[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
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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
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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.
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* 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.