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



 
           OFFSHORE DRILLING SAFETY AND RESPONSE TECHNOLOGIES

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



                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON ENERGY AND

                              ENVIRONMENT

              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                        WEDNESDAY, APRIL 6, 2011

                               __________

                           Serial No. 112-12

                               __________

 Printed for the use of the Committee on Science, Space, and Technology


       Available via the World Wide Web: http://science.house.gov




                  U.S. GOVERNMENT PRINTING OFFICE
65-807                    WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001



              COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                    HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR.,         EDDIE BERNICE JOHNSON, Texas
    Wisconsin                        JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas                LYNN C. WOOLSEY, California
DANA ROHRABACHER, California         ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland         DAVID WU, Oregon
FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               DANIEL LIPINSKI, Illinois
W. TODD AKIN, Missouri               GABRIELLE GIFFORDS, Arizona
RANDY NEUGEBAUER, Texas              DONNA F. EDWARDS, Maryland
MICHAEL T. McCAUL, Texas             MARCIA L. FUDGE, Ohio
PAUL C. BROUN, Georgia               BEN R. LUJAN, New Mexico
SANDY ADAMS, Florida                 PAUL D. TONKO, New York
BENJAMIN QUAYLE, Arizona             JERRY McNERNEY, California
CHARLES J. ``CHUCK'' FLEISCHMANN,    JOHN P. SARBANES, Maryland
    Tennessee                        TERRI A. SEWELL, Alabama
E. SCOTT RIGELL, Virginia            FREDERICA S. WILSON, Florida
STEVEN M. PALAZZO, Mississippi       HANSEN CLARKE, Michigan
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
                                 ------                                

                 Subcommittee on Energy and Environment

                   HON. ANDY HARRIS, Maryland, Chair
DANA ROHRABACHER, California         BRAD MILLER, North Carolina
ROSCOE G. BARTLETT, Maryland         LYNN C. WOOLSEY, California
FRANK D. LUCAS, Oklahoma             BEN R. LUJAN, New Mexico
JUDY BIGGERT, Illinois               PAUL D. TONKO, New York
W. TODD AKIN, Missouri               ZOE LOFGREN, California
RANDY NEUGEBAUER, Texas              JERRY McNERNEY, California
PAUL C. BROUN, Georgia                   
CHARLES J. ``CHUCK'' FLEISCHMANN,        
    Tennessee                            
RALPH M. HALL, Texas                 EDDIE BERNICE JOHNSON, Texas


                            C O N T E N T S

                        Wednesday, April 6, 2011

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Andy Harris, Chairman, Subcommittee 
  on Energy and Environment, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................    10
    Written Statement............................................    11

Statement by Representative Brad Miller, Ranking Minority Member, 
  Subcommittee on Energy and Environment, Committee on Science, 
  Space, and Technology, U.S. House of Representatives...........    11
    Written Statement............................................    13


                               Witnesses:

Dr. Victor Der, Acting Assistant Secretary for Fossil Energy, 
  Department of Energy
    Oral Statement...............................................    15
    Written Statement............................................    17

Mr. David Miller, Director, Standards, American Petroleum 
  Institute
    Oral Statement...............................................    19
    Written Statement............................................    21

Mr. Owen Kratz, President and CEO, Helix Energy Solutions Group
    Oral Statement...............................................    23
    Written Statement............................................    25

Dr. Molly Macauley, Research Director and Senior Fellow, 
  Resources for the Future
    Oral Statement...............................................    27
    Written Statement............................................    29

Discussion.......................................................    35

             Appendix I: Additional Material for the Record

Prepared Statement by Representative Eddie Bernice Johnson, 
  Ranking Minority Member, Committee on Science, Space, and 
  Technology, U.S. House of Representatives......................   100


            OFFSHORE DRILLING SAFETY AND RESPONSE TECHNIQUES

                              ----------                              


                        WEDNESDAY, APRIL 6, 2011

                  House of Representatives,
                    Subcommittee on Energy and Environment,
               Committee on Science, Space, and Technology,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 2:47 p.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Andy 
Harris [Chairman of the Subcommittee] presiding.


                            hearing charter














    Chairman Harris. The Subcommittee on Energy and Environment 
will come to order. Good afternoon. Welcome to today's hearing 
entitled, ``Offshore Drilling Safety and Response 
Technologies.'' In front of you are packets containing the 
written testimony, biographies, and truth in testimony 
disclosures for today's witness panel.
    Before we get started, though, this being the first meeting 
of the Energy and Environment Subcommittee for the 112th 
Congress, I would like to ask the Subcommittee's indulgence to 
introduce myself, welcome back returning Members, and introduce 
any new Members on our side of the dais. Afterwards I will 
recognize Mr. Miller to do the same.
    It is an honor and pleasure for me to Chair the Energy and 
Environment Subcommittee for this Congress, and it is a 
position I don't take lightly. I want all Members of the 
Subcommittee to know that I will endeavor to serve all the 
Members fairly and impartially, and that I will work to serve 
the best interests of Congress and all Americans to ensure that 
the agencies and programs under our jurisdiction are worthy of 
the public support.
    Although they are not here now, I would like to formally 
welcome back our returning Members Rohrabacher, Bartlett, 
Lucas, Biggert, Akin, Neugebauer, and Broun, and I would also 
like to welcome, when he arrives, our newest member, Chuck 
Fleischmann of Tennessee.
    At this point I will recognize Mr. Miller for any--if you 
want to introduce or just mention your Members.
    Mr. Miller of North Carolina. I can do it in my opening 
statement.
    Chairman Harris. Okay. Thank you. I will recognize myself 
for five minutes for an opening statement.
    The title of today's hearing is, ``Offshore Drilling Safety 
and Response Technologies.'' The context under which we review 
the issue is framed by complex and interrelated environmental, 
economic, and even geopolitical policy concerns. Looming large, 
of course, is the Deep Water Horizon oil spill of which we are 
still assessing its root causes and environmental impacts even 
as we approach the one-year anniversary of the disaster.
    Meanwhile, American families are being hit hard at the gas 
pump due to multiple market factors; headlined, though, by 
tight supplies, rising global demand for oil, growing political 
instability in North Africa and the Middle East, and decreasing 
American production. The current national average price for a 
gallon of gas is over $3.60, the highest ever for this time of 
the year. This, of course, effectively amounts to a tax 
increase on our consumers and families and a drag on our 
economic recovery.
    Accordingly, I believe we must attack the energy problem 
from every angle we can and expanding domestic oil and natural 
gas supply and production absolutely must be part of this 
equation. Offshore drilling holds incredible promise to help 
deliver on this goal. The Federal Government currently 
estimates the U.S. Outer Continental Shelf holds 85 billion 
barrels of technically-recoverable oil at this point, over half 
of which is in the Gulf of Mexico and 400 trillion cubic feet 
of natural gas.
    We must pursue exploration and production of these valuable 
resources, but we all realize on both sides of the aisle that 
we must do it safely and be prepared with effective well 
containment and response if and when an accident should occur.
    To this end, through this hearing we aim to examine the 
status of safety-related drilling and response technologies and 
standards with an emphasis on progress made since last year's 
accident. We also want to hear how best we should structure and 
prioritize federal programs in these areas, particularly those 
of the Department of Energy but also interagency response 
efforts authorized by the Oil Pollution Act of 1990.
    Look. We all know it is impossible to completely and 
positively eliminate risks associated with complex endeavors 
such as deep water drilling, but we must continuously work to 
reduce risks and to manage them in a way that allows our 
economy and American consumers to benefit from our vast supply 
of domestic offshore oil and gas resources.
    I yield back the balance of my time and now recognize 
Ranking Member Miller for his opening statement.
    [The prepared statement of Mr. Harris follows:]
               Prepared Statement of Chairman Andy Harris
    The title of today's hearing is Offshore Drilling Safety and 
Response Technologies. The context under which we review this issue is 
framed by complex and interrelated environmental, economic, and even 
geopolitical policy concerns. Looming large of course is the Deepwater 
Horizon oil spill, of which we are still assessing its root causes and 
environmental impacts as we approach the one year anniversary of the 
disaster. Meanwhile, American families are being hit hard at the gas 
pump due to multiple market factors headlined by tight supplies, rising 
global demand for oil, growing political instability in North Africa 
and the Middle East, and decreasing American production.
    The current national average price for a gallon of gas is $3.60-the 
highest ever for this time of the year. This of course effectively 
amounts to a tax increase on consumers and a drag on our economic 
recovery. Accordingly, I believe we must attack the energy problem from 
every angle we can, and expanding domestic oil and natural gas supply 
and production absolutely must be part of this equation.
    Offshore drilling holds incredible promise to help deliver on this 
goal. The Federal government currently estimates the U.S. Outer 
Continental Shelf holds 85 billion barrels of technically recoverable 
oil (over half of which is in the Gulf of Mexico) and 420 trillion 
cubic feet of natural gas.
    We must pursue exploration and production of these valuable 
resources. But we all realize we must do it safely and be prepared with 
effective well containment and response if an accident does occur. To 
this end, through this hearing we aim to examine the status of safety-
related drilling and response technologies and standards, with an 
emphasis on progress made since last year's accident. We also want to 
hear how best to structure and prioritize Federal programs in these 
areas, particularly those at the Department of Energy but also 
interagency response efforts authorized by the Oil Pollution Act of 
1990.
    We all know it is impossible to completely eliminate risks 
associated with complex endeavors such as deepwater drilling, but we 
must continually work to reduce risks and to manage them in a way that 
allows our economy and American consumers to benefit from our vast 
supply of domestic offshore oil and gas resources.

    Mr. Miller of North Carolina. Thank you, Chairman Harris, 
and on this side we also have very conscientious Members, none 
of whom are here. We have seasoned Members as well as Members 
with expertise in the subject matter of the Subcommittee. In 
addition to me, Eddie Bernice Johnson, the Full Committee 
Ranking Member, we have Ms. Woolsey, Ms. Lofgren, and Mr. 
McNerney, all Californians with--and well-known champions of- a 
clean energy future. Mr. Lujan represents Los Alamos National 
Lab, and brings his expertise on federal research and 
technology development to this Subcommittee, and Mr. Tonko 
draws upon his experience as the CEO of the New York State 
Energy Research and Development Authority.
    Like you, Mr. Harris, we will take the jurisdiction of this 
Committee very seriously and will always look for ways to push 
our federal research agencies to be much more effective and 
efficient drivers of innovation and economic growth. Our job is 
to know the agency's capability, know what the public needs, 
and create a credible and strong record on government 
performance in meeting those needs. Where the agencies succeed, 
we will support them, and where they fall short, we will take 
corrective measures and ultimately we may support redirecting 
resources.
    Today, however, we are here to discuss the progress that 
industry has made in meeting the public's needs for safety and 
responsible oil and gas drilling. Just as we hold our agencies 
accountable, we must also hold industries accountable and 
expect them to acknowledge the tremendous risks, the tremendous 
danger inherent in the services they provide, and the work they 
do.
    Before the explosion that killed 11 men, sank the Deep 
Water Horizon drilling rig, and generated the ensuing oil spill 
that lasted for nearly three months, offshore drilling was not 
at the center of public attention. As is often the case with 
energy matters outside of the public policy world, the 
availability of oil was largely taken for granted, and the 
environmental risks were not widely known to the general 
public.
    All that changed on April 20 when we got a violent and 
lasting reminder of how dangerous our need for oil has become. 
As the world's largest oil consumer but with less than eight 
percent of technically recoverable global resources and far 
less than that of economically-recoverable global reserves, our 
reliance on oil has driven domestic production to ever-deeper 
waters in search of more productive fields.
    Chairman Hall has taught us over the years both as a 
Republican and as a Democrat that this is no small feat of 
engineering. Those companies have pushed the boundaries of 
technological innovation in finding and extracting oil under 
nearly impossible conditions.
    But by almost all accounts in the race to deeper waters, 
the industry's investment in advancing environmental safety has 
not kept up with those increasingly dangerous conditions. To 
anyone that disputes that I ask you to tell me how an explosion 
killed 11 men and sank one of the most technologically-advanced 
drilling rigs in the world. Why did it take three months of 
failed attempts by a NASA team of government and industry 
experts to stop the oil gushing from the disabled blowout 
preventer thousands of feet beneath the surface, creating one 
of the largest and most expensive environmental disasters in 
U.S. history? It was because nobody was prepared.
    President Obama has acknowledged that. He suspended new 
deep water drilling permits in the Gulf until new safety 
measures could be drawn up, and industry could give some 
assurance that they would be prepared if that should happen 
again. It would have been reckless not to do so.
    I imagine that we will hear today a good deal of misplaced 
blame. We will hear from some Members, perhaps from a Member, 
that the President is to blame for not being more diligent in 
overseeing the industry's drilling practices, that the 
President did not do enough to help the oil industry and gas 
industry develop new technologies, that the President was not 
quick enough or prepared enough to respond to the unthinkable 
disaster unfolding, and that the President's timeout on the 
deep water drilling has been a catastrophe for the industry.
    But from those Members we perhaps will not hear as much 
about the industry's culpability. We won't hear how the owner 
of Deepwater Horizon, Transocean, gave executive bonuses last 
year for their exemplary safety record. We won't hear how the 
most profitable industry in the history of the world did not 
see fit to invest resources in assuring that disasters like the 
Deepwater Horizon do not happen or that it could be cleaned up 
if it did. Most important, we won't hear today the truth about 
oil and gas production under President Obama.
    We won't hear that production actually continued in the 
Gulf during the temporary drilling suspension, that 39 shallow 
water permits were granted since October, that eight new deep 
water permits have been granted in just the last month and a 
half. We won't hear that in 2010, outer continental shelf oil 
production increased by 30 percent, that domestic oil 
production is at its highest level in ten years and natural gas 
is at its highest ever.
    I do look forward to the witnesses' testimony today. I 
acknowledge that the industry has made advances in safety in 
the last year, but it is not enough. We owe it to the public to 
hold this industry's feet to the fire and assure that there is 
relentless innovation in worker safety and environmental 
protection in the oil and gas industry.
    Thank you, Chairman Harris.
    [The prepared statement of Mr. Miller of North Carolina 
follows:]
            Prepared Statement of Ranking Member Brad Miller
    Thank you, Chairman Harris.
    On this side of the aisle the Energy & Environment Subcommittee is 
also stocked with seasoned professionals. In addition to me and the 
full Committee Ranking Member, Eddie Bernice Johnson, we have Ms. 
Woolsey, Ms. Lofgren and Mr. McNerney, all Californians and well-known 
champions of a clean energy future. Mr. Lujan, representing Los Alamos 
National Lab, brings his expertise on federal research and technology 
development to the Subcommittee. Finally, Mr. Tonko draws upon his 
experience as the CEO of the New York State Energy Research and 
Development Authority.
    Like you, Mr. Harris, I can assure the public that we take the 
jurisdiction of this Committee very seriously, and will always look for 
ways to push our federal research agencies to be more effective and 
efficient drivers of innovation and economic growth. Our job is to know 
the agencies' capabilities, know what the public needs, and build a 
credible and strong record on government's performance in meeting those 
needs. Where the agencies succeed, we will support them. Where they 
fall short, we will take corrective measures and ultimately may decide 
to redirect resources.
    However, today we are here to discuss the progress that industry 
has made in meeting the public's needs for safe and responsible oil and 
gas drilling. Just as we hold our agencies accountable, we also hold 
these industries accountable and expect them to acknowledge the 
tremendous risk inherent in the services they provide.
    Before the explosion that killed eleven men, sank the Deepwater 
Horizon drilling rig, and generated the ensuing oil spill that lasted 
for nearly three months, offshore drilling was not at the center of 
public attention. As is often the case with energy matters, outside of 
the policy world, the availability of oil was largely taken for granted 
and the environmental risks were not widely known by the general 
public.
    That all changed on April 20th when we got a violent and lasting 
reminder of how dangerous our need for oil has become.
    As the world's largest oil consumer, but with less than 8% of 
technically- recoverable global reserves, our reliance on oil has 
driven domestic production to ever deeper waters in search of more 
productive fields. As Chairman Hall has taught us over the years, this 
is no small feat of engineering. These companies have pushed the 
boundaries of technological innovation in finding and extracting oil 
under nearly impossible conditions.
    By almost all accounts, in the race to deeper waters the industry's 
investment in advancing worker and environmental safety has not kept up 
with these increasingly dangerous conditions.
    To anyone that disputes that, I ask you to tell me how an explosion 
killed eleven men and sank one of the most technologically advanced 
drilling rigs in the world? Why did it take three months of failed 
attempts by a massive team of government and industry experts to stop 
the oil gushing from the disabled blowout preventer thousands of feet 
below the surface, creating one of the largest and most expensive 
environmental disasters in U.S. history? It is because nobody was 
prepared.
    Acknowledging this, President Obama suspended new deepwater 
drilling permits in the Gulf until new safety measures could be drawn 
up and industry could give some assurance that they would be prepared 
when this happens again. It would have been reckless not to do so.
    I imagine that what we will hear today is misplaced blame. We may 
hear from some Members that the President is to blame for not being 
more diligent in overseeing the industry's drilling safety practices; 
that the President did not do enough to help the oil and gas industry 
develop new technologies; that the President was not quick or prepared 
enough to respond to the unthinkable disaster unfolding at the Macondo 
well; and that the President's time-out on deepwater drilling in the 
Gulf has been a catastrophe for the industry.
    We won't hear much from these Members about industry culpability. 
We won't hear how the owner of the Deepwater Horizon, Transocean, gave 
executives bonuses for their ``exemplary'' safety record last year. We 
won't hear how the most profitable industry in the history of the world 
did not see fit to invest resources in assuring that disasters like the 
Deepwater Horizon do not happen, or that it could be cleaned up if it 
did.
    Most important, in this hearing we won't hear the truth about oil 
and gas production under President Obama. We won't hear that production 
actually continued in the Gulf during the temporary drilling 
suspension, that 39 shallow water permits were granted since October, 
or that eight new deepwater permits have been granted in the last month 
and a half. We won't hear that in 2010, Outer Continental Shelf oil 
production increased by 30%, that domestic oil production is at its 
highest levels in ten years, and natural gas is at its highest ever.
    I look forward to the witness' testimony today. I acknowledge the 
industry's advances in safety in the last year. But it is not enough. 
We owe it to the public to hold this industry's feet to the fire, and 
ensure that there is relentless innovation in worker safety and 
environmental protection in the oil and gas industry.
    Thank you, Chairman Harris.

    Chairman Harris. Thank you very much, Mr. Miller. I know we 
are joined by the gentlelady from California, and if you would 
like to submit additional opening statements, your statement 
would be added to the record at this point, and if other 
Members arrive, I will make the same offer.
    Ms. Woolsey. That is fine, Mr. Chairman.
    Chairman Harris. Thank you. At this time I would like to 
introduce our witness panel. Dr. Victor Der is Acting Assistant 
Secretary for Fossil Energy. Dr. Der also serves as Principal 
Deputy Assistant Secretary for Fossil Energy where he provides 
strategic direction and guidance for the program's daily 
activities as well as its long-term goals and objectives. Prior 
to that position he was Deputy Assistant Secretary for Clean 
Coal. He holds a Ph.D. in mechanical engineering and has worked 
at DOE for 37 years.
    Mr. David Miller is the Director of the Standards Program 
for American Petroleum Institute. He is also Chairman of the 
American National Standards Institute International Policy 
Committee, and a member of the Offshore Technology Conference 
Board of Directors. He was elected a fellow of the American 
Society of Civil Engineers in 2006.
    Mr. Owen Kratz is President and Chief Executive Officer of 
Helix Energy Solutions Group, Incorporated. He joined Cal Dive 
International, now known as Helix, in 1984, and held various 
offshore positions before serving in a number of management 
positions before becoming CEO in April of 1997.
    And last, Dr. Molly Macauley is Research Director and 
Senior Fellow at Resources for the Future. Dr. Macauley's 
research emphasizes new technology and its application to 
natural and environmental resources. She serves on several 
national-level committees and panels, including the National 
Research Council's Space Studies Board, the NASA Earth Science 
Applications Advisory Committee, and NOAA's Climate Working 
Group. She has a Ph.D. in economics from Johns Hopkins 
University. I know that place. And also served there as an 
adjunct professor of economics.
    Now as our witnesses should know, spoken testimony is 
limited to five minutes each, after which the Members of the 
Committee will have five minutes each to ask questions. Right 
up front I apologize that we are starting late. You know, we 
held a series of votes. I am going to apologize to you because 
your time is valuable.
    Now I would like to recognize our first witness, Dr. Victor 
Der, the Acting Assistant Secretary for Fossil Energy at the 
Department of Energy. Doctor.

 STATEMENTS OF DR. VICTOR DER, ACTING ASSISTANT SECRETARY FOR 
              FOSSIL ENERGY, DEPARTMENT OF ENERGY

    Dr. Der. Good afternoon, Chairman Harris, Ranking Member 
Miller, and Members of the Committee. As Acting Assistant 
Secretary for Fossil Energy I appreciate the opportunity to 
present the Department of Energy's perspective on improving 
offshore drilling safety and response technologies. Before I 
delve into my statement I want to take a moment to recognize 
and remember the 11 men that died almost a year ago while 
working on the Deep Water Horizon. As we approach the one-year 
anniversary of that tragedy in the Gulf, we know that there are 
important challenges we must meet in order to ensure that we 
never again see such a calamity on the human, ecological, and 
economic scales.
    Turning back to my statement, natural gas and crude oil 
provide more than 60 percent of our Nation's primary energy 
needs. Last week the President outlined a blueprint for a clean 
energy future, and to reduce our dependency on oil we must 
develop and deploy new options like advanced biofuels, vehicle 
electrification, and improve vehicle efficiency.
    In the meantime, petroleum and natural gas will continue to 
play an important role in our economy for at least the next 
several decades. As both the Chairman and the President have 
said, we have domestic oil and gas resources here that we can 
use, and we will. In fact, last year American oil production 
reached its highest level since 2003.
    But in the wake of last year's spill the President has made 
it clear that we must tap into these resources safely and 
responsibly. As this Committee knows, the Department of the 
Interior is the agency with the regulatory authority over the 
oil and gas industries' offshore drilling activities. The 
Department of Energy can work with other federal agencies and 
industry partners to ensure that new technologies improve the 
ability to drill in ever-deeper waters with greater margins of 
safety, reduce the risk of spills, and provide improved 
mitigation should a spill occur.
    To help meet rising demand, producers are looking to 
identify and tap new oil and natural gas sources, including 
many in areas that are increasingly difficult to locate and 
produce such as deepwater locations. Offshore oil now accounts 
for about one third of our domestic fuel production, and 80 
percent of this production comes from the Gulf of Mexico 
deepwater sites. Deepwater's contribution to domestic oil and 
natural gas supplies is expected to increase in the years 
ahead. That contribution must be accompanied by ongoing 
technology solutions to production safety and environmental 
challenges which will need to be developed and deployed.
    As the Nation's largest funder of R&D in the physical 
sciences, DOE has long had a role in oil and gas technology 
development.
    Again, as I noted above, DOE has no regulatory role over 
the oil and gas industry, which is primarily the purview of the 
Bureau of Ocean Energy Management, Regulation, and Enforcement 
at the Department of the Interior, as well as the National 
Oceanic Atmospheric Administration and the Coast Guard.
    The DOE's responsibilities regarding deepwater research are 
outlined in Section 999 of the Energy Policy Act of 2005, which 
established the Ultra Deepwater and Unconventional Natural Gas 
and Other Petroleum Research Program. Until last year, DOE's 
activities under the deepwater portion of Section 999 were 
focused primarily on exploration and production-related 
technologies, which we believe is more appropriately funded by 
industry. DOE has since refocused the work under Section 999 on 
safety and environmental protection associated with production.
    Consistent with budget requests since fiscal year 2007, the 
President's fiscal year 2012 budget proposes repeal of the 
Ultra Deepwater and Natural Gas and Other Petroleum Research 
Fund established as part of the Section 999A program. In the 
absence of this program, this important work can be carried out 
through investments from the private sector in coordination 
with the Ocean Energy Safety Advisory Committee.
    In the wake of the Deepwater Horizon accident, industry 
developed new technologies to contain underwater blowouts. 
However, additional work remains to ensure that deepwater 
resource development is safe and environmentally sound. The 
Administration believes that it is appropriate for industry to 
assume the funding of these activities, and DOE stands ready to 
provide technical expertise and assistance through both the 
Office of Fossil Energy and our participation on the Advisory 
Committee in order to integrate enhanced safety and 
environmental capabilities into deep water production 
technologies.
    In conclusion, Mr. Chairman, deepwater oil and gas will be 
crucial to meeting the demand as we continue to transition to a 
more sustainable energy feature. At the same time, last year's 
tragic oil spill serves as a stark reminder of the risks 
associated with deepwater drilling. As improved extraction 
technologies are developed and implemented, so, too must be 
approaches for addressing potential risks, safety issues, and 
environmental impacts.
    With that, Mr. Chairman, I respectfully request that my 
written statement be included in the official record of these 
proceedings, and I will be happy to answer any questions that 
you and the other Members of the Committee may have. Thank you.
    [The prepared statement of Dr. Der follows:]
Prepared Statement by Dr. Victor K. Der, Acting Assistant Secretary for 
                Fossil Energy, U.S. Department of Energy
    Chairman Harris, Ranking Member Miller, and Members of the 
Subcommittee, thank you for the opportunity to appear before you today 
to discuss the Department of Energy's (DOE) perspective on research and 
development (R&D) to improve oil and gas drilling in ever-deeper waters 
with greater margins of safety, reduced risk of spills, and better 
mitigation approaches should there be a spill.
    As you know, the Office of Fossil Energy (FE) leads DOE's efforts 
to ensure that we use our hydrocarbon resources--coal, oil, and natural 
gas--for clean, affordable, and reliable energy. A key part of 
fulfilling this mission is a commitment to cutting-edge R&D across 
fossil energy technologies. In discharging this responsibility, we have 
conducted significant R&D over the years to advance technology 
development related to oil and natural gas supply and production, 
unconventional fossil energy, and deepwater resources.
    In terms of going forward in the deepwater area, we must do 
everything possible to ensure that we never again face an environmental 
disaster of the magnitude as last year's Gulf of Mexico oil well spill, 
which not only tragically claimed 11 lives, but also caused extensive 
economic and ecological damage.
    We at the Department of Energy (DOE) recognize that improving 
deepwater oil and gas technology is a challenge; but one that also 
provides a major opportunity. The Federal Government's responsibility 
is to rigorously regulate the oil and gas industry's deepwater 
activities, appropriately quantify risks in offshore development, and 
maximize the capability and resources to prevent and mitigate damages 
of future offshore events should they occur. As this Committee knows, 
the Department of the Interior is the agency with regulatory authority 
over the oil and gas industry's offshore drilling activities.
    Today, I will offer some DOE perspectives on the continuing 
importance of deepwater resources, the challenges that lie ahead, the 
role of DOE and our Federal and industry partners in moving forward, 
and current R&D activities.

Moving Toward a Sustainable Future

    The Obama Administration has made a strong commitment to move our 
Nation toward a clean energy future, which includes reducing reliance 
on oil and other fossil fuels, while developing new sources and 
technologies related to renewable energy. As we make this transition, 
however, oil and natural gas will continue to play a key role in our 
economy for many years, particularly in the transportation sector. 
Currently, oil and natural gas provide more than 60 percent of our 
Nation's energy needs, and over 95 percent of the fuel that Americans 
use for transportation.
    According to the U.S. Energy Information Administration (EIA), the 
United States uses slightly more than 19 million barrels of liquid 
fuels every day, about 22 percent of the world's total; this total is 
projected to increase to nearly 22 million barrels by 2035 ( Annual 
Energy Outlook 2011 Early Release). In 2010, U.S. domestic crude 
production rose by 150,000 barrels per day to 5.51 million barrels per 
day (MB/D) (STEO, March 8, 2011), the highest level since 2003. Looking 
longer range, EIA projects that U.S. domestic crude oil production will 
continue to increase to 5.7 million barrels by 2035. Production 
increases are anticipated to come from onshore enhanced oil recovery 
projects, shale oil plays, and deepwater drilling in the Gulf of 
Mexico. They also project that U.S. dependence on imported liquid fuels 
to continue declining over the projection period. This trend is in 
keeping with President Obama's comments at a March 11, 2011, news 
conference that, ``First, we need to continue to boost domestic 
production of oil and gas.'' However, as the President has said, we 
cannot drill our way out of this problem, which is why the 
Administration has outlined a blueprint that includes measures to 
reduce our consumption.
    Globally, EIA projects the world's use of oil and other liquid 
fuels to grow from 86.3 million barrels per day in 2007 to 110.8 
million barrels per day in 2035. Global natural gas consumption is 
forecasted to increase from 108 trillion cubic feet per year to 156 
trillion cubic feet per year over the same period.
    In this environment of increasing demand, the world's producers are 
continuously endeavoring to identify and produce new sources of oil and 
natural gas to replace the volumes which are being consumed by the 
world's economies. While significant reserves remain, many of these are 
in geologic formations that are increasingly difficult to locate and 
produce, including deepwater locations.

Increasing Role of Deepwater Production

    In recent years, the oil and gas industry has been discovering and 
producing in increasingly deeperwater. In the Gulf of Mexico there have 
been 13 major discoveries in deepwater areas over the past five years 
alone. Offshore oil now accounts for about one-third of our domestic 
field production, and some 80 percent of this comes from Gulf of Mexico 
deepwater locations. \1\
---------------------------------------------------------------------------
    \1\  Source: Energy Information Administration:http://
www.eia.doe.gov/oil--gas/natural--gas/data--publications/crude--oil--
natural--gas--reserves/cr.html.

    Internationally, 60 percent of the largest non-U.S. discoveries 
have been offshore, and 73 percent of offshore discoveries have been in 
deepwater (400 meters or deeper). Since 2007, over 70 percent by3 
volume of major discoveries have occurred in deepwater, with the 
outliers being onshore discoveries in Iran and Iraq. \2\
---------------------------------------------------------------------------
    \2\  Source: Chakhmakhchev & Rushworth, IHS, May 2010

    The deepwater contribution to domestic oil and natural gas supplies 
is expected to increase in theyears ahead. A key underlying assumption, 
however, is that ongoing technology solutions to production safety and 
environmental challenges will be developed and deployed. The industry, 
both domestically and globally, is exploring in deeper water, which 
---------------------------------------------------------------------------
means we mustrecognize two key points:

    1) We can no longer rely on inexpensive supplies of oil that can be 
produced from shallow waterregions and;
    2) The technology used to extract these deepwater resources must be 
much safer and more reliable than they have been in the past. This is 
consistent with the Administration's determination that, prior to 
drilling activity, deepwater operating practices must be consistent 
with new heightened safety measures, including development of worst 
case disaster projections and demonstration of capabilities to respond 
to an oil spill.

DOE's Role and Perspective

    The Department of Energy has long had a role in technology 
development for the oil and natural gas sectors. Over decades, the 
Department has amassed a depth of knowledge and expertise in such areas 
as fluid flow, imaging, fire science, and subsea systems. The focus of 
DOE's past R&D efforts was on reducing the cost of technologies that 
increase production--an area of research more appropriately funded by 
industry. However, a smaller portion of DOE's research addressed 
improvements to environmental and safety technologies.
    While the Department has historically conducted fundamental and 
applied research to develop and improve deepwater environmental and 
safety technologies, it has no regulatory role over the industry. With 
regard to permitting and regulatory issues generally, offshore oil and 
gas drilling is wholly within the purview of the Department of the 
Interior (DOI), although activities conducted on the Outer Continental 
Shelf also require permits from other agencies, such as the National 
Oceanic and Atmospheric Administration and the Unites States Coast 
Guard.
    The Administration has taken steps to improve its capabilities to 
conduct environmental and safety related research to support our 
regulatory responsibility. Specifically, the DOI led Ocean Energy 
Safety Advisory Committee (OESAC), which includes representatives from 
government, industry, and academia, is tasked with identifying, 
prioritizing and recommending research and development projects in the 
areas of drilling and workplace safety, containment, and oil spill 
response; recommending an allocation of available resources to these 
projects as appropriate; and providing a venue for representatives from 
industry, government, non-governmental organizations, national 
laboratories, and the academic community to exchange information and 
ideas, share best practices, and develop cross-organizational 
expertise.
    The Energy Policy Act of 2005 (EPACT) established a mandatory 
program, the Ultra-Deepwater and Unconventional Natural Gas and Other 
Petroleum Research Program, funded with $50 million each year of 
diverted Federal oil and gas lease revenues that would otherwise be 
deposited in the Treasury to offset government-wide expenses. In the 
past, the Department used the deepwater portion allocated under Section 
999A of EPACT 2005 for reservoir characterization, drilling and 
completion, seafloor facilities, and other exploration and production 
related technologies.
    As has been requested since Fiscal Year (FY) 2007, the President's 
FY 2012 Budget proposes repeal of the Ultra-Deepwater and 
Unconventional Natural Gas and Other Petroleum Research Fund which was 
established as part of the Section 999A program. We also are requesting 
no discretionary funding for R&D to increase hydrocarbon production in 
the belief that these activities are more appropriately funded by 
industry. Absent congressional action to repeal this program, DOE is 
refocusing the work done under Section 999A of EPACT on safety and 
environmental protection with the funding we continue to receive. While 
the administration does not support Section 999A funding, it considers 
OESAC to be an important mechanism to guide research to improve the 
safety and environmental responsibility of offshore oil and gas 
operations.
    Industry has had success in innovating new technologies to find, 
develop, and commercialize oil and gas in deepwater locations. And, in 
the wake of the Deepwater Horizon accident and ensuing Gulf of Mexico 
oil spill, industry developed new technologies for the containment of 
underwater blowouts. Additional work remains to be done to ensure that 
this development is conducted with sufficient protections for workers 
and the environment, and to ensure that the communities that rely on 
our ocean resources continue to thrive. The Administration believes 
that it is appropriate for industry to integrate enhanced safety and 
environmental capabilities into the advances in production technologies 
for deepwater areas.

Summary

    The tragic oil spill in the Gulf of Mexico last year is a stark 
reminder of the risks associated with operating in the deepwater. Even 
as we continue the transition to a more sustainable energy future, 
deepwater oil and natural gas will be used to meet a significant 
portion of our energy needs in the near future. As technologies for 
improving the production and economic aspects of this extraction 
process are developed, so too must be approaches for identifying, 
quantifying, and solving potential risks, safety issues, and 
environmental impacts.
    Mr. Chairman, and Members of the Committee, thank you again for the 
invitation to testify today. I look forward to answering any questions 
that you may have.

    Chairman Harris. Thank you very much, Dr. Der, and now I 
recognize our second witness, Dr. David Miller, the Director, 
Standards, at the American Petroleum Institute.
    Mr. Miller.

 STATEMENT OF MR. DAVID MILLER, DIRECTOR, STANDARDS, AMERICAN 
                      PETROLEUM INSTITUTE

    Mr. Miller. Good afternoon, Chairman Harris, Ranking Member 
Miller, and Members of the Subcommittee. Thank you for the 
opportunity to address offshore drilling safety and response 
technology. My name is David Miller. I am the Standards 
Director for the American Petroleum Institute or API.
    API has more than 470 member companies that represent all 
sectors of America's oil and natural gas industry. Our industry 
supports 9.2 million American jobs, including 170,000 in the 
Gulf of Mexico related to the offshore development business and 
provides most of the energy America needs.
    First, even though it has almost been a year since the 
tragic accident in the Gulf, it is important that we remember 
the families who lost loved ones, the workers who were injured, 
and all of our neighbors in the Gulf who were affected by it. 
Their losses were profound, and they remind us every single day 
that the work we do to improve safety in our operations is 
extremely important.
    Our industry's top priority is to provide energy in a safe, 
technologically-sound, and environmentally-responsible manner. 
We, therefore, take seriously our responsibility to work in 
cooperation with government to develop practices and equipment 
that improve operational and regulatory processes across the 
board.
    As further proof of our commitment, API has been the leader 
for nearly nine decades in developing voluntary industry 
standards that promote reliability and safety through proven 
engineering practices. API's standard program is accredited by 
the American National Standards Institute, ANSI, the authority 
on U.S. standards and the same organization that accredits 
programs at several national laboratories. API standards are 
developed through a collaborative effort with industry experts, 
as well as the best and brightest technical experts from 
government, academia, and other stakeholders.
    API's Standards Program undergoes regular third-party 
program audits. API maintains more than 600 standards that 
cover all aspects of the industry, including 270 focused on 
exploration and production. The committees that develop and 
maintain these standards represent API's largest program with 
4,800 volunteers working on 380 committees and task groups.
    API's standards are frequently referenced in federal 
regulations because they are recognized to be industry best 
practices. Overall, nearly 100 API standards are referenced in 
more than 270 citations by government agencies, including the 
U.S. EPA, the Department of Transportation, OSHA, and in 
addition 80 standards referenced by BOEMRE, and as part of our 
commitment to program transparency, last year API made the 
decision to provide all of our safety and incorporated by 
reference standards available for free online.
    We are using the incident investigation findings to 
continue to improve the technologies and practices to achieve 
safe and environmentally-sound operations. As part of this 
process we are working to develop new API standards and 
revisions of existing API standards when necessary to raise the 
bar of performance to a higher level.
    We have already published a new standard on isolating 
potential flow zones during well construction, which has been 
incorporated by BOEMRE into its offshore regulations. We plan 
to complete work later this year on two new API standards; one 
on deep water well design and one on well construction 
interface. We are working also to update the API standards on 
blowout preventer design, manufacture, and operations.
    In addition, API's Board of Directors just last month 
approved the formation of a Center for Offshore Safety with the 
mission to promote the highest level of safety for offshore 
operations through an effective program that addresses 
management practices, communication, and teamwork. This 
program's foundation will be API's recommended practice on 
safety and environmental management programs, the API standard 
most recently cited by BOEMRE.
    Regarding permitting delays, the recently-lifted moratorium 
and subsequent safety regulations led to some confusion and 
concern in the industry. For example, the Interim Final 
Drilling Safety Rule published in October of last year 
contained text that summarily changed all 14,000 ``should'' 
statements to ``must'' requirements in the 80 referenced API 
standards.
    And while DOI did provide a clarification, it wasn't until 
just last week. In the meantime, industry felt it had no choice 
but to consider how it could possibly be in compliance with the 
requirements that were often contradictory and potentially 
unsafe. This uncertainty has added unnecessary delay in 
developing exploration and production plans and applications 
for permits to drill as industry was forced to consider the 
requirement to request up to 14,000 departures simply to be in 
compliance with the standards that its and the government's 
technical experts had developed.
    In fact, API provides extensive comments to DOI as part of 
its White House mandated regulatory review. One of my items of 
significant importance is compliance with the Outer Continental 
Shelf Land's Act amendments of 1978, in which Congress declared 
that the Outer Continental Shelf is a vital national resource 
reserve held by the Federal Government for the public, which 
made available for expeditious and orderly development subject 
to environmental safeguards in a manner which is consistent 
with the maintenance of competition and other national needs.
    By statute, the leasee is entitled to a timely and fair 
consideration of submitted plan and permit requests, and 
exploration plans and applications permits for drill must be 
acted upon within 30 days of submittal. DOI should work to meet 
the statutory requirement.
    Permitting delays in the moratorium have already led to the 
loss of 300,000 barrels a day in oil production since May of 
2010, according to EIA short-term energy outlook, and the job 
loss is no less disturbing. Dr. Joseph Mason, of Louisiana 
State University, who recently testified before the House 
Subcommittee on Energy and Power, noted in a follow-up 
interview that, ``We are already, however, pushing above the 
Administration's estimate of 20,000 jobs nationally for the 
deep water de facto and de jure moratoria.''
    We look forward to providing constructive input as this 
Committee, the Congress, and the Administration consider 
changes to existing policy. Industry is ready to work, return 
to work, Mr. Chairman and Ranking Member, and seeks clarity and 
certainty in the permitting process.
    This concludes my statement. I welcome any questions from 
you and your colleagues. Thank you.
    [The prepared statement of Mr. Miller follows:]
 Prepared Statement of Mr. David Miller, Standards Director, American 
                          Petroleum Institute
    Good afternoon, Chairman Harris, Ranking Member Miller and Members 
of the Subcommittee. Thank you for the opportunity to address offshore 
drilling safety and response technology.
    My name is David Miller. I am the standards director for the 
American Petroleum Institute. API has more than 470 member companies 
that represent all sectors of America's oil and natural gas industry. 
Our industry supports 9.2 million American jobs--including 170,000 in 
the Gulf of Mexico related to the offshore development business--and 
provides most of the energy America needs.
    First, even though it's been almost a year since the tragic 
accident in the Gulf, it is important that we remember the families who 
lost loved ones, the workers who were injured, and all of our neighbors 
in the Gulf who were affected by it. Their losses were profound and 
they remind us every single day that the work we do to improve safety 
in our operations is extremely important.
    Our industry's top priority is to provide energy in a safe, 
technologically sound and environmentally responsible manner. We 
therefore take seriously our responsibility to work in cooperation with 
government to develop practices and equipment that improve the 
operational and regulatory process across the board.
    As further proof of our commitment, API has been the leader for 
nearly nine decades in developing voluntary industry standards that 
promote reliability and safety through proven engineering practices. 
API's Standards Program is accredited by the American National 
Standards Institute (ANSI), the authority on
    U.S. standards, and the same organization that accredits programs 
at several national laboratories. API's standards are developed through 
a collaborative effort with industry experts, as well as the best and 
brightest technical experts from government, academia and other 
stakeholders. API undergoes regular third-party program audits to 
ensure compliance with ANSI's Essential Requirements for standards 
development.
    API maintains more than 600 standards--recommended practices, 
specifications, codes, technical publications, reports and studies--
that cover all aspects of the industry, including 270 focused on 
exploration and production activities. The standards are normally 
reviewed every five years to ensure they remain current, but some are 
reviewed more frequently, based on need. The committees that develop 
and maintain these standards represent API's largest program, with 
4,800 volunteers working on 380 committees and task groups. API 
corporate membership is not a requirement to serve API's technical 
standards committees.
    API's standards are frequently referenced in federal regulations 
because they are recognized to be industry best practices. BOEMRE, for 
example, currently references 80 API standards in its offshore 
regulations and has recently proposed an additional 12 API standards be 
incorporated into their regulations. Overall, nearly 100 API standards 
are referenced in more than 270 citations by government agencies, 
including the USEPA, the Department of Transportation and OSHA, in 
addition to BOEMRE. And, as part of our commitment to program 
transparency, last year API made the decision to provide all of our 
safety and incorporated-by-reference standards available for free on-
line. One-hundred sixty API standards are now posted on API's website 
and have been viewed by close to 5,000 individuals since last fall.
     We are using incident investigation findings to continue to 
improve the technologies and practices to achieve safe and 
environmentally sound operations. As part of this process, we are 
working to develop new API standards and revisions of existing API 
standards, where necessary. to raise the bar of performance to a higher 
level. We have already published a new standard on isolating potential 
flow zones during well construction, which has been incorporated by 
BOEMRE into its offshore regulations. We plan to complete work later 
this year on two new API standards--one on deepwater well design and 
one on well construction interface, which will provide a systematic way 
for the offshore operator and the drilling contractor to ensure that 
their respective safety programs are fully aligned. We are also working 
to update the API standards on blow-out preventer design, manufacture 
and operations.
    In addition, API's Board of Directors just last month approved the 
formation of the industry Center for Offshore Safety, with the mission 
to promote the highest level of safety for offshore operations through 
an effective program that addresses management practices, 
communication, and teamwork. This program's foundation will be API's 
recommended practice on safety and environmental management programs, 
the API standard most recently cited by BOEMRE.
    Regarding permitting delays, the recently lifted moratorium and 
subsequent safety regulations led to some confusion and concern in the 
industry. For example, the interim final drilling safety rule, 
published in October of last year, contained text that summarily 
changed all 14,000 ``should'' statements to ``must'' requirements in 
the 80 referenced API standards. This action vitiated the standards 
development process by ignoring the recommendations of the some 4,800 
technical experts who labored over the years to develop performance-
based standards that allow for a variety of options to ensure the most 
appropriate engineering choice is made. And while DOI did provide a 
clarification, it wasn't until just last week. In the meantime, 
industry felt it had no choice but to consider how it could possibly be 
in compliance with requirements that were often contradictory and 
potentially unsafe. This uncertainty has added unnecessary delay in 
developing exploration plans and application for permits to drill as 
industry was forced to consider the requirement to request up to 14,000 
departures simply to be in compliance with the standards that its and 
the government technical experts had developed.
    In fact, API provided extensive comments to DOI as part of its 
White House-mandated regulatory review. One item of significant import 
is compliance with the Outer Continental Shelf Lands Act Amendments of 
1978, in which Congress declared that ``the outer Continental Shelf is 
a vital national resource reserve held by the Federal Government for 
the public, which should be made available for expeditious and orderly 
development, subject to environmental safeguards, in a manner which is 
consistent with the maintenance of competition and other national 
needs.'' By statute, the lessee is entitled to timely and fair 
consideration of submitted plan and permit requests, and exploration 
plans and application for permits to drill must be acted upon within 30 
calendar days of submittal. DOI should work to meet this statuary 
requirement.
    Permitting delays and the moratorium have already led to a loss of 
300,000 barrels a day in oil production since May 2010, according to 
the EIA's Short Term Energy Outlook, and the jobs loss is no less 
disturbing. Dr. Joseph Mason of Louisiana State University, who 
recently testified before the House Subcommittee on Energy and Power 
noted in a follow-up interview that:
    ``We are already, however, pushing above the administration's 
estimate of 20,000 jobs nationally for the deepwater de facto and de 
jure moratoria.''
    We look forward to providing constructive input as this Committee, 
the Congress and the administration consider changes to existing 
policy. The industry is ready to return to work, Mr. Chairman and 
Ranking Member, and seeks clarity and certainty in the permitting 
process.
    This concludes my statement, Mr. Chairman. I welcome questions from 
you and your colleagues. Thank you.

    Chairman Harris. Thank you very much, Mr. Miller.
    I would now like to recognize our next witness, Mr. Owen 
Kratz, the President and CEO of Helix Energy Solutions Group.

 STATEMENT OF MR. OWEN KRATZ, PRESIDENT AND CEO, HELIX ENERGY 
                        SOLUTIONS GROUP

    Mr. Kratz. Mr. Chairman, Members of the Subcommittee, thank 
you for the invitation to testify today. As the head of a team 
called upon to respond to the Macondo incident, I believe Helix 
Energy Solutions' experience can be of assistance to the 
Subcommittee as it evaluates response policy going forward.
    Three Helix vessels, the Q4000, the Express, and the Helix 
Producer I, were instrumental in successfully bringing the Deep 
Water blowout under control. At the Macondo site Helix staff 
logged a total of 135 days aboard the Q4000 alone. The lessons 
we learned will inform our approach to containment efforts well 
into the future.
    In December, 2010, Helix brought numerous independent 
operators together to form the Helix Well Containment Group. 
Our purpose was to develop a comprehensive, rapid, and 
effective response to a deepwater well control incident in the 
Gulf of Mexico. Currently, 23 leading energy companies belong 
to the consortium, working in close collaboration with DOE and 
RE we designed a comprehensive, 1,000-page well containment 
plan that meets the agency's requirements in NTL-10.
    The plan addresses multiple scenarios inclusive of specific 
well information and deployment procedures, many of which were 
refined during the Macondo response effort. Technical experts 
and critical equipment from each of the 23 member companies 
will be made available to any member during an event, providing 
a fully-compliant level of capability as required by NTL-10.
    The system is specifically designed for expansion and 
inclusion of developing new technologies. The Helix Fast 
Response System is ready to respond today. In fact, five 
drilling permits have recently been granted based on our 
containment system.
    What does it mean to be prepared for an endeavor as complex 
and time sensitive as an undersea well control incident? The 
Helix Fast Response System's Interim Containment System 
includes a 10,000 pounds per square inch capping stack, a riser 
system, the Q4000 intervention vessel, and all necessary 
equipment to complete the intervention system.
    This system is capable of completely capping and closing in 
a well that has the necessary mechanical integrity to do so or 
allowing flow back and flaring of up to 55,000 barrels of oil a 
day or 70,000 barrels of liquids per day and 95 million cubic 
feet of natural gas per day in water depths up to 6,500 feet. 
This system as described there stands ready today.
    The next stage of readiness, which we refer to as the 
complete containment system, is designed to handle more 
comprehensive responses by including a 15,000 pound per square 
inch capping stack and a riser system capable of operating in 
8,000 feet of water. By April 11 our system will be capable of 
completely capping and closing in a well that has the necessary 
mechanical integrity to do so or allow flow back by a 
combination of producing and flaring. By April 15 the 15,000 
pound per square inch capping stack will be available.
    Finally, as we look into the future, we are evaluating an 
even further expanded system, having capability to 10,000 feet 
of water that will allow capture and flow back of up to 105,000 
barrels of oil per day and 300 million cubic feet of natural 
gas per day. Approval of this expansion will take place only if 
the members of our consortium decide a system with this 
capacity is necessary. If they do this, then the vessel or the 
system could be ready by 2012.
    One of the most innovative parts of the U.S. energy 
industry comes from a robust and healthy offshore independent 
oil and gas sector. The diversity of upstream players has 
produced countless innovations, and they are not always the 
largest companies. Yet one of the most--one of the major 
impediments faced in convincing the producers to dedicate the 
means to provide a solution in a more timely manner is the 
uncertainty surrounding the government's policy as to what 
specifically will be accepted as a sufficient containment 
solution.
    Helix is grateful to the BOEMRE for the relationship that 
we have developed. Government can greatly aid the process by 
continuing, if not hastening, to resolve uncertainties inherent 
in early drafting of the regulations and to address concerns of 
the industry as to what may be deemed deficient in the process 
of drilling that may arise in the future such as liability 
caps, lease expirations, and spill response.
    Additionally, the government could play a productive role 
by assisting and minimizing the cost of capital through 
reinvigorating programs designed to advance maritime industrial 
development. The Loan Guarantee Program administered by MARAD, 
for example, can help. It has a proven track record. In fact, 
the Q4000 was built in Texas using the MARAD financing.
    Thank you for the opportunity to testify today. The 
industry has always developed innovative technologies and 
processes, even in the fact of the toughest challenges. Now, 
with the experience of Macondo behind us, we have learned how 
to fashion an even more appropriate, effective containment 
system. Thank you.
    [The prepared statement of Mr. Kratz follows:]
  Prepared Statement of Mr. Owen Kratz, President and Chief Executive 
               Officer, Helix Energy SolutionsGroup, Inc.
    Chairman Harris, Ranking Member Miller, and Members of the 
Subcommittee, thank you for the invitation to testify before you today 
on the topic of Offshore Drilling Safety and Response Technologies. The 
question of the appropriate technological response to what this nation 
learned at the Macondo site in the Gulf of Mexico is central to 
responsible policy. As the head of a team called upon to lead the 
response to that situation, I believe Helix Energy Solutions' 
experience can be of assistance to the Subcommittee as it evaluates 
response policy going forward.
    Helix provides life-of-field services and development solutions to 
offshore energy producers worldwide, and is a leader in the provision 
of containment solutions for undersea well control incidents. Since the 
events that began unfolding at the Macondo well nearly one year ago 
today, there has been a great deal of interest among all Americans--and 
rightfully so--about how our industry can most effectively prepare 
itself to respond to an undersea blow-out and oil spill as we go about 
the business of harvesting our nation's critical offshore natural 
resources. We are pleased to have the opportunity to share our 
considerable experience on the subject at hand today.
    The provision of effective oil well containment capability plays an 
essential role in facilitating responsible energy development in the 
deep waters of the U.S. Gulf. Helix stands ready to assist industry in 
providing the benefit of its expertise and resources immediately. Helix 
has participated in hundreds of deepwater well intervention efforts 
around the world for more than 15 years.
    Most relevant to today's discussion, Helix vessels were enlisted to 
play a key on-site role in the Macondo Incident Control and Spill 
Containment effort following the April 2010 blowout. Three Helix 
vessels--the Q4000, the Express and the Helix Producer I--were 
instrumental in successfully bringing the deepwater blowout under 
control. A forth Helix vessel, the Normand Fortress, also played a 
vital role in the effort.
    At the Macondo response site, Helix staff logged 285,000 man-hours 
aboard the Q4000 alone during the blowout response--a total of 135 days 
altogether. Helix staff provided the conduit for thousands of barrels 
of fluid during the static kill and cementing operation. Up to 80 
barrels of kill fluid were pumped every minute through four vessels 
daisy-chained to the Q4000 during the top kill operation. Helix also 
provided flowback and burning of up to 10,000 barrels of oil and 15 
mmcfd for approximately 30 days as well as deploying the original 
cofferdam. And it was the Q4000 that eventually lifted the Deepwater 
Horizon's BOP from the seafloor onto its deck--a BOP weighing 1 million 
pounds. The lessons we learned during those intense days will inform 
our approach to containment efforts well into the future.
    Building on our unique undersea containment experience, Helix 
joined together with numerous independent operators in December 2010 to 
form the Helix Well Containment Group, an industry cooperative founded 
under the umbrella of Clean Gulf Associates, a not-for-profit oil spill 
response organization serving oil and gas exploration and production 
companies in the Gulf of Mexico. Currently, 23 leading energy companies 
have joined the consortium, and over 30 subcontractors have signed on 
to be available to the Helix Well Containment Group to provide the core 
services necessary to fully complement a deepwater response.
    The mission of the Helix Well Containment Group (HWCG) was to 
develop a comprehensive and rapid deepwater containment response 
system, with a designated purpose to manifest an effective response to 
a deepwater well control incident in the Gulf of Mexico. CGA and HWCG 
members have contracted with Helix Energy Solutions for vessels, 
equipment and services necessary to contain a deepwater spill. Helix is 
pleased to be of assistance, and we provide emergency containment 
services to the industry without regard to profit. Our goal as an 
offshore service company that employs more than 1,600 people worldwide 
is putting the Gulf back to work. And when the Gulf goes back to work--
realizing the full potential of this incredibly productive energy 
basin--companies engaged in well intervention, drilling, field 
servicing and other related tasks all are gainfully employed to the 
benefit of the economy and energy security.
    Working in close collaboration with the Bureau of Ocean Energy 
Management, Regulation and Enforcement--including in-person meetings 
with Director Bromwich and Secretary of the Interior Salazar--the HWCG 
technical Committee designed a well-containment plan that meets the 
agency's requirement in its notice to lessees, NTL 2010-N10. We 
developed decision trees, procedures and schedules, and identified 
services and equipment necessary for an effective response based upon 
lessons learned from the Macondo incident. Our well containment plan 
evolved into a comprehensive document addressing multiple scenarios 
inclusive of specific well information and deployment procedures.
    What emerged from this work is a Well Containment Plan that 
encompasses over 1100 pages of comprehensive procedures, processes, and 
technical detail of equipment to be employed during a subsea 
containment response. Many of these processes and procedures were 
refined by Helix during the Deepwater Horizon response.
    The Helix Fast Response System, the key component of the HWCG, is 
ready to respond to a subsea deepwater containment incident today, as 
shown by the four drilling permits recently granted based on our 
containment system. The Fast Response System is underpinned by a Mutual 
Aid Agreement that outlines how technical experts and critical 
equipment from each of the 23 member companies will be made available 
to any member during an event--providing a level of capability not 
required by NTL 2010-N10, but which the member companies feel adds an 
additional layer of capability to protect the safety of our workers, 
the environment and commerce of the Gulf of Mexico, our integrity, and 
our companies' investments. The system is designed for expansion and 
inclusion of developing new technologies.
    We are pleased to report to the Committee that the HWCG today 
stands ready to respond to the most complex scenario referenced in the 
well containment plan--including an incident with the complexities of 
Macondo. The technology deployed in this effort is innovative, to be 
sure, but the real secret is the men and women of companies like Helix 
who are fully trained on how to use equipment in a broad range of 
circumstances and at a moment's notice.
    What precisely does it mean to be prepared for an endeavor as 
complex and time-sensitive as an undersea well control incident? The 
Helix Fast Response System's Interim Containment System includes a 10 
thousand pounds per square inch (psig) capping stack, a riser system 
capable of operating in 6500 feet of water, the Q4000 intervention 
vessel (used during the Deepwater Horizon response) and all necessary 
equipment to complete the intervention system. This system is capable 
of completely capping and closing in a well that has the necessary 
mechanical integrity to do so, or allowing flow back and flaring of up 
to 55,000 barrels of oil or 70,000 barrels of liquids per day and 95 
million cubic feet of natural gas per day at water depth up to 6500 
feet of water. This system stands ready now.
    The next stage of readiness, which we refer to as the Complete 
Containment System, is designed to handle more comprehensive responses 
by including a 15 thousand pounds per square inch capping stack and a 
riser system capable of operating in 8000 feet of water. By April the 
11th, our system will be capable of completely capping and closing in a 
well that has the necessary mechanical integrity to do so, or allowing 
flow back by a combination of producing and flaring of up to 55,000 
barrels of oil per day and 95 million cubic feet of natural gas per day 
in 8000 feet of water. By April 15th, the 15 thousand pounds per square 
inch capping stack will be available.
    For the sake of context, the initial reservoir pressure at the 
Macondo well face at the time of the blowout was 11,850 psig, according 
to the U.S. Coast Guard. The well sat in 4,992 feet of water and, 
according to final government estimates, may have disgorged up to 
60,000 barrels of oil per day. It is important to note that a discharge 
rate of 60,000 barrels of oil per day does not equate to the flowback 
requirements. Flowback capacity required is meaningfully less than the 
discharge rate due to hydrostatic head and flow restrictions through 
the system. Actual flowback capacity requirements must be calculated 
for each well, but our system would have completely contained the 
Macondo well.
    Finally, as we look into the future, the HWCG is evaluating an even 
further expanded system having capability to 10,000 feet of water that 
will allow capture and flow back of up to 105,000 barrels of oil per 
day and 300 million cubic feet of natural gas per day. Approval of this 
expansion will take place only if the Members decide a system with this 
capacity is necessary. If approved by the Members, this expansion could 
be made available by 2012.
    You have asked for input on what role the Federal Government can 
play going forward to assist with further innovation. Frankly, one of 
the most innovative parts of the energy industry in the United States 
comes from a robust and healthy offshore independent oil and gas 
sector. Consistently, a diversity of players in upstream oil and gas 
have produced innovation after innovation (not always the largest 
companies), tackling technological challenges safely and effectively. 
When the government fails to respond appropriately to permitting 
concerns or creates significant doubt which undermines business 
confidence, it saps potential investment capital necessary to innovate. 
The smaller companies are more vulnerable to production delays and may 
leave the market. Ironically, if production in the Gulf should fall, 
the government is also denying itself access to revenue, making its own 
oversight job all the more difficult. So the bottom line is that in a 
world of limited resources, one of the most critical things for the 
government to do is ``to do no harm.'' And that means putting the Gulf 
back to work as soon as possible. I understand the charge of 
responsibility the government has, but quite frankly, one of the major 
impediments faced in convincing the producers to dedicate and allocate 
the means to provide a solution in a more timely manner is the 
uncertainty surrounding the government's policy as to what specifically 
will be accepted as a sufficient solution.
    Of course, the federal government has its own research and 
development resources. In the Macondo situation, the private sector 
worked hand in glove with the talented men and women of the U.S. Coast 
Guard, including its capable Research and Development division. 
Further, the research centers of the U.S. Navy were called upon to 
assess technology, particularly for surface containment applications. 
NOAA also has tremendous value to bring to bear. We certainly encourage 
those government agencies to work closely with industry organizations 
like the HWCG and the Marine Well Containment Corporation established 
by some of the major integrated oil corporations. Coordination and 
sharing ideas is very important to making advances.
    The technology we deploy is robust, but it is not inexpensive. 
Another policy the government can undertake is to assist us in 
minimizing the cost of capital by reinvigorating programs specifically 
designed to advance maritime industrial development. One familiar 
program of this type is the loan guarantee program administered by the 
U.S. Maritime Administration, or MARAD. MARAD can help responsibly and 
within fiscal constraints, and has established a proven track record 
for bringing innovative vessel designs to market. As we have seen, the 
most innovative vessel designs will be the most useful going forward. 
The Q4000, built in Texas with MARAD financing, provides an excellent 
example. As I described earlier in my testimony, the Q4000 was 
instrumental in bringing the blowout under control--and MARAD support 
helped make the Q4000 possible.
    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to testify. There is no doubt that the unique circumstances 
faced in the Gulf last year were one of the most difficult crises faced 
by our industry. But the industry has always developed innovative 
technologies and processes even in the face of the toughest challenges. 
Now, with the experience of Macondo behind us, we have learned how to 
fashion an even more appropriate and effective containment system. It 
is time to get back to work.
    Thank you.

    Chairman Harris. Thank you, Mr. Kratz.
    I now recognize our final witness, Dr. Molly Macauley, 
Research Director and Senior Fellow, Resources for the Future. 
Dr. Macauley.

 STATEMENT OF DR. MOLLY MACAULEY, RESEARCH DIRECTOR AND SENIOR 
                FELLOW, RESOURCES FOR THE FUTURE

    Dr. Macauley. Good afternoon, Chairman Harris and Ranking 
Member Miller, Subcommittee Members, and panelists. I am an 
Economist and Research Director at Resources for the Future, 
which is an economics research organization established by the 
President of the United States in 1952, and my comments today 
draw from work that I carried out together with colleagues at 
Resources for the Future, and we undertook this work for the 
National Commission on the BP Deep Water Horizon oil spill and 
offshore drilling. But my comments today are my own. They do 
not represent the views of the Commission nor of Resources for 
the Future.
    As an economist I know that jobs matter not only in the 
Gulf but to this Nation. I appreciate the role of energy. It is 
our Nation's lifeblood. I am aware of the concern expressed by 
businesses of all stripes, government and the public, about the 
need to balance the benefits of energy with the risks in 
producing energy of all types, both fossil and renewable.
    The public cares. We mourn when we lose coal miners, oil 
riggers, nuclear plant operators, and when the environment is 
harmed. I think people want government and industry to balance 
that risk, and in fact, the Nation mourned the loss of those on 
the rig. And then in addition perhaps the most disturbing 
result of the Deepwater Horizon spill a year ago was not that 
the spill could happen. Spills, small spills happen all the 
time, but that the spill could not be promptly contained, and 
containment is precisely what I have been asked to speak about 
today.
    So I will make two points. The first about containment in 
the near term over the next horizon for spills similar to last 
years roughly in about 5,000 or so feet of water, and this 
speaks to the technology that my panel colleague has just 
described.
    And then the other point I will make is something near and 
dear I think to this Subcommittee's reason for being, which is 
research and development for containment in the future, and 
this is particularly in the case of ultra-deep water. You know, 
these depths are greater than 5,000 feet, and it is a very 
extreme environment in which to operate pressure, temperature, 
geology. It is very similar in its extremities to what we do 
with our Nation's space program. It is an extreme environment. 
It is very unique in that regard, and the genus of industry is 
that it is drilling there. It is drilling successfully in 
ultra-deep water, much like we are very successful in the 
extreme environments of space.
    According to the Energy Information Administration 
production in ultra-deep water is really where the action is. 
Production at these depths has risen sharply. In fact, 
according to the EIA production there has reversed the decline 
in overall Gulf of Mexico production that began in 2003.
    So containment in the near term. As we have heard from 
Helix, industry has stepped up and committed over $1 billion to 
supply containment services for some types of spills in the 
Gulf of Mexico. Helix played a major role in helping to contain 
the Deep Water spill, and the newly formed Marine Well 
Containment Corporation, MWCC, is also part of this industry 
effort.
    I understand there are some types of spills for which these 
services are not optimized at the present time, but the 
adequacy of containment readiness is being jointly determined, 
not only what industry is willing to supply but what government 
is demanding. It is a joint effort here.
    I think where I lose sleep is on my second point. It is not 
so much containment today because there are very strong 
incentives for government and industry to make sure containment 
works. Imagine the public reaction to another large spill 
anytime soon.
    But where I lose sleep is about the next battle. Again, 
these ultra-deep water depths exceed those where MWCC and Helix 
are prepared to service at the present time, although as Helix 
mentioned, if your members agree, you may be prepared to go up 
to 10,000 feet, and that is exactly my point.
    In the event of a spill at these deeper depths, will we 
have to innovate on the fly again? What new science and 
engineering and state-of-the-art risk assessment do we need 
now? Who has this game plan? In short, are we innovating such 
that the capacity to contain keeps pace with the capacity to 
drill in increasingly extreme environments?
    Now, the National Commission acknowledged these questions. 
It did not consider them at length, and if unanswered, these 
questions point to a potentially large gap in our public 
policy. And there is a reason to ask these questions. As a 
Nation our industry and our government tends to under-invest in 
R&D for a lot of reasons. It takes money to do R&D. Sometimes 
the results aren't fully appropriable. The reward is shared 
widely, and it doesn't return to the innovator, and the problem 
with innovation in containment is particularly difficult 
because government limits liability for a spill, and regulation 
is sometimes not as effective as we would like it to be for 
these blunt incentives to contain and incentives to innovate.
    And if we discover new ways to contain, we want that 
technology widely deployed yet proprietary innovation is not 
always widely deployed. I note that the commission staff paper 
points out that a few years after the Valdez oil spill efforts 
to innovate in spill response had dwindled to almost nothing.
    So I have three suggestions for what the Committee or other 
policymakers might do. First, have some discussions, not only 
with Helix but with MWCC and others supplying containment 
services, ask them what their plans are for innovation.
    Second, already a panelist has referenced the new permanent 
federal advisory group on safety containment and response. 
Federal advisory groups can do a good job, but who is going to 
listen, who is going to act upon their suggestions?
    And third, and this is more substantial, disadvantages and 
advantages worth talking about, but we might consider changing 
the liability regime to risk-based drilling fees much like 
risk-based insurance premiums, risk-based liability caps for 
each well, or phasing in requirements for insurance to cover 
damages to third parties.
    So I think a prudent approach and the best we can do is 
make sure we align incentives to think about the R&D for the 
next battle. It still may have to occur but at least we will 
have done the in advance, long-lead kinds of research and 
development that will be necessary then.
    Thanks very much for asking me to join the panel today.
    [The prepared statement of Dr. Macauley follows:]
Prepared Statement of Dr. Molly K. Macauley, Senior Fellow and Research 
           Director, Resources for the Future, Washington, DC
    The President's Oil Spill Commission has identified a series of 
failures leading to last year's Deepwater Horizon (DH) spill in the 
Gulf of Mexico. \1\ The spill's damage came not just from the blowout 
and tragic fire, however, but was matched by the subsequent inability 
to contain the spill once it began. These efforts, from junk shots to 
top kills, took nearly three months before finally stopping the flow of 
oil.
---------------------------------------------------------------------------
    \1\  National Commission on the BP Deepwater Horizon Oil Spill and 
Offshore Drilling, Deep Water: The Gulf Oil Disaster and the Future of 
Offshore Drilling: Report to the President (Washington, DC: U.S. 
Government Printing Office), January 2011.

    In my testimony today, I have been asked by the Subcommittee to 
offer my views on the problem of containment, including incentives to 
advance the state-of-the-art in containment to keep pace with advances 
in deepwater and ultradeepwater drilling. I draw from research carried 
out with several colleagues and undertaken for the National Commission 
on the BP Deepwater Horizon Oil Spill and Offshore Drilling (Oil Spill 
Commission). \2\This research is available at the Commission's website 
and on the website of my organization, Resources for the Future, at 
www.rff.org/deepwaterdrilling.
---------------------------------------------------------------------------
    \2\  My work is coauthored with several colleagues. See Robert 
Anderson, Mark A. Cohen, Molly K. Macauley, Nathan Richardson, and Adam 
Stern, ``Organizational Design for Spill Containment in Deepwater 
Drilling Operations in the Gulf of Mexico,'' Resources for the Future 
Discussion Paper DP 10-63, January 2011, at www.rff.org/
deepwaterdrilling; and Mark A. Cohen, Molly K. Macauley, and Nathan 
Richardson, ``Containing Future Major Oil Spills,'' Resources, Winter/
Spring 2011, No. 177, pgs. 44-47, at http://www.rff.org/Publications/
Resources/Pages/The-Next-Battle-Containing-Future-Major-Oil-Spills-
177.aspx.

    I offer my views as an economist who has studied the use of new 
technology for environmental management and the economics of 
technological innovation and the environment. I have also had the 
opportunity to testify before the Committee on space technology, for 
which the problem of innovation and risk are also relevant and offer 
some parallels. I am a senior fellow and research director at Resources 
for the Future (RFF), an organization established at the request of a 
presidential commission in 1952. RFF is a nonprofit and nonpartisan 
think tank that conducts independent research, primarily using 
economics, on environmental, energy, and other natural resource issues. 
The work that my colleagues and I carried out for the Oil Spill 
Commission was conducted independently of the Commission to inform its 
deliberations. I emphasize that the views I present today are mine 
alone. Neither the work from which I draw nor my comments today 
represent the views of the Commission or RFF. RFF takes no 
institutional position on legislative, regulatory, judicial, or other 
public policy matters.
    I summarize my main points as follows:

      Adequate investment in containment R&D is essential for 
limiting damages from future offshore accidents like the Deepwater 
Horizon spill.

      Industry and government both recognize this need and are 
taking commendable steps to address it.

      Over the long term, however, there is reason to be 
concerned that existing incentives faced by industry are inadequate to 
ensure a robust and sustained investment in containment R&D.

      There is a strong argument for a government role in 
supporting containment R&D, much like the role that government has had 
in supporting R&D in other industries. This need not be a financial 
drain on an already fiscally stressed government or an onerous burden 
on industry.

The Challenge of Drilling and Containment in Deepwater

    The DH spill occurred at an underwater depth of about 5000 feet-a 
depth at the breakpoint between ``deep'' and ``ultradeep'' water. The 
spill revealed the complexities of drilling in deepwater and at the 
large depths of the well itself to reach hydrocarbon reservoirs beneath 
the ocean floor (the DH was drilling some 13,000 feet under the ocean 
floor). At these depths, particularly in the Gulf of Mexico, pressure 
is high, temperatures are extreme, and the geology is complex. Although 
industry has been drilling in deepwater for some 25 years, each well is 
said to have its own ``personality'' reflecting a complicated mix of 
unique conditions. \3\ Prior to the accident, the Minerals Management 
Service of the Department of Interior had tracked the industry's 
efforts to develop exploration and drilling operations in the 
Department's periodic reports on deepwater operations in the Gulf of 
Mexico.\4\  An independent analysis carried out by my colleagues since 
the spill has found a statistical relationship between deepwater 
drilling depth and the probability of company-reported incidents, 
suggesting that drilling at increased depths seems to result in greater 
technical challenges and therefore, may require novel approaches to 
industry operation and government regulation. \5\
---------------------------------------------------------------------------
    \3\  National Commission, p. 52.
    \4\  U.S. Department of Interior, Deepwater Gulf of Mexico 2009: 
Interim Report of 2008 Highlights, OCS Report 2009-016, May 2009.
    \5\ See Lucija Muelenbachs, Mark A. Cohen, and Todd Gerarden, 
``Preliminary Assessment of Offshore Platforms in the Gulf of Mexico,'' 
Resources for the Future Discussion Paper 10-66 (Washington, DC: 
Resources for the Future), January 2011. We note that company-reported 
incidents do not necessarily mean the release of hydrocarbons, and in 
deepwater, where more than 14,000 wells have been drilled, there had 
been only minor spills until the DH accident (Anderson and coauthors 
2011).

    The spill further revealed the challenge of containment. 
Containment is defined to include the deployment of technology, people, 
and other resources to stop additional hydrocarbon release and get a 
well back under control when a release occurs. (Containment differs 
from prevention and response; preventive actions-such as a well-
functioning blowout preventer-keep releases from occurring at all, and 
response actions deal with hydrocarbons that have escaped containment, 
such as use of booms, burning, skimming, and dispersants.) The series 
of failures before the well was finally capped and the spill contained 
revealed an inability to deal effectively with containment of a well in 
deepwater. Adequate containment capability had not appeared to keep 
pace with the impressive technological accomplishments that have 
enabled drilling in ever-deeper water.
    For many, the most disturbing result was not that a spill could 
happen, but that it could not be promptly contained. While the spill-
with the benefit of hindsight-has many lessons, one of the sharpest is 
the need for improvement in ability to contain spills that may occur in 
increasingly deepwater drilling operations. It is worth considering for 
a moment the losses to people that would have been avoided if effective 
containment technology had been in place prior to the spill.
    Recognition of this need has led to quick reactions. A few months 
after the spill was capped, a group of major drilling firms announced 
plans to invest an initial $1 billion in creating the Marine Well 
Containment Company (MWCC), a consortium to design, build, and operate 
a system capable of containing future deepwater spills in the Gulf of 
Mexico. Another company, Helix Energy Solutions, played a major role in 
the DH containment efforts and is now providing new deepwater 
containment services for some kinds of spills.
    Regulators took notice as well, updating permit requirements to 
include demonstration of ability to contain spills. Companies that have 
been issued permits since the spill have met the new requirements by 
incorporating the new containment services of Helix or MWCC. The 
Secretary of Interior has proposed a new public-private safety 
institute. The Secretary and the Director of the Bureau of Ocean Energy 
Management, Regulation and Enforcement (BOEMRE) have established the 
Ocean Energy Safety Advisory Committee, a permanent advisory group of 
leading scientific, engineering, and technical experts on offshore 
drilling safety, well containment, and spill response. \6\
---------------------------------------------------------------------------
    \6\ See http://www.doi.gov/news/pressreleases/Salazar-Proposes-
Ocean-Energy-Safety-Institute.cfm (accessed April 1 2011) and http://
www.doi.gov/news/pressreleases/Salazar-Names-Members-of-Ocean-Energy-
Safety-Advisory-Committee-to-Guide-Oil-and-Gas-Regulatory-Program-
Reform.cfm# (accessed April 1 2011).

    Are these steps likely to be enough to ensure future readiness and 
effectiveness in containing the next deepwater spill? Research 
undertaken with my colleagues indicates that while developments so far 
are positive, much more needs to be done, both in terms of government 
policy and industry commitments.

Incentives to Invest in Containment and in Containment Research and 
                    Development

    It is well recognized that limited liability and sometimes-
ineffective regulatory oversight can lead people naturally to 
underinvest in safety, environmental protection, and other activities 
that protect parties other than themselves. To be sure, no one wants to 
hurt companies, shareholders, and customers by causing harm to workers, 
incurring business disruption, losing expensive equipment, or losing 
revenue. The question here, and for government, is something more: 
whether firms have adequate incentives to minimize additional harm to 
third parties (people, other businesses, ecosystems, public health). 
Liability caps and ineffective regulatory oversight limit incentives to 
protect these third parties. Striking the right balance in public 
policy to protect third parties is essential but not easy.
    Government intervention such as this results in a situation where 
government co-produces risk together with industry. In other words, by 
limiting liability, government (and taxpayers) assume part of the 
financial risk not covered by the firm and its shareholders. Similarly, 
by regulating safety and other operating conditions, government assigns 
some risk to workers and other parties, and some to industry. Measures 
to enhance incentives, such as raising or eliminating liability caps, 
will push firms to make greater containment investments and reduce the 
burden borne by taxpayers. My colleagues and others have suggested 
alternatives to eliminating the liability caps altogether, recognizing 
the disproportionate burden this could impose on smaller firms and a 
possible chilling effect on insurers. \7\ For example, alternatives 
include a separate, risk-based liability cap for each well determined 
by the estimated worst-case discharge for each well; requiring firms to 
demonstrate financial responsibility up to the level of the cap; 
phasing in requirements for third-party insurance to fully cover 
financial responsibility; and introducing risk-based drilling fees 
(much like risk-based insurance premiums).
---------------------------------------------------------------------------
    \7\  Mark A. Cohen, Madeline Gottlieb, Josh Linn, and Nathan 
Richardson, ``Deepwater Drilling: Law, Policy, and Economics of Firm 
Organization and Safety,'' Resources for the Future Discussion Paper 
10-65, January 2011.

    To be sure, part of the reason for past underpreparedness to 
contain large spills like the Deepwater Horizon was a widespread belief 
that such spills were either extremely unlikely or impossible. Yet that 
belief failed to take into account that deepwater drilling is more 
complex and riskier, and that risk assessments did not adequately 
account for these complications. \8\ Policy changes to take account of 
these complexities and to increase financial liability will strengthen 
incentives to invest in containment.
---------------------------------------------------------------------------
    \8\  Much like the accident of the space shuttle Columbia, 
occurring 21 years after the first operational shuttle flight, or the 
failure of the long-operating nuclear power plant in Japan, the DH 
spill shows the consequences of a sequence of individual failures in 
large-scale technology systems even when none of the individual 
failures alone is by itself catastrophic.Cooke and coauthors recommend 
use of an approach, known as accident sequence precursor analysis, for 
assessing risks in deepwater drilling; this approach models situations 
when failure can happen as a result of a sequence of individual 
failures see Roger Cooke, Heather Ross, and Adam Stern, ``Precursor 
Analysis for Offshore Oil and Gas Drilling,'' Resources for the Future 
Discussion Paper 10-61, January 2011, at htpp://www.rff.org).

    Incentives for research and development in containment are another 
concern, one that is separate but related to the problem of incentives 
to invest in containment alone. Even if changes in liability led firms 
to perfectly internalize damages in the event of a spill, industry may 
underinvest in containment R&D. Yet innovation in containment is 
necessary to keep up with innovation in deepwater and ultradeepwater 
drilling.
    Underinvestment in R&D is one of the most-studied but, as yet, 
incompletely answered questions in technology policy. Incentives to 
innovate depend on several conditions being met: obviously, first the 
ability of firms to fund R&D, then the ability to appropriate the 
returns to invention, and at the same time, protect intellectual 
property embodied in the invention. These conditions can sometimes be 
hard to meet, hence the tendency of firms to underinvest in R&D. 
Moreover, another problem arises in the special case of innovation 
that, if widely deployed, would serve the public, not just the 
individual firm carrying out the innovation. Containment to protect 
third parties has this potential problem. Incentives are weakened when 
damages to third parties are not fully borne by the firms 
(circumstances related to the liability and regulatory problem 
discussed above). The proprietary nature of innovation, the need to 
deploy it widely to serve broader public interests, and the limits on 
damages internalized by firms all tend to reduce incentives to invest 
in containment R&D. This result calls into question whether we will be 
able in the future, without making the up-front investment in R&D now, 
to deploy state-of-the-art containment technology in increasingly 
deeper water in the coming years.
    On this point, the extent of innovation likely to be taken by 
industry as a whole, or by MWCC and Helix, is not clear. The services 
offered by MWCC and Helix are impressive. They appear to focus, 
however, on preparing for a repeat of the Deepwater Horizon spill. 
MWCC's proposed system would not, for example, be able to contain a 
spill like the 1979 Ixtoc I event, in which the sinking rig came to 
rest on the wellhead. It also does not appear to address un- or 
underappreciated failure scenarios such as multiple simultaneous 
blowouts at different wells or a leaking well casing. It is also 
unclear the extent to which MWCC, Helix, or other containment suppliers 
will undertake R&D today, in order to provide containment tomorrow at 
future, deeper water depths.
    Based on the experience that BP has documented for responding to 
the DH spill, it is worth noting that, going forward, innovation in 
containment requires not only innovation in engineering and new 
hardware. Innovation in all of the processes, logistics, and people 
that serve to deploy the hardware and make decisions in real-time and 
under the duress of an emergency is also necessary. These systems, 
processes, procedures, and organization of people who will be called 
upon to deploy and manage containment activities are a necessary part 
of containment readiness. To illustrate this point, Box 1 shows the 
wide range of innovations, in addition to equipment, listed by BP as 
required in responding to the DH spill.


    Because incentives can be weak for investing in R&D to prepare for 
future containment, it may be that industry containment suppliers, 
while ready for spills similar to DH, may have less capacity to advance 
the state-of-the-art in containment to keep pace with ongoing 
innovation in drilling in the extreme operating environment of 
increasingly deep water. It also may be that R&D in containment is not 
part of the mission of these containment suppliers. If this is the 
case, then ascertaining who will be responsible for leading the next 
generation of containment research, prototyping, and testing is a 
fundamental question with keen policy importance. This doesn't mean 
that ongoing containment plans and systems won't have value, but it 
will likely mean that in the event of a new catastrophic spill, these 
plans will have to be adapted and updated on the fly-much as was 
necessary for the recent spill.

Recommendations

    My colleagues and I suggest moving beyond this rearward focus and 
devoting resources toward a more comprehensive examination of future 
scenarios, particularly since future drilling efforts are expected to 
reach ever-increasing water depths. This recommendation is wholly 
aligned with experience in other technologies under this Committee's 
purview, including space transportation, for instance. Much like the 
post-shuttle accidents, expert analysis and risk assessment, both by 
industry and by third parties, are needed. War gaming to test 
procedures and failure scenarios would inform this analysis and improve 
preparedness. Creation of a center of excellence specifically to carry 
out state-of-the-art research in deepwater and ultradeepwater 
containment, again with third-party involvement, would be a welcome 
development.
    The recent history of spill response (clean-up) technology gives 
some reason for concern that industry efforts to prepare for the next 
spill may still fall short over the longer run. Regulatory requirements 
and industry resources for response were increased following the Exxon 
Valdez spill in 1989. The Marine Spill Response Corporation (MSRC) was 
created as an industry collaboration with many similarities to MWCC. 
But the Oil Spill Commission report found that despite claims by 
industry, the evidence suggests that little investment has gone into 
response and containment technologies. One of the staff papers 
published by the Commission finds that ``despite industry claims that 
the oil industry committed significant funds to clean-up technology R&D 
in the years immediately following the Exxon Valdez spill this 
commitment quickly waned. Industry funding for response R&D fell off 
after the mid-1990s. Today, oil companies invest `little to no' money 
in oil spill response technology.'' \9\ Private companies entered the 
business, but did not significantly expand response capability. The 
same series of events could occur in containment if the current focus 
is not translated into an ongoing commitment to innovation.
---------------------------------------------------------------------------
    \9\ SeeResponse/Clean-Up Technology Research & Development and the 
BP Deepwater Horizon Oil Spill, Staff Working Paper No. 7, National 
Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 
11 January 2011, p. 3, at http://www.oilspillcommission.gov/sites/
default/files/documents/Updated%20Response%20RD%20Working%20Pa per.pdf 
(accessed April 3, 2011).
---------------------------------------------------------------------------
    Part of this commitment must come from industry. Even if permit 
requirements ensure that the containment plans submitted to regulators 
are grounded in sound technology and practices, and capable of 
replicating the containment needs displayed during the DH spill, we 
lack assurance of continued investment in R&D to go beyond current 
capabilities-especially as we continue to drill into deeper waters. For 
example, a governance structure for MWCC that includes either public-
interest board members or an external third-party expert panel and 
transparent disclosures of expenditures might provide some assurance 
that R&D is adequately funded and containment technology keeps up with 
the latest drilling depths. Some direct or indirect government 
oversight and support of containment R&D may be warranted-for example, 
to encourage frontier academic research and its application-given the 
difficulty for any individual company to fully appropriate the returns 
to innovation. One route may be to link directly the recommendations of 
the new safety advisory Committee with an existing energy research 
partnership that was established by the Energy Policy Act of 2005. \10\
---------------------------------------------------------------------------
    \10\ This partnership is the Research Partnership to Secure Energy 
for America (RPSEA), a consortium of industry and academic experts. At 
present, the emphasis in RPSEA's mission statement, its annual draft 
plan for 2011, and current list of funded activities appears to be on 
new technology and engineering but not containment per se or related 
organizational and process design and risk assessment. Perhaps the 
mission and activities could be realigned to include a focus on 
containment R&D.

---------------------------------------------------------------------------
Conclusions

    Deepwater Horizon revealed a failure of spill containment. That 
failure was partly technological, but it was ultimately human. The 
MWCC, the Helix services, and updated permit requirements show 
recognition of this and are undoubtedly positive steps. But the 
opportunity created by momentary attention to containment should not be 
lost. Other measures are needed as well, including attention to 
incentives that are blunted by liability limits, consideration of a 
wide range of failure scenarios, use of third-party review, and 
commitment to ongoing innovation in spill containment to match the pace 
of innovation in drilling.

    Chairman Harris. Thank you very much, Dr. Macauley, and 
thanks to all the panel Members for their testimony.
    Reminding Members of the Committee rules. Limit questioning 
for five minutes, and the Chair at this point will open the 
round of questions, and I will recognize myself for the first 
five minutes.
    Dr. Der, thank you very, very much for coming and 
testifying before the Committee. My understanding from your 
testimony is that once again the President's budget reposes 
repeal of the ultra-deep water and unconventional natural gas 
and other petroleum research fund, and I have got to ask that 
given the fact that we are recently--it is coming to our 
attention that our oil reserves, our recoverable reserves both 
for oil and especially now for natural gas, are coming to be 
realized that we have these reserves, why don't you think there 
is a role for the government in trying to figure out how to get 
to them safely, not just safety but how to, you know, 
partnering with industry or, in fact, doing some of the 
research.
    You know, my understanding that, for instance, the research 
to get to our shale natural gas, you know, is one fellow who 
thought, yes, this could be done when everybody else said, no, 
it couldn't be done, but--it took him years and years to figure 
it out with apparently little help from the government, even 
though we sit on these resources.
    So, Doctor, why is it not appropriate for the government to 
actually help as part of this program to do some of that 
innovative research that could get to more of our oil and 
natural gas given the rising price of energy, the rising cost 
of gas?
    Dr. Der. Thank you for the question here. I want to let you 
know that this innovative person who developed and 
commercialized the technology for hydrofracking, and horizontal 
drilling was, in fact, a result of the early research that the 
Department of Energy has engaged in. We had spent I think on 
the order of something like $137 million between the 1980s and 
1990s to release trillions and trillions of potential in terms 
of natural gas in this country.
    So the role of the government early on is there, but oil 
and gas production is a fairly mature technology, and the 
industry and the Administration's opinion is that industry is 
well capable of investing in these types of technologies to 
unlock and unleash these potential domestic resources that we 
have in our country.
    Continuing forward I think that we do have a role in 
helping advise and assist where necessary in terms of safe and 
responsible drilling in areas such as the ultra-deep regime. 
But, again, the Administration's position is that the oil 
companies and gas companies and the majors are very well 
equipped to make these types of investments on their own with 
the guidance from groups such as this advisory Committee I 
spoke of in my opening statement.
    Chairman Harris. Yes. Thank you. I guess the only follow up 
I would say is if you think that those $137 million which we 
invested in the past had something to do with leading to the 
development of the new technology to unlock some of the natural 
gas, it almost makes an argument for continuing for the 
government to do things like that because that has yielded some 
result.
    Mr. Miller, let me ask you a question because, you know, it 
appears that we are going to be buying oil that is found in 
deep waters off Brazil, that there is a national decision that 
has been made to invest billions of dollars through the Export-
Import bank to do deep water drilling off Brazil.
    So I have got to ask you, what are the standards that they 
are going to have? I mean, because, you know, the API is 
developing all these standards. First of all, is there an 
international equivalent of the API? Are they ahead of us or 
behind us on these standards? I mean, you know, it begs the 
question how do we make certain that when we are supporting 
this drilling elsewhere in the world, how do we know that it is 
going to be up to the standards that we hope to have here in 
the United States?
    Mr. Miller. Thank you for the question. There are really a 
couple of ways to answer that, Chairman. The first way is that 
API as was mentioned when you gave my bio, is very involved in 
international standards development, and I am the chairman of 
the ANSI International Policy Committee, and one of the things 
we look at is how industries work with the International 
Organization for Standardization or ISO, which is based in 
Geneva and develops standards that are worldwide recognized.
    And in our support of that particular set of Committees 
that develop international oil and natural gas standards, 
approximately 70 percent of the standards that they have 
developed under that one Committee are base API standards. So 
number one, we have worked with our international counterparts 
to make sure that these best practices are moved around the 
world and used around the world.
    The second point I would make is that in a study that was 
done last year by the UK-based Oil and Gas Producers' 
Association, looking at 14 different producing regions around 
the world, they found that API standards were the most widely 
referenced by the regulators, with over 225 citations in 
addition to the citations here in the United States. So the 
regulatory regime is there for both the standards to have been 
transferred and used through the ISO process or the 
International Organization for Standards Processing in addition 
to the regulators using the API standards for their regulations 
as well.
    Chairman Harris. So in Brazil if they are going to drill 
using those standards, then your feeling would be that since 
those standards roughly are going to be equivalent to the 
standards we have here, then perhaps we should be doing it here 
as well. I take it that you think they are roughly equivalent.
    Mr. Miller. Absolutely. I would think that with the strong 
records we have here we should be expanding our drilling 
operations here in the states.
    Chairman Harris. Thank you very much.
    I now recognize Mr. Miller.
    Mr. Miller of North Carolina. Thank you, Mr. Chairman. Just 
as a layman, when I hear that there is a device called a 
blowout preventer on a well and the well has a blowout, my 
conclusion is that the blowout preventer probably didn't work.
    Mr. Miller, is there a flaw in that reasoning?
    Mr. Miller. To answer your question, I know that there has 
been a study that has just been released that has come out that 
is looking at some of the potential problems that occurred in 
the Deep Water Horizon. We have got a group of technical 
experts that are looking at the standards that cover blowout 
preventer design and operation, and in addition to other items 
that we were already looking at, we are looking at that case 
where you did have that uncontrolled kick, if you will, that 
according to the study, and we haven't fully had a chance to 
digest it yet because it is over 500 pages, where they 
theorized that the kick, the uncontrolled release pushed the 
pipe into a place where the sheer rams did not fully close.
    So we are looking at those design requirements to make sure 
that as we update the standard we consider those results.
    Mr. Miller of North Carolina. Well, some scientists or some 
engineers who have looked at this have said that the assumption 
that the pipe would be centered at that depth with those 
pressures from every direction, that those pressures were not 
unusual. I mean, they are usually unusual, and some engineers 
have said that if it was actually centered, it would be just 
dumb luck. It would be like a stopped clock being correct. It 
does happen twice a day, but it is really just dumb luck.
    What are the differences between drilling or the safety 
considerations, the technological challenges in safety and the 
environmental protection between shallow water and deep water 
drilling?
    Mr. Miller. Well, I am not a drilling expert, but I can 
talk a little bit about the equipment itself. It is governed by 
12 separate regulations under BOEMRE. In each one of your BOP's 
you are required to have at least one annular ram, which is 
sort of the rubber donut that sits on top, two pipe rams, which 
do help you center the pipe and also can help you close in a 
blowout, and then finally a blind sheer ram that closes that.
    One of the other things that we are looking at is that we 
understand, and this was just announced I think earlier in this 
week, that we will be seeing additional proposed regulations 
from BOEMRE. We understand there will be an advanced notice of 
proposed rulemaking on BOP design and manufacture and 
operations. So we will have a chance to take a look at what 
they are believing we need to be looking at as far as our 
design requirements, those particular pieces of equipment.
    Mr. Miller of North Carolina. Uh-huh. What role, if any,--
well, you really are not claiming any expertise in drilling or 
drilling safety?
    Mr. Miller. No. My expertise is in standards and standards 
development and the technical standards that support drilling 
operations and equipment but not as a petroleum engineer, 
drilling engineer.
    Mr. Miller of North Carolina. Okay. Well----
    Mr. Kratz. Would you mind if I added something to that?
    Mr. Miller of North Carolina. Yes, sir.
    Mr. Kratz. I think it is important in any discussion, and I 
am not an expert on BOPs, but any discussion about BOPs I think 
it is important to understand that any technology has 
operational limits, and I am not making a comment on Macondo or 
not, but the BOP is actually the last barrier of defense in a 
series of barriers used to control a drilling operation.
    So when you say the BOP failed, what has to occur for that 
to happen is several other systems have to fail as well, and I 
think what Macondo has taught is that no matter how well the 
system is designed, and I think the government, the BOM has it 
right on this, you can't rely totally on prevention, and that 
is where the missing link of the next step of containment comes 
in is for the inevitable.
    Mr. Miller of North Carolina. Okay. Well, I am in search 
for a witness who seems to have expertise on a topic I want to 
ask about.
    Dr. Macauley, you were an economist, Ph.D., and you 
mentioned liability and liability caps and the affect that had 
on innovation in the safety area. I don't claim to be an 
economist, but I have studied kind of the economics of 
liability, the theory behind legal liability and that potential 
liability is kind of the economic incentive to safety 
practices.
    What is the economic effect of setting a cap, a liability 
cap on safety innovation?
    Dr. Macauley. Yeah. It is an excellent question, because it 
is so relevant to what we are discussing. A liability cap, 
caps-led industry will be liable for and who foots the bill 
then? The other parties, the taxpayers in this case. Liability 
caps serve important purposes. They are often thought to allow 
small companies to enter in, and you don't have to back the 
company in order to provide a useful public service, in this 
case, offshore drilling.
    On the other hand, the very fact that you have a cap does 
say, well, who will pay, taxpayers, but we have this tradeoff. 
We are allowing small companies to participate, provide that 
competition. So setting the liability cap is really important.
    To the extent it can be related to the risk, then you begin 
to put incentives in place to bring about the very prevention 
containment and effective response that we are talking about, 
though.
    Mr. Miller of North Carolina. I am sorry. Will the 
liability--will the safety efforts match the potential 
liability if there is a liability cap?
    Dr. Macauley. I think that industry has an incentive to pay 
attention to the liability cap to protect its shareholders. 
Industry also has a reputation to uphold, though, so it may 
well be that industry acts beyond the cap because reputation 
really matters, what the public thinks is very critically 
important as we know in the case of nuclear power plant safety.
    So the role of the liability cap is a complex one.
    Mr. Miller of North Carolina. Mr. Chairman, I see my time 
has expired. There are three documents, studies of this 
disaster that I would like to enter into the record. The first 
is the study--and in each case I have excepted out the portions 
that seem to be pertinent. If the Chair wants to add additional 
chapters, that is fine, but these seem to be the ones 
pertinent.
    The first is a report by the Det Norske Veritas on their 
forensics examination of Deep Water Horizon's blowout preventer 
that they undertook for the Department of Interior. DNV 
concluded that the buckled drill pipe inside the blowout 
preventer obstructed the blind sheer rams that the witnesses 
just described in their ability to sheer the pipe fully and 
seal the well. And in addition to the introduction, Chapter 4 
would be sufficient to deal with those conclusions.
    And then two other documents from the Department of 
Interior. One is investigation, MMS report 2001-009, and report 
2004, page 21, conclusion six, and page 5. Those appear to 
indicate that BOP failure similar to that depicted in the DNV 
report had occurred in the past decade on two other occasions.
    And Mr. Chairman, I would now move these three documents be 
inserted into the record.
    Chairman Harris. I thank you very much. I thank the Ranking 
Member for sharing that with staff and without objection, so 
ordered.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] 65490.001
    
    [GRAPHIC] [TIFF OMITTED] 65490.002
    
    [GRAPHIC] [TIFF OMITTED] 65490.003
    
    [GRAPHIC] [TIFF OMITTED] 65490.004
    
    [GRAPHIC] [TIFF OMITTED] 65490.005
    
    [GRAPHIC] [TIFF OMITTED] 65490.006
    
    [GRAPHIC] [TIFF OMITTED] 65490.007
    
    [GRAPHIC] [TIFF OMITTED] 65490.008
    
    [GRAPHIC] [TIFF OMITTED] 65490.009
    
    [GRAPHIC] [TIFF OMITTED] 65490.010
    
    [GRAPHIC] [TIFF OMITTED] 65490.011
    
    [GRAPHIC] [TIFF OMITTED] 65490.012
    
    [GRAPHIC] [TIFF OMITTED] 65490.013
    
    [GRAPHIC] [TIFF OMITTED] 65490.014
    
    [GRAPHIC] [TIFF OMITTED] 65490.015
    
    [GRAPHIC] [TIFF OMITTED] 65490.016
    
    [GRAPHIC] [TIFF OMITTED] 65490.017
    
    [GRAPHIC] [TIFF OMITTED] 65490.018
    
    [GRAPHIC] [TIFF OMITTED] 65490.019
    
    [GRAPHIC] [TIFF OMITTED] 65490.020
    
    [GRAPHIC] [TIFF OMITTED] 65490.021
    
    [GRAPHIC] [TIFF OMITTED] 65490.022
    
    [GRAPHIC] [TIFF OMITTED] 65490.023
    
    [GRAPHIC] [TIFF OMITTED] 65490.024
    
    [GRAPHIC] [TIFF OMITTED] 65490.025
    
    [GRAPHIC] [TIFF OMITTED] 65490.026
    
    [GRAPHIC] [TIFF OMITTED] 65490.027
    
    [GRAPHIC] [TIFF OMITTED] 65490.028
    
    [GRAPHIC] [TIFF OMITTED] 65490.029
    
    [GRAPHIC] [TIFF OMITTED] 65490.030
    
    [GRAPHIC] [TIFF OMITTED] 65490.031
    
    [GRAPHIC] [TIFF OMITTED] 65490.032
    
    [GRAPHIC] [TIFF OMITTED] 65490.033
    
    [GRAPHIC] [TIFF OMITTED] 65490.034
    
    [GRAPHIC] [TIFF OMITTED] 65490.035
    
    [GRAPHIC] [TIFF OMITTED] 65490.036
    
    [GRAPHIC] [TIFF OMITTED] 65490.037
    
    [GRAPHIC] [TIFF OMITTED] 65490.038
    
    [GRAPHIC] [TIFF OMITTED] 65490.039
    
    [GRAPHIC] [TIFF OMITTED] 65490.040
    
    [GRAPHIC] [TIFF OMITTED] 65490.041
    
    [GRAPHIC] [TIFF OMITTED] 65490.042
    
    [GRAPHIC] [TIFF OMITTED] 65490.043
    
    [GRAPHIC] [TIFF OMITTED] 65490.044
    
    [GRAPHIC] [TIFF OMITTED] 65490.045
    
    [GRAPHIC] [TIFF OMITTED] 65490.046
    
    [GRAPHIC] [TIFF OMITTED] 65490.047
    
    [GRAPHIC] [TIFF OMITTED] 65490.048
    
    [GRAPHIC] [TIFF OMITTED] 65490.049
    
    [GRAPHIC] [TIFF OMITTED] 65490.050
    
    Chairman Harris. With respect to the DNV report on the 
blowout preventer I think it is worth noting for the record 
there appears to remain a great deal of uncertainty surrounding 
what actually did happen that day and the conclusions reached 
in the report itself, so to that end I would like to enter into 
the record an article from the New Orleans Times-Picayune that 
summarizes some of the issues in question, in particular the 
accuracy of DNV's computer modeling that they use in their 
report of the blowout preventer. So thank you.
    [The information follows:]
    
    
    Mr. Miller of North Carolina. Is that the article that 
really talks about the lawyers questioning of the--okay. Well, 
I certainly welcome the Chairman treating lawyers as expert on 
all topics on which they represent a client.
    Chairman Harris. That may be unusual for this physician, 
but anyway, Ms. Woolsey, you are recognized.
    Ms. Woolsey. Thank you, Mr. Chairman. Mr. Chairman, for as 
complicated as this topic is, I feel like my questions are 
really basic, but I think they are necessary.
    So, Mr. Kratz, when you were talking about Helix's fast 
response system being ready and up and ready to go now, how 
long did that take to develop, and what if we had had it in 
place before the Deepwater Horizon oil spill? How much 
difference would there have been in the results, and why aren't 
we doing this sooner?
    Mr. Kratz. I think it is important to note that Helix is a 
well-intervention company, which is different from a well 
service company like a Schlumberger or Halliburton. They are 
the ones that actually do the work down inside the well. 
Helix's expertise is actually getting onto a well and into a 
well. What we do every day with our vessels is intervene into 
live oil wells--and then allow the service companies to do the 
work.
    So getting into the well is not new technology. In fact, 
the capping stack that we have we actually fabricated two years 
prior to Macondo so that the technology is there. We do it 
every day. It is reliable. The issue really is on readiness and 
preparedness because it is a complicated operation, and it 
takes an awful lot of people to be coordinated, and that is 
where the consortium has spent a lot of their time on preparing 
these procedures, and we have actually run two tabletop drills 
now just to refine it, where you are actually simulating a 
crisis and trying to------
    Ms. Woolsey. Let me just interrupt a minute.
    Mr. Kratz. Sure.
    Ms. Woolsey. That is why we care about this and this 
testimony on this subject today. So why didn't we have all that 
tabletop exercise done before this all happened? I mean, were 
people just taking it for granted?
    Mr. Kratz. That is a good question. I think the industry's 
predominant view was on prevention and probably an over-
reliance on prevention, and I think following the Valdez 
incident there was a lot of focus on spill cleanup. The part 
that, you know, and there was supposed to be a renewal and--but 
as the industry went deeper, the missing link between the 
inevitable spill and the cleanup was sort of overlooked. And 
the innovation of our equipment for application onto the 
blowout actually came from the fact that innovation occurs 
through the commercial incentive of the well intervention 
market. It just happens that the same technology is very easily 
applied to blowout containment.
    Ms. Woolsey. Okay, and with the idea that April 11 the new 
system will be up and ready to go feels a little bit like, 
well, company is coming. I am going to be a witness. I need 
to--we better hustle and get this done, but whatever, whatever 
the incentive was. It is good that you have that new technology 
developed or system developed.
    Mr. Kratz. We are actually late.
    Ms. Woolsey. Well------
    Mr. Kratz. We had promised it over a month ago, so we are 
behind schedule.
    Ms. Woolsey. Okay. Well, get on with it.
    Dr. Der, last year this Committee and the full House passed 
my legislation, the Oil Pollution R&D Program Reauthorization 
Act, which would have doubled the federal investment in oil 
spill response technologies, and unfortunately, the bill was 
not taken up by the Senate.
    But my question to you is in your opinion would doubling--
is it--I mean, currently do we have enough federal investment 
or would it have been better to pass this and double the 
investment in oil spill technologies? How much do we need, and 
who should contribute?
    Dr. Der. Well, as I mentioned before, and I think the 
Secretary of energy has testified that the funding of oil and 
gas research relating to safety and environmental mitigation 
should be the responsibility of the industry since they are a 
very big industry, they can afford to do that kind of work. Our 
role in the Department of Energy would be to help guide some of 
that activity, but I think in the end it should be funded by 
industry. Our ongoing work in Section 999 has refocused the 
emphasis on safety and response and environmental aspects and 
sustainability.
    Ms. Woolsey. So, your current budget in order to do this 
oversight that you--encouragement, is it enough, or would you 
prefer that we increase it?
    Dr. Der. Primarily I would have to say that the response to 
oil spills is primarily the responsibility of the U.S. Coast 
Guard and those programs that come under its purview, but the 
Department of Energy does have a lot of technical expertise 
that could help in that regard.
    Ms. Woolsey. That is right, and the Department of Energy is 
part of the team of the Coast Guard and NOAA to keep these 
systems and these programs current. I mean, we were way back in 
another century virtually when we got--came forward for this 
deep water protection and know how.
    So okay. I just wanted to make sure you knew that we were 
trying to get you more.
    Dr. Der. Appreciate it. Thank you.
    Chairman Harris. Thank you, and I am going to take the 
opportunity to ask a few more questions and give the 
opportunity to any member here to continue questioning at this 
point.
    Mr. Kratz, let me ask you a question--to recap part of your 
testimony, obviously from your testimony had that accident 
occurred after April 15 when this 15,000 pound per square inch 
cap would be available, your opinion would be that could have 
been contained?
    Mr. Kratz. Our current depth, the 10,000 pound cap could 
have contained the well.
    Chairman Harris. Well, I thought the testimony was that the 
measured pressure was 11,800 or something. It is in your------
    Mr. Kratz. Yeah. Shut-in pressure that was within------
    Chairman Harris. Okay. So that could even be done by the 
system we have now. So let me ask you. Where does that stand, 
that kind of pressure? Where does that stand within the range 
of what is--and I got to ask. Are pressures always measured? 
Are these estimated pressures? What are they?
    Mr. Kratz. The shutting pressure?
    Chairman Harris. Yes.
    Mr. Kratz. That would be read off of a gauge.
    Chairman Harris. So it is measure--all right. So what is 
the range of measured pressures that you have? As we gauge 
whether or not your systems would be adequate to reasonably, 
very--prevent the vast, you know, virtually 99.9 percent of 
these kind of problems. What is the range of pressures that are 
measured?
    Mr. Kratz. A majority of the systems internationally might 
comment on it, but are rated at 10,000 PSI. It is only more 
recently that the 15,000 PSI pressures have been encountered, 
and you are seeing a greater and greater proliferation of it, 
but still, 15,000 PSI is relatively rare.
    Chairman Harris. That would be rare. And--let me ask you. 
Do you--does your company also do bioremediation, or is that 
the idea of developing something that eventually--if some oil 
spills, you know, some bacteria or some organism actually just 
consumes it?
    Mr. Kratz. No.
    Chairman Harris. Who does that?
    Mr. Kratz. I believe that would come more under the purview 
of spill cleanup kind of a company, which we are not involved 
with.
    Chairman Harris. Well, Dr. Der, let me ask you. Has your 
shop done any of this? I mean, that would come right under the 
purview of environmental, you know, environmental protections 
against spills, and you know, that is the kind of biological 
development that may fall in the cracks. I mean, you know, I 
don't think the NIH is doing it, you know. Mr. Kratz is not 
going to do it. Who would be doing that, and how are we 
developing those other--those alternative, those thinking 
outside the box techniques?
    Dr. Der. Well, again, the response capability to spill 
response is the U.S. Coast Guard's, but I think the 
technologies that we have been working on in the laboratories 
may have some bearing on that. Again, our role is to help, 
assist and to advise through our program with the Safety 
Advisory Committee.
    Chairman Harris. But is it funded through this program? 
Because, I mean, the recommendation was to eliminate this 
program, and my only response is as I think Dr. Macauley 
mentioned, there are some things that probably you might need, 
you know, government research support in order to develop some 
things to make these types of endeavors, these exploration and 
production endeavors that are safe.
    Dr. Der. The program that we have currently and under the 
Section 999 was refocused from the efficiency and economics of 
production into safety and environmental aspects, and I am not 
100 percent clear that we have that funding under Section 999.
    Chairman Harris. Well, but why not? I mean--why would you 
want to zero out a program when there are questions that, 
really some basic questions that could be answered that could 
result in, in fact, even say for production and exploration.
    Dr. Der. Well------
    Chairman Harris. I guess I am asking--are we really sure 
there is not a role for some basic research to be done to make 
these techniques production, exploration safe and 
environmentally sound?
    Dr. Der. I think there is, but my point is that the funding 
of those types of technologies should come from industry, and 
they can make use of the resources that we at the Department of 
Energy and our national labs have.
    Chairman Harris. So that would be in contra-distinction to, 
for instance, how we handle medical research where you could 
say, look, you know, medical device companies, hospitals, they 
all make a lot of money, but yet--we think there is a role for 
some basic research in other areas of the government. So you 
think we should just think about this completely differently?
    Mr. Der. I am not familiar with the medical field, sir.
    Chairman Harris. Well, we spend tens of billions of dollars 
on research that one could make the argument that some 
pharmaceutical company should fund, some medical device company 
should fund, so, you know, someone who is going to make money 
on the final product should fund it.
    So I just ask that you consider that it is my opinion that 
there may be areas like that.
    And, Dr. Macauley, I was going to just ask you because you 
mentioned it and perhaps there may be some errors. I mean, what 
kinds of new science do you think might be under the purview of 
the Federal Government to be involved in? Basic materials? 
Yeah. Bioremediation. What do you think?
    Dr. Macauley. Yeah. I think this discussion of what is the 
basic research is an interesting one. My colleagues and I when 
we were working for the--on our research project, we were 
searching to find a discussion of the R&D that would be needed 
to see how much of it is basic, how much of it is development, 
how much is it ready to prototype. This is why I think there is 
a policy gap at the moment. I am not sure we have a full 
understand, and if it is really, really basic research, it 
could be exactly what we need for, you know, the stem concerns, 
the science, technology, et cetera.
    So I would love to see that intersection, but we weren't 
able to find anything, you know.
    Chairman Harris. That is being done. Well, thank you very 
much.
    Mr. Miller.
    Mr. Miller of North Carolina. Thank you, Mr. Chairman. I 
think when the Chairman and I agree we should pause and 
celebrate that as we did when he earlier agreed to the 
expertise of lawyers on almost any topic.
    But--and I am very pleased to hear you supporting research, 
but we saw in H.R. 1 dramatic cuts in research funding and even 
in this Committee just a couple, three weeks ago cuts to the 
FAA's Authorization Bill for research into, flight safety.--
Icing, human error, cockpit fires, and smoke-- and the argument 
for cutting that funding was that that it was applied as 
opposed to basic research, and applied research should be paid 
for by the industry, not by the government.
    It certainly appears that this industry, the oil and gas 
industry, is vastly more profitable than the airline industry, 
and I know that there is not a bell that sounds when basic 
research crosses over into applied research, but is correcting 
the flaws in a blowout preventer or containment technologies 
basic or applied research? Anyone? Dr. Macauley?
    And do you agree with that distinction and that we 
shouldn't fund applied research?
    Ms. Macauley. I never argue for government intervention 
unless it seems to really, really be necessary, and I comment 
that industry will do the innovation on its own. Sometimes 
industry does, something industry doesn't, and it is 
identifying is there a market failure in R&D to ensure the 
health of our offshore deep water drilling industry.
    That is a gap in our understanding as policymakers at the 
moment, and I do hope that we can get a better handle on where 
those gaps are and what is the nature of the R&D, and who is 
doing it.
    Mr. Miller of North Carolina. Okay. Well, Dr. Macauley, you 
said that there was more than just the economic consideration 
of liability. There is reputation at stake. But I have seen 
folks who have made a whole lot of money doing really 
disreputable things be accepted into polite society, and their 
acceptance seems to have been greased by how much money they 
had.
    Now, I know that Tony Hayward, it appeared to hurt his 
feelings how much criticism he got. This industry seems to be 
vastly profitable and not terribly bothered by the bad press 
that they may have gotten.
    Mr. Miller, what percentage of the industry's profits went 
into safety research and development before this?
    Mr. Miller. Well, I don't have that information with me, 
but I know that we have done studies on the basic R&D that the 
industry does and percentages and to different areas, and I 
will be happy to get that information back to you. I just don't 
have it with me.
    Mr. Miller of North Carolina. Okay. Anyone else venture a 
guess on that?
    Okay. Mr. Chairman, I yield back.
    Chairman Harris. Thank you very much, and I would like to 
recognize the Chairman of the Committee, Mr. Hall, for any 
questions.
    Chairman Hall. Mr. Chairman, since like everybody up and 
down the row here on both sides have other things they have 
been doing all day today and the problems we have, I have been 
looking for a doctor to give me an appointment tomorrow to take 
my appendix out again where I won't have to cast those bad 
votes tomorrow, but I haven't been able to get that.
    But I won't take their time because------
    Chairman Harris. I could do the anesthesia.
    Chairman Hall. --I don't know what has been asked, but if I 
might, I will send some questions in, and I am sure they will 
answer them if you as them to properly.
    Chairman Harris. Thank you very much, Mr. Chairman.
    Chairman Hall. Thank you.
    Chairman Harris. I am just going to follow up just one very 
brief question before we close the meeting.
    I guess--along the lines of what I was suggesting was, for 
instance, I am going to ask Mr. Kratz and maybe Mr. Miller, you 
know, when you design, for instance, you showed us all the 
materials that you are going to put down under, you know, 
10,000 feet of water for instance. There has to be some fairly 
basic research into materials that I am sure your company 
doesn't do. I mean, really basic research on materials that can 
withstand that pressure.
    So along the lines, and you know, the ranking member brings 
up a good point. I mean, the blowout preventer appears not to 
have worked, but maybe it was a materials issue on what the 
material was, and you know, the Federal Government supports a 
lot of materials research.
    Does the industry have the ability to do that? And, Mr. 
Miller, maybe you can answer. Is there something within the 
industry that can do that?
    Mr. Miller. Well, that is a really good question. We have 
been working for a little while now on a new standard on high 
pressure, high temperature equipment. In particular, we are 
looking at equipment that will be rated higher than the 15K, 
15,000 that Mr. Kratz mentioned.
    And one of the real challenges for us in developing that 
standard is the material section because what we want to 
develop as many of our standards are primarily performance-
based standards. So we will set the criteria for generally 
speaking what the performance of the material must be but not 
make it so specific that it excludes the innovation and 
industry.
    And so what we ask the Members of the Committees to do is 
to bring to us their broad outlines so that we can craft a 
standard along those lines to allow that innovation to continue 
to take place as was mentioned earlier.
    But I can provide that information back to you and where we 
are on that standard and when we expect to publish it.
    Chairman Harris. Thank you very much.
    Mr. Miller, anything else?
    Mr. Miller of North Carolina. Well, Mr. Chairman, just 
because you asked questions I think I should.
    This--well, first of all, it is pretty clear that the 
blowout preventer didn't work because there was a blowout that 
was not prevented. So I think we can say conclusively the 
blowout preventer didn't work, and we can argue about why, but 
I don't think you can argue about whether.
    We have been talking about an event at 5,000 feet below--
about a mile deep--below the surface and how extreme that is, 
how extreme the pressures are, et cetera, and now we are 
talking about drilling 10,000 feet.
    Is that going to double how extreme, or is it more 
exponential? What are the pressures going to be at 10,000 feet 
as compared to 5,000?
    Mr. Kratz. I will start. I think the industry is, if not 
prepared, has been preparing for quite awhile for 10,000 feet. 
The Q4000, for instance, there was a lot of R&D help from tax 
credits on that vessel. It was the first vessel specifically 
designed to work in 10,000 feet of water, funded by MARAD.
    Since then, you know, we are producing out at 9,000 feet, 
so there has been and there continues to be and especially with 
Brazil on the horizon, there is a lot of incentive for the 
industry to develop the capabilities in 10,000 feet of water. 
Most robotics now are designed for 10,000 feet of water. In 
fact, 10,000 feet of water is becoming pretty much of a 
standard basic design parameter for any service company or 
drill or doing work in the deep water.
    Mr. Miller. And one thing that I could add, Ranking Member 
Miller, is that as we move into some of the ultra-deep water, 
some of the things that we want to look at are the idea of what 
is known as a safety case approach. This is a recommendation 
that our joint industry task force made to the Department of 
Interior when we had those 30 days to respond right after Deep 
Water Horizon, and it was included in the final White House 
report that they would consider a safety case.
    And what that is is a more risk-based approach so that you 
are looking at your actual individual well, and you are 
combining the safety approach from both the driller and the 
operator to make sure that you have considered all these 
different risks as you described when you move into different 
environments.
    So that is another area that you could sort of innovate on 
how you approached safe operations and your compliance.
    Mr. Miller of North Carolina. Mr. Chairman, I don't have 
anymore questions unless you do.
    Chairman Harris. No. Thank you very much. I want to, 
listen, I want to thank the witnesses for your valuable 
testimony, and the Members for questions.
    Again, I want to apologize for us starting late, but I will 
have you out on time because your time is valuable.
    The Members of the Subcommittee, including those who 
weren't here today, may have additional questions for witnesses 
and would ask for you to respond to those in writing. The 
record will remain open for two weeks for additional comments 
from Members.
    The witnesses are excused, and this hearing is now 
adjourned.
    [Whereupon, at 3:59 p.m., the Subcommittee was adjourned.]
                              Appendix I:

                              ----------                              


                   Additional Material for the Record




       Prepared Statement by Representative Eddie Bernice Johnson

    Thank you, Chairman Harris
    I appreciate the opportunity to discuss this important topic.
    As a Texan I am very familiar with the oil and gas industry. Oil 
derricks are as much an icon of our state as the cowboy hat and boots. 
Much of the state's history and economy is built upon the enormous 
profits of the industry. However, we have also seen the downside of 
booms and busts in oil and gas, and have diversified the state's 
economy to protect ourselves from fluctuations in the market.
    My constituents also spend a lot of time in their cars, and feel 
the pains of high gas prices. But, contrary to the claims of some, this 
pain is not caused by President Obama's drilling policies. Instead we 
should acknowledge that the price of oil is, by and large, out of our 
control. Despite reducing our net oil imports by 10% in the last two 
years, we cannot count on drilling our way to energy independence and 
low gas prices. We simply don't have the oil. And, even if we did, we 
would still be vulnerable to price volatility and manipulation in the 
global marketplace. In the long-run, our only recourse is to wean 
ourselves off of oil. It is an addiction we cannot afford.
    As Texas has done with its economy, the Nation should be protected 
from the potentially devastating effects of an unpredictable global oil 
market. We must diversify in the fuels we use to power our 
transportation sector, and we must do so in the most environmentally 
benign way possible. From its earliest days, oil and gas drilling has 
been tough and dangerous work. It is an impressive testament to human 
ingenuity to move a hydrocarbon molecule from thousands of feet 
underground to your car's engine, and all for a few dollars per gallon. 
But it is also dirty work, and the Deepwater Horizon disaster 
highlighted that pushing the technology envelope to drill in ever 
deeper waters also exposes workers, the public, and the environment to 
new risks.
    Regardless of the contribution to our economy, no industry has a 
right to neglect public health and environmental safety. Instead, the 
oil and gas industry should take responsibility and devote some of its 
intellectual and technological capacity to developing safer drilling 
practices and advancing the technologies to respond to spills when they 
happen.

                                   
