejected by the Commission. Because the Commission
    received no ``instructions'' or ``directions'' of this kind, the
    Commission has no related documents to provide.
    Congressman and Ranking Member Edward J. Markey (MA-D)--Questions
     Question: During the hearing, it was asserted that the Commission
            should not have issued its final report until it knew
            definitively why the blowout preventer (BOP) failed to function
            as it should have. How can you say you did a thorough review of
            the accident and determined the causes if you weren't able to
            inspect the BOP?
        Response: The Commission could do so for the straightforward
    reason, explained in the Commission's Final Report and further
    elaborated upon in the Chief Counsel's Report to the Commission, that
    even if the blowout preventer did fail, that failure did not cause the
    explosion that killed 11 men on April 20th. As the Commission report
    and Chief Counsel's Report explain, the rig crew realized too late what
    was happening and thus activated the BOP too late to have prevented an
    explosion. By the time the crew tried to activate the BOP, gas had
    already flowed above the BOP and was rocketing up the riser. That gas
    is what ignited on April 20th.
        By contrast, as the Commission report and Chief Counsel' Report
    further explain, if the crew had heeded warning signs earlier in the
    day, they could easily have prevented the explosion from happening.
    These included misinterpreting the negative pressure test used to check
    the integrity of the cement job. In the hour or so before the
    explosion, there were several other odd and unexpected pressure
    readings that the crew should have realized were signs of a problem,
    but unfortunately did not. If they had properly recognized these signs,
    they could easily have closed in the well.
        To be sure, any blowout preventer failure may potentially have
    played a part in the severity of the oil spill, but the disaster as a
    whole was due to a rather staggering series of errors by the three
    companies, all of which our investigation has documented. These errors
    can be addressed through better regulation, better training for
    workers, and a strong commitment to safety by both the companies and
    the regulators. Examples of key mistakes by BP, Halliburton, and
    Transocean as identified by the Commission's investigation include:
              Failure to get a good cement job
              Failure to understand that the negative pressure test
            indicated that the cement was instable
              Problems with BP's temporary abandonment procedures,
            in particular, its decision to displace mud from the riser
            before setting additional barriers to back up the cement at the
            bottom of the well. This left the faulty cement at the bottom
            of the well as the only physical barrier that could prevent the
            flow of hydrocarbons into the well
              Failure to understand that a kick was occurring, even
            though there were several odd and unexpected pressure readings
            in the hour or so leading up to the explosion that the crew
            should have realized signaled a problem
              Failure to respond appropriately once mud and gas
            began spewing onto the rig floor. The crew should have diverted
            the gas overboard instead of diverting it through the mud-gas
            separator. While it is not entirely clear this would have
            prevented the explosion, it could have at least limited its
            impact.
        For these reasons, the blowout preventer analysis, while important,
    will not change the Commission's conclusions that a failure of
    management led to numerous risky and unnecessary decisions made by the
    companies involved, each of which led to the occurrence of the blowout.
    The blowout preventer can, like a seatbelt, reduce the amount of harm
    that is caused, but in the circumstances of the Macondo well, even a
    properly functioning blowout preventer was not a root cause of the
    accident and its immediate tragic consequences for those on the rig on
    the night of April 20th. The BOP's relationship to an oil or gas well
    is the same as the relationship of an airbag to a car--it is not
    intended as a means to prevent an accident, but to mitigate its
    effects.
     Question: Can you briefly list all the errors or other problems
            encountered in the weeks, days and hours leading up to the
            blowout at the Deepwater Horizon well that caused the accident
            to occur in the first place?
        Response: A brief and necessarily under inclusive list of errors
    and other problems follows. Chapter 4 of the Commission's overall
    report provides a summary of the engineering, process, and management
    decisions that led to the blowout. The Chief Counsel's report explains
    these mistakes and others in greater detail.
            1.  BP and the rig crew experienced difficulties drilling the
            well. When combined with earlier design decisions, these
            problems required them to plan a ``finesse'' cement job.
            2.  The cement slurry that BP and Halliburton used was very
            likely unstable.
            3.  BP and Halliburton did not adequately test the cement or
            review test results prior to pumping the cement.
            4.  BP's temporary abandonment procedures called for the crew
            to unnecessarily underbalance the well and stress the cement
            without first installing additional static barriers.
            5.  BP provided inadequately detailed procedures to the crew
            for temporary abandonment and negative testing, and provided
            them late, causing confusion.
            6.  BP's well site leaders, in consultation with the Transocean
            rig crew, misinterpreted data from the negative pressure test.
            7.  The rig crew and mudloggers missed several signs of the
            ``kick'' that became the blowout in the last hour before the
            blowout occurred.
            8.  Once the blowout began, the rig crew did not immediately
            divert mud flow overboard and instead attempted to route flow
            through the mud-gas separator.
     Question: Can you also describe any delays, errors or other problems
            associated with efforts to activate the BOP once it became
            clear that this was necessary (please only describe any
            problems that are separate and apart from BOP malfunctions)?
            Could any of these have impacted the likelihood of using the
            BOP to stop the explosion(s) on the Deepwater Horizon even if
            it had properly functioned?
        Response: The Chief Counsel concluded that the crew first activated
    an annular preventer in the BOP at best only moments before drilling
    mud erupted onto the rig floor. By this time, gaseous and liquid
    hydrocarbons had already passed the BOP rams and were in the riser.
    Once those materials were in the riser, there was nothing the crew
    could have done to prevent them from flowing to the surface. As gaseous
    hydrocarbons flowed up through the mile of riser pipe, they expanded,
    further increasing the speed and force of the blowout as they rose.
    Accordingly, the Chief Counsel concluded that even if the BOP had
    functioned flawlessly, the explosion would have occurred and eleven men
    would have died. Put another way, the main problem associated with
    activating the BOP was timeliness--the rig crew recognized signs of a
    kick too late to use the BOP to prevent a blowout and an explosion.
     Question: The Commission report concluded that safety problems in the
            oil and gas drilling sector are ``systemic'' in nature and not
            just associated with one company or group of companies.
     Could you please provide me with some specific justifications for this
            conclusion?
        Response: The Commissioner's conclusion concerning the systemic
    nature of the problem was based on the nature of the mistakes that the
    Commission found were the cause of the Macondo well blowout and rig
    explosion as well as the identity of those making the mistakes. The
    Commission did not discover one or two isolated mistakes but a pattern
    of repeated mistakes in well drilling operations that revealed a
    fundamental failure of risk management and safe drilling practices.
    They included the largest operator of deepwater drills in the Gulf
    (BP); the largest supplier of cement for all deepwater wells, not just
    to BP but to all operations in the Gulf (Halliburton); and the largest
    operator of deepwater drilling rigs in the Gulf that services not just
    BP but all major operators (Transocean). In addition, the Commission
    staff investigation revealed that BP was not the only company that had
    failed to plan for a possible deepwater well blowout. BP did not
    maintain resources adequate to contain and respond to such a blowout,
    as promised by the oil spill response plans BP had submitted to the
    government. None of the other oil companies was prepared for such a
    blowout, notwithstanding their formal and repeated claims to the
    government that they were prepared. Indeed, all of their oil spill
    response plans were riddled with inaccuracies and false promises. It
    was on this firm basis that the Commission concluded that the offshore
    industry as a whole suffered from a culture of complacency that had
    assumed away, rather than effectively planned for a possible deepwater
    well blowout. Finally, the Commission concluded that the nature of the
    problem was of such a nature that a ``systemic'' solution was needed to
    ensure achievement by industry of safety in offshore drilling
    operations.
     Question: Did your meetings with foreign regulators or other entities
            that are familiar with safety or safety culture in other
            countries highlight differences between the safety of offshore
            drilling operations in the United States compared with other
            countries? If so, can you describe the key elements of what you
            were told that informed your views?
        Response: Two key factors in particular influenced the Commission's
    views. The first was that the same operators that were drilling in U.S.
    waters were operating more safely in their drilling operations offshore
    of other nations. They were successfully complying with pro-active risk
    management approaches in other nations. The costs were not exorbitant
    and better safety was apparently being achieved elsewhere. Second, the
    Commission learned that other nations had prescriptive technical
    standards for drilling safety not reflected in U.S standards. The
    Commission saw no excuse for U.S. standards not to be at least as
    demanding as what other nations applied and what the same companies
    were already doing in those other nations to achieve regulatory
    compliance.
     Question: In arguing against the need for reform, the oil and gas
            industry and some Members of the Committee have asserted that
            the BP Deepwater Horizon disaster was an outlier and point to
            the long history of drilling offshore in the Gulf of Mexico.
     Does the industry's record of drilling tens of thousands of wells
            offshore in the Gulf of Mexico mean that this was an isolated
            incident? Why or why not?
        Response: The offshore drilling industry certainly deserves praise
    for the lack of any major well blowout in the Gulf of Mexico in U.S
    waters during the past several decades of exploration and production
    there. As the Macondo well blowout demonstrates, however, one cannot
    rely on a past record of safety when, as has occurred offshore in
    recent years, the industry is moving to wells located in ever deeper
    waters where the potential for recovery of increased volumes of oil and
    gas is accompanied by significant increases in associated risk.
     Question: What differences exist between drilling or responding to a
            blowout in shallow water verses in ultra-deep water where the
            Deepwater Horizon was operating? Please detail any added
            technical challenges and difficulties presented by deepwater
            drilling.
        Response: Added water depth itself creates complications and risk
    because of the lower temperatures and higher pressures exerted on
    wellhead equipment and BOPs at those greater depths. For example:
              In deeper water, rigs need to be larger with greater
            lifting capacity to manage heavy tubular (casing, riser, drill
            pipe).
              Deeper water requires a longer riser pipe, which
            makes it more difficult to manage mud pressures and also makes
            it more dangerous when gas enters the riser.
              Hydrates are also a more common problem in deepwater
            due to the seabed pressure-temperature relationships. This
            poses challenges in development and production, but also in
            well control.
              Deepwater oil and gas reservoirs can have
            exceptionally high porosity and permeability. These
            characteristics promote productivity but also make well control
            more difficult and means that ``kicks'' (influx of oil and gas
            into the well bore) can be significant
              In deepwater, the margins between pore pressure and
            fracture gradient are typically less than in shallow water.
            This leads to greater risks of taking a ``kick'' not just
            during drilling, but also during topping (pulling out of the
            hole).
              Because the water is so deep, gas expansion of any
            kick is mostly in the riser and therefore above the BOP. This
            means that drillers must be attuned to subtle signs of an
            influx and shut in the well before hydrocarbons enter the
            riser. In shallow water, the expansion is mostly below the BOP.
              Added water depth also increases the complexity of
            efforts to stop a blowout that is already in progress. For
            instance, BOP stacks are often on the surface in shallow wells,
            which means that repairs can be done above water. By contrast,
            BOPs in deep water wells can be a mile or more below the
            surface, meaning that all work must be done by Remote Operated
            Vehicles (ROVs). On the other hand, rigs and equipment can
            station themselves directly over a deepwater blowout, which has
            operational advantages, and cannot as readily do so in shallow
            waters because of the presence of hydrocarbons at the surface.
              Deepwater wells tend to contain significantly larger
            volumes of oil and gas and consequently can be more productive,
            which also means that spills resulting from deepwater blowouts
            may potentially be larger. Good shallow wells produce at rates
            of a few thousand barrels of oil a day. By contrast, deepwater
            wells commonly produce more than 10,000 barrels per day.
        For much of the nation's history offshore drilling occurred
    exclusively in shallower waters, where the risks were generally lower.
    During the last two decades, however, offshore drilling has
    increasingly occurred in ever-deeper water, beginning with ``deep
    waters'' (approximately 1,000-5000 feet) and now even ``ultra-deep
    waters'' (more than 5,000 feet), where the amount of oil and gas can be
    greater still. The Deepwater Horizon was operating at depths of
    approximately 4,992 feet of water.
        Chapter 2 of the Chief Counsel's report addresses these issues in
    greater detail.
     Question: On January 26th, I, along with several other House Members,
            introduced legislation, H.R. 501, to implement the
            recommendations of the National Commission on the BP Deepwater
            Horizon Oil Spill and Offshore Drilling. The legislation we
            introduced contains provisions designed to be consistent with
            the recommendations of the Commission. For each of the
            following provisions, please describe whether the legislation
            appears to be generally consistent with the recommendations the
            Commission has made to improve the safety of offshore drilling:
            a.  Our legislation would reorganize the regulatory structure
            of the Department of the Interior to separate the offshore
            leasing, revenue collection, and environmental and safety
            review and enforcement functions. The legislation would also
            make the head of the safety agency a fixed-term appointee.
            b.  The legislation would create a dedicated funding stream
            from oil and gas fees to fund the agencies responsible for
            regulating and overseeing the industry.
            c.  The legislation would require the federal government to use
            sound science to properly estimate the potential worst-case
            spill scenarios and then requires industry's oil spill response
            plans to incorporate those worst-case scenarios into a
            realistic analysis of what could happen in the event of a
            catastrophic blowout.
            d.  The legislation would establish a permanent scientific
            group to ensure that the government develops and maintains the
            extensive expertise needed to estimate the flow rate of oil
            from a spill.
            e.  The legislation would dedicate 80 percent of the Clean
            Water Act fines and penalties to Gulf Coast restoration.
            f.  The legislation would ensure that the National Oceanic and
            Atmospheric Administration (NOAA) has a formal consultative
            role in the decision making process for where and how new
            drilling can occur so that the best possible science can be
            incorporated into the decision-making process. The Department
            of the Interior would have to respond in writing if it chose
            not to accept NOAA's recommendations.
            g.  The legislation would create a dedicated funding stream
            from oil and gas fees to fund oil spill response research and
            development.
            h.  The legislation would increase the per incident payout from
            the oil spill liability trust fund.
            i.  The legislation would require strong new standards for
            blowout preventers, cementing and well-design.
            j.  The legislation would require extensive study on the
            potential effects of dispersants on the marine environment.
            k.  The legislation would protect whistleblowers from being
            retaliated against for reporting violations of oil and gas
            drilling safety laws and regulations.
        Response: All of the above legislative proposals, if enacted, would
    be consistent with the Commission's final report and recommendations.
     Question: One of the Commission's findings is that federal oil and gas
            regulators have historically been underfunded and the
            Commission recommends creating a dedicated funding stream from
            increased oil and gas fees to fund the agencies responsible for
            overseeing and regulating the industry.
     However, some have indicated a desire to reduce federal non-security
            spending levels across the board. In your opinion, would
            reducing rather than increasing funding for federal oil and gas
            regulators help or hurt our ability to ensure that offshore oil
            and gas drilling operations are safe?
        Response: The Commission believes that increasing funding for oil
    and gas regulators is essential to ensuring drilling safety and is
    necessary to get the oil and gas industry fully back in operation in
    the Gulf as expeditiously as possible.
     Question: The Commission's recommendations note that historically most
            applications of the Natural Resource Damage Assessment process
            have focused on coastal restoration, as opposed to restoration
            in water column or on the sea floor. Would focusing primarily
            on coastal restoration be appropriate in this case? What
            suggestions do you offer for how to address the damage
            offshore, which the Commission notes is ``unprecedented and
            unknown''?
        Response: The Commission recommends that restoration not be limited
    to coastal restoration but also encompass the full marine environment
    damaged by the Gulf spill, including the water column. To address this
    need, the Commission recommends, among other things, longer term study
    of those non-coastal adverse impacts and broader efforts at
    implementing the Gulf Hypoxia Action Plan, utilizing marine spatial
    planning, and providing for marine protected areas to conserve marine
    biodiversity and to enhance the resilience of fish stocks.
     Question: What are some of the challenges that would be associated
            with responding to an oil spill offshore in the Arctic,
            especially at certain times of the year when sea ice is
            present? Would effectively responding to a spill in the Arctic
            present greater challenges than responding to a spill in the
            Gulf of Mexico?
        Response: As described in Chapter 10 of the Commission's final
    report, three of the greatest challenges presented by the Arctic in
    particular include: (1) the current lack of significant Coast Guard
    resources in the Arctic or readily deployable there; (2) the presence
    of ice during significant parts of the year, which would complicate
    significantly and potentially delay effective containment and oil spill
    response efforts; and (3) the absence of daylight during significant
    parts of the year, which would hinder both containment and oil spill
    response efforts. In at those three respects, the challenges would be
    greater in the Arctic than in the Gulf. As described in Chapter 10, in
    some respects there are fewer challenges. For instance, many of the
    areas now under consideration for exploration and production in the
    Arctic are located in shallow rather than deep or ultra deep waters as
    in the Gulf.
     Question: During the hearing, questions were raised regarding the
            expertise of the Commission members and its staff. Could you
            please describe a) the expertise and experience possessed by
            those responsible for conducting the Commission's technical
            work and writing those aspects of its report and b) the range
            of experts consulted by the Commission or its staff as it
            sought to develop its findings and recommendations?
        Response: The Commission established a team of staff to investigate
    the root causes of the Macondo well blowout with enormous technical and
    legal expertise. That team was led by the Commission's Chief Counsel,
    Fred Bartlit, and by the Commission's Chief Scientist, Richard Sears.
    Bartlit is not only one of the nation's most highly regarded trial
    lawyers, with deep professional roots with industry and a degree in
    civil engineering from West Point, but he led for industry the
    investigation of the Piper Alpha rig explosion in 1988, in which 167
    people died in the North Sea. Bartlit is widely credited by industry
    and government alike for the rigor and fairness of that investigation,
    which successfully identified the root causes of the explosion. Richard
    Sears is a petroleum engineer with over three decades of experience
    with the oil and gas industry, having recently retired from Shell Oil.
    Bartlit and Sears put together not only an in-house team within the
    Commission staff, but also worked closely with experts in the oil and
    gas industry itself, who were enormously cooperative in assisting the
    Commission's work. The Commission's investigative team consulted with
    industry and academic experts on virtually every aspect of deepwater
    well drilling and fully vetted the investigation's findings with those
    same experts. The best proof of the depth, scope, rigor, balance, and
    fairness of that staff work is the recently-released Chief Counsel
    Report to the Commission, which describes in exhaustive detail in 350
    pages the engineering and management mistakes made that caused the well
    blowout and rig explosion.
    Congressman Dale Kildee (MI-D)--Questions
     Question: Your comments today and the findings of your report
            highlight the vital importance of the Gulf Coast ecosystem. Can
            you briefly tell us, in terms of natural, economic, and other
            resources, why this area and its fragile ecology are so
            significant to the region and to the nation at large?
        Response: Chapter 6 of the Commission's final report best describes
    the significance of the Gulf to the Gulf economy and environment, as
    well as to the nation as a whole. In addition to the oil and gas
    industry, the Gulf hosts the nation's largest seafood industry as well
    as an enormously important and vital tourism and recreation industry.
    As witnessed last summer, both those critical economies were devastated
    by the spill and it is still unclear, almost eleven months later, the
    extent to which they will have recovered this coming summer. Those who
    live along the coast were especially hard struck, including many
    vulnerable communities, not only in their livelihoods but in terms of
    their mental and physical heath, by the spill. More than 650 miles of
    Gulf coastal habitats--salt marsh, mudflat, mangroves, and sand
    beaches--were oiled. Tidal mudflats are especially sensitive to oil
    pollution and the Louisiana delta and the estuarine bays of Mississippi
    and Alabama have large expanses of tidal mudflats, and support dense
    populations of species. Salt marsh and mangroves are likewise both
    highly productive and sensitive habitats highly vulnerable to oil
    pollution.
     Question: What would you say to the average American who sees the
            prices at the gas pump going up each week and may be reluctant
            for the government to apply additional regulations to gas and
            oil drilling companies?
        Response: None of the Commission's recommendations should have a
    significant impact on the price of gasoline. The primary factor in the
    price of gasoline is the price of crude oil, which is set by the global
    market. U.S. crude oil production currently accounts for roughly 10% of
    total global production, and it is unlikely that small changes in U.S.
    crude oil production could affect global prices. More importantly, our
    recommendations are aimed at moving us forward to allow for the full
    recovery of offshore operations in the Gulf. Improved drilling safety
    could impose some upfront costs on oil and gas companies, but these
    costs are small compared to the cost to industry of another major
    blowout.
     Question: Your report calls for the dedication of a significant
            portion of Clean Water Act penalties for restoration of the
            Gulf Coast's threatened ecosystem. Can you tell us more about
            the relationship between resiliency of the Gulf Coast ecosystem
            and your proposed use of these incident-specific spill-related
            funds?
        Response: The Gulf is presently especially vulnerable to oil spills
    because of the elimination of natural barriers, loss of land,
    destruction of wetlands, and high concentrations of nutrients otherwise
    threatening the viability of marine life within the Gulf. As a result
    of these accumulating threats to the Gulf ecosystem, the harm caused by
    a catastrophic oil spill can be much greater because, combined with
    existing harm, the Gulf may lack the strength needed for recovery. It
    is for this reason, that mitigation of the harm of future spills
    warrants not just eliminating the incremental harm caused by the
    Macondo well blowout, but building back the strength of the Gulf
    ecosystem so as to be able to withstand future spills.
     Question: Given that your report sites that ``since 2001, the Gulf of
            Mexico workforce--35,000 people, working on 90 big drilling
            rigs and 3,500 production platforms--has suffered 1,550
            injuries, 60 deaths, and 948 fires and explosions.'' Do you
            believe that the oil and gas industry is capable of regulating
            itself without additional government oversight?
        Response: We think that safe drilling operations will require both
    effective government and industry oversight. Neither can do it alone.
    That is why the Commission recommends the creation of an independent
    safety authority within the Department of the Interior. And that is why
    the Commission further recommends that industry establish its own
    independent, self-policing entity to oversee offshore drilling
    operations, akin to what the nuclear power industry did in 1979 in the
    immediate aftermath of the Three Mile Island Accident when industry
    established the Institute of Nuclear Power Operations.
     Question: Some experts have suggested that the Commission has drawn
            overly broad conclusions about the oil and gas industry's
            commitment to safety, based on the decisions on a single rig.
            How would you respond to this criticism?
        Response: The Commissioner's conclusion concerning the systemic
    nature of the problem was based on the nature of the mistakes that the
    Commission found were the cause of the Macondo well blowout and rig
    explosion and the identify of those making those mistakes. The
    Commission did not discover one or two isolated mistakes but a pattern
    of repeated mistakes in well drilling operations that revealed a
    fundamental failure of risk management and safe drilling practices. In
    addition, those making the mistakes were not just three insignificant
    companies. They included the largest operator of deepwater drills in
    the Gulf (BP); the largest supplier of cement for all deepwater wells,
    not just to BP but to all operations in the Gulf (Halliburton); and the
    largest operator of deepwater drilling rigs in the Gulf that services
    not just BP but all major operators (Transocean). In addition, the
    Commission staff investigation revealed that BP was not the only
    company that had failed to plan for a possible deepwater well blowout;
    BP did not maintain resources adequate to contain and respond to such a
    blowout, as promised by the oil spill response plans BP had submitted
    to the government. None of the other oil companies was prepared for
    such a blowout, notwithstanding their formal and repeated claims to the
    government that they were prepared. Indeed, all of their oil spill
    response plans were riddled with inaccuracies and false promises. It
    was on this firm basis that the Commission concluded that the offshore
    industry as a whole suffered from a culture of complacency that had
    assumed away, rather than effectively planned for a possible deepwater
    well blowout. Finally, the Commission concluded that the nature of the
    problem was of such a nature that a ``systemic'' solution was needed to
    ensure achievement by industry of safety in offshore drilling
    operations.
     Question: I appreciate the fiscal logic of your recommendation that
            Clean Water Act penalty dollars be returned to revive the
            natural and economic resources of the Gulf Coast's wetlands.
            Can you summarize for us the reasons why that kind of funding
            is needed here, and what you expect it to accomplish?
        Response: As described in Chapter 7 of the Commission's Final
    Report, many have studied the current problems affecting the Gulf's
    ecosystem and the central role it plays in the nation's economy and
    there is no lack of understanding concerning the kind of steps now
    needed to address those problems. The problem has not been lack of
    understanding but lack of sufficient resources to commit to the
    necessary measures. The estimated costs of such a restoration effort,
    however, roughly mirror estimates of the amount of monies potentially
    recoverable in Clean Water Act penalties from those private companies
    responsible for the Gulf oil spill. Those penalties, accordingly,
    provide an extraordinary opportunity for the Gulf and the nation to
    undertake restorative measures of enormous value to the Gulf, the
    nation, and current and future generations of Americans.
     Question: In last night's SOTU address, the President talked about the
            need for investments in critical infrastructure for America's
            long-term economic health. Would your proposal to invest Clean
            Water Act penalties in Gulf Coast restoration offer this kind
            of necessary economic security?
        Response: Yes, it would. The Gulf's ecosystem supports some of the
    nation's most important economies.
     Question: Recognizing the importance of the Gulf Coast ecosystem, many
            of us are hopeful that the Natural Resource Damages Assessment
            process will result in an aggressive response to some of the
            worst effects of the spill. How would your proposal for Clean
            Water penalties go beyond this NRDA response?
        Response: It would go beyond because the NRDA is more limited in
    its ability to extend beyond the immediate effects of the spill itself
    and address the longer term and broader need to restore the overall
    health of the Gulf's ecosystem, which has been threatened by many
    activities in recent decades, including the Gulf's ability to withstand
    future oil spills.
    Congresswoman Betty Sutton (OH-D)--Questions
    Question #1 (Questions on Culture of Worker Safety):
            1.  In your report you suggested that the oil and gas industry
            should work to establish a ``Safety Institute'' similar to
            organizations in other high risk industries like the nuclear
            industry. By your recommendation, this would be an industry
            sponsored entity aimed at improving safety and operation
            standards in the offshore drilling industry.
            2.  At the same time, you hint at the lack of a ``safety
            culture'' in this industry. You make some great
            recommendations, but there is a concern that industry will be
            slow to self-regulate and change long standing practices.
            3.  Have you found the industry receptive in any way to your
            suggestions for forming a safety group?
            4.  What obstacles exist to creating a culture of safety in the
            oil and gas industry?
            5.  What are some of the concerns you've encountered or what
            might be done to encourage the establishment of a safety
            culture?
        Response: The Commission has been encouraged in many private
    conversations with leading industry officials that they are receptive
    and ready to create such an industry self-policing entity and that many
    recognize its value and importance. The greatest obstacle right now,
    however, is that there still seem to be significant voices in industry
    that have not reached that conclusion and seem open instead to seeing
    if the current demands for safer drilling will naturally subside
    without industry taking significant steps to reform drilling practices.
    The Commission's related concern is that there appears to be a tendency
    within the oil and gas industry, promoted by the American Petroleum
    Institute, to be reflexively opposed to enhanced oversight measures and
    a willingness to defer to ``average'' business practices rather than to
    demand ``best'' drilling practices. It is not yet clear to the
    Commission that those industry leaders who made clear that they share
    the Commission's view of the existing problem and the need for industry
    reform will be successful in moving the industry as a whole.
    Question #2 (Conflicts within Agencies Dealing with Drilling):
            1.  In your report you hit on one of the major issues leading
            up to the oil spill, the conflicting mission of the Minerals
            Management Service. The report suggested the creation of an
            independent agency to oversee aspects of offshore drilling.
            2.  Secretary Salazar recently announced two new independent
            agencies to carry on functions once assigned to MMS, one agency
            to deal with leasing and one agency to deal with safety issues.
            3.  But even under these two new agencies the Bureau of Safety
            will still operate under the same assistant secretary who
            oversees leasing duties.
            4.  How do these agencies line up with your recommendations?
        Response: Much of what the Secretary is doing is fully consistent
    with the Commission's recommendations. The Commission does, however,
    believe that more is needed, including not having the two new agencies
    operating under the same Assistant Secretary. In addition, the
    Commission recommends a series of other steps to enhance the
    independence of a new safety authority within Interior, including
    having the head of that authority possess special engineering
    credentials and experience and be appointed to a fixed term.
            5.  What consequences do you foresee with the way Interior has
            moved forward in forming these new agencies?
        Response: The risk of not making the new agency as autonomous as
    the Commission recommends is that the new agency, especially after
    there is less political attention paid over time to the risks of well
    blowouts, will, as in the past, place greater weight on revenue
    collection to the detriment of ensuring safe drilling operations.
    Congressman Jeff Landry (LA-R)--Questions
     Question: Do you propose these recommendations from the report for
            both deep and shallow water drilling operations?
        Response: The Commission's recommendations are not limited to
    deepwater drilling. As a practical matter, however, the challenges and
    associated risks of drilling are greater for deep water than they are
    for shallower water, so the practical impact of the recommendations are
    commensurately great for operations in deep water.
     Question: Can you discuss what the economic impacts are on the nation
            as a whole in light of your recommendations in the report and
            the Obama Administration's response to permitting post-spill?
            Specifically, can you discuss what the International Energy
            Agency meant by it's anticipation of the U.S. needing an
            additional 300,000 barrels per day of imports by 2015 based on
            the ongoing permitorium and Interior Department actions?
     What about the U.S.'s own Energy Information Administration's
            announcement that production in the Gulf would be down 220,000
            barrels per day in 2011 and 400,000 barrels per day by 2012 due
            to the permitorium. Can you please discuss those numbers,
            including what they mean for the Gulf economy, the U.S.
            economy, and our national security?
        Response: The Commission is aware of the Energy Information
    Administration and International Energy Agency analyses of the adverse
    impact of the moratorium and permitting delays in the Gulf of Mexico on
    U.S oil production. Indeed, precisely because the Commission was aware
    of the significant associated costs of such delays on the nation's
    energy supply and the national economy, the Commission made a series of
    recommendations for the purpose of reducing permitting delays. Most
    important, the Commission concluded that a significant cause of current
    and potential future delays was a lack of sufficient funding for the
    government agency, the Bureau of Ocean Energy Management, Regulation
    and Enforcement (the successor to the Minerals Management Service).
    Absent the necessary resources, BOEMRE cannot process permit
    applications as expeditiously as possible while ensuring drilling
    safety and the impact on the nation's energy resources and economy may
    well be even worse than projected by these two forecasts.
        In particular, the Commission found that Congress had persistently
    and increasingly underfunded the Minerals Management Service to meet
    the challenges of the expanded activity in the Gulf. As offshore
    activity dramatically increased during the 1990s, the Minerals
    Management Service had increasingly-stretched budget resources
    available and its ability to maintain the capacity necessary for safety
    management and permitting suffered. The Commission, accordingly,
    identified the need for new hiring authority to compete with other
    employers for technical expertise as well as the budget certainty to
    enable the agency to make the hiring and training commitments necessary
    to accommodate the industry's permitting needs. Neither of these has
    yet been provided. Until Congress provides those resources, the absence
    of necessary government oversight will likely be the greatest source of
    continuing permit delays.
     Question: Other countries have determined that there was no need to
            shut down offshore production. In fact, African and South
            American countries are actively pursuing long-term contracts
            for rigs to move out of the Gulf. Including rigs from energy
            companies from the likes of Murphy Oil, BP, Anadarko and
            Statioil. How come the commission report did not discuss the
            loss of rigs in the Gulf and economic impacts long-term?
        Response: The Commission report did not discuss the loss of rigs
    and the economic impacts long term because the Commission concluded
    that deepwater drilling could be done safely and economically in the
    Gulf and sought to propose recommendations that would allow such
    drilling to occur in a safe and expedited manner. The Commission,
    accordingly, did not foresee a reason to assume that there would be a
    long term loss of rigs in the Gulf.
     Question: Due to a 2008 Bureau of Labor Statistics Report on Work
            Place injuries 89 percent of working Americans work in
            industries with higher injury rates than oil and gas
            extraction. So please explain why only commercial banking,
            insurance carriers and certified public accountants fare better
            and why child day-care services were twice as high as oil and
            gas extraction?
     This BLS report goes on to state that a total of 120 fatal work
            injuries occurred in the oil and gas extraction industry in
            2008. The three most frequent fatal events in 2008 were
            transportation incidents (41 percent), contact with objects and
            equipment (25 percent), and fires and explosions (15 percent).
            The number of fatal work injuries associated with fires and
            explosions over the past five years ranged from 10 fatalities
            in 2007 to 21 fatalities in 2006. In 2008, there were 18
            fatalities. Why would the extraction portion of the industry be
            labeled by the Commission ``a systematic breakdown of safety
            and engineering practices'' when in 2008 41% of fatal work
            injuries happened in the Transportation sector of the industry?
     Do you or don't you agree that without any further regulations the
            Offshore Oil and Gas industry is safer today then it was prior
            to the accident?
        Response: In the immediate aftermath of an accident, it is
    reasonable to assume that the offshore industry has on its own
    initiative taken some measures to enhance safety by learning from the
    specific mistakes made at the Macondo well and on the Deepwater Horizon
    rig. The Commission's recommendations, however, seek to promote safety
    far more by identifying the root causes, and thereby not just prevent a
    repetition of the precise, same mistakes, and to create an
    institutional structure for safety oversight within both government and
    industry that will endure over the longer term, long after memories of
    the BP Deepwater Horizon Gulf Spill begin inevitably to dim.
     Question: The President charged this commission to determine the
            causes of the disaster, to improve the country's ability to
            respond to spills, and recommend reforms that make offshore
            energy production safer. Prior to the accident, there existed
            multiple layers of environmental reviews, including multiple
            EIS and EA's. These included EIS's during the development of
            the 5 year review and again prior to the lease sale. Where does
            the Commission receive both the authority and the conclusion
            that the NEPA review warrants any additional changes, as I find
            no conclusion that it contributed to the accident or to the
            impact of the clean up?
        Response: Under the Executive Order that established the Oil Spill
    Commission, the President specifically tasked the Commission with
    suggesting improvements to Federal laws and regulations applicable to
    offshore drilling that would prevent future spills and mitigate their
    impact. Investigating the Department of the Interior and the Mineral
    Management Service's application of NEPA for offshore oil and gas
    development was an important part of this review because such NEPA
    review is designed to ensure, among other things, that agency decision-
    making considers potential adverse environmental consequences,
    including those resulting from oil spills conducted on federal
    properties and supervised by federal agencies.
    Congressman Jeff Denham (CA-R)--Questions
     Question: The report recommends that there needs to be the creation of
            a new government bureaucracy. How is it that the functions of
            this new agency can't be performed by the current massive [over
            sized] federal structure?
            1.  Why can't the need for planning, coordination, execution,
            and clean up after a disaster fall under the jurisdiction of
            the Federal Emergency Management Agency (FEMA)?
            2.  With better and more efficient government action couldn't
            the damages from an emergency be lessened?
            3.  Isn't it necessary to reduce the bureaucratic red tape that
            prevents an overseeing agency, such as FEMA, from being allowed
            to take the lead role and manage the necessary actions
            following an incident?
            4.  Wouldn't having one agency allowed to take the lead and
            coordinate eliminate the communication breakdown and resolve a
            need for an expansion of expensive and inefficient government?
        Response: The Commission does not recommend the creation of a new
    federal bureaucracy to plan, coordinate, or execute the response to an
    offshore oil spill. Rather, the Commission recommends maintaining the
    existing command structure, in which the Coast Guard takes the lead
    role in responding to an offshore spill of oil or other hazardous
    substances. The National Contingency Plan properly assigns this lead
    role to the Coast Guard because of its expertise in the offshore and
    marine environment. Reassigning that role to FEMA would ignore the
    Coast Guard's decades of experience in oil spill response and planning,
    and would require a significant and inefficient expansion of FEMA to
    duplicate functions and expertise that already exist within the federal
    government (indeed, within the same cabinet department).
        The Commission agrees that ``better and more efficient government
    action'' could lessen the damage caused by a major oil spill. As set
    forth in the Commission's report, the response to the Deepwater Horizon
    disaster revealed a series of deficiencies in government planning and
    execution. Accordingly, the Commission recommends a series of steps
    that the federal government could take, consistent with the existing
    command structure, to better address the demands created by a spill of
    national significance.