[Senate Hearing 112-51]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 112-51

                        OIL AND GAS DEVELOPMENT

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

                                HEARING

                              before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON
                                     

                  S. 516                                S. 843

                  S. 916                                S. 917



                                     

                               __________

                              MAY 17, 2011


                       Printed for the use of the
               Committee on Energy and Natural Resources



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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont             MIKE LEE, Utah
DEBBIE STABENOW, Michigan            RAND PAUL, Kentucky
MARK UDALL, Colorado                 DANIEL COATS, Indiana
JEANNE SHAHEEN, New Hampshire        ROB PORTMAN, Ohio
AL FRANKEN, Minnesota                JOHN HOEVEN, North Dakota
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel



                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Allen, Admiral Thad W., Ret., U.S. Coast Guard, National Incident 
  Commander, Unified Command, Burke VA...........................    41
Alberswerth, David, Senior Policy Advisor, The Wilderness Society    67
Begich, Hon. Mark, U.S. Senator From Alaska......................     6
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Coleman, W. Jackson, Managing Partner and General Counsel, Energy 
  North America, LLC.............................................    58
Hutchison, Hon. Kay Bailey, U.S. Senator From Texas..............     5
Landrieu, Hon. Mary L., U.S. Senator From Louisiana..............     8
Leveson, Nancy G., Professor, Aeronautics and Astronautics, 
  Massachusetts Institute of Technology, Cambridge, MA...........    51
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     3
Salazar, Hon. Ken, Secretary, Department of the Interior.........    12

                                APPENDIX

Responses to additional questions................................    71
 
                        OIL AND GAS DEVELOPMENT

                              ----------                              


                         TUESDAY, MAY 17, 2011

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. OK. Good morning. Welcome to the hearing.
    Today, we continue the committee's work on domestic oil and 
gas production and the safety and environmental protection that 
are essential elements of responsible production.
    In the last Congress, the committee did diligent, 
bipartisan work on these issues, made considerable progress. I 
am hopeful that we will continue today down that path that will 
lead us to effective legislation in this Congress.
    In the last Congress, we had 5 hearings on offshore 
production and issues related to the Deepwater Horizon 
disaster. We unanimously reported legislation intended to 
ensure that such accidents would not happen again and to move 
toward a culture of excellence for the agency and the industry. 
That same legislation is one of the subjects of our hearing 
today.
    In this Congress, we held a hearing with the co-chairs of 
the National Oil Spill Commission on their excellent report and 
the lessons learned from their work.
    Today, we will hear testimony on 4 bills related to 
domestic oil and gas that have been referred to our committee. 
The sponsors of 2 of the bills are with us today. Senator 
Hutchison is here right now. Senator Landrieu, I believe, is 
also a cosponsor on these bills. Senator Begich is on his way, 
I am advised, and will give us his views when he arrives.
    I have introduced the other 2 bills. Those are S. 916 and 
S. 917, and I will take just a minute to describe them. They 
are intended to separately address 2 aspects of the issue of 
responsible domestic production based on bipartisan, consensus-
based work.
    S. 916, the Oil and Gas Facilitation Act, is intended to 
enhance efficient and appropriate domestic production of oil 
and gas. The last 2 years have been a time of real success in 
increasing domestic production and reducing our reliance on 
imported oil.
    We are currently the largest producer of natural gas and 
the third-largest producer of oil in the world. The percentage 
of the oil that we use that is imported has declined from 60 
percent in 2008 to 51 percent in 2009, to 49 percent in 2010.
    Unfortunately, this is not the cure for high gas prices, or 
we would have seen gas prices decline consistently over these 
years instead of increasing. But this progress is important for 
many other reasons, and we want to be sure that it continues.
    The provisions of S. 916 are drawn from a bill reported by 
the committee in the last Congress. Among other things, the 
bill would provide for a thorough inventory of oil and gas 
resources on areas of the Outer Continental Shelf and ensure 
that permitting processes for oil and gas development on public 
lands and waters are efficient and well coordinated among the 
agencies.
    S. 917, the Outer Continental Shelf Reform Act, is 
identical to a bill unanimously reported by the committee last 
year following the Deepwater Horizon accident. It would reform 
the management of the Outer Continental Shelf in several ways, 
including agency reorganization; stronger planning, safety, and 
environmental requirements; enhanced research capacity and 
third-party oversight; increased financial responsibility 
requirements for industry operators; and more effective 
enforcement.
    I believe that starting from this consensus vehicle will be 
helpful in working quickly through the issue this year. This 
bill will need some updating. Senator Murkowski and I have 
spent considerable time working together to do that.
    Our work will continue. I hope to be able to consider both 
bills in the committee before the Memorial Day recess.
    I would note that I have introduced these bills as separate 
bills for a reason. I want to give our work the best possible 
chance of being enacted into law. I believe we do that by 
dealing with these issues in parallel.
    There is not much disagreement in the Senate about the need 
for responsible domestic production, but there is considerable 
disagreement about how best to address that issue, and we will 
work hard to find productive areas of consensus.
    However, ensuring the safety and viability of our 
operations on the Outer Continental Shelf is a separate matter 
that deserves attention on its own. The question of how we 
undertake oil and gas development appropriately stands apart 
from questions of where we undertake those activities.
    Congress should set an appropriate level of safety and 
environmental compliance, regardless of where oil and gas 
exploration is occurring. Our commitment to responsible 
offshore operations and protection of our citizens and 
communities is widely shared. The fact that oil is no longer 
gushing into the Gulf, as it was last year, does not diminish 
the importance of this work.
    Today's hearing is the next step on these parallel tracks 
that I have described. I look forward to hearing the testimony 
and to continuing our efforts on these important issues.
    [The prepared statement of Senator Heller follows:]
    Prepared Statement of Hon. Dean Heller, U.S. Senator From Nevada
    Chairman Bingaman and Ranking Member Murkowski, I want to thank you 
for holding this hearing today. I think there are few more pressing 
issues facing our constituents today than high gas prices.
    The bills we are discussing today directly impact our ability to 
increase domestic production-whether it is by insuring the safety of 
operation in the Gulf or providing a way for effective permitting. It 
is my hope that the testimony presented today and the issues brought to 
light will bring us closer to increased safe and responsible domestic 
development.
    Today in Nevada, the average price of a gallon of gasoline is 
$3.89. That is nearly a dollar higher than the average price of gas one 
year ago. As you know, the price of fuel is directly related to the 
cost of the goods and services we rely to sustain our standard of 
living. When the price of fuel increases the cost of driving to work 
and feeding your family also increases. These inflated costs hit the 
most vulnerable in our society particularly hard. Senior citizens, 
struggling families and small businesses cannot continue to bear the 
brunt of an unwillingness to develop domestic energy.
    The United States is blessed with abundant, recoverable domestic 
energy resources. Underutilizing responsible use of these resources is 
ill-advised-especially when it is born on the backs of hardworking 
Americans struggling in these difficult economic times. I believe that 
it is our duty to see that these resources are responsibly deployed. 
Put simply, our actions need to address the issue in a manner that 
respects the main cause of the problem--supply and demand.
    We are all committed to developing the energy sources of the 
future. In my home state of Nevada, we are proud to be one of the 
leading states in development and ability to generate renewable energy 
using our vast geothermal, solar and wind resources. While we are 
working to develop cost-competitive energy resources for the future, we 
need to be realistic about the needs of our economy today. Currently, 
there is no reliable and affordable way to replace petroleum as a 
transportation fuel. So, while we look towards the future we need to 
provide for our immediate needs.
    Nevada has the unfortunate distinction of having the nation's 
highest unemployment rate of 13.2%. Increasing fuel prices exacerbate 
the problems associated with high unemployment-especially in Nevada's 
heavily tourism dependent economy. When the price of fuel to power an 
airplane, drive your car, grow crops and deliver goods goes up that 
increased cost is passed on to consumers-and it greatly diminishes 
economic productivity.
    Additionally, given that oil and gas activities account for 4% of 
our GDP, the development of our domestic resources will not only bring 
relief to the pocketbooks of consumers, it will create desperately 
needed jobs. In closing, I hope that we can work together to enact 
provisions that will improve safety and increase production of our 
domestic resources.

    Let me call on Senator Murkowski for her opening comments.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman, and good 
morning.
    Today's hearing comes at an opportune time, based on the 
announcements that the President made over the weekend. I 
commend his decision to increase leasing and to extend the 
leases that have been delayed. I certainly welcome his 
attention to my home State of Alaska because we have, of 
course, tremendous untapped oil and gas resources.
    But our problems have not only been related to leasing, but 
to the permitting side as well. So I am hopeful that this is 
just a start and that the administration will also quickly 
issue permits to projects that are stalled all across the 
country right now.
    Likewise, I believe the work of our committee can 
simultaneously increase energy production and the safety of 
those operations. I think we all recognize that certain events 
and perhaps certain nonevents should lead us to alter last 
summer's spill response bill significantly, whether that means 
removing the provision for a new bipartisan spill commission or 
reacting to litigation that the Interior Department, and 
specifically BOEMRE, has been in over its moratorium and its 
so-called ``permatorium.''
    We have also seen that the OCS Lands Act really does have 
some teeth, very real teeth. Whether or not all those actions 
were legal is still under review. But as a practical matter, 
the OCS Lands Act obviously provided sufficient authority to 
implement a moratorium and, even after that, to hold off on 
drilling permits until there was a much, much greater degree of 
comfort with safety and spill prevention systems.
    Now, as we consider these bills on oil and gas, I am 
grateful to you, Mr. Chairman, for advancing this legislation 
in an open and a transparent committee process. So I will also 
reiterate my comments from a year ago that the Senate should 
follow the example that you set here.
    Should we pass another bill from our committee, it will 
still be a work in progress, subject to further refinement on 
the Senate floor. But if, like last year, our committee's bill 
is ultimately attached to a handful of unworkable liability 
provisions or any other poison pills, my prediction is that it 
will, again, fail.
    Likewise, if the bill goes to the floor and is closed off 
to amendment, again, my prediction is that it will fail. Given 
some of the findings and the sense of the Senate provisions we 
saw in the bill to raise taxes on 5 energy companies, it should 
be no surprise that many of us are wary about what could be 
tacked into an otherwise reasonable bill.
    I emphasize that our oil and gas policy requires us to walk 
and chew gum at the same time. It should be our goal to ensure 
our offshore industry is working safely, but that requires that 
it be working. We are still only about a third of the way to 
the pre-moratorium levels of operation, and the EIA continues 
to forecast serious production shortfalls as a result.
    Meanwhile, oil prices are hovering near $100 a barrel. We 
are importing 50 percent of our supply, and the headlines over 
the past few months have been advertising to all of us why a 
stable domestic oil supply is so very important. There should 
be no doubt, and today, it seems that there is little 
disagreement, that supply really does matter.
    Yet offshore projects in Alaska have been delayed a minimum 
of 2 additional years. This kind of delay is economically 
unsustainable and simply unacceptable. I know that members on 
both sides of the committee have similar stories to relate 
about delays in all sorts of energy projects.
    I would like to close, Mr. Chairman, by suggesting that we 
should pass legislation that simultaneously advances safety, 
production, and a fair return of revenue to coastal States. I 
mention these priorities in the same sentence because I believe 
that they can and must be part of the same policy.
    I think we need to address them together. If we don't, I am 
concerned that they will fail to reach the President's desk.
    Mr. Chairman, I look forward to working with you and the 
rest of the committee on the policies that will accomplish 
these goals, and I thank the witnesses for their testimony this 
morning.
    The Chairman. Thank you very much.
    Senator Hutchison and Senator Begich have joined us to make 
statements on their bills. We welcome both of you to the 
committee.
    Senator Hutchison, why don't you go ahead and give us your 
views? Then, Senator Begich.

STATEMENT OF HON. KAY BAILEY HUTCHISON, U.S. SENATOR FROM TEXAS

    Senator Hutchison. Thank you very much, Mr. Chairman.
    I want to thank you and the ranking member, Senator 
Murkowski, and the members of this committee for pushing 
legislation that will, hopefully, open up our ability to get 
our energy resources from our own country to alleviate the high 
prices of gasoline at the pump right now. So thank you for 
having this hearing.
    I am here today to speak on behalf of my bill with Senator 
Landrieu, S. 516. We call it the Lease Act because it extends 
the leases that have really had the delays of the moratorium 
while they have maintained their expenses. Senator Landrieu and 
I drew up this bill because we know the financial commitments 
that are made and how expensive it is.
    The Lease Act fairly restores time lost as a result of the 
offshore moratoria by extending the impacted leases by 1 year. 
So everyone who has had a lease approved, has gone through all 
of the effort to do that, would have their leases extended for 
the period of the moratorium so that they would be able to come 
back and continue to explore.
    The common-sense legislation does have bipartisan support. 
Recently, President Obama stated that his administration is 
extending drilling leases in areas of the Gulf that were 
impacted by the temporary moratorium. I am pleased that the 
President recognizes that these energy producers need relief. 
However, the administration has not said that he will make them 
whole.
    The President's statement leaves a lot of questions 
unanswered. Which leases will be extended? That wasn't in his 
statement at all. How long will the selected leases be 
extended?
    Senator Landrieu's and my bill makes it very clear, answers 
those questions, and leaves no room for confusion. By passing 
this legislation, we will ensure that all moratorium-impacted 
leases are extended.
    The Gulf of Mexico is one of the most important regions in 
the country for exploration and development. It accounts for 30 
percent of the oil produced in America and 13 percent of the 
gas produced in our country.
    Just over a year ago, the President imposed a sweeping 
offshore moratorium. When the moratorium was put in place, 
thousands of leases sat idle in the Gulf while the lessees 
continued to pay the expenses of the lease and the payroll of 
their employees.
    Since the moratorium was lifted in October, operators have 
seen a very slow permit process for approval to go back into 
exploration. The Department of the Interior has issued 53 
shallow water and 14 deepwater permits since last October. The 
monthly approval rate before the moratorium was approximately 
10 shallow water and 8 deepwater every month. This year alone, 
over 350 offshore leases are due to expire, many of which have 
not had the opportunity to be developed because of the 
moratorium.
    I received a letter from Stephen Heitzman, the president 
and CEO of Phoenix Exploration, a small, Houston-based 
exploration company. He wrote, ``The Lease Act is vital to 
Phoenix Exploration and other small offshore oil and gas 
companies that were prevented by the administration's de facto 
drilling moratorium from fully evaluating many of its Gulf of 
Mexico leases acquired and fully paid through the Federal OCS 
competitive bidding process.''
    He says, ``It is very difficult for shallow water 
independent operators to put together the required business 
partnerships and attract sufficient capital resources needed to 
develop leases when the moratorium is in place, and you can't 
use it, but you are still paying for it.''
    The Lease Act, of course, will give these offshore energy 
producers the certainty they need.
    Let me give you another example of how this can impact the 
economy, the case of Houston-based Seahawk Drilling. This is 
another smaller company that had leases. Seahawk used to be the 
second-largest shallow water drilling contractor in the United 
States. The company provided high-paying jobs to men and women 
in Texas and across the Gulf of Mexico.
    The moratorium and the delays in shallow water permitting 
forced Seahawk Drilling to declare bankruptcy. This bankruptcy 
not only destroyed a Texas company, it destroyed 1,000 high-
paying jobs. This is one example of the economic devastation 
the moratorium has caused.
    The moratorium was a one-size-fits-all shutdown. In fact, I 
have to say that even though the spill was in deep water, the 
shallow water has never been an issue for spill. Yet shallow 
water was also put under the moratorium. That is one of the 
problems that we have faced. It was a one-size-fits-all 
shutdown.
    Our legislation, Senator Landrieu's and mine, is a one-
size-fits-all resolution. It says that no one will have to pay 
for those leases without getting the full term of that lease by 
having this lease extension.
    The House passed a version of our bill last week. I hope 
that this committee will insert our legislation into the bills 
that will go to the floor so that we can assure these companies 
that they can get the capital resources and the partnerships to 
continue the exploration and try to bring down the cost of 
gasoline at the pump for all of our citizens.
    Thank you.
    The Chairman. Thank you very much.
    Senator Begich, go right ahead.

          STATEMENT OF HON. MARK BEGICH, U.S. SENATOR 
                          FROM ALASKA

    Senator Begich. Thank you very much, Chairman Bingaman and 
Ranking Member Murkowski.
    I appreciate this opportunity to appear before you to talk 
about the Outer Continental Shelf Permit Processing 
Coordination Act. Arctic OCS coordinator language has been 
introduced before, including in the S. 1462, which passed this 
committee unanimously before.
    I thought it was a good idea, and I wanted to do what I can 
to advance this legislation with a few changes. The past year 
has been evidence that it is needed now more than ever.
    I was glad to hear the President talk about on Saturday the 
need for coordinating work between the many different Federal 
agencies. I know later in your next panel Secretary Salazar 
will probably speak more about the President's comments on 
Saturday.
    As you know, Shell has been trying to develop its Beaufort 
leases since 2005. In addition to Shell, ConocoPhillips and 
Statoil purchased Chukchi leases in February 2008. Six years 
later, no exploration wells have been drilled due to delay and 
litigation. Best-case scenario, production in the Chukchi is 
post 2020. Beaufort perhaps a little sooner.
    There are 6 Federal agencies that govern aspects of OCS 
development and administer 10 major acts of legislation. BOEMRE 
estimates Beaufort and Chukchi Sea alone holds 27 billion 
barrels of oil and nearly 100 tcf of clean-burning natural gas. 
The Beaufort resources are closer to shore and existing 
infrastructure. However, the lion's share is thought to be in 
the Chukchi Sea.
    We have to decide is this a national priority? If it is, as 
I believe it is, we need to get serious about the work ahead of 
us. The Trans-Alaska Pipeline--or TAPS, as it is called--
throughput is about 650,000 barrels a day at this point, 
between 12 and 13 percent of domestic production, declining at 
a rate of 6 to 7 percent a year.
    Sooner than we want, we will reach a point where it is 
technically and economically impractical to operate the line. 
If that point is at half of today's production, a switch will 
be flipped, and the U.S. will lose 6 percent of its domestic 
production and dramatically increase cost to access future 
Alaska resources. There are some resources available to slow 
the decline onshore, but the best chances are in the OCS 
offshore.
    Critical to the economy of my State and energy security of 
this Nation, we see we can develop this resource responsibly 
and produce this resource for our country's needs. The bill 
requires the Secretary of Interior to enter into a cooperative 
arrangement with the Federal agencies, Governor of Alaska, and 
the borough governments adjacent to lease areas. It doesn't 
change any environmental standards, just forces agencies to 
actually work together.
    Oil and gas industries have grown up in the Gulf. Industry 
and Government relations evolved along with it. While all 
Federal agencies exist and work together in Alaska, they do not 
necessarily have the resources or the relationships or the 
experience as described by Senator Hutchison in the Gulf.
    EPA, for example, air permits are the clearest example. 
They built the program from scratch with minimal resources. The 
bill would also create coordinators in the Atlantic and Pacific 
when and if the lease sales happen in these regions.
    Finally, we all recognize these are contentious issues. 
Plenty of fights in our Alaska family and with outside groups, 
lots of litigation to date, and there will probably be more 
down the road. Litigation prioritizes and speeds resolution of 
these differences but doesn't deny access to courts.
    With short drilling seasons, complicated logistics, and 
long lead times, easy to see why our seasons slip away. We have 
watched the 2010 season, the 2011 season just do that, 
disappear from the ability for us to explore.
    I want to thank the committee for allowing the hearing on 
the bill. Again, the goal here is to speed up the process but 
not deny anyone their rights of litigation and appeals if they 
see fit, but get the process moving and more coordinated in the 
Arctic.
    Thank you, Mr. Chairman and ranking member.
    The Chairman. Thank you both for your excellent testimony 
and your leadership with these particular bills and these 
issues. As Senator Begich indicated, I think Secretary Salazar 
is also a witness today, and we will have a chance to ask him 
his reaction on some of these very items that you are 
advocating for.
    But thank you all, and we will dismiss you at this point, 
unless some member had a particular question they wanted to 
pose?
    Senator Landrieu, did you want to make a statement?

       STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR 
                         FROM LOUISIANA

    Senator Landrieu. I just wanted to say--yes, just a brief 
word. I want to associate myself with the remarks of Senator 
Hutchison. I am proud to cosponsor the Lease Act with her, and 
we will be looking forward to getting some more detail from 
Secretary Salazar about the details of the President's 
proposal.
    Senator Begich, I can most certainly appreciate and thank 
you for your leadership because it is very important, even if 
you open up drilling in areas, to have it coordinated so that 
permits can, in fact, be issued. We know that some of the 
Federal agencies in charge of this have been under resourced 
and under supported.
    But I do want to submit to the record to bolster Senator 
Hutchison's fine testimony the actual numbers of permits, Mr. 
Chairman, because it is quite alarming that, to date, not one 
single new deepwater well permit for drilling in the Gulf has 
been issued. The shallow water is off by 50 percent.
    As Senator Hutchison said, it shouldn't have been. It 
wasn't under--technically, it wasn't under the moratorium. But 
it found itself under a moratorium. So I want to submit that 
for the record.
    Senator Landrieu. Then, finally, to also submit for the 
record the billions of dollars that are outstanding today in 
bonuses and annual rental payments on leases that are unusable 
as we speak. I don't know if people realize how significant 
these numbers are, Mr. Chairman.
    But, for instance, in one of the lease sales a few years 
ago, $3.8 billion was paid in bonuses to secure leases that are 
going unused. Now those numbers will range from a low of $48 
million to a high of $3.8 billion. The annual payments by this 
industry can go from a low of a few hundred thousand to it 
looks like $28 million to $32 million a year.
    So there is a tremendous amount of money, Mr. Chairman, 
being invested by companies. There is oil and gas in the 
ground. We need to find a way as soon as possible to get it 
out. I hope that both Senators will also express--if not now, 
later--their views on revenue-sharing for Alaska and for Texas.
    I just want to thank them for their testimony and submit 
this to the record, if there is no opposition.
    The Chairman. We are glad to include that in the record.
    Senator Hutchison. Thank you very much, Senator Landrieu, 
for adding to the other knowledge.
    The Chairman. Senator Manchin, did you have a----
    Senator Manchin. Very quickly. Very quickly, and it might 
not be directly what you all are talking about. But I know the 
time--you all would be much more involved in the timing process 
of getting a permit. Do you have any comments on that?
    I mean, a proper period of time is 90 days. Should the 
Federal Government say yea or nay? Do they have time to review 
it, the process? Are you getting much pushback from your 
companies saying the time period is so long that----
    Senator Hutchison. Yes. Oh, yes. I mean, I wish----
    Senator Manchin. I mean, even if they are opened up, even 
if your bills pass.
    Senator Hutchison. [continuing]. Ninety days. We are 
talking 9 months.
    Senator Begich. Or years.
    Senator Manchin. What would be a timetable? Do you all have 
one that you have worked with your local companies?
    Senator Hutchison. Do you know an average--you know, the 
thing that is----
    Senator Landrieu. It used to be, basically, you submitted 
your permit and within 30 or 60 days, you got a yes or a no. 
The problem is now that not only are you not able to submit 
your permits, and I am hoping Senator Salazar can explain this 
a little bit better. But when you even ask how many permits are 
pending right now, we are not able to really get that number 
because permits are presented, and then they are rejected. We 
don't know if they are in the permitting or they are in the 
rejection pile.
    So, a lot of this has become a lot less transparent, Mr. 
Chairman. I thank you for your latitude here, but the Senator 
from Virginia is right to try to press for what is the real 
number that we are looking for.
    Senator Manchin. Senator Begich.
    Senator Begich. Senator Manchin, I can't give you a 
specific time, but I will tell you this. That the years that we 
have delayed the process is way too long.
    We recognize the Arctic is different territory than the 
Gulf that has a long history. But what is critical for us, and 
I think the ranking member would echo this, is our companies 
want certainty. They want to know here is when the timetable 
occurs. Here is when the review will occur. Yea or nay and/or 
what mitigation they have to do and then respond.
    But this ongoing year after year or, in some cases, not 
even knowing when a decision might even be forthcoming because, 
as Senator Landrieu said, we are not sure which pile we are on 
is the biggest problem. One of the reasons the legislation I 
brought forward is the coordination of all these agencies so at 
least, first, they are talking to each other, and then maybe we 
can set some time schedules that they have to respond.
    But right now, it is so uncertain that we are talking now 
for Alaska, because of our seasonal activities, 2012 cycle 
because we can't even talk about 2011 because that is kind of 
over for us. Because our season is now because of the way it 
works in the Arctic.
    So, we want some certainty, some time schedules, and I 
think we would be happy to work with the Interior Department to 
figure this out. But right now, they submit, and then we just 
wait, and we wait. Then something kind of comes out, and then 
we say, ``Oh, you need more information because you believe we 
didn't have it. Why didn't you ask that at the beginning?''
    Senator Hutchison. I think the interesting thing, too, to 
point out is that to get the lease, you have already gone 
through all of the environmental concerns and the safety, and 
you have gotten the permit. A lease lasts about 10 years 
because there is so much you have to do to explore the whole 
area, to do the seismic testing and see what looks the best. 
Then you have to go to the bottom of the Gulf, and that is a 
hugely expensive process.
    You are paying people and the lease, as Senator Landrieu 
pointed out, billions in collective amounts. You are doing all 
this over a 10-year period with no return, and then you may get 
a dry well.
    So we do need the certainty in the permitting process. But 
for sure, once you have gone through all of the lease 
requirements and you have been approved, you ought to have the 
full extent of that lease so that you can get the return on 
that huge investment. That is why Seahawk went bankrupt.
    Senator Begich. If I can just say one--keep in mind, 
Senator Manchin, we are just talking about Alaska to explore. 
We are not even drilling yet.
    Senator Hutchison. Right.
    Senator Begich. We can't even get to the table to figure 
out, as Senator Hutchison just described, how to map out what 
we have there, and we have hundreds and hundreds of thousands 
of acres. We can't even get to it because they won't allow us 
to explore to determine what is there.
    The Chairman. We thank you both for your excellent 
testimony.
    Senator Hoeven. Mr. Chairman? Mr. Chairman, could I ask a 
quick question?
    The Chairman. Sure.
    Senator Hoeven. I am going to ask the Secretary the same 
question, but I just wanted to give both of you a chance. Why 
is it taking so long?
    In your opinion, why is it taking so long? What is the fix? 
What needs to happen? Obviously, I will ask the Secretary the 
same thing, but I just wanted to give you a chance to address 
that if you wanted to.
    Senator Hutchison. I can't tell you why it is taking so 
long, but I do think that there was not enough common sense put 
into the equation to say shallow water has never been a 
problem. If you had a spill in the shallow water, which we 
haven't, you could clean it up quickly.
    Deep water was a bigger issue. Putting shallow water in the 
effective moratorium has cost jobs. It has cost the economy, 
and it has cost the production that would allow these prices in 
gasoline to be lower.
    So where I would fault the administration the most is 
putting shallow water ever in a de facto moratorium because 
there has never been a problem. Yet we are losing hundreds of 
capabilities of adding to the amount of gasoline that we 
produce because they put shallow water in the moratorium, 
effectively.
    Senator Begich. Senator Hoeven, Alaska is kind of different 
because the Arctic is new area for development. But it is 
multifaceted. As a matter of fact, one of the pieces of the 
legislation that I know is somewhat controversial is judicial 
review.
    You think about oil and gas in Alaska, you get sued. You 
don't even spend the time to start the project. You just get 
sued. So you end up going through this whole process that, at 
the end of the day, we know it is going to end up in a higher 
court.
    So, what we have tried to do in this legislation is 
streamline that, giving still everyone the right to appeal, but 
you get a window of opportunity. You get that 60 days you get 
to appeal for whatever reason, move forward. At the end of the 
day, you end up at the District of Columbia Circuit Court for 
final decision because we think it is a national issue.
    By passing some of the judicial process, but still not 
denying anyone the right, anyone the right to appeal and to 
have their say in court. That is one side.
    In Alaska, and I think Senator Murkowski would echo this, 
we have groups that kind of visit Alaska that have their views 
about how Alaska should be run and maybe have no interest other 
than to fight this environmental battle. So we end up with 
that.
    We also have a lot of--as Alaskans, and we were both born 
and raised in Alaska, we have a lot of concern to make sure the 
development is done right. So we have tribal issues. We have 
regional issues. But at the end of the day, from the 
bureaucratic side, is this lack of one agency moves forward, 
does some things. Another agency comes along and says, well, we 
are going to have our own process, which may be very similar to 
what we just went through.
    So that is why this coordination is critical and how 
judicial review is done in a proper way. That is kind of the 
Alaska experience, and if that helps you a little bit?
    Senator Hoeven. That is the objective of your legislation 
is to try to bring them together?
    Senator Begich. Yes. Yes. Try to create that. Again, not 
deny anyone opportunities on either side if they disagree with 
the decision of an agency to appeal that process, but really 
have some boxes around it, some certainty and coordination. So 
everyone is talking to everyone rather than we talk through 
litigation and never get anything done. That is why, for years, 
we can't even touch the area to explore.
    Senator Hoeven. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Again, thank you all. We appreciate your 
testimony.
    Let me invite Secretary Salazar to come ahead. He is our 
next panel, and we appreciate his willingness to testify today.
    [Pause.]
    The Chairman. Mr. Secretary, we welcome you back to the 
committee you used to serve on. We always are glad to see you 
here, and your written testimony will be placed in the record 
in full.
    We would like you to take whatever time you need here to 
summarize that for us, make the main points that we need to 
understand, and I am sure there will be questions.
    Why don't you go right ahead and introduce your colleagues, 
if you would like? But we are familiar with both of them, but 
we always like to have them introduced.

  STATEMENT OF HON. KEN SALAZAR, SECRETARY, DEPARTMENT OF THE 
                            INTERIOR

    Secretary Salazar. Thank you very much, Senator Bingaman.
    As the chairman of the committee, it has always been an 
honor working with you and also working with the ranking 
member, Senator Murkowski, and the great work that we have done 
in the years past out of this committee. So thank you for 
giving us the opportunity to come and present in front of all 
of you today.
    Joining me here today are David Hayes, who is the Deputy 
Secretary of the Interior. He has been working on the oil and 
gas issues and the subject of your legislation here for the 
last several years.
    To my left is Mike Bromwich. Mike is the director of the 
Bureau of Ocean Energy Management and Regulation, and he is 
overseeing the reforms at what was then MMS, now BOEMRE, over 
the last year and has been working very closely as we move 
forward with oil and gas production in the oceans of America.
    Let me first say that from the President's point of view 
and the administration's point of view, we have been working 
hard now for over 2 years to move forward with developing a 
secure energy future for America. We have enjoyed the work that 
we have been able to do with the Congress as we have made 
strides in what we believe is the right direction to get us to 
that secure energy future.
    When you hear the President or you hear me or you hear any 
of my colleagues on the Cabinet speak to that secure energy 
future, we really are talking about a secure energy future that 
is based in 3 buckets.
    The first is moving forward with a robust production of oil 
and gas resources and other resources in our country. I think 
when you look back at the last 2 1/2 years, you will see that 
there has been a robust level of oil and gas production in our 
country. In fact, more oil is being produced now than in past 
times in our history and record levels of natural gas.
    Second, moving forward with alternative fuels. We recognize 
that oil and gas are not going to be the panacea for our secure 
energy future. So we have put significant time and energy and 
resources behind trying to develop the world of alternative 
fuels and renewable energy.
    Third, efficiency. How we can power our economy using less 
energy resources. So it is around those 3 buckets that the 
President's energy blueprint has created the framework for us 
moving forward with America's energy future.
    The President recently made an announcement about some 
major initiatives that we have underway, and I want to just 
quickly review them. First, with respect to Alaska, at the 
conversations with Senator Murkowski and others who are very 
interested in what we are doing in Alaska all of the time, we 
are moving forward with holding annual lease sales in the 
National Petroleum Reserve in Alaska. We are trying to deal 
with some of the difficult permitting issues there, and the 
Deputy Secretary and myself and others have personally been 
involved in dealing with the issues at NPRA.
    Second, the President announced that we would be holding 3 
lease sales in the Gulf of Mexico by June 30th of next year. 
That is when the 2007-2012 plan expires. We expect to have one 
of those lease sales completed by the end of this year and 
moving forward with 2 additional lease sales in the Gulf of 
Mexico in the following year.
    Third, we want to create new incentives to move forward 
with oil and gas production. We look forward to working with 
this committee on ideas that we have, ideas that you have. For 
example, under the Mineral Leasing Act today on the onshore 
areas of oil and gas production, those leases are given out 
under a mandatory 10-year term.
    We believe that with flexibility and the way that we have 
the flexibility in the Outer Continental Shelf that we could 
reduce lease terms and, therefore, incentivize a more rapid 
development of oil and gas in the onshore.
    Fourth, lease extensions. We recognize that there were 
impacts to the oil and gas lessees, both in the Gulf of Mexico 
as well as in Alaska, as we have moved forward to develop safe 
oil and gas regulations and oversight in the Government. So, 
the President voiced his support for a lease extension with 
respect to Gulf of Mexico wells that were directly impacted by 
the events of the Deepwater Horizon last year.
    Fifth, we are of the belief that there is a need to do 
better coordination in terms of what we deal with in terms of 
Alaska oil and gas resources, and we are taking those actions 
within our administrative authority at this point in time.
    Let me move quickly to just review a few things from the 
lessons of the Deepwater Horizon. The Deepwater Horizon and the 
Macondo oil spill was a national crisis. In my view, those of 
us who were here in Washington, DC, and who were working on the 
issues in Gulf must not forget the lessons from the Deepwater 
Horizon.
    In some ways, that national crisis, which, for some us, had 
us working on an emergency basis for over 140 days dealing with 
that particular issue, it doesn't seem like it was that long 
ago. April 20th now was not even 13 months ago.
    So, as we move forward the events of the Macondo well oil 
spill and approximately 5 million barrels of oil that were 
spilled out into the Gulf of Mexico ought to be a stark 
reminder to all of us that we need to move forward with safe 
oil and gas production in America's oceans. That is exactly 
what we have been doing in the Department of Interior with the 
reform efforts that we have been leading with the support of 
the President to initiate the safe oil and gas drilling that is 
necessary.
    Now, even as we have gone forward and dealt with all of the 
reform efforts in America's oceans for oil and gas drilling, it 
is important to recognize that our policy in terms of 
supporting oil and gas development, including in the deep 
water, is a policy that has not changed. We move forward with 
development and authorization of oil and gas drilling in the 
deep waters of the Gulf of Mexico and are looking at other 
places where we can develop oil and gas resources safely in 
America's oceans.
    The reforms that we have made have been simply led by one 
north star, and that is we want to make sure that the lessons 
of the Deepwater Horizon lead us to develop a regulatory regime 
in the United States that does everything possible to prevent 
another Deepwater Horizon/Macondo oil spill like the one that 
we saw last year.
    In that vein, Deputy Secretary Hayes and Director Bromwich 
have led the effort with respect to new rules and a regime on 
drilling safety, workplace safety, and the creation of a new 
organization to oversee oil and gas drilling in America's 
oceans. We also are cognizant of the fact that what we do here 
in the United States and the lessons of the Gulf of Mexico will 
have an impact around the world.
    In the Gulf of Mexico, for example, it is one pond, and we 
largely share that with the Nation of Mexico. So, we worked 
very hard to put together what, hopefully, will become one 
standard, one set of protocols with the Gulf of Mexico in the 
development of oil and gas in the Gulf and, hopefully, reach 
some agreements with respect to transboundary issues that are 
very important for the United States as well as for Mexico as 
we deal with the Gulf.
    With respect to the Arctic, as Senator Murkowski witnessed 
last week in Nuuk, Greenland, we have taken the initiative to 
make sure that all of the Arctic nations--including Russia, 
Canada, Norway, the United States, and other countries that 
share the Arctic--are sharing the best practices and resources 
and the best science. So that as opportunities arise with 
respect to oil and gas, that we are doing the best as one world 
to deal with the opportunities in the Arctic.
    Finally, in other places around the world, I have been in 
Brazil, where we are working with the Brazilians to learn from 
their experiences in terms of moving into their pre-salt 
reserves where they expect to have some of the most significant 
findings in the Western Hemisphere, where they already have 
made some of the most significant findings in the Western 
Hemisphere, and hope to be able to develop those oil and gas 
resources in the future. That is all part of an effort to make 
sure that we are diversifying the sources for oil and gas that 
we have here in this country.
    We hosted an international forum, where we had 11 countries 
and the European Union participate at the Department of 
Interior now about 2 months ago. What we were doing is to begin 
a dialog with the other countries around the world to make sure 
that they, too, are moving forward with the development of the 
gold standard with respect to oil and gas development.
    The oil and gas industry is a global industry. The same 
companies that operate in the Gulf of Mexico operate in places 
like Angola and Russia and a whole host of other places. So, 
our effort has been to take the lessons of the Deepwater 
Horizon and make sure that we are sharing those with the rest 
of the world.
    In our testimony today, we have outlined in the written 
testimony some legislative principles on behalf of the 
administration that I want to just very quickly review. The 
first is that we ask the support and help of Congress with 
respect to incentivizing more prompt development for oil and 
gas, and there are several examples that are laid out in the 
testimony.
    One that I will just quickly note is the Mineral Leasing 
Act now requires a 10-year term for all onshore leases. We have 
a different flexibility with respect to offshore leases. That 
10-year term has been in place since the 1920 Mineral Leasing 
Act was passed. We believe that it is time to revisit that and 
to shorten the lease terms to further incentivize prompt 
development of oil and gas resources so that those lands are 
simply not being leased and then not developed.
    Second, we need the tools to continue to push forward with 
respect to the reform efforts that we have worked so hard over 
the last year. Those tools include the creation of organic 
legislation by the U.S. Congress for this agency, as Senator 
Wyden and others have spoken about frequently over the last 
several years.
    An agency that has this Herculean mission on behalf of the 
United States of America should not have existed just by virtue 
of secretarial order, but having organic legislation that 
essentially codifies the important missions of this particular 
agency is something that we are very much supportive of.
    In addition, tools that we need include the creation of an 
institute for ocean energy safety. We have created an Ocean 
Energy Safety Advisory Committee, led by Dr. Tom Hunter, the 
former Director of Sandia Labs. We have a good effort underway, 
but it exists by virtue of a FACA Committee, not by virtue of 
legislation. So we request the Congress also to act in the 
creation of that institute for ocean energy safety.
    Finally, I know there has been debate here about the 
timelines for the exploration plans and requirements now that 
BOEMRE has to approve exploration plans within 30 days. 
Frankly, that time is too short. It does not give the agency 
the time to develop the environmental information and analysis 
and assessment to make sound decisions. So, our request also is 
one of the tools that we need is to extend that time, as the 
President articulated last year and reiterated again.
    Third, we ask the Congress to work with us in continuing to 
look at ways of making sure that there is a fair return to the 
American taxpayer from these oil and gas resources that are 
owned by the American public.
    We do not believe, for example, that the royalty relief 
programs that we currently have for offshore drilling are 
necessary in the context of oil and gas prices at $100 a barrel 
and oil and gas companies making the record profits that they 
have been making. It is not an incentive that is actually 
needed, and there are other needs that we have, including 
deficit reduction, which are important for us as we deal with 
those particular subsidies.
    Last, with respect to the fair return to the American 
taxpayer and protection of the American taxpayers as well, we 
hope to be able to work with all of you to address liability 
limitations concerning oil spills.
    Let me, in conclusion, Mr. Chairman and ranking member and 
members of the committee, simply say to all of you that we 
still have a lot of work ahead of us. There is no doubt that 
the Deepwater Horizon awakened the country and awakened the 
Congress to do things differently in the oceans of America and 
how we deal with oil and gas. I am proud of the work that we 
have done.
    I know there are critics of how fast we have moved and 
critics that would want us to do different things. But for us 
to be at a point where we have issued 14 deepwater permits in 
the Gulf of Mexico, where we have more than 50 now in the 
shallow waters where the industry is working, and where we 
essentially have dealt with a national crisis and yet continued 
to produce oil and gas and to move forward with a robust 
program is something that I am very proud of. We could not have 
done that if we did not have the support of this committee and 
the leadership within the Department of Interior.
    Thank you, Mr. Chairman.
    [The prepared statement of Secretary Salazar follows:]

   Prepared Statement of Hon. Ken Salazar, Secretary, Department of 
                              the Interior
    Chairman Bingaman, Ranking Member Murkowski, and members of the 
committee, I am happy to appear before you today to discuss legislation 
intended to promote the Department of the Interior's reform of the 
offshore energy program and facilitate the development of oil and gas 
resources from our public lands and waters.
    I am joined here today by Deputy Secretary David J. Hayes and 
Bureau of Ocean Energy Management, Regulation and Enforcement Director 
Michael R. Bromwich. Both Deputy Secretary Hayes and Director Bromwich 
have contributed critical hard work and played key roles in the 
Department's work to identify and implement key reforms that are 
advancing the Administration's commitment to safe and responsible 
domestic production.
    As the President has stressed, the Administration is committed to 
promoting safe and responsible domestic oil and gas production as part 
of a broad energy strategy that will protect consumers and reduce our 
dependence on foreign oil. When President Obama took office, America 
imported 11 million barrels of oil a day. The President has put forward 
a plan to cut that by one-third by 2025. We are already making progress 
towards that goal. Last year, America produced more oil than at any 
time since 2003. To encourage production, the Administration is taking 
a series of steps to leverage existing authorities. These initiatives 
are part of the Administration's overall Blueprint for a Secure Energy 
Future, a broad effort to secure America's energy future and protect 
consumers by producing more oil at home and reducing our dependence on 
oil by using cleaner, alternative fuels and improving our energy 
efficiency.
    As President Obama has said, ``we cannot keep going from shock to 
trance on the issue of energy security, rushing to propose action when 
gas prices rise, then hitting the snooze button when they fall again.'' 
We are working to expand cleaner sources of energy, including 
renewables like wind, solar, and geothermal, as well as clean coal and 
natural gas on public lands. But domestic oil and gas production remain 
critical to our nation's energy supply and to reducing our dependence 
on foreign oil.
    In his radio address just this past Saturday, the President laid 
out the next steps of this strategy, highlighting some of the actions 
that the Administration is taking using existing authorities to expand 
responsible and safe domestic oil production. But we also need to go 
further, which is why the Administration is also calling on Congress to 
act on a series of legislative principles, which I will outline today.
    Much of the content of these proposals overlaps with the 
legislative proposals that we are here today to discuss. We generally 
support S. 916, the Oil and Gas Facilitation Act of 2011, and S. 917, 
the Outer Continental Shelf Reform Act of 2011, and, as we will 
discuss, have begun to address a number of the provisions in these 
bills administratively. We support much of the intent of S. 843, the 
Outer Continental Shelf Permit Processing Coordination Act, and S. 516, 
the Lease Extension and Energy Security Act of 2011, and agree that 
facilitating the efficient, responsible development of our oil and gas 
resources is a necessary component of energy security. Other involved 
agencies may have additional views.
Administrative reforms
    Let me begin by explaining some of the measures that the 
Administration is taking using the authorities that we already have.
    First, we have devoted considerable effort over the past year--in 
the wake of the tragic Deepwater Horizon oil spill--to putting in place 
a new set of rigorous standards for safety and responsibility. Our 
aggressive reforms to offshore oil and gas regulation and oversight are 
the most extensive in U.S. history. The reforms strengthen requirements 
for everything from well design and workplace safety to corporate 
accountability, and are helping ensure that the United States can 
safely and responsibly expand development of its energy resources 
consistent with our stewardship responsibilities.
    And consistent with these rigorous standards, the Department 
continues to facilitate domestic production by issuing permits. We have 
continued to issue shallow water permits in every case where the 
application complies with all of our heightened standards that apply to 
shallow water operations. To date, 53 new shallow water wells have been 
permitted since the implementation of new safety and environmental 
standards on June 8, 2010. Permits have averaged 6 per month since 
October 2010. Since mid-February when industry first demonstrated 
subsea containment, we have permitted 14 deepwater wells.
    Building on these important steps, the President's recent remarks 
highlight a series of additional measures that the Administration is 
taking using existing authorities. These include:

   Conducting annual lease sales in Alaska's National Petroleum 
        Reserve, while respecting sensitive areas, and speeding up the 
        evaluation of oil and gas resources in the mid-and south 
        Atlantic Ocean;
   Holding Western and Central Gulf lease sales by mid-2012-
        including the Western and Central Gulf of Mexico lease sales 
        that were postponed last year-consistent with the strengthened 
        environmental review in light of lessons learned from the 
        Deepwater Horizon oil spill;
   Creating new incentives for industry to develop their unused 
        leases both on and offshore. Today, more than 70 percent of the 
        tens of millions of offshore acres under lease are inactive, 
        including almost 24 million inactive leased acres in the Gulf 
        of Mexico, where an estimated 11.6 billion barrels of oil and 
        59.2 trillion cubic feet of natural gas of technically 
        recoverable resources are going unused. Onshore, about 57 
        percent of leased acres--almost 22 million acres in total--are 
        neither being explored nor developed;
   Extending drilling leases in the Gulf of Mexico that were 
        affected by the temporary moratorium, as well as certain leases 
        off the coast of Alaska. These measures will give companies 
        more time to meet the rigorous standards that we have set in 
        place for safe and responsible exploration and development;
   Coordinating an Alaska permitting process with a new, high-
        level interagency working group. A number of agencies within 
        the federal government have mandates to ensure that Arctic 
        development projects meet health, safety, and environmental 
        standards. Using executive action, the Administration will 
        formalize ongoing interagency collaboration and establish a 
        high-level, cross-agency team to facilitate a more efficient 
        permitting process in Alaska while ensuring that all standards 
        are fully met.
Calling on Congress to Act
    As described above, we are already taking extensive measures using 
our existing authorities. But we need Congress to help us do even more.
    Let me start here by reiterating an important point that you have 
heard the President state consistently. At a time when oil companies 
are making near-record profits, with the biggest oil companies 
reporting profits in the range of $4 billion each week, the President 
has called for an end to the taxpayer subsidies the federal government 
gives to oil and gas companies. As he noted in his address, at a time 
when many Americans are struggling to fill up their tanks and we are 
sacrificing to reduce our deficit, it just makes sense. The 
Administration strongly supports efforts in Congress to eliminate these 
unnecessary tax subsidies.
    And today I'm announcing on behalf of the Administration a series 
of legislative principles intended to provide a framework for the 
efficient and responsible development of our domestic resources. These 
include measures to advance three primary objectives: Remove Outdated 
Disincentives to the Prompt Development of Oil and Gas Leases; Provide 
the Tools for the Federal Government to Oversee Offshore Oil and Gas 
Development Activities on a Timely and Effective Basis; and Ensure a 
Fair Return for American Taxpayers and Accountability for Safety 
Violations and Oil Spills. Specifically, this framework would:

   Provide incentives for the Prompt Development of Oil and Gas 
        Leases:

           Amend the Mineral Leasing Act of 1920 to allow for 
        oil and gas leases that are less than 10 years in length. 
        Current law requires that all onshore oil and gas leases extend 
        for a full 10 years. This removes the Secretary's flexibility 
        to encourage more prompt investment in domestic oil and gas 
        development by issuing leases with shorter terms.
           Establish incentives for lessees with nonproducing 
        oil and gas leases that will encourage companies to either get 
        their leases into production in a timely manner or relinquish 
        them.

   Provide the Tools for the Federal Government to Oversee 
        Offshore Oil and Gas Development Activities on a Timely and 
        Effective Basis;

           Codifying new safety and environmental standards for 
        offshore oil and gas development that have been established 
        through administrative procedures by the Bureau of Ocean Energy 
        Management, Regulation and Enforcement (BOEMRE);
           Statutorily extend exploration plan approval time 
        under the Outer Continental Shelf Lands Act to allow for 
        appropriate environmental review;
           Formalize existing research collaboration by 
        authorizing an Ocean Energy Safety Institute to connect 
        government, industry, academia, and outside experts devoted to 
        developing cutting-edge safety, containment, and response 
        capabilities;
           Formalize the reorganization of the Bureau of Ocean 
        Energy Management, Regulation and Enforcement and authorize 
        BOEMRE to hire and maintain an expert workforce by:

    --Statutorily splitting BOEMRE into three entities: (1) Bureau of 
            Ocean Energy Management responsible for managing offshore 
            development; (2) Bureau of Safety and Environmental 
            Enforcement charged with enforcing safety and environmental 
            regulations; and (3) Office of Natural Resource Revenue 
            (ONRR) responsible for collecting and disbursing revenues 
            from energy production; and
    --Authorizing special hiring authorities for BOEMRE that allow the 
            agency to address hiring for critical positions during 
            times of need and at competitive salaries.

   Ensure a Fair Return for American Taxpayers and 
        Accountability for Safety Violations and Oil Spills

           Repeal portions of the Energy Policy Act of 2005 
        that expanded a now-outdated royalty relief program for 
        offshore drilling operators thereby providing a better return 
        to the American taxpayer;
           Raise or eliminate the per-incident limit on access 
        to the Oil Spill Liability Trust Fund to ensure that the 
        Federal government can access the resources it needs to clean 
        up an oil spill. The $1 billion per-incident cap on 
        expenditures out of the Fund is insufficient and could 
        constrain the federal government's ability to respond to oil 
        spills;
           Repeal arbitrary limits on liability for damages 
        resulting from offshore drilling, which have served as an 
        implicit subsidy for the oil and gas industry for two decades; 
        and
           Increase civil and criminal penalties for companies 
        that fail to comply with the requirements of the Outer 
        Continental Shelf Lands Act and the Department of the 
        Interior's implementing regulations, which include safety and 
        environmental standards.

    Some of these principles are being further developed as legislative 
proposals within the Administration; others were proposed by the 
Administration last year in the wake of the Deepwater Horizon spill. 
For example, the Administration has proposed that a portion of the 
civil CWA penalties from the DWH return to the Gulf. A number of these 
principles have been included in the several pieces of legislation you 
have introduced, Mr. Chairman.
Outer Continental Shelf Program Reforms
    Mr. Chairman, you recently introduced S. 917, legislation that 
would address reform of the Department's offshore oil and gas program.
    Over the months during and since containment of the spill 
associated with the Deepwater Horizon explosion, multiple reviews and 
investigations -some still ongoing--have resulted in reports indicating 
the need for change. Bodies ranging from the President's Commission on 
the BP Deepwater Horizon Oil Spill and Offshore Drilling, the 
Department of the Interior's Inspector General, the Department's own 
Safety Oversight Board, to multiple committees of the House and Senate, 
have indicated the need for reform not only of the way the Department 
does business but of the way oil and gas operations are carried out on 
the Outer Continental Shelf.
    Many of the recommendations presented in these reports have 
validated the administrative actions and reforms we have been 
undertaking here at the Department to promote safety and science in 
offshore oil and gas operations. These changes were necessary to ensure 
that industry has the tools available to help prevent an accident like 
this from happening again.
    We have put industry on notice that they will be held to the 
highest standards in safety and environmental responsibility in their 
oil and gas operations. As described briefly above, the Department, 
through the Bureau of Ocean Energy Management, Regulation and 
Enforcement, has promulgated necessary new regulations, including 
prescriptive regulations to bolster safety and to enhance the 
evaluation and mitigation of environmental risks. The Drilling Safety 
Rule is an emergency rule prompted by the Deepwater Horizon event. This 
rule has put in place tough new standards for well design, casing and 
cementing, and well control equipment, including blowout preventers. 
Under it, operators are required, for the first time, to obtain 
independent third-party inspection and certification of each stage of 
the proposed drilling process. In addition, an engineer must certify 
that blowout preventers meet new standards for testing and maintenance 
and are capable of severing the drill pipe under anticipated well 
pressures.
    In order to reduce the human and organizational errors that lie at 
the heart of many accidents and oil spills, BOEMRE has also introduced, 
for the first time, performance-based standards similar to those used 
by regulators in the North Sea. The Workplace Safety Rule was in 
process well before Deepwater Horizon, but as described in the 
Commission's report, it took a major accident to provide the impetus 
necessary for these standards to be imposed.
    As a result of these new regulations, operators are now required to 
develop a comprehensive safety and environmental management program 
that identifies the potential hazards and risk-reduction strategies for 
all phases of activity, from well design and construction, to operation 
and maintenance, and finally to the decommissioning of platforms.
    BOEMRE has also issued Notices to Lessees (NTLs) that provide 
additional guidance to operators on complying with existing 
regulations. NTL-06, issued in June of 2010, clarifies that current 
regulations require an operator's oil spill response plan to include a 
well-specific blowout and worst-case discharge scenario. NTL-06 also 
clarifies that operators provide the assumptions and calculations 
behind these scenarios. NTL-10, issued in December of 2010, clarifies 
informational requirements, including a corporate statement from the 
operator that it will conduct the applied-for drilling operation in 
compliance with all applicable agency regulations, including the new 
Drilling Safety Rule. This notice also confirms that BOEMRE will be 
evaluating whether each operator has submitted adequate information to 
demonstrate that it has access to, and can deploy, subsea containment 
resources that would be sufficient to promptly respond to a deepwater 
blowout or other loss of well control.
    Once industry was able to demonstrate the ability to fully comply 
with these new requirements, BOEMRE was able to resume issuing 
deepwater drilling permits. Since February 28, we have permitted 14 
deepwater drilling wells and, in each case the applications complied 
fully with these more rigorous safety and environmental requirements, 
and each had demonstrated the ability to contain a subsea spill.
    But one of the keystones of our reforms is the reorganization of 
the former Minerals Management Service into independent entities with 
distinct missions to oversee the leasing and energy development 
process, to regulate offshore drilling, and to collect the revenues 
from federal energy development. Having these three conflicting 
functions reside within the same bureau (MMS) enhanced the potential 
for internal conflicts of interest among the objectives of the agency. 
The process of reorganization began on May 19, 2010, when I issued 
Secretarial Order 3299, which dissolved the MMS and called for the 
establishment of three new entities, including:

   The Bureau of Ocean Energy Management (BOEM), responsible 
        for managing development of the Nation's offshore resources in 
        an environmentally and economically responsible way. Functions 
        carried out by BOEM will include leasing, plan administration, 
        environmental studies, National Environmental Policy Act (NEPA) 
        analysis, resource evaluation, economic analysis and the 
        Renewable Energy Program;
   The Bureau of Safety and Environmental Enforcement (BSEE), 
        which will enforce safety and environmental regulations. 
        Functions to be carried out by BSEE will include Offshore 
        Regulatory Programs, research, oil spill response, and all 
        field operations including permitting and inspections, which 
        will include newly formed training and environmental compliance 
        functions; and
   The Office of Natural Resources Revenue, the revenue 
        collection arm of the former MMS and which has already become a 
        separate entity within the Office of the Secretary.

    By October 1 of this year, the offshore resource management 
function will be separated from the safety and enforcement function, 
thus, in BOEMRE's place, we will have the two brand new agencies 
mentioned above.
    These reforms are also supported by the President's fiscal year 
2012 budget, which requested additional resources essential to 
effectively protect our natural resources as well as to address the 
need for an efficient, effective, transparent, and stable offshore 
regulatory environment. Most critically, the budget request will 
provide for an increase in inspection capability, partially funded 
through higher user fees, that will enable BOEMRE to conduct additional 
inspections and oversee high risk activities, as well as an investment 
in permitting to sustain efficient review, processing and approval of 
permits.
    The Outer Continental Shelf Reform Act of 2011 is nearly identical 
to S. 3516 from the 111th Congress, which the administration supported 
at a hearing before your committee. Many of the provisions in this bill 
are consistent with the legislation principles I have announced today.
    The legislation would provide general organic authority for the 
restructuring of the offshore energy and minerals program in the 
Department and would make additional changes reforming some of the 
underlying laws governing management of these resources.
    We support organic legislation for the functions performed by these 
programs. It is our view that such important responsibilities should be 
governed by a thoughtfully considered organic act. However, it is also 
important for organic legislation to provide the Secretary with the 
discretion to implement the details of a reorganization as complicated 
as this. The administration would like to continue discussion with the 
committee regarding the specifics in this legislation, such as the 
appointment and confirmation of the new bureau and office directors.
    A number of the changes contained in this bill highlight the need 
for increased safety of operations and consideration of the marine and 
coastal environment, including the need for integrated programs for 
both environmental research and technological research and development. 
A focus on strengthened safety and oversight and the environmental 
impacts of offshore oil and gas operations are priorities of the 
administration. These issues, and several others in the bills before 
you today, will require the department to work closely with the 
committee and other relevant federal agencies to ensure a coordinated 
approach to attaining these important objectives.
    S. 917 also includes new planning requirements, including a 
requirement for detailed descriptions of equipment and plans to address 
potential well blowouts. Consistent with this requirement, NTL-06, 
discussed above, clarifies that current regulations require that new 
filings for drilling permits, exploration plans, or development plans 
contain information specifically addressing the possibility of a 
blowout and the detailed steps that lessees or operators would take to 
prevent blowouts.
    The legislation would also extend the deadline for the Department 
to review and approve exploration plans; require that lessees obtain a 
drilling permit after approval of an exploration plan; and require 
that, prior to approval of such a permit, an engineering review of the 
well system be completed and reviewed. The Administration supports 
authority to provide for longer review time and for stronger reviews of 
exploration plans prior to drilling.
    Finally, we are also supportive of the changes in S. 917 that would 
strengthen civil and criminal penalties contained in the Outer 
Continental Shelf Lands Act. These provisions are generally consistent 
with the support for increasing these penalties that the Administration 
has expressed in the past. It is also important to provide the 
Department with the tools necessary to appropriately staff critical and 
hard-to-fill positions in these new entities.
    We look forward to continuing the dialog on this and other issues 
in the legislation.
Legislation to Facilitate Development of Resources
    The Oil and Gas Facilitation Act of 2011, S. 916, is intended to 
facilitate the responsible development of oil and gas on Federal land 
and waters and reduce our dependence on energy developed by foreign 
sources through increasing our understanding of domestic oil and gas 
resources, coordinating interagency activity on permitting for oil and 
gas development, and facilitate transportation of Alaskan oil and 
natural gas.
    The President and I are in complete agreement with you regarding 
the principles embodied in this legislation, and we support many of the 
provisions that are consistent with the principles discussed above. We 
agree that a better understanding of the oil and gas resources on the 
OCS is critical to ensuring that development takes place in the right 
ways and the right places. In response to the President's call for 
action, the Department is taking steps to expedite the evaluation of 
resource potential in the mid-and south Atlantic, including moving 
forward with the environmental analysis necessary to allow industry to 
proceed with seismic testing in the region as soon as possible.
    S. 916 also contains provisions that would create an Outer 
Continental Shelf Permit Processing Coordination office in Alaska. S. 
843, the Outer Continental Shelf Permit Processing Coordination Act, 
also being heard today, is nearly identical to these provisions but 
would broaden the authorization to include the establishment of 
regional OCS permit processing coordination offices to the Atlantic and 
Pacific regions, to be established at the point that lease sales are 
held there. These provisions are similar to a pilot program that has 
been in place in the Bureau of Land Management for several years that 
addresses onshore oil and gas permitting.
    Interagency coordination is important for the efficient processing 
of permits throughout the OCS. As the Administration's Blueprint 
specifically notes, interagency coordination is necessary and important 
to facilitate responsible oil and gas development in Alaska. As 
mentioned above, the President has requested that a high level, cross-
agency team be assembled in order to facilitate a more efficient 
permitting process in Alaska while ensuring that all standards are 
fully met. We believe that this specifically tailored approach will 
result in a better coordinated, more efficient, safe, and 
environmentally responsible offshore permitting process.
    We also strongly support the repeal in section 203 of the deepwater 
royalty relief provisions of the Energy Policy Act of 2005, which is 
consistent with the President's 2012 Budget. We note that the Budget 
also proposes to terminate the Permit Processing Improvement Fund.
    Finally, S. 516, the Lease Extension and Secure Energy Act of 2011, 
would require a one-year extension of leases in the Gulf of Mexico that 
were either not producing as of April 30, 2010, or were suspended from 
operations or other action in accordance with the May 30, 2010, NTL No. 
2010-N04 issued by the Minerals Management Service or the suspension 
notice issued on July 12, 2010. As the president said Saturday, the 
Administration fully supports extensions for Gulf of Mexico 
leaseholders directly impacted by the drilling moratorium, and ten such 
suspensions have already been granted using administrative procedures 
to leaseholders who have demonstrated that they were affected by the 
moratoria.
Conclusion
    Mr. Chairman, we have made significant strides in reforming the way 
the offshore oil and gas program is carried out here at the Department 
of the Interior and on the Outer Continental Shelf. We have raised 
standards and promoted safety and science in offshore oil and gas 
operations. The changes we have made will provide industry with the 
tools to help prevent an accident like this from happening again. 
Consistent with the framework presented by the Blueprint for a Secure 
Energy Future, we are working to secure our energy future by ensuring 
the potential for renewable energy development on our public lands and 
waters is realized. And we are pursuing the safe and responsible 
development of our conventional energy resources here at home.
    Mr. Chairman, Senator Murkowski, this concludes my statement and I 
am happy to answer any questions you or other members of the committee 
may have.

    The Chairman. Thank you very much.
    Let me start with 5 minutes of questions, and then we will 
just go around the dais here.
    Let me just ask for a little more elaboration, Mr. 
Secretary, from you or Director Bromwich about the current 
status of permitting in the Outer Continental Shelf. I know 
this is a subject that many people have expressed criticism 
about, how slow the department has been to issue permits and 
how there is a great desire to get additional permits issued 
more quickly.
    If you could elaborate on what the circumstance is as you 
see it and what the prospects are for additional permits in the 
coming weeks and months, that would be useful.
    Secretary Salazar. Thank you, Mr. Chairman. Let me make a 
quick comment and turn it over to Director Bromwich.
    It was not until the last several months that both the 
Helix Corporation and the Marine Well Containment Corporation 
had their subsea containment caps in place and had been tested 
for us to have a level of assurance that they could move 
forward in the deep water and do it in a safer way than had 
been done before April 20th.
    Director Bromwich and myself and other leaders of the 
department actually went to Houston to inspect and review the 
subsea containment mechanisms that had been built by those 2 
corporations. What we have done is based on those assurances, 
we have moved forward with the issuance of permits.
    I will have Director Bromwich give you a status report on 
that, as well as with respect to where we intend to go.
    Mr. Bromwich. Thank you, Mr. Secretary.
    Thank you, Senator Bingaman.
    We have approved--given permits to 14 unique wells in deep 
water. Now there may be multiple permits for each well. For 
example, when a BOP is inspected, it gets an additional permit. 
But I think everyone is interested in new drilling that is done 
in unique wells. So the number on that is 14.
    As the Secretary points out, we couldn't really grant 
deepwater drilling permits until there was containment 
capabilities. That didn't happen until the latter part of 
February.
    So if you do the math, we have actually given--we have 
permitted unique deepwater wells on the average of about once 
every 4 to 5 business days since containment capabilities were 
available. That is not a significantly slower pace than has 
historically been the case. So the notion that it has taken us 
a very long time to permit deepwater applications is really not 
true.
    There are currently 14 deepwater permit applications that 
are pending. There are 25 that have been returned for various 
reasons, usually quite incomplete applications.
    They may not have certified that they have met all the 
safety requirements that are now required. They may not have 
submitted any information relating to containment. So those are 
among the main reasons why permit applications may be returned.
    In terms of shallow water, 53 have been approved since last 
June when tougher requirements were put into effect. There are 
only 5 shallow water permits that are currently pending. There 
are 6 that have been returned.
    So since October when our new, tougher safety rules went 
into effect, the pace of shallow water permitting has been 
roughly 6 per month. The historical level has been roughly 8 
per month.
    So that is not a huge difference. If you think about the 
additional safety requirements that are required of the 
operators and the additional reviews that are required of our 
people, it is not a major discrepancy.
    The Chairman. Let me just be clear that you say there are 5 
applications in the shallow waters that are currently pending?
    Mr. Bromwich. Correct.
    The Chairman. There are 14 applications in the deep water 
that are currently pending?
    Mr. Bromwich. Correct.
    The Chairman. Then there are others that have been returned 
to the companies, asking them to provide additional assurances 
or additional information?
    Mr. Bromwich. That is right.
    The Chairman. OK. All right. Let me ask about API's role in 
this. As I understand it, they develop consensus safety rules 
or they are a standard-setting body that does that. To what 
extent is your department and your agency relying on those 
consensus standards? Is it appropriate that we do it that way? 
Maybe you could elaborate on that?
    Secretary Salazar. Chairman Bingaman, let me first say that 
we have a constructive relationship and a very good 
relationship with industry and with API as well. But that does 
not mean that we should be dictated at the Department of 
Interior and with BOEMRE with respect to what these standards 
are.
    So, that is why we--obviously, there is tremendous 
expertise there that we listen to. But at the end of the day, 
it is our independent judgment that has to come to bear on 
these regulations. I will ask Director Bromwich to elaborate on 
that as well.
    Mr. Bromwich. Historically, Senator, we have relied to a 
significant degree on consensus recommendations that have been 
developed by API. In a different world, in a perfect world, 
when we had our own technical resources, we would not do that. 
But we haven't been in that position. So, we have, in fact, as 
the Secretary suggests, looked at the consensus recommendations 
that API has put together and selectively incorporated those by 
reference. I think that is the best and maybe the only way to 
proceed at this time.
    The Chairman. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here.
    Mr. Bromwich, Mr. Hayes, thank you.
    I thank you for the efforts that you have made. I think the 
President's announcement this week, as it related to Alaska and 
the efforts on the annual lease sales up in the NPRA, the 
permitting, I think these are positive signals. Obviously, we 
want to make sure that they translate into action and reality. 
So we will be working with you on that.
    But Mr. Hayes, I want to single you out here and thank you 
for your efforts to try to reach a resolve on CD-5 in the NPRA. 
I think we recognize that this is critically important, and it 
speaks to some of what Senator Hutchison and Senator Begich 
were discussing earlier in response to Senator Manchin's 
question about the coordination within agencies.
    I think we recognize that we have got a lot to do, but we 
have got to find a path forward there. So I want to continue 
working with you on that.
    Secretary, I want to ask you just for a little bit of 
clarification here. Because you have discussed the various 
incentives that you wish to put in place to advance increased 
oil and gas production. When I think of incentives, I think of 
positive things that would encourage you. In your comments, you 
suggest amending the Mineral Leasing Act to allow for basically 
a shorter period of time than the 10 years in order to prompt 
the producers to move more quickly.
    As we have discussed in Alaska, we have got some pretty 
specific issues there that don't allow for prompt--prompting is 
not going to get us any further any faster. We have got on 
average about a 60-day exploration period per year. Sixty days 
is it. So, if what this does is it restricts the abilities of 
the producers in terms of gaining any certainty in terms of 
what their lease might be, that might concerns me.
    I understand that what your proposal is, is you want the 
discretion--the Secretary wants the discretion to shorten that 
lease period. I guess the question would be would you also seek 
to give the Secretary discretion to lengthen that in a 
situation, as we are talking in Alaska, where you have not only 
the environment that limits your opportunities to get in there 
and explore and produce, but you also have regulatory issues, 
as we have been dealing with, with Shell's permit, for 
instance?
    So can you speak just very quickly to whether the 
incentives could go to lengthen that proposed lease, as well as 
what you are seeking to do, which is to shorten it?
    Secretary Salazar. Thank you, Senator Murkowski.
    First of all, with respect to the OCS, we already have 
those authorities and have been implementing those authorities 
in terms of shorter lease terms, as well as graduated royalty 
rates within the OCS. Our proposal on the Mineral Leasing Act 
will address the onshore areas of oil and gas leasing. I think 
the statistics themselves are very important for all of us to 
keep in mind.
    We have 41 million acres of your land, of America's lands 
that have been leased for oil and gas production, and yet only 
12 million of those acres are currently producing. So 41 
million acres leased, only 12 million acres producing, and we 
continue to hold lease sales, both 2009, 2010, 2011. We have 
more planned for 2012.
    So, if we--in our view, if we were able to shorten the 
lease term from 10 years to a lesser amount of time, some of 
this area that is just being held out there that is leased, 
there would be a greater incentive from the companies to know 
that they would have to move forward and do exploration and 
development.
    Senator Murkowski. But would you agree that the facts on 
the ground in Alaska are somewhat different than we have in the 
lower 48, in terms of advancing those leases?
    Secretary Salazar. Indeed. I think Alaska, as you and I 
have often spoken, Senator Murkowski, is a world unto itself, 
and we need to recognize that the realities, whether it is in 
the Arctic offshore or on the onshore, are realties that 
require us not to impose, if you will, some of the same 
requirements that we might, say, if we are talking about the 
onshore in the State of New Mexico.
    Senator Murkowski. Very, very briefly, and I think my 
colleagues will pick up on this as well, but there has been 
great discussion about the length of time and why it takes as 
long as it does for the permit. Your proposal--or the proposal 
in S. 917 is to allow for additional time for these drilling 
permits, increasing from 90--excuse me, from 30 days to 90 days 
with the ability of the Secretary to expand to an additional 
180 days.
    In view of the concern that has clearly been expressed, at 
least in this committee, about the length of time that it takes 
to issue these permits, by allowing for even more additional 
time, does this not just add to the uncertainty and a 
continuation in the delay of advancing the permits?
    I am over my time. In respect to my colleagues that I know 
all want to ask questions, I would ask you to address that, try 
to be brief about it, but I know that other colleagues have 
raised the same concern.
    Secretary Salazar. If I may, Mr. Chairman, Senator 
Murkowski, the reality is that 30 days is simply not enough. 
Right now, under the statute, you either up it or down it in 
terms of an exploration plan that comes in within that 30-day 
time period.
    Part of the reality that should be one of the lessons 
learned from the Deepwater Horizon and that national crisis is 
that the agency didn't have the capacity, the resources, or 
really the time to do the effective job that it should be 
doing. So, when we are talking about having a 90-day timeframe 
to review an exploration plan, it seems to me that that is the 
kind of time that is required to be able to make sure that the 
best of the science and safety measures are being brought into 
play to review the exploration plan.
    I don't think it will have an impact in terms of having 
inordinate delays ultimately to oil and gas production in the 
Nation's oceans.
    Senator Murkowski. Thank you.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    It is good to have my old seatmate from this committee 
here, and I am going to ask you a couple of questions about 
offshore practices. But I want to start with a matter that 
involves energy production onshore because, as you know, Mr. 
Secretary, there is enormous interest today in more natural gas 
production. Certainly, the events in Japan, a whole host of 
issues have generated tremendous interest there.
    Clearly, what we always face in these kinds of issues is 
how you go about striking a balance. A balance between natural 
gas production, and as you know, there is enormous and growing 
concern about the environmental practice of fracking.
    So, my question to you is, you would have a real 
opportunity, using the BLM leasing and development process, to 
work through these kinds of issues and help us come up with 
some very sensible models, models that can allow us to strike 
that balance between producing more natural gas and dealing 
with these legitimate environmental concerns. I have come to 
the conclusion they are legitimate.
    You all would have a chance to have us come up with a model 
and perhaps get out in front of what could otherwise be years 
and years of litigation. I mean, as you know from serving on 
this committee, that is what we deal with all the time is we 
find these polarized kinds of debates.
    Here, there is something very exciting, natural gas 
production. What are you all doing at the Department of 
Interior, particularly with the BLM leasing and development 
process, to give us a chance to get out in front of this issue, 
strike the balance I am talking about?
    Secretary Salazar. Senator Wyden, you are spot-on on the 
issue. The President's energy future very much envisions 
natural gas being a significant part of what we do.
    I have often said that unless we deal with the fracking 
issue in the right way that it can become the Achilles heel to 
that huge potential for the United States. So, we have held a 
fracking forum with industry and others, other stakeholders at 
the Department of Interior. You have the BLM holding hearings, 
and I would ask the Deputy Secretary, David Hayes, to respond 
very briefly on what it is that we are doing with the BLM at 
this point.
    Senator Wyden. Mr. Hayes, do it briefly because I want to 
get into one other issue, and you can do additional comments in 
writing. But, yes, sure. Your thoughts on the leasing and 
development process?
    Mr. Hayes. I will be very brief, Senator.
    Within the last 3 weeks, we had 3 public forums in 
Arkansas, Colorado, and Wyoming on the fracking issue and 
whether BLM--how BLM should address it because we do hydraulic 
fracking on public lands.
    We are scheduled to be meeting with Secretary Chu's 
subcommittee, which the President has asked for recommendations 
on hydraulic fracturing. So we will be in a dialog with them, 
and they, under the President's plan, will be coming out with 
recommendations in the short-term. So we are fully engaged.
    Senator Wyden. I hope that you will do more than work with 
just the President's task force because I think that is 
constructive. I think you all have an opportunity because we 
know that public lands, that there is activity going on there. 
It is a perfect place for us to see if we can get some real 
models.
    What the President's task force is doing, I am for it. It 
is constructive. I would like us to go further by literally 
going to the real world, where we are going to see production 
and we have a chance to address environmental issues. 
Secretary, let us hold the record open for any other thoughts 
you have on it.
    One issue I want to talk with you about with respect to the 
markup that we are going to have involves the drilling 
contractors. As you know, Mr. Secretary, BP has largely been 
the public face of the oil spill, but as the joint Interior/
Coast Guard investigation and the spill commission 
investigation made clear, there certainly were problems with 
respect to the BP contractors.
    We are talking about Transocean and Halliburton. 
Halliburton, for example, never reported that its cement for 
the Deepwater Horizon well was faulty, even as it was being 
pumped into the well. Transocean even went to Federal court to 
claim indemnity under the U.S. admiralty laws that went back to 
the 1800s, gave themselves bonuses.
    What are your recommendations--because we are going to be 
dealing with this, I think, starting tomorrow and over this 
week. What are your recommendations, Mr. Secretary, for holding 
the drilling contractors, not just the lease holders, 
responsible so that we don't get into another one of these 
finger-pointing routines? What would be your recommendations 
with respect to holding the drilling contractors responsible?
    Secretary Salazar. Director Bromwich and I have had a 
series of conversations, and he has had a series of meetings 
and some public pronouncements on this. So I will have Director 
Bromwich deal with the contractor accountability issue.
    Mr. Bromwich. Yes, Senator. Traditionally, we have held the 
operator responsible----
    Senator Wyden. Correct.
    Mr. Bromwich [continuing]. Not held contractors 
responsible.
    Senator Wyden. That hasn't worked.
    Mr. Bromwich. As for clarity and simplicity, it hasn't work 
as well as it should have, which is why following discussions 
with the Secretary, I announced recently that we were going to 
extend our regulatory authority to include contractors, the 
Transoceans and the Halliburtons of this world. We have the 
legal authority to do it. Certainly in certain egregious cases, 
we ought to exercise that regulatory authority.
    It has been a dormant power that we have had. I am not 
saying that we are going to exercise it in every case because 
there is a virtue to the clarity of going against the operator. 
But I think in certain cases, we have it, and we should use it.
    Senator Wyden. My time is up, Mr. Chairman.
    The alternative, Mr. Bromwich, and I am not prepared to go 
there yet, but if we don't have a way to hold the contractors 
accountable, clearly people are going to start talking about 
separate Federal certification and bonding requirements and the 
like. So the ball is in your court to do this in a hurry.
    Thank you, Mr. Chairman.
    The Chairman. Senator Hoeven.
    Senator Hoeven. Thank you, Mr. Chairman.
    Secretary, good to see you again. Thank you for being here 
today.
    My first question relates to how do you explain the 
difference in terms of the perception that the companies that 
are drilling have, as far as the regulatory process and their 
ability to get permitted and move forward, and the perception 
that you perhaps within the agency have relative to expediting 
these permits and getting them done?
    Maybe specifically address the shallow water versus deep 
water that Senator Hutchison bought up that issue. I think you 
were here for her comment.
    The other is if you can reject a permit application in 30 
days and continue to do that, is there really any de facto 
timeline on this process for getting approval?
    Secretary Salazar. Senator Hoeven, thank you. Thank you 
very much for the question.
    First, on the perception, Washington and these issues are 
an interesting place. We have tried to move forward with 
upholding the policy, which the President and I have 
articulated, and that is we are supportive of oil and gas 
development in the Gulf of Mexico and in other places in 
America's oceans. We also have said, and we will not retrench 
this position, that we will do it in way that is safe and in a 
way that protects the environment.
    I think Director Bromwich's statistics in terms of how we 
have moved forward with both the shallow water and the deep 
water will indicate to you that we are not just about talk, but 
we are walking the walk that we are saying in terms of drilling 
and production in our country.
    Now I will tell you that in multiple meetings with oil and 
gas executives, including those of the very top companies, they 
understand what we are doing. They understand that they did not 
have the subsea containment capability available until February 
of this last year.
    They understand that there is still a lot of work to go 
because it is a dynamic kind of issue in terms of getting us to 
the safe position that we want to be with respect to oil and 
gas drilling. So, I account for the noise that goes around this 
issue as simply the kind of noise that you end up seeing here 
in Washington, DC.
    With respect to the shallow water, with respect to the 
timelines from 30 to 90 days, I don't think that is a 
significant amount of time extension because we do need to have 
that kind of time to adequately review these exploration plans 
and to make sure that the decisions that are being made are, in 
fact, sound.
    Senator Hoeven. Is there another piece to that equation 
that we need, though? If that approval process is 30 or 90 
days, but you can continue to reject the applications, is there 
another piece we need in there to make sure this process is 
done in a timely and fair manner? If so, what would that be? 
What would work there, in your opinion?
    Obviously, that is some of the things we are trying to get 
at with legislation. What is your recommendation?
    Secretary Salazar. You know, Senator Hoeven, I think that 
there may be some--well, we would be happy to work with you on 
the language. I mean, it seems to me that one of the things you 
don't want to have a company do is to enter into a endless 
process that doesn't get anywhere.
    Senator Hoeven. Right.
    Secretary Salazar. So, I think the timelines are, in fact, 
important. Many of the times when the permits are returned or 
exploration plans are returned, it is because they are 
incomplete. So, I think having those--having a timeline, as is 
set forth in the legislation, of 90 days is correct.
    Having clarity from us in terms of what it is that is 
required, which is part of what Director Bromwich has been 
doing with all the regulations that have been issued, is 
important. But I understand your point that we ought not to 
have industry essentially coming in with applications that are 
held in endless abeyance and endless extensions.
    Senator Hoeven. I think it is an analysis that we should 
try to do between Interior, between the Congress, between the 
private sector and say, OK, how do we do this in a way where 
you have perhaps a certain period--and obviously, you have that 
opportunity to reject an incomplete application--but we still 
need to find some way to make sure there is some reasonable 
timeline for these permits.
    Because I think what is happening is a lot of them are 
getting rejected, and so then they don't sit in the queue, but 
this permitting process goes on for a very lengthy period. I 
think that is what we are trying to get at. So that it is fair 
process that certainly protects the environment, but that 
empowers private investment and empowers more energy production 
for this country.
    Secretary Salazar. I agree with you, and I do think that, 
right now, the 30-day timeframe doesn't work to advance that 
particular objective because applications, exploration plans 
end up getting returned because there is not enough time to 
work through them. I think if we had the 90-day timeframe, it 
would, frankly, allow us to streamline the process and to have 
a better product coming out of industry.
    If I may, let me just comment as well, just, you know, one 
of the things that has happened over the last year, Senator 
Hoeven and members of the committee, is that templates are 
being developed. Yes, there are now 14 deepwater wells that are 
being drilled. Yes, there are now over 50 shallow water wells 
that are being drilled. But we have changed the world. We have 
changed the regulatory regime.
    So, what is happening is that industry, as well as our 
agency, is understanding what the new template is, moving 
forward. We will always be looking at ways in which we can 
improve what it is that we do.
    Senator Hoeven. Mr. Chairman, I understand my time is up. 
But I think that is where Senator Begich's legislation is 
trying to go. I think if we can be interactive with you in 
developing those concepts that that might be helpful.
    I do hope have there is a second round. I have some other 
issues to bring up, but I certainly understand I am out of 
time.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Franken.
    Senator Franken. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary.
    The House passed a bill last week, and we are considering a 
bill with a similar provision this week in the Senate that 
would set a 60-day limit for processing offshore drilling 
permit approvals. After that, the permit would be deemed 
automatically approved. To me, this seems like just a bad 
policy on a number of grounds.
    First and foremost, it completely ignores, I think, the 
number-one lesson from the Gulf oil spill, that you can't 
assume that drilling operations have adequate safety measures 
in place.
    Also, if you can't get it done in 60 days, I guess instead 
of automatically being approved, you just say no. That is 
probably also a bad idea. Can you talk about the possible 
impacts of such a policy on your agency's ability to ensure 
safety of offshore drilling operations?
    Secretary Salazar. I think what it would do, Senator 
Franken, is to basically pull out the rug from what it is that 
we are trying to do here, and that is to have safe development 
of oil and gas in America's oceans. You can't do that when you 
are essentially in a position where you are forced to do 
approvals in a 60-day timeframe.
    That wouldn't work, and I think it would be good for 
Director Bromwich to talk just a little bit about the permit 
process so that we can understand the 60-day period and how 
that would work.
    Mr. Bromwich. Yes. I agree with the Secretary and with you, 
Senator, that it would be a profoundly bad idea to have 
arbitrary time limits within which you would have to approve 
permits or they would be deemed to be approved.
    An operator--and I am not saying there are many of these, 
or maybe even any of these--could simply submit a permit that 
they knew was deficient, that didn't have containment resources 
specified, that didn't meet all of the new enhanced safety 
requirements that we put in place and that I think has 
significantly raised the bar on safety, and then they could 
just run out the clock and have their permit application deemed 
approved.
    So it would be a substandard application. It would not 
satisfy various of the requirements that we put in place, and 
we would be all at greater risk if we had that kind of a 
system.
    Senator Franken. The purpose of the measure supposedly is 
to expedite your permitting process. But we have the numbers. 
You have issued 66 deepwater permits since the temporary 
moratorium was lifted in October 2010.
    What, in your mind, are better options to streamline and 
expedite permit approval process without compromising due 
diligence on safety?
    Mr. Bromwich. We can do several things, and we are doing 
several things. We are actually looking at our permitting 
process to see whether there are improvements in clarity, 
simplicity, and transparency.
    One of the things we do hear from operators from time to 
time is they don't know where their permit sits in the system. 
So, we are working ways to be more transparent about 
communicating to them where their permit application sits in 
the system.
    We are also looking to develop templates and checklists so 
operators know exactly what is expected of them in advance. So 
we eliminate some of those questions up front. We are working 
on templates and checklists and forms, again, to expedite that 
process. So I think those are the ways that we can do that.
    One of our historical problems has been simply a lack of 
resources, which includes not only a lack of an adequate work 
force to do inspections, but a lack of an adequate work force 
to process and review permits. We finally recently, last month, 
got additional money, which we are allocating across the board 
to bring onboard more personnel.
    Some of those will be permitting personnel. So I hope that 
will expedite the process as well.
    Senator Franken. Thank you.
    One of the most concerning findings in the National Oil 
Spill Commission's report was that some oil well operators 
would ``shop around'' for someone within the Interior 
Department who would eventually approve a permit for the 
project. I know most people here agree that the Minerals 
Management Service was in dire need of reform, and we are glad 
to see the reforms that the administration has taken in 
response to the oil spill.
    In restructuring of the agency into 3 separate entities, 
the new Bureau of Ocean Energy Management is in charge of 
leasing activities in ``an environmentally and economically 
responsible way.'' In evaluating lease applications, how will 
this office balance these 2 often competing priorities and 
environmental concerns versus keeping costs down?
    Mr. Bromwich. We have focused on it not only because of the 
report of the President's commission, but because of other 
reviews and studies as well, which have identified a failure to 
take environment concerns adequately into account. So, we have 
now focused on it, and we are working on some specific 
structural steps to make sure that there is balance between the 
development of the resource and environmental considerations.
    One of the specific things we are doing is we are creating 
the position of chief environmental officer in the Resource 
Development Agency to make sure that the voices of our 
environmental personnel are heard and are factored into the 
balance of leasing decisions and plan decisions.
    Senator Franken. Thank you. My time is up.
    Thank you, Mr. Chairman.
    The Chairman. Senator Portman.
    Senator Portman. Thank you, Mr. Chairman.
    Mr. Secretary, good to have you back before the committee 
again and appreciate the testimony today.
    You were last here I think it was on March 2nd, which was a 
couple months ago. We talked about these same issues. At that 
time, you and I had a conversation about my concern that these 
claims were out there, that rigs were actually leaving the 
Gulf, and had left the Gulf in the context of the moratorium, 
to go to other countries and other offshore drilling.
    At that time, you said that you did not believe that it 
happened and that you would provide information about it. We 
have since followed up with your office twice, and I have yet 
to receive that data.
    So I would like to reiterate my request that you provide us 
the data on the rigs. I think it is important, at least to have 
it historically now, to see what the impact was of the 
moratorium.
    In your testimony today, you state that last year America 
produced more oil than any time since 2003. You also talked 
about in your oral testimony today, you said we are producing 
more. I guess I would ask there where in the United States were 
these increases in oil production?
    Were these onshore or offshore? What data do you have today 
to tell us about where this has occurred since 2003?
    Secretary Salazar. Senator Portman, thank you for your 
question, and I will direct my department to get that 
information to you on the number of rigs.
    On the question of where we are in terms of increased 
production, in the last 2 years, just from the Outer 
Continental Shelf, the increase has been from 446 million 
barrels to over 600 million barrels. That is an increase about 
a third, just from the Outer Continental Shelf.
    On the onshore, where we have 41 million acres under lease, 
the increase has been 5 percent during that same time period.
    Senator Portman. So it is mostly Outer Continental Shelf. 
We are going to hear from Senator Landrieu in a minute here. I 
think in her comments, she indicated that shallow drilling is 
off by about 50 percent since the moratorium. I think she even 
said that there is not any deepwater permits that are currently 
producing.
    You indicated you have approved some of those permits now, 
and I know we will hear more from her on that. But I guess what 
you are hearing today, both from Senator Hutchison and Senator 
Begich and others who are concerned, as I am, about our energy 
independence and our need to produce more oil and gas is that 
we do need to work on this permitting process. That in the 
context of the moratorium, we need to look back and see what 
the impacts were to avoid, in my view, some of these steps 
backward.
    I think the President made some good comments over the 
weekend. I was somewhat encouraged by what he said about 
extending leases in the Gulf. He also called for annual lease 
sales in the National Petroleum Reserve in Alaska. I would hope 
that we will continue to see some of these expedited processes 
to get moving both on the Alaska front, but also in the Outer 
Continental Shelf.
    I will say that, to Senator Franken's question, you know, 
there is frustration out there, and that is where this 
limitation comes from. The notion that the bureaucracy should 
be given a certain amount of time, an appropriate amount of 
time, but at that point, that the companies that have submitted 
legitimate applications need to know one way or the other. The 
burden, in a sense, should be on the Government at that point 
to say why aren't we moving forward?
    I know that the Begich and the Hutchison bill would help in 
terms of the streamlining and transparency you talked about. I 
think Senator Bingaman's legislation--he has 2 bills that we 
are looking at today--would help. I hope you would work with us 
on that.
    But let me just switch, if I could, for a second to another 
comment you made in your opening statement. You indicated that 
there were sort of 3 buckets that the administration was 
looking at. I believe it was oil, gas, renewables and 
alternative energy, and then efficiency.
    As you may know, last week, legislation was introduced by 
Senator Shaheen and myself, Energy Savings and Industrial 
Competitiveness Act, it is S. 1000. It basically leverages 
deployment of energy efficiency technologies in the home 
building space, commercial space, and the industrial space, and 
also with regard to the Federal Government. We would love to 
get your input on that legislation, and we would hope to get 
your support on it. I wonder if you had any thoughts on that 
legislation today?
    Secretary Salazar. Senator Portman, I have not reviewed the 
legislation, S. 1000. But I would be happy to do it. Along with 
my colleague Secretary Chu and the administration, energy 
efficiency obviously is a huge part of that bucket to get us to 
that energy future.
    In fact, part of the reason that we are using--importing 
only less than 50 percent of our oil from foreign countries 
today, as opposed to 60 percent just a few years ago, is 
because of the fact that we are becoming much more fuel 
efficient. So, the energy efficiency obviously goes beyond 
cars, and it goes to buildings and appliances and a whole host 
of things.
    So, those are addressed in the President's energy 
blueprint. We would be happy to take the legislation and let us 
get back to you on it.
    Senator Portman. That would be terrific. We are working 
with DOE on it. Given, again, your interest in this area, as 
you say, the relationship it has to your responsibilities, we 
would love to get your input.
    My time is up, but I would appreciate getting back to us on 
the Outer Continental Shelf issues, the Gulf issues we had from 
the last hearing, and also on S. 1000.
    Thank you, Mr. Secretary.
    Secretary Salazar. Thank you.
    The Chairman. Senator Landrieu.
    Senator Landrieu. Thank you.
    Mr. Secretary, let me begin by commending you and the 
President for getting back to where we were before the 
Deepwater Horizon spill in terms of at least having a vision 
for opening up more domestic drilling. I really appreciate 
that, and it was the right step to take. Now it is just the 
details of how we actually accomplish what the President laid 
out.
    I can only say that, you know, using words, actions speak 
louder than words. So, that is where we are right now. It is 
not about just saying we want to expand drilling, but actually 
doing it.
    So I want to just clarify just a couple of things that I 
think are very important for this hearing, Mr. Chairman, as we 
try to push a bill through--or several bills--to actually 
accomplish opening up drilling.
    I want to clear for the record that--and this is from the 
EIA Short-Term Energy Outlook--this is not Mary Landrieu's 
chart. It is not a Democratic chart. It is not a Republican 
chart. This clearly says that today production of oil is at the 
highest level it has been. But you can clearly see on the 
trajectory that we are on that it is going down.
    If we don't start issuing permits more quickly for new 
drilling, if we don't start exploring in areas that really 
deserve to be explored, this is not going to be reversed. Even 
if we made those changes today, I am not sure that we can 
reverse this chart.
    So I want the record to be clear. We may be at high levels 
today, but we are not going up. We are going down.
    No. 2, Mr. Bromwich, I need to clarify for the record. You 
said that you have 14 deepwater wells. Are any of those new, or 
are all of those revised?
    Mr. Bromwich. I believe all of them had been previously 
permitted.
    Senator Landrieu. That is correct. So, I just want to say 
for the record, these 14 deepwater wells that have received 
permits are not new wells. They are revised. They had been 
drilling prior to the Deepwater Horizon.
    I understand that not all 14 of these are actually 
drilling. Some of them are water injection wells. Do you know 
how many?
    Mr. Bromwich. No, that is not correct.
    Senator Landrieu. OK.
    Mr. Bromwich. That is in a category----
    Senator Landrieu. They are all drilling?
    Mr. Bromwich. Yes.
    Senator Landrieu. OK. They are all drilling, but they are 
all revised permits. There is not a new deepwater permit. Is 
that correct?
    Mr. Bromwich. That is my understanding.
    Senator Landrieu. Your staff is--OK, let us get this clear. 
Because there might be a lot of noise around Washington, but it 
is necessary for this to be clear in order for us to move 
forward. So while your staff is getting that, because it is my 
understanding, based on a chart I got from your Web site--this 
is not my Web site--it has zero, zero, zero, zero, zero for 
deep water in 2011.
    It doesn't say 1. It doesn't 2. It doesn't say 14. It says 
zero, from your Web site. This is new wells approved in 2009, 
2010, and 2011. So, Mr. Chairman and ranking member, the facts 
are that despite our efforts, the moratorium has been lifted, 
there is not a deepwater, you know, drilling permit----
    Mr. Bromwich. Senator, if I may, there is one.
    Senator Landrieu. OK. There is one.
    Mr. Bromwich. Right.
    Senator Landrieu. OK. We have one new----
    Mr. Bromwich. Out of 14.
    Senator Landrieu [continuing]. Deepwater drilling out of 
14. But let me ask you this. My information is, is that there 
are 100 exploration plans that are pending at BOEM. Is that 
your understanding? That before you can get a drilling permit, 
you need to have your exploration plans approved.
    How many do you think are pending now? Is it 100? Do you 
know?
    Mr. Bromwich. No. It is far less than that.
    Senator Landrieu. Can the staff tell us how much it is?
    Mr. Bromwich. My understanding is it is approximately 36 
deepwater plans.
    Senator Landrieu. OK, 36 deepwater plans. The others may be 
shallow water, but I would like you to submit that for the 
committee, OK?
    Mr. Bromwich. Sure, happy to do that.
    Senator Landrieu. OK. Because we need to understand how 
many plans, both deep and shallow, are pending, how many 
permits then for drilling are pending. But the bottom line is 
we need to step it up, or these numbers are going to get worse, 
not better.
    No. 2----
    Secretary Salazar. Let me, if I may, Senator Landrieu?
    Senator Landrieu. Go ahead, Mr. Secretary.
    Secretary Salazar. Because, frankly, at the end of the day, 
I will call these shots within my authority as----
    Senator Landrieu. I realize that.
    Secretary Salazar [continuing]. Secretary of Interior. What 
I will say is that with respect to your chart, the fact is that 
we are doing a lot to try to move forward with deepwater oil 
and gas production, as well as shallow water. You lived through 
the nightmare, just like I lived through the nightmare of the 
Deepwater Horizon.
    But I will remind the members of the committee that we have 
38 million acres of oil and gas leased acreage in the Outer 
Continental Shelf, and only 6.5 million of those acres are 
producing. So we want to figure out a way--we want to figure 
out a way of moving forward with the production of oil and gas 
in these areas.
    Now, when we talk about 14 deepwater wells, those are rigs 
where you actually have the people who are out there on those 
rigs working. I was actually on one of those rigs, the Ensco 
rig, visiting them as they started moving forward. So you have 
14 rigs that are now working under permits that have been 
approved under the new regulatory regime.
    Senator Landrieu. Right. But they were working before they 
got shut down, Mr. Secretary. I know my time has expired, but 
it is very important for us to recognize that unless we get 
some new exploration plans approved and new deepwater plans. 
So, you can understand the reaction by some of us when you are 
asking to expand the time for review. The time for 30 days, as 
I understand, could be actually be 50 days, Mr. Chairman. Under 
the new proposal, it could be up to 270 days under the 
technical review of the proposal on the table.
    So, again, and I just want to conclude, if you will bear 
with me, with one chart, and then I will close. Because I have 
100 other questions and comments, but 5 minutes.
    Mr. Secretary, this is what the Gulf of Mexico looks like. 
I wish that you all could see what I just saw yesterday when I 
got back from Morgan City, which has flood waters now lapping 
up at these communities. This is what the Gulf of Mexico looks 
like. These are pipelines. This is what our State does to 
support this industry. You can see Texas, Louisiana, the coast 
of Mississippi, and Alabama.
    We do not today get one single, solitary penny from a 
lease, a bonus, or a severance from any of these wells, except 
3 miles off of our shore. No matter what law we pass, this 
Senator will not vote for anything unless there is some 
recognition of the platform that our State, you know, serves 
for this industry, or nobody would be getting any money, any 
energy, any oil, any gas.
    So I am going to end there, but I have 100 other questions 
and comments I will submit for the record, Mr. Chairman.
    Secretary Salazar. If I may, Mr. Chairman----
    The Chairman. Go right ahead.
    Secretary Salazar [continuing]. May I make a comment in 
response to Senator Landrieu?
    I think for the last 2 1/2 years--and you know me well, 
Senator Landrieu, from my time in the U.S. Senate working on 
this committee and working on so many issues--I have a 
jurisdiction that takes me from sea to shining sea and out into 
the oceans, all of Alaska, and many other places. I have 
probably been in Louisiana and the Gulf of Mexico more than any 
single other State.
    Our efforts, that you rightly point out, need to focus in 
on the restoration of the Gulf Coast. I know there are bills 
that you are working on to try to get that done. I am pleased, 
as I know you are pleased, with the billion-dollar early 
restoration on the Gulf of Mexico from BP that we are moving 
ahead with.
    Senator Landrieu [continuing]. Louisiana.
    Secretary Salazar. It will be at least 200, probably more, 
OK?
    But here is what I wanted to say is I think you raise a 
very legitimate question, and that is that we extract all of 
this oil and gas from the Gulf of Mexico, about a third of the 
Nation's supply. Yet, because of the hand of man over the last 
100 years, you have what is one of the most degraded ecosystems 
and degraded Mississippi Delta, which you and I and Senator 
Bingaman and Senator Murkowski have flown over many times.
    So I think this is a very important issue that I hope we 
can find some common way of moving forward to restoring the 
Gulf of Mexico.
    Senator Landrieu. Thank you.
    The Chairman. We have 2 Senators who have not asked 
questions yet, Senator Manchin and then Senator Shaheen. So 
Senator Manchin?
    Senator Manchin. Thank you, Mr. Chairman.
    Thank you, Secretary, and your staff for being here.
    The thing I want to ask is you can tell the frustration. I 
am sure you are hearing it loud and clear. The timing--we are 
going to be voting on a bill, they said 60 days--an amendment, 
60 days. Did I hear you saying that it should be 90 days, not 
60 days?
    Mr. Bromwich. Can I clarify? We are talking about 2 
different things.
    Senator Manchin. We are?
    Mr. Bromwich. I think people are a little confused.
    Senator Manchin. OK.
    Mr. Bromwich. There are permits, and there are plans. Plans 
are broader authority that an operator seeks to do a variety of 
things. There are a number of individual permits under the 
plans. Right now, there is a statutory 30-day limit on the time 
within which my agency has to review an exploration plan. There 
is currently no time limit with respect to reviewing individual 
permit applications. That is the difference.
    Senator Manchin. The permits are what they are wanting a 
60-day--I think that is the amendment that we will have.
    Mr. Bromwich. Right. That is--I don't know if you were 
here. That is the question that Senator Franken asked.
    Senator Manchin. Right.
    Mr. Bromwich. Where even if an operator submitted a permit 
application that totally failed to comply with all of our new 
safety requirements and failed to show the ability to contain a 
subsea blowout, the statute would require, if it were passed, 
that we would approve that permit.
    Senator Manchin. Not approve. No, I don't think that is the 
way I understand it. Basically, you will have the right to 
either approve it or disapprove it, but you have to act on it. 
The frustration is, is that the bureaucracy is it is not 
getting acted on. It is not just in the gas and oil. It is in 
coal.
    Every permit that we do natural resources, people are so 
frustrated because the time element is so long there is no--
they have no certainty whatsoever, and they can't plan 
anything. Just a yea or a nay would even help them get off the 
bubble, if you would. That is the frustration I think you are 
feeling from all of us.
    I am just trying to say what timetable do you believe it 
would take to evaluate that and give an up-or-down?
    Mr. Bromwich. With respect to a permit?
    Senator Manchin. The permit.
    Mr. Bromwich. I don't know that there is a specific 
timetable.
    Senator Manchin. So it could be whatever you all--somebody 
could say, ``Well, it will be 6 months. Could be 12 months. 
Could be a year?''
    Mr. Bromwich. The fact is our people have absolutely no 
incentive to slow down the processing of permits. Most of our 
people who review and approve permits are residents of 
Louisiana. So, it is their neighbors whose livelihoods are at 
stake.
    So I think that giving us adequate resources so that we 
have the personnel to do it, being transparent about where 
permits are in the process and, therefore, how long it is 
taking, I think those are major steps forward.
    But I am worried that a legislative solution--and I know 
the House version of the bill would deem a permit application 
approved after a certain period of time. That is what I am 
responding to. I think that would be very bad public policy.
    Senator Manchin. OK. The other question I would have is 
coal, coming from a coal State, as you know, and gas--and we 
have a little bit of everything, and I know that the Secretary 
understands that--what we are asking is the development and the 
amount of coal that we have, and we have been using coal plants 
for quite some time. I know some people have different options 
of that, but it is the most reliable of our baseload fuels.
    With that being said, the CO2. We know the 
technology is there for carbon capture and storage. What is 
your opinion, Mr. Secretary, as far as where are you on the 
pipeline, a national CO2 pipeline, that could really 
help the enhancement and development of oil? Because we know it 
is probably one of the best uses that we have right now other 
than just storing it is to use it for oil enhancement to make 
us less dependent on foreign oil.
    Secretary Salazar. We have always been supporters of carbon 
capture and sequestration, and particularly using the templates 
that have already been developed and used for many decades with 
enhanced oil recovery. You know, in my State of Colorado, 
frankly, we drill wells to extract CO2 that is then 
piped into the oil fields for enhanced oil recovery.
    So I think those kinds of efforts are a way in which we can 
move forward to the kind of clean energy technology that we 
want to have. We support having clean coal technologies, and I 
think that those kinds of concepts are ones that we all need to 
explore.
    Senator Manchin. But I am saying right now they are telling 
me that there is not--we don't have the infrastructure to 
deliver the CO2 to the drilling areas that would 
really enhance the oil production. I don't think any private 
concern is going to be able to do that without kind of a quasi 
public-private. Are you all looking at that seriously, or have 
you looked at it?
    Secretary Salazar. I have not, per se, looked at it. But I 
think it is a concept that is very worthwhile exploring.
    Senator Manchin. Because we have the ability to retrofit 
the existing coal fire plants that take the clear stream of 
carbon off. If we can do that, there has to be a market for it, 
which there is, but there has to be delivery.
    Secretary Salazar. We will look at it. It is a concept very 
worthwhile exploring.
    Senator Manchin. Again, the frustration that Senator 
Landrieu had is that, basically, we are just concerned about 
our dependency on foreign oil. The high price is killing is all 
of us. In West Virginia, a day doesn't go by that I don't have 
phone calls and letters. It is over $4. It was $4.19 on average 
where I was in the State this past weekend.
    Something has to be done. In order to do that, we have to 
be more certain of what we can do in this country and less 
dependent on the foreign oil that I think they are holding us 
hostage with. So we are just asking for your all's help as much 
as humanly possible.
    Thank you.
    Secretary Salazar. Senator Manchin, I recognize the issue 
of the day in terms of the concern that the American public has 
with the pain at the pump. I think as the President has said, 
we can look back at history from the price spikes that started 
in the late 1940s and through the 1970s and the 1980s and the 
1990s, and there is no quick fix.
    So there is no quick fix to the high price of gas for us 
now because of the fact that it is set on the global market and 
the fact you have countries like China that are using much more 
oil and gas than they ever have in the past.
    So, it is important for us to have the long view in mind as 
we move forward to develop the energy policy of this country. 
This committee obviously has tremendous expertise with the 
Senators and its staff to help us make sure that we can find 
those places in which this energy future can be secured.
    Senator Manchin. I just think--and I will finish with 
this--is that, as you said, it has been going on for quite some 
time. In my lifetime, basically, it came to a head in the 1970s 
with the oil embargo.
    We learned nothing. We have no energy policy. We are still 
more dependent than ever. We grow more dependent, it seems to. 
We don't seem to learn from our mistakes.
    Until we have an energy policy that uses the energy that we 
can produce, that has more certainty and more dependability 
within this Nation or this continent, we are going to continue 
to go down this for the next 30 to 40 years. We are hoping to 
break that cycle, sir.
    Secretary Salazar. I agree.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman.
    Thank you for calling the hearing today on what is 
obviously a very hot topic that people feel strongly about.
    Thank you, Secretary Salazar, for being here and for your 
patience in responding to all of the questions and concerns 
that we are raising.
    I actually have a little bit different question, I think, 
than the ones I have heard anyway. As we are looking at 
legislation to address concerns about permitting and drilling, 
one concern I have is that we not repeat the mistakes of the 
past.
    I know that I was quite surprised, as I think many of us 
were last year during the BP oil spill, to find out that the 
technologies for cleaning up that spill hadn't changed much 
over the decades preceding. That while after the Exxon Valdez 
spill, there was supposedly a process, and someone--people put 
in place to try and address oil spill R&D, that it really had 
not been effective, and that the funding had not been there.
    My concern is that as we go forward and look at how we 
improve the processes for permitting and look at our drilling 
in the future that we are able to develop the technology to 
make sure that if there are deepwater spills that we have 
technology to clean those up.
    I know that the President in his 2012 budget includes an 
increase in funds for oil spill R&D, but it is not at all clear 
to me that we have yet in place a process for how we raise 
those funds on a regular basis and how they are going to be 
spent and who is going to supervise that.
    So I wonder if you could speak to that and to whether you 
are comfortable that we have in place the process to address 
oil spill R&D or whether we have more work to do?
    Secretary Salazar. Thank you very much, Senator Shaheen, 
for that question.
    The fact of the matter is that I think when one looks back 
at the Exxon Valdez report that came out of the Presidential 
commission on the Deepwater Horizon, that national crisis and 
environmental catastrophe, which caused so much damage, was not 
one that really created much change in this country. Things 
continued much the same way without those lessons being 
learned.
    The President and his administration are absolutely 
committed to make sure that those same mistakes are not 
repeated now in the wake of the Deepwater Horizon oil spill. 
That is why there has been the robustness of the effort to try 
to move forward with the creation of the best standards and the 
best organization to oversee drilling in America's oceans and 
actually to help develop those same kinds of protocols around 
the world.
    In terms of the funding questions and what we are doing 
with respect to oil spill response, we do need funding to be 
able to have an agency conduct responsibly the important 
missions that have been assigned to the Bureau of Ocean Energy 
Management and Regulation.
    So, the continuing resolution did give additional resources 
to Director Bromwich's agency to move forward in that 
direction. They are not sufficient, frankly. There are more 
resources that are needed for the director to be able to hire 
the kind of personnel that will have the expertise in petroleum 
and to have the ability to do the kinds of inspections and 
oversight that are necessary.
    He can speak more about this. But just in the last several 
weeks, he has spent a great deal of his time looking at the 
control centers, the remote data centers, that industry has in 
all the big companies where they are able to monitor what is 
happening in the production and in the drilling activities of 
their oil and gas wells. We need to have our agency move 
forward to having some of those same capabilities.
    But it is not going to happen unless the resources are 
there. That comes back to the question which many of the 
members of the committee were asking, and that is how can you 
make sure that you are moving forward with permitting in an 
expeditious way? A large part of that answer is that you need 
to have the personnel onboard to be able to do the work.
    Mr. Bromwich. Senator, I share your concern about there 
being insufficient advances in oil spill R&D. I think we have 
not progressed very much in the last 20 years, and the truth is 
I don't see much going on right now that would improve things. 
I completely agree with the Secretary that we need more 
governmental involvement in research and development, but we 
need more private sector involvement in developing new 
technology.
    I think one of the consensus conclusions that people have 
come to as a result of Deepwater Horizon is that there was 
insufficient R&D by the private sector in every area implicated 
by Deepwater Horizon to R&D in safety, R&D in containment, and 
certainly R&D with respect to oil spill and oil spill 
technology. That was true then, and unfortunately, it remains 
the case today.
    Senator Shaheen. Thank you.
    Thank you Mr. Chairman.
    The Chairman. Thank you.
    Mr. Secretary, thank you very much for your generous time. 
We do have some additional questions that will be submitted for 
the record, but we appreciate your being here.
    The Chairman. Did you have something final you would like 
to say? Go ahead.
    Secretary Salazar. Just very quickly because through Tom 
Hunter, we have been working on this Ocean Energy Safety 
Advisory Committee, which is really doing some great work to 
answer many of the questions that were asked here. But we also 
have a proposal in front of the U.S. Senate and this committee 
for the creation of an Ocean Energy Safety Institute.
    I would like Deputy Secretary David Hayes, if you would 
allow us, Mr. Chairman, just to give us a quick 2-minute 
summary of what it is that we are seeking there because it is 
partially responsive to Senator Shaheen's question.
    The Chairman. Why don't you go ahead?
    Mr. Hayes. I will be quick, Mr. Chairman. Thank you.
    This is responsive to Senator Shaheen's question. The Ocean 
Energy Safety Advisory Committee, chaired by Dr. Hunter, former 
director of the Sandia National Lab, and populated by folks 
from academia, other governmental agencies, and industry, has a 
task ahead of it of trying to do a survey of what R&D is going 
on in the areas of well control, containment, and spill 
response.
    But there is no central place, a center of excellence that 
they can turn to administratively to help the Secretary and 
Director Bromwich then implement R&D that is needed and also to 
have the regulatory agency keep up to speed on what is going on 
in terms of advances in all of these areas.
    That is the genesis of the proposal that we have an Ocean 
Energy Safety Institute that can respond to what Secretary Chu 
has also suggested that in order to be a good regulator, our 
folks at the Interior Department need to have the same 
expertise as the top folks in the industry. Having a 
collaborative institute would meet that goal and help organize 
the effort.
    The Chairman. Again, thank you very much for your time and 
your testimony. We appreciate it very much and wish you well.
    We have 2 additional panels. First, Admiral Thad Allen, 
who, of course, was the National Incident Commander with the 
Deepwater Horizon disaster, and then 2 other distinguished 
witnesses. We would ask Admiral Allen if he would come forward?
    [Pause.]
    The Chairman. Admiral Allen, it is very good to see you 
again, and we welcome you back to the committee. We, of course, 
will include your full statement in the record as if read, but 
we would like you to make any points you think we particularly 
need to understand.
    So, go right ahead.

  STATEMENT OF ADMIRAL THAD W. ALLEN, RET., U.S. COAST GUARD, 
    NATIONAL INCIDENT COMMANDER, UNIFIED COMMAND, BURKE, VA

    Mr. Allen. Thank you, Mr. Chairman, Senator Murkowski. 
Great to see you. Senator Shaheen.
    I am going to focus on a couple of issues that I think are 
relevant to my experience and the experience we all took part 
in, in responding to the Deepwater oil spill last year. 
Specifically, I would like to talk this morning about the 
regulation of mobile offshore drilling units, the drilling 
systems and the certification and the regulation of those. Some 
of that was alluded to in the prior testimony, oil spill 
response plan review.
    I would also like, if there is time, to talk about some of 
the extra doctrinal entities. I say that it is kind of a geeky 
term, but we had a science team. We had an interagency 
solutions group, and we had a flow-rate technical group. Some 
of that relates to what Secretary Salazar and Deputy Secretary 
Hayes were talking about in terms of trying to bring 
intellectual capital to these things. I think we need to figure 
out how to institutionalize that in the ongoing process of 
spill response planning.
    Finally, I included in my statement for the record just a 
couple of comments about the Oil Spill Liability Trust Fund and 
liability issues. As was stated earlier, this is a very large, 
complex problem, but I testified before the Commerce, Science, 
and Technology Committee almost a year ago to the day on these 
issues. I took excerpts from that testimony, included them in 
my statement for the record. So you have them just as a 
placeholder, understanding that if you put too much into one 
bill, as the Senator said, you are going to have trouble moving 
forward on these very, very significant safety issues moving 
forward.
    So, with that very brief statement, I would be glad to go 
into any questions you might have for me, sir?
    [The prepared statement of Mr. Allen follows:]

 Prepared Statement of Admiral Thad W. Allen, Ret., U.S. Coast Guard, 
        National Incident Commander, Unified Command, Burke, VA
    Mr. Chairman, thank you for the opportunity to testify before the 
committee today. It is noteworthy that today's hearing comes exactly 
one year after my final testimony before the Congress as Commandant of 
the Coast Guard and National Incident Commander for the Deepwater 
Horizon oil spill response. To that end, I have included where 
appropriate excerpts from the testimony I provided to the Committee on 
Science, Technology, and Commerce chaired by Senator Rockefeller on May 
18, 2011.
    In regard to the legislation being considered today there are two 
specific portions of that testimony that are relevant to today's 
hearing. They are regulation of mobile offshore drilling units (MODU) 
and regulation of drilling systems used on the continental shelf. Not 
addressed in the legislation being considered today but equally 
important is the need for legislation that requires review of oil spill 
response plans for offshore drilling operations by the United States 
Coast Guard. I appreciate the concurrent jurisdiction of this committee 
and the Committee on Science, Technology, and Commerce over the various 
federal activities associated with the Deepwater Horizon explosion and 
subsequent spill and I urge the Congress to work to integrate and align 
legislative efforts.
Excerpt of Oral Testimony of 18 May 2010 Before the Senate Committee on 
        Commerce, Science, and Technology
    Provided below is a pertinent excerpt of testimony I provided 
before the Commerce, Science, and Technology Committee chaired by 
Senator Rockefeller.
    In response to a question by Senator Begich regarding needed 
regulatory changes I responded,
    ``Senator, I'd like to address three areas, if I could. The first 
one is an inspection issue, the second one is a Coast Guard regulatory 
issue and the third one is a response plan issue, if I could.
    As it relates to the regulatory responsibilities, MMS has 
responsibility for the drilling apparatus itself. And in this case, the 
Coast Guard issues what's called a certificate of compliance for the 
mobile drilling unit, which is actually a floating ship, connected by 
the riser pipe.
    Regarding the mobile drilling unit itself, we regulate that under 
Title 46 of the U.S. Code. We have taken a look at the current set of 
regulations, and we think there are five areas where we might be able 
to do a better job, with regulatory reform inside the Coast Guard.
    I would submit that they are taking a look at the current 
electrical standards onboard the mobile drilling units, the machinery 
standards.
    Probably a real important one is dynamic positioning reliability. 
This is the system by which the ship is held in place while the 
operations are going on. That technology has probably gotten out 
farther--ahead of the regulations. We probably need to take a look at 
certifying the reliability, give a set of standards for dynamic 
positioning.
    And we need to look at the difference between floating production 
units and mobile drilling units. Floating production units are 
basically vessels or ships that are involved in production, as mobile 
drilling units actually are pontoon based, and looking at the standards 
related to that.
    And, finally, lifesaving and firefighting equipment. And we'd like 
to engage in a conversation about those areas, if we could.
    Regarding the actual drilling equipment itself, the blowout 
preventers that are down there right now are not under any regulatory 
regime. They're actually built to American Petroleum Institute 
specifications. There are three that are out there for industry to use. 
One is the ram operations in the blowout preventer, the choke-and-kill 
lines, and the control system to control all of that.''
    API kind of goes out and issues a license to the manufacturers. 
They do testing. MMS accepts those licenses in lieu of an inspection. I 
think there's an opportunity, moving forward, to take a look at whether 
or not we need a regulatory regime for the blowout preventers and the 
control systems associated with that, sir.''
Excerpt of Written Testimony of 18 May 2010 Regarding MODU Regulatory 
        Compliance Requirements
    In my testimony for the record on 18 May 2010 I stated,

          ``43 U.S.C. 1331, et seq mandates that MODUs documented under 
        the laws of a foreign nation, such as the DEEPWATER HORIZON, be 
        examined by the Coast Guard. These MODUs are required to obtain 
        a U.S. Coast Guard Certificate of Compliance (COC) prior to 
        operating on the U.S. Outer Continental Shelf (OCS).

    In order for the Coast Guard to issue a COC, one of three 
conditions must be met:

          1. The MODU must be constructed to meet the design and 
        equipment standards of 46 CFR part 108.
          2. The MODU must be constructed to meet the design and 
        equipment standards of the documenting nation (flag state) if 
        the standards provide a level of safety generally equivalent to 
        or greater than that provided under 46 CFR part 108.
          3. The MODU must be constructed to meet the design and 
        equipment standards for MODUs contained in the International 
        Maritime Organization Code for the Construction and Equipment 
        of MODUs.

    The DEEPWATER HORIZON had a valid COC at the time of the incident, 
which was renewed July 29, 2009 with no deficiencies noted. The COC was 
issued based on compliance with number three, stated above. COCs are 
valid for a period of two years.
    In addition to Coast Guard safety and design standards, MMS and the 
Occupational Safety and Health Administration (OSHA) also have safety 
requirements for MODUs. MMS governs safety and health regulations in 
regard to drilling and production operations in accordance 30 CFR part 
250, and OSHA maintains responsibility for certain hazardous working 
conditions not covered by either the Coast Guard or MMS, as per 29 
U.S.C. 653 (a) and (b)(1).''
Implications of the Recently Released Preliminary Findings of the Coast 
        Guard Portion of the Joint Investigative Team Report
    Under an agreement between the Department of Interior and 
Department of Homeland Security, a Joint Investigative Team (JIT) was 
established to determine the facts associated with the incident and 
make recommendations. On April 22, 2011 the Coast Guard released a 
preliminary report of the findings in Volume One.
    The findings in Volume One cover five aspects of the disaster--
including the explosions on the Mobile Offshore Drilling Unit (MODU) 
Deepwater Horizon; the resulting fire; evacuations; the flooding and 
sinking of the Deepwater Horizon; and the safety systems of the MODU 
and its owner, Transocean. The findings released did not include an 
analysis of what led to the loss of well control or other aspects of 
the investigation that fall under BOEMRE jurisdiction. Those findings 
will be released separately.
    A logical next step, in my view, would be a review and revision of 
current procedures regarding the inspection and certification of MODUs. 
Specifically, I would recommend a combination of two procedures that 
are currently used by the Coast Guard to mitigate the risk posed by 
foreign flagged vessels operating in waters under the jurisdiction of 
the United States. The current procedure whereby Certificates of 
Compliance (COC) are issued for MODUs is clearly inadequate to address 
the recommendations of the JIT.
    The first would be a program similar to what is called the Control 
Verification Examination for cruise ships. For a number of years the 
Coast Guard has established additional inspection requirements on 
foreign flagged cruised ships operating from United States ports. This 
regime involves plan review and inspections of ship under construction 
and annual and quarterly inspections after that.
    The second would be a program similar to what is called the Port 
State Control program for foreign flagged cargo ships and tank vessels. 
Under this program foreign flagged vessel calling in the United States 
are evaluated on a range of factors including prior safety 
discrepancies, the history of the flag state, the history of the 
classification society, and the history of the company involved. These 
and other facets of vessel performance are used in matrix to identify 
higher risk vessel and then subject them to more stringent controls up 
to and including denial of entry or boarding and inspection prior to 
entry into port.
    I believe these two successful practices can form the basis for a 
framework to implement the various recommendations contained in the 
preliminary findings of the JIT.
Regulation of Offshore Drilling Operations
    As the committee is aware, regulation of offshore drilling 
operations falls under the statutory authority of the Department of 
Interior and is the primary focus of the legislation being considered 
today. Accordingly, my comments reflect my personal opinions based on 
my experience with the Deepwater Horizon response and do not infer any 
statutory or regulatory role for the Coast Guard or Department of 
Homeland Security.
    That said, I believe at some point it will be necessary to 
integrate the two separate regimes that regulate shipping and 
activities on the outer continental shelf. The two regimes have evolved 
separately under different statutes and committee jurisdictions. We are 
now managing offshore drilling operations where vessels regulated by 
the U.S. Coast Guard under domestic law and international treaty are 
physically attached to drilling systems regulated under laws governing 
the outer continental shelf by the Department of Interior and Bureau of 
Ocean Energy Management and Regulatory Enforcement (BOEMRE).
    With these comments in mind, it is clear to me personally that, at 
a minimum, any regulatory scheme for offshore drilling systems should 
include the following.

    1. A hybrid framework of mandatory third party inspection of 
drilling systems and a ``safety case'' based process that requires a 
systemic method to describe the risks associated with a particular 
drilling proposal and a clear plan to mitigate those risks.
    2. Third party inspections should at a minimum include the blow out 
preventer, control pods, choke and kill lines, and associated alarms 
and controls.
    3. A framework to unify the regulatory regimes for MODUs and 
drillings systems including clear role definition for the United States 
Coast Guard and the BOEMRE. A key issue here is role definition between 
the master operating the MODU and the individual responsible for 
drilling operations and well control.
    4. Integration of oil spill response plan review of all parties 
involved in oil spill response, most specifically the United States 
Coast Guard which has the statutory responsibility to direct the 
response.
Role of the Oil Spill Liability Trust Fund
    While not the subject of today's hearing, it is worthwhile to note 
the pending issue of limits of liability of responsible parties 
involved in a pollution incident and the role of the Oil Spill 
Liability Trust Fund (OSLFT). To that end I am providing the following 
excerpt from my testimony of May 18, 2011.
    I stated in my written testimony,

    The Oil Spill Liability Trust Fund (OSLTF), established in the 
Treasury, is available to pay the expenses of federal response to oil 
pollution under the Federal Water Pollution Control Act (FWPCA)(33 USC 
Sec. 1321(c)) and to compensate claims for oil removal costs and 
certain damages caused by oil pollution as authorized by the Oil 
Pollution Act of 1990(OPA) (33 USC Sec. 2701 et seq). These OSLTF uses 
will be recovered from responsible parties liable under OPA when there 
is a discharge of oil to navigable waters, adjoining shorelines or the 
Exclusive Economic Zone (EEZ).

    The OSLTF is established under Revenue Code section 9509 (26 USC 
Sec. 9509), which also describes the authorized revenue streams and 
certain broad limits on its use. The principal revenue stream is an 8 
cent per barrel tax on oil produced or entered into the United 
States(see the tax provision at 26 USC Sec. 4611). The barrel tax 
increases to 9 cents for one year beginning on January 1, 2017. The tax 
expires at the end of 2017. Other revenue streams include oil 
pollution-related penalties under 33 USC Sec. 1319 and Sec. 1321, 
interest earned through Treasury investments, and recoveries from 
liable responsible parties under OPA. The current OSLTF balance is 
approximately $1.6 billion. There is no cap on the fund balance but 
there are limits on its use per oil pollution incident. The maximum 
amount that may be paid from the OSLTF for any one incident is $1 
billion. Of that amount, no more than $500 million may be paid for 
natural resource damages. 26 USC Sec. 9509(c)(2).
    OPA further provides that the OSLTF is available to the President 
for certain purposes (33 USC Sec. 2712(a)). These include:

          Payment of federal removal costs consistent with the NCP. 
        This use is subject to further appropriation, except the 
        President may make available up to $50 million annually to 
        carry out 33 USC Sec. 1321(c) (federal response authority) and 
        to initiate the assessment of natural resource damages. This 
        so-called ``emergency fund'' amount is available until 
        expended. If funding in the emergency fund is deemed inadequate 
        to fund federal response efforts, an additional $100 million 
        may be advanced from the OSLTF when the emergency fund is 
        inadequate subject to notification of Congress no later than 30 
        days after the advance. See 33 USC Sec. 2752(b). Additional 
        amounts from the OSLTF for Federal removal are subject to 
        further appropriation.
          Payment of claims for uncompensated removal costs and 
        damages. Payments are not subject to further appropriation from 
        the OSLTF. 33 USC Sec. 2752(b).
          Payment of federal administrative, operating and personnel 
        costs to implement and enforce the broad range of oil pollution 
        prevention, response and compensation provisions addressed by 
        the OPA. This use is subject to further appropriation to 
        various responsible federal agencies.

            National Pollution Funds Center (NPFC) Funding and Cost 
                    Recovery
    The NPFC is a Coast Guard unit that manages use of the emergency 
fund for federal removal and trustee costs to initiate natural resource 
damage assessment. The NPFC also pays qualifying claims against the 
OSLTF that are not compensated by the responsible party. Damages 
include real and personal property damages, natural resource damages, 
loss of subsistence use of natural reosources, lost profits and 
earnings of businesses and individuals, lost government revenues, and 
net costs of increased or additional public services that may be 
recovered by a State or political subdivision of a state.
    In a typical scenario, the FOSC, Coast Guard or EPA accesses the 
emergency fund to carry out 33 USC Sec. 1321(c), i.e., to remove an oil 
discharge or prevent or mitigate a substantial threat of discharge of 
oil to navigable waters, the adjoining shoreline or the EEZ. Costs are 
documented and provided to NPFC for reconciliation and eventual cost 
recovery against liable responsible parties. Federal trustees may 
request funds to initiate an assessment of natural resource damages and 
the NPFC will provide those funds from the emergency fund as well.
    Claims for OPA removal costs and damages that have been denied or 
not settled by the responsible party after 90 days may be presented to 
the NPFC for payment from the OSLTF. State claims for removal costs can 
be presented directly to the NPFC against the OSLTF. General claims 
provisions are delineated in 33 USC Sec. 2713 and the implementing 
claims regulations for claims against the OSLTF in 33 CFR 136.
    OPA provides that all claims for removal costs or damages shall be 
presented first to the responsible party. Any person or government may 
be a claimant. If the responsible party denies liability for the claim, 
or the claim is not settled within 90 days after it is presented, a 
claimant may elect to commence an action in court against the 
responsible party or to present the claim to the NPFC for payment from 
the OSLTF. OPA provides an express exception to this order of 
presentment in respect to State removal cost claims. Such claims are 
not required to be presented first to the responsible party and may be 
presented direct to the NPFC for payment from the OSLTF. These and 
other general claims provisions are delineated in 33 USC section 2713 
and the implementing regulations for claims against the OSLTF in 33 CFR 
Part 136. NPFC maintains information to assist claimants on its website 
at www.uscg.mil/npfc.
    NPFC pursues cost recovery for all OSLTF expenses for removal costs 
and damages against liable responsible parties pursuant to federal 
claims collection law including the Debt Collection Act, implementing 
regulations at 31 CFR parts 901-904 and DHS regulations in 6 CFR part 
11.
    Aggressive collection efforts are consistent with the ``polluter 
pays'' public policy underlying the OPA. Nevertheless, the OSLTF is 
intended to pay even when a responsible party does not pay.
CONCLUSION
    Mr. Chairman, I appreciate the leadership demonstrated by the 
committee in moving to improve the safety of offshore drilling and 
address the hard lessons learned in the explosion of the Deepwater 
Horizon.

    The Chairman. Let me just ask one question. Obviously, on 
these offshore drilling units, these mobile offshore drilling 
units, what is the main point there? Lack of requirements that 
we have for third-party review of the key drilling equipment 
involved with those? Is that the issue?
    Mr. Allen. Yes, sir. Let me take both of those statements 
apart, if I could?
    First of all on mobile drilling units, the Deepwater 
Horizon was registered in the Marshall Islands. It is a foreign 
flag. It doesn't touch U.S. soil. So, therefore, it is not 
required to be regulated under what we would call the Jones 
Act.
    We issued what is called--the Coast Guard issues what is 
called a ``certificate of compliance.'' That means they are in 
compliance with U.S. code or in compliance with international 
code, or the code of that country is in substantial compliance 
with international code. In other words, there is a 
certification process that their country is adhering to 
international standards.
    There are 2 other areas where we deal with foreign flag 
vessels in this country, and I think we need to take a look at 
both of those in response--I mean in relation to mobile 
drilling units. The first one on how we treat cruise ships. 
They carry a large number of U.S. passengers. They don't go 
port to port, but they go in and out of a single port.
    There is such a high concern about the safety of life that 
we actually inspect these vessels while they are being 
constructed and conduct annual and quarterly exams. We call 
them control verification exams. I think that is instructive on 
how we need to deal with foreign-flagged offshore mobile 
drilling units.
    The second is what we call Port State Control Programs, and 
these are foreign-flagged ships carrying commodities, cargo or 
oil, that call in this port in the United States. We actually 
develop a matrix based on the performance of the vessel, the 
owner of the classification society, and the flag that they 
fly.
    Based on that matrix, if we think there is enough risk, we 
can hold them offshore and board them before they come in to 
make sure they are conforming to international safety 
standards, or if the situation is bad enough, we can deny them 
entry. I think we need to take a look at those 2 regimes, how 
they relate to the certification of mobile offshore drilling 
units in this country, and significantly raise the safety 
standards.
    I know those conversations are going on inside the Coast 
Guard right now. But my recommendation would be to take a look 
at those 2 frameworks and apply that to mobile offshore 
drilling units, sir.
    The second issue is on the drilling systems themselves. You 
talked earlier about API and consensus specifications. They are 
pretty much accepted as a way to move that equipment actually 
into operation.
    I think we are all in agreement. I think Secretary Salazar 
would support it and everybody that was involved in the spill 
that an independent, third-party technical entity would inspect 
those against a set of standards, promulgated by regulations 
pursuant to legislation you would pass, entirely in order, sir.
    The Chairman. Thank you very much.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Admiral, it is good to see you. A couple questions for you 
this morning. First of all, I would like to focus on the issue 
of dispersants. As you recall, about this time last year, there 
was a great deal of back and forth about the use of dispersants 
and what was a safe level.
    The whole issue of we know how it works and better 
understanding at the surface. But when we are making 
application subsurface, it is different. It seemed like there 
was a lot of just back and forth and just some internal issues 
with regard to the decisions that were being made with the use 
of dispersants coming from EPA, working with Coast Guard.
    The question to you today is kind of knowing where we are 
and lessons learned from Macondo, does the legislation that we 
have before us, does this adequately address some of the 
concerns that were raised in terms of when, where, and how to 
apply dispersants? Is it really good policy to require our 
deepwater operators to prove access to subsea dispersants? Just 
kind of a range of questions about dispersants here.
    Mr. Allen. Yes, ma'am, and very, very timely as well. It 
actually relates to Senator Shaheen's question.
    We have not demonstrably done any further R&D on dispersant 
use or the impact of dispersants, other than certifying what 
their impact is and putting them on a national schedule, which 
oil spill response organizations then can use to source those 
if preapproved protocols are met.
    That, in addition to the fact that when we got into the 
spill, that was one of the tools in the toolbox that was 
authorized under a schedule that was approved by EPA. We 
started using them in such large quantities that we moved into 
an area we had never been before. The second was a subsea 
application at the well head, which proved extremely effective 
in mixing the dispersants and using the energy of the oil 
rising to the surface to break that into smaller particles, 
which biodegrade more quickly.
    We ventured into 2 areas where we has never been before, by 
extending a regulation that had been issued after the oil 
spill--the Oil Pollution Act of 1990, without any significant, 
in my view, research being done in between now and then.
    I think we have to, moving forward, given the concerns that 
were raised on the amount of dispersants and the application at 
the well head, put a focus on the interaction of dispersants in 
the water column, the interaction of dispersants with the oil, 
the implications for toxicity in the water, and learn more 
about what that means.
    Everything we did during the spill response was in 
conformance with existing law and regulation. So, therefore, 
nothing was done that was legally wrong.
    But there was so much concern raised that, as the National 
Incident Commander, I think it behooves us and the American 
public to take a good close look at this, and if we think where 
we are at is OK, we need to affirm that. If we think we need 
more research or to take a second look at how these chemicals 
are tested and brought on schedule, we need to do that, ma'am.
    Senator Murkowski. Let us take this conversation up north 
then to the Arctic. It is my understanding that in Alaska, the 
use of dispersants has not been preauthorized. Is that correct?
    Mr. Allen. Yes, ma'am, and I am going to go on memory here 
because, as you know, I have not been in the service for a 
while now. There was a discussion, as I was departing the 
service, about preapproval locally.
    The way the law is set up, you can use dispersants or 
conduct an in-situ burn if certain conditions are met. You can 
have preapproval to do that if the local team, the Federal team 
that is working on this has gained a consensus and approves it.
    Most places in the country, those preapprovals exist. At 
the time I left as Commandant, that preapproval did not exist 
in Alaska, and I believe there were objections by the Fish and 
Wildlife Service on some uses of the dispersant.
    Senator Murkowski. It is my understanding that it is not 
preauthorized at this point. Of course, as we are trying to 
advance oil and gas exploration offshore and we look to the 
proposals and the plans that are out there, I think this is one 
of those areas that we need to know and understand how 
dispersants work in the colder waters.
    This is not a first. Norway, as an Arctic Nation, has been 
operating successfully offshore for decades and looking to move 
further north from the southern areas.
    How do we make sure that we have appropriately and 
adequately done the research, done the testing that we need for 
oil spill cleanup in the event that we need it? We don't want 
to be sitting in the--if something horrible happens, we don't 
want to be sitting in a situation where we are held off from 
using a tool in the toolbox because we haven't done the 
background or the research that we need on this.
    Mr. Allen. Let me talk about dispersants first. I think in 
relation to dispersants, we need an affirmation that the 
existing schedule of chemicals, including COREXIT, which was 
the dispersant used in the Gulf, remains approved. It does, 
nothing has changed.
    So if that is the case, a very public affirmation, I think, 
would be in order so we can move on in places like Alaska and 
form a collective consensus on preapprovals, should we need to 
use that.
    Beyond that, it gets back to Senator Shaheen's call for 
R&D. It goes well beyond just looking at well control and 
capping systems. We need to look at modern technologies. There 
are new biodegradable agents out there. There are other things 
that we need to look at, as far as their effectiveness goes.
    But I can tell you, the worst time to do R&D is during an 
oil spill. We got deluged with thousands and thousands of 
offers, requests, and suggestions that we just could not vet 
and then bring them to market, if you will, to apply in the 
spill at the time.
    There was an interagency committee on R&D that was set up 
pursuant to the Oil Pollution Act in 1990. In fact, as a 
midgrade officer, I helped establish that inside the Coast 
Guard. The funding tailed off in the first 2 or 3 years, and 
you can't do much with a couple hundred thousand dollars a year 
in that interagency committee.
    I would submit when you move beyond the well containment 
and capping processes related to drilling systems under the 
purview of the Department of the Interior, the right place to 
go at this, in my view, is in an interagency committee on R&D 
with a set of priorities that are shared by EPA, NOAA, and the 
other agencies that have a stake in this, and then a robust 
schedule to go out and actually bring the questions that were 
raised during the spill up, get them researched, and come up 
with a public policy decision on how to move forward.
    Senator Murkowski. I would certainly concur. You know, one 
of the great disappointments following the Exxon Valdez tragedy 
was a lot of lessons learned there. In fact, we really haven't 
made much progress in terms of the technology and the 
advancements when it comes to cleanup in the water from the 
time of the Exxon Valdez 20 years ago to what we saw with 
Macondo.
    Again, it is kind of one of these wakeup calls, you know, 
who was doing the research? Who was doing all of this? We 
cannot be in a situation where the technologies for the cleanup 
have just kind of been at a standstill, while the technologies 
that allow us to produce in different places under different 
conditions, they are allowing us to leapfrog forward, good for 
us.
    But what also has to leapfrog with that are the 
technologies and the advancements that give us that protection, 
if you will, or that assurance that in the event of a disaster, 
that we are prepared. I would like to think that when it comes 
to the use of the dispersants or other spill containment 
measures, we are spending the same amount of time and energy to 
introduce them and to keep them current as we are facilitating 
the technologies to access the resource.
    Mr. Allen. Complete agreement, ma'am, and I would support 
any legislation that does that.
    Senator Murkowski. We will work. Thank you.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Yes, thank you, Mr. Chairman.
    I want to get back to the R&D question that Senator 
Murkowski has raised. But I want to just clarify what I think I 
heard you say when you were talking foreign-flagged mobile 
drilling units.
    Do I understand from your comments that, right now, we do 
not inspect those foreign-flagged mobile drilling units?
    Mr. Allen. We do, but included in that is an audit of 
paperwork that demonstrates they are in compliance with 
international standards or substantially in compliance with the 
code that we would use for a U.S.-flagged vessel. It does not 
include, in my view, a more robust inspection that we would do 
under those 2 other regimes that I discussed, the Port State 
Control regime for tankers and cargo ships and the control 
verification exam for cruise ships.
    I think mobile drilling units have moved into a risk area 
that requires a higher level of due diligence to ascertain they 
are in compliance with international standards. That is what I 
would recommend.
    Senator Shaheen. Great. Thank you for that clarification.
    I want to go back to the R&D question because I think we 
all now agree that that is something that is important to do, 
and we are not doing it enough or well enough, and we don't 
have the private sector involved.
    Last year, following the oil spill, Chairman Bingaman, 
Senator Udall, and I introduced legislation that would have set 
aside $25 million a year from oil and gas royalties to fund oil 
spill R&D activities. Because one of the issues we discovered, 
as you point out, is that under the Oil Pollution Act, while 
there was funding several years after the act was passed, that 
that funding trailed off pretty dramatically. So, in your 
experience, is a dedicated funding source one of the 
requirements for ensuring that we get adequate R&D done?
    Mr. Allen. Ma'am, as an old budget director in the Coast 
Guard, in this town, you don't make policy until you spend 
money. But I would say this. There is a mechanism created under 
the Oil Spill Liability Trust Fund, which is funded through a 
per barrel tax on crude oil coming into this country.
    There is a mechanism by using that as a--I don't think a 
new source of funds has to be sought. I think there is probably 
statutory authority right now to use the Oil Spill Liability 
Trust Fund to fund a modest amount of R&D every year. And $25 
million is a modest amount, given the nature of research and 
development, but will completely dwarf--completely dwarfed by 
our magnitude of the current effort.
    Senator Shaheen. One of the things that amazed me when I 
questioned the CEOs who were part of the oil spill last year at 
the hearing about this issue was that none of their companies 
were doing any research at all around oil spill R&D.
    Do you have any thoughts about how we could encourage those 
companies who are doing the drilling, as Senator Murkowski 
said, to spend the same amount of money researching how to 
clean up as they are researching effective drilling practices?
    Mr. Allen. I think, ultimately, there are 2 drivers of 
behaviors for the oil companies. The first one are the response 
plans and the requirement to identify resources in the response 
plans. We may have an opportunity when we go back and look at 
plan review, which is something we need to do, and have the 
Coast Guard involved because they are responsible for directing 
the cleanup in plan review for the oil platforms.
    But how you create the requirement for the response plans 
and what you tell them they have to have available can drive 
them to create those resources. So if you want to create an 
incentive, my recommendation would be to take a look at how you 
want to structure the requirements and the response plans.
    It would create an incentive for them to go out and do 
research and development that would apply to the oil spill 
response organizations--or the OSROs, as we would say--to get 
more involved with that moving forward. I think that would be 
one way to do it.
    Senator Shaheen. OK. That is a helpful suggestion.
    One of the other things we heard, looking at how the Oil 
Pollution Act had worked, was that the interagency committee 
that was set up to develop and direct the oil spill R&D plan 
had not been as effective as it might have been. Suggestions to 
us were that the challenge was that it wasn't clear who was in 
charge, and that created a real issue around getting things 
done. Do you have a perspective on that?
    Mr. Allen. I do. There is an existing standing body called 
the National Response Team. This is identified in the national 
contingency plan under statute and regulation that is the 
ultimate body that we would go to, to adjudicate a policy issue 
on dispersants during an actual spill.
    They exist. They meet regularly. They are in panel. They 
represent the principles of all of the department agencies that 
are involved. I see that body as a perfect mechanism to be 
given the oversight responsibility for the interagency R&D 
Committee.
    I would say this, though, when you have a committee that 
only has several hundred thousand dollars to spend year, they 
are not going to be a very robust committee to begin with.
    Senator Shaheen. Right. Who chairs that committee?
    Mr. Allen. I think it rotates. I can check and answer for 
the record. I would take a guess it might be co-chaired by 
Coast Guard and EPA, as the NRT is. But I would have to check 
and get back to you on that, ma'am.
    Senator Shaheen. OK. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Admiral, thank you very much for your 
excellent testimony and your suggestions, and we will try to 
take them to heart.
    Mr. Allen. Thank you very much.
    The Chairman. Thanks for your great service to the country 
last year. We greatly appreciate it.
    Mr. Allen. Thank you.
    The Chairman. Our final panel today is Dr. Nancy Leveson, 
who is a professor of aeronautics, astronautics, and 
engineering systems at MIT; and Mr. Jack Coleman, who is 
managing partner and general counsel with EnergyNorthAmerica.
    Thank you both for waiting and being here to testify.
    Dr. Leveson, why don't you start and give us about 5 
minutes of the main points you think we need to understand? 
Your full statement will be included in the record, as will Mr. 
Coleman's.
    Again, we appreciate your being here. Go right ahead.

  STATEMENT OF NANCY G. LEVESON, PROFESSOR, AERONAUTICS, AND 
ASTRONAUTICS, MASSACHUSETTS INSTITUTE OF TECHNOLOGY, CAMBRIDGE, 
                               MA

    Mr. Leveson. OK. Thank you.
    Legislation to improve safety in the offshore oil and gas 
industry will require not only creating tasks for Government, 
but even more important, Government providing incentives for 
the industry to take appropriate steps for themselves, such as 
creating an INPO-like organization as recommended in the oil 
spill commission report.
    One of the surprises that emerged in the investigation of 
the accident was a lack of standards in the industry. Having 
the API lead standard efforts is a mistake and has not worked 
at all. We might consider what they do in commercial aviation. 
There is an independent group called the RTCA, which performs 
this role.
    The RTCA is a private, not-for-profit corporation that 
develops consensus-based recommendations and standards. It 
essentially functions as a Federal advisory Committee. It has 
been extremely effective in getting the industry players to 
work together to produce strong aviation industry standards.
    Another recommendation I agree with in the oil spill 
commission report was that Safety, Environment, and Management 
Systems, the SEMS, should be required by BOEMRE as a 
prerequisite for issuing licenses and permits for exploration 
and drilling activities. It may be inappropriate or infeasible 
for BOEMRE to get deeply involved in many of the activities 
needed to improve safety in this industry, such as 
certification and training, better learning from events, 
compliance with maintenance, and management of change 
procedures and real-time advice to decisionmakers as they are 
making critical decisions.
    I was personally very surprised that there was no mention 
of any operational safety group advising decision-makers on the 
platform as they were making the decisions on Deepwater 
Horizon. These are the important functions of a company safety 
management system, and they clearly didn't have good ones.
    A third issue is the whole issue of third-party 
certification. Oversight of complex activities is difficult for 
any regulatory agency. The FAA has even a more difficult 
problem. They can't possibly provide detailed oversight of the 
design and manufacturing all the millions of parts on a 
commercial aircraft, just one commercial aircraft, or the 10 
million commercial flights in the U.S. each year.
    The FAA solves this problem by using what are called 
designated engineering representatives. I believe that BOEMRE 
could consider employing a similar type of third-party 
certification process.
    Now there is one recommendation in the oil spill commission 
report and in your legislation that I have serious reservations 
about, and that is the use of safety cases. The common 
definition of a safety case is an argument for why the system 
will be safe, but there is surprisingly little evidence for the 
effectiveness of the safety case approach to regulation.
    In fact, the use of safety cases has been highlighted in 
accident reports as a major cause of the accident. Most 
notably, the loss of the UK Nimrod aircraft in Afghanistan in 
2006.
    A major problem with safety cases is what psychologists 
call confirmation bias. In plain language, what this means is 
that people look for evidence that supports the goal they are 
trying to achieve.
    So when you make a safety case, you focus on the evidence 
that argues for the safety of the system. People don't usually 
look for evidence that suggests that the system is not unsafe 
and often even ignore such contradictory evidence when it 
presents itself.
    The result can be a paperwork, compliance-oriented culture 
where safety efforts focus on proving the system is safe, 
rather than designing it and operating it to be safe.
    Thank you.
    [The prepared statement of Mr. Leveson follows:]

  Prepared Statement of Nancy G. Leveson, Professor, Aeronautics and 
   Astronautics, Massachusetts Institute of Technology, Cambridge, MA
    I thank you for inviting me here today to speak on risk management 
in the offshore oil and gas industry. To provide some background, I 
have been practicing, teaching, and doing research in system safety 
engineering for over 30 years. Although I am a professor of aerospace 
engineering, I have experience in almost all industries including 
aerospace, defense, transportation (automobiles, trains, air traffic 
control), oil and gas, chemicals, nuclear power, medical devices, and 
healthcare. I have been involved in the investigation of many major 
accidents, most recently I was on the Baker Panel investigation of the 
BP safety culture after the 2005 Texas City Oil Refinery explosion and 
a consultant to both the Columbia Accident Investigation Board and the 
Presidential Oil Spill Commission. I am also a co-owner of a 20-year 
old company that provides safety engineering services.
    System safety engineering (which should not be confused with 
occupational safety) has been in existence as a system engineering 
discipline for at least 50 years. In the process industry, this 
engineering discipline is called process safety engineering. Much is 
known about how to engineer and operate safer systems and to manage 
safety risks successfully. The low accident rates in industries that 
apply these principles, such as commercial aviation, nuclear power, and 
defense systems, is a testament to their effectiveness. The recent 
accidents and subsequent investigations in the offshore oil industry 
makes it clear that at least some players in this industry are not 
using basic and appropriate safety engineering technologies and 
practices.
    Commercial aviation is an example of an industry that decided early 
that safety paid. After World War II, Boeing wanted to create a 
commercial airline industry but, because of the high accident rate 
(there were 18 airplane crashes in 1955 despite a relatively small 
number of flights), only 20 percent of the public was willing to fly. 
Today the commercial aircraft accident rate is astoundingly low, 
particularly considering that there are about 10 million commercial 
airplane flights per year in the U.S. and over 18 million world-wide. 
In 2010, for example, U.S. Air Carriers flew 17.5 million miles with 
only one major accident.
    Another surprisingly safe industry is defense. We have never, for 
example, accidentally detonated a nuclear weapon in the 60 years they 
have been in existence. The nuclear Navy, which prior to 1963 suffered 
the loss of a submarine on average every two to three years, instituted 
a wildly successful safety program (called SUBSAFE) after the loss of 
the Thresher nuclear submarine in 1963. No U.S. submarine has been lost 
in the 48 years since that program was created. Nuclear power in the 
U.S., after the wakeup call of Three Mile Island, has also had an 
extremely successful safety record.
    These success stories show that even inherently very dangerous 
technologies can be designed, operated, and managed in ways that result 
in very low accident rates. Accidents are not inevitable nor are they 
the price of productivity. Risk can be managed successfully without 
reducing profits long-term, but some effort must be expended to do so. 
We know how to do this and the costs are surprisingly low when done 
right.
Common Factors in Major Accidents
    Major accidents share some common factors:

   Flaws in the safety culture of the organization and 
        sometimes the whole industry--Organizational culture is the set 
        of shared values and norms upon which decisions are based. 
        Safety culture is simply that subset of the overall culture 
        that reflects the general attitude and approaches to safety and 
        risk management. Safety culture is primarily set by the leaders 
        of the organization as they establish the basic values upon 
        which decisions will be based. Some common types of 
        dysfunctional safety cultures can be identified. For example, 
        Hopkins coined the term Culture of Denial to describe 
        industries or organizations where risk assessment is 
        unrealistic and credible warnings are dismissed without 
        appropriate actions. In a culture of denial, accidents are 
        assumed to be inevitable. Management only wants to hear good 
        news and may ensure that is what they hear in subtle or not so 
        subtle ways. Often arguments are made in these industries that 
        the conditions are inherently more dangerous than others and 
        therefore little can be done about improving safety or that 
        accidents are the price of productivity and cannot be 
        eliminated. Many of these features of a culture of denial are 
        displayed by at least some companies engaged in off-shore oil 
        drilling. The president of the American Petroleum Institute, 
        for example, was quoted as saying after both the Washington 
        State Tesoro Oil Refinery explosion and after Deepwater Horizon 
        that the oil and gas industry is just more risky than others. 
        Note, however, that there is nothing very safe about flying in 
        a metal tube 30,000 feet in the air in an unsurvivable outside 
        environment and kept aloft by two engines or being a mile below 
        the surface of the ocean in a submarine with a nuclear power 
        plant. Yet these very dangerous industries are able to operate 
        with very few or no accidents.

    A second type of dysfunctional safety culture might be termed a 
Paperwork Culture, where employees spend all their time writing 
elaborate arguments that the system is safe but little time actually 
doing the things necessary to make it so. After the U.K. Nimrod 
aircraft loss in Afghanistan in 2006, the accident report cited the use 
of safety cases as a major contributor to the accident and noted the 
use of such cases had created a ``culture of paper safety'' at the 
expense of real safety [Haddon-Cave, 2009].

   Lack of real commitment to safety by leaders--Management 
        commitment to safety has been found to be the most important 
        factor in distinguishing between organizations with high and 
        low accident rates [Leveson, 1995].
   Nonexistent or not followed management of change 
        procedures--A large percentage of major accidents occur after 
        some change in the system or in the way it is operated. While 
        most companies have management of change procedures on their 
        books, these procedures are not always followed.
   Inadequate hazard analysis and design for safety-- Instead 
        of putting the emphasis on designing safety into the system 
        from the beginning, the major emphasis is instead placed on 
        recovery from adverse events or investigating them after they 
        occur.
   Flawed communication and reporting systems--In a 
        surprisingly large number of accidents, unsafe conditions were 
        detected prior to the actual loss events or precursor events 
        occurred but were not adequately reported or investigated so 
        that the loss event could be prevented.
   Inadequate learning from prior events--Prior incidents and 
        accidents are very often only superficially investigated. The 
        symptoms of the underlying systemic causes of the accident or 
        incident are identified as the cause of the events but not the 
        underlying flawed processes or culture that led to those 
        symptoms. This behavior leads to a sophisticated game of 
        ``whack-a-mole'' where changes are frequently made but 
        accidents continue to occur. Such organizations are in 
        continual fire-fighting mode after multiple accidents caused by 
        the same underlying causes. In the ``whack-a-mole'' safety 
        culture, accident investigation usually focuses on operator 
        error or on technical failures and ignores management and 
        systemic factors.

    Human error is a symptom of a safety problem, not a cause. All 
behavior is influenced by the context or system in which it occurs. 
Reducing operator error requires looking at such things as the design 
of the equipment, the usefulness of the operating procedures provided, 
and the existence of goal conflicts and production pressures [Dekker, 
2006]. Telling people not to make mistakes, firing operators who make 
them, or trying to train people not to make mistakes that arise from 
the design of the system is futile. Human error can be thought of as a 
symptom of a system that needs to be redesigned. In addition, technical 
failures also need to be investigated for the flaws in the process that 
allowed them to be introduced and not to be identified during reviews 
and testing.
    A basic flaw in accident and incident investigation is the search 
for a root cause. Finding one or two so-called root causes of an 
accident provides management with the illusion of control, a phenomenon 
John Carroll labeled ``root cause seduction.'' Accidents are complex 
processes and oversimplifying causation leads to future accidents 
caused by those problems that were never identified or fixed after the 
previous losses.
    Sometimes important causes of accidents are identified or problems 
detected during performance audits, but the information is never 
effectively used to redesign the social and physical components of the 
system. Why was the safety control structure (see below) ineffective in 
preventing the loss events? How can it be strengthened? A program of 
continual safety improvement needs to be created.

    Two additional common factors in accidents are primarily found only 
in the process (chemical, oil, and gas) industry:

   Confusion between occupational and system safety--Most 
        industries separate these very different problems. Occupational 
        safety focuses on controlling injuries to employees at work by 
        changing individual behavior. System safety puts an emphasis on 
        designing the system, including the engineered and operational 
        components, to prevent hazardous system states and thus losses. 
        Confusion between these two very different problems and 
        solutions can lead to overemphasis on only one type of safety, 
        usually occupational or personal safety, while thinking that 
        the other types of accidents or losses will also be prevented-
        which they will not. Because personal safety metrics (such as 
        days away from work) can more easily be defined and collected 
        than process or system safety metrics, management is fooled 
        into thinking system safety is improving when it is not and may 
        even be deteriorating.
   Belief that process accidents are low probability--Referring 
        to accidents as ``low-probability, high consequence'' events is 
        rampant and unique to this industry. The implication is that 
        accidents are low probability no matter how the system is 
        designed or operated. Labeling is used to prove that accidents 
        are rare. While process accidents may be low frequency, they 
        are not necessarily low probability. The number of reported oil 
        spills in the Gulf of Mexico alone cited in the Presidential 
        Oil Spill Commission report between 2006 and 2009 was 79, not a 
        low number considering that translates to 6 oil spills a year 
        or one every two months in a relatively small part of the 
        industry and other unreported smaller spills may have also 
        occurred. The fact that the consequences of the events may 
        differ often depends on factors in the environment over which 
        the engineers and operators have no control and are often a 
        matter of luck. The way that the Macondo well was designed and 
        operated made an accident quite high probability. It was not a 
        low probability event. This mislabeling leads to the belief 
        that nothing can be done about such events nor does anything in 
        particular need to be done to reduce their probability-they are 
        by definition already low probability.
Safety as a Control Problem
    Traditionally, safety has been considered to be a system component 
failure problem. Preventing accidents then simply requires making each 
individual component very reliable. This approach, however, 
oversimplifies the accident process and cannot prevent accidents 
created by interactions among components that have not failed. A new, 
systems approach to accidents instead considers safety to be a control 
problem [Leveson, 2011]. In this conception, accidents result from a 
lack of enforcement of constraints on safe behavior. For example, the 
O-ring did not control the release of propellant gas by sealing the gap 
in the field joint of the Challenger Space Shuttle. The design and 
operation of Deepwater Horizon did not adequately control the release 
of hydrocarbons (high-pressure gas) from the Macondo well. The 
financial system did not adequately control the use of dangerous 
financial instruments in our recent financial crisis.
    Behavioral safety constraints are enforced by the safety control 
structure of the organization or industry. Figure 1* shows the control 
structure for operations at the Macondo well in particular and offshore 
oil drilling in general. The system-level hazard is uncontrolled 
methane gas surging up the well. Similar control structures, not shown, 
exist for engineering development and licensing of the well equipment 
and for emergency response
    Each of the components in this structure plays different roles and 
has different responsibilities for ensuring safe behavior of the 
physical process and the organizational components of the structure. 
Between components there are feedback control loops where control 
actions are used to achieve the system and component goals (see Figure 
2*). Feedback provides information about how successful the control 
actions have been. For example, the cementer pours cement and receives 
feedback about how the process is proceeding.
---------------------------------------------------------------------------
    * Figures 1-2 have been retained in committee files.
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    Decisions about providing control actions is partly based on a 
model the controller has of the controlled process. Every controller 
must contain a model of the process it is controlling. For human 
controllers, this model is usually called a mental model. Accidents 
often result from the process models being inconsistent with the actual 
state of the process. For example, managers use occupational safety 
data to make decisions about the state of process safety or an 
engineering manager believes the cementing process was effective and 
provides a command to remove the mud.
    Control decisions are also influenced by the social and 
environmental context in which the controller operates. To understand 
individual behavior requires understanding the pressures and influences 
of the environment in which that behavior occurs as well as the model 
of the process that was used.
    Losses occur when this control structure does not enforce 
appropriate behavioral safety constraints to prevent the hazard. In 
Figure 1, there are physical controls on the well such as the blowout 
preventer, mud, and cement. Each of the other components of the safety 
control structure has assigned responsibilities related to the overall 
system hazard and controls they can exercise to implement those 
responsibilities. These controls may involve physical design, technical 
processes, social (cultural, regulatory, industry, company) processes, 
or individual self interest. For example, part of the responsibility of 
the MMS was to approve plans and issue drilling permits. Partial 
control over the safety of operations in the GOM could, at least 
theoretically, be implemented by appropriate use of the approval and 
permitting processes.
    Determining why an accident occurred requires understanding what 
role each part of the safety control structure played in the events. 
Accidents can result from poor design of the control structure, 
individual components not implementing their responsibilities (which 
may involve oversight of the behavior of other components), 
communication flaws, conflicts between multiple controllers controlling 
the same component, systemic environmental factors influencing the 
behavior of the individual components, etc. Major accidents, such as 
the Deepwater Horizon explosion and oil spill, usually result from 
flawed behavior of most of the system components.
    Preventing accidents requires designing an effective safety control 
structure that eliminates or reduces such adverse events.
    An important consideration in preventing accidents is that the 
control structure itself and the individual behavior of the components 
is very likely to change over time, often in ways that weaken the 
safety controls. For example, a common occurrence is for people to 
assume that risk is decreasing after a period of time in which nothing 
unsafe occurs. As a result, they may change their behavior to respond 
to other conflicting goals. Migration toward states of higher risk may 
also occur due to financial and competitive pressures. Controls must be 
established to prevent or at least to detect when such migration has 
occurred.
    There is not just one correct or best safety control structure. 
Responsibilities may be assigned to different components depending on 
the culture of the industry, history, or even politics. It is important 
to note that all responsibility for safety should not necessarily rest 
in the government or a regulatory authority. Because the lower levels 
of the structure can more directly impact the behavior of the 
controlled process, it is much more effective for primary safety 
responsibility to be assigned to the companies with the regulatory 
authorities providing oversight to ensure that the proper safety 
practices are being used. In some industries, however, the companies 
are unable or unwilling to shoulder the bulk of the safety control 
responsibilities and the regulatory authorities must provide more 
control.
    The safety control structure as defined here is often called the 
safety management system.
Establishing Controls to Prevent Future Oil Spills
    Given this system and control view of safety, we can identify the 
flaws in the safety control structure that allowed the Deepwater 
Horizon accident to occur and what can be done to strengthen the 
overall offshore oil and gas industry safety control structure. Many of 
the recommendations below appear in the Presidential Oil Spill 
Commission report, which is not surprising as I played a role in 
writing it, particularly Chapter 8. The general key to preventing such 
occurrences in the future is to provide better information for decision 
making, not just for the government regulators but for those operating 
the oil rigs.
    There are many changes that would be useful in strengthening the 
safety control structure and preventing future oil spills. Focus should 
not just be on BOEMRE but on all the components of the control 
structure. Some general recommendations follow.

   Providing appropriate incentives to change the safety 
        culture--Participants in industries like commercial aviation 
        understand the direct relationship between safety and their 
        profits and future viability. The relationship is not so clear 
        in the off-shore oil industry. The moratorium on GOM drilling 
        was a very strong signal to the industry that those companies 
        with strong safety cultures and practices can be hurt by those 
        without them and that they need to participate in industry 
        initiatives for self-policing and cooperation in improving 
        safety. There also need to be incentives to update safety 
        technology. The standard BOP design was less effective as 
        exploration moved into deeper water and other technology 
        changes occurred, but the industry ignored the many previous 
        BOP failures and insisted that the design could not be 
        improved. A similar example occurred with the Refrigerator 
        Safety Act of 1956, which was passed because children were 
        being trapped and suffocated while playing in unused 
        refrigerators. Manufacturers insisted that they could not 
        afford to design safer latches, but when forced to do so, they 
        substituted magnetic latches for the old mechanical latches. 
        The magnetic latches permit the door to be opened from the 
        inside without major effort. The new latches not only eliminate 
        the hazard, but are cheaper and more reliable than the older 
        type [Martin and Schinzinger, 1989]. A similar example occurred 
        when an improved BOP was designed quickly after the Macondo 
        well blowout. BOEMRE needs to keep on top of needed technical 
        incentives as oil exploration and extraction conditions change 
        and ensure that incentives exist to update safety technology 
        that has become less effective.
   Industry standards--One of the surprises that emerged in the 
        investigation of the accident was the lack of standards in the 
        industry, for example standards for cementing operations. Even 
        weak guidelines, like API Recommended Practice 75 (Recommended 
        Practice for Development of a Safety and Environmental 
        Management Program for Offshore Operations and Facilities), 
        have been unable to get consensus. Having the API lead 
        standards efforts may be a mistake. In commercial aviation, an 
        independent group called the RTCA performs this role. RTCA, 
        Inc. is a private, not-for-profit corporation that develops 
        consensus-based recommendations regarding communications, 
        navigation, surveillance, and air traffic management (CNS/ATM) 
        system issues. RTCA functions as a Federal Advisory Committee. 
        Its recommendations are used by the Federal Aviation 
        Administration (FAA) as the basis for policy, program, and 
        regulatory decisions and by the private sector as the basis for 
        development, investment and other business decisions. RTCA acts 
        as the honest broker and has been very effective in producing 
        strong aviation industry standards.
   Industry self-policing--Any government regulatory agency is 
        limited in what it can accomplish. After Three Mile Island, the 
        nuclear power industry created an industry organization, called 
        INPO, to provide shared oversight of safety in nuclear power 
        plants. INPO is described in the Presidential Oil Spill 
        Commission report and recommended as a model for the oil and 
        gas industry to help ensure that the best technologies and 
        practices are used. The tie of INPO reviews to insurance 
        coverage adds extra incentive.
   Safety management systems--The industry safety control 
        structure in Figure 1 is an example of a safety management 
        system at the industry level. Safety management systems (safety 
        control structures) also exist within each company although 
        some are not well designed. For example, one of the findings of 
        the Baker Panel was that the BP safety management system for 
        oil refineries needed improvement. The FAA has recently decided 
        that more responsibility for safety needs to be assumed by the 
        airlines and others in the industry and is requiring safety 
        management systems in the companies for which they provide 
        oversight. Safety management systems are also being created for 
        internal FAA activities, such as air traffic control. The 
        Presidential Oil Spill Commission Report recommended that SEMS 
        (Safety and Environment Management Systems) be required by 
        BOEMRE as a prerequisite for issuing licenses and permits for 
        exploration and drilling activities.
   Integration of safety engineers into operational decision 
        making--One of the surprises to me personally in the Deepwater 
        Horizon investigations was the lack of any operational safety 
        group advising the decision makers on the platforms. If such a 
        group existed, it did not play an important enough role to be 
        mentioned in the description of the events that occurred. 
        Industries with strong safety programs include a person or 
        group that is responsible for advising management at all levels 
        of the organization on both long-term decisions during 
        engineering design and development of new platforms and on the 
        safety implications of decisions during operations. In most 
        other industries, a safety engineer would have been resident on 
        the platform and involved in all the real time safety-related 
        decision making. This change needs to be put in place by any 
        companies that do not already have such a process safety 
        engineering group.
   Certification and training--Another lesson learned from the 
        investigation of the Deepwater Horizon accident is that some 
        workers have minimal training and little certification is 
        required. The changes needed here are obvious.
   Learning from events--A systems approach to accident and 
        incident investigation needs to be implemented by everyone in 
        the industry in order to improve the learning and continual 
        improvement process [Leveson, 2011].
   Hazard analysis--While the process industry has a very 
        powerful hazard analysis technique, called HAZOP, the use of 
        this technique is not as prevalent as it should be. The results 
        from HAZOP need to be used to improve technological design and 
        also passed to operations to guide maintenance and performance 
        audits.
   Maintenance--For the Macondo well, maintenance of safety-
        critical equipment, for example on the BOP, was not performed 
        as required for safety and as specified in the equipment 
        standards. Regulatory agencies can only spot-check compliance. 
        Ensuring that proper maintenance activities are performed is an 
        important activity for the company Safety Management System.
   Third Party Certification--Oversight of complex activities 
        is difficult for any regulatory agency. The Designated 
        Engineering Representative (DER) model used by the FAA may be 
        appropriate for BOEMRE. The FAA cannot possibly provide 
        detailed oversight of the design and manufacturing of all the 
        millions of parts on a commercial aircraft. The problem is 
        solved by the use of DERs, who may be independent experts or 
        may actually work for the company in which oversight is being 
        applied. DERs exist for individual technical engineering 
        specialties, such as propulsion, structures, for general system 
        engineering, and for manufacturing. The DER works under the 
        oversight of an FAA employee and has the power to approve 
        technical data and activities in companies. Various types of 
        mechanisms are used to ensure that DERs are technically well-
        qualified and execute their responsibilities with appropriate 
        care, diligence, and independence from conflicts of interest. 
        The details of how this program works are beyond the scope of 
        this testimony, but the DER program could provide a model for 
        devising something similar for BOEMRE.
   Management of change--As noted earlier, accidents often 
        occur after changes. Any change that has safety implications 
        should be carefully evaluated, including performing a hazard 
        analysis, before it is allowed. Most companies have policies 
        for management of change, but the implementation and 
        enforcement of these policies can vary greatly. One of the 
        unique aspects of the off-shore oil and gas industry is the 
        need for changes to procedures quickly based on information 
        uncovered about the particular geological conditions 
        encountered. It may be impractical for BOEMRE to approve all 
        these changes in a timely enough manner. The importance of the 
        safety engineering function within the companies enters here. 
        BP used a decision tree to make real-time decisions about 
        activities on the platform. Such decision trees can and should 
        be analyzed prior to use for the safety of each of the 
        branches. In addition, the consultation with a safety 
        engineering expert during operations can also improve decisions 
        about required changes, which is another reason why a strong 
        process safety engineering group needs to be tightly integrated 
        into operations and operational decision making.

    There is one recommendation in the Presidential Oil Spill 
Commission report about which I have some reservations and that is the 
use of safety cases. While what is in a safety case will determine its 
efficacy, the common definition of a safety case as an argument for why 
the system will be safe has some serious drawbacks. There is 
surprisingly little evidence for the efficacy of the safety case 
approach to regulation. In fact, the use of safety cases has been 
highlighted in accident reports as a major causal factor, most notably 
the Nimrod accident mentioned earlier. A major problem with safety 
cases is what psychologists call ``confirmation bias.'' In simple 
terms, people look for evidence that supports the goal they are trying 
to achieve. So when making a safety case, focus is on evidence that 
supports that goal and the safety of the system. People do not usually 
look for evidence that contradicts the goal and often ignore such 
contradictory evidence when it presents itself. A paperwork, 
compliance-oriented culture can be created where safety efforts focus 
on proving the system is safe rather then designing it to be safe. 
Safety must be designed into a system from the beginning, it cannot be 
argued in after the fact.

    The Chairman. Thank you very much.
    Mr. Coleman.

 STATEMENT OF W. JACKSON COLEMAN, MANAGING PARTNER AND GENERAL 
               COUNSEL, ENERGY NORTH AMERICA, LLC

    Mr. Coleman. Thank you, Mr. Chairman and Ranking Member 
Murkowski and members of the committee. I appreciate the 
invitation to testify here today.
    It is good to see many people in the room who I have known 
a long time, and including one former supervisor. I am managing 
partner and general counsel of EnergyNorthAmerica, as you 
mentioned. I have worked--and next year, it will be 30 years 
that I have been working on offshore oil and gas issues.
    I retired from the Federal Government after 27 years 2 
years ago. The last 6 years had been as, first, energy and 
minerals counsel for the House Resources Committee, and then 
Republican general counsel. Prior to that, I worked as senior 
attorney for the--with my client, the Minerals Management 
Service, for 11 years.
    I am very familiar with the offshore oil and gas program. 
While I was representing the Minerals Management Service, I had 
the responsibility as a trial lawyer for the Interior 
Department for 3 major breach of contract cases, including one, 
Mobil v. U.S., which went to the Supreme Court.
    I also, for quite a number of years, Senator Murkowski, was 
the lawyer responsible for offshore--oil and gas offshore 
Alaska for legal issues. In that role, I was the lawyer for the 
North Star litigation dealing with the North Star development 
and for the McCovey litigation, where we had 4 lawsuits dealing 
with one well exploration plan, 4 different lawsuits.
    This is--certainly in Alaska, it has been highly litigious 
dealing with the offshore. I am afraid that I see that moving 
to the Gulf of Mexico.
    Let me just say this. I started my work in the offshore as 
a special assistant to the Associate Administrator of NOAA back 
in 1982 for 3 1/2 years. So I have worked it from all angles--
environmental agencies and the Minerals Management Service.
    I am very concerned--and I want to compliment the 
proponents of the bills that you are considering today. They 
all have many very fine provisions in it.
    The smaller bills dealing with the extension of the leases 
in the Gulf of Mexico, I think that is absolutely essential. 
You have heard testimony today that the Interior Department was 
not prepared to even consider permits for leases in the deep 
water until the end of February of this year.
    Unfortunately, I heard--I think I heard Secretary Salazar 
say they were going to address only extending the leases for 
Gulf of Mexico wells that were directly impacted last year. 
That would only be the ones that were stopped from drilling.
    That would not be fair, frankly, because everyone was told 
to stop. Everyone was told do not submit any permits to us, 
permit applications, we are not going to consider them. So 
every lease in the deep water was put on hold, not just those 
that were told to stop drilling at that time.
    This is a matter of fundamental equity. Normally under the 
regulations, and certainly during the 11 years that I was at 
the Interior Department representing the Minerals Management 
Service, had we told someone to stop work on a lease, we would 
have issued a directed suspension under the regulations. That 
would have said you don't lose your lease time, and you don't 
pay rent during this time.
    This legislation that is before you only says you don't 
lose your lease time. It doesn't make them not pay rent. So had 
this been handled in accordance with the regulations, they 
would not have been paying rent during this time, either. That 
would have been a significant amount of money, I think more 
than $100 million in the Gulf of Mexico, just for these leases.
    I want to address, because it has been central in all of 
the panels that you have had, this lengthy--this period of time 
for permit approvals. I think there is a lot of confusion about 
this.
    As I mentioned in my testimony, it is not really--we will 
start with the exploration plans. The Outer Continental Shelf 
Land Act Amendments of 1978 put a statutory 30-day time period 
on acting on exploration plans. That has been the law. We have 
followed it since 1978.
    Frankly, until complaints of recent vintage, there have not 
been any problems with meeting that standard. One of the 
reasons is, is because we don't take action on an exploration 
plan and that 30-day clock doesn't start running until the 
administration has an opportunity to take a look at that 
exploration plan, according to regulations, up to 15 working 
days, which is about 3 weeks, 20 days. Twenty to 21 days they 
have, calendar days, to look at an exploration--a submitted 
exploration plan and deem it complete.
    If they don't deem it complete, then they send it back, and 
they tell why it is not complete. They tell a complete review. 
So, then the lessee has an opportunity to come back and fix 
those shortfalls, whatever the administration said should have 
been in there that wasn't. Then, if it is deemed complete--they 
go through that 15 working day period again. If it is deemed 
complete, then they have the 30 days to review.
    So they have had much longer than 30 days to look at this 
proposal, much longer. I think I heard the Secretary say, well, 
we have got to have a longer period of time so we can do 
environmental assessments.
    Frankly, No. 1, they have done environmental assessments 
within 30 days, but this is not necessarily the way that you 
would comply with NEPA. There are other ways to comply with 
NEPA.
    Before I started working on offshore oil and gas, I was the 
senior attorney for environmental protection for the department 
for 3 1/2 years. You can bunch, as MMS used to do, do grid for 
a whole area, do an environmental assessment for that, see what 
the issues are for that group of tracks, that group of leases, 
and you have done it in advance. So, when you have an 
exploration plan request, you can then take action on it 
quickly.
    As I said in my testimony, written testimony, you can 
either work smart, or you can work hard. You can make it hard 
and difficult, or you can be more efficient and smarter. You 
have the flexibility under NEPA to do that.
    I also am happy to hear when Senator Manchin was asking 
questions about the House bill on permitting. Let us talk about 
that. In historic terms, the Minerals----
    The Chairman. Could you sort of wrap up your comments here? 
We are about out of time, and we have started a vote.
    Mr. Coleman. I am sorry, sir.
    The Chairman. So go right ahead.
    Mr. Coleman. All right. I will.
    Historically, 10 days has been the time to once you submit 
your permit request to when it got approved, 10 days to 2 
weeks. The House bill says you get up to 60 days, and you have 
to take a decision, make a decision. If you don't make a 
decision, then it is deemed approved. That does not mandate 
that you say yes. It just says you have to make a decision. I 
think it is only fair from a contract point of view.
    I appreciate the opportunity to testify and would be happy 
to answer any questions.
    [The prepared statement of Mr. Coleman follows:]

Prepared Statement of W. Jackson Coleman, Managing Partner and General 
                   Counsel, Energy North America, LLC
I. Introduction
    Chairman Bingaman, Ranking Member Murkowski and members of the 
committee, my name is Jack Coleman and I am Managing Partner and 
General Counsel of EnergyNorthAmerica, LLC, a energy consulting firm 
with offices in Washington, DC, and Houston, TX. I appreciate the 
committee's invitation to present my views at this hearing on these 
four bills primarily dealing with offshore oil and gas. Early in 2009 I 
retired after a career of almost 27 years in the federal government--
the last six of which were spent working in the House of 
Representatives. From February 2007 until March 2009, I was the 
Republican General Counsel of the House Committee on Natural Resources, 
and prior to that I served from May 2003 until late 2006 as the Energy 
and Minerals Counsel for the House Committee on Resources. While 
working in the House, I drafted many bills, including the Deep Ocean 
Energy Resources Act passed by the House in 2006, and significant parts 
of the Energy Policy Act of 2005.
    My work in the House followed my previous fourteen years as a 
senior attorney at the Department of the Interior. From September 1992 
until May 2003, I served as a senior attorney in the Office of the 
Solicitor with the Minerals Management Service (MMS) as my primary 
client, and prior to that, from January 1989 until September 1992, I 
served as Senior Attorney for Environmental Protection and legal 
advisor to the Department's Office of Environmental Affairs. My first 
work on offshore oil and gas issues began during the period from March 
1982 until August 1985 when I was Special Assistant to the Associate 
Administrator of the National Oceanic and Atmospheric Administration.
    Prior to my service at NOAA, I served on active military duty as an 
Army Judge Advocate General's Corps Captain from June 1978 until March 
1982. My post-secondary education was completely at the University of 
Mississippi, except for graduate work in legislative affairs at the 
George Washington University. I received a Juris Doctor degree from the 
University of Mississippi School of Law in 1978 and a Bachelor of 
Business Administration in Accountancy degree from the University of 
Mississippi in 1975. I am a member of the Mississippi Bar.
    The focus of this hearing is on a number of bills related to 
offshore oil and gas. While all of these bills have provisions which I 
either recommend or find to be harmless, I will focus my testimony 
primarily on the aspects of these bills that cause concern, including 
some provisions that I believe could breach existing federal offshore 
oil and gas lease contracts and create substantial claims to be paid by 
US taxpayers. First, however, I will present a few facts about offshore 
oil and gas and our national debt and second, I will discuss the 
governing law related to federal oil and gas lease contracts.
II. Offshore Oil and Gas and our National Debt
    The approximate daily oil consumption in the United States is 19 
million barrels, with about 58%, or 11 million barrels per day, 
imported. Our largest source of foreign oil is Canada, but the majority 
of our imported oil comes from other nations. Our yearly amount of 
imported oil totals more than 4.2 billion barrels. As of the time of 
the last Department of the Interior Offshore Oil and Gas National 
Assessment of offshore oil and gas resources in 2006, just over 14 
billion barrels of oil had been produced from the federal offshore and 
more than 15 billion barrels of already discovered oil reserves were 
available to be produced. Further, the National Assessment estimated 
that exploration and production activities in the federal offshore 
would, in the mean case, eventually produce an additional 86 billion 
barrels of currently undiscovered oil--assuming the offshore lands 
containing this oil are reasonably made available for leasing and 
production. These two amounts combine to an expected future production 
from the federal offshore of 101 billion barrels--sufficient to 
eliminate all oil imports by the United States, at current levels, for 
almost 25 years.
    Similarly, the National Assessment estimated that just over 153 
trillion cubic feet of natural gas have been produced from the federal 
offshore and that more than 60 trillion cubic feet of already 
discovered natural gas were available to be produced. Further, the 
National Assessment estimated that exploration and production 
activities in the federal offshore would, in the mean case, eventually 
produce an additional 420 trillion cubic feet of currently undiscovered 
natural gas--assuming the offshore lands containing the natural gas are 
reasonably made available for leasing and production. These two amounts 
combine to an expected future production from the federal offshore of 
480 trillion cubic feet of conventional natural gas--sufficient to 
totally provide for the United States' current annual consumption of 
natural gas for more than 20 years.
    One might ask, ``What is the value of these reserves and resources 
to the American people?'' This can be measured in many ways. The direct 
value of receipts to the Treasury from producing these reserves and 
resources, at $75/barrel of oil and $5 per thousand cubic feet of 
natural gas, is approximately $1.8 trillion dollars in royalties 
(assuming an 18% royalty) and $2.7 trillion in corporate income tax 
receipts from producers, for a total of $4.5 trillion. This sum does 
not include any up-front sums paid to obtain the leases, nor the tax 
revenues derived from the jobs that will be created to directly produce 
these resources, nor the indirect and induced economic impacts of 
producing these American energy resources owned by the American people. 
Even without those additional benefits and others, the direct corporate 
taxes and oil and gas royalties will pay off one-third of our current 
national debt without raising taxes on the American people. However, 
these vast offshore resources will never pay off any of the national 
debt if they are not made available for leasing, drilling and 
production.
    Additionally, it is important to note that these offshore resource 
numbers do not include natural gas hydrates which international public 
and private research has now proven will be able to be commercially 
produced in the near future. More than 99% of America's 320,000 
trillion cubic feet of natural gas hydrates are located in the 
deepwater federal offshore. If even only 1% of this resource is 
eventually producible, it would add 3,200 trillion cubic feet of 
natural gas. Production of this 1%, or 3,200 trillion cubic feet, of 
our natural gas hydrate resources would generate approximately $3 
trillion in royalties and about $4.5 trillion in corporate income tax 
on this production from the lessees, for a total of approximately $7.5 
trillion. When combined with the prior $4.5 trillion, a total of $12 
trillion will result from production of offshore oil and natural gas, 
including natural gas hydrates. This sum is sufficient to pay off 
approximately 90% of the current national debt without raising taxes. 
Further, this amount could easily be 50 to 100 percent higher because 
it is based on decades old seismic surveys in moratoria areas which are 
expected to significantly underestimate recoverable resources. As the 
Department of the Interior stated in its February 2006 OCS Inventory 
Report to Congress mandated by Section 357 of the Energy Policy Act of 
2005, ``True knowledge of the extent of oil and natural gas resources 
can only come through the actual drilling of wells. Estimating 
undiscovered resources, no matter how sophisticated the models and 
statistical techniques employed, is an inherently uncertain exercise 
that is based on hypotheses and assumptions, with the results limited 
by the quality of the underlying geologic data.'' (emphasis added). The 
Department also stated, ``Frontier areas such as parts of the Eastern 
Gulf of Mexico and other offshore areas under congressional or 
executive withdrawal offer the potential of larger field-size 
discoveries . . . the risk-based estimates in frontier areas ordinarily 
will have been seen as far too conservative if later exploration 
demonstrates that the area is hydrocarbon-prone.''
    Some have said that the oil and gas industry is trying to produce 
oil in water that is just too deep. First, the offshore drilling 
industry is capable of drilling in deeper than 12,000 feet of water, 
and more than 80% of the oil production in the Gulf is from leases in 
more than 1,000 feet of water. Second, oil must be produced where it is 
found. According to the 2006 National Assessment, of the 45 billion 
barrels of oil left to be discovered in the Gulf of Mexico, all except 
3.5 billion barrels, or 92% is located in water deeper than 650 feet. 
Last year's 500 foot drilling moratoria in the Gulf of Mexico 
temporarily made those 41.5 billion barrels unavailable for exploration 
and future production. Finally, we can all agree that the nation needs 
to continue to push the development of even better and safer technology 
and implement procedures that will help ensure that an accident of this 
type never happens again, and in the outside chance that it does that 
we have in place more aggressive and effective oil spill response 
mechanisms that shut down the well and clean it up much quicker.
    This $12 trillion plus is only the U.S. federal taxpayers' share 
from the production of America's offshore oil and natural gas 
resources. Much more wealth will redound to our citizens through high 
paying jobs, economic development, state and local taxes, and the 
economic benefit of the turnover of trillions of dollars that would 
have been sent to foreign countries. Our onshore resources are also 
abundant. In fact, the Congressional Research Service recently issued a 
report showing that instead of being an energy resource deprived nation 
as many would have us believe, the United States has a larger endowment 
of oil, natural gas, and coal than any other country in the world. As 
large as the reserves and resources discussed in the CRS report are, 
they still do not include the 83 to 128 billion barrels of oil stranded 
in older American oil fields that the National Energy Technology 
Laboratory Report (DOE/NETL-2010/1417) documented in 2010 could be 
produced using ``best practices'' and ``next generation'' technology 
enhanced oil recovery by sequestering CO2. Nor do they 
include the 800 billion barrels of oil that the Rand Corporation has 
estimated can be recoverable from western oil shale.
    Yet, we continue to hear the old dogma that this nation cannot 
drill its way to energy self-sufficiency. The facts show that we could 
do just that, given adequate time to develop the resources, if we had 
the national will to do it, but I don't know of anyone proposing that 
this nation rely only on our hydrocarbon resources. But, as the Energy 
Information Administration recently reiterated, the United States will 
rely on oil, natural gas, and coal for the vast majority of its energy 
resources for as far into the distance as EIA projects.
III. Mobil v. U.S. and its Progeny
    Since 1992, my career has predominantly focused on offshore oil and 
gas law and it has frequently included significant responsibilities 
related to breach of contract liability issues. Beginning in 1992, I 
was the lead Department of the Interior attorney for Conoco v. U.S., 35 
Fed. Cl. 306, later Marathon v. U.S., 177 F. 3d 1331, and finally Mobil 
Exploration and Producing Southeast, Inc., v. U.S., 530 U.S. 604, 120 
S.Ct. 2423 (2000). Mobil is a landmark case establishing the governing 
law applicable to federal offshore oil and gas lease contracts. The 
Mobil opinion, delivered by Mr. Justice Breyer, resulted from a breach 
of contract action by seventeen oil and gas lessees involving claims 
exceeding $700 million resulting from Acts of Congress that restricted 
the rights of lessees to explore for and develop oil and gas resources 
on existing leases off Alaska, Florida, and North Carolina. Discovery 
exceeded several hundred thousand pages. I personally conducted eleven 
depositions totaling more than 2,500 pages in length. All except two of 
the seventeen plaintiffs settled with the government prior to the case 
reaching the Supreme Court.
    At issue in that Court was the passage of the Outer Banks 
Protection Act (OBPA) as a part of Oil Pollution Act of 1990 (OPA 90) 
and whether the leases incorporated the OBPA into their terms and were 
``subject to'' the OBPA. The OBPA established an Environmental Sciences 
Review Panel (ESRP) and prohibited the Secretary of the Interior from 
issuing any permit to drill on existing leases offshore North Carolina 
for at least thirteen months, but for a longer period if the ESRP had 
not completed its work of determining whether the Secretary possessed 
sufficient environmental information with which to make decisions on 
drilling permit requests for the affected leases. Among other things, 
the Department of the Interior had taken the position that the 
provisions of the leases incorporated the later-enacted OBPA into them 
and made them ``subject to'' it. This position was based on the terms 
of the leases which provided in relevant part that the leases are 
``subject to all other applicable laws and regulations.'' The Court 
addressed this issue by stating that ``the lease contracts say that 
they are subject to then-existing regulations and to certain future 
regulations . . . This explicit reference to future regulations makes 
it clear that the catchall provision that references ``all other 
applicable . . .  regulations,'' . . . must include only statutes and 
regulations already existing at the time of the contract, see 35 Fed. 
Cl., at 322-323, a conclusion not questioned here by the Government. 
Hence, these provisions mean that the contracts are not subject to 
future regulations under other statutes, such as new statutes like 
OBPA. Without some such contractual provision limiting the Government's 
power to impose new and different requirements, the companies would 
have spent $158 million to buy next to nothing.'' The Court found that 
when Congress enacted the OBPA and the Department of the Interior 
announced that it would apply its provisions to the leases offshore 
North Carolina, the government had repudiated the contracts and 
committed a material breach. In the Court's words,

          As applied to this case, these principles amount to the 
        following: If the Government said it would break, or did break, 
        an important contractual promise, thereby ``substantially 
        impair[ing] the value of the contract[s]'' to the companies, 
        ibid., then (unless the companies waived their rights to 
        restitution) the Government must give the companies their money 
        back. And it must do so whether the contracts would, or would 
        not, ultimately have proved financially beneficial to the 
        companies.

    The Court noted that the leases stated that they would be subject 
to ``all regulations issued pursuant to'' the Outer Continental Shelf 
Lands Act (OCSLA) ``in the future which provide for the prevention of 
waste and the conservation'' of outer Continental Shelf resources. The 
Court found as a general matter of law that federal mineral leases are 
governed by the commercial law of contracts. The Court further noted 
that ``the Court of Claims concluded . . . that timely and fair 
consideration of a submitted Exploration Plan was a `necessary 
reciprocal obligation,' indeed, that any `contrary interpretation would 
render the bargain illusory.' We agree.'' Of note, but not decisive, is 
that the OCSLA required in 43 USC 1340(c)(1) that the government act 
within 30 calendar days to approve exploration requests. The government 
argued that the OBPA-required delays of at least thirteen months were 
not substantial and therefore did amount to a material breach of the 
leases. The Court rejected that argument by noting, ``if the companies 
did not at least buy a promise that the Government would not deviate 
significantly from those procedures and standards, then what did they 
buy? . . . The Government's modification of the contract-incorporated 
processes was not technical or insubstantial. It did not announce an 
(OBPA-required) approval delay of a few days or weeks, but of 13 months 
minimum, and likely much longer. And lengthy delays matter, 
particularly where several successive agency approvals are at stake.'' 
Finally, the Court wrote, ``Contract law expresses no view about the 
wisdom of OBPA. We have examined only that statute's consistency with 
the promises that the earlier contracts contained. We find that the oil 
companies gave the United States $158 million in return for a 
contractual promise to follow the terms of pre-existing statutes and 
regulations. The new statute prevented the Government from keeping that 
promise. The breach ``substantially impair[ed] the value of the 
contract[s].'' And therefore the Government must give the companies 
their money back.''
    I later became the lead Interior attorney for another major 
offshore oil and gas breach of contract action, Amber Resources Co. et 
al v. United States, 538 F. 3d 1538 (Fed. Cir. 2008). This case was 
factually very similar to Mobil in that it involved a statute enacted 
after the issuance of the leases, the Coastal Zone Management Act 
Amendments Act of 1990, which was determined in other litigation for 
which I was the lead Interior attorney, California et al. v. Norton, 
150 F. Supp. 2d 1046 (N.D. Cal. 2001), to apply to the operation of the 
leases. The lessees filed Amber citing Mobil's holding that the 
application of a later-enacted statute to the leases in such a way that 
materially changed the process through which the lessee must pass in 
order to explore and develop the oil and gas resources on the leased 
tracts amounted to a material breach of the leases entitling the 
lessees to compensation. The Court of Federal Claims granted judgment 
for the lessees and the Court of Appeals for the Federal Circuit 
affirmed the judgment but decreased the measure of compensation to 
restitution of the $1.1 billion paid to the federal government on the 
leases.
IV. Application of the Mobil and Amber Decisions to S. 917
    I will address the following in turn--(1) legislative provisions in 
S. 917 to change the OCSLA statutory exploration plan approval deadline 
for existing leases (Section 6(e)); (2) provisions to substantially 
change exploration plan disapproval standards that apply to existing 
leases (Section 6(e)); (3) provisions to eliminate existing economic 
feasibility provisions related to the use of best available and safest 
technology and apply these to existing leases (Section 6(h)); (4) 
provisions to impose new lease inspections fees on existing leases 
(Section 6(i)); and, (5) provisions to impose extraordinary increases 
in civil and criminal penalties on existing leases (Section 6(j)). 
Unfortunately, all of these provisions are included in S. 917, and each 
is likely to be a material breach of all existing 6,336 federal OCS 
leases (number as of 10/01/2010 per BOEMRE website).
    S. 917 would retroactively apply all of these provisions to 
existing leases. Such a substantial change to the conditions under 
which companies have acquired their leases would likely be a material 
breach of contract, based on Mobil. As stated earlier, the Supreme 
Court held that companies that acquire leases do so in return for a 
contractual promise that the Government will follow the terms of pre-
existing statutes and regulations. To apply substantial changes to 
those pre-existing statutes and regulations, except within narrow 
limits, would likely be a repudiation of the contracts and entitle 
leaseholders to compensation for ALL existing federal offshore leases, 
including those already in production. In the Gulf of Mexico alone, 
there are currently over 6000 oil and gas leases covering 35 million 
acres that were bought for an average of about $300 per acre in recent 
years. By committing a breach of contract on its Gulf of Mexico leases, 
the federal government would expose the American public to far more 
than $10 billion in claims from current leaseholders, not counting 
likely claims for lost profits. In excess of an additional $3 billion 
would be at risk for leases bought offshore Alaska.
    First--Provisions to change the OCSLA statutory exploration plan 
approval deadline for existing leases (Section 6(e)). The 30 calendar 
day exploration plan approval requirement (OCSLA section 11(c)(1)) has 
been the law since 1978. Meeting this statutory requirement has not 
been a significant problem until recent complaints. In practice, this 
30 calendar day requirement is actually closer to 50 calendar days. 30 
CFR 250.231 related to exploration plans says that once a ``proposed'' 
EP (exploration plan) is received, the Regional Supervisor has 15 
``working'' days (3 weeks) to determine if the proposed EP is 
``deemed'' submitted. If he finds deficiencies, then the EP is not 
``deemed'' submitted until the deficiencies are corrected. The purpose 
of this is to provide the lessee with the information of all 
deficiencies needed to allow the EP to be approved or denied. In my 
experience, plan and permit approval work can be done in one of two 
ways--either smart or hard. The smart way is to learn from prior 
experience with operators and have the discretion to apply the greatest 
resources to the ones which have had greater safety and compliance 
problems in the past. The hard way is to turn staff into glorified 
paper shufflers not empowered to think, but merely to process paper and 
take a long time to do that. S. 917 imposes a new requirement of a 
``safety case'' on all operators. Together with the stronger safety and 
environmental regulations already in place, I do not see why processing 
of exploration plans cannot be accomplished within existing statutory 
requirement. S. 917 changes that 30 day approval period to up to an 
amazing 270 days for new leases and allows the Secretary an unlimited 
amount of time for existing leases if the Secretary can convince the 
lessee to allow him to take longer than 30 days. In my opinion this 
change of law will constitute a material breach of the leases. The 
contract provision is 30 calendar days, which as implemented by 
regulations is really approximately 50 calendar days. The proposed 
provision is a material unilateral change by one party (the government) 
to a contract and destroys the bargained for contractual negotiating 
positions of the parties to the contract. Unfortunately, the Secretary 
is in a position of great power over a lessee and can use, if desired, 
coercion to achieve the Secretary's objectives against an unequal 
bargaining entity (a lessee). Even if the potential breach of contract 
issues did not exist, this provision invites politics and coercion into 
the nation's offshore energy production program and should be avoided 
from a policy point of view. I recommend that current law remain 
unchanged.
    Second--Provisions to substantially change exploration plan 
disapproval standards that apply to existing leases (Section 6(e)). 
This provision, a new section 11(e) of the OCSLA, would establish new 
standards for disapproval of exploration plans. Not only would these 
new standards breach existing lease contracts, they would conflict with 
existing law which is not amended by S. 917, OCSLA section 11(c)(1)(A) 
and (B). These standards are not identical and the duplicate set of 
standards will be highly confusing to lessees and DOI employees alike, 
not to mention creating a myriad of legal issues including breach of 
contract and APA issues. I recommend that current law remain unchanged.
    Third--Provisions to eliminate existing economic feasibility 
provisions related to the use of best available and safest technology 
and apply these to existing leases (Section 6(h)). Current law, OCSLA 
Section 21, requires lessees to use ``best available and safest 
economically feasible technologies.'' S. 917, in section 6(h) 
eliminates all consideration of economic feasibility when determining 
regulatory requirements for use of technology. This change would allow 
the government to require uneconomic technologies on all offshore oil 
and gas leases. The obvious result could be a large reduction in oil 
and natural gas production, a significant reduction in the number of 
energy jobs, lower government revenues, and more imported oil. Current 
law requires best available and safest technology unless the Secretary 
determines that is not economically feasible. This standard is fair and 
promotes the extension of new technologies into the offshore as they 
become economic. Existing lease contracts incorporate current law into 
their provisions. Enactment of the proposed revision is likely to 
result in a material breach of existing OCS lease contracts. I 
recommend that current law remain unchanged.
    Fourth--Provisions to impose new lease inspections fees on existing 
leases (Section 6(i)). Current law, OCSLA Section 18(b)(4), anticipates 
that appropriated funds will be used to ``supervise operations 
conducted pursuant to each lease in the manner necessary to assure due 
diligence in the exploration and development of the lease area and 
compliance with the requirements of applicable law and regulations, and 
with the terms of the lease.'' The Supreme Court has held that lessees 
are entitled to the use of existing law as it was at time of lease 
issuance, with few exceptions. In fact, the OCSLA as it exists at time 
of lease issuance, is incorporated into the terms of each lease. 
Enactment of a lease inspection fee would not fall within any of the 
allowed exceptions. Therefore, enactment of this lease inspection fee 
is likely to constitute a material breach of all existing OCS leases. I 
recommend that current law remain unchanged.
    Fifth--Provisions to impose extraordinary increases in civil and 
criminal penalties on existing leases (Section 6(j)). Current law, 
OCSLA section 24(b) provides for civil penalties for failure to comply 
with the provisions of the OCSLA, the lease, permits, and regulations. 
However, under current law, a lessee is entitled to notice and an 
opportunity to make corrective action prior to a penalty being 
assessed. The proposed language in section 6(j) eliminates the 
opportunity for notice and corrective action. The new language makes 
the lessee liable for any failure to comply. In addition, the civil 
penalty for each failure to comply is increased from $20,000 per day 
under current law to $75,000 per day. Once again, this is a material 
unilateral change of existing contracts and is likely to be a material 
breach of all existing contracts. Even if it is made applicable to only 
future lease contracts, I recommend that fundamental fairness requires 
the retention of current law which allows for notice and the 
opportunity for corrective action prior to imposition of a civil 
penalty.
    Current law, OCSLA section 24(c) provides for criminal penalties 
for ``any person who knowingly and willfully'' commits any number of 
acts, including, among other things, violating a provision of the 
lease, regulations, etc., designed to protect health, safety, or the 
environment, or conserve natural resources; making false statements or 
reports; tampering with monitoring equipment, etc. Current law provides 
for, upon conviction, punishment by a fine of not more than $100,000, 
or by imprisonment for not more than ten years, or both. S. 917 
proposes to raise the fine to $10,000,000. Further, S. 917 proposes to 
make corporate officers and agents guilty of a crime if they ``with 
reckless disregard'' authorized, ordered or carried out the proscribed 
activity. Current law requires the officers and agents to ``knowingly 
and willfully'' take those actions. Both of these criminal provision 
changes are likely to constitute material breaches of all existing 
leases.
V. Views on other provisions of S. 917
    Section 4. Amendments to Section 3 of the OCSLA are unnecessary. 
Current law already provides for environmental safeguards and for 
development to be ``consistent with other national needs.'' I am also 
concerned that the new standard laid out in (6) that exploration and 
production on the OCS should ``be allowed only when those activities 
can be accomplished in a manner that provides `reasonable assurance' of 
adequate protection against harm . . . `` I don't know what this means, 
but it is far too prescriptive. This will be used against offshore oil 
and gas production in litigation.
    Section 6 (c). A provision is included (g) for periodic fiscal 
reviews and reports, including a review of royalty rates (g)(1) and 
comparative fiscal systems (g)(2). The royalty rate reviews will be 
done independently of the fiscal system reviews. I do not see that an 
adequate royalty rate review to determine if the taxpayers are 
receiving a fair return on royalties can be done until after the 
comparative fiscal system reviews so that fiscal information may be 
used in the royalty reviews.
    Section 6 (e) provides for deepwater operations plans in addition 
to exploration plans. Further, this section requires new statutory 
engineering reviews. All of these have new statutory requirements for 
approval, but no deadlines for approval. It is very unclear how these 
will work together. They appear to me to be new statutory requirements 
which, in the final analysis, mean that a lessee really has very little 
when it receives approval of an exploration plan. This bill adds 
significant, unnecessary statutory hurdles to a lessee obtaining 
approval to drill oil and natural gas well. These, too, are likely to 
be material breach of existing leases.
    Section 6 (e) contains wording that is problematic in many 
provisions, including a requirement that exploration plans include 
provisions for resources that, in the event of a blowout, will be used 
to ``avoid harm to the environment . . . hydrocarbons.'' I believe that 
this would be impossible and I recommend that the word ``minimize'' be 
substituted for the word ``avoid''.
    Section 6 (e) in (B)(ii) imposes requirements which are redundant, 
but not identical, to existing statutory requirements in OCSLA section 
11(c)(3)(A)(ii)(IV). This will cause significant confusion, not to 
mention legal issues. Why are they necessary to be imposed twice?
    One provision related to Section 18, leasing program of the OCS, 
provide significant concern. Instead of current law which requires the 
Secretary to ``consider'' various matters when determining the leasing 
program, the problematic provision requires that the Secretary ``give 
equal consideration to'' these matters. Once again, this presents the 
Secretary with an impossible duty and provides new grounds for 
challenge of an oil and gas leasing program.
VI. Views on S. 516, S. 843, and S. 916
    S. 516--This is an excellent bill which should have been 
unnecessary. OCS regulations provide that the DOI will direct a 
suspension of a lease when a lessee is told not to use its lease and 
that the government will not consider permit requests. S. 516 makes 
things right. I believe that the one year extension for all Gulf of 
Mexico leases is appropriate. However, I recommend that the bill be 
amended to provide for extension of all Alaska OCS leases by two years. 
Those leases were affected by the moratorium last year, but they have 
also been adversely affected for a much longer period of time because 
of failure of government agencies, including the EPA and NOAA, to 
timely consider permit requests in the Alaska OCS Region.
    S. 843--This is also an excellent bill, with a few caveats. 
However, the Gulf of Mexico OCS Region would also benefit from a 
regional permit processing coordination office and I recommend that the 
bill be amended to provide for one. In addition, I recommend that the 
Coast Guard be added to the list of agencies that will participate in 
the coordination offices. While I understand the apparent need for 
Section 4 on Judicial Review, I believe that it needs to be reworded. I 
am concerned that the word ``claim'' could provide that monetary claims 
stemming from Alaska that under the Tucker Act would be heard in the 
Court of Federal Claims will now be heard by the DC Circuit.
    S. 916--This is also an excellent bill, but also with a few 
caveats. I am uncertain what is meant in Section 201 by the term 
``otherwise facilitating seismic studies of resources.'' Other than 
permitting seismic surveys or contracting for them directly, I am 
unaware of any authority of the Secretary to ``facilitate seismic 
studies of resources.'' I do believe that this is an area of policy 
where the Secretary should be granted more authority. In addition, I am 
curious as to the reason that the Pacific Region, with vast oil and 
natural gas resources and reserves and the potential of much more to 
find, would not be included in a ``comprehensive inventory'' of OCS oil 
and natural gas resources. Section 203 repeals ``mandatory outer 
Continental Shelf deep water and deep gas royalty relief for future 
leases.'' As someone who drafted these provisions which were enacted in 
the Energy Policy Act of 2005, these provisions are not mandatory 
because the statute specifically allows the Secretary to condition any 
royalty relief based on the price of the commodity. Hence, royalty 
relief is discretionary with the Secretary because the Secretary can 
set a price so high that royalty relief will not take place. I believed 
then, and I still believe now, that these provisions are valuable tools 
for the Secretary to make use of to stimulate production in the event 
of low resource prices.
VII. Closing
    It is clear that our nation benefits from developing oil and gas 
resources here at home. Domestic energy development reduces our 
reliance on imported oil, directly supports over 9 million jobs, 
creates billions in new wealth every year, and generates over $13 
billion for the federal Treasury on an annual basis. And we can produce 
so much more oil and gas in the United States than we do now, creating 
millions of more jobs, billions of more wealth, and yes, billions more 
in receipts to the U.S. Treasury.
    I urge the committee to go beyond the bills being considered today 
and act broadly and boldly to unlock the bountiful natural hydrocarbon 
and renewable energy resources that this nation has been blessed with. 
Permit reform, opening the entire outer Continental Shelf to leasing, 
policy changes to make greater use of CO2 enhanced oil recovery, 
commercial lease sales for oil shale and tar sands, use of commonsense 
NEPA categorical exclusions, eliminating frivolous litigation, and 
other actions must be taken to achieve the nation's energy 
independence.
    Thank you for the opportunity to testify and I would be pleased to 
answer any questions.

    The Chairman. Thank you very much for your testimony.
    Dr. Leveson, thank you for your testimony.
    I didn't have any questions at this point.
    Senator Murkowski, go right ahead.
    Senator Murkowski. Mr. Chairman, recognizing that the vote 
has started 6 or 7 minutes ago, I do think we need to wrap up 
here. I thank both of you for the testimony.
    Mr. Coleman, you have raised some points. I was going to 
ask you about whether or not the 30 days is sufficient. I think 
it is important to understand that when that 30 days begins to 
toll, and I think that is an important part of what goes into 
the process.
    I think we are all struggling to find that right number 
here, the right time period within which the agency needs to do 
the job, but without adding to what is already a lengthy and 
cumbersome and very costly process. So we are trying to get it 
right. Your comments have helped.
    I do have some additional questions I will submit for the 
record. But Mr. Chairman, I thank you for the hearing this 
afternoon.
    The Chairman. Again, thank you both very much, and 
particularly for waiting so long to get to testify here.
    But that will conclude our hearing.
    [Whereupon, at 12:23 p.m., the hearing was adjourned.]

    [The following statement was received for the record.]

                                    THE WILDERNESS SOCIETY,
                                                      May 17, 2011.
Hon. Jeff Bingaman,
Chairman, Senate Committee on Energy and Natural Resources, 304 Dirksen 
        Senate Office Building, U.S. Senate, Washington, DC.
    Dear Chairman Bingaman: The following comments are submitted on 
behalf of The Wilderness Society for the May 17, 2011, hearing record 
regarding S. 916, the ``Oil and Gas Facilitation Act of 2011.'' The 
Wilderness Society is the leading public-lands conservation 
organization working to protect wilderness and inspire Americans to 
care for our wild places. Founded in 1935, and now with more than 
500,000 members and supporters, TWS has led the effort to permanently 
protect 110 million acres of wilderness and to ensure sound management 
of our shared national lands. We have a longstanding interest in 
assuring that oil and gas development on our federal public lands and 
waters is done in an environmentally safe manner and only in 
appropriate places. Our comments on S. 916 are confined to Sec. 101 of 
the bill.
    Section 101 of S. 916 extends to 2020 the Bureau of Land 
Management's (BLM) pilot permitting offices authorized by Section 365 
of the Energy Policy Act of 2005 (EPACT) and set to expire in 2015. We 
agree with the Administration that this program should not be extended, 
but instead should be terminated (See, for example, page INI-129 of the 
BLM's FY 2011 budget justifications). This program, established to 
expedite the issuance of BLM drilling permits, is clearly not needed. 
According to BLM data, thousands of drilling permits have been issued 
in recent years by the agency which are not being utilized by permit 
holders, so clearly there is no need to dedicate receipts from BLM 
drilling revenues to support the continued expeditious issuance of BLM 
drilling permits. Instead, we support the Department of the Interior's 
proposal to authorize the BLM to collect cost recovery fees from permit 
applicants to cover the BLM's administrative costs in processing APDs. 
The Department claims that doing this--eliminating the pilot permitting 
program in Sec. 365 of EPACT and allowing the BLM to assess cost 
recovery fees from APD applicants--will save $84 million over a five 
year period:

          Repeal Permit Processing Improvement Fund and Prohibition on 
        Oil and Gas Cost Recovery--The Administration will submit 
        legislation to repeal portions of Section 365 of the Energy 
        Policy Act, beginning in 2012. Section 365 diverted mineral 
        leasing receipts from the Treasury to a BLM Permit Processing 
        Improvement Fund and also prohibited BLM from establishing cost 
        recovery fees for processing applications for oil and gas 
        permits to drill. Congress has effectively overridden the fee 
        prohibition and implemented permit fees through appropriations 
        language for the last several years. The budget proposes to 
        continue the permit fees through appropriations language in 
        2011. Upon elimination of the fee prohibition, BLM will 
        promulgate regulations to establish fees for applications for 
        permits to drill administratively, starting in 2012. In 
        combination with normal discretionary appropriations, these 
        fees will then replace the mandatory permit funds, which would 
        also be repealed starting in 2012. Savings from terminating 
        this mandatory funding are estimated at $20.0 million in 2012 
        and $84.0 million over five years.

    Also, we support the Administration's proposal that Congress 
provide to it the authority to assess fees on operators to help defray 
the costs of the BLM's inspection and enforcement program (p. IV-130 of 
the FY 2011 BLM budget justification), described as follows:

          The 2011 budget proposes to establish a new inspection fee. 
        The budget proposes the same inspection fee collection 
        authority as Congress imposed through appropriations language 
        in 2010 for the Minerals Management Service. The proposed 
        inspection fee would partially offset the cost of conducting 
        inspections. Proposed appropriations language to implement the 
        fee is included in the General Provisions for the Department of 
        the Interior:

          SEC. 111. (a) In fiscal year 2011, the Bureau of Land 
        Management (BLM) shall collect a nonrefundable inspection fee, 
        which shall be deposited in the ``Management of Lands and 
        Resources'' account, from the designated operator of each 
        Federal and Indian lease or agreement subject to inspection by 
        BLM under 30 U.S.C. 1718(b) that is in place at the start of 
        fiscal year 2011.

          (b) Fees for 2011 shall be:

          (1) $150 for each lease or agreement with no active or 
        inactive wells, but with surface use, disturbance or 
        reclamation,.
          (2) $300 for each lease or agreement with one to ten wells, 
        with any combination of active or inactive wells;
          (3) $750 for each lease or agreement with 11 to 50 wells, 
        with any combination of active or inactive wells; and
          (4) $1,500 for each lease or agreement with more than 50 
        wells, with any combination of active or inactive wells.

          (c) BLM will bill designated operators within 60 days of 
        enactment of this Act, with payment required within 30 days of 
        billing

    By providing the BLM with the additional financial resources it 
needs to develop a more effective inspection and enforcement program, 
Congress can better assure that oil and gas activities on the public 
lands are carried out in an environmentally safe manner and in 
compliance with the requirements that apply to such operations.
    Finally we also support the Administration's proposal to assess a 
new ``non-producing lease fee'', as follows:

           . . . A $4.00 per acre fee on nonproducing Federal leases on 
        lands and waters would provide a financial incentive for oil 
        and gas companies to either get their leases into production or 
        relinquish them so that the tracts can be re-leased to and 
        developed by new parties. The proposed fee would apply to all 
        new leases and would be indexed annually. In October 2008, the 
        Government Accountability Office issued a report critical of 
        past efforts by Interior to ensure that companies diligently 
        develop their Federal leases. Although the GAO report focused 
        on administrative actions that the Department could undertake, 
        this proposal requires legislative action. This proposal is 
        similar to other nonproducing fee proposals considered by the 
        Congress in the last several years. The proposal is projected 
        to result in savings to the Treasury of $760.0 million over ten 
        years, of which $340 million would come from onshore leases 
        managed by BLM.

    Adoption of this proposal will enhance the revenues produced by the 
BLM's oil and gas program and discourage the speculative holding of 
federal onshore oil and gas leases.
    In conclusion, we propose that Sec. 101 of S. 916 be amended as 
follows: repeal rather than extend Sec. 365 of EPACT; substitute 
language that would authorize the BLM to assess fees to cover the full 
administrative costs of processing applications for permits to drill; 
authorize the BLM to assess fees for a more effective inspection and 
enforcement program to assure that oil and gas operations on federal 
lands are carried out in an environmentally safe manner; and authorize 
a new ``non-producing lease fee'' to discourage the speculative holding 
of federal onshore oil and gas leases.
    Thank you for the opportunity to share our views with the 
Committee.
            Sincerely,
                                         David Alberswerth,
                                             Senior Policy Advisor.
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

  Responses of W. Jackson Coleman to Questions From Senator Murkowski
    Question 1. Mr. Coleman, focusing specifically on the Outer 
Continental Shelf Lands Act, can you describe some of the legal hooks 
that already exist under current law which require the Interior 
Department to properly balance the various uses and sensitivities of 
the Outer Continental Shelf?
    Answer. The OCSLA is replete with provisions which either require 
the balancing of the various uses, interests, and resources of the 
outer Continental Shelf, or authorize the President or the Secretary of 
the Interior to exercise authority to balance these uses, interests, 
and resources. A few of these are, cited by provision of the United 
States Code, Title 43:

    a. 1332 (2) which provides for the protection of the rights to 
            navigation and fishing;
    b. 1332 (3) which provides that energy development on the OCS shall 
            be subject to environmental safeguards and ``in a manner 
            which is consistent with the maintenance of competition and 
            other national needs''.
    c. 1332 (5) which provides ``the rights and responsibilities of all 
            States and, where appropriate, local governments, to 
            preserve and protect their marine, human, and coastal 
            environments through such means as regulation of land, air, 
            and water uses, of safety, and of related development and 
            activity should be considered and recognized''.
    d. 1334(a)(1) which provides ``The Secretary may at any time 
            prescribe and amend such rules and regulations as he 
            determines to be necessary and proper in order to provide 
            for the prevention of waste and conservation of the natural 
            resources of the outer Continental Shelf, and the 
            protection of correlative rights therein''.
    e. 1337(p)(4) which provides ``The Secretary shall ensure that any 
            activity under this subsection is carried out in a manner 
            that provides for----

                (A) safety;
                (B) protection of the environment;
                (C) prevention of waste;
                (D) conservation of the natural resources of the outer 
                Continental Shelf;
                (E) coordination with relevant Federal agencies;
                (F) protection of national security interests of the 
                United States;
                (G) protection of correlative rights in the outer 
                Continental Shelf;
                (H) a fair return to the United States for any lease, 
                easement, or right-of-way under this subsection;
                (I) prevention of interference with reasonable uses (as 
                determined by the Secretary) of the exclusive economic 
                zone, the high seas, and the territorial seas;
                (J) consideration of----

                    (i) the location of, and any schedule relating to, 
                a lease, easement, or right-of-way for an area of the 
                outer Continental Shelf; and
                    (ii) any other use of the sea or seabed, including 
                use for a fishery, a sealane, a potential site of a 
                deepwater port, or navigation;

                (K) public notice and comment on any proposal submitted 
                for a lease, easement, or right-of way under this 
                subsection; and
                (L) oversight, inspection, research, monitoring, and 
                enforcement relating to a lease, easement, or right-of-
                way under this subsection.

    f. 1340 which provides that exploration plans for oil and natural 
            gas must be consistent with state coastal zone management 
            plans;
    g. 1341 which authorizes the President to withdraw from leasing any 
            area of the outer Continental Shelf;
    h. 1344 which establishes the OCS oil and gas leasing program 
            provides for consideration of the environment and multiple 
            uses of the OCS, including:

    (a)(1) Management of the outer Continental Shelf shall be conducted 
            in a manner which considers economic, social, and 
            environmental values of the renewable and nonrenewable 
            resources contained in the outer Continental Shelf, and the 
            potential impact of oil and gas exploration on other 
            resource values of the outer Continental Shelf and the 
            marine, coastal, and human environments.

    (2) Timing and location of exploration, development, and production 
of oil and gas among the oil and gas-bearing physiographic regions of 
the outer Continental Shelf shall be based on a consideration of----

    (A) existing information concerning the geographical, geological, 
and ecological characteristics of such regions;
    (B) an equitable sharing of developmental benefits and 
environmental risks among the various regions;
    (C) the location of such regions with respect to, and the relative 
needs of, regional and national energy markets;
    (D) the location of such regions with respect to other uses of the 
sea and seabed, including fisheries, navigation, existing or proposed 
sealanes, potential sites of deepwater ports, and other anticipated 
uses of the resources and space of the outer Continental Shelf;
    (E) the interest of potential oil and gas producers in the 
development of oil and gas resources as indicated by exploration or 
nomination;
    (F) laws, goals, and policies of affected States which have been 
specifically identified by the Governors of such States as relevant 
matters for the Secretary's consideration;
    (G) the relative environmental sensitivity and marine productivity 
of different areas of the outer Continental Shelf; and
    (H) relevant environmental and predictive information for different 
areas of the outer Continental Shelf.

    (3) The Secretary shall select the timing and location of leasing, 
to the maximum extent practicable, so as to obtain a proper balance 
between the potential for environmental damage, the potential for the 
discovery of oil and gas, and the potential for adverse impact on the 
coastal zone.
    (4) Leasing activities shall be conducted to assure receipt of fair 
market value for the lands leased and the rights conveyed by the 
Federal Government. Subsections (c) and (d) provide for consultation 
with potentially affected states, local governments, and other federal 
agencies on the development of a leasing program.
    Subsection (f) provides ``The Secretary shall, by regulation, 
establish procedures for----

    (1) receipt and consideration of nominations for any area to be 
offered for lease or to be excluded from leasing;
    (2) public notice of and participation in development of the 
leasing program;
    (3) review by State and local governments which may be impacted by 
the proposed leasing;
    (4) periodic consultation with State and local governments, oil and 
gas lessees and permittees, and representatives of other individuals or 
organizations engaged in activity in or on the outer Continental Shelf, 
including those involved in fish and shellfish recovery, and 
recreational activities; and
    (5) consideration of the coastal zone management program being 
developed or administered by an affected coastal State pursuant to 
section 1454 or section 1455 of title 16. Such procedures shall be 
applicable to any significant revision or reapproval of the leasing 
program.

    i. 1345(c) provides ``The Secretary shall accept recommendations of 
            the Governor and may accept recommendations of the 
            executive of any affected local government if he 
            determines, after having provided the opportunity for 
            consultation, that they provide for a reasonable balance 
            between the national interest and the well-being of the 
            citizens of the affected State.

    Question 2. Mr. Coleman, your testimony goes deeply into the 
consequences of changing the law for existing leaseholders, to the 
point where their operations are materially frustrated, and it 
describes how this can invite litigation and even risk the US Treasury 
losing bidding and royalty revenue. Do you advise against the proposed 
changes to the statute so that we are making subsea containment 
equipment a requirement, and requiring approvals for major changes in 
well designs?
    Answer. As a preliminary matter prior to answering your specific 
question, I believe that I should mention a portion of my written 
testimony. As I stated in that testimony, Mobil Exploration and 
Producing Southeast, Inc., v. U.S., 530 U.S. 604, 120 S.Ct. 2423 
(2000), is the landmark case establishing the governing law applicable 
to federal offshore oil and gas lease contracts. The Mobil opinion, 
delivered by Mr. Justice Breyer, resulted from a breach of contract 
action by seventeen oil and gas lessees involving claims exceeding $700 
million resulting from Acts of Congress that restricted the rights of 
lessees to explore for and develop oil and gas resources on existing 
leases off Alaska, Florida, and North Carolina.
    At issue in that Court was the passage of the Outer Banks 
Protection Act (OBPA) as a part of Oil Pollution Act of 1990 (OPA 90) 
and whether the lease contracts incorporated the OBPA into their terms 
and were ``subject to'' the OBPA. The OBPA established an Environmental 
Sciences Review Panel (ESRP) and prohibited the Secretary of the 
Interior from issuing any permit to drill on existing leases offshore 
North Carolina for at least thirteen months, but for a longer period if 
the ESRP had not completed its work of determining whether the 
Secretary possessed sufficient environmental information with which to 
make decisions on drilling permit requests for the affected leases. 
Among other things, the Department of the Interior had taken the 
position that the provisions of the leases incorporated the later-
enacted OBPA into them and made them ``subject to'' it. This position 
was based on the terms of the leases which provided in relevant part 
that the leases are ``subject to all other applicable laws and 
regulations.'' The Court addressed this issue by stating that ``the 
lease contracts say that they are subject to then-existing regulations 
and to certain future regulations . . . This explicit reference to 
future regulations makes it clear that the catchall provision that 
references ``all other applicable . . . regulations,'' . . . must 
include only statutes and regulations already existing at the time of 
the contract, see 35 Fed. Cl., at 322-323, a conclusion not questioned 
here by the Government. Hence, these provisions mean that the contracts 
are not subject to future regulations under other statutes, such as new 
statutes like OBPA. Without some such contractual provision limiting 
the Government's power to impose new and different requirements, the 
companies would have spent $158 million to buy next to nothing.'' The 
Court found that when Congress enacted the OBPA and the Department of 
the Interior announced that it would apply its provisions to the leases 
offshore North Carolina, the government had repudiated the contracts 
and committed a material breach. In the Court's words,

          As applied to this case, these principles amount to the 
        following: If the Government said it would break, or did break, 
        an important contractual promise, thereby ``substantially 
        impair[ing] the value of the contract[s]'' to the companies, 
        ibid., then (unless the companies waived their rights to 
        restitution) the Government must give the companies their money 
        back. And it must do so whether the contracts would, or would 
        not, ultimately have proved financially beneficial to the 
        companies.

    The Court noted that the leases stated that they would be subject 
to ``all regulations issued pursuant to'' the Outer Continental Shelf 
Lands Act (OCSLA) ``in the future which provide for the prevention of 
waste and the conservation'' of outer Continental Shelf resources. The 
Court found as a general matter of law that federal mineral leases are 
governed by the commercial law of contracts.
    Now, to answer your question, it is my opinion that the Secretary 
may impose a new requirement that existing lessees have the capacity to 
implement subsea containment equipment and methods, as long as these 
equipment and method requirements are reasonably related to the 
potential worst case discharges from the lease. These requirements 
would reasonably fall into ability of the Secretary to impose on 
existing leases future regulations pursuant to the OCSLA which provide 
for the prevention of waste and conservation of OCS resources. 
Regarding approvals of major changes to well design, the Secretary 
already has this authority and is currently implementing it through 
regulations related to exploration plans and development and production 
plans. However, new procedures which require permits and lengthy 
delays, even if couched in terms of the environment and/or conservation 
of resources, will receive close scrutiny for possible breach of 
contract. Congress had couched the new requirements of the Outer Banks 
Protection Act in environmental terms, but the Supreme Court in Mobil 
found them to be merely new procedural hurdles having the purpose of 
denying to the lessees their bargained-for contractual rights to 
reasonably explore and develop their leases.
    Question 3. Mr. Coleman, do you see the absence of revenue sharing 
from these bills as a problem for coastal states, due to its affect on 
the ability to host an offshore industry, specifically with regard to 
critical support infrastructure, spill response, safety, coastal 
protection and restoration?
    Answer. In my opinion, the United States will not achieve the vast 
potential of the OCS to provide the energy supplies to the nation, both 
oil and natural gas and renewable energy, without major changes to the 
existing provisions for revenue sharing. The Gulf of Mexico Energy 
Security Act of 2006 (GOMESA) established the precedent for revenue 
sharing, in addition to the prior limited OCSLA Section 8(g) provision 
which limited revenue sharing to the first 3 nautical miles of the OCS 
from the coastline.
    However, GOMESA was inadequate in a number of ways. First, it only 
immediately applied to new leases in areas of the Gulf of Mexico that 
had not been leased for a significant period of time. Second, after 10 
years, it applied to new leases issued after enactment in the Central 
and Western Gulf of Mexico planning areas. This meant that revenues 
from approximately 6,000 existing leases in the Gulf of Mexico would 
never share revenues with states. Third, GOMESA did not provide for 
revenue sharing outside the Gulf of Mexico in other OCS areas. This 
created an inherent unfairness in the OCSLA, which inferred that the 
needs of the Gulf of Mexico states were greater than the needs of other 
states like Alaska, California, and other states which might have 
leasing off their coasts in the future. This inequity and unfairness 
should not be allowed to continue.
    The states which have OCS exploration and production activities off 
their coastlines incur significant expenses and impacts, both 
socioeconomic and environmental, of the type listed in the question. 
The federal onshore leasing law, the Mineral Leasing Act, recognizes 
these expenses and impacts and specifically provides for a 50% share of 
all lease revenues to be shared with the states. Some have made the 
argument that this disparity in treatment is fair because the onshore 
leases are WITHIN the state that receives the revenues and the offshore 
leases are not within the boundaries of any state. While I recognize 
that the level of expenses and impacts may be greater for the onshore 
states that contain the leases within their borders as opposed to the 
coastal states that do not, this possible difference in levels of 
relative impacts does not justify the current law which shares almost 
nothing with coastal states from OCS revenues. Surely the Congress can 
come up with a revenue sharing law for coastal states, based on, but 
adjusted from, the shares that states currently receive from onshore 
federal oil and gas leasing. The GOMESA sharing rate of 37.5% of OCS 
revenues to the coastal states seems appropriate.


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