[Senate Hearing 113-104]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-104

                  TRANSBOUNDARY HYDROCARBON RESERVOIRS

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   TO

  CONSIDER THE FOLLOWING LEGISLATION: S. 812, A BILL TO AUTHORIZE THE 
 SECRETARY OF THE INTERIOR TO TAKE ACTIONS TO IMPLEMENT THE AGREEMENT 
  BETWEEN THE UNITED STATES OF AMERICA AND THE UNITED MEXICAN STATES 
CONCERNING TRANSBOUNDARY HYDROCARBON RESERVOIRS IN THE GULF OF MEXICO; 
AND H.R. 1613, A BILL TO AMEND THE OUTER CONTINENTAL SHELF LANDS ACT TO 
      PROVIDE FOR THE PROPER FEDERAL MANAGEMENT AND OVERSIGHT OF 
      TRANSBOUNDARY HYDROCARBON RESERVOIRS, AND FOR OTHER PURPOSES

                               __________

                            OCTOBER 1, 2013






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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                      RON WYDEN, Oregon, Chairman

TIM JOHNSON, South Dakota            LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana          JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont             MIKE LEE, Utah
DEBBIE STABENOW, Michigan            DEAN HELLER, Nevada
MARK UDALL, Colorado                 JEFF FLAKE, Arizona
AL FRANKEN, Minnesota                TIM SCOTT, South Carolina
JOE MANCHIN, III, West Virginia      LAMAR ALEXANDER, Tennessee
BRIAN SCHATZ, Hawaii                 ROB PORTMAN, Ohio
MARTIN HEINRICH, New Mexico          JOHN HOEVEN, North Dakota
TAMMY BALDWIN, Wisconsin

                    Joshua Sheinkman, Staff Director
                      Sam E. Fowler, Chief Counsel
              Karen K. Billups, Republican Staff Director
           Patrick J. McCormick III, Republican Chief Counsel















                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Beaudreau, Tommy P., Acting Assistant Secretary, Land and 
  Minerals Management, Department of the Interior................     9
Landrieu, Hon. Mary L., U.S. Senator From Louisiana..............     4
Milito, Erik, Group Director, Upstream and Industry Operations, 
  American Petroleum Institute...................................    27
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     3
Pascual, Carlos, Special Envoy and Coordinator, International 
  Energy Affairs, Department of State............................     5
Savitz, Jacqueline, Vice President, U.S. Oceans, Oceana..........    21
Schatz, Hon. Brian, U.S. Senator From Hawaii.....................     2
Wyden, Hon. Ron, U.S. Senator From Oregon........................     1

                                APPENDIX

Responses to additional questions................................    35

 
                  TRANSBOUNDARY HYDROCARBON RESERVOIRS

                              ----------                              


                        TUESDAY, OCTOBER 1, 2013

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:57 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Ron Wyden, 
chairman, presiding.

 OPENING STATEMENT OF HON. RON WYDEN, U.S. SENATOR FROM OREGON

    The Chairman. The committee will come to order.
    The purpose of today's hearing is to consider legislation 
to implement the U.S./Mexico Transboundary Hydrocarbon 
Agreement. I want to thank our witnesses, first of all, for 
appearing today.
    For the first time in over half a century, the U.S. and 
Mexico are entering into a robust energy partnership between 
our 2 countries. Hopefully this momentum will extend to other 
areas of trade, investment, and mutual cooperation, renewing 
the North American Alliance and strengthening our economy.
    The Transboundary Hydrocarbon Agreement will provide a way 
for the United States and Mexico to pursue the joint 
development of shared energy resources. This agreement resolves 
claims to a dispute area in the Gulf of Mexico so that the 
energy resources can be developed and the benefits can be 
shared by both Nations.
    On a recent visit to Mexico, our Vice President, Vice 
President Biden, spoke of the need for a stronger Western 
Hemisphere and the special role that North America is going to 
play, particularly the partnership between the United States 
and Mexico. Vice President Biden said and I quote, ``We are 
grounded in a common border, common culture, common values, 
common dreams and common potential.''
    In that view that's why we're here today to review 
legislation to implement the U.S./Mexico Transboundary 
Agreement.
    Our country and Mexico have been working since the 1970s to 
provide a joint legal framework for shared resources. Such an 
agreement will help to grow our domestic energy supplies, 
ensure responsible resource management, strong environmental 
protection; and mutual assurance of regulatory and safety 
standards. I'm of the view that this agreement accomplishes 
that.
    The agreement encourages joint development of shared 
reservoirs and individual development by U.S. and Mexican 
companies. Further, the agreement gives legal certainty to U.S. 
companies to explore joint ventures with Mexico's national oil 
company, requires joint safety inspection teams. and calls for 
the adoption of common safety and environmental standards.
    The agreement is going to make nearly 1.5 million acres of 
the Western Gap of the Outer Continental Shelf available. The 
Bureau of Ocean Energy Management estimates that these areas 
could contain up to 172 million barrels of oil and 304 billion 
cubic feet of natural gas, making our country less dependent on 
foreign sources of oil and gas.
    The Mexican government has acted quickly to fulfill their 
obligation to enact the agreement by ratifying it on April 12, 
2012 and signing it into law that year. In addition to 
approving the agreement the Mexican government, under the 
leadership of President Pena Nieto, has gone a step further 
undertaking domestic energy reform by proposing constitutional 
changes for the first time since 1960. The proposed reforms 
would work to strengthen Mexico's energy sector by boosting 
investment and production.
    It's the hope that through this agreement and the proposed 
energy reforms in Mexico that the energy revolution in the 
United States is now experiencing can be extended throughout 
the Western Hemisphere. This would make our region more 
competitive and less reliant on politically tumultuous States 
for obtaining energy.
    Before concluding I'd like to take a moment to thank the 
Department of the Interior, the Department of State, the 
Mexican Embassy and all staff for diligent work and 
professionalism that made it possible for the committee to 
write S. 812 and in putting together today's hearing. The 
legislation that we're considering, if not signed into law 
before mid January, the moratorium in the Western Gap of the 
Gulf of Mexico expires. That could result in the damaging and 
loss of shared resources. That is why the committee feels it's 
important to move quickly.
    It's also my hope that we will not only be able to quickly 
move, but also pass clean legislation to approve this time 
sensitive agreement and not get bogged down in matters that 
simply are not relevant to the agreement. What's important to 
keep in mind is the importance of the agreement and continue to 
work with Mexico to ensure a strong partnership and then begin 
the important work of integrating and creating a strong North 
American energy economy.
    What we're going to do is Senator Murkowski has some 
remarks.
    Senator Landrieu is on a tight schedule.
    So with our witnesses? Indulgence we'll hear from Senator 
Murkowski and Senator Landrieu and then we're very happy to 
hear from our witnesses.
    Senator Murkowski.
    [The prepared statement of Senator Schatz follows:]
   Prepared Statement of Hon. Brian Schatz, U.S. Senator From Hawaii
    ``Chairman Wyden and Ranking Member Murkowski, thank you for 
holding this hearing. This agreement between the United States and 
Mexico is an important one, and I am glad both the House and the Senate 
are moving forward to act on it.
    I would like to highlight one major difference between the bills 
introduced by the House and the Senate. Included in the House bill, but 
not the Senate bill, is an exemption for U.S. oil and gas companies 
operating in trans-boundary areas from the requirement to disclose 
payments made to foreign governments for the development of oil, gas or 
other minerals. This requirement is also known as section 1504 of the 
Dodd-Frank Act, and has strong support from transparency advocates and 
the White House.
    I have serious concerns about this exemption, which applies to all 
trans-boundary areas in the world, not just the one in question today.
    Other members share my reservations, and for good reason.
    About two-thirds of the world's poorest people live in resource 
rich countries. The agreements made between these governments and 
companies, often extractive industries, suffer from a severe lack of 
transparency, which has at times enabled large-scale government 
corruption, and allowed companies to operate without proper public 
oversight.
    Simple reporting requirements, as required under Section 1504 of 
Dodd-Frank, can help to increase transparency and decrease corruption. 
Including an exemption from these common-sense rules in a trans-
boundary agreement such as the one before us today is unnecessary and 
counterproductive.
    I look forward to hearing the testimonies today and hope the 
witnesses can shed some light on this issue.''

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

    Senator Murkowski. Thank you, Mr. Chairman and appreciate 
you scheduling this hearing on legislation pending before the 
committee to approve and implement the U.S./Mexico 
Transboundary Agreement.
    I also want to thank our very distinguished witnesses for 
being here today. Look forward to the perspectives that you 
will share.
    I view this agreement as an important step toward greater 
North American energy security. The Congressional Research 
Service says that the U.S. and Canada are ``joined at the 
well'' when it comes to energy. I believe that we should strive 
for the same relationship with Mexico.
    Though we are strong trading partners and tied 
economically. More cooperation and integration is necessary to 
reach this goal.
    Energy is already flowing between our 2 countries. Though 
crude oil production in Mexico continues to decline, Mexico 
remains one of the top exporters of crude oil to the U.S. We 
are Mexico's largest supplier of petroleum products. We're also 
sending increasing volumes of natural gas by pipeline to 
Mexico. So approval of the Transboundary Agreement will allow 
this relationship to continue and to grow.
    The agreement lifts the moratorium on oil and gas leasing 
in the Western Gap and provides legal certainty for development 
along the entire Transboundary area. This will open access to 
over a million new acres on the Outer Continental Shelf, 
hundreds of millions of barrels of oil, billions of cubic feet 
of natural gas and lead to new jobs and new revenues.
    The agreement also encourages the promotion of common 
safety and environmental standards though each country retains 
authority over activity within their respective waters.
    Both of the bills authorize the Secretary of the Interior 
to approve unitization agreements to develop oil and gas 
resources in the Transboundary area, disclose information 
necessary to implement the agreement and manage development and 
to participate in and implement dispute settlements.
    As the chairman has noted this agreement was signed by 
Mexico and the U.S. on February 20, 2012 and ratified by the 
Mexican Senate 2 months later. But yet more than a year later 
we here in the Senate have yet to do our part. It's time we act 
to approve the agreement and provide the Interior Department 
the necessary authorities to implement it.
    There are some differences between the bills before us 
today, primarily related to scope beyond the U.S./Mexico 
Transboundary Agreement. So I would welcome the witnesses? 
thoughts on these provisions.
    With that, I look forward to Senator Landrieu's comments 
and to hear the testimony from our witnesses.
    Thank you.
    The Chairman. Senator Landrieu.

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

    Senator Landrieu. Thank you, Mr. Chairman. I really 
appreciate the opportunity. I've got to slip out for another 
meeting and then a press conference shortly on another subject.
    But I wanted to be here to give my support to the concept 
of this legislation and to acknowledge how important it is to 
thank the chair and the ranking member for leading this effort 
to implement the Transboundary Agreement between the U.S. and 
Mexico. It's essential for a variety of reasons.
    It will allow U.S. companies, for the first time, to 
partner with Mexican interest and Mexican companies to maximize 
production in the Gulf which will benefit not only the United 
States, but Mexico as well, I believe.
    It will give companies the assurance they require to 
increase investments in deep water production near our 
transboundary region which is a significant area and an 
important area and a promising area.
    The limiting factor to this point has been political, 
namely the lack of a working agreement on how best to manage 
the area claimed by both Mexico and the U.S.
    Now we can understand, Mr. Chairman and ranking member, how 
important this is to our country. But also to the Gulf Coast 
which is why I'm here this morning because Louisiana is one of 
the 4 most producers in deep water. Many of our companies, 
Texas, Louisiana, are leading the effort not only in the Gulf, 
but around the world producing oil and gas safely in very 
difficult environments.
    So we're very interested in this agreement.
    But I want to say that one of the things that will make a 
difference whether I can be supportive or not is testimony 
today, Mr. Chairman, from our department. My question is would 
these lands fall under the current GOMESA, Gulf of Mexico 
Energy Security Act, which this committee passed which 
dedicates a portion of the revenues produced from this 
production back to the Gulf Coast States. Now that was an 
agreement that was reached after many years of debate in the 
United States. Our country said the right thing to do is to 
share revenues with the coastal States that serve as a 
production for these revenues.
    So my one question, you can answer it now or submit the 
answer to the chairman at the appropriate time. But my vote on 
this bill will rest solely on the answer to that question.
    If it's yes, then I will vote for the bill.
    If it's no, I will not be able to because we have set a 
very strong policy in the Gulf of Mexico on the U.S. side of 
this border that we believe that it is fair as a Nation. I 
would hope Mexico would look at our model and maybe adopt it. 
That it's fair to share the revenues, not just with the Federal 
Government of Mexico and the United States, but with the States 
that serve as host to the production.
    Some of that production is done in Alaska, not in this 
situation, but Alaska and their coastal communities should 
benefit from that production and share with all the taxpayers 
of the country, but also with the coastal communities. That 
agreement has been in place for interior States since 1920, 
that sharing of revenues.
    So Mr. Beaudreau, should he answer that now or later, Mr. 
Chairman?
    The Chairman. Let's do this.
    First of all the Senator from Louisiana knows I'm going to 
work very closely with her on all these matters.
    Let's do this. Let's have the witnesses make their 
statements. But I would like it to be stated now for the record 
that my first question is Senator Landrieu's question, so that 
we will begin questioning, when I'm recognized for purposes of 
that, to have an answer to Senator Landrieu's question.
    Is that acceptable?
    Senator Landrieu. That is very acceptable. Thank you for 
your graciousness.
    The Chairman. We'll be working together.
    Alright. Gentlemen, welcome.
    The Honorable Carlos Pascual and the Honorable Tommy 
Beaudreau and we'll have your statements and you all know what 
my first question will be. So you have a little time to prepare 
for my first question as well.
    Let's begin with you, Mr. Pascual. We thank you for the 
cooperation, of course, that the State Department has shown.
    Welcome.

  STATEMENT OF CARLOS PASCUAL, SPECIAL ENVOY AND COORDINATOR, 
       INTERNATIONAL ENERGY AFFAIRS, DEPARTMENT OF STATE

    Mr. Pascual. Thank you very much, Chairman Wyden and 
Ranking Member Murkowski and Senator Landrieu as well for 
participating in your sponsorship. These were excellent opening 
statements that you made. I couldn't agree more with the way 
that you framed the issue. Thank you for putting it in that 
extremely constructive context and the opportunity to reinforce 
the statements that you've already made.
    The issues of energy security have been paramount concerns 
of the State Department and of concerns for Secretary Kerry. 
They obviously are for these committees. It's very appropriate 
that you've put this whole issue in the context of energy 
security because in the end that's fundamentally what we're 
trying to support for the United States, a more secure energy 
future.
    The Administration supports the swift passage of 
legislation to allow for the implementation of the 
Transboundary Agreement signed by Mexico and the United States, 
as you've indicated, in February 2012. As you've indicated it 
was ratified by Mexico in April 2012.
    So the positive thing is that with passage of legislation 
here we are ready to move. What this would do is it could allow 
Mexico and the United States to move immediately, to bring 
immediate, the agreement into full force and facilitate 
cooperation between U.S. companies and Mexico's national oil 
company, PEMEX, to develop resources that would strengthen 
North America's potential role as a hub for energy security.
    Let me begin by stressing the importance that the State 
Department assigns to a strong energy partnership with Mexico, 
as you have said, Senator Wyden.
    Our energy trading relationship with Mexico is essential to 
securing stable flows to the United States' markets. That is 
critical to sustained U.S. economic growth.
    In fact in 2012 energy related trade with Mexico totaled 
$65 billion. Mexico has, as was indicated, 10.2 billion barrels 
in proven reserves. But its production has fallen by more than 
30 percent from 2004 to 2012.
    Still a more positive future for Mexican production is very 
much within reach.
    Mexican President Enrique Pena Nieto is making reform a 
priority. His party submitted legislation for comprehensive 
energy reform in August. With passage of the reform Mexico 
could attract international investment to develop its 
hydrocarbon resources and reverse the decline in oil 
production. The implementation of the Transboundary Agreement 
could provide a down payment on those prospects for investment.
    The agreement itself would establish a framework that would 
allow for the development of hydrocarbon reservoirs that cross 
the maritime boundary with Mexico.
    It would provide the legal certainty companies need to 
invest in reservoirs along our maritime boundary. This would 
allow U.S. companies to invest in lease blocks along the 
boundary and where appropriate, jointly explore and develop 
reservoirs in the boundary area with Mexico as units. The 
benefits of managing a reservoir as a single unit, long 
standing practice in the U.S. side of the Gulf, are well 
developed and well known.
    The agreement would extend these benefits to the management 
of transboundary reserves allowing U.S. companies to partner 
with PEMEX to minimize drilling, maximize recovery and achieve 
the environmental benefits that arise from drilling fewer 
wells.
    Even as the agreement opens more acreage to drilling it 
would do so in a responsible way. Mexico is already moving into 
the deep water regions of the Gulf along our maritime boundary. 
We can either drill competitively or we can work 
collaboratively.
    With the passage of the legislation, an entry in force of 
the agreement, we would put in place a framework to not only 
minimize the number of wells drilled along the boundary. But to 
provide for joint safety and environmental inspections on all 
activity that takes place under the agreement.
    Both sides would gain from reciprocal arrangements.
    Mexico would still apply and enforce laws in its 
jurisdiction.
    We would still apply and enforce laws in ours.
    But the agreement would allow U.S. inspectors to join 
Mexican inspectors on their rigs and vice versa.
    In addition we would work together to review regulations to 
make sure that each side has an appropriate framework.
    We would review and approve all activity under the 
agreement whether it occurs in areas under Mexican jurisdiction 
or under ours giving us the ability to ensure that reservoirs 
along our boundary conform to appropriate safety standards.
    This is a business friendly arrangement that will 
potentially increase revenues and energy security. It comes 
with strong safety and environmental provisions.
    We welcome S. 812 in the interest of both the Senate and 
the House in passing legislation providing congressional 
approval of and granting the Secretary of the Interior the 
authority to implement the Transboundary Agreement. Our 
continued engagement and progress is a promising step forward 
to implementing the U.S./Mexico Transboundary Agreement.
    As noted in the statement of Administration policy on H.R. 
1613, we support passage of legislation focused specifically on 
the agreement without the inclusion of provisions such as those 
related to section 1504 of the Dodd-Frank Act that would 
directly delude U.S. efforts to increase transparency and 
accountability.
    We look forward to working with the Department of the 
Interior and the committee on expeditious approval of this 
important piece of legislation.
    In conclusion, we are encouraged by the accelerating pace 
of movement on finalizing this agreement. As many congressional 
members have stated, it is a win/win for the United States and 
Mexico.
    I appreciate the time you are devoting to this issue. Hope 
that we have addressed your request for information on many 
potential benefits for both the United States and Mexico. We 
look forward to answering your specific questions. Thank you 
for giving us, Assistant Secretary Beaudreau and myself, the 
opportunity to appear before you.
    [The prepared statement of Mr. Pascual follows:]

  Prepared Statment of Carlos Pascual, Special Envoy and Coordinator, 
             Internation Energy Afairs, Department of State
    Chairman Wyden, Ranking Member Murkowski, and other Members of the 
Committee on Energy and Natural Resources, I appreciate the opportunity 
to appear before you today.
    I know that each and every Member of this Committee is concerned 
about our nation`s energy security, and I can assure you that Secretary 
Kerry and the Department of State share that concern. For that reason, 
I am happy to be here today to discuss the Transboundary Agreement 
between Mexico and the United States. The Administration supports the 
swift passage of legislation to allow for the implementation of the 
Transboundary Agreement signed by Mexico and the United States on 
February 20, 2012 and we appreciate the Chair and Ranking Member for 
their leadership in introducing legislation. We look forward to working 
with Congress on Senate Bill 812 to accelerate the safe and effective 
development of hydrocarbon resources that cross the maritime boundary 
between Mexico and the United States in the Gulf of Mexico.
    Let me begin by stressing the importance that the State Department 
assigns to fostering a stable energy partnership with Mexico. Our 
energy trading relationship with Mexico is an important component of 
North American energy security. Mexico is our third largest supplier of 
imported crude oil and the largest export market for U.S. refined 
petroleum products; in fact, energy-related trade with Mexico totaled 
$65 billion in 2012. Mexico is also a growing market for U.S. natural 
gas exports. By establishing greater legal clarity for the development 
of reserves that traverse the U.S.-Mexico maritime boundary in the Gulf 
of Mexico, the Transboundary Agreement would bring significant benefits 
to the United States and Mexico.
    The United States and Canada have experienced an increase in energy 
production as a result of private investment, entrepreneurial 
ingenuity, technological innovation and strong commodity prices. In 
2012, domestic oil production climbed to the highest level in 15 years. 
In contrast, Mexico has 10.2 billion barrels in proven reserves, but 
its production fell by over one third from 2004 to 2012, and 
projections forecast Mexican production will continue to decline in the 
short-term. This significant trend is often attributed to the 
maturation of major fields and the challenges for the national oil 
company, Petroeos Mexicanos (PEMEX), to maintain the necessary levels 
of investment in the sector.
    Mexican President Pena Nieto has made energy reform a priority. His 
party submitted legislation for comprehensive energy reform in August 
2013 and, with passage of the reform, Mexico could attract 
international investment and expertise to help develop its hydrocarbon 
resources and reverse the decline in oil production. The Transboundary 
Agreement could be a down payment on the promise of more fundamental 
reform. With entry into force of the Agreement, companies would have a 
framework to develop resources crossing the U.S. maritime boundary with 
Mexico as the current lack of a framework renders these resources too 
risky to tap. The projects that would be enabled by the Agreement would 
demonstrate that cooperation between PEMEX and international oil 
companies, including those based in the U.S., has the potential to 
produce significant resources and revenues to benefit the Mexican 
people and economy.
    Despite the challenges facing Mexico in the near term, the exciting 
story here is that North American energy production as a whole could 
boost our respective national and global energy security. North 
American energy resources provide the prospect not only of assuring our 
own energy supply, but of contributing to global market supplies and 
helping promote the stability in global energy markets that we need to 
support our domestic economic growth. Such opportunities, including the 
Transboundary Agreement between the United States and Mexico, could 
support increased Mexican and North American production capacity and 
could be critical to world supplies and economic growth.
Background
    The Transboundary Agreement between the United States and Mexico 
addresses the development of oil and gas reservoirs that cross the 
maritime boundary between our two countries in the Gulf of Mexico 
(excluding submerged lands under Texas jurisdiction). The Mexican 
Senate overwhelmingly approved the Agreement in April 2012. The 
Administration previously proposed legislative language that would 
provide the Secretary of the Interior the necessary authority to 
implement the Agreement. S. 812 closely resembles this language, and 
its passage would allow implementation to commence quickly.
Role of the Agreement
    The Transboundary Agreement is an important step in our national 
efforts to secure our energy future and, at the same time, promote a 
stronger and long-term cooperative relationship with Mexico in meeting 
each country's energy security goals. We believe the agreement would 
help facilitate the safe and responsible management of offshore 
petroleum reservoirs that straddle our maritime boundary and strengthen 
overall our bilateral relations.
    The Agreement would enable meaningful energy sector collaboration 
between the United States and Mexico (and in particular between U.S. 
operators and PEMEX), which we believe would provide U.S. operators the 
opportunity to demonstrate the benefits of their participation in the 
Mexican energy market, potentially leading to deeper and more 
meaningful collaboration over time.
    This Agreement will make nearly 1.5 million acres of the Outer 
Continental Shelf more attractive to U.S. operators by unlocking areas 
for exploration and development along our maritime boundary within U.S. 
jurisdiction . The Agreement would eliminate the moratorium on drilling 
along the boundary in the Western Gap, and provide legal certainty 
needed for investment in the boundary region. It would allow American 
companies to enter into unitization agreements with PEMEX for the joint 
exploration and development of resources in the areas covered by the 
Agreement. The development of a reservoir as a single unit allows 
companies to agree how to manage the reservoir jointly in the most 
efficient manner, generally reducing the amount of required drilling 
and therefore reducing environmental impact. Each unitization agreement 
would be required to comply with applicable safety standards. As a 
package, these arrangements could increase revenues and provide greater 
energy security, while mitigating safety and environmental risks that 
could result from unilateral development along the boundary.
    We are pleased that the Agreement would advance safety and 
environmental protection in the Gulf. First, it provides for a system 
of joint inspections for all activity that takes place under the 
agreement. Though Mexican law would apply to operations under Mexican 
jurisdiction and U.S. law would apply to operations under U.S. 
jurisdiction, each side would have the ability to work with the other 
to ensure that all activity that takes place under the Agreement--
wherever it occurs-meets all applicable laws and standards. In 
addition, under the Agreement our two countries would continue to work 
together to ensure that our respective standards and requirements are 
compatible where appropriate for the safe, effective, and 
environmentally responsible implementation of the Agreement.
    In all aspects, the Transboundary Agreement offers the United 
States and Mexico significant benefits. It would, for the first time, 
establish a framework that would facilitate the development of 
hydrocarbon reservoirs that cross our maritime boundary with Mexico. 
This is a business friendly arrangement with strong safety and 
environmental provisions.
S. 812-H.R. 1613
    We welcome S.812 and the interest of both the Senate and the House 
in passing legislation providing the Secretary of the Interior the 
authority to implement the Transboundary Agreement. As noted in the 
Statement of Administration Policy on H.R. 1613, we support passage of 
legislation focused specifically on the Agreement, without the 
inclusion of provisions such as those relating to Section 1504 of the 
Dodd-Frank Act that would directly dilute U.S. efforts to increase 
transparency and accountability. We look forward to working with the 
Department of the Interior and the Committee on expeditious approval of 
this important piece of legislation.
Conclusion
    In conclusion, we are encouraged by the accelerating pace of 
interest and movement on implementing this agreement, which provides a 
much needed mechanism to facilitate the responsible and efficient 
exploration and development of hydrocarbon resources along the U.S.-
Mexico maritime boundary. As many Congressional Members have stated, it 
is a ``win-win'' for the United States and Mexico and a win for North 
American energy security because it fosters stronger relationships in 
the development of our shared energy resources.
    I appreciate the time you and your staff are devoting to this issue 
and hope that we addressed to your satisfaction your requests for 
information on the many potential benefits for both the United States 
and Mexico, should the Agreement be brought into force.
    Thank you again for this opportunity to testify before this 
Subcommittee and I would be pleased to answer any questions the 
subcommittee might have.

    The Chairman. Very helpful and again, commendations for the 
good work of all the folks at State who have been on this.
    Mr. Beaudreau, welcome.

 STATEMENT OF TOMMY P. BEAUDREAU, ACTING ASSISTANT SECRETARY, 
    LAND AND MINERALS MANAGEMENT, DEPARTMENT OF THE INTERIOR

    Mr. Beaudreau. Good morning, Chairman Wyden, Ranking Member 
Murkowski. I'm pleased to appear before you today to discuss 
legislation to implement the agreement between the United 
States of America and the United Mexican States concerning 
transboundary hydrocarbon reservoirs in the Gulf of Mexico. I'm 
also very pleased to appear this morning before the committee 
alongside Ambassador Pascual, who is one of the Nation's 
foremost experts in diplomats with respect to our relationship 
with Mexico as well as global energy issues.
    I'd like to begin my testimony today by highlighting a 
couple of central points about the benefits to the United 
States and to the U.S. industry that implementation of the 
U.S./Mexico Transboundary Reservoir Agreement offers.
    Offshore oil and gas development in the Gulf of Mexico has 
been and will remain one of the cornerstones of the United 
States' energy portfolio. The offshore oil and gas industry 
continues to invest tremendous amounts of capital and know how 
into exploring and developing oil and gas resources in the 
Gulf. This includes spurring the technical innovations 
necessary to safely and responsibly develop emerging, world 
class prospects in deep and ultra deep water.
    During BOEM's offshore oil and gas lease sales in the Gulf 
of Mexico over the last 2 years industry has invested more than 
$3 billion in leases, the bulk of which was directed toward 
promising emerging prospects in the deep water. Despite 
industry's general enthusiasm for exploration and development 
in the deep water Gulf of Mexico, leasing in the vicinity of 
the U.S./Mexico maritime boundary has been muted. Areas in U.S. 
waters within 1.4 miles of the maritime boundary currently are 
under moratorium and cannot be leased.
    More broadly, however, the entire Western Gap boundary 
region is currently subject to legal uncertainty about how 
potential transboundary reservoirs would be handled. Therefore, 
in my view, industry has been reluctant to move aggressively 
into those areas.
    For example, there are currently 379 unleased blocks in the 
Western and Central Gulf near the maritime boundary and only 14 
of those blocks have been leased.
    Implementation of the Transboundary Reservoir Agreement 
would provide this much needed legal certainty to the region 
and is in alignment with our goals to promote safe and 
responsible development of our Nation's offshore oil and gas 
resources.
    The agreement also is, I believe, strongly supported by 
industry. It is a pragmatic agreement designed to encourage 
voluntary, commercial solutions between companies operating on 
the U.S. side of the maritime boundary and their counterpart 
PEMEX on the Mexican side. We worked with U.S. industry during 
the negotiation of the agreement to ensure that the agreement, 
not only provide the legal certainty necessary to justify 
investment in this region, but also would be commercially 
workable.
    The central principle of the agreement is to encourage 
voluntary unitization agreements between U.S. side companies 
and PEMEX to equitably allocate production from any reservoir 
spanning the maritime boundary. Unitization is a very familiar 
concept that is applied daily by companies working in the U.S. 
Gulf of Mexico. Ultimately if no voluntary unitization 
agreement can be reached the company would be able to move 
forward with development unilaterally.
    Finally, the Transboundary Reservoir Agreement represents 
an important step in promoting safe and responsible development 
in a technically challenging operating environment on both 
sides of the boundary. Under the heightened standards that 
followed from Deepwater Horizon, U.S. industry is working more 
safely and responsibly than ever before. This agreement would 
not only--would not change U.S. laws or regulations that 
industry works under, but does provide further opportunity for 
cooperation between the United States and Mexico to promote 
high standards for safety and environmental protection 
applicable to all companies working in and near U.S. waters.
    I appreciate, very much, S. 812 introduced in April by this 
committee to implement the Transboundary Agreement. We support 
this legislation and look forward to continuing to work with 
Congress to improve this important agreement.
    Thank you.
    [The prepared statement of Mr. Beaudreau follows:]

 Prepared Statement of Tommy P. Beaudreau, Acting Assistant Secretary, 
        Land and Minerals Management, Department of the Interior
    Chairman Wyden, Ranking Member Murkowski, and members of the 
Committee, I am pleased to appear before you today to discuss 
legislation to implement the Agreement between the United States of 
America and the United Mexican States Concerning Transboundary 
Hydrocarbon Reservoirs in the Gulf of Mexico.
Background
    On February 20, 2012, the United States and Mexico signed an 
Agreement concerning the development of oil and gas reservoirs that 
cross the international maritime boundary between the two countries in 
the Gulf of Mexico (excluding submerged lands under Texas 
jurisdiction). This Agreement would establish a framework for the 
cooperative exploration and development of these hydrocarbon resources. 
The Mexican Senate overwhelmingly approved the Agreement in April 2012. 
The Administration wants to work with Congress to ensure implementing 
legislation approving the Agreement and providing the necessary 
authority to bring it into force is passed. The administration 
appreciates the work done by Chairman Wyden and Ranking Member 
Murkowski to introduce S. 812, legislation that provides for such 
authority, and we support its swift passage. As the Administration has 
previously stated, we do not support the extraneous provisions included 
in H.R. 1613, The Outer Continental Shelf Transboundary Hydrocarbon 
Agreements Authorization Act as passed in the House of Representatives.
    The Agreement would allow, for the first time, leaseholders on the 
U.S. side of the maritime boundary to cooperate with the Mexican 
national oil company, Petr"leos Mexicanos (PEMEX), in the joint 
exploration and safe and responsible development of hydrocarbon 
resources. This agreement will make nearly 1.5 million acres of the 
Outer Continental Shelf, currently affected by a moratorium under the 
Western Gap Treaty, immediately available for leasing and also make the 
entire transboundary region, which is currently subject to legal 
uncertainty in the absence of an agreement, more attractive to U.S.-
qualified operators. For example, the Department of the Interior's 
Bureau of Ocean Energy Management estimates that the transboundary area 
contains as much as 172 million barrels of oil and 304 billion cubic 
feet of natural gas.
Benefits of Implementing the Agreement
    The Agreement provides a legal framework for cooperative offshore 
oil and gas development along the maritime boundary, sets clear 
guidelines and provides legal certainty for those operations, supports 
the President's goal of ensuring domestic energy security and 
demonstrates our shared duty to exercise responsible stewardship of the 
natural resources in the Gulf of Mexico. It is built on a commitment to 
the safe, efficient, environmentally sound, and equitable development 
of transboundary reservoirs. The Agreement also offers the potential 
for generating additional revenue for the United States and Gulf States 
from the lease blocks located along the delimited U.S.-Mexico maritime 
boundary in the Gulf of Mexico.
    The Mexican market has long been closed to participation by U.S. 
companies, but a 2008 energy reform law in Mexico opened a window for 
joint hydrocarbon exploration and development with foreign entities as 
long as it would take place pursuant to an international agreement on 
transboundary reservoirs. The Agreement would take advantage of that 
opening. It would also end the moratorium on development along the 
boundary in the Western Gap and provide U.S.-qualified leaseholders 
with legal certainty regarding the development of transboundary 
reservoirs along the entire boundary so as to encourage investment. The 
Agreement would remove legal and structural barriers that currently 
impede exploration and safe and responsible development along our 
maritime boundary with Mexico. A significant portion of the U.S. 
maritime boundary with Mexico--the full length of the boundary in the 
Western Gap--is affected by a moratorium on drilling and exploration 
pursuant to the Western Gap Treaty. Upon entry into force the Agreement 
would lift the moratorium and open up this area--nearly ten percent of 
the U.S. portion of the Gap--to hydrocarbon development. Finally, 
having the Agreement in place will mitigate the safety and 
environmental risks that would result from unilateral exploration and 
development along the boundary.
Implementing Legislation
    The implementing legislation would provide the necessary domestic 
legal authority to implement certain key terms of the Agreement, 
including:

   To authorize the Secretary of the Interior to approve 
        unitization agreements and other arrangements necessary for the 
        management of the transboundary reservoirs and geologic 
        structures subject to the Agreement;
   To make available, in certain narrow circumstances necessary 
        for the functioning of the Agreement, information related to 
        the exploration, safe and responsible development, and 
        production of a transboundary reservoir that may be considered 
        confidential, privileged, or proprietary under law; and
   To participate in the Agreement's dispute resolution 
        processes.

    One of the fundamental components of the Agreement would allow 
leaseholders on the U.S. side of the boundary and PEMEX to explore and 
develop jointly as a ``unit'' a transboundary reservoir or geologic 
structure, as leaseholders frequently do on the U.S. side of the 
boundary. The Agreement is designed to provide incentives for PEMEX and 
U.S.-qualified operators to enter into voluntary unitization agreements 
governing the development of transboundary reservoirs. Unitization--
where two or more leaseholders manage the exploration and development 
of a resource as a unit through a single operator--promotes the 
rational, efficient production of a resource, reduces waste, and 
minimizes the number of wells that must be drilled. Existing leases are 
not covered by the Agreement; however, existing lessees may voluntarily 
opt-in to the framework if they so choose.
    In cases where a unitization agreement is not initially reached 
between a U.S.-qualified operator and PEMEX, the Agreement provides a 
process to determine whether the reservoir in question is, in fact, a 
transboundary reservoir that should come under the Agreement, and a 
carefully-calibrated process to determine the allocation of the 
resource between the two countries and provide the U.S. operator and 
PEMEX another opportunity to form a unitization agreement. If they 
cannot reach an agreement, the Agreement would ultimately allow for 
unilateral production by each side, up to the amount of hydrocarbons 
that exists on its side of the boundary. In other words, in these 
circumstances U.S.-qualified operators and PEMEX would individually 
develop the resources on each side of the border while protecting each 
nation's interests, resources and sovereignty. We anticipate, however, 
that the same economic incentives that currently drive voluntary 
unitization offshore the U.S. will similarly drive voluntary 
unitization under the Agreement, and that this mechanism will be rarely 
if ever used.
    The Agreement encourages the United States and Mexico to promote 
common safety and environmental standards. However, the U.S. is under 
no obligation to alter its existing environmental laws or standards. 
Mexico's standards will apply to operations under Mexican jurisdiction 
and U.S. standards will apply to operations under U.S. jurisdiction.
    The Agreement would also establish a system of joint inspections, 
which would allow U.S. safety personnel to inspect PEMEX facilities 
involved in a transboundary operation. Again, however, each 
jurisdiction retains its authority and responsibility to regulate 
activity on its side of the boundary. The DOI's Bureau of Safety and 
Environmental Enforcement and the United States Coast Guard already 
maintain a strong working relationship with the Mexican offshore 
regulatory authority, the Comisi"n Nacional Hidrocarburos (CNH), and 
this Agreement promotes further cooperation between the U.S. and Mexico 
with respect to drilling safety and oil spill response standards and 
practices.
S. 812
    S. 812 introduced on April 25, 2013, authorizes the Secretary of 
the Interior to take actions to implement the Agreement between the 
United States of America and the United Mexican States Concerning 
Transboundary Hydrocarbon Reservoirs in the Gulf of Mexico. We 
appreciate the opportunity to provide the following preliminary views 
at this time.
    Generally, the bill would authorize the Secretary to approve 
unitization agreements and related arrangements for the exploration of, 
and development or production of oil or gas from, transboundary 
reservoirs and geological structures; to disclose as necessary under 
the Agreement information related to the exploration, development, and 
production of a transboundary reservoir or geological structure that 
may be considered confidential, privileged, or proprietary information 
under law; and to accept and take action not inconsistent with an 
expert determination under the Agreement.
    We support this legislation and the Administration welcomes the 
opportunity to work with Congress to approve this important agreement.
Conclusion
    In sum, the Agreement provides a much needed mechanism to 
facilitate the responsible and efficient exploration and development of 
hydrocarbon resources along the U.S. Mexico maritime boundary and 
provides new opportunities for U.S. companies. The Agreement provides 
incentives for PEMEX and U.S.-qualified operators to enter into 
voluntary commercial agreements to unitize transboundary reservoirs and 
does not change the application of existing laws or alter existing 
standards. Once the Agreement is in force, both the Bureau of Ocean 
Energy Management and the Bureau of Safety and Environmental 
Enforcement will assume their respective regulatory responsibilities to 
implement the Agreement as authorized.
    Mr. Chairman, we look forward to working with the committee to 
enact legislation implementing this important Agreement with our 
Mexican partners in Gulf of Mexico energy development.

    The Chairman. Thank you very much, Mr. Beaudreau.
    The question that I indicated I would ask first is Senator 
Landrieu's. So let's note that for the record.
    The question to restate it in terms of Senator Landrieu's 
concern is do the lands affected by the U.S./Mexico 
Transboundary Agreement fall under the Gulf of Mexico Energy 
Security Act, known as GOMESA, for purposes of revenue sharing?
    Mr. Beaudreau. Yes. Any production----
    The Chairman. The answer is yes?
    Mr. Beaudreau. Yes. Any production coming from these areas 
would be covered under existing royalty sharing arrangements 
with the States. I think quite wisely the legislation doesn't 
attempt to modify the royalty sharing program in any respect.
    I understand there's ongoing discussions about whether it 
would be appropriate to modify royalty sharing relative to the 
State. We're happy to continue participating in those 
discussions as they move forward.
    The Chairman. OK.
    Ambassador Pascual, in my opening statement I spoke of an 
emerging energy economy. The United States and Mexico are 
embarking on an agreement that provides an opportunity for our 
partnership to continue to grow and extend to other areas of 
commerce and trade.
    I am interested in hearing from you regarding any thoughts 
that you may have with respect to what would be the 
consequences if the Congress does not move quickly to implement 
the agreement. What are the consequences and what might be the 
effects, not just in terms of energy, but in terms of our 
overall dialog between the United States and Mexico in the 
effort to create more jobs?
    Mr. Pascual. Senator, thank you for focusing attention on 
that question.
    I think the first issue is to look at the positive side of 
it, of what the potential would be because that helps us 
understand the consequences.
    North America is going through an energy revolution. We've 
gone through it in the United States where we've increased oil 
production by more than 30 percent in 5 years, gas production 
by 25 percent in the last 5 years. Canada has major increases 
in both oil and gas production. Mexico has gone in the other 
direction.
    Mexico has recognized that what it needs to do is to create 
the incentives to bring in private investment. That's one of 
the reasons that they've passed or have proposed a major energy 
reform which is under consideration right now.
    So the intent, the objective is to be able to create a hub 
in North America for energy security which is going to be 
beneficial for the United States in terms of its access to 
energy resources, but also as a stabilizing force in global 
markets. The Transboundary Agreement is the first down payment 
of the potential that we could see between, in cooperation 
between the United States and Mexico. That cooperation in the 
past was previously prohibited by law.
    By having this Transboundary Agreement it allows, in the 
interim, the ability to create a framework where American 
companies and Mexican companies can begin to work together to 
demonstrate the impact that those American companies can have 
on greater productivity in transboundary areas. In doing that 
we set the foundation for something which is even bigger that 
can come, how North America together, and Mexico and the United 
States, can be a foundation for energy supplies that are going 
to be beneficial to our supplies at home and increase our 
competitiveness by having even more access to natural gas at 
prices that are affordable and are lower than what we've seen 
in other parts of the world.
    So this is a huge opportunity to be able to advance 
competitiveness. It's a huge opportunity to demonstrate that 
American investments in international investment is a tool to 
productivity and that it can be done in a way that retains the 
confidence of Mexican industry and the Mexican people.
    The Chairman. Mr. Beaudreau, a question for you, again, 
about the consequences of inaction.
    We heard testimony with respect to efforts with the United 
States and Mexico in terms of resource management, the safety 
inspection teams moving to adopt common safety and 
environmental standards. What's the result of Congressional 
inaction in terms of safety and environmental oversight if this 
does not go forward?
    Mr. Beaudreau. Thank you for that.
    Following the spill we, at the Interior Department through 
BOEM and BSEE redoubled our efforts to support the fledgling 
oil and gas regulator in Mexico, CNH, their national 
hydrocarbon commission. As everyone here appreciates a spill in 
the Gulf of Mexico will not respect the boundaries of the 
Nation that authorized the drilling activity. So it only makes 
sense that we have a common approach to safety and to our 
ability to respond in the event of an accident.
    We will continue working with CNH to provide support 
regardless of whether there's an agreement. But frankly, having 
this agreement in place, having formal relationships between 
U.S. operators and PEMEX, relative to these areas, goes very 
far in supporting and strengthening those relationships both 
with PEMEX and with CNH. So it would be a major lost 
opportunity if we were to let this go by.
    The Chairman. Very good.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Gentlemen, thank you for your testimony this morning.
    Ambassador Pascual, you mentioned the benefits to North 
American energy independence, energy security, all of which I 
absolutely agree with. You've also referred to or you've 
outlined it this way that we can either drill competitively or 
collaboratively and focus jointly on the environmental 
considerations, the safety considerations, looking at this 
agreement that we have in front of us. I certainly view it as 
an opportunity, a positive opportunity, on a lot of different 
fronts.
    The Chairman has asked you a little bit about, you know, 
the benefits then that flow from this. I'd ask you to speak to 
what the downside is, again, if we fail to advance this 
Transboundary Agreement and more from the diplomatic 
perspective. You've mentioned that this is kind of a down 
payment on a relationship with Mexico and helping them in other 
ways.
    But we're dealing with the situation with our neighbors on 
our northern border, with Canada. We're trying to figure out 
how we would be able to advance a Keystone XL pipeline. I look 
at this on the southern side and would suggest that it's 
important that we have good relationships, good diplomatic 
relationships, with our neighbors.
    I guess I would ask you to detail what you think the 
response would be if the United States fails to engage on this 
Transboundary Agreement before such time, before the end of the 
year here. It's been noted that Mexico has already acted. We 
have been sitting on it now for a year.
    How will we be viewed by our neighbors to the south if we 
fail to act?
    Mr. Pascual. There we go.
    Thank you, Senator for putting it so sharply and in focus.
    The issues of hydrocarbons development have been hugely 
sensitive in Mexico since 1938 with the nationalization of oil. 
After that period of time the ability for Mexico to cooperate 
with any outside entity on the development of hydrocarbon 
resources has been virtually non-existent, except for some form 
of service contracts.
    Mexico took on, as a matter of good faith, that because of 
the transboundary nature of these reserves that it should find 
a way to work together with the United States in the 
development of these resources. It was, what some might 
consider, I think, a courageous political act because of the 
sensitivity of these issues.
    For Mexico it took on in good faith the willingness to pass 
this, recognizing that the United States was going to take 
longer in moving forward. It has been a long period of time.
    There's a risk that if we do not pass this before the 
moratorium that it would be seen that the United States has 
reneged on a commitment to cooperate on the development of 
international energy resources. That will not only have a 
negative impact on the seriousness and the commitment of the 
United States, but particularly in an area that has been one of 
tremendous sensitivity.
    The timing, in many ways, is also particularly critical 
because of Mexico's energy reform. In that energy reform that 
President Pena Nieto has proposed, Mexico would since 1938 for 
the first time allow for the development of private contracts 
with international companies that would foresee the possibility 
of joint ventures between American companies and PEMEX. So at 
the very time that Mexico is looking at the potential for much 
deeper reform the United States would be sending a message that 
on the areas that we have agreed to cooperate and follow up 
that we have pulled back and reneged.
    That's not only negative to our diplomatic relationship. 
Frankly it's negative for American companies that eventually 
will have a significant interest in investment in Mexican 
energy resources. If one looks at developments in the Gulf of 
Mexico, if you look at a map that is shot from overhead, the 
U.S. side of the border is filled with investment 
opportunities. The south of that is almost blank.
    It's not because the resources aren't there. It's because 
the conditions haven't been there. The opportunities may 
finally be created where those resources could actually be 
exploited.
    So from both the diplomatic perspective and a commercial 
perspective, not to move forward is sending exactly the wrong 
signal to Mexico at a critical time when we have real positive 
opportunity since 1938 to demonstrate the cooperation with 
American companies on the development of hydrocarbons resources 
is good for Mexico's economy, good for the Mexican people and 
can be done in a way that's environmentally sound.
    Senator Murkowski. Thank you. I appreciate the very 
thorough explanation. I think it's important to have all of 
that out on the record.
    Mr. Beaudreau, you mentioned the fact that the unitization 
agreements are voluntary. What happens if there is no 
unitization agreement that can be reached?
    Now you have suggested that you--a lessee could move 
forward unilaterally. How would that actually operate? How long 
do you try to work something out until such time as somebody 
decides that they might be able to move unilaterally?
    Mr. Beaudreau. The entire agreement, as I mentioned in my 
opening statement, really takes a pragmatic approach to 
encourage voluntary unitization between a U.S. side operator 
and PEMEX and provides time in which to do that. So at the 
first stage--there's phases under the agreement.
    At the first stage the companies have about 6 months to see 
if they can, without any encouragement from the outside, work 
out an agreement. Frankly the U.S. industry has already begun 
working on model unitization agreements that could be used.
    If that's not successful the companies have an opportunity 
to bring an outside expert, a third party expert, to help 
resolve any technical issues around the reservoir.
    In total neither side can move forward with the 
Transboundary Reservoir, bring it into production for a 16 
month period.
    If after 16 months no voluntary unitization agreement can 
be reached the operator would be allowed to move forward 
unilaterally.
    All that said, we believe and I think industry believes 
there are such strong commercial incentives to do this. This is 
why there hasn't been unilateral development in the area 
already. There's such strong incentives to have an agreement 
for orderly development that we actually think cases of 
unilateral development would be pretty rare.
    Senator Murkowski. I've just got one more quick question.
    The Chairman. Yes, sure.
    Senator Murkowski. If I may, Mr. Chairman.
    The Chairman. Of course.
    Senator Murkowski. Should the Transboundary Agreement be 
approved and the legislation to implement it be approved, does 
the Department have plans to hold any lease sales within the 
Transboundary area?
    Mr. Beaudreau. Yes.
    In fact in our recent sales we have annual sales in both 
the Western and Central Gulf. Both planning areas implicate 
this transboundary area. Up until now we have offered those 
areas, interest in the areas have been muted because of the 
uncertainty.
    We've also held any bids that we've received in those 
areas. There have been a few, not many. There have been a few.
    We've held those bids with the understanding with the 
bidder that unless the agreement is put into effect, we 
wouldn't award the leases. This removes all of that uncertainty 
and would allow us not only to receive bids, but make the 
awards as well.
    Senator Murkowski. So just so that I understand that.
    If--assuming that this agreement is put in place. We've got 
the legislation to implement it. You would already have 
interested applicants for those lease sales that have been 
received prior to that time of implementation.
    So you would act on those. Then there would be subsequent 
lease sales following that?
    Mr. Beaudreau. No. We would be able to offer those--there 
are companies interested in the area.
    Senator Murkowski. Right.
    Mr. Beaudreau. Assuming this uncertainty can be removed.
    We would continue to offer the areas, but be in a better 
position to actually award the leases.
    Senator Murkowski. OK.
    Mr. Beaudreau. So these areas in the Central Gulf would be 
offered in our upcoming sale next spring, for example.
    Senator Murkowski. So these have already been identified in 
terms of where they are and in the interest shown them?
    Mr. Beaudreau. Correct.
    Senator Murkowski. OK. Great.
    I appreciate that clarification.
    Thank you, Mr. Chairman.
    The Chairman. Senator Manchin.
    Senator Manchin. Thank you, Chairman and Senator Murkowski.
    You know I stated many times before achieving energy 
independence is the most critical thing we can do as a country. 
I've felt that way. I come from a little State of West 
Virginia, who is a tremendous energy producer and has 
contributed quite a bit and wants to continue to contribute.
    Working with our neighbors, North American neighbors, we 
think is essential to achieving this priority. I've continued 
to support an all in energy policy which basically would be in 
consideration of the XL pipeline, Keystone XL pipeline, which I 
wholeheartedly support. I think that anything we can do to 
develop what we have here in North America is going to be great 
for all of us.
    We know there's significant oil and natural gas reserves in 
the areas covered by these bills that we're talking about. 
Developing the reserves would not only reduce our energy 
dependence on countries outside of North America, but it will 
also create good paying jobs which is a win/win for our country 
right now. So we appreciate this opportunity that we can find 
some common ground that we can move forward.
    What I would like to ask, I think, is that to the 
Ambassador.
    How do you see the agreement affecting the North America's 
role in the global energy market and I mean an entire market 
making us less dependent, be more secure? Do you believe that 
that can happen? This is something that we should be moving 
forward on?
    Mr. Pascual. Senator, yes, absolutely. Indeed both Senator 
Wyden and Senator Murkowski have been reinforcing this point. 
I've been trying to reinforce it as well. We agree with you 
completely on the importance of trying to bring forward the 
North American energy resources that can help reinforce 
Americans, North Americans self reliance.
    I think a couple of critical factors to put into account, 
to take into account, is that the United States already has 
vastly increased its energy production, as you well know, 
coming from a heavy energy producing State both in oil and gas.
    Canada is increasing its production of oil and gas. Mexico 
has gone in the opposite direction.
    One of the things that Mexico needs in order to be able to 
join that more North American trend is the kind of technology 
and investment that's necessary, particularly in deep water and 
unconventional oil and gas development.
    So for that reason Mexico has undertaken a couple of 
initiatives.
    One is this Transboundary Agreement because it recognizes 
that for transboundary reserves it needs cooperation between 
PEMEX, the Mexican oil company and international companies, 
U.S. companies, to be able to develop those resources and the 
legal framework that allows that capital to be able to come in 
place.
    The second thing that Mexico is doing is it's proposed a 
very significant energy reform that would completely change the 
perspectives for private investment in conjunction or in joint 
ventures with PEMEX.
    So if these things can begin to move forward and we see 
that there's a change in the legal environment with Mexico we 
have a North American hub that is contributor to energy 
supplies within our region. But frankly that's also a 
contributor to broader global energy security.
    The reason I would underscore that as particularly 
important is that in the United States, particularly for oil, 
we pay global prices. We have a concern about what happens in 
global markets. If there isn't adequate supply to satisfy those 
international markets it has an impact on us in the United 
States of what we pay at the pump and for American economic 
productivity as well.
    So for all of these reasons the kind of measure that's 
specifically addressed here in the Transboundary Agreement is 
reinforcing and supporting of that idea of American energy 
security. But it also is a foreshadowment of something which is 
even bigger of the potential for resurgence of North America as 
a whole to----
    Senator Manchin. Let me ask this question.
    Now basically with the area that we're talking about right 
now and I think they're estimating, Mr. Beaudreau, as that 
there's 172 million barrels of oil and 304 billion cubic feet 
of natural gas that you all have estimated. How did you come to 
that assessment?
    Mr. Beaudreau. That assessment is based on analysis of the 
geology and the resource potential within that narrow 
transboundary strip. I honestly believe that the potential 
impacts of this agreement in terms of opening that area up and 
providing legal certainty will be broader than those 
statistics.
    Senator Manchin. Let me ask this. Has Mexico been able to 
develop the deep drilling in the areas that they have control 
of?
    Mr. Beaudreau. No.
    Senator Manchin. I know we're talking about this area here 
mostly because for North America, for us the United States to 
be in there and work on agreements since it's kind of in no 
man's land, if you will. But has Mexico really developed to the 
potential they have?
    Mr. Beaudreau. No. Ambassador Pascual should feel free to 
expand on it.
    There is no production on the Mexican side of the 
transboundary, the maritime boundary. There is existing 
production in this geologic formation, the Perdido Fold Belt, 
in the Western Gulf on the U.S. side out of the Perdido hub. 
But the geology, as Ambassador Pascual described in his 
opening, is the same. There's lots of reason to think that it's 
highly perspective.
    There have been 2 exploration wells drilled on the Mexican 
side by PEMEX. So they are in the area. They're interested in 
the area.
    The question is whether we'll be there with them.
    Senator Manchin. Let me just ask one more question, if I 
may?
    The Chairman. Of course.
    Senator Manchin. The average American at the pump has not 
seen relief every time that we do have this energy 
independence. We're finding more and more oil. We're finding 
shale gas. They have not seen the relief.
    I know in my State of West Virginia we are not seeing the 
pump prices that are relative to what we're finding more energy 
in our country. I'm understanding that could be because of the 
refinery capacities that we have in our country.
    Don't you think that maybe we could have a better 
relationship or kind of a joint relationship with Mexico, who 
probably is able to permit and build refineries that would help 
us have the supply we need in our country? Has that ever been 
explored to that extent, some kind of relationship there?
    Mr. Pascual. Sir, the issue of how global markets and those 
global markets intersect back with our markets back in the 
United States are, as you say, a concern to Americans broadly 
and a concern to American productivity. So one of the realities 
is that the United States has supported generally free trade 
and free markets and as a result of that we pay international 
prices for oil.
    So when the price of oil goes up to very high levels and 
it's been consistently at over $100 a barrel over the last 2 
years and at times has gone to about $125 a barrel. It's now 
down to a little bit less than $110.
    That has a direct impact.
    Senator Manchin. Are there any options from pricing 
standpoint? If we're doing more and doing the heavy lift, if 
you will, more discovery, more technology, more of everything. 
We're not going to benefit because we're in this global 
pricing. Other countries haven't picked up the load or haven't 
done the heavy lifting or created new technologies.
    Is there any chance for any relief for the United States of 
America and the people of this country to have the benefits of 
this?
    Mr. Pascual. The critical thing to benefit the American 
people has been to get sufficient and adequate supplies on 
global markets to be able to balance those markets. The 
alternative would be to have to subsidize energy prices.
    The United States has not supported that. It has not 
supported the subsidies for fossil fuels. So it obviously would 
be another impact on the budget to be able to do that.
    So the approach that has been taken is to encourage as much 
private investment as possible, the conditions for private 
investment, so companies from the United States, from around 
the world, can develop those energy resources.
    Fortunately the American companies have been in a 
leadership role and being able to do that. It's created 
significant jobs as a result of that for those companies for 
the American service industries.
    Senator Manchin. But little relief.
    Mr. Pascual. Then brought that back to the United States.
    Senator Manchin. But very little relief, wouldn't you 
agree?
    Mr. Pascual. Pardon me?
    Senator Manchin. Very little relief.
    Mr. Pascual. In terms of broader impact on energy prices.
    Senator Manchin. To the consumer.
    Mr. Pascual. It has not changed those.
    Senator Manchin. So someone is doing extremely well.
    Mr. Pascual. Pardon me?
    Senator Manchin. Someone is doing financially extremely 
well?
    Mr. Pascual. There are certainly many companies that have 
benefited financially from----
    Senator Manchin. I don't--I'm not faulting that.
    I'm just saying sooner or later the consumer has got to win 
one. Just one. Right now they're not.
    You're going to open this up and open that up and all these 
things are going to be great and helpful. But if it's not going 
to give this relief how do you go home and sell it to the 
people to get support?
    That's the problem we have, sir.
    I'm so sorry. I went over my time, sir. I'm sorry.
    The Chairman. I thank my colleague. This discussion of how 
the relief is actually going to make its way to people at the 
pump is something that is going to be continued and focused on 
very aggressively by this committee in the months ahead because 
certainly as people talk about production and then people pull 
up to the neighborhood station and still feel like they're 
getting mugged trying to afford to fill their tank is an 
increasingly important question.
    Now, here's where we are.
    I'm going to do everything I can to pass this agreement 
quickly and cleanly. I think you all have done a very good job. 
I appreciate the answer that you gave to Senator Landrieu's 
question so that the agreement will in fact apply to the 
important statute she authored, the GOMESA Act.
    We'll probably be talking to you about additional 
questions. But we're going to do everything we can to move this 
quickly and cleanly. We appreciate your good work and we'll 
excuse you at this time.
    Mr. Beaudreau. Thank you.
    The Chairman. Let's now bring forward Ms. Jacqueline 
Savitz, Vice President, U.S. Oceans, Oceana.
    Mr. Erik Milito, Director, Upstream and Industry 
Operations, the American Petroleum Institute.
    Alright. We welcome both of you.
    We have Ms. Jacqueline Savitz, Vice President, U.S. Oceans, 
Oceana. We've worked with you all often.
    Ms. Savitz. Yes, sir.
    The Chairman. Not in the years past. Appreciate the good 
work you're doing.
    Mr. Erik Milito, Director Upstream and Industry Operations, 
American Petroleum Institute. Often ask for your views on 
issues.
    So we'll make your prepared remarks a part of the record in 
their entirety. I know there's always a compulsion to almost 
just read every word. If you can just summarize your views that 
would be great.
    Let's begin with you, Ms. Savitz.

 STATEMENT OF JACQUELINE SAVITZ, VICE PRESIDENT, U.S. OCEANS, 
                             OCEANA

    Ms. Savitz. Thank you, Chairman Wyden, good morning. 
Morning, Ranking Member Murkowski. Thank you for the 
opportunity to testify here today.
    My name is Jacqueline Savitz and I'm the Vice President for 
U.S. Oceans for Oceana. We're a global ocean conservation 
organization and we're dedicated to restoring and protecting 
the world's oceans.
    Oceana believes that offshore drilling should not be 
expanded. For that reason we oppose S. 812 and H.R. 1613. There 
are 3 primary reasons which I'll summarize for you today.
    First, the presumption that more oil and gas is better 
should not drive our energy policy. Instead we should embrace 
and promote the needed shift away from fossil fuels and toward 
clean energy which will benefit Americans today and also future 
generations. This means making more strategic investments to 
move away from dirty and dangerous fuels that present major 
risks both in terms of their current production practices and 
their long term impacts on climate.
    The science shows clearly that fossil fuels like oil and 
gas are driving climate change which threatens to bring us 
famine, drought, increased storm frequency and intensity, sea 
level rise and ocean acidification. Thus scientific bodies like 
the International Energy Agency have recommended that much of 
our oil reserves ultimately must be left in the ground to avert 
the worst impacts of climate change.
    Our second concern is that the agreement fails to satisfy a 
basic cost benefit analysis as it brings a tremendous amount of 
risk of devastating spills and climate impacting results with 
little benefit. The agreement does not adequately address the 
safety risks associated with oil and gas development and 
current Federal requirements do not provide an effective 
backstop. Both bills are silent on environmental protections 
and the agreements suggest protections where appropriate or 
where necessary which is a recipe for disaster.
    A spill from one rig, like the Deepwater Horizon, would be 
devastating to fisheries and tourism economies both in the U.S. 
and in Mexico, not to mention the ecosystem itself. The 
revenues don't come close to making up for it.
    The oil that we will produce as a result of this agreement 
would supply us for about 4 and a half days. The natural gas 
would supply only about 2 days of our natural gas demands. In 
exchange we risk another major oil spill like Ixtoc or the more 
recent Deepwater Horizon disaster.
    Since that accident Congress has not passed a single new 
safety requirement. The new rules that have come out of the 
Department of the Interior are not sufficient.
    They fail to require sufficient technology.
    They rely on technology with design flaws like blow out 
preventers which third parties have found to have design flaws.
    They're undercut by minimal penalties and willfully 
inadequate inspections and enforcement.
    Liability limits also remain inadequate with no fix in 
sight.
    So the risk that would result from production in 
transboundary area are not justified by the benefits.
    Our third concern is that the continued emphasis on 
expanded offshore drilling is slowing the necessary investment 
in clean energy, clean energy development, which would 
stimulize the economy, I'm sorry, which would stimulate the 
economy without the intended risks and would also help to 
alleviate the worst impacts of climate change. Alternative 
energy sources like solar and offshore wind promise to mitigate 
climate change impacts while providing jobs and stimulating the 
economy as much, if not more, than fossil fuels would.
    According to the Department of Energy the U.S. has more 
than 4,000 gigawatts of offshore wind energy potential. This is 
enough energy to power the U.S. 4 times over. This abundant 
domestic resource could support up to 200,000 manufacturing, 
construction and operation jobs across the country and drive 
over 70 billion in annual investments by 2030.
    Developing even 10 percent of this clean energy resource 
for just 1 year, 10 percent, would produce at least 25 times 
more energy than developing all of the oil and gas in the 
transboundary area and unlike that oil the wind will continue 
to produce clean energy year after year.
    The choice is clear for our children and our grandchildren. 
We need to shift away from fossil fuels and toward clean 
energy. This bill takes us in the wrong direction.
    Expanding drilling to areas that are hard to reach or 
difficult to negotiate like the U.S./Mexico Transboundary areas 
will leave us with a continued dependence on dirty and 
dangerous energy sources and severe climate impacts in exchange 
for very little actual energy. There's a better energy strategy 
and Congress should lead us in a new direction.
    Thank you.
    [The prepared statement of Ms. Savitz follows:]

       Prepared Statement of Jacqueline Savitz, Vice President, 
                           US. Oceans, Oceana
Introduction
    Good morning Mr. Chairman and members of the committee. Thank you 
for the opportunity to testify today. My name is Jacqueline Savitz, and 
I am Vice President for U.S. Oceans for Oceana, a global ocean 
conservation organization based here in Washington, D.C., that works to 
restore and protect the world's oceans. Besides our headquarters in 
Washington D.C., Oceana has international operations in Belgium, 
Denmark, Spain, Belize and Chile. Here in the U.S. beyond our D.C. 
operations, we have staff located in Alaska, Oregon, California, Maine, 
New York, Virginia, South Carolina and Florida. We have 750,000 members 
and supporters from all 50 states and from countries around the globe. 
Our mission is to protect our oceans and the fish and wildlife that 
depend on them.
    Oceana opposes S.812, and its counterpart in the House, H.R.1613, 
for three reasons.
    First, we do not believe that drilling operations should be 
expanded. Expanding offshore drilling is unnecessary and dangerous, 
especially when we haven't yet fully addressed the risks. Besides the 
obvious impacts of oil exploration, production, refining, and 
transportation, the use of oil and gas is also problematic as these 
fossil fuels are contributing to climate change. Our continued 
expansion of their use is unnecessary and wrong-headed. In order to 
combat global climate change, we should be transitioning off of fossil 
fuels in favor of clean, renewable energy development.
    Second, our continued emphasis on expanding offshore drilling is 
slowing the necessary investment in clean energy projects that will 
stimulate the economy without the attendant risks, and help to 
alleviate the worst impacts of climate change.
    Lastly, the ``Agreement between the United States and Mexico 
Concerning Transboundary Hydrocarbon Reservoirs in Gulf of Mexico'' 
(``Agreement'') fails to satisfy a basic cost-benefit analysis, as it 
brings a tremendous amount of risk of devastating spills, and climate 
impacting results, with little concomitant benefit. The Agreement 
itself does not adequately address the safety risks associated with oil 
and gas development, and current federal requirements do not provide an 
effective backstop. The agreement also fails to provide significant 
benefits to the United States, beyond what we can be getting from clean 
energy. The risks of the expanded drilling called for in the Agreement 
far outweigh the rewards. Rather than opening this area to new and 
expanded oil and gas production, we believe that the moratorium on 
drilling in the transboundary area should be continued, and that the 
U.S. should invest further in stimulating the development of offshore 
wind and other clean energy opportunities.
WE SHOULD NOT EXPAND OFFSHORE DRILLING
    The proposed expansion of offshore drilling is unnecessary and 
dangerous, and we haven't yet fully addressed the risks. The federal 
government's most recent Five-Year Plan allows access to more than 75 
percent of estimated undiscovered technically recoverable oil and gas 
resources on the U.S. Outer Continental Shelf. At the same time, the 
oil and gas industry is sitting on a large number of non-producing 
leases in federal waters. According to a July 2013 U.S. Department of 
the Interior report, oil and gas companies hold almost 6,000 active 
leases in the Gulf, 82 percent of which are non-producing leases. This 
represents more than ample opportunity for exploration and development 
and certainly more than we would get by expanding drilling to the 
transboundary area. Additionally, even if all of the oil available in 
the transboundary area were to be extracted and the U.S. recovered the 
entirety of the reserve, this amount would be less than one-half 
percent of the total amount of technically recoverable oil currently 
available in the Gulf of Mexico (specifically, 0.37 percent). Couple 
this with the fact that our continued reliance on fossil fuels is 
exacerbating global climate change and it is hard to find the logic in 
expanding offshore drilling to the transboundary area when there is so 
little benefit for us in return.
DRILLING IS NOT SAFE
    Following the Deepwater Horizon disaster, the newly created Bureau 
of Offshore Energy Management, Regulation and Enforcement ("BOEMRE") 
issued three sets of new safety regulations in an effort to increase 
offshore drilling safety and to prevent a similar disaster from 
happening again. Following the initial release of the new safety 
regulations, Oceana conducted an exhaustive review which looked at 
every new requirement to assess the degree to which they would improve 
safety. We found that these new rules simply did not take necessary 
steps to minimize risks, and further, would not prevent us from having 
another catastrophic spill.
    The new rules suffer from their own shortcomings, and any positive 
benefit new safety regulations might offer are undermined by systemic 
problems that have yet to be corrected. These include an inadequate 
inspection capacity and an insufficient penalty structure which leads 
to continued economic incentives to cut corners and ignore 
requirements.
SAFETY MEASURES PUT IN PLACE SINCE DEEPWATER HORIZON FAIL TO MAKE 
        DRILLING SAFE
The Final Drilling Safety Rule
    The provisions of the Final Drilling Safety Rule can be divided 
into three categories: training and maintenance, equipment testing, and 
well design and equipment. While many of these regulations represent 
positive reforms that are an improvement over the regulations in place 
during Deepwater Horizon, the Final Drilling Safety Rule's effort to 
increase safety is undermined by systemic problems in offshore 
regulation and by serious shortcomings in the rule itself.
Training Maintenance
    Improved maintenance and training are both positive reforms that 
can reduce chances of equipment failure and operator error and thus 
increase safety. Yet of all the provisions in the Final Drilling Safety 
Rule, training and maintenance regulations are the most dependent on 
the robustness of BSEE's oversight and inspection capabilities. 
Maintenance is an ongoing concern that necessitates being frequently 
checked and inspected and training is only valuable if it translates 
into appropriate actions, which also requires continuous oversight to 
ensure safety regulations are properly met. Unfortunately, BSEE's 
oversight and inspection programs are woefully inadequate and civil 
penalties are far too small to ensure compliance and deter risk- taking 
by the industry. These systemic problems undermine the Final Drilling 
Safety Rule's efforts to increase offshore safety through new training 
and maintenance requirements. Ensuring the efficacy of many of the new 
rules would require a much stronger inspection and oversight program 
than what currently exists.
Equipment Testing
    BSEE has implemented numerous new equipment testing requirements 
that apply to various stages in offshore drilling. These testing 
requirements might seem to improve the safety of offshore drilling; 
however, they are also undermined by BSEE's inadequate inspection 
program and by insufficient civil penalties that create a perverse 
economic incentive to skip or ignore tests to save time.
Well Design and Equipment
    The Final Drilling Safety Rule requires drilling wells to be 
equipped with two independent barriers to flow. If correctly installed, 
these barriers could in fact protect against blowouts. However, the 
requirements for two barriers to flow can easily be undermined by 
operator error. This problem is illustrated by the Deepwater Horizon 
disaster, where a cement job, a common barrier to flow, was compromised 
by numerous operator errors. With limited funds for inspection and 
oversight, and perverse economics that incentivize project speed over 
safety, it is likely that not all barriers will be properly installed.
No New Blowout Preventer Rule
    BSEE still has yet to implement its new safety rule on blowout 
preventer technology. Blowout preventers are used to seal a well in the 
case of a blowout or a loss of well control. They provide the last line 
of defense against offshore drilling blowouts. Both the National 
Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling 
and the National Academy of Engineering have recommended that blowout 
preventers be redesigned in light of flaws uncovered by the Deepwater 
Horizon oil spill. Unfortunately, this has not been done. While some 
new testing and maintenance regulations for blowout preventers have 
been enacted, these neither address nor fix the underlying design 
flaws. Furthermore, simple requirements that would improve the odds 
that a blowout preventer functions correctly and seals the well--such 
as requiring redundancy in its shearing rams or testing blowout 
preventers under real-life conditions--have not been required. As a 
result of the government's inaction in this area, blowout preventers 
being used throughout the Gulf of Mexico and elsewhere are at risk of 
failing just as the Deepwater Horizon's did. Failure by the government 
and the industry to ensure the effectiveness of blowout prevention 
technology is problematic, but continuing to allow and even expand 
drilling, especially in deep water, in spite of this failure is 
absolutely unacceptable.
Oversight and Inspection Levels are Paltry Relative to the Scale of 
        Drilling Operations
    Since the Deepwater Horizon disaster there has not been a 
sufficient increase in the number of federal inspectors or the size of 
penalties. While the Bureau of Safety and Environmental Enforcement 
("BSEE") has attempted to strengthen its inspection and oversight 
capabilities, funding levels remain far below what would be needed for 
frequent and thorough inspections that would reduce instances of 
equipment failure and operator error. Low inspection rates not only 
undermine regulatory compliance by reducing the odds that violations 
will be observed, but also limit real-time monitoring of operations by 
inspectors, a necessary prerequisite to avert disasters as problems are 
difficult to foresee even a few days before they occur. This creates a 
perverse incentive for operators to risk violations when doing so can 
save them time and/or money, rather than properly following the new 
safety regulations, because they are unlikely to be caught.
    The United States is far behind the rest of the developed world 
when it comes to inspectors available and trained to inspect the oil 
and gas rigs off our coasts. The number of inspectors per offshore oil 
rig in other developed countries is as follows: in the U.K., the 
inspector to rig ratio is 1: 2.78; in Norway, the inspector to rig 
ratio is 1:1.05; in the U.S., the inspector to rig ratio is 1:29. We 
are playing Russian roulette with our offshore drilling operations by 
not having a sufficient inspection program and thus, even BSEE's new 
safety requirements cannot make offshore drilling significantly safer 
or decrease the chances of an oil spill.
Violating Rules Can be Lucrative Because Penalties Remain Small
    BSEE's civil penalties are too small to ensure compliance and deter 
risk taken by the oil and gas industry. The maximum penalty BOEM can 
assess for civil violations is $40,000 per day per violation. In 
comparison, BP was paying over $500,000 per day to use the Deepwater 
Horizon rig, and total estimated daily operating costs of the operation 
were approximately $1 million. This disparity between penalties for 
violating regulations and operating costs creates a perverse incentive 
for drillers to cut corners and complete operations in a timely rather 
than safe manner. Indeed, Former Director of BOEMRE Michael Bromwich 
expressed a similar sentiment in testimony delivered to the House 
Natural Resources Committee, stating that ``the current enforcement 
framework, which permits maximum fines of only $40,000 per day, per 
incident, is patently inadequate to deter violations in an environment 
where drilling operations can cost more than a million dollars a day.''
    The driller can risk a violation in part because they are unlikely 
to be caught and penalized, in part due to BSEE's inadequate inspection 
capabilities, and also because even if they are caught, the penalty is 
so low that it may pay to break the rules. Raising the maximum fine 
BSEE can assess for civil penalties to a level comparable with 
operational costs would eliminate the perverse financial incentive for 
corner-cutting and increase the likelihood offshore operators comply 
with the new safety regulations. Raising the penalty would have to be 
done by Congress, as BSEE is legally constrained in how many times and 
to what extent it can raise penalty sizes. As long as rule-breaking 
pays, new rules cannot protect us from a spill.
    At the time of the disaster, the Administration stated that it 
would not allow drilling to resume unless safety concerns were 
addressed. Yet drilling was allowed to resume in spite of the lack of 
sufficient safety regulations. We believe this was a mistake in itself. 
However, further expansion of oil and gas development, as is envisioned 
by H.R.1613 and S.812, is clearly wrong-headed, and is a set up for 
another drilling disaster like the Deepwater Horizon or IXTOC events.
CLIMATE CONSIDERATIONS
    In May, for the first time in history, the Earth's atmospheric 
carbon dioxide levels reached 400 parts per million (ppm). This ominous 
milestone is a stark reminder of what our continued dependence on 
fossil fuels is doing to our planet. Such dangerous levels of carbon 
dioxide in the atmosphere are bringing us ever closer to the point of 
no return and we are already witnessing its disastrous effects. 
Hurricanes, tornados, tropical storms, and ``superstorms'' have 
increased in both severity and frequency. Not only have these storms 
resulted in the loss of human life and irrevocable property damage, but 
they have also gotten increasingly expensive, costing billions of 
dollars in taxpayer money to clean up devastated towns and cities in 
the U.S. and elsewhere.
    These storms are the alarm bells of climate change. We need to act 
swiftly and immediately to drastically reduce the level of carbon 
dioxide we are pumping into the Earth's atmosphere. A 2012 report from 
the International Energy Agency (IEA) held that extreme consequences of 
climate change would be associated with a 2 degree Celsius warming. As 
the world's authority on global energy trends, the IEA concluded that 
in order to achieve a goal of keeping warming under 2 degrees Celsius, 
two-thirds of our fossil fuel reserves--oil, natural gas and coal--need 
to stay in the ground as opposed to being released into our atmosphere 
through production and use as fuel. Instead of doubling down on 
drilling which will push us past these climatic tipping points, we 
should heed the warnings of these experts and begin the swift 
transition from fossil fuels to clean, renewable energy.
    Offshore wind can be a big part of this transition, as the scale of 
America's offshore wind energy resource is truly staggering, with 
literally thousands of gigawatts (GW) of clean energy available off our 
shores. For over 20 years, Europe has been generating clean energy and 
jobs from its offshore wind resource. In fact, there are 1,700 offshore 
turbines spinning at 55 offshore wind farms overseas, generating 
approximately 5 GW of electricity. Yet, the U.S. remains stalled with 
no wind farms in the water at all to date.
    According to the DOE's 2011 report, ``A National Offshore Wind 
Strategy: Creating an Offshore Wind Energy Industry in the United 
States,'' the U.S. has over 4,000 GW of gross offshore wind energy 
potential off its coasts. As former Secretary of the Interior Ken 
Salazar has repeatedly noted, that is enough energy to power the U.S. 
four times over.
    Also according to the DOE, a U.S. offshore wind industry that takes 
advantage of this abundant domestic resource could support up to 
200,000 manufacturing, construction, operation and supply chain jobs 
across the country and drive over $70 billion in annual investments by 
2030. Offshore wind represents an economic and energy opportunity that 
could mirror, and even surpass, the success of land-based wind 
development. If the U.S. develops even 10 percent of this clean energy 
resource for one year, we would produce about 25 times more energy than 
we would if we developed all of the oil and gas in the transboundary 
area, and unlike oil, offshore wind will continue to produce clean 
energy year after year after year.
WE MUST MAKE A SWIFT TRANSITION FROM FOSSIL FUELS TO CLEAN ENERGY
    Our continued emphasis on expanding drilling is preventing us from 
the needed investment in clean energy that would stimulate the economy 
without the risks associated with drilling and would also help to 
alleviate the worst impacts of climate change. As I said earlier, in 
order to combat global climate change, we need to focus on 
transitioning off of fossil fuels in favor of clean, renewable energy 
development. Offshore wind can be a big part of this transition, though 
as with all burgeoning industries, one of the biggest impediments to 
this clean energy development is financing. In order for a domestic 
offshore wind industry to get up and running, a long-term extension of 
the Investment Tax Credit (ITC) is needed. To that end, Senators Tom 
Carper and Susan Collins have introduced S.401, the Incentivizing 
Offshore Wind Power Act, bipartisan legislation that will extend the 
ITC to the first 3,000 MW of offshore wind installed. This extension 
will provide much-needed certainty to investors, which will make 
offshore wind an affordable, viable investment and will ultimately help 
to catapult this burgeoning industry into the mainstream. This is the 
type of legislation that can help solve our energy and environmental 
challenges, without risking lives and livelihoods, as well as marine 
ecosystems. A focus on promoting clean energy could get us all the 
benefits of the Agreement and more, without the risks.
THE AGREEMENT FAILS TO ADDRESS ENVIRONMENTAL CONCERNS
    The Agreement fails to adequately address the safety risks of 
drilling and is effectively silent on environmental protection. As 
such, this agreement provides little to no additional benefit to the 
U.S., especially compared to what we could be getting from clean 
energy. In a recent Congressional Research Service (CRS) report done on 
this topic, entitled, ``Proposed U.S.-Mexico Transboundary Hydrocarbons 
Agreement: Background and Issues for Congress,'' BOEM estimates that 
there are 172 million barrels of oil and 304 billion cubic feet of 
natural gas in the transboundary area. As this is the total amount of 
oil and gas in the transboundary area, the U.S. would only be entitled 
to half. According to the EIA, the U.S. consumed 18.83 million barrels 
of oil per day in 2011 and consumed 25.46 trillion cubic feet of 
natural gas per day in 2012. Therefore, at maximum extraction and 
assuming the U.S. and Mexico split these reserves evenly, the oil that 
the U.S. would get as a result of this agreement would supply only 
about 4 + days of our total oil demands and the natural gas that the 
U.S. would get would supply only about 2 days of our natural gas 
demands. Additionally, the same CRS report states that the U.S. would 
only bring in $50 million from energy activities projected to take 
place in the transboundary area, as compared to $6.9 billion in revenue 
the U.S. got from offshore energy production in 2012 alone. To put this 
in perspective, this paltry sum would represent less than 1 percent 
(0.72 percent, to be exact) of the total offshore revenues of the U.S.
    Lastly, there seems to be little to no thought put into what kind 
of environmental protections would be required in the transboundary 
area. For instance, both H.R.1613 and S.812 are silent on environmental 
protections for the area and the Agreement merely suggests protections 
``where appropriate'' or ``where necessary,'' which provides absolutely 
no mandate and is totally open to interpretation. Expanding the risky 
and dangerous practice of offshore drilling to an area where no thought 
or consideration is given to environmental protections is a recipe for 
disaster. It is unacceptable to move forward with such an endeavor when 
even the safety regulations we currently have in place would not 
adequately prevent another Deepwater Horizon oil spill disaster.
CONCLUSION
    Oceana opposes implementation of the Agreement because: (1) we do 
not believe that drilling operations should be expanded; (2) the 
continued emphasis on expanded offshore drilling is slowing the 
necessary investment in clean energy projects that would stimulate the 
economy and help to alleviate the worst impacts of climate change; and 
(3) the Agreement fails to satisfy a basic risk/benefit analysis, as it 
brings a tremendous amount of risk of devastating spills and climate 
impacting results, with relatively little concomitant benefit.
    The risks of the expanded drilling called for in the Agreement far 
outweigh the rewards. Rather than opening this area to new and expanded 
oil and gas production, we believe that the moratorium on drilling in 
the transboundary area should be extended, and that the U.S. should 
invest further in stimulating the development of offshore wind and 
other clean energy opportunities.
    Thank you for your time. I'm happy to answer any questions you may 
have.

    The Chairman. Very good. Thank you.
    Mr. Milito.

STATEMENT OF ERIK MILITO, GROUP DIRECTOR, UPSTREAM AND INDUSTRY 
            OPERATIONS, AMERICAN PETROLEUM INSTITUTE

    Mr. Milito. Good morning, Chairman Wyden, Senator 
Murkowski. I'm Erik Milito, Upstream Director of the American 
Petroleum Institute. Thank you for the opportunity to appear 
today for you as a witness.
    API has more than 500 member companies which represent all 
sectors of America's oil and natural industry. Our industry 
supports 9.8 million American jobs and 8 percent of the U.S. 
economy.
    The industry also provides most of the energy we need to 
power our economy and way of life and delivers more than $85 
million a day in revenue to the Federal Government.
    Our Nation can and should be producing more of the oil and 
natural gas Americans need here at home. This would strengthen 
our energy security and help put downward pressure on prices 
while also providing many thousands of new jobs for Americans 
and billions of dollars in additional revenue for our 
government.
    According to Energy Information Administration statistics 
we produced a little more than 5 million barrels of oil a day 
in 2009 and are projected to produce nearly 9 million barrels a 
day by the end of 2014. We are simultaneously reducing the 
amount of oil that we import. But we can and should do more.
    The Gulf of Mexico oil and gas development supports 
approximately 400 thousand jobs throughout the U.S. economy 
with one-fourth of those jobs in States outside the Gulf 
region. I'd like to point out that a recent study that Quest 
Offshore Drilling conducted shows that these jobs that support 
the Gulf reach all through the country. There are companies. 
There are vendors in Oregon and places as far as Alaska when it 
comes to supporting Gulf production. So it's significant that 
it's not just Gulf States that benefit.
    The Transboundary Hydrocarbon Agreement with Mexico is 
important as it could help create additional revenue 
opportunities for U.S. oil and natural gas companies in the 
Gulf of Mexico. In turn create more jobs and enhance our energy 
security. The Agreement establishes a cooperative process for 
managing oil and gas reservoirs along the boundary region in 
the Gulf of Mexico and encourages cooperative agreements with 
U.S. independent oil companies and Mexico's State owned oil 
company to jointly develop energy resources along the boundary 
areas.
    Importantly this agreement will provide legal certainty to 
U.S. companies which will encourage them to invest in new 
energy development creating jobs and spurring economic growth.
    Implementing legislation authorizing this important 
agreement should be approved as quickly as possible. S. 812 
takes that pivotal step. Swift implementation of the 
Transboundary Hydrocarbon Agreement is important to providing 
regulatory certainty and will allow companies to make 
investments in these boundary areas with the knowledge that 
there is a framework in place to allow for orderly extraction 
of these resources.
    Given that industry investments in the offshore are largely 
limited to the Gulf of Mexico, this will serve to enhance our 
Nation's energy security and long term economic growth and 
highlight the importance of national leadership in promoting a 
positive forward looking energy policy.
    The last thing I'd like to add is that the oil and natural 
gas industry is comprised of energy companies, that our focus 
is on oil and natural gas. That's what they're good at. That's 
what they've been doing for this country for a long time.
    From 2012--from 2007 to 2012 according to EIA the 
extraction side, the exploration and production side actually 
increased jobs by 40 percent. So it's a significant driver of 
employment here in this country.
    But I would add to that that they are energy companies. A 
recent study by T2 and Associates found that from 2000 to 2012 
the oil and gas industry invested approximately $81 billion 
into GHG mitigating technologies. Whereas other industries 
combined invested an estimated $91 million--$91 billion and the 
Federal Government invested an estimated $79 billion.
    In that same timeframe the oil and natural gas industry was 
responsible for approximately 17 percent or $11.4 billion of 
all investments in non hydrocarbon resources including wind, 
solar, geothermal and biomass technologies. So these are energy 
companies. These are companies that have done a great job of 
finding oil and gas resources so that we have them here in the 
United States and we can drive economic recovery and economic 
growth but at the same time I don't think you can ignore the 
fact that the energy companies have been doing their fair share 
to try to drive investment in non hydrocarbon resources. Just 
want to put that out there.
    Appreciate the opportunity once again to appear before you 
and be able to provide my testimony. I'm happy to answer any 
questions.
    [The prepared statement of Mr. Milito follows:]

    Prepared Statement of Erik Milito, Group Director, Upstream and 
           Industry Operations, American Petroleum Institute
    Good morning Chairman Wyden, Senator Murkowski, and members of the 
committee. I am Erik Milito, Upstream Director at the American 
Petroleum Institute.
    API has more than 500 member companies, which represent all sectors 
of America's oil and natural gas industry. Our industry supports 9.8 
million American jobs and 8.0 percent of the U.S. economy. The industry 
also provides most of the energy we need to power our economy and way 
of life and delivers more than $85 million a day in revenue to the 
federal government.
    Our nation can and should be producing more of the oil and natural 
gas Americans need here at home. This would strengthen our energy 
security and help put downward pressure on prices while also providing 
many thousands of new jobs for Americans and billions of dollars in 
additional revenue for our government. According to Energy Information 
Administration statistics, we produced a little more than 5 million 
barrels of oil a day in 2009 and are projected to produce nearly 9 
million barrels a day by the end of 2014. We are simultaneously 
reducing the amount of oil that we import. But we can and should do 
more.
    Gulf of Mexico oil and gas development supports approximately 
400,000 jobs throughout the U.S. economy, with one-fourth of those jobs 
in states outside the Gulf region. The Transboundary Hydrocarbon 
Agreement with Mexico is important as it could help create additional 
resource opportunities for U.S. oil and natural gas companies in the 
Gulf of Mexico and in turn create more jobs and enhance our energy 
security. The agreement establishes a cooperative process for managing 
oil and gas reservoirs along the boundary region in the Gulf of Mexico 
and encourages cooperative agreements between U.S. independent oil 
companies (IOCs) and Mexico's state-owned oil company (Pemex) to 
jointly develop energy resources along boundary areas in the Gulf of 
Mexico. Importantly, this agreement will provide legal certainty to 
U.S. companies, which will encourage them to invest in new energy 
development, creating jobs and spurring economic growth.
    The importance of this agreement is magnified by the fact that the 
administration has chosen a status quo approach to offshore oil and 
natural gas development that restricts oil and gas development to 
portions of the Gulf of Mexico and Alaska and leaves approximately 87 
percent of Outer Continental Shelf areas off limits. We continue to 
hear about an ``all-of-the above'' energy approach and the 
administration's projections show that oil and natural gas will supply 
most of the nation's energy for decades to come. However, we need to 
see real action in order to ensure that we are effectively meeting the 
nation's need for continued oil and gas resources to fuel our economy. 
Approval of the U.S.--Mexico Transboundary Agreement is one way that we 
can create and encourage additional opportunities for safe and 
environmentally responsible domestic energy production on federal land.
    Implementing legislation authorizing this important agreement 
should be approved as quickly as possible, and S. 812 takes that 
pivotal step. Swift implementation of the Transboundary Hydrocarbon 
Agreement is important to providing regulatory certainty and will allow 
companies to make investments in these boundary areas with the 
knowledge that there is a framework in place to allow for orderly 
extraction of these resources. Given that industry investments in the 
offshore are largely limited to the Gulf of Mexico, this will serve to 
enhance our nation's energy security and long-term economic growth and 
highlight the importance of national leadership in promoting a 
positive, forward-looking energy policy.
    Thank you again to the Chairman and the Committee and I look 
forward to your questions.

    The Chairman. Thank you both. Very helpful.
    Let me begin with you, if I could, Ms. Savitz. As you know 
we've worked with your organization many times. I have enormous 
respect for Mr. Danzig, who we worked with you on over fishing.
    Certainly when you talk about climate change you've got me 
at hello. I mean this 400 parts per million finding recently--
that ought to be a wakeup call to everybody.
    So we're going to be focused very specifically on ways to 
promote a lower carbon economy. There are a whole host of ways 
to do it.
    The question that I really have is how is having no 
agreement better than having an agreement/ Let me kind of be 
specific about this.
    My understanding is without an agreement Mexico can proceed 
on their own. Should they do it and they're talking about 
changing their Constitution and the like. You could have, you 
know, ultra deep drilling and you could have a whole host of 
areas that wouldn't be subject to the kind of government 
standards we're talking about here in terms of safety and 
environmental protection, so fewer platforms, that sort of 
thing.
    Tell me your view about why no agreement is in effect 
better than this agreement.
    Ms. Savitz. Thank you, sir. Let me start by saying thank 
you back to you. Likewise we've enjoyed very much working with 
you and with the Ranking Member on a variety of different 
issues. We'll continue to do so.
    Thank you for your sentiments on climate change. It's a 
huge problem for the oceans. It's leading to ocean 
acidification. Scientists are predicting that by mid century 
we'll start to see mass extinctions of coral reefs around the 
world. Mid century, really, unfortunately, is not that far away 
which is why we've been pushing so hard to try to get a shift 
in the way we think about energy and shifting away from fossil 
fuels and toward clean energy which provides us a solution to 
those problems.
    From our perspective the best case scenario in the U.S./
Mexico Agreement would be for the United States to lead Mexico 
in that direction rather than facilitating or enabling the 
development of this area by both the United States and Mexico. 
I think there's some questions about what, you know, what 
Mexico will do in the absence of the agreement. But it's also 
not clear that Mexico will develop this area and that we 
couldn't be facilitating that development without necessarily 
opening up additional areas to offshore drilling.
    The Chairman. Alright.
    One question for you, if I might, Mr. Milito.
    Part of the reason there's been a moratorium in the Western 
Gap has been due to concern of drainage of resources from one 
side of the transboundary from the other. This concern, of 
course, is dealt with in the agreement by the implementation of 
unitization agreements. Senator Murkowski has already referred 
to them.
    These are agreements among lessees to develop a common 
reservoir and allocate production jointly. Are you satisfied 
that this provision deals adequately with this issue? Again, 
what are the consequences if there's no agreement?
    Mr. Milito. Yes, we are. In the way it works out currently 
for even U.S. producers in the Gulf of Mexico is that if you 
have a reservoir that crosses leases companies have to enter 
and normally do enter into unitization agreements so that there 
is an agreement in place to ensure that production is being 
allocated and that the reservoir is being managed according to 
an underlying agreement.
    So that history in practice is there. Then when going 
forward to develop the cross boundary reservoirs that overlap 
between the U.S. and Mexico boundary, we now have the certainty 
in place to allow companies to do a similar, enter into similar 
agreements, when it comes to dealing with PEMEX and making sure 
that there is the certainty in place from a legal standpoint to 
move forward and have that production allocated and have those 
royalties and revenues divided up as outlined in the underlying 
unitization agreements.
    So that certainty is provided through this Transboundary 
Agreement.
    The Chairman. Very good.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    To both of you, thank you for your testimony here this 
morning. Appreciate it.
    Ms. Savitz, you, in answer to the chairman's question, 
you've indicated that the concern is a bigger picture just 
trying to move away from fossil fuel. I think he tried to 
indicate that if this agreement does move forward what we do is 
we set in place a framework for joint development, making sure 
that that footprint is smaller, promoting common safety, 
environmental standards.
    Is there anything that you can think of that would, I 
guess, enhance the terms of the agreement so that Oceana would 
actually support this agreement or are you opposed under all 
circumstances? I guess I'm trying to understand if there are 
areas that could be enhanced that would cause you to revisit 
this?
    Ms. Savitz. Thank you for that question. I think it's a 
very thoughtful question.
    One of the big concerns we have with the agreement is it's 
very unclear to us from the agreement where the, you know, what 
safety standards would be required for offshore drilling of 
Mexico. We kind of know what safety standards are required in 
the United States. It's not clear to us that our safety 
standards necessarily would be recognized and respected or that 
we would have any authority to guarantee them.
    But in addition to that we're also very concerned with the 
status of the existing safety requirements for offshore 
drilling.
    We don't think they're sufficient.
    They don't require sufficient technology.
    There's a serious lack of funding for inspections.
    They're very low penalties that even former head of BOEMRE, 
Michael Bromwich, you know, was very concerned about the low 
penalties. So essentially what we get is even though we have 
some standards they're not necessarily being met and that the 
standards aren't strong enough.
    We have a liability cap in place. It hasn't been lifted 
since Deepwater Horizon. So there's a variety of things that a, 
we're not sure that the Mexican drilling company would 
recognize our standards. Even if they did we're not satisfied 
with the strength of our standards.
    Senator Murkowski. Let me ask you, Mr. Milito, whether or 
not your members, the folks that are affiliated or associated 
with API are currently working with Mexico on oil and gas 
safety technology, environmental issues. Do you have a level of 
collaboration that is ongoing related to oil and gas 
development in the Gulf right now?
    Mr. Milito. Thank you, Senator. That's an interesting 
question considering that just a few weeks ago we had hosted a 
delegation of Senators from Mexico who came to API to learn 
about what we're doing here in the United States. So we took 
that opportunity in conjunction with that State Department, 
being able to line that meeting up to kind of go through what 
we were doing as an industry here in the United States and 
outlining a lot of the work we've done in terms of raising and 
enhancing the level of performance in offshore operations in 
terms of preventing an accident, containing one and responding 
to one.
    It appeared very clear from that discussion that there is a 
strong desire from the Mexican government to be able to move 
forward and get its production increased back up. But it's 
important to make sure that we're doing it in a safe and 
environmentally responsible way.
    Our industry also has been working closely with BSEE and 
BOEM and then also speaking before forums like the 
International Regulators Forum to make sure that we are 
disseminating and spreading the information about robust 
regulatory frameworks and high level standards that should be 
employed throughout the world. Our companies on a one on one 
basis also work with Mexico and Mexican authorities to make 
sure that all this information and the technologies and 
standards are being communicated across borders.
    So I think we're doing what we can. I think a lot of that 
is also being handled through both the BOEM, BSEE and the State 
Department.
    Thank you.
    Senator Murkowski. You know, you can't help but think about 
or I can't help but think coming from Alaska that when we talk 
about development in our oceans it--the issues are different. 
When you're on land and you know where your State boundaries 
are it's just a little bit different dynamic. What we're trying 
to do up North in a very evolving part of the world, is a 
recognition that in the Arctic Nations there is greater efforts 
of collaboration whether it is with environmental issues, 
whether it's in search and rescue, whether it is oil spill 
prevention and just the whole preparedness.
    But it's one thing when it's the U.S. talking to our 
neighbors just to the south in Mexico. It's another thing when 
you've got multiple countries that you are dealing with where 
standards might be a little bit different.
    So appreciate your response to that.
    Can you speak and this is to you, Mr. Milito again, to the 
level of interest within the membership of API in developing 
these oil and gas resources that are along the transboundary 
area? Mr. Beaudreau mentioned that there have been applicants 
or perspective lease holders that have stepped forward but his 
suggestion was that once this uncertainty is resolved or excuse 
me, once this moratorium is resolved that there will be a 
greater interest in activity in that area.
    Can you speak to that?
    Mr. Milito. Yes. That's our understanding as well is that 
given the inability to move forward with legal certainty that 
companies No. 1, have not been able to move forward and apply 
for permits and actually go out there and engage in initial 
exploratory activities. But, you know, they haven't been able 
to also put forward a strong forward looking program to tap 
into these opportunities from a broader standpoint.
    I do think that when you look at the map which shows you 
where the lease blocks are, you will see a production platform 
like Perdido which has capacity for 100 thousand barrels a day. 
Not far from this area and you see selectively companies who 
have bid on and purchases leases right along that border that 
there is interest there. Not given that we're a trade 
association and this is a lot of confidential business 
information. We're not privy to a lot of that information.
    But it's clear that the industry as a whole would like to 
look at these perspective areas and determine what's there and 
whether there are opportunities to then move into the 
production stage. So it's step by step by step, but given that 
the Gulf of Mexico is a very mature area it's areas like this 
that would allow this Nation to enhance its own energy 
security.
    Senator Murkowski. Appreciate it. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Murkowski.
    You know, what I'm struck by particularly as we wrap up, 
and I know we were very pleased to get the helium legislation 
passed last week because there would have been real 
consequences, essentially starting this week, in terms of 
millions of jobs being affected, 700,000 MRIs each week that 
need that liquid helium to be able to cool those super 
conducting magnets. Back when everybody started talking about 
helium I think I mentioned to you I thought that helium was 
about balloons.
    We really under--we've learned a lot. Thank you for your 
cooperation. I think we've got to bring the same kind of 
urgency to this agreement as well.
    What I'm struck by is January 17th, basically means that 
the moratorium expires. It's kind of first come, first serve. 
It's open season.
    As I was really touching on with you, Ms. Savitz, and this 
is recognizing all the good work that you all do at your 
organization, if the moratorium expires and first come, first 
serve and we don't have the rules that strike that kind of 
responsible approach we've been talking about here today, 
basically you can go your own way with respect to drilling in 
the Western Gap.
    I think that's something we want to avoid. So I intend to 
work very closely with you and our committee. I think we got on 
the record what we needed to today.
    I particularly wanted to close and let you all at least 
have the last word. But January 17th is coming up here. To in 
effect say, alright, we're not going to act. It's going to be 
open season there. First come, first serve. That would not be 
in the interest of the American people.
    So last word from my friend, Senator Murkowski.
    Senator Murkowski. I like having the last word. What I will 
remind our colleagues is that once again while things seem to 
be stalled out in other parts of this building, as a committee, 
we're trying to move through some good stuff. Last week while 
all eyes were focused upon a few key individuals and quite 
honestly we weren't getting a lot of governing done, you and I 
and our very able staffs worked with our colleagues on the 
House side to move through the Helium bill.
    There wasn't front page news that I could find about it and 
that was just fine because, quite honestly, we got an important 
provision moved through both bodies and around the road blocks 
and to the President for his signature. We're just kind of 
quietly doing our work here. I think with the frustration that 
the public feels right now about what is happening in the 
Congress or perhaps the lack of anything happening in the 
Congress right now as they see their government shutting down.
    I think it's important to know that on this first morning 
of the government shut down we're talking about how we, as a 
Nation, move forward toward energy independence, North American 
energy independence, energy security, working to make sure that 
we've got environmental frameworks in place, safety frameworks 
in place. I just appreciate the fact that we're continuing to 
do what I think people sent us to do which is get to work.
    So I appreciate your leadership here this morning. 
Appreciate those of you that took the time to be with us and to 
speak up on what I think is a pretty important issue for our 
country.
    So, thank you.
    [Whereupon, at 11:10 a.m., the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

     Responses of Carlos Pascual to Questions From Senator Johnson
    Question 1. I am a strong supporter of section 1504 of the Dodd-
Frank legislation requiring expanded transparency for extractive 
industries, and oppose the House attempt to incorporate an exemption 
into legislation on this agreement. In your view, is the agreement, as 
it was negotiated, implementable--where U.S. companies can participate 
in these transboundary projects--without undermining Section 1504, as 
the provision in H.R. 1613 has sought to do?
    Answer. The Department of State strongly supports Dodd-Frank 
Section 1504, which set an important new standard for transparency in 
the extractive industries. As I noted in my testimony, we look forward 
to working with the Congress to enact implementing legislation that 
would focus on the U.S.-Mexico Transboundary Agreement, without the 
inclusion of extraneous and unnecessary provisions such as those 
relating to Dodd-Frank Section 1504. Such inclusions would directly and 
negatively affect U.S. efforts to increase transparency and 
accountability. The provisions are unnecessary and unrelated to 
implementing the U.S.-Mexico Transboundary Hydrocarbon Agreement and 
seriously detract from the bill.
    Question 2. The Mexican government has indicated its intent to 
implement the Extractive Industries Transparency Initiative (EITI) and 
is a founding member of the Open Government Partnership with the United 
States. Has the State Department or the U.S. Embassy in Mexico received 
any indication that the Mexican government is preparing legislation to 
prevent disclosure in transboundary waters?
    Answer. We are not aware of any plans by the Government of Mexico 
to introduce legislation preventing disclosure of payments for 
commercial development of oil, gas, or minerals in transboundary 
waters. We welcome the Government of Mexico's strong engagement on the 
Open Government Partnership (OGP) and we look forward to their 
implementation of the EITI. The United States also strongly supports 
the EITI by participating actively on its international governing 
board, funding technical assistance, and promoting the initiative in 
bilateral discussions as well as multilateral groups such as the G8 and 
G20. The State Department collaborates closely with colleagues at the 
U.S. Department of the Interior as they work with civil society, 
industry, and Federal and state government representatives toward 
implementing the EITI domestically in the United States, which is one 
of our commitments in the U.S. Open Government Partnership National 
Action Plan.
       Response of Carlos Pascual to Question From Senator Schatz
    Question 1. Ambassador Pascual, I wonder if you could discuss the 
benefits of reporting requirements under Section 1504 of the Dodd-Frank 
Act, the initiatives in place at the State Department, and how the 
exemption in the House bill would affect your agency's efforts at 
achieving transparency.
    Answer. The U.S. Department of State strongly supports Dodd-Frank 
Section 1504, which sets an important new standard for transparency in 
the extractive industries. As I noted in my testimony, we look forward 
to working with the Congress to enact implementing legislation that 
would focus on the U.S.-Mexico Transboundary Agreement, without the 
inclusion of extraneous provisions such as those relating to Dodd-Frank 
Section 1504. Not only are the provisions unnecessary and unrelated to 
implementing the U.S.-Mexico Transboundary Hydrocarbon Agreement; they 
would directly and negatively affect U.S. efforts to increase 
transparency and accountability in the extractives sector globally. 
Dodd-Frank Section 1504 set a new global standard for revenue 
transparency, one that is being emulated by others. Since the 
provision's passage into law in the United States, the European Union 
adopted similar rules and Canada is working actively to do so. This 
year, the G-8 Leaders encouraged other countries that host major 
multinational or state-owned enterprises that invest abroad to 
implement equivalent mandatory reporting rules. The addition of 
exemptions to Dodd-Frank Section 1504 as in H.R. 1613 would undermine 
United States and international efforts to arrive at clear and 
consistent reporting requirements across jurisdictions that would 
minimize duplicate reporting burdens, and ensure this reporting is 
complete.
    The extractive sectors are notoriously difficult for countries to 
manage effectively and transparently. While these resources are key to 
the global economy and can be a tremendous asset for a country's 
economic growth, too often countries have been unable to manage the 
development of these resources effectively, with the result that the 
returns on this wealth are not leveraged into sustained economic 
growth. The Department supports transparency in the payments that 
extractive companies make to governments as a key component of a 
broader strategy to support effective and accountable government 
management of the extractive sectors. The company reporting 
requirements contained in Dodd-Frank Section 1504 complement voluntary 
initiatives like the Extractive Industries Transparency Initiative 
(EITI) by giving people in countries around the world the information 
they need to hold their own governments accountable.

                          



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