[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]



 
  THE IMPACTS OF FEDERAL POLICIES ON ENERGY PRODUCTION AND ECONOMIC 
                          GROWTH IN THE GULF

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

                        OVERSIGHT FIELD HEARING

                               before the

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

         Tuesday, September 15, 2015, in New Orleans, Louisiana

                               __________

                           Serial No. 114-19

                               __________

       Printed for the use of the Committee on Natural Resources
       
       
       
       
       
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                     COMMITTEE ON NATURAL RESOURCES

                        ROB BISHOP, UT, Chairman
            RAUL M. GRIJALVA, AZ, Ranking Democratic Member

Don Young, AK                        Grace F. Napolitano, CA
Louie Gohmert, TX                    Madeleine Z. Bordallo, GU
Doug Lamborn, CO                     Jim Costa, CA
Robert J. Wittman, VA                Gregorio Kilili Camacho Sablan, 
John Fleming, LA                         CNMI
Tom McClintock, CA                   Niki Tsongas, MA
Glenn Thompson, PA                   Pedro R. Pierluisi, PR
Cynthia M. Lummis, WY                Jared Huffman, CA
Dan Benishek, MI                     Raul Ruiz, CA
Jeff Duncan, SC                      Alan S. Lowenthal, CA
Paul A. Gosar, AZ                    Matt Cartwright, PA
Raul R. Labrador, ID                 Donald S. Beyer, Jr., VA
Doug LaMalfa, CA                     Norma J. Torres, CA
Jeff Denham, CA                      Debbie Dingell, MI
Paul Cook, CA                        Ruben Gallego, AZ
Bruce Westerman, AR                  Lois Capps, CA
Garret Graves, LA                    Jared Polis, CO
Dan Newhouse, WA                     Wm. Lacy Clay, MO
Ryan K. Zinke, MT
Jody B. Hice, GA
Aumua Amata Coleman Radewagen, AS
Thomas MacArthur, NJ
Alexander X. Mooney, WV
Cresent Hardy, NV
Vacancy

                       Jason Knox, Chief of Staff
                      Lisa Pittman, Chief Counsel
                David Watkins, Democratic Staff Director
             Sarah Parker, Democratic Deputy Chief Counsel
                                 ------ 
                                 
                                 
                                 (II]
                                 

                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Tuesday, September 15, 2015......................     1

Statement of Members:
    Bishop, Hon. Rob, a Representative in Congress from the State 
      of Utah....................................................     2
        Prepared statement of....................................     4

Statement of Witnesses:
    Cassidy, Hon. Bill, a United States Senator from the State of 
      Louisiana..................................................     8
        Prepared statement of....................................    10
    Davis, Lori, President, RIG-CHEM.............................    38
        Prepared statement of....................................    40
    Henderson, Jonathan, JD, MBA, Manager of Gulf of Mexico Field 
      Operations, Gulf Restoration Network.......................    33
        Prepared statement of....................................    35
    Herbst, Lars, Regional Director, Gulf of Mexico OCS Region, 
      Bureau of Safety and Environmental Enforcement, U.S. 
      Department of the Interior.................................    12
        Prepared statement of....................................    14
        Questions submitted for the record.......................    19
    Leimkuhler, Joseph, Vice President, Drilling, LLOG 
      Exploration Company, LLC...................................    25
        Prepared statement of....................................    27
    Mason, Joseph R., Hermann Moyse, Jr./Louisiana Bankers 
      Association, Endowed Professor of Banking, Louisiana State 
      University; and Senior Fellow, The Wharton School..........    41
        Prepared statement of....................................    43
    Vitter, Hon. David, a United States Senator from the State of 
      Louisiana..................................................     5
        Prepared statement of....................................     7

Additional Materials Submitted for the Record:

    International Association of Drilling Contractors, Houston, 
      Texas, Prepared statement of...............................    69
      
      
      
      
                                  (III)
      
                                     



 OVERSIGHT FIELD HEARING ON THE IMPACTS OF FEDERAL POLICIES ON ENERGY 
               PRODUCTION AND ECONOMIC GROWTH IN THE GULF

                              ----------                              


                      Tuesday, September 15, 2015

                     U.S. House of Representatives

                     Committee on Natural Resources

                         New Orleans, Louisiana

                              ----------                              

    The committee met, pursuant to call, at 9:00 a.m., at 
Louisiana Supreme Court, 400 Royal Street, New Orleans, 
Louisiana, Hon. Rob Bishop [Chairman of the Committee] 
presiding.
    Present: Representatives Bishop, Fleming, Westerman, 
Graves, Rice, and Smith.

    The Chairman. This committee will come to order.

    I appreciate the opportunity of being here. I also 
appreciate our hosts here, and I would like to recognize at the 
beginning Representative Graves for an introduction of one of 
our hosts.
    Mr. Graves. Thank you, Mr. Chairman.
    I am honored that we have with us today a local artist and 
Harley rider who has joined us this morning. He also happens to 
be a justice of the Supreme Court, Justice John Weimer, who is 
a graduate of Nicholls State University and Louisiana State 
University Law School, the father of three great daughters; 
and, of course, his wife Penny. We are very much honored to 
have Justice Weimer here.
    Justice, thank you very much for your efforts to raise the 
court for us today.
    Justice Weimer. Thank you, Congressman.
    Bonjour, and bienvenue. That is Cajun French for ``good 
day'' and ``welcome.''
    My name is John Weimer. I serve on the court here, and on 
behalf of the Chief Justice and my fellow associate justices, 
we welcome you.
    Over 200 years ago, one of the Founding Fathers of our 
Nation recognized the economic and strategic significance of 
Louisiana to the destiny of our Nation. Thomas Jefferson signed 
the Louisiana Purchase just over 200 years ago.
    One who had become president recognized the economic and 
strategic significance of Louisiana to the destiny of our 
Nation. Andrew Jackson risked his life on the plains of 
Chalmette at the Battle of New Orleans.
    What Jefferson and Jackson recognized over 200 years ago 
has been realized. Louisiana fuels this Nation's economy with 
oil and gas. Louisiana feeds this Nation with seafood, the 
crabs, shrimp, oysters, fish, crawfish, and I understand an 
occasional alligator harvested here in Louisiana.
    Now, in the spirit of full disclosure, Congressman Graves 
and I have a relationship. Our nephew, David Clavell, serves on 
his staff, and in south Louisiana, that is considered a 
relationship. David was involved in ensuring that we were here 
today, and I commend him for his efforts in that respect.
    We are very pleased to have you in this historic venue, in 
this historic city, in our state of Louisiana. Again, bienvenue 
and merci beaucoup.
    Mr. Graves. Thank you.
    The Chairman. Thank you, Mr. Justice. I appreciate that, 
appreciate being in this historic building, and for your 
kindness in letting us in here.
    Before you go, how do you say ``you all'' in French?
    Justice Weimer. ``Y'all.''
    The Chairman. OK, fine.
    [Laughter.]
    The Chairman. You did that very well. Thank you so much.
    The committee is meeting today to hear testimony on the 
impact of Federal policies on energy production and economic 
growth in the Gulf, and under Committee Rule 4(f), all opening 
statements in the hearing will be limited to the Chairman, the 
Ranking Member, the Minority Member, and the Vice Chair and 
designees. Therefore, I am going to ask unanimous consent that 
all other Members' opening statements be made part of the 
hearing record if they are submitted to the Clerk by 5:00 p.m. 
today. Hearing no objection, that is so ordered.
    I am also asking unanimous consent that the gentleman from 
South Carolina, Mr. Rice, and the gentleman from Missouri, Mr. 
Smith, be allowed to sit with this committee and participate in 
today's hearing.
    And last, should their schedules permit, I ask unanimous 
consent that former House Members Vitter and Cassidy, who have 
now moved over to the dark side, be allowed to sit with the 
committee and participate as well. Hearing no objections, once 
again, so ordered, and we appreciate all of you for being here 
with us, with our committee.
    I now recognize myself for a quick opening statement.

STATEMENT OF THE HON. ROB BISHOP, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF UTAH

    The Chairman. I would like to first begin by thanking the 
state of Louisiana for hosting us in this Supreme Court 
building.
    Today's hearing will focus on the current state of the Gulf 
offshore energy production.
    Energy production in the Gulf of Mexico is the energy 
lifeline for our entire Nation, providing 17 percent of our 
domestic crude and 5 percent of our natural gas. Those 
percentages, though, are insignificant. The amount that is 
being produced is important. The bottom line is we could be 
doing better, we should be doing better, and this Nation must 
have us do better.
    While production in the Gulf has remained relatively 
stagnant, skyrocketing oil and natural gas production on state 
and private lands has propelled the United States to surpass 
Saudi Arabia and Russia to become a global leader in energy 
production. This newfound role for our country could not be 
achieved, though, without the Gulf. Yet, we cannot take this 
position for granted. If we indeed are going to be a permanent 
leader in the area of energy production, so that we can be an 
asset to our allies and we can actually not be bullied by OPEC, 
we need to produce more on Federal lands and offshore. Both of 
those are the purview of this committee, and that is why I am 
happy to be here for this hearing.
    Each Gulf state manages some acreage off the coast, but the 
vast majority of the acreage in the Gulf of Mexico is managed 
by the Federal Government, which has massive amounts of energy 
resources. So, the question is: Is it being managed well? And 
that is precisely the question we are here today to explore.
    Are there examples of how the Interior Department has been 
dead wrong in their so-called ``management'' of Federal lands 
and offshore? For example, the Obama administration's 2010 
moratorium, which shut down all drilling in the Gulf for months 
after the Macondo incident. Thankfully that mistake was 
eventually overturned by the court, but not without having some 
severe economic consequences.
    Agency regulations such as the proposed Well Control Rule 
threaten another virtual shutdown. Some provisions of this rule 
would actually undermine safety, rather than enhance it. If we 
indeed have rules that are prospective, prescriptive, and 
preclude the ability of having new innovations to promote 
safety, we are not actually helping the situation at all.
    Interestingly, after announcing this hearing, the Bureau of 
Safety and Environmental Enforcement scheduled meetings in 
Washington for today to discuss these onerous provisions. That 
is quite a coincidence.
    It is important to note that all Gulf offshore operators, 
even the agencies, have undergone significant regulatory 
reforms to ensure operations are safer than ever before. 
Earlier this year, our committee explored that specific issue. 
The conclusion was clear: overly prescriptive regulations such 
as the Well Control Rule wouldn't just harm the Gulf 
economically, it would impact our Nation as a whole. A 
performance-based approach will allow for increased safety, 
regulatory certainty, and will allow agencies to keep pace with 
the technology curve. Our hearing, I hope, will support that 
premise today.
    Other Federal measures, such as the crude export ban, limit 
new market opportunities and U.S. production potential. EIA 
reported recently that they found that lifting the crude export 
ban would result in higher wellhead prices for domestic 
producers, who would respond with additional production, while 
potentially lowering gas prices for American families.
    The same is true for LNG exports. We should encourage the 
production of affordable energy, not continue policies that 
force companies to shut down those resources because they are 
not economic to bring to market. It is important for our 
economy that we encourage affordable energy, and it is 
important for people and their lives that we have affordable 
energy.
    What we have seen recently is two offshore lease sales that 
yielded the lowest number of bids in over 20 years, natural gas 
production is falling, offshore crude production only now is 
showing signs of recovery since the moratorium, and the 
Interior Department continues to require nonsensical 
regulations. This is not the path that will keep our Nation on 
a path forward through a position of energy strength.
    There are thousands of employees who work off these coasts, 
and they deserve better. Day in and day out, the Gulf Coast 
residents go to work to support this critical energy 
infrastructure. They are vested in keeping these operations 
safe and to protect the beaches and the Atlantic waterways that 
they visit with their families. This industry is their 
livelihood. That is significant.
    I look forward to hearing from witnesses on the significant 
impact of the Federal Government's regulations and recognize 
the importance of the Gulf's energy to the economic lifeline of 
our Nation.

    [The prepared statement of Mr. Bishop follows:]
   Prepared Statement of the Hon. Rob Bishop, Chairman, Committee on 
                           Natural Resources
    I'd like to first begin by thanking the great state of Louisiana 
for hosting us in their Supreme Court building. Today's hearing will 
focus on the current state of Gulf offshore energy production. Energy 
production in the Gulf of Mexico is an energy lifeline for our Nation--
today providing 17 percent of our domestic crude and 5 percent of our 
natural gas.
    While production in the Gulf has remained relatively stagnant over 
the past several years, skyrocketing oil and natural gas production on 
state and private lands has propelled the United States to surpass 
Saudi Arabia and Russia to become the global leader in energy 
production. This newfound role for our country could not be achieved 
without the Gulf. Yet, we cannot take this position for granted.
    While each Gulf state manages some acreage off their coasts--the 
vast majority of acreage in the Gulf of Mexico is managed by the 
Federal Government, and it contains a massive amount of energy 
resources. The question is: Is it being managed well? That is precisely 
the question we're here today to explore.
    Many examples demonstrate how the Interior Department has been dead 
wrong in their so-called ``management'' of Federal lands. For example, 
the Obama administration's 2010 moratorium, which shut down all 
drilling in the Gulf for months after the Macondo incident. Thankfully, 
that costly mistake was eventually overturned by the courts--but not 
without severe economic consequences.
    Agency regulations such as the proposed well-control threaten 
another moratorium by shutting down the majority of the Gulf rig fleet. 
Some provisions of this rule could actually undermine safety, rather 
than enhance it. Interestingly, after we announced this hearing, the 
Bureau of Safety and Environmental Enforcement scheduled meetings in 
Washington for today to discuss these onerous provisions. That is quite 
the coincidence.
    It is important to note that all Gulf offshore operators--even the 
agencies--have undergone significant regulatory reforms to ensure 
operations are safer than ever before. Earlier this year, our committee 
explored that specific issue. The conclusion was clear: overly 
prescriptive regulations such as the Well Control Rule wouldn't just 
harm the Gulf economically--it would impact our Nation as a whole. A 
performance-based approach will allow for increased safety and 
regulatory certainty, and will allow agencies to keep pace with the 
technology curve.
    Other Federal measures, such as the crude export ban, limit new 
market opportunities and U.S. production potential. An EIA report 
released earlier this month found that lifting the crude export ban 
would result in higher wellhead prices for domestic producers, who 
would then respond with additional production--all while potentially 
lowering gas prices for American families.
    The same is true for LNG exports. We should encourage the 
production of affordable energy, not continue decades-old policies that 
force companies to shut-in those resources because they are not 
economic to bring to market.
    What we have seen recently is two offshore lease sales yielding the 
lowest number of bids in over 20 years, natural gas production is 
falling, offshore crude production only now showing signs of recovery 
since the moratorium, and the Interior Department continues to issue 
nonsensical regulations. This is not the path that will keep our Nation 
on a path forward through a position of energy strength.
    The thousands of employees who work off these coasts deserve 
better. Their hard work has helped decrease our dependence on foreign 
oil. Day in, day out--Gulf Coast residents go to work on rigs, vessels 
or small businesses that support this critical energy infrastructure. 
They are vested in keeping these operations safe--to protect the 
beaches and inland waterways they visit with their families. This 
industry is their livelihood.
    I look forward to hearing from our witnesses on the Federal 
Government's harmful regulations and to recognize how important the 
Gulf's energy and economic lifeline is to our Nation.

                                 ______
                                 

    Now I would also like to introduce our first panel who is 
with us today. We have both Senators from the great state of 
Louisiana who are here, The Honorable Bill Cassidy and The 
Honorable David Vitter.
    Mr. Cassidy, on my script I have you actually going first. 
Do you two care? Do I go on seniority? Do I go on who can give 
me the most money?
    [Laughter.]
    The Chairman. Seniority, then, it is.
    Senator Vitter, Representative Vitter, we are happy to have 
you here. We would ask you for your testimony.

 STATEMENT OF HON. DAVID VITTER, A UNITED STATES SENATOR FROM 
                     THE STATE OF LOUISIANA

    Senator Vitter. Thank you very much, Chairman Bishop and 
members of this committee, for being here--welcome to 
Louisiana--and for holding this important hearing on the 
impacts of Federal policies on energy production and economic 
growth in the Gulf. And a special thanks to Congressmen Fleming 
and Graves for inviting me here and hosting me here.
    Mr. Chairman, in the spirit of your earlier comments, just 
for the record, don't drink from the water fountains on the 
Senate side. I try to maintain a strong, vibrant House 
personality. So, in that spirit, I would love to join the 
committee after our testimony, but unfortunately I have to go 
immediately to the airport to return for votes.
    It has been nearly 5\1/2\ years since the BP disaster 
devastated the Gulf region. Beyond the economic and 
environmental consequences--which were major, and of course we 
will talk about those--I want to begin by acknowledging the 
human tragedy and the loss of 11 fine men who were working on 
the rig: specifically Jason Anderson, 35, of Midfield, Texas; 
Aaron Dale ``Bubba'' Burkeen, 37, of Philadelphia, Mississippi; 
Donald Clark, 49, of Newellton, Louisiana; Stephen Ray Curtis, 
40, of Georgetown, Louisiana; Gordon Jones, 28, of Baton Rouge, 
Louisiana; Roy Wyatt Kemp, 27, of Jonesville, Louisiana; Karl 
Dale Kleppinger, Jr., 38, of Natchez, Mississippi; Keith Blair 
Manuel, 56, of Gonzales, Louisiana; Dewey Revette, 48, of State 
Line, Mississippi; Shane Roshto, 22, of Liberty, Mississippi; 
and Adam Weise, 24, of Yorktown, Texas. I think it is very 
important to acknowledge that horrible human loss and remember 
them, and their families, in our prayers.
    For 3 months after that horrendous explosion, more than 200 
million gallons of crude oil spilled into the Gulf of Mexico, 
resulting in billions of dollars of economic and environmental 
damages that the Gulf region is still recovering from.
    But, Mr. Chairman, there was additional great loss, and 
that additional great loss was completely avoidable. That came 
from the Obama administration's short-sighted and knee-jerk 
reaction, particularly in the way they imposed a 6-month 
drilling moratorium, and after that a de facto moratorium or 
``permatorium'' that only compounded and multiplied the 
devastation of the spill.
    That is important to note because I think that is the 
continuing context that some of these overly onerous 
regulations are part of. It is part of a devastating pattern. 
This initial moratorium was particularly noteworthy because 
President Obama's White House put out statements saying, 
suggesting that the panel of experts they immediately empaneled 
after the spill recommended the moratorium.
    That was a lie, a flat-out lie, and the experts eventually 
said that and made that clear. So the Administration just used 
that to justify a needless moratorium and all of the economic 
costs that it brought with it.
    In the years since, I have worked with many others to 
ensure that this kind of tragedy and subsequent economic loss 
never happens again. Certainly as a state and a Nation, we need 
a clear and a strong regulatory scheme that promotes stringent 
safety standards while allowing the industry to thrive and do 
its business. While many important reforms have been made, 
there is still important work to be done.
    Louisiana's offshore oil and gas development isn't just one 
of the state's largest economic drivers; it is a way of life 
for so many, providing careers and livelihoods for so many in 
the region. The industry has operated harmoniously alongside 
other critical offshore and coastal industries, like commercial 
and recreational fishing and tourism.
    While the recent energy boom of the last few years in the 
United States has helped Louisiana recover from President 
Obama's drilling moratorium with a dramatic dip in price, I am 
particularly concerned now about the continuing regulatory 
avalanche coming from the Obama administration aimed at oil and 
gas.
    I know that this committee and others are examining the 
Department of the Interior's proposed Well Control Rule, and I 
encourage those determined efforts. Some stakeholders have 
conveyed to me that that proposal could have substantial 
economic impacts throughout the offshore oil and gas supply 
chain, which our state and region cannot afford. So, we must 
get to the bottom of that.
    President Obama's attack on the oil and gas industry is not 
restricted to offshore exploration and development. There are a 
myriad of regulations coming our way that will have disastrous 
effects on onshore oil and gas businesses, such as the recently 
proposed methane rules for upstream oil and gas operations and 
the pending proposal to reduce the standard for ground-level 
ozone. These proposals, and many others that this and other 
committees have looked at, are likely to impose dramatic new 
economic burdens on the industry, which has been one of the few 
bright spots in the economy under President Obama.
    So again, Mr. Chairman, I think the key point is that this 
is part of a pattern. It is a pattern we saw starting with the 
moratorium which was based on lies out of the White House about 
the recommendations of the panel of experts. It is a pattern 
that includes many, many regulatory overreaches, significant 
new burdens being placed on the economy with little or no 
positive health, safety, or environmental impact.
    Protecting the health of the oil and gas industry is 
critical for all of us, for Louisiana and for the Nation. So, 
Mr. Chairman, thank you for this opportunity to testify and for 
this committee coming to the Gulf, coming to Louisiana as part 
of that important effort.
    [The prepared statement of Mr. Vitter follows:]
 Prepared Statement of the Hon. David Vitter, a United States Senator 
                      from the State of Louisiana
    Thank you Chairman Bishop and members of this committee for holding 
this important hearing on ``The Impacts of Federal Policies on Energy 
Production and Economic Growth in the Gulf.''
    It has been nearly 5\1/2\ years since the Deepwater Horizon 
explosion and subsequent oil spill, which killed 11 men who worked on 
the rig. Their names were: Jason Anderson, 35, Midfield, Texas; Aaron 
Dale ``Bubba'' Burkeen, 37, Philadelphia, Mississippi; Donald Clark, 
49, Newellton, Louisiana; Stephen Ray Curtis, 40, Georgetown, 
Louisiana; Gordon Jones, 28, Baton Rouge, Louisiana; Roy Wyatt Kemp, 
27, Jonesville, Louisiana; Karl Dale Kleppinger, Jr., 38, Natchez, 
Mississippi; Keith Blair Manuel, 56, Gonzales, Louisiana; Dewey 
Revette, 48, State Line, Mississippi; Shane Roshto, 22, Liberty, 
Mississippi; and Adam Weise, 24, Yorktown, Texas.
    The leak went on for about 3 months, dumping more than 200 million 
gallons of crude oil into the Gulf and resulting in untold billions of 
dollars in economic damages. Our economy and environment are still 
recovering from it today.
    Worse than the spill itself, however, was the way in which the 
Administration reacted to it by imposing a 6-month drilling moratorium 
and, after that, a de-facto moratorium that had devastating economic 
impacts throughout Louisiana and the Gulf Coast.
    Despite the tragic events of 5\1/2\ years ago, offshore oil and gas 
development has played a huge role in our economy for decades and has 
operated extremely well alongside other critical offshore and coastal 
industries like fishing and tourism. For example, in 2013 there were 
nearly 130,000 direct and indirect jobs in Louisiana supported by the 
offshore energy industry. At the same time, our state set an all-time 
record for tourism, attracting 27.3 million visitors who spent $10.8 
billion and contributed $800 million in state tax revenues. On top of 
all that, one-third of the fish caught in the Lower 48 are landed right 
here in Louisiana.
    While the recent energy boom in the United States has helped 
Louisiana recover from President Obama's disastrous drilling moratorium 
and de-facto moratorium, I am deeply concerned about a regulatory 
avalanche coming from the Obama administration, aimed toward oil and 
gas.
    This committee is familiar with the Department of the Interior's 
proposed Well Control Rule. After Deepwater Horizon, a number of 
changes were made by industry and the Federal Government to improve 
offshore safety, and much progress has been made in ensuring that such 
a disaster never happens again.
    But what has been conveyed to me about this well control proposal 
is that it will have substantial economic impacts throughout the 
offshore oil and gas supply chain and could lead to another offshore 
drilling moratorium. That would obviously be crippling to Louisiana and 
its economy.
    But there are also threats to industry onshore, such as the 
recently proposed methane rules for upstream oil and gas operations, 
and the pending proposal to reduce the standard for ground level ozone, 
both of which are EPA regulations.
    These proposals, and several others that this and other committees 
have looked at, are going to impose substantial economic burdens on the 
oil and gas industry, which has been one of the few bright spots in the 
Obama economy. A healthy oil and gas industry--both onshore and 
offshore--is critical to having a vibrant economy in Louisiana and 
throughout the Gulf Coast.
    Mr. Chairman, I want to thank you for inviting me to testify today.

                                 ______
                                 

    The Chairman. Thank you, Senator. We appreciate you being 
here and giving us your testimony. We also wish you could stay 
with us. We realize you have to go, but thank you for what you 
are doing for the Nation, as well as for your home state. Thank 
you very much.
    Next we turn to Congressman-turned-Senator Cassidy. You are 
recognized for your opening statement as well.

 STATEMENT OF HON. BILL CASSIDY, A UNITED STATES SENATOR FROM 
                     THE STATE OF LOUISIANA

    Senator Cassidy. Mr. Bishop, thank you for your testimony, 
which I found excellent.
    Representative Smith, I am glad to see you survived your 
gator hunt.
    [Laughter.]
    Senator Cassidy. I hope it was productive.
    I thank you all for being here and for holding this hearing 
today, bringing greater attention to the energy production and 
its economic impact along the Gulf Coast.
    The energy activities in the coastal Gulf states and the 
adjacent offshore waters have produced billions of barrels of 
oil and trillions of cubic feet of natural gas. They have been 
an important contributor to the domestic energy production 
which is critical for our country's energy independence and 
security. Every barrel of oil and cubic foot of natural gas 
produced in the Gulf of Mexico eliminates the need for energy 
from foreign sources.
    Unfortunately, the actions and policy of this 
Administration are counter-productive, literally. For example, 
one thing that is of particular importance to us in Louisiana 
is the Administration's proposal to redirect coastal 
restoration funds, or GOMESA funds, that are scheduled to come 
to Louisiana beginning in 2017. A little ironically, a few 
weeks ago President Obama visited New Orleans to commemorate 
the region's rebirth on the 10th anniversary of Hurricanes 
Katrina and Rita. Yet, the sustainability of Louisiana's 
recovery is being placed in jeopardy by the President's Fiscal 
Year 2016 budget proposal. This proposal would redirect revenue 
derived from the energy production off Louisiana's coast toward 
unrelated projects. Louisiana is relying upon this revenue 
because, by our state constitution, it will be used to restore 
Louisiana wetlands.
    Now, just to put this in perspective, Louisiana is 
experiencing unparalleled land loss due to Federal engineering 
decisions made nearly a century ago that have channeled the 
lower Mississippi River system for the benefit of the rest of 
the Nation. Louisiana's 2,300 square miles of land loss is 
largely attributed to this channelization, which was abetted by 
the placement of levies along the river system, and this has 
converted a once-growing delta plain to the greatest source of 
wetlands loss in our history.
    Louisiana is counting on the revenues derived from offshore 
energy production to fund a portion of the projects necessary 
to restore our coast. Close to 18 percent of Louisiana's oil 
production and about 24 percent of its natural gas production 
originates, is transported through, or is processed in 
Louisiana's coastal wetlands. This is important not just for us 
but, as this shows, also for the rest of the Nation, and 
Congressman Graves is the expert on this.
    Over 500 tons of water-borne cargo passes through 
Louisiana's system of deep draft ports and navigational 
channels each year. If the present land loss rates continue, 
more than 155 miles of waterways and several ports will be 
exposed to open water within 50 years. This is important not 
just for Louisiana, but for all those farmers in the 
Mississippi Valley system who rely upon these ports to send 
their products to international markets.
    Now, related to this, Louisiana depends upon the revenue 
from production in the Gulf of Mexico, as does the Nation, to 
restore our wetlands. A second way the Obama administration's 
policies negatively affect this revenue stream is by locking up 
the Outer Continental Shelf's acreage which could be leased. 
Under this Administration, as you noted, Mr. Chairman, less 
than 2 percent of the 1.71 billion Federal Outer Continental 
Shelf acreage is under lease. Over 63 million acres in the Gulf 
of Mexico alone remain locked up. This lost opportunity results 
in fewer jobs, less government revenue, and a greater reliance 
upon foreign sources of oil.
    If the draft proposed plan for offshore production is 
finalized in 2016, the Obama administration will have 
effectively controlled a decade of offshore oil and gas lease 
planning. The draft 5-year plan for 2017 to 2022 lists 14 
sales. As you noted, this is the lowest number of lease sales 
in the 42-year history of the planning process.
    Now, the second issue is supply constraints or access. 
Despite the Obama administration's policies, according to the 
Energy Information Administration, in the short term the Gulf 
of Mexico is expected to defy the overall trend of decreased 
production domestically because of lower oil prices, et cetera, 
and will continue to produce oil.
    However, these offshore fields require both surface and 
subsea production equipment, and if the low oil price persists 
and operators cannot develop unique ways to decrease the 
capital required for these new projects and/or improve recovery 
rates, production will slip, and that in turn will negatively 
impact both jobs, Federal revenue through lease sales, as well 
as the amount of revenue Louisiana has to rebuild its 
coastline.
    This is exacerbated by the excess regulations that you 
noted and that Senator Vitter also noted. The estimates of the 
cost of these would be as much as $10-$30 million, in addition 
to the increased expenditures required under previously issued 
regulations. The industry estimates the 10-year cumulative cost 
of these rules to be approximately $32 billion.
    In response to this problematic regulatory climate, I, 
along with Senator Vitter, drafted a bill that became Title 1 
of the OPENS Act, legislation that was reported out of the 
Senate Energy and Natural Resources Committee last month. As 
from the title, the OPENS Act opens up more acreage for energy 
production offshore. For example, some would open up the 
Eastern Gulf of Mexico by redefining the Eastern Gulf moratoria 
of 2017.
    In addition to expanding energy supply, according to a 2014 
study, by 2035, Eastern Gulf offshore natural gas development 
would produce nearly 1 million barrels of oil equivalent per 
day, generating nearly 230,000 jobs, contributing over $18 
billion per year to the U.S. economy, and generating $70 
billion in cumulative government revenue.
    So, to conclude, the rise in production in the Gulf of 
Mexico is occurring due to large reserves and production 
efficiencies that streamline operational drilling costs. 
Although the long lead time and significant capital investment 
required to drill somewhat insulates production activity from 
short-term price volatility, the Obama administration's 
offshore drilling plan and proposed regulations could erode the 
economic viability of future well production in the Gulf of 
Mexico.
    We must provide a regulatory environment to produce 
offshore oil and gas in a safe, economical way, while allowing 
access to the large undiscovered, technically recoverable oil 
and gas revenues on the Federal lands offshore. It is critical 
that production continue to grow in the Gulf of Mexico to 
protect and sustain our energy independence and to create the 
good jobs with good benefits for which there are far too few in 
today's economy.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Cassidy follows:]
 Prepared Statement of the Hon. Bill Cassidy, a United States Senator 
                      from the State of Louisiana
    Thank you Chairman Bishop and members of the House Natural 
Resources Committee for holding this field hearing today in Louisiana 
and bringing greater attention to the energy production and economic 
growth occurring along the Gulf Coast.
    Energy activities in coastal Gulf states and adjacent offshore 
waters have produced billions of barrels of oil and trillions of cubic 
feet of natural gas.
    Domestic energy production is critical for our country's energy 
independence and security. Every barrel of oil and every cubic foot of 
natural gas produced in the Gulf of Mexico eliminates the need for 
energy from foreign sources. According to the Energy Information 
Administration, about 27 percent of U.S. oil is imported.
    Unfortunately, the actions and policies of this Administration are 
counterproductive.
              i. redirection of coastal restoration funds
    A few weeks ago, President Obama visited New Orleans to commemorate 
the region's rebirth on the 10th anniversary of Hurricanes Katrina and 
Rita. Yet, the sustainability of Louisiana's recovery was placed in 
jeopardy by the President's Fiscal Year 2016 budget proposal. His 
budget proposed to redirect revenue derived from energy produced off of 
Louisiana's coast toward unrelated projects. This money, as prescribed 
by Louisiana's State Constitution, would be used to restore Louisiana's 
wetlands.
    Louisiana is experiencing unparalleled land loss due to Federal 
engineering decisions for nearly a century that have channeled the 
lower Mississippi River System for the benefit of the entire country. 
Louisiana's 2,300 square miles of land loss is largely attributed to 
this channelization, which abetted by the placement of Federal levees 
along the river system, has converted a once-growing delta plain to the 
greatest source of wetlands loss in the history of the United States.
    Louisiana is counting on the revenues derived from offshore energy 
production to fund a portion of the projects necessary to restore our 
coast. This is important not just for Louisiana but also for the 
Nation. Close to 18 percent of U.S. oil production and about 24 percent 
of U.S. natural gas production originates, is transported through, or 
is processed in Louisiana's coastal wetlands.
    Over 500 million tons of waterborne cargo passes through 
Louisiana's system of deep-draft ports and navigational channels each 
year. If present land loss rates continue, more than 155 miles of 
waterways and several of the ports will be exposed to open water within 
50 years. Farmers and manufacturers in the Mississippi, Missouri, and 
Ohio valley will lose ability to get their products exported to 
international markets as this occurs.
    Related to this, if Louisiana and the Nation depends upon revenue 
from production in the Gulf to restore our wetlands, a second way the 
Obama administration's policies negatively affects the revenue stream 
is by locking up OCS acreage which could be leased. America cannot 
afford policies that put our wetlands, economic and energy 
infrastructure at risk.
    Under this Administration, less than 2 percent of the 1.71 billion 
Federal OCS acreage is under lease. Over 63 million acres in the Gulf 
of Mexico, alone, remains locked up. This lost opportunity results in 
fewer jobs, less government revenue, and a greater reliance on foreign 
sources of oil.
    If the Draft Proposed Plan for offshore production is finalized in 
2016, the Obama administration will have effectively controlled a 
decade of offshore oil and gas lease planning. The draft 5-year plan 
for 2017-2022 lists 14 lease sales--the lowest number of lease sales in 
the 42-year history of the planning process.
                    ii. supply constraints (access)
    Despite this headwind, counter-cyclical growth is occurring along 
the Gulf Coast. According to the Energy Information Administration, in 
the short term, the Gulf of Mexico is expected to defy the overall 
trend and increase production in the lower oil price environment, but 
if oil prices remain depressed for an extended period, the long-term 
outlook of the region changes drastically.
    Development of offshore fields requires both surface and subsea 
production equipment. The high cost of surface structures limits their 
application to large fields.
    Now, the Obama administration is proposing complex rules that will 
increase the cost of development and erode away the economic viability 
of well production, which combined with depressed oil prices, will 
further hamper future production in the Gulf of Mexico.
                         iii. excess regulation
    As an example, drilling in the Gulf of Mexico may shut down for 
over 12 months until all requirements are met. The Well Control Rule 
could drive up the cost per well by $10-$30 million. Industry studies 
estimate that the 10-year cumulative cost of the rule to be 
approximately $32 billion.
    In response to this problematic regulatory climate, I, along with 
Senator Vitter, drafted a bill that became Title 1 of the OPENS Act--
legislation that was reported out of the Senate Energy and Natural 
Resources Committee last month. As one could tell from its title, the 
OPENS Act opens up acreage for energy production offshore.
    Our portion of the bill provides new access to frontier acreage in 
the Gulf of Mexico in areas 50 miles outside the Florida coastline by 
redefining the Eastern Gulf moratoria in 2017. According to current 
law, the moratoria is scheduled to expire in 2022.
    In addition to expanding energy supply, according to a 2014 
economic study (http://www.noia.org), by 2035, Eastern Gulf offshore 
oil and natural gas development could produce nearly 1 million barrels 
of oil equivalent per day, generate nearly 230,000 jobs, contribute 
over $18 billion per year to the U.S. economy, and generate $70 billion 
in cumulative government revenue.
    So to conclude, the rise in production in Gulf of Mexico is only 
occurring due to large reserves and production efficiencies that 
streamline operation and drilling costs. Although, the long lead time 
and significant capital investment required to drill helps insulate 
production activity from short-term price volatility.
    The Obama administration's lackluster offshore drilling plan and 
proposed regulations could erode away the economic viability of future 
well production in the Gulf of Mexico. We must provide a regulatory 
climate to produce offshore in a safe, economical manner, while 
allowing access to the largest undiscovered, technically recoverable 
oil and gas resources on Federal lands offshore in the Gulf of Mexico. 
It is critical that production continues to grow in the Gulf of Mexico 
in order to protect and sustain our American energy independence and to 
help create good jobs with good benefits, of which there are too few of 
in today's economy.

                                 ______
                                 

    The Chairman. Thank you.
    I thank both of you for being here and for giving us your 
testimony. I realize the two branches of the Congress, each 
have different schedules, so the longer you can stay with us, I 
would be happy to welcome you here to be a part of this panel. 
But with Chairman Fleming and Congressman Graves, your state is 
well represented on our committee anyway.
    Once again, we appreciate your testimony. We appreciate 
working with you on the wrong side of the Capitol Building. 
Thank you for being here.
    With that, I will now call the second panel up who will be 
here to testify.
    I would like to call Mr. Lars Herbst, who is the Regional 
Director, Gulf of Mexico OCS Region for the Bureau of Safety 
and Environmental Enforcement, the U.S. Department of the 
Interior to join us.
    Can we also have Mr.--actually, why don't we switch those 
around? Let's have Mr. Leimkuhler being the second one, who is 
the Vice President of Drilling, LLOG Exploration Company; then 
Mr. Jonathan Henderson, who is the Manager of the Gulf of 
Mexico Field Operations for the Gulf Restoration Network; Ms. 
Lori Davis, who is the President of RIG-CHEM; and also Dr. 
Joseph Mason, who is the Endowed Professor of Banking at 
Louisiana State University.
    If we could have you take your places up there. We 
appreciate your willingness to come and speak to us about this 
important issue, as we are very happy to be here in New 
Orleans.
    Let me remind the witnesses that under our Committee Rules, 
you are limited in your oral testimony to just 5 minutes, but 
your entire statement and anything you actually have that you 
want printed and added to the record will be included in the 
hearing record.
    So, to help out, you have the timer in front of you. As you 
begin speaking, the green light is there. The yellow light goes 
on when you have a minute left. The red light comes on when 
your 5 minutes have ended. Obey that red light, if you would, 
please.
    Once again, we appreciate you taking the time to be with us 
here today.
    Mr. Herbst, I would like to recognize you first to begin 
your 5-minute testimony.

STATEMENT OF LARS HERBST, REGIONAL DIRECTOR, GULF OF MEXICO OCS 
 REGION, BUREAU OF SAFETY AND ENVIRONMENTAL ENFORCEMENT, U.S. 
                   DEPARTMENT OF THE INTERIOR

    Mr. Herbst. Thank you, Chairman Bishop and the Members 
present here. Thank you for the opportunity to appear today to 
present testimony.
    My name is Lars Herbst. I am the Gulf of Mexico Regional 
Director for the Bureau of Safety and Environmental 
Enforcement. I am a native of Louisiana, a graduate of LSU 
Petroleum Engineering Program, and a registered professional 
engineer.
    My public service began in 1983 in BSEE's predecessor 
agency, the MMS. I now lead a staff of 350 engineers, 
geologists, and environmental scientists committed to promoting 
safety, protecting the environment, and serving our Nation's 
offshore resources.
    Over the past 4 years, the Bureau has made a significant 
effort to update its regulations to ensure safe and 
environmentally responsible operations offshore. These updates 
reflect the latest technological advancements and 
recommendations resulting from the Macondo blowout. Sustained 
production and robust culture of safety are not mutually 
exclusive. By promoting safety and reducing risk offshore, we 
are helping to safeguard the long-term viability of production 
in the Gulf of Mexico.
    In 2014, oil production in the Gulf region was at its 
highest level since the Macondo blowout. More than 510 million 
barrels of oil were produced, the third highest production 
since 2005. In 2016, the Bureau expects Gulf production to 
continue increasing, with several large projects expanding and 
other new projects coming on-line. The Bureau estimates nearly 
1.7 million barrels of oil per day will be produced in the 
Gulf, bringing annual production to about 620 million barrels, 
the highest in a decade.
    Keeping in mind that deepwater production projects often 
take 10 to 12 years from discovery to first oil, the production 
trends you see in Figure 1 are expected to increase in the 
years ahead as a number of projects are already sanctioned and 
well into advanced planning stages. We expect two to three 
large floating production projects and eight subsea tie-back 
projects to come on-line in 2016.
    There is a tendency to focus on oil price trends and their 
effect on production levels. The market price of oil may affect 
permit numbers and rig counts in some areas of the United 
States, such as onshore and shallow water. However, deepwater 
production, which accounts for more than 75 percent of the 
offshore production, is less affected by short-term market 
fluctuations or new regulations.
    Low oil prices often do not have a direct impact on 
deepwater exploration and development drilling. These prospects 
generally involve long-term rig contracts or development 
drilling of sanctioned projects. Likewise, in production, large 
facilities like Shell's Olympus or Chevron's Jack-St. Malo, are 
already on-line and remain economically viable. Therefore, 
assumptions about the connection between deepwater production 
and short-term market conditions should be avoided.
    Even as rig activity in shallow water has decreased over 
the years, deepwater production remains high, as shown in 
Figure 2. Since the Macondo blowout in 2010, we have worked 
with Gulf Coast states and industry to mitigate consequences of 
blowouts by requiring immediate access to well containment 
systems. Now, almost 5 years later, we must ask ourselves: Has 
safety improved?
    In some areas, it clearly has. Yet, a significant challenge 
still faces the Bureau with respect to blowout prevention. 
These issues are addressed by the Well Control Rule, which we 
are finalizing. It closes gaps in blowout preventive 
requirements to reflect industry's best practices, standards, 
and recommendations arising from the Macondo blowout 
investigations. The proposed rule helps to move the Bureau 
closer to a hybrid regulatory approach, both prescriptive and 
performance based, allowing for greater flexibility and a more 
holistic approach.
    This week, the Bureau is meeting with key industry 
stakeholders to discuss their comments. We need the Well 
Control Rule as loss of well control instances are still 
occurring at the same frequency as before the Macondo blowout, 
as shown in Figure 3. One such incident involved Walter Oil and 
Gas that occurred in 2013. There was a blowout of natural gas 
which subsequently caused a fire on the rig. Shortly after the 
blowout, all 44 workers safely evacuated. The fire lasted 72 
hours and destroyed the rig, at a cost approaching $60 million. 
The situation could have been far worse, but fortunately this 
did not happen.
    Our ability to successfully accomplish our mission depends 
heavily on recruiting and retaining qualified technical 
experts. Currently, we are the leading employer of students 
from LSU's Petroleum Engineering Department. Our mission is to 
safeguard the people and environment of our coastal states and 
ensure that all personnel make it safely home at the end of 
each shift.
    It is my belief as a regulator that our Bureau's work, on 
behalf of the American people, is never finished. My commitment 
and duty is to remain vigilant and ensure that lessons learned 
from offshore incidents are integrated into our work to prevent 
similar incidents in the future. The Bureau will continue to 
work with the regulated community to promote best practices and 
support a robust culture of safety offshore.
    This concludes my formal statement. I am happy to answer 
questions.
    [The prepared statement of Mr. Herbst follows:]
Prepared Statement of Lars Herbst, Regional Director, Bureau of Safety 
                     and Environmental Enforcement
    Chairman Bishop, Ranking Member Grijalva, and members of the 
committee, thank you for the opportunity to appear here today to 
discuss the impacts of Federal regulatory activity on oil and gas 
exploration and production on the Outer Continental Shelf (OCS) in the 
Gulf of Mexico.
    Over the past several years, the Bureau of Safety and Environmental 
Enforcement (BSEE) has made a significant effort to update its 
regulations to reflect technological advancements, recommendations in 
response to the blowout of the Macondo well and resulting Deepwater 
Horizon disaster, and the challenges posed by exploratory activities on 
the Arctic OCS. These updates are a critical part of our efforts to 
ensure safe and environmentally responsible operations offshore and our 
recent rulemaking activities constitute a substantial step toward safe 
and sustainable exploration and production of Gulf of Mexico oil and 
gas resources. Safe and responsible exploration remains our top 
priority. By doing things safely and ensuring that incidents do not 
cause significant damage to the entire region, we are helping to 
safeguard the long-term viability of production in the Gulf of Mexico. 
Sustained production and a robust culture of safety are not mutually 
exclusive.
    In calendar year 2014, OCS leases in California, Alaska, and the 
Gulf of Mexico provided 528 million barrels of oil and 1.3 trillion 
cubic feet of natural gas; the vast majority of this production came 
from the Gulf of Mexico. In 2014, oil production in the Gulf of Mexico 
region was at its highest level since the Macondo blowout. Over 510 
million barrels of oil were produced from the Gulf of Mexico in 2014, 
making this the third highest production year in the span of 2005-2014. 
Even with the expansion and strengthening of offshore oil and gas 
regulations prompted by the Macondo blowout, the 10-year average 
production rate has increased annually since 2005 (see Figure 1). Since 
2010, OCS leases have provided nearly 2 billion barrels of oil and 6.2 
trillion cubic feet of natural gas, fueling economic growth and 
accounting for more than 19 percent of the Nation's oil production and 
about 5 percent of domestic natural gas production. BSEE will continue 
to support domestic energy production from the Nation's offshore 
resources, while actively working to reduce risk in order to ensure 
safe and environmentally responsible operations on the OCS.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



Figure 1--Total Oil Production for the U.S. Outer Continental Shelf 
                               2005-2014

    In 2016, BSEE expects production in the Gulf of Mexico to continue 
increasing, with several large projects expanding and other new 
projects coming on-line. The Shell-operated Olympus facility is one 
example of project expansion. When production began in 2014, it 
produced 35,000 barrels of oil per day (BOPD). By 2016, production is 
expected to increase to 80,000 BOPD. Another example is Anadarko's 
Lucius field which reported first oil production on January 19, 2015 
and quickly ramped up to 80,000 BOPD in the second quarter of 2015. 
Lucius is also processing gas for subsea wells operated by ExxonMobil's 
Hadrian South subsea project which reported first production on March 
30, 2015 with production estimated to ramp up to 300 million cubic feet 
of gas per day (MMcfpd) and 3,000 barrels of liquid (condensate). The 
Bureau estimates that in 2016 nearly 1.7 million barrels of oil per day 
will be produced from the Gulf of Mexico alone, putting annual oil 
production near 620 million barrels per year--110 million barrels 
higher than in 2014, and the highest rate in 10 years.
    A deepwater floating production project often takes approximately 
10 to 12 years to come on-line from discovery to first oil. As such, 
BSEE evaluates information provided by operators many years in advance 
of new production coming on-line. The production trends you see in 
Figure 1 are expected to increase in the years ahead as a number of 
projects are already sanctioned and well into the advanced planning 
stages. We expect two to three large floating production projects and 
eight subsea tie-back projects to come on-line in 2016 and start first 
production. In fact, BSEE just last week completed a pre-production 
inspection of the Heidelberg production SPAR that will be operated by 
Anadarko and is expected to begin production in 2016. You can view 
photos from the production and inspection on our Flickr' Web 
site (https://www.flickr.com/photos/bseegov/).
    There is a tendency to focus on overall trends in energy commodity 
prices--such as the price of oil--and to try to tie those trends to 
current production levels. Oil prices and market expectations about 
future prices have varying degrees of impact on permitting demands and 
production levels in different areas. For example, permit requests and 
rig counts in some areas of the United States can be affected 
significantly by sharp changes in oil prices. However, deepwater 
production, which accounts for over 75 percent of OCS production, is 
not affected in the same way by short-term market fluctuations or other 
policy drivers. Deepwater prospects are planned and sanctioned many 
years in advance and involve long-term rig contracts to allow the 
operator to drill within the lease term. The same concept applies to 
production. Large production facilities, like Shell's Olympus or 
Chevron's Jack-St. Malo, are already on-line and remain economically 
viable to produce for a long period of time (years) even when oil 
prices are lower for a period of time. Therefore, assumptions about the 
interconnectivity of deepwater production and short-term market 
conditions should be avoided. Even as the number of wells has 
decreased, production has remained high due to technological 
advancements (see Figure 2).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



 Figure 2--Gulf of Mexico Outer Continental Shelf Oil Production, 
   Total vs. Deepwater (Numbers Reflect Average Daily Oil Production)

    Immediately following the Deepwater Horizon disaster, the 
Department of the Interior and BSEE issued a series of regulations and 
notices to improve safety offshore. Former BSEE Director Michael 
Bromwich discussed the importance of safety and change before the House 
Committee on Natural Resources in March 2011:

        ``Regulatory and industry reform in the wake of significant 
        offshore disaster has happened before. The United Kingdom and 
        Norway substantially changed their oversight of offshore 
        drilling and production following the Piper Alpha and Alexander 
        Kielland incidents respectively. Australia is currently facing 
        many of the same issues we are confronting following the 
        Montara well blowout, which occurred only 8 months before the 
        Deepwater Horizon disaster . . . .

        The major challenge facing the country is to continue to 
        improve the safety of drilling in the GOM, particularly in 
        deepwater, while continuing with operations, keeping production 
        flowing and keeping people working.'' \1\
---------------------------------------------------------------------------
    \1\ Bromwich, Michael. Statement to House Natural Resource 
Committee, March 30, 2011.

    Nearly 5 years have passed since former Director Bromwich's remarks 
and his points are as relevant today as they were then, which is why we 
must continue to ask whether the fundamental changes discussed have 
occurred. In some areas, they have. BSEE discusses these changes at 
length in its Annual Report. Federal regulators, state governments, and 
the oil and gas industry have worked together to make significant 
strides in mitigating the consequences of blowouts by implementing 
requirements for immediate access to containment systems. However, the 
most significant challenge facing the agency is to make similar strides 
in prevention, which includes blowout prevention and well control. BSEE 
and industry worked tirelessly to develop the well containment 
screening tool which, along with the development of new well 
containment equipment, allowed drilling to resume after the Deepwater 
Horizon tragedy. These issues we addressed in the proposed rule 
entitled Blowout Preventer Systems and Well Control, which was 
published on April 17, 2015 (74 FR 21504).
    Understanding the importance of reforming well control practices, 
BSEE is reviewing public comments and developing the final rule. This 
rule closes gaps in blowout preventer requirements and updates BSEE 
regulations to reflect industry best practices. The proposed rule also 
incorporates the latest industry standards as well as recommendations 
that resulted from investigations into the Macondo blowout, the 
resulting fire and loss of life onboard the Deepwater Horizon, and the 
environmental disaster that followed. Specifically, the proposed rule 
includes provisions that increase requirements for equipment 
reliability and build upon industry standards for blowout preventers. 
In a comprehensive way, the proposed rule addresses the multiple 
systems and processes critical to well control operations. The proposed 
rule includes more stringent design requirements for critical well 
control safety system equipment and requirements concerning the 
generation of traceable records regarding the manufacture, use, 
maintenance, and decommissioning of blowout preventers and other well 
control equipment. The proposed rule helps to move BSEE closer to a 
hybrid regulatory approach--one that is both prescriptive and 
performance-based. A hybrid approach grants BSEE greater flexibility 
and allows for a more holistic approach to regulation. The comment 
period on the proposed rule has closed and BSEE is currently meeting 
with key stakeholders and industry leaders--which started yesterday and 
continues today--to discuss their comments. As with all new rule 
adoption, BSEE employs a robust process of public engagement and 
considers all comments and feedback.
    The necessity of the Well Control Rule is demonstrated by the fact 
that the number of loss of well control incidents has increased in the 
last 2 years and thus, these incidents are still occurring with a 
frequency that is comparable to that which existed prior to the Macondo 
blowout. Six of the last seven investigations completed by BSEE for 
loss of well control incidents found that the root cause of each 
incident was tied to equipment difficulties, in particular the design 
specifications of wells. Figure 3 shows the continued occurrence of 
loss of well control incidents on Gulf of Mexico facilities (see Figure 
3). The proposed Well Control Rule addresses these issues.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 Figure 3--Losses of Well Control Incidents in the Gulf of Mexico 
                             from 2008-2014

    New regulations are designed to prevent blowouts like the Walter 
Oil and Gas incident that occurred in 2013 when a blowout and explosion 
caused a fire on the rig. All 44 workers were safely evacuated, but the 
fire lasted over 72 hours and the rig was completely destroyed, 
resulting in a financial loss approaching $60 million. Blowouts like 
these can easily lead to much larger incidents that pose a significant 
risk to human life and can cause serious damage to the environment. The 
Incident Report published about the Walter blowout discusses numerous 
points where things could have gone tragically wrong. Fortunately, this 
did not happen, but the risk remains high in the region. By 
strengthening oversight and encouraging a culture of safety within the 
industry, BSEE is helping safeguard the long-term viability of drilling 
in the Gulf of Mexico.
    Well control is not the only area in which BSEE has proposed 
significant improvements. Another major area of safety reform includes 
an update to our production safety systems regulations.\2\ The section 
of BSEE's regulations related to production safety systems has not been 
updated since 1988 and significant technological advancements have been 
made in that time. The proposed regulation addresses production safety 
systems, subsurface safety devices, and provides specification for 
safety device testing. BSEE is currently working to finalize this rule.
---------------------------------------------------------------------------
    \2\ Proposed Rule: Oil and Gas and Sulphur Operations on the Outer 
Continental Shelf--Oil and Gas and Production Safety Systems. Published 
on Thursday, August 22, 2013 (78 FR 52240).
---------------------------------------------------------------------------
    As noted in BSEE's 2014 Annual Report,\3\ there continue to be 
issues related to aviation as well as crane safety. BSEE has issued an 
Advanced Notice of Proposed Rulemaking for Helideck and Aviation Fuel 
Safety for Fixed Offshore Facilities.\4\ Public comments have been 
received and we will be reviewing them.
---------------------------------------------------------------------------
    \3\ BSEE Annual Report 2014--http://www.bsee.gov/uploadedFiles/
BSEE/BSEE_Newsroom/Publications_Library/Annual_Report/
BSEE%202014%20Annual%20Report.pdf.
    \4\ Advance Notice of Proposed Rulemaking: Oil and Gas and Sulphur 
Operations in the Outer Continental Shelf (OCS); Helideck and Aviation 
Fuel Safety for Fixed Offshore Facilities. Published on Wednesday, 
September 24, 2014 (79 FR 57008).
---------------------------------------------------------------------------
    Lifting incidents involving cranes or personnel and material 
handling operations are increasing. From 2007 to 2014, the average 
number of lifting incidents reported per year was 167. While the lowest 
number of incidents was reported in 2010, incidents have increased 
since then (see Figure 4). BSEE is currently working to finalize a 
Crane Safety Rule \5\ to reduce lifting incidents based on the 
increased number of lifting incidents observed on the OCS.
---------------------------------------------------------------------------
    \5\ Proposed Rule: Oil and Gas and Sulphur Operations in the Outer 
Continental Shelf--Update of Incorporated Cranes Standard. Published on 
Monday, June 15, 2015 (80 FR 34113).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



 Figure 4--Lifting Incidents per Outer Continental Shelf 
               Installation from 2007-2014

    We are also working to strengthen our offshore oversight by 
considering the use of real-time monitoring technologies and voluntary 
near-miss reporting to improve and increase the regulatory oversight of 
critical offshore operations and equipment. The real-time monitoring 
program is intended to enhance the existing inspection and enforcement 
program by using innovative technologies and risk-based inspection 
criteria to supplement BSEE's current inspection program. The voluntary 
near-miss reporting system, SafeOCS, was formally launched in May 2015. 
It is a completely confidential system whereby the Bureau of 
Transportation Statistics collects and aggregates data on behalf of 
BSEE. The aggregated data will be shared with the general public 
through the BTS Web site and be used to identify safety trends and 
increase the understanding of offshore risk. When used in conjunction 
with existing methods of collecting data and assessing risk, this 
amalgamated data can be used to identify trends that will help to 
reduce the risk of major incidents, loss of life, injury and negative 
impacts on the environment.
    Our people continue to be our greatest asset and the most essential 
component of our operations. BSEE's ability to successfully accomplish 
its mission depends heavily on our ability to recruit and retain a 
workforce of qualified technical experts. Currently, BSEE is the No. 1 
employer of students from Louisiana State University's Petroleum 
Engineering program--both as summer interns and as full-time employees. 
We are proud of our local connections and have found that our message 
of safety and responsible exploration resonates with young petroleum 
engineers from the state of Louisiana. These engineers, like BSEE, are 
interested in helping safeguard the people of their state and ensure 
that future blowouts do not catastrophically impact the region and 
their homes. At the end of the day, our mission is to safeguard the 
people and the environment of our coastal states and ensure that all 
offshore personnel make it safely home at the end of each shift.
    It is our belief that our work as regulators--on behalf of the 
American people--is never finished. As our commitment and duty to the 
American people, we will remain vigilant in instituting reform efforts 
and benefiting from lessons learned from activities and incidents on 
the OCS. We will continue to work cooperatively with the regulated 
community to promote best practices and to support a robust culture of 
safety within the offshore oil and gas industry, which produces these 
resources that are so valuable and essential to our economy.
    This concludes my formal statement, and I am happy to answer any 
questions you have about the proposed rules or the current state of 
BSEE's regulation and oversight of oil and gas operations in the Gulf 
of Mexico.

                                 ______
                                 

 Questions Submitted for the Record to Lars Herbst, Regional Director, 
             Bureau of Safety and Environmental Enforcement

                 Questions Submitted by Chairman Bishop

    Question 1. The committee is concerned that this extremely 
technical and prescriptive rule was written without a complete 
understanding of modern drilling practices. As a result, there are 
multiple provisions in the draft rule that many in the industry would 
argue are technically flawed and would actually make drilling 
operations offshore less safe. In-depth conversations and workshops 
with industry experts in this very technical field are necessary to 
create a rule that meets everyone's goal of a safer offshore 
environment, while also maintaining the ability to efficiently produce 
oil and natural gas.

    Answer. BSEE disagrees with the assertion that the Well Control 
Rule is flawed. The proposed rule contains a variety of prescriptive 
and performance-based requirements and adopts 10 current industry 
standards that pertain to well control. The rule was also drafted to 
address recommendations from numerous investigations and reports issued 
following the Deepwater Horizon disaster by the following entities:

     Department of the Interior (DOI)/Department of Homeland 
            Security (DHS) Joint Investigation Team (JIT)

     National Commission on the BP Deepwater Horizon Oil Spill 
            and Offshore Drilling

     Chief Counsel for National Commission

     National Academy of Engineering

     BSEE Blowout Preventer (BOP) Forum

     Ocean Energy Safety Advisory Committee

     Chemical Safety Board


    Additionally, the rule addresses issues arising out of recent 
blowouts in the Gulf of Mexico and other ``near miss'' events and 
incorporates many provisions that have been longstanding Gulf of Mexico 
policy. The Bureau has engaged industry, non-governmental 
organizations, and other stakeholders throughout the rulemaking process 
and has provided opportunities for those entities to voice questions, 
concerns, and other input. The Bureau is currently working to address 
industry's questions and concerns and giving careful consideration to 
comments that could improve the quality of the rule.
    Question 1a. Who wrote the Well Control Rule? And what were the 
qualifications and experience of these people? Please list BSEE staff 
and outside consultants who contributed to the writing of the rule, as 
well as their relevant experience.

    Answer. Subject matter experts from the entire organization--some 
having more than 30 years of industry related experience--helped draft 
the proposed rule, including staff from the program offices as well as 
the field offices. To supplement BSEE's in-house expertise, BSEE held a 
public workshop, listening sessions, and over 50 meetings with 
industry, trade associations, regulators, and other stakeholders to 
obtain technical input. The proposed rule is also informed by the 
several investigations conducted after Deepwater Horizon, which 
utilized the expertise of many acclaimed engineers, scientists, and 
other highly qualified professionals.

    Question 1b. When and how do you plan to further engage industry 
technical experts in order to correct technical flaws and create a rule 
that meets the intended goal of a safer offshore environment?

    Answer. BSEE disagrees that the proposed regulation is flawed. As 
mentioned in the hearing, BSEE held follow-up meetings for 2 days with 
entities that submitted comments during the comment period to obtain 
additional clarification on comments that addressed specific provisions 
of the rule. These meetings were held on September 15 and 16. 
Additionally, stakeholders will have the opportunity for further 
engagement during listening sessions that will be held after the rule 
is sent to the Office of Management and Budget for interagency review 
under E.O. 12866.

    Question 1c. What is the Bureau's rationale for including 
additional provisions beyond API 53 pertaining to Blowout Prevention 
Equipment Systems?

    Answer. The API process results in the development of baseline 
performance standards based on the consensus process. This process 
often requires compromises to address domestic and international 
technical and legal issues from various sectors of the industry. BSEE 
staff members attended many of these meetings and discussions and were 
able to identify the provisions that potentially did not provide a 
sufficient level of safety for U.S. offshore operations. For the 
proposed rule, BSEE requested comments on these supplemental 
requirements and will consider any data or recommendations provided by 
industry or third parties.

    Question 2. In the hearing you mentioned that if companies 
commented on the rule, they were invited back for meetings with 
appropriate BSEE staff. Has BSEE reached out to all companies that have 
submitted comments? What is BSEE's plan to continue to engage industry 
on these technical matters? When will the next round of meetings take 
place? Has BSEE considered holding workshops to gain further 
information and technical expertise in a setting that allows sufficient 
time and discussion to help improve the rule before it is finalized?

    Answer. Bureau staff are working to finalize the rule based on 
comments submitted during the comment period. BSEE staff members have 
worked to ensure broad stakeholder engagement throughout the drafting 
process. As mentioned in the hearing, BSEE held additional follow-up 
meetings with parties that had commented on the rule to provide Bureau 
staff with clarification on these comments. However, not all commenters 
participated in follow-up meetings, as a majority of comments submitted 
were very clear and required no further explanation or clarification. 
We do not feel that further engagement is required at this time based 
on the input that BSEE received during the drafting process, the public 
comment period, and the follow-up meetings with commenters.

    Question 3. In many comments submitted, companies stated the 
proposed rule contains provisions, specifically in regards to drilling 
margins as mentioned by Mr. Leimkuhler during the hearing that could 
potentially undermine the safety mission through unintended 
consequences. Do you believe the proposed rule contains such provisions 
and what evaluations have been conducted by BSEE's technical staff to 
ensure safe operating procedures?

    Answer. The Bureau does not agree that the proposed rule undermines 
safety. The language related to drilling margins is based on 
recommendations arising out of the various investigations and reports 
that followed the Deepwater Horizon tragedy. The Bureau received a 
multitude of comments on the sections of the rule that pertain to safe 
drilling margins and is examining those comments. Specific comments 
related to drilling margins are being reviewed carefully by BSEE 
technical staff and other options for maintaining safe drilling margins 
are being evaluated.
    Question 4. The comment period for the Well Control Rule closed in 
July. What is the timing for the Department moving forward? When do you 
anticipate it will be finalized? Is there a deadline either internally 
or externally by which the Department must meet?

    Answer. The Bureau is giving thoughtful consideration to all input 
that was received during the comment period. BSEE is moving forward 
with the rule in a timely manner and, once this process is completed, 
will proceed to issuance of the rule.

    Question 5. A study commissioned by the American Petroleum 
Institute and referenced in their public comments on the Well Control 
Rule estimated that the rule will cost approximately $32 billion which 
is significantly higher than the $883 million cost estimated by BSEE. 
Can you please explain how BSEE staff arrived at that figure and why it 
is so profoundly different than the independent analysis conducted by 
Blade Energy Partners and Quest Offshore?

    Answer. BSEE arrived at its cost estimate by employing a careful 
section-by-section analysis of the rule to identify provisions that 
would result in compliance costs outside of those already incurred by 
industry in conforming to the latest industry standards. BSEE disagrees 
with many of the key assumptions made in the American Petroleum 
Institute (API) study, which are the foundation for the higher cost 
estimate of that report. Specifically, the API cost study accounts for 
lost drilling activity due to the effects of the regulations pertaining 
to drilling margins, which is the major cost-driver in the API study. 
The BSEE economic analysis does not account for decreases in drilling 
activity due to the uncertainty associated with predicting industry's 
activities and advancements in technical capabilities and the ability 
of operators to apply for alternative compliance. The API study also 
does not include in its analysis the many benefits of the rule, 
including reduced fatalities, reductions in the likelihood of oil 
spills, and the significant cost savings arising out of reduced testing 
of equipment.

    Question 6. There are some who suggest that some of the equipment 
requirements in the draft rule will require sizable changes to existing 
infrastructure with little to no impact on increasing the efficacy or 
ability for that equipment to operate effectively. As Murphy Oil 
Company noted in their comments, ``the lack of availability of upgrade 
equipment and the time estimated to manufacture and install the same 
will result in a shutdown of the majority of the Gulf of Mexico rig 
fleet for a substantial period of time.'' How do you respond to those 
assertions?

    Answer. The implementation periods for various aspects of the rule 
are being analyzed based on the comments received. The proposed rule 
employs a phased implementation schedule that delays the effective 
dates of certain requirements. By phasing in certain requirements over 
time, the rule will not have the effect of shutting down the Gulf of 
Mexico rig fleet.

                  Questions Submitted by Rep. Fleming

    Question 1. When discussing BSEE's engagement and how BSEE can put 
forward regulations that don't cause a reduction in production, you 
stated, ``if we can accomplish the same objective by another means 
which industry has brought up I think there will be flexibility.'' How 
is BSEE pursuing these alternatives and the flexibility you mentioned 
during the hearing?

    Answer. Each comment is analyzed to determine if the suggestion 
provides an equal or better level of safety than the proposed rule 
language. If it does, the rule may be modified. Furthermore, 
alternative compliance is allowed under the alternative compliance 
section of the existing rules, and would continue to be allowed under 
the proposed rule.

    Question 2. When discussing the drilling margin issue you mentioned 
that BSEE often incorporates industry standards as part of BSEE 
regulations. How have you fully taken into account industry standards 
(such as API 92-L)?

    Answer. BSEE is taking API 92-L into consideration; however, this 
standard was drafted after the proposed rule went out. We are reviewing 
comments related to the drilling margin issue and considering whether 
or not the rule should require compliance with an industry standard or 
allow for performance-based assessment.

    Question 3. During the hearing Mr. Leimkuhler identified examples 
of the proposed rulemaking that may make drilling operations less safe 
by diverging from industry standards, such as the requirement for a 5-
year demonstration of the blowout preventer. Are you taking into 
account real-world feedback on safety implications of your proposals? 
Are you willing to modify the rule to account for this feedback?

    Answer. BSEE is taking into consideration all feedback received 
pursuant to the rulemaking process. The 5-year inspection of the 
blowout preventer is currently contained within API Standard 53. In 
this case, we proposed to adopt an industry recommended standard. The 
comments received during the comment period as well as the input 
received from BSEE's various outreach activities constitute ``real-
world feedback.'' BSEE is considering input from all sources and will 
modify the rule in response to comments where doing so will improve the 
quality of the rule.

               Questions Submitted by Rep. Garret Graves

    Question 1. BSEE is proposing new requirements for accumulator 
volumes, beyond those of industry standards, which will require 
additions to and reconfiguration of the BOP. Accommodating these new 
requirements will add to the complexity of the BOP system and could 
have an impact on the safety and functionality of the BOP. Has BSEE 
looked at the safety implications that might result from this increased 
accumulator volume on the other safety mechanisms contained within the 
BOP? If so, please provide the analysis? If not, please explain why 
not?

    Answer. This section did receive considerable comment. BSEE is 
still in the deliberative stages of the rulemaking process and 
evaluating the comments received to ensure that safety-critical 
functions have proper accumulator volumes to ensure actuation.

    Question 2. How did BSEE come to the decision that the proposed 
rule's quinquennial inspection scheme will produce a result superior to 
that which will result from adherence to a sequential application of 
the periodic maintenance and inspection requirements of API 53? Can 
BSEE point to any safety data that supports its decision?

    Answer. BSEE believes that the proposed language will result in a 
comprehensive and traceable inspection scheme. The lack of an industry-
wide database related to equipment reliability has made assessing the 
effectiveness of current inspection schemes difficult. BSEE will review 
the information and data received during the comment period before 
making any decisions.

    Question 3. In the Well Control Rule, BSEE Approved Verification 
Organizations (BAVOs) will be charged with interpretation of the BSEE 
regulations, such industry standards as are incorporated by reference, 
and recognized engineering practices. However, no indication is given 
as to how BSEE would provide the BAVOs with the guidance and oversight 
necessary for rendering such interpretations. Just as there is a need 
for consistency among BSEE Regional and District offices, there will be 
a need for consistency among BAVOs. How does BSEE plan to ensure there 
is a transparent system for provision of interpretations as needed?

    Answer. BSEE has initiated a formal process for issuing 
interpretations on regulations that will help to ensure consistent 
application of the requirements across the agency, industry, and third-
party verification organizations. BSEE will also certify that BSEE-
approved verification organizations (BAVO) have previous experience 
with BSEE requirements and procedures as well as the technical 
expertise to perform verifications based on the regulations as written.

Continued Engagement

    Question 4. During the hearing I asked you why interested parties 
were only provided a total of 3 months (initial 2 months with a 1 month 
extension) to comment on a proposal that BSEE took several years to 
write and you explained that that decision was outside your call but 
that BSEE is still working with industry. You also mentioned that with 
the proposed provisions outside of the codification of industry 
standards that BSEE is ``continuing to work with those commenters.'' As 
I also stated at the hearing, I'm very concerned that this rule is done 
right, which is why I am particularly concerned that this technical 
engagement continues and I asked BSEE to commit to public meetings so 
we can get this rule right. Please explain how BSEE will continue its 
engagement with industry through the end of the year.

    Answer. BSEE staff are working to finalize the rule and to address 
the over 5,000 pages of comments submitted during the comment period. 
BSEE staff have worked to ensure broad stakeholder engagement 
throughout the drafting and comment process. The Bureau conducted over 
50 meetings with various companies, trade associations, regulators, and 
other stakeholders during the open comment period as part of the 
process of moving from proposed to final rule. The Bureau also met with 
organizations after the closure of the comment period in those cases 
where the Bureau required clarification of the written comments that 
were submitted within the comment period. Those discussions were 
restricted to the substance of those timely submitted comments. We do 
not feel that additional technical engagement is required at this time, 
based on the input that BSEE received during the drafting process and 
in the public comment period. The Bureau is currently working to 
address industry's questions and concerns and giving careful 
consideration to comments that could improve the quality of the rule.

    Our current regulations do not account for the more than 160 
recommendations that the Bureau received following the tragic events of 
the Deepwater Horizon disaster or reflect lessons learned from other 
loss of well control events that occurred thereafter. It took several 
years for the studies and investigations to be concluded. The proposed 
Well Control Rule incorporates the findings of those studies and 
investigations.

BSEE Regional Office Expertise

    Question 5. To what extent have you and your staff been involved in 
the development of new regulations by BSEE headquarters and to what 
extent were you involved in the development of the proposed Well 
Control Rule?

    Answer. We utilize the collective experience of all of our BSEE 
subject matter experts, regardless of their location, for any new rule 
or regulation that is being developed and finalized. GOM Regional 
Office staff have been thoroughly involved throughout the entire 
process, including drafting the rule, reviewing technical comments from 
industry, and meeting with commenters at BSEE Headquarters in 
Washington, DC.

    Question 6. Please describe the amount of input that headquarters 
requested from the Gulf Region on offshore regulatory matters, and 
please describe if and how much this has changed since 2010.

    Answer. BSEE regulations are developed by subject matter experts 
throughout the Bureau, regardless of their being in a regional or 
headquarters location. We utilize the collective expertise of a range 
of experts to develop regulations. Subject matter teams were 
specifically engaged to assess the technical comments that were 
received. The GOM Regional Office was thoroughly involved in drafting 
the proposed rule and was a part of the subject matter expert team 
assembled to review technical comments from industry. Content 
development and participation in each rule is different based on the 
topic and expertise needed for each individual rule.

    Question 7. Is it safer for drilling decisions to be made by the 
drilling personnel on the rig or offshore facility or by onshore based 
personnel?

    Answer. All urgent decisions related to safety should be made by 
qualified competent personnel on the rig. However, real-time monitoring 
can elevate safety by having a ``second set of eyes'' to catch 
something that one person may miss. The proposed rule would not change 
current industry or operator practices regarding decisionmaking.

                 Questions Submitted by Rep. Westerman

    Question 1. BSEE's pending well control regulation has been under 
consideration within the Department of Interior for over 4 years. The 
scope of this Federal rule has expanded over the years from a focus on 
blowout preventer systems to the broader issue of well control. In the 
Agency's own words, this regulation represents ``one of the most 
substantial rulemakings in the history of the BSEE and its predecessor 
organizations.'' Given the extremely technical nature of this 
regulation, there is a limited number of industry experts who fully 
understand the consequences and feasibility of many provisions included 
in the rulemaking.

    Question 1a. Who did the Bureau consult with during the drafting of 
this rule?

    Answer. We utilize the collective experience of our BSEE subject 
matter experts--which includes engineers with over 30 years of industry 
experience--for any new rule or regulation that is being developed and 
finalized. BSEE also held over 50 meetings with external stakeholders 
including technical experts, industry groups, academia, and the members 
of the regulated industry. The rule also incorporates technical 
recommendations from numerous investigations and reports issued 
following the Deepwater Horizon incident including:

     Department of the Interior (DOI)/Department of Homeland 
            Security (DHS) Joint Investigation Team (JIT)

     National Commission on the BP Deepwater Horizon Oil Spill 
            and Offshore Drilling

     Chief Counsel for National Commission

     National Academy of Engineering

     BSEE Blowout Preventer (BOP) Forum

     Ocean Energy Safety Advisory Committee

     Chemical Safety Board

    Question 1b. More specifically, within BSEE, who was tasked with 
writing the technical provisions of this rule?

    Answer. The rule was developed by BSEE subject matter experts 
throughout the Bureau from both regional and headquarters locations. We 
utilize the collective expertise of a range of experts to develop 
regulations. Subject matter teams were specifically re-engaged for 
assessment of technical comments that were received.

    Question 1c. Were outside consultants and/or drilling engineers 
familiar with the latest technologies and drilling processes involved 
in drafting the rule?

    Answer. The Bureau has engaged extensively with external 
stakeholders and technical experts, beginning as early as 2012 with the 
blowout preventer public workshop. Additional sessions were held 
following that workshop with members of the regulated community, 
including the American Petroleum Institute and many of its members. 
Since then, engagement has continued with numerous meetings (over 50) 
with industry, academia, and other technical experts prior to 
publishing the rule. More recently, additional meetings were held after 
the closure of the comment period in cases where the Bureau required 
clarification of the written comments that were submitted within the 
comment period. Those discussions were restricted to the substance of 
those timely submitted comments. Since we have held many meetings and a 
public workshop in the past 4 years, we do not feel that there have 
been any time constraints placed on our stakeholder engagement.

    Question 1d. I am concerned that a regulation this technical--with 
significant safety, production, and cost impacts--may not have been 
exposed to the level of engineering expertise necessary to draft the 
best possible, and technically feasible, rule.

    Answer. The provisions in the rule have been fully discussed and 
carefully considered. We utilize the collective experience of our BSEE 
subject matter experts--which includes engineers with over 30 years of 
industry experience--for any new rule or regulation that is being 
developed and finalized. BSEE also held over 50 meetings with external 
stakeholders including technical experts, industry groups, academia, 
and the members of the regulated industry. The rule also incorporates 
technical recommendations from numerous investigations and reports 
issued following the Deepwater Horizon incident including:

     Department of the Interior (DOI)/Department of Homeland 
            Security (DHS) Joint Investigation Team (JIT)

     National Commission on the BP Deepwater Horizon Oil Spill 
            and Offshore Drilling

     Chief Counsel for National Commission

     National Academy of Engineering

     BSEE Blowout Preventer (BOP) Forum

     Ocean Energy Safety Advisory Committee

     Chemical Safety Board

    Question 2. During the hearing you stated that BSEE is trying to 
push the bar as it relates to the provisions in the proposed rule 
beyond API Standard 53. What analysis did BSEE use to determine when 
and how the bar should be raised above API 53? The API uses an open and 
transparent process to set industry standards following the 
requirements of the American National Standards Institute (ANSI). Did 
BSEE use a similar process when determining the rule's proposed 
requirements above and beyond API 53? Please explain how BSEE 
determined these requirements.

    Answer. Differences between the proposed rule and API 53 can be 
attributed to specific recommendations arising from the Deepwater 
Horizon investigations and analyses. The proposed Well Control Rule 
represents an effort by the Bureau to codify the recommendations of the 
several investigative bodies commissioned to determine the causes of 
the Macondo blowout. In contrast, the API employs a consensus process 
that results in the development of minimally acceptable performance 
standards. This process often requires compromises to address domestic 
and international technical and legal issues from various sectors of 
the industry. BSEE staff members attended many of these meetings and 
discussions and were able to identify the provisions of API 53 that 
potentially did not provide a sufficient level of safety for U.S. OCS 
operations. In the proposed rule, BSEE requested comments on these 
supplemental requirements and is considering the data and 
recommendations provided by industry or third parties.

                                 ______
                                 

    The Chairman. Thank you, I appreciate that.
    Mr. Leimkuhler, I will recognize you for 5 minutes.

STATEMENT OF JOSEPH LEIMKUHLER, VICE PRESIDENT, DRILLING, LLOG 
                    EXPLORATION COMPANY, LLC

    Mr. Leimkuhler. Good morning. Chairman Bishop and members 
of the committee, thank you for inviting me to testify on 
behalf of LLOG Exploration Company. LLOG welcomes this 
opportunity to provide what we see as improvements to Federal 
policies on oil and gas activity in the Outer Continental 
Shelf.
    LLOG is the largest privately-owned oil producer in the 
United States, headquartered in Covington, Louisiana. Our focus 
is the deepwater U.S. Gulf of Mexico, where we apply a targeted 
approach to subsea wells and floating production systems to 
safely and efficiently develop the Nation's deepwater oil and 
gas resources.
    Unlike the major integrated oil and gas companies, our area 
of focus is limited. However, the level of expertise and 
capability we bring to those areas is state-of-the-art. There 
is additional information about our company in your addendum, 
but I would like to highlight two main points.
    The first is safety. At LLOG, we, and especially myself 
personally, hold it as a core value. Priorities change, but 
values do not. In scope, we have 16 deepwater developments to 
date, with 8 fields currently in the OCS under development. We 
are a small company that does big things.
    Depending upon where a subsea well is drilled in the Gulf 
of Mexico, anywhere from 9 to 11 permits or plan approvals are 
needed to move a prospect from leasing into production. These 
approvals come from BOEM, BSEE, and the EPA. In your slide pack 
is a simplified version of the process, which is shown on Slide 
4. Within that regulatory protocol, I would like to highlight 
three areas where LLOG feels there are improvement 
opportunities, as well as other issues not addressed on the 
slide.
    The first improvement area is the appropriate balance of 
prescriptive- versus performance-based regulations. In the 
past, the technical regulatory staff at the regulators had an 
appropriate degree of professional judgment that they could 
apply to approve permits and operations. Over time, that 
balance has moved to a more prescriptive approach. Of 
particular note, based on our analysis and review of the 
proposed Well Control Safety Rule, the application has become 
so prescriptive in the proposed rule, relative to well design 
and real-time monitoring, that it is likely to be counter-
productive to safe operations. LLOG strongly encourages BSEE 
and BOEM to take a balanced approach to regulatory enforcement 
using prescriptive- as well as performance-based regulations, 
especially in those two areas. I would be more than happy to 
provide examples in the follow-up Q&A.
    Second is the exploration plan and well permit approval 
process. I have worked my entire career offshore in the Gulf of 
Mexico since 1987, and the technical professionals and regional 
management at the regulatory agencies that I have worked with 
over that time were and are consistently professional, capable, 
and dedicated. In my opinion, the Bureau just needs more of 
them. We are now 1 month away from the 5-year anniversary of 
the end of the moratorium, yet we continue to see our well-
related permits and even exploration plans approved just in 
time. This is not due to a lack of effort by the staff but, in 
my opinion, an understaffed situation, despite the best efforts 
of district and regional management to recruit and retain good 
talent. I am encouraged that they appear to be taking advantage 
of the current downturn to add experienced staff, and that 
should be encouraged.
    Third is the commingling process. LLOG strives to make all 
the wells we drill commercial by utilizing smart well 
technology to open up multiple zones in adjacent reservoirs 
within the same well. We have never drilled an expendable well. 
As long as Mother Nature cooperates and we find the reservoirs 
in the expected location and depth, we can file for a 
commingling permit in advance. However, zones often do not come 
in as expected and we need to file an initial commingling 
permit or modify an existing one.
    With a rig on location costing $1 million a day in capital, 
we need to evaluate the ability and likelihood to obtain 
commingling permit approval in time, versus the impact of 
costly delays. Under such conditions, the added burden or risk 
of a regulatory delay has actually made some zones uneconomic 
to produce. This hinders the industry's ability to bring 
American energy to U.S. consumers and provide a robust supply 
of affordable, reliable energy.
    Among the additional improvement opportunities are the 
impact of rigid application of the Jones Act to offshore 
facility installation, and the impact of obtaining Clean Air 
permits.
    With respect to the Jones Act and the heavy-lift vessels 
required to install offshore facilities, LLOG encourages the 
U.S. Customs and Border Protection to adhere to the prior 
historical application of the law with respect to the use of 
heavy-lift vessels. LLOG feels application of the Jones Act to 
the heavy-lift vessels forces us to possibly transfer jobs 
overseas and away from U.S. Gulf Coast fabrication yards. On 
this issue, LLOG commends a letter sent by BBSE Director Brian 
Salerno to the U.S. Customs and Border Protection earlier this 
month supporting the industry position to return to the 
historical application of the Jones Act with respect to heavy-
lift vessels used in offshore construction.
    Regarding the air permits, the Clean Air Act compliance is 
incorporated into the exploration plan approval process, as 
required by BOEM, except for the Eastern Gulf of Mexico, where 
the EPA air permit protocol is quite different. The EPA permits 
take 12 to 18 months to secure and, in our view, relative to 
the BOEM protocol, adds operational complexity and delays with 
no actual benefit relative to Clean Air Act compliance. LLOG 
urges you to consider BOEM for the Clean Air Act compliance 
across the Gulf of Mexico.
    Thank you for the opportunity to present the views of LLOG 
and myself on these issues. The safe, efficient production and 
use of our Nation's resources in the OCS continues to be 
critical for our Nation's energy, and I am happy to answer any 
questions the committee may have or raise additional issues 
beyond which I could cover in my 5 minutes.

    [The prepared statement of Mr. Leimkuhler follows:]
Prepared Statement of Joseph Leimkuhler, Vice President, Drilling, LLOG 
                        Exploration Company LLC
                              introduction
    Chairman Bishop and members of the committee, thank you for 
inviting me to testify today on behalf LLOG Exploration Company. LLOG 
welcomes this opportunity to provide what we see as improvements to 
Federal policies on oil and gas activity to further America's energy, 
economic and national security by strengthening the development of 
America's resources in the Outer Continental Shelf (OCS). My goal is to 
provide you a snapshot of LLOG's current operations, how those 
operations are conducted within the regulatory processes of the Gulf of 
Mexico, and what we see as improvement opportunities.
                           a snapshot of llog
    LLOG is one of the largest privately-owned oil and gas firms in the 
country and is the largest private oil producer in the United States. 
Our focus is the U.S. Gulf of Mexico where we apply a targeted approach 
using floating production systems and subsea wells to safely and 
efficiently develop the Nation's deepwater oil and gas resources.
    Unlike the major, integrated oil and gas companies, our areas of 
focus are limited; however, the level of expertise and capability we 
bring to those areas is state-of-the-art. There is additional 
information about LLOG in the addendum to my testimony, but I'd like to 
highlight two main points:

     Safety--At LLOG we hold safety as a core value--priorities 
            may change but values do not. Recognition of that value is 
            LLOG being awarded the SOAR award in 2008, which was the 
            last year this award was given for Safe Operations and 
            Accurate Reporting.

     Scope--We have 16 deepwater developments to date with 8 
            fields in the OCS currently under development.

     offshore permitting process and opportunities for improvements
    To portray the various and numerous regulatory processes and 
permits a company must execute and achieve during the offshore 
exploration and production process, I have attached a diagram (Slide 4 
in Attachment) called the Simplified Permit Process Overview for a 
Subsea Well Tie-In. This flow chart shows how the process of lease 
acquisition to first production plays out within the regulatory 
framework for a Subsea Well Tie-in. While this particular diagram is 
specific to the subsea well tie-in permit process, it is indicative of 
the types of approval processes that companies are required to go 
through before projects can begin or be altered in the Federal waters 
of the Gulf of Mexico (GOM).
    Subsea wells, tied back to a floating production platform, are 
LLOG's basic focus area for our offshore operations. Depending on where 
a subsea well is drilled in the Gulf of Mexico, anywhere from 9 to 11 
permits or plan approvals are needed to move a prospect from leasing to 
production. For most of the Gulf of Mexico, those permits and plan 
approvals are split between the Bureau of Ocean Energy Management 
(BOEM) (red text on Slide 4) and the Bureau of Safety and Environmental 
Enforcement (BSEE) (blue text), both within the Department of the 
Interior. However, for the eastern portion of the central gulf planning 
area, the Environmental Protection Agency (EPA) (bold black text) has 
that authority. Among all of these approval processes, I wish to 
highlight three where LLOG feels there are improvement opportunities 
and address other issues not indicated on this process diagram.

Application of Regulations--Prescriptive Versus Performance

    The first improvement area is achieving the appropriate balance of 
prescriptive versus performance based regulations and application of 
the regulations. In the past, the professional technical staff within 
BSEE (and before BSEE's creation, its predecessor agency the Minerals 
Management Service) had a greater degree of professional judgment that 
they could apply to approve permitted operations. Permits were approved 
when the operator's plans met the regulatory requirements, and for any 
gray areas, operators provided a justification for why the submitted 
plan met the intent of the regulations and provided the necessary 
safeguards to manage and mitigate hazards.
    Over time, that mixture of prescriptive and performance based 
regulatory approval protocol has moved to a more prescriptive based 
regulatory approach. Of particular note, based on our analysis and 
review, the proposed well control safety rule has become so 
prescriptive the actual application of that proposed rule to well 
design and real time monitoring is likely to be counterproductive to 
safe operations. LLOG strongly encourages BSEE and BOEM to take a 
balanced approach to regulatory enforcement using a balance of 
prescriptive as well as performance based regulations, especially in 
these two areas. I will be more than happy to follow up with examples 
in the follow-up Q&A.

Drilling Permit Approval Process

    Second is the Application for Permit to Drill (APD), or generally, 
the drilling permit approval process. I have worked my entire offshore 
career since 1987 in the Deepwater Gulf of Mexico and the technical 
professionals and Regional Management at the MMS, BOEM, and BSEE that I 
have worked with over that time were and are consistently professional, 
capable and dedicated . . . in my opinion BSEE just needs more of them.
    We are now 1 month away from the 5-year anniversary of the end of 
the moratorium, yet we continue to receive our well related permits 
(drilling and well as completion and workover) just in time. This is 
not due to a lack of effort by the BSEE and BOEM staff, but in my 
opinion an understaffed situation at BOEM and BSEE, despite the best 
efforts of BSEE and BOEM district and regional management to retain and 
recruit talent. The overall approval cycle could be improved with an 
increase in agency technical capacity.
    We are finding that the more knowledgeable staff are retiring which 
leaves the current staff short-handed, and overworked, not to mention 
the lack of experience among the younger staff. This is part of the 
larger ``Big Crew Change'' and is a challenge not only for industry but 
also for BSEE's District Managers and BOEM's Regional Supervisors. 
Because of this situation, permits are being approved with a short 
window prior to commencement of operations, which makes it difficult 
for operators to conduct operations that require a long lead time for 
planning and sequential approvals.
    Additional capable agency staff = additional permit approvals, 
additional production revenue and additional economic development. An 
innovative compensation/recruitment plan as well as the current 
industry downturn is likely to provide an opportunity for BSEE and BOEM 
to recruit experienced staff and should be leveraged to increase the 
permit approval capacity of the bureaus.

Commingling Approval Process

    Third is the commingling approval process. LLOG strives to make all 
the wells we drill commercial by utilizing smart well technology to 
open up multiple zones in adjacent subsurface reservoirs within the 
same well. To make such projects economically viable we normally 
request to commingle downhole the production from those zones. Our 
deepwater rigs often drill development wells in subsea fields where the 
completion and subsequent production from the wells immediately follows 
the drilling and casing of the well in a continuous operation. As long 
as Mother Nature cooperates and we find the reservoirs in the expected 
location and depth, we can file for our commingling permit with plenty 
of time for approval. However, we often find zones that do not come in 
as expected and we need to either file for an initial commingling 
permit or modify an existing permit. With a rig on location consuming 
over $1 million a day in capital, we need to evaluate the ability and 
likelihood to obtain commingling permit approval versus the impact of 
costly delays to the project profitability. Under such conditions the 
added regulatory burden adds cost and actually makes some zones 
uneconomic to produce. This hinders industry's ability to bring 
American energy to U.S. consumers and provide a robust supply of 
affordable, reliable energy.
            additional regulatory improvement opportunities
    Additional improvement opportunities related to operations are in 
the areas of Containment Response, the impact of rigid application of 
the Jones Act to offshore facility installation, the impact of 
revisions to supplemental bonding requirements, and the impact of Clean 
Air Act permits.

    In containment response, those needs are met by two providers: the 
Marine Well Containment Corporation (MWCC) and HWCG. Both are very 
capable organizations that together provide a diversity of suppliers, 
operator expertise, and response capabilities. This diversity of 
response should be encouraged and continued. However, in LLOG's view, 
this response capability is at risk of being compromised if Responder 
Immunity is not improved. We urge the passage of the Senate Coast Guard 
Authorization Bill (S. 1611) covering improved Responder Immunity.

    With respect to heavy lifts associated with offshore facilities 
installations and the Jones Act, LLOG encourages the U.S. Customs and 
Border Protection to adhere to the historical application of the law 
with respect to transport and heavy lift vessels. Current rigid 
application of the Jones Act to heavy lift vessels for the minimal 
distances that these vessels move the suspended load (in most cases 
hundreds of feet or less) is resulting in increased lift complexity and 
scope and adding risk. In addition LLOG feels continued application of 
the Jones Act to heavy lift vessels has the potential to transfer work 
and jobs away from Gulf Coast Fabrication yards. On this issue LLOG 
commends the letter sent by BSEE Director Salerno to the U.S. Customs 
and Border Protection supporting the industry position to return to the 
historical application of the Jones act to heavy lift vessel use in 
offshore construction.

    With regard to the management of Plug and Abandonment liabilities, 
it is LLOG's understanding that revisions to the supplemental bonding 
requirements are to be released in an upcoming Notice to Lessee (NTL). 
LLOG requests that serious consideration be given to the scope of the 
proposed changes. If the changes are more than a refinement or 
clarification of the existing regulations, then the rulemaking process 
should be followed.

    Regarding the issuance of air permits required to be compliant with 
the Clean Air Act (CAA). For wells drilled in the OCS in the Western 
Planning area, the CAA compliance is incorporated into the Exploration 
Plan approval process required by BOEM. This also applies to the 
majority of wells drilled in the Central Gulf Planning Area with the 
exception of the eastern portion of the Central Planning Area where EPA 
jurisdiction applies. The EPA air permit approval process and protocol 
is quite different from the BOEM protocol and takes from 12-18 months 
to secure. This EPA permit is actually individual rig specific versus 
rig type specific in the BOEM protocol, and in our view adds 
operational complexity and delays with no actual benefit relative to 
CAA compliance. LLOG urges you to allow BOEM to assume CAA compliance 
across the GOM and at a minimum allow BOEM to administer CAA compliance 
for the full western and central Gulf planning areas.

    Finally with regard to the interface between Regulators and 
Operators LLOG would like the Department of the Interior to perform an 
After Action Review--of the allocation of work scope between BOEM and 
BSEE. LLOG understands and supports the split of the revenue function 
to BOEM and the operational enforcement role to BSEE. However, in 
LLOG's view the full permitting and plan approval function after the 
lease sale through the full operational cycle should fall to BSEE.

    Thank you for the opportunity to present the views of LLOG and 
myself on these issues. Safe, efficient production and use of our 
Nation's resources from the OCS continues to be critical for our 
Nation's energy, economic, and national security. I am happy to answer 
any questions the committee may have.

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    The Chairman. Thank you.
    Mr. Henderson.

 STATEMENT OF JONATHAN HENDERSON, JD, MBA, MANAGER OF GULF OF 
       MEXICO FIELD OPERATIONS, GULF RESTORATION NETWORK

    Mr. Henderson. Thank you. We continue to hear about 
reducing our dependence on foreign oil, but we cannot import 
clean air, water, food, and soil. The BP disaster of 2010 and 
decades of oil extraction has led to severe environmental, 
social, and political impacts.
    To remind this committee of just a few, hundreds of 
millions of gallons of oil have leaked into the Gulf; the 
destruction of sensitive fish habitat like coral reefs; 
countless dead marine mammals and sea turtles; contaminated 
beaches and wildlife refuges; deployment of harmful 
dispersants; discharging of fracking chemicals; 27,000 
abandoned, unmonitored, and possibly leaking wells; the 
devastation of communities and loss of cultures; shrimp with no 
eyes, fish with lesions and tumors; destroyed family businesses 
and devastated families; suicides; sick, dead, and dying 
cleanup workers; and a distrust of our government. In addition, 
regulatory capture and the hijacking of our democracy, not to 
mention that roughly 600 square miles of Louisiana's wetlands 
have been destroyed by the oil and gas industry, which is very 
much a threat to the existence of my hometown of New Orleans, 
and the very building that we sit in today.
    In the fall of 2010, I filed my first official pollution 
incident report with the National Response Center (NRC) for an 
oil slick leaking out of a wellhead in a bay known for very 
productive and economically important oyster beds. To date, I 
have filed approximately 100 NRC reports for leaks, including 
offshore and onshore platforms, pipelines, wellheads, and tank 
batteries--most recently, on August 17, 2015, for a suspected 
ruptured gas pipeline in Lafourche Parish, and that same day a 
roughly 15-mile-long rainbow sheen well offshore.
    There are very few people who do this kind of proactive 
monitoring work in this region, but the need is great. My 
reports to the NRC have led to numerous successful 
investigations by the U.S. Coast Guard, which in turn has led 
to mutual respect and trust between myself and the leaders of 
various sectors and their incident management personnel.
    Since July of 2010, the NRC has recorded approximately 
10,000 spills of crude oil, petrochemicals, and other 
contaminants into Gulf of Mexico waters.
    The BP disaster highlighted the flawed process by which oil 
discharges are reported and cleaned up, and for which companies 
are held accountable. It revealed how the official channels of 
reporting and cleaning up oil pollution rely on the polluters 
themselves. Little information is made available to the public, 
and the information that is presented could be considered 
untrustworthy. These massive reporting gaps make it impossible 
to determine how much oil pollution is actually being released 
into the Gulf.
    One particularly egregious example of underreporting 
involves the Taylor Energy leak. For over 10 years this chronic 
oil leak has been spewing oil into the Gulf waters every day, 
with no end in sight. The discharge began in 2004 when an 
undersea landslide caused by Hurricane Ivan damaged a Taylor 
platform and 28 wells. Our work monitoring the Taylor leak and 
a recent AP investigation published in April shed light on the 
underreported flow amount and led to revision of the estimates.
    In the immediate aftermath of Hurricane Isaac in 2012, I, 
along with my partners at the Gulf Monitoring Consortium, took 
several monitoring trips and documented leaks. Our findings, 
from a review of NRC reports, indicated that there were 130 
accidents resulting from the storm that were reported to the 
NRC.
    Based on my experience in the Gulf region and my 
participation in the New Orleans area contingency plan meetings 
and exercises, I am greatly concerned that government and 
industry are not adequately prepared for a worst-case scenario. 
An ongoing blowout in the Gulf of Mexico hit by a Category 5 
hurricane would cause the response to be put on hold, and we 
could very likely be hit by another hurricane shortly 
thereafter. This would be an environmentally chaotic situation 
that is not being planned for and that threatens our homeland 
security.
    This committee should introduce and pass a Gulf of Mexico 
Regional Citizens' Advisory Council. Attached to my testimony 
is a draft bill that was attempted to be introduced in 2014. A 
Gulf of Mexico Regional Citizens' Advisory Council will enhance 
engagement, communication, collaboration, and trust among the 
Gulf oil industry, Federal and state governments, and citizen 
stakeholders potentially impacted by Gulf oil operations.
    Five years after the BP disaster, attempts are being made 
to open up the Eastern Gulf of Mexico and the Mid-Atlantic. 
This should not happen. At the same time these attempts are 
being made, investigations by New Orleans-based WLTV have 
raised serious concerns that the new post-BP safety standards 
may not be taken seriously enough at existing Gulf operations.
    The bottom line is that Congress needs to act. Congress 
needs to pass a Regional Citizens' Advisory Council. It can 
raise the liability limit for offshore drilling, and it needs 
to make the Federal Oil Spill Liability Trust Fund available 
for Federal agencies when incidents occur.
    Congress must start taking our oil, air, and water 
seriously. It is our homeland security. Thank you.
    [The prepared statement of Mr. Henderson follows:]
Prepared Statement of Jonathan Henderson, Manager, Gulf of Mexico Field 
                  Operations, Gulf Restoration Network
                               brief bio
    Jonathan Henderson manages the Gulf Restoration Network's field 
operations in the Gulf region. By air, sea and land, he searches for, 
documents and reports pollution incidents such as leaking pipelines, 
well heads, platforms, and ongoing BP disaster impacts. He also 
documents the extensive O&G industry destruction of Louisiana wetlands. 
Jonathan is a founding member of the Greater New Orleans Water 
Collaborative of which he serves on the interim steering committee and 
as co-chair of the Advocacy working group. Jonathan is the Founding 
President of Vanishing Earth, Advocacy + Consulting + Photography. Born 
and raised in New Orleans, Jonathan grew up fishing and canoeing in 
Louisiana's bayous and creeks, visiting family along coastal 
Mississippi, and vacationing on beaches in Alabama and Florida. 
Jonathan has a Bachelor's degree in Theater from LSU, a Master's of 
Business Administration from the University of Louisiana at Lafayette, 
and a JD from Southern University Law Center.
             brief description of gulf restoration network
    Founded in 1994 and headquartered in New Orleans the Gulf 
Restoration Network is non-profit environmental conservation and 
advocacy organization committed to uniting and empowering people to 
protect and restore the natural resources of the Gulf of Mexico region 
for future generations. For more information about GRN, visit 
www.healthygulf.org.
               reporting pollution incidents in the gulf
    My work documenting pollution incidents began in late April, 2010 
just a few days after the Deepwater Horizon exploded and sank. 
Throughout 2010, I took approximately 50 trips by air and sea to 
document the environmental impacts as they were unfolding offshore in 
the Mississippi Canyon and on barrier islands, beaches, bays and 
wetlands throughout the Gulf Coast. Given its exclusive focus on the 
Gulf region, GRN quickly became a go to source for information for the 
public, media, scientists and researchers. With my local knowledge and 
connection to the Gulf region, access to planes and boats to carry me 
into the field, many of the trips I took involved guiding and educating 
media about the situation. Today, much of my work involves doing the 
same thing though I have added to my focus areas many of the Gulf's 
other environmental problems including but not limited to the 
extractive industry's severe impact on Louisiana's wetlands.
    In the Fall of 2010, I filed my first official pollution incident 
report with the National Response Center (NRC) for an oil slick leaking 
out of well-head in a Bay known for very productive and economically 
important oyster beds. To date, I have filed approximately 100 NRC 
reports for pollution incidents including leaks from offshore and 
onshore platforms, pipelines, well-heads, tank batteries, etc. Most 
recently, on August 17, 2015, I filed Incident Report #1125932 for a 
suspected ruptured gas pipeline in Lafourche Parish, and Incident 
Report #1125933 for a roughly 15-mile-long rainbow oil sheen. There is 
rarely a trip that I take where I don't find and report some sort of 
pollution incident. Knowing what to look for and how to document and 
report an Incident is a skill that I learned from having spent 
thousands of hours in the field; reading various oil spill response 
manuals; talking with leading government and industry experts; spending 
time in the field with some of the world's top experts from the 
scientific, academic, and environmental NGO communities; flying with 
the most experienced pilots in the Gulf region; and, dozens of trips 
with captains of charter, shrimp, and oyster boat captains. Still, 
there are a lot of trainings that would assist this work and that I 
would pursue if they were not so cost-prohibitive. Moreover, financial 
constraints also limit the number of monitoring trips that I can take 
and thereby the number of NRC reports I am able to file. There are very 
few people that do this kind of proactive monitoring work in the Gulf 
region, but the need is great. My reports to the NRC have led to 
numerous successful investigations by the USCG which, in turn, has led 
to mutual respect and trust between myself and the leaders of various 
USCG sectors and their Incident Management personnel, and other 
response agencies. Especially in the immediate aftermath of hurricanes, 
as I was told by USCG Sector New Orleans, having extra eyes in the sky 
is a very valuable source for the Unified Command as I am able to 
provide direct intel to the Unified Command for any problems I 
discover, and what geographic areas I searched.
                   chronic offshore pollution in gulf
    Since July of 2010, the National Response Center has recorded 
approximately 10,000 spills of crude oil, petrochemicals, and other 
contaminants into Gulf of Mexico waters. This shocking animated map \1\ 
created by Skytruth.org illustrates where each of these incidents 
occurred between July 2010 and April 2015.
---------------------------------------------------------------------------
    \1\ http://blog.skytruth.org/2015/04/the-other-gulf-oil-
disaster.html.
---------------------------------------------------------------------------
    To make matters worse, a 2010 Associated Press investigation 
reported 27,000 abandoned oil wells in the Gulf of Mexico--each a 
potential source of leaking oil.\2\ Very few of these abandoned wells 
are being monitored by Federal officials or industry for well-integrity 
and it is unknown how many are slowly leaking oil and/or gas into the 
marine environment on a daily basis. While natural seeps on the Gulf 
floor are known to exist and have been mapped out, an investigation 
into the cause of a leak should not be written off as naturally 
occurring given the high number of abandoned wells.
---------------------------------------------------------------------------
    \2\ http://www.cbsnews.com/news/27000-abandoned-gulf-oil-wells-may-
be-leaking/.
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                          lack of transparency
    The BP disaster in 2010 highlighted the flawed process by which oil 
discharges are reported and cleaned up, and through which companies are 
held accountable. It revealed how the official channels of reporting 
and cleaning up oil pollution rely, to an inordinate degree, on the 
polluters themselves. Little information is made available to the 
public, and the information that is presented could be considered 
untrustworthy. Whenever oil, hazardous materials and other pollutants 
are released into a body of water, the Clean Water Act requires the 
responsible party to file a report with The National Response Center, a 
Federal communications center staffed by the Coast Guard. From October 
2010 to September 2011, a total of 2,903 oil release reports were filed 
with the NRC from the Gulf region, but 77 percent of those reports did 
not include an estimate of the amount of oil spilled, according to a 
2012 report \3\ by the Gulf Monitoring Consortium (GMC), of which GRN 
is a member. The NRC reports that did include a spill estimate account 
for a combined 250,000 gallons of crude released into the Gulf during 
the 1-year period. Consortium estimates the actual total amount spilled 
during the period to be between 1.5 million and 2.2 million gallons. 
These massive reporting gaps make it impossible to determine how much 
oil pollution is actually released in the Gulf of Mexico.
---------------------------------------------------------------------------
    \3\ http://skytruth.org/gmc/wp-content/uploads/2012/05/Gulf-
Monitoring-Consortium-Report.pdf.
---------------------------------------------------------------------------
    One particularly egregious example of underreporting involves the 
Taylor Energy leak, which I have documented and filed numerous NRC 
reports over the last few years. For over 10 years, this chronic oil 
leak has been spewing oil into the Gulf waters every day, with no end 
in sight. The discharge began in 2004 when an undersea landslide caused 
by Hurricane Ivan damaged an offshore platform and 28 associated wells. 
Taylor has yet to stop the daily flow of oil from the site and oil is 
still leaking to this day. A recent AP investigation \4\ published in 
April 2015 shed light on the underreported flow amount and led to the 
USCG revising its estimates significantly. The Taylor leak gives the 
impression of a broken system, where oil production is prioritized over 
concerns for the environment. Recently, a settlement agreement between 
Taylor and a group of GMC member organizations was announced. The 
lawsuit sought information about Taylor's response efforts which have 
been hidden under a `veil of secrecy' by Taylor.\5\
---------------------------------------------------------------------------
    \4\ https://www.youtube.com/watch?v=3WHe0C9lj30.
    \5\ http://www.gulfmonitor.org/taylor-settlement/.
---------------------------------------------------------------------------
                      hurricanes and oil don't mix
    In the immediate aftermath of Hurricane Isaac in 2012, I along with 
other GMC members took several monitoring trips by boat and plane to 
search for, document and report any possible resulting leaks. GMC 
announced our findings from a review of NRC reports that occurred 
during and immediately after Hurricane Isaac. A total of 130 accidents 
resulting from the storm were reported to the National Response Center. 
Those accidents dumped at least 12.9 million gallons of pollutants and 
contaminated water into the environment. You can read more about our 
Key Findings \6\ or jump right in and read the full report.\7\
---------------------------------------------------------------------------
    \6\ http://www.gulfmonitor.org/gmc-isaac-report/.
    \7\ http://www.gulfmonitor.org/wp-content/uploads/2013/08/
Isaac.GMC_Pollution.Report.Final_ 1.2.pdf.
---------------------------------------------------------------------------
    Based on my experience in the Gulf region and my participation in 
the New Orleans Area Contingency Plan meetings and exercises, I am 
gravely concerned that government and industry is not adequately 
prepared for a worst case scenario. Imagine for a moment a BP type 
blowout that has been gushing for months. Then, a Category 5 hurricane 
comes through disrupting the containment and response effort. If the 
hurricane hits port facilities where the response equipment was 
evacuated to, it could be weeks or months before the assets are fully 
resourced and redeployed. Then the process of trying to contain the 
leak would start again. Like Hurricane Rita followed Katrina in 2005, 
what if then we get hit by another major storm again? In this scenario, 
for months on end oil would be spewing unimpeded into the Gulf only to 
have that oil mercilessly pushed onshore with what would be a massive 
storm surge. The possibility of having oil completely washing over 
coastal communities is very real, especially given the loss of wetlands 
that act as a buffer.
  hnrc should introduce and pass a gulf of mexico regional citizens' 
                            advisory council
    Congress identified complacency on the part of the oil industry and 
government regulators as a root cause of the Exxon Valdez spill. The 
Oil Pollution Act of 1990 was passed by Congress in response to the 
1989 Exxon Valdez oil spill. In it, Congress mandated citizens' 
councils for Prince William Sound and Cook Inlet. The purpose of these 
councils is to promote partnership and cooperation among local 
citizens, industry and government, and to build trust and provide 
citizen oversight of environmental compliance by oil terminals and 
tankers
    A GoM RCAC will enhance engagement, communication, collaboration, 
and trust among the Gulf oil industry, Federal and state governments, 
and citizen stakeholders potentially impacted by Gulf oil operations. 
These citizen stakeholders include fishermen, tourism businesses, 
indigenous peoples, conservation groups, scientists, and local 
governments and communities. The GoM RCAC will fund its own research on 
issues of importance to citizens--spill prevention and response, 
dispersants and their alternatives, human health, ecosystem impacts, 
tanker safety and vessel traffic risks, fisheries protection, and more. 
Through its research, consultative, and deliberative process, the 
Council will provide informed advice to industry and government, and 
citizens will gain a better understanding of the complex realities of 
offshore oil. Importantly, the Council will operate autonomously, 
rather than under the direction of government or industry.

    In 2011, the National Commission on the BP Deepwater Horizon Oil 
Spill and Offshore Drilling endorsed the citizen call for a GoM RCAC.

    In 2013, citizens requested the introduction and passage by 
Congress of the Gulf of Mexico Regional Citizens' Advisory Act of 
2013.\8\
---------------------------------------------------------------------------
    \8\ http://www.onwingsofcare.org/gomrcac/GoMRCAC-
ProposedLegislation2013-07-29.pdf.

    In September 2014, a letter was sent by citizens asking Secretary 
Jewel to use her administrative powers to establish a GoM RCAC. A copy 
of this letter is included. Also included with my testimony is a copy 
of our proposed legislation titled: Gulf of Mexico Regional Citizens' 
Advisory Council Act of 2014. On behalf of Gulf citizens, I urge the 
members of this committee to introduce this bill and get it passed.
   five years later, serious concerns remain, safety audits, staffing
    Although there have been improvements in offshore drilling safety 
and government oversight since 2010, we still have a long way to go to 
make it as safe as possible. At the same time attempts are being made 
by the oil industry to open up the Eastern Gulf, the Mid-Atlantic, and 
now the Arctic to drilling, investigations by New Orleans based WWLTV 
\9\ raise serious concerns that the new post-BP safety standards may 
not be taken seriously enough at existing gulf operations, and a lack 
of transparency is impeding Gulf citizens' ability to be informed. A 
similar problem is occurring in Alaska where a FOIA suit was brought 
against BSEE for failing to release safety documents for the Shell 
offshore drilling project currently underway in the Arctic Ocean.\10\ 
Also, a recent DOI Inspector General report determined that BSEE still 
does not have enough trained staff to conduct timely investigations 
into safety incidents and leaks. These issues need to be fixed 
immediately and further support the need for a GoM RCAC.
---------------------------------------------------------------------------
    \9\ http://www.wwltv.com/story/news/local/investigations/david-
hammer/2015/04/20/5-years-later-industry-responds-regulators-lag-
behind/26108425/.
    \10\ http://www.peer.org/news/news-releases/shell-arctic-offshore-
safety-data-still-under-wraps. html.
---------------------------------------------------------------------------
                         congress needs to act
    Although there have been improvements in offshore drilling safety 
and government oversight since 2010, we still have a long way to go to 
make it as safe as possible. Congress needs to get far more serious 
about this issue. While the Administration has taken positive steps in 
offshore safety post-Deepwater Horizon, Congress has done almost 
nothing (other than RESTORE Act). The Oil Spill Commission Review in 
2013 gave the Administration actions a grade of ``B'', industry a ``B-
'', and Congress a ``D+''.
    Congress needs to pass a GoM RCAC bill; it needs to raise the 
liability limit for offshore drilling (which a is still at only $75 
million as per OPA90); and it needs to make the Federal oil spill 
fund--the Oil Spill Liability Trust Fund--available to Federal agencies 
for spill prevention efforts, without having to go through the 
cumbersome appropriations process. The OSLTF is now at about $4 
billion, gains about $500 million/year (from an 8 cent/barrel oil tax 
nationwide) and this money can and should be available to agency spill 
prevention needs.

                                 *****

The following documents were submitted as supplements to Mr. 
Henderson's testimony. These documents are part of the hearing record 
and are being retained in the Committee's official files:

    --September 2014 letter sent by citizens to Secretary Jewel asking 
            her to use her administrative powers to establish a GoM 
            RCAC

    --Proposed legislation titled: Gulf of Mexico Regional Citizens' 
            Advisory Council Act of 2014

                                 ______
                                 

    The Chairman. Thank you.
    Ms. Davis, can you pull that right up to your mouth so we 
can hear you?

          STATEMENT OF LORI DAVIS, PRESIDENT, RIG-CHEM

    Ms. Davis. Thank you, Chairman Bishop and committee 
members, for giving me the opportunity to share my comments.
    RIG-CHEM was formed in 1980 as a small oilfield service 
company that supported the energy industry. In 1984, my father, 
at the age of 50, was forced into early retirement by the 
downturn in the industry, much like what we are facing today. 
With his $25,000 severance after 21 years of service with 
Schlumberger, he invested his and his family's future in RIG-
CHEM. By doing so, my parents created an opportunity for their 
children with the hope that the company would grow and support 
our family for many years to come, which it has. The days of 
modest investment and hard work are not as easily come by. 
Times are different, and $25,000 will not afford the same 
opportunities that were possible in 1984.
    Our company employees 16 people across Louisiana and Texas, 
with an average tenure of 16 years of company service. We are 
proud to say that the average annual income of our dedicated 
employees is $66,000 per year. We also provide company-paid 
health insurance, 401(k) and profit sharing, and have never 
laid anyone off despite the cyclical highs and lows of the 
energy industry.
    Over the last 30 years, our company has weathered through 
tough times, business challenges, increased competition, 
industry fluctuation, hurricanes, a moratorium, the Great Crew 
Change, and now a terrifying revisit of the early 1980s with 
the decline in the price of oil. Many other small, family-owned 
companies face these same challenges, but today our battle is 
not just managing economic market fluctuations; we now also 
have the impending obstacles of continued tightening of 
government regulation. These regulations will limit 
opportunities and squeeze small businesses out of the market, 
out of business today.
    Our daily focus is to remain competitive, safe, and 
efficient in a shrinking industry, where the ability as a 
small, diverse company that has to compete against the majors 
is becoming increasingly difficult. There was a time that oil 
and gas operators welcomed small business to help develop new 
technology and keep competition healthy. Since Macondo, the 
moratorium, slow recovery, government interference, and record 
low oil prices, the value of diverse business is becoming 
extinct as companies do what is necessary to survive the times.
    Speaking on a local level, the community where RIG-CHEM is 
located, Terrebonne Parish in Louisiana, last February had the 
lowest unemployment rate, at 2.8 percent, in the country. This 
week we were advised that our parish has been added to a credit 
rating watch list due to the rising unemployment and reduced 
sales tax collections, which are down by 15 percent. These 
uncertain times are more reason to work closely on regulation 
to prevent this from becoming a grave reality for many energy 
municipalities.
    My plea to you is to allow industry to work collaboratively 
with government to address the needs of safety and 
responsibility together. Let the experts in their respective 
fields guide the decisions that impact our energy future and 
ultimately energy independence. When regulations are mandated, 
require that these burdens that are being leveraged upon our 
Gulf of Mexico operators be the same for those we import from 
into the United States, to level the global playing field.
    I am not a technical expert, but a business owner who is 
concerned about the impact that the proposed Well Control Rule 
will indirectly have on RIG-CHEM, our employees, and the many 
small companies like ours. Let us together protect our future. 
I stand behind the oil and gas operators and state that the 
proposed Well Containment Rule does not provide substantial 
improvements to safety or build on post-Macondo progress, will 
hinder offshore oil and gas development, will eliminate jobs 
and hurt our energy security in the future, and I advise that 
the rule be rewritten.
    We cannot control OPEC or the forces of nature, but we can 
stop imposing more regulations that will drive us out of 
business. There was a saying back in the 1980s--``the last 
person to leave should turn off the lights.'' Folks, the lights 
are dimming, and we will have no one else to blame but 
government for refusing to work toward a reasonable solution.
    Let's work together. Let's work to keep the lights on.
    Thank you very much for your time.
    [The prepared statement of Ms. Davis follows:]
     Prepared Statement of Lori Davis, President/CEO, RIG-CHEM, LLC
    Thank you Chairman Bishop and committee members for giving me the 
opportunity to share my comments with you today regarding ``Economic 
Impact of Federal Policies on Energy Production and Economic Growth in 
the Gulf.''
    My company, RIG-CHEM has been impacted and will face more 
challenges should government continue to impose more regulations on an 
industry already burdened by challenging economic times.
    RIG-CHEM was formed in 1980 as a small oilfield service company 
that supported the energy industry. In 1984, my father at the age of 50 
was forced into early retirement by the downturn in the industry much 
like what we're facing today. With his $25,000 severance after 21 years 
of service with Schlumberger, he invested his and his family's future 
in RIG-CHEM. By doing so, my parents created an opportunity for their 
children with the hope that the company would grow and support our 
family for many years to come, which it has. The days of modest 
investment and hard work are not as easily come by, times are 
different, and $25,000 will not afford the same opportunities that were 
possible in 1984.
    Our company employees 16 people across Louisiana and Texas with an 
average tenure of 16 years of company service. We are proud to say that 
the average annual income of our dedicated employees is $66,000. We 
also provide Company Paid Health Insurance, 401K and Profit Sharing and 
have never laid anyone off despite the cyclical highs and lows of the 
energy industry.
    RIG-CHEM is a longstanding member company supporting industry 
organizations that help educate, improve technology, and develop best 
practices. These organizations are: the Society of Petroleum Engineers 
(SPE), American Association of Drilling Engineers (AADE), American 
Petroleum Institute (API), South Central Industrial Association (SCIA), 
Louisiana Oil and Gas Association (LOGA), Women's Business Enterprise 
National Council (WBENC) and the Women's Energy Network (WEN).
    Over the last 30 years our company has weathered through tough 
times, business challenges, increased competition, industry 
fluctuation, hurricanes, a Moratorium, The Great Crew Change, and now a 
terrifying revisit of the early 1980s with the decline in the price of 
oil. Many other small family owned companies face these same challenges 
but today our battle is not just managing economic market fluctuations, 
we now also have the impending obstacles of continued tightening of 
government regulation. These regulations will limit opportunities and 
squeeze small businesses, (the backbone and largest tax contributors of 
the United States) out of the market. Our daily focus is to remain 
competitive, safe and efficient in a shrinking industry, where the 
ability as a small-diverse company that has to compete against the 
majors is becoming increasingly difficult. There was a time that oil 
and gas operators welcomed small business to help develop new 
technology and keep competition healthy. Since Macondo, the Moratorium, 
slow recovery, government interference, and record low oil prices the 
once value of diverse business is becoming extinct as companies do what 
is necessary to survive the times.
    Speaking on a local level, the community where RIG-CHEM is located, 
Terrebonne Parish in Louisiana, last February had the lowest 
unemployment rate, at 2.8 percent, in the country. This week we were 
advised that our parish has been added to a credit rating ``watch 
list'' due to the rising unemployment and reduced sales tax collections 
which are down by 15 percent. These uncertain times are more reason to 
work closely on regulation to prevent this from becoming a grave 
reality for many energy municipalities.
    I support and defend the industry that is committed to a safe 
working environment where families and friends leave for their jobs 
that provide national energy and return home safely. This industry has 
been commanded to work safer, while working smarter and now more 
efficient.
    My plea to you is to allow industry to work collaboratively with 
government to address the needs of safety and responsibility together. 
Let the experts in their respective fields guide the decisions that 
impact our energy future and ultimately energy independence. When 
regulations are mandated require that these burdens that are being 
leveraged upon our Gulf of Mexico operators be the same for those who 
export into the United States to level the global playing field.
    I am not a technical expert, but a business owner who is concerned 
about the impact that the proposed Well Control Rule will indirectly 
have on RIG-CHEM, our employees as well as many small companies like 
ours. Let us together protect our future. I stand behind the Oil and 
Gas Operators and state that the proposed Well Control Rule:

  1.  Does not provide substantial improvements to safety or build on 
            post-Macondo progress;

  2.  Will hinder offshore oil and gas development;

  3.  Will eliminate jobs and hurt our energy security and future; and

  4.  Advise that the rule be rewritten.

    We can't control OPEC or the forces of nature but we can stop 
imposing more regulations that will drive us out of business. There was 
a saying back in the 1980s, ``the last person to leave should turn off 
the lights''--folks, the lights are dimming and we'll have no one else 
to blame but government for refusing to work toward a reasonable 
solution.
    Let's work together; let's work to keep the lights on.

                                 ______
                                 

    The Chairman. Thank you.
    Our last witness, but certainly not the least, is Dr. 
Mason.
    You are recognized for 5 minutes.

  STATEMENT OF JOSEPH R. MASON, HERMANN MOYSE, JR./LOUISIANA 
 BANKERS ASSOCIATION, ENDOWED PROFESSOR OF BANKING, LOUISIANA 
    STATE UNIVERSITY; AND SENIOR FELLOW, THE WHARTON SCHOOL

    Dr. Mason. Good morning, Chairman Bishop and members of the 
committee. Thank you for the opportunity to testify on this 
very important topic.
    Unfortunately, little has changed in the Gulf region since 
my July 2010 study on the economic costs of a moratorium to the 
Gulf region. That study predicted a roughly $2 billion slowdown 
in economic activity in the Gulf states following the 6-month 
drilling moratorium in May 2010.
    While it is difficult to disentangle the effect of just the 
moratorium after the fact, real GDP from oil and gas extraction 
in the four Gulf states measured in that study fell by $16 
billion in 2009-2010, and remains $11 billion below 2009 real 
GDP in 2011.
    Not much has changed for Louisiana in recent years. In 
2012-2013, Louisiana real GDP from oil and gas extraction fell 
16 percent, and in 2013-2014, it fell another 6 percent. States 
with more onshore focus grew considerably in 2014, but even the 
states that did well in recent years can be expected to slow in 
2015 due to persistent low oil prices.
    Amidst this industry difficulty, the Department of the 
Interior's BSEE recently published new requirements and 
procedures related to blowout prevention systems and well 
control. In strict economic terms, those requirements pose new 
costs for the offshore oil and gas industry at a time when 
high-cost production is being pushed out of the industry.
    It should come as no surprise, therefore, that a recent 
American Petroleum Institute study of the potential impact of 
the proposed rule concluded that, ``Under the new regulations, 
approximately 690 fewer wells are projected in the U.S. Gulf of 
Mexico between 2017 and 2030, a 26 percent decline in drilling 
activity.''
    From a pure economic perspective, increased costs should 
result in lower supply. Regression results in my written 
testimony suggest, however, that production declines associated 
with additional regulation may be costlier if there already 
exists a significant regulatory burden.
    The direct results of production declines are, inevitably, 
fewer jobs, decreased wages, and lower economic growth. These 
effects will exacerbate competitive pressures in higher 
education as students, whether studying oil and gas, 
alternative energy, or compliance, are left without job 
prospects, and university programs without funding. Those 
funding shortfalls hurt research into new energy sources. The 
majority of Louisiana State University's externally-funded 
energy research is not associated with fossil fuels, but 
renewables. Moreover, that energy research funding is nearly 
equal to the total budget provided to the relevant colleges by 
the state of Louisiana. That research money is plugged back 
into course development and student support for education and 
workforce training and related fields.
    LSU offers a number of degree majors and minors that are 
relevant to energy issues. Estimates suggest that almost 3,000 
LSU undergraduate and graduate students study in energy-related 
fields. But program enrollment alone may severely understate 
the importance of workforce development to students in our 
region.
    For instance, even without a dedicated program, some 18 
percent of LSU business school grads go on to work in the oil 
and gas and energy sectors. Moreover, the college reports that 
LSU business graduates boast the highest mid-career earnings 
among peer institutions largely due to that energy industry 
employment. As a result, the College of Business, like many 
other academic units at LSU, is launching a variety of programs 
to prepare students for the opportunities and challenges 
presented in today's energy sector.
    LSU also provides energy-related workforce development in 
the form of worker safety, continuing education, and various 
energy specialization programs focused on fossil fuels, as well 
as renewables. As noted by Mr. Herbst initially, LSU's 
workforce development programs are a vital component of safety 
and efficiency in today's energy industry.
    In summary, LSU is inextricably intertwined with the energy 
industry and the Gulf of Mexico. Higher production costs will 
reduce grant funding, class offerings, and student placements. 
Further declines in higher education in Louisiana and similar 
states will be unavoidable. And ironically, a chief casualty of 
the slowdown will be research into clean and efficient energy 
sources to replace fossil fuels. I respectfully ask the Members 
present to please think hard about these dynamics before 
layering new offshore regulations on Gulf energy production. 
Thank you.
    [The prepared statement of Dr. Mason follows:]
 Prepared Statement of Joseph R. Mason, Louisiana State University \1\
---------------------------------------------------------------------------
    \1\ Views expressed in this testimony are those of the author and 
do not necessarily reflect official positions of Louisiana State 
University.
---------------------------------------------------------------------------
    Thank you for the opportunity to testify on this very important 
topic.

    Unfortunately, little has changed in the Gulf region since my 
initial study on the ``The Economic Cost of a Moratorium on Offshore 
Oil and Gas Exploration to the Gulf Region,'' in July 2010. Economic 
activity in the region is still moribund and the outlook for 
exploration and development remains subdued.
    Now, more than 5 years after Deepwater Horizon, further 
restrictions are being considered for Gulf drilling operations. Those 
regulations, like the ones before them, will decrease production 
activity and the economic growth of the region.
    Families will be impacted by lost jobs and wages and students--
whether studying oil and gas, alternative energy, or compliance--will 
be left without job prospects. Such effects will continue to drag down 
growth in the Gulf Coast region relative to the rest of the country 
during this crucial period or economic uncertainty when the Federal 
Reserve is trying to get the economy back on track. Thus, imposing any 
new regulations at this time will have to be undertaken in a careful 
and thoughtful fashion in order to preserve jobs and livelihoods during 
a period of tenuous economic uncertainty.
               the state of the gulf oil and gas industry
    My July 2010 study predicted a roughly $2 billion slowdown in 
economic activity in the Gulf states following the drilling moratorium 
in May 2010. While it is difficult to disentangle the effect of just 
the moratorium after the fact, real Louisiana GDP from Oil and Gas 
Extraction fell by $1.6 billion in 2010 remained another $1.3 billion 
below 2009 real GDP in 2011.
    The reason for the slowdown is straightforward. The effects of 
regulatory actions taken after April 2010 were dramatic and long-lived. 
Pre-April 2010 rig counts in the Gulf of Mexico did not exceed April 
2010 levels until July 2013, more than 3 years later.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsEven after July 2013, however, rig counts in the Gulf of Mexico 
were not sustained and production has remained relatively flat. As a 
result, the Gulf of Mexico is still not back to pre-April 2010 
production trend levels, measured relative to April 2010 as the 
midpoint to today.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsWe continue to see the impact of the post-April 2010 slowdown 
and more recent trends in local economic activity. Louisiana real GDP 
from Oil and Gas Extraction fell 15.9 percent in 2012-13 and another 
6.3 percent in 2013-14.
    Overall, states with offshore exposures are growing at a slower 
pace than those with more onshore focus. Preliminary 2014 GDP data from 
the Bureau of Economic Analysis shows that GDP from Oil and Gas 
Extraction slowed by 6.64 percent in Alaska and 6.30 percent in 
Louisiana, while activity grew by almost 10 percent or more in the 
other major oil-producing states with more onshore reserves.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsEven the states that did well in 2014, however, can be expected 
to slow considerably in 2015 due to persistent low oil prices.
    The Federal Reserve's September Beige Book, released September 2, 
2015, noted that the energy industry has been flat in all of the 
regions its surveyed.

    Since January 2015 to today, the Gulf of Mexico rig count has 
almost halved.

    In its most recent report, the International Energy Agency now 
forecasts that oil production outside OPEC can be expected to decline 
by nearly 500,000 barrels a day next year, with the United States 
bearing some 80 percent of that decline. According to the IEA, ``Oil's 
price collapse is closing down high-cost production from Eagle Ford in 
Texas to Russia and the North Sea . . . [The OPEC effort] to defend 
market share regardless of price appears to be having the intended 
effect.''

    Clearly, this is a difficult period for Louisiana and the U.S. Oil 
and Gas sector.
                 anticipated effects of new regulations
    Amidst this difficulty, the U.S. DOI Bureau of Safety and 
Environmental Enforcement (BSEE) recently published new requirements 
and procedures related to the proposed rule ``Oil and Gas and Sulphur 
Operations in the Outer Continental Shelf--Blowout Preventer Systems 
and Well Control.'' In economic terms, those requirements pose new 
costs for the offshore oil and gas industry at time when high-cost 
production is being pushed out of the industry.
    A recent American Petroleum Institute (API) study to evaluate the 
potential cost and economic impact effects of the proposed rule on oil 
and gas drilling operations in the U.S. Gulf of Mexico concluded that, 
``[u]nder the new regulations, approximately around 690 fewer wells are 
projected to be drilled from 2017 to 2030, a 26 percent decline, with 
similar water depth distributions. Over the 10-year 2017 to 2026 period 
the projected number of wells projected not to be drilled equals around 
470, with an average of 20 fewer exploration wells per year and 29 
fewer development wells.'' (``BSEE Proposed Well Control Rule Cost and 
Economic Analysis,'' API, July 2015, at p. 26)
    Such conclusions should come as no surprise. Quite simply, 
increased costs should result in lower supply. In order to demonstrate 
the universality of such a relationship, I regressed the percent growth 
in (real) state GDP from oil and gas extraction on the percent growth 
in (real) state GDP from waste management and remediation as a 
proportion of that from oil and gas extraction in the top 10 oil and 
gas-producing states annually, from 2000-2013.\2\
---------------------------------------------------------------------------
    \2\ The states used in the model are Alaska, Colorado, Louisiana, 
New Mexico, North Dakota, Oklahoma, Pennsylvania, Texas, West Virginia, 
and Wyoming. Data from 2000-2014 yields 140 observations. Data are from 
the Bureau of Economic Analysis.
---------------------------------------------------------------------------
    It is important to keep in mind that waste management and 
remediation comprises a wide range of activities, not just those 
related to oil and gas extraction.\4\ Such breadth, however, should 
make it more difficult to find a significant relationship with oil and 
gas extraction.
---------------------------------------------------------------------------
    \3\ ``Businesses engaged in the collection, treatment, and disposal 
of waste materials. Includes businesses engaged in collecting and/or 
local hauling of waste and/or recyclable materials; operating waste 
treatment or disposal facilities (except sewer systems or sewage 
treatment facilities); operating materials recovery facilities (those 
that sort recyclable materials from the trash stream); providing 
remediation services (those that provide for the cleanup of 
contaminated buildings, mine sites, and soil or ground water); and 
providing septic pumping and other miscellaneous waste management 
services, such as portable toilet rental services.'' (See http://
www.bea.gov/industry/pdf/2012_industry_code_guide.pdf)
---------------------------------------------------------------------------
    The results, displayed below, are striking. On an annual basis, the 
growth in economic activity devoted to waste management and remediation 
has a strong and statistically significant negative effect on oil and 
gas production. The coefficient on waste management and remediation's 
effect on oil and gas production is just over 0.8, suggesting that an 
additional percent of economic activity related to waste management and 
remediation (as a percent of oil and gas extraction) reduces activity 
in oil and gas extraction by 0.8 percent.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsOne might expect, however, that if the source of growth in 
waste management and remediation is new regulation, then the effect on 
oil and gas extraction would strengthen with a longer time lag. That is 
exactly the result we see below, where instead of measuring the effect 
with annual changes to both variables I use changes over a 5-year 
period (resulting in 100 observations rather than 140).
    The results below show that the coefficient magnitude in the 
relationship from 0.8 to just under 1.3, suggesting that a 5-year 
period captures more of the hypothesized effect.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsLast, I examine how the relationship between economic activity 
in waste management and remediation and oil and gas extraction may have 
changed over time. The last panel suggests that in recent years, the 
relationship may have strengthened considerably, with the coefficient 
rising from just under 1.3 to 3.1, so that an additional percent of 
economic activity related to waste management and remediation (as a 
percent of oil and gas extraction) reduces activity in oil and gas 
extraction by 3.1 percent.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsThe results above cannot be considered a complete analysis of 
regulatory dynamics, but may constitute a set of results suggesting 
that each dollar of regulatory cost imposed upon the oil and gas 
industry may result in a larger cost than the last. In economic 
parlance, the marginal cost of additional regulation may rise with 
existing regulation, rather than remaining constant. If that is the 
case, policymakers would want to be cognizant of existing costs before 
adding new ones.
                 higher education and workforce impacts
    Like economic growth, employment growth in oil and gas extraction 
has lagged in Alaska and Louisiana relative to other oil-producing 
states. From 2009-2013, employment in oil and gas extraction has grown 
27.84 percent in Louisiana and 30.76 percent in Alaska, relative to 
43.03 percent in the other major oil producing states (Colorado, North 
Dakota, New Mexico, Oklahoma, Pennsylvania, Texas, Wyoming, and West 
Virginia).
    Still, the oil and gas extraction sector is an important employment 
base in all of these states. Such importance is heightened by 
educational programs devoted to energy and the environment in all such 
states, as well as elsewhere in the United States.
    Recently, Louisiana State University (LSU) reviewed the scope and 
extent of energy-related education and research at LSU. Like many 
universities, LSU's energy-related research spans a wide range of 
topics including upstream oil and natural gas drilling and production 
topics (including hydraulic fracturing), geology, solar, wind, biomass, 
geothermal, materials, efficiency, electrical conductivity, nuclear, 
environmental impacts, and socioeconomic impacts.
Research
    While LSU is typically associated with oil and gas, the majority of 
LSU's externally funded energy research is not associated with fossil 
fuels but renewables.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsLSU's renewable energy research, estimated at close to $43 
million over the past 7 years, accounted for almost half (44 percent) 
of all energy-related research. Materials science-based energy research 
accounted for close to $19 million, or 19 percent, of LSU's total 
energy research funding over the past 7 years. Research associated with 
energy and the environment is estimated to be the third-largest 
research topic, accounting for close to $17 million in externally 
funded energy projects over the past 7 years. Fossil fuels research 
come in last, behind those three areas.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    .epsThe academic units involved in such research vary widely, as 
well. LSU's College of Agriculture accounted for 39 percent of energy-
related research funds ($38.6 million) in the past 7 years. The College 
of Engineering has generated the second-largest level of externally 
funded energy research. The School of the Coast & Environment generated 
the third-largest level of externally funded energy research at $12 
million over the past 7 years.
    The College of Science is estimated to have generated over $6.3 
million in external funding for research projects in the past 7 years, 
while the Center for Energy Studies has been awarded approximately $4.5 
million in externally funded research.
    LSU's School of Art & Design contributes to work on coastal 
sustainability and the E.J. Ourso College of Business maintains a 
variety of programs related to Environmental Economics and Emissions 
Trading.
    The table above also shows that external funding for energy 
research approximately equals all of the University funding, in the 
aggregate, for the colleges involved.
Teaching
    Much of that money is plugged back into course development and 
student support for education and workforce training in those fields. 
LSU offers a number of degrees and minors/concentrations that are 
relevant to energy issues. Relevant degrees include those in 
engineering (petroleum, electrical, chemical, agricultural and 
biological, and mechanical), law, geology, basic sciences, 
environmental science, and oceanography/coastal sciences.
    Energy-relevant undergraduate and graduate courses are taught in 
the areas of fossil fuels, renewable sources, electricity, nuclear 
energy, and law. Most fossil fuels courses are taught in Engineering, 
Geology & Geophysics, and similar departments. Courses on renewables 
are taught in Agricultural Economics, Civil Engineering, Chemical 
Engineering, Economics, Environmental Sciences, Petroleum Engineering, 
and the School of Renewable Natural Resources. Electricity-related 
courses are offered in Chemical, Mechanical, and Electrical 
engineering. Nuclear classes are in the Department of Mechanical & 
Industrial Engineering and the Nuclear Science Minor in the College of 
Science. Finally, courses on energy law are taught at both 
Environmental Science and the Law Center.
    Enrollment in energy-related courses is strong. Estimates suggest 
that roughly 10 percent (almost 3,000) LSU Undergraduate and Graduate 
students study energy-related fields. About half of those engaged in 
such study do so through the Petroleum Engineering program, with the 
remainder distributed across Agriculture, Art & Design, Gulf Coast & 
Environment, Science, Law, and Business.
    Many new initiatives are taking shape at LSU, as well. The College 
of Business is launching a specialization in energy studies, including 
courses such as Energy Economics Policy, Petroleum Accounting, and 
Product Lifecycle Management, plus courses offered in the College of 
Engineering, College of Science, and School of the Coast & Environment. 
Similarly, the Law School offers a Graduate Certificate in Energy Law 
and Policy to officially recognize students who have demonstrated 
substantial competence in the study of energy law and related subject 
matter.
    Enrollment in energy courses and certificates and majors related to 
energy, however, may severely understate the importance of workforce 
development to students in our region. For instance, even though the 
College of Business energy courses are relatively new to the 
University, Bloomberg reports that 18 percent of LSU business school 
grads go the oil & gas and energy sectors. In contrast, the next 
highest sectoral concentration, 15 percent, goes to financial services. 
The top recruiters of LSU business grads are reported to be Ernst & 
Young LLP, Postlethwaite & Netterville APAC, ExxonMobil, and Shell. The 
College of Business reports that their graduates boast the highest mid-
career earnings among peer institutions, largely due to energy industry 
employment.
Workforce Development
    LSU also undertakes many energy-related initiatives focusing on 
workforce development, worker safety, continuing education, and various 
energy specializations.
    For instance, the Petroleum Engineering Research and Technology 
Transfer (PERTT) Laboratory conducts training at an industrial-scale 
facility for future oil industry employees. The Donald and Gayle Keller 
Building provides a classroom and computer lab for professional 
training. In 2009, in partnership with Entergy Corporation, LSU 
initiated a Nuclear Power Workforce Development Program. The Nuclear 
Power Workforce Development Program works in conjunction with the 
Medical Physics and Health Physics program, which offers classes in 
radiation protection, exposure evaluation, and nuclear facility safety.
    LSU also offers continuing education programs to professionals in a 
variety of energy-related fields. For example, LSU's Continuing 
Education office offers a Certified Occupational Safety Specialist 
program for which participants receive a 10-hour Occupational Safety 
and Health Administration (OSHA) completion card. The Mineral Law 
Institute's annual symposiums offer continuing education credits for 
lawyers and other professionals, such as certified engineers and city 
planners. A large number of sessions at conferences held by the Center 
for Energy Studies are also registered for continuing legal education. 
The Department of Petroleum Engineering works with the Society of 
Petroleum Engineers to offer short courses and continuing education 
credits, including Professional Ethics for Petroleum Engineers and 
Mechanical Tubing Forces: Temperature, Ballooning, Piston, and Buckling 
Effects. The Department of Chemical Engineering also offers an online 
course Essentials of Chemical Engineering for Non-Chemical Engineers.
    Thus, LSU is inextricably intertwined with the energy industry and 
the Gulf of Mexico. Higher production costs will reduce grant funding, 
class offerings, and student placements. Existing professionals who may 
be laid off will not need certifications or continuing education. 
Further declines in higher education in Louisiana and similar states 
will be unavoidable.
                        summary and conclusions
    Energy production in the Gulf of Mexico is still hobbled by the 
drilling restrictions put in place after April 2010. Since then, OPEC's 
competitive strategy continues to depress oil prices worldwide, 
resulting in the current state of the industry in which the economics 
of production are expected to break within the next year.
    As I have testified previously, any regulatory policy that raises 
pecuniary and/or nonpecuniary costs will slow production. Production 
will inevitably decline in response to higher costs and greater 
political uncertainty. In both cases, that means less jobs, lower 
wages, and lower GDP growth than would otherwise occur. Those immutable 
laws of economics will bind whether policymakers like them or not. And 
in today's competitive environment, higher U.S. production costs will 
drive more market share to OPEC, just as their leaders hope.
    Slow economic growth hurts further development of clean energy. 
(After all, why make it if nobody can afford it?) The stress of higher 
costs put upon local economies like that of Louisiana actually hurts 
the development of new clean energy sources. University research like 
that at LSU is driving the next generation of clean energy. We need a 
smooth regulatory and research policy path to a clean energy world, 
lest we stay stuck in the mire of economic recession that prevents the 
conversion to the new energy sources we all hold dear.

                                 ______
                                 

    The Chairman. Thank you.
    I appreciate the testimony of all the witnesses. I 
appreciate you coming here. I was going to say I appreciate you 
coming so far, but I realize I came a lot farther than all of 
you to be here. But I thank you for your testimony.
    We are now going to turn to the committee for questions. 
The committee members, once again, each have 5 minutes to ask 
questions, and we will go through as many rounds as we can 
possibly fit in today.
    I will go last. I will start with Chairman Fleming, if you 
would like to ask the first series of questions.
    Mr. Fleming. Thank you, Mr. Chairman.
    I thank the panel for being here today.
    Mr. Leimkuhler, I would like to ask you some questions. My 
personal background is that I am a physician from the private 
sector, but also I have been serving in Congress since 2009. I 
have observed that regulations, increased regulations, and more 
complicated or expensive regulations, don't necessarily 
translate to more safety.
    So, what I would like to ask you about is this. In your 
testimony, you differentiated between performance-based 
regulations and prescriptive regulations. For example, real-
time monitoring sounds like a good thing to have. But many of 
those who commented on the rule believe it will make operations 
less safe.
    What do you have to say about that?
    Mr. Leimkuhler. First off, I think that is a good point. 
When it comes to real-time monitoring, I fully support it. But 
I feel that all the companies should be challenged to perform 
and demonstrate to the regulator how do we effectively use 
real-time monitoring to ensure we are running a safe operation, 
and the current regulatory proposed rule has in it the mandate 
that you----
    The Chairman. Mr. Leimkuhler, can I just ask you to pull 
that microphone right to your mouth?
    Mr. Leimkuhler. I'm sorry.
    The Chairman. Yes, it is much better to hear you that way.
    Mr. Leimkuhler. So, real-time monitoring I think is a great 
example to demonstrate how performance-based regulations should 
be applied, as opposed to prescriptive. The proposed Well 
Control Rule requires us within 3 years to build a brick-and-
mortar, on-site center, or lease one, and staff that with staff 
who will monitor the data feed coming in from offshore. That 
absolutely should be done. Real-time monitoring I think should 
be a requirement. But the companies should be given the 
challenge to show the regulator how do you perform to meet that 
standard.
    At LLOG, we have real-time monitoring. We employ mud 
loggers offshore, on-site for every one of our----
    Mr. Fleming. Well, let me be clear. I want to clarify. Do 
you believe that real-time monitoring is better than 
prescriptive requirements, or do you think a combination? I 
just want to be clear where you stand on that.
    Mr. Leimkuhler. I am in favor of real-time monitoring, but 
I don't like the prescriptive nature of how I am directed to 
achieve it. I should be given the latitude to demonstrate to 
the regulator that we monitor operations properly, we monitor 
continuously, we have back-up. We do that. But we don't use a 
brick-and-mortar real-time center. We have data streams, feeds 
that come in to myself, my whole entire staff. We have the 
capability to properly monitor operations, and I would like to 
demonstrate that.
    Mr. Fleming. OK. Let me interrupt you because I have 
limited time, but I have other questions. I appreciate your 
answer there.
    Can you describe the current safety standards for blowout 
prevention and the BSEE new regulation? How does the BSEE 
regulation increase risk?
    Mr. Leimkuhler. Relative to BOPs, I feel one of the bigger 
impacts is at places that exceed API-53, which is the new BOP 
standard. I think that should be a requirement in the 
regulations. But in places where it exceeds it, with respect to 
BOPs, would be the 5-year demonstration of integrity of the 
system. Right now, the way the regulation is written, we have 
to take the BOPs fully out of commission. And rather than 
ensure every single component in that system has a valid 
certificate of inspection from the original manufacturer within 
5 years, we have to take the whole system out of service every 
5 years, which could potentially take rigs out of service for 
up to 6 months to get that work done.
    Mr. Fleming. The report I have is, if finalized as written, 
110 of the 175 wells, or 63 percent, that already have been 
safely drilled post-Macondo in the Gulf would fail to be in 
compliance with provisions. Is that what you are referring to?
    Mr. Leimkuhler. No, I am not. That is in reference to the 
drilling margin portion of the rule rather than in reference to 
the BOP systems themselves. With regard to the drilling margin 
rule, API has come up with a document called 92L, which was 
developed rather quickly in response to the request of the 
regulator to regulate drilling margins. It encompasses the best 
practices that industry experts have come up with as to how you 
drill safely in the Gulf of Mexico, which is a rather unique 
drilling environment, rather than the prescriptive margin of 
always maintaining a certain distance between the weight of 
your fluid and the strength of the rock.
    Mr. Fleming. OK. Real quickly, I want to shift to Professor 
Mason.
    You said your research shows an economic impact of 
increased regulation in the Gulf following 2010. In your 
opinion, what actions were most devastating that were taken in 
terms of economic effect?
    The Chairman. And you have 15 seconds to do it.
    Dr. Mason. I only measured the shutdown and drilling 
activity as a result of the moratorium. I didn't go beyond 
that.
    Mr. Fleming. OK. Thank you.
    My time is up and I yield back.
    The Chairman. That was within 15 seconds. I am impressed.
    Let me turn to another co-host here today, Congressman 
Graves, for the next round of questioning.
    Mr. Graves. Thank you, Mr. Chairman.
    Mr. Herbst, thank you for being here. I have a couple of 
questions for you. But first of all, I want to talk briefly 
about the macro perspective.
    We have seen energy prices at record lows right now 
relative to previous performance, and obviously the cost of 
producing energy in the offshore is a substantial investment 
and one, as you noted, that is often determined in excess of a 
decade in advance of actual production.
    When you combine what is going on right now--OPEC nations, 
led by Saudi Arabia, are continuing to flood the market. When 
you look at some of the other actions of this Administration, 
with regard to the Iran agreement, that is going to allow for 
hundreds of millions of barrels of additional oil to be put on 
the market.
    I want to make note, Mr. Chairman, that I don't remember 
seeing a greenhouse gas evaluation by this Administration in 
regard to the Iran agreement, as was done with the Keystone 
Pipeline.
    The point here is you are seeing extraordinary price 
pressures. We are seeing right now folks getting pink slips all 
over the Gulf of Mexico, and Senator Vitter and Senator Cassidy 
noted all the associated employment opportunities related to 
offshore oil and gas production. Importantly, I have heard the 
statistic over and over again that offshore energy production 
is the second-largest revenue stream for the U.S. Treasury 
outside of taxes, a big revenue stream for the U.S. Treasury. 
And as I recall, we are approaching nearly $200 billion in 
funds for the U.S. Treasury from offshore energy production, 
the majority, the far majority of which, you are well aware, is 
produced offshore the coast of Louisiana.
    As Senator Cassidy noted, the implications of this are not 
limited to just taxpayers, not limited to the U.S. Treasury. 
The implications of this rule, if it continues to cause a 
reduction in offshore energy production--and I remind you, in 
2009, 30 percent of all the domestic crude produced in the 
United States was produced in the Gulf of Mexico. Today, it is 
down to 17 percent. Historically, I believe it was 11 percent 
of all the domestic gas production was in the Gulf of Mexico. 
It is down to 5 percent today.
    As Senator Cassidy noted, these revenue streams are 
actually coming back to the state of Louisiana to restore our 
coast, to help protect our environment, our ecological 
productivity here. This rule is going to prevent those 
investments in the environment. As Dr. Mason noted, in addition 
it will prevent our investment in higher education.
    The first question I have for you is this. As I understand 
it, the offshore industry, on their own, voluntarily worked on 
over 100 changes, updates, and safety procedures since the 
Macondo disaster. Can you just rattle off about five of those 
for me?
    Mr. Herbst. Again, it is a good question, and a big part of 
this rule is about adopting those changes that industry did 
move quickly on as far as making changes to API and----
    Mr. Graves. Could you just rattle off about five of them 
for me?
    Mr. Herbst. The RP-53 went to Standard 53. That was a 
change. I believe the API-11 document was also changed.
    I have them right here--1 minute.
    Mr. Graves. My point is this, Mr. Herbst. I can pull out a 
document and rattle off all 100 of them if I wanted to. Here is 
the point I am trying to make. We have an industry that has 
hundreds of billions of dollars in investment. As was noted by 
one of the witnesses, in some cases, the rental rates of these 
platforms go for $1 million a day. These are the folks that are 
out there on the ground understanding the implications.
    If you have to pull out a list--and again, I can do it too, 
and read off all 100 of these things--it indicates a lack of 
intimate understanding or knowledge of what the industry is 
actually doing. My concern is that the Department of the 
Interior--and I know you didn't do this, I know that this came 
from DC, I have known your work for years and appreciate your 
service--but the frustration or the concern I have is that you 
have folks sitting in an ivory tower who are sitting and 
writing these regulations, that have no understanding of what 
is actually happening on the ground, the implication to our 
environment here in Louisiana, the implications to our 
workforce here in Louisiana. I think that disconnect is very, 
very dangerous, and I urge you to take that back.
    Mr. Henderson, I actually want to commend you. You may be 
surprised to hear that, but I want to commend you, because I 
actually agree that we need to ensure and we need to work with 
the Department of the Interior. We need to make sure that we 
have the safest regulatory environment that we can possibly 
have. I also think it is really important to point out, though, 
Mr. Henderson, that the judge in the case of the Macondo spill 
determined that there was gross negligence, willful misconduct, 
determined there was a climate of profit-driven decisions, OK?
    When you look historically at the trends, you have seen a 
trend of a decrease in the total number of spills that have 
occurred in the Gulf of Mexico, and you have seen a decrease in 
the total volume of oil that has been spilled. I agree with you 
that OPENS needs to be updated; a lot of changes from Macondo 
have resulted. But whenever you went out--you noted all the NRC 
filings that you did--when you went out and monitored these 
areas to find the spills, how did you get out there?
    Mr. Henderson. Sometimes by plane, sometimes by boat, and 
sometimes by foot.
    Mr. Graves. And those boats and planes were solar powered?
    Mr. Henderson. No, absolutely not.
    Mr. Graves. Thank you.
    Thank you, Mr. Chairman.
    Mr. Henderson. That is not my fault, though.
    The Chairman. Mr. Westerman.
    Mr. Westerman. Thank you, Mr. Chairman, and thank you to 
the panel for the informative presentations today.
    I am from Arkansas. We don't have much offshore exploration 
in Arkansas, but I am trying to get up to speed on this as much 
as possible. I have been reviewing the process, and I notice 
that BSEE has collaborative agreements with at least 12 other 
agencies through Memorandums of Understanding, Memorandums of 
Agreement, and interagency arrangements. It seems like a very 
cumbersome and complicated process in a lot of areas where 
regulation takes place on the industry.
    Mr. Herbst, you said you were a chemical engineer and a 
professional engineer. I am also a professional engineer, so I 
understand a little bit about how technology works. Also, I 
know as a professional engineer, one of our foremost objectives 
is to protect the public safety, health, and welfare.
    It has been interesting in committee meetings in DC when 
EPA comes in, who is one of your collaborators in the Federal 
agencies. They always talk about public health, safety, and 
welfare. Last week, we had a hearing on the Animus River 
chemical spill. Through the hearing it was pretty obvious that 
the EPA was very negligent of their responsibility in 
protecting the public health, safety, and welfare; and I 
believe had it been a private company that was as negligent as 
EPA was, that there would be a huge outcry over that.
    When we look at this Well Control Rule, the blowout 
prevention regulations, they are very prescriptive. To my 
understanding, there is technology there that is not even 
proven yet, and these rules were developed by you guys. We 
heard testimony about how the industry has increased their 
safety requirements through API rules.
    When I was in engineering school, they taught us that when 
you are writing specifications, you specify results and you 
don't get real descriptive in your specifications, because when 
you specify very descriptively, you are actually specifying the 
design of this equipment. It sounds like you are doing that on 
the blowout preventers. So with that, you take on the liability 
of the design.
    So, is BSEE prepared to fully warrant or fully back up the 
blowout preventer designs that they are proposing in the well, 
and to take full liability for those in case they are put into 
place and they happen to fail or there are problems with them?
    Mr. Herbst. Well, let me answer it this way. Again, the 
recommendations that came in after Macondo were from various 
groups--one of those was the National Academy of Engineers, 
various other groups, and industry input. This rule reflects 
that input. Much of the rule, again, reflects industry changes. 
We mentioned API Standard 53. Many of the requirements, if you 
think of them as prescriptive, come from that Standard 53.
    Now, clearly there are other ones where we are trying to 
push that safety bar a little bit further, realizing we deal 
with 80 different operators, everything from a super major to 
small--I call them mom and pop type organizations. It is 
important to set some bar, whether it is prescriptive or not, 
so that they can meet that bar.
    Now, again, some of the requirements in here have dates of 
implementation further out--3 years, 5 years, 7 years--and some 
of them are performance based. So, yes, we want a BOP stack to 
be able to center the pipe so it can be sheared properly. We 
did not tell them how to center the pipe. We did not tell them 
that another requirement is that you must shear everything in 
the hole. We didn't tell them that that has to be a shear ram. 
It could be some other type of device, explosive device that 
can shear the pipe.
    So, we did leave areas open, and that is what my remarks 
said, that it is both prescriptive and performance.
    Mr. Westerman. I am running short on time here.
    Mr. Leimkuhler, do you believe the industry or BSEE has 
more expertise in well design? And, can you briefly share some 
examples of how provisions in the Well Control Rule actually 
undermine safe operations rather than enhance the current 
safety culture that we see in the Gulf? Also, do you feel like 
BSEE has worked as closely with industry on these rules as they 
should?
    Mr. Leimkuhler. That's quite a few questions there. To 
answer the first question----
    Mr. Westerman. Fourteen seconds.
    Mr. Leimkuhler. I feel like industry obviously has a 
greater level of expertise when it comes to well design. When 
it comes to how that design actually applies to the regulations 
that are in place, they are certainly the experts there. We 
worked jointly together to really come up with, in my view, a 
very good product.
    With regards to the regulations and impacting our business, 
I think the drilling margin is probably a good example, whereby 
if we apply our conventional standards that we have applied 
throughout our learnings of deepwater drilling in the Gulf of 
Mexico, I think those have all been codified quite well in API-
92 versus the prescriptive half-pound per gallon drilling 
margin rule.
    The Chairman. I do need to cut you off here. Your answer 
should have just been yes.
    Mr. Leimkuhler. OK.
    The Chairman. You are out of time. I am sorry. We will come 
back again here.
    Mr. Smith, it is good to have you back with our committee. 
You are recognized now for some questions.
    Mr. Smith. Thank you, Mr. Chairman. It is a pleasure to be 
here. It is a pleasure to just be south of the river. I am up 
from just north of here, in southeastern Missouri. We are right 
along the Mississippi about 200 miles, so we just have to float 
down and we are right here.
    I am very curious, Mr. Herbst, what is the projected 
compliance cost of the proposed rule?
    Mr. Herbst. You are talking about BSEE's cost in the rule? 
I believe, just under $1 billion was the estimate.
    Mr. Smith. Just under $1 billion?
    Mr. Herbst. Yes. That is over a 10-year period, I believe.
    Mr. Smith. Over a 10-year period? How do you respond to, I 
believe it was Senator Cassidy that started in the first panel 
that said, that industry has calculated a cost of nearly $32 
billion over 10 years?
    Mr. Herbst. Right. So, part of moving from proposed rule to 
final rule, we asked for comments specifically on costs. We are 
looking at those costs, and I can tell you that one of the 
costs for industry came up with $32 billion; $10 billion of 
that alone is tied to the drilling margin issue. So, obviously, 
that is one this week that we are meeting with industry in 
Washington to try to see if we can still meet that objective, 
but maybe in a less prescriptive manner.
    There are tremendous costs that industry has pointed out 
there, so we are working to see those costs. Again, they may be 
the experts on some of these costs. We will have to sit and 
look at that. We will have to look at the final rule. Again, I 
expect there will be some changes from proposed rule to final 
rule. When that occurs, we have to look at those cost impacts 
again.
    Mr. Smith. To me, between $32 billion and $1 billion, that 
is a lot of billions that are out there in trying to figure out 
an estimated cost.
    Would you accurately say that the $1 billion proposal 
projected cost is appropriate and necessary for the rules that 
you are trying to implement?
    Mr. Herbst. Again, our $1 billion cost does take into 
account the benefits of the rule as well. Some of the costs are 
offset by the benefits. So, those safety benefits of a blowout 
incident such as Macondo and the lives lost and the 
environmental damage, that is taken into account on the benefit 
side of our analysis. I don't believe that industry's analysis 
took that into account.
    Mr. Smith. Would you say you do believe it is appropriate 
and necessary?
    Mr. Herbst. Again, we will have to look at the final rule 
and what the final costs are before we can make that 
determination, or I could make the call on that.
    Mr. Smith. OK. So right now, we are trying to decide if it 
is between $880 million or $32 billion in the cost.
    I do want to point out to the agency that I would remind 
them to look at Justice Scalia's opinion in Michigan v. EPA, 
which was a Supreme Court case this June. In that decision, 
Justice Scalia was writing the opinion of the court, and it 
stated, ``The agency must consider cost, including, most 
importantly, cost of compliance, before describing whether 
regulation is appropriate and necessary.'' That is the supreme 
law of the land that was decided in the last week in June of 
this year, and I hope your agency can decide and understand 
whether it is $880 million or whether it is $32 billion and 
whether it is appropriate and necessary when you are looking at 
the offshore production just here in the Gulf of Mexico being 
roughly 17 percent, as what my colleague, Mr. Graves from 
Louisiana, was saying.
    I have been here the last few days. We don't have offshore 
oil drilling in Missouri, but we are very glad that we have it 
here in the Gulf of Mexico, because it drastically affects the 
economy for the Nation, and it affects the economy for the 
world, for that matter. We need to make sure that we have a 
fair balance between the environment and safety and industry.
    I can tell you just from a fishing perspective, being here 
over the weekend, I have not seen such a great production of 
fishing. Whenever you look at the No. 1 commercial fishing 
industry in the continental United States, right here next to 
the oil rigs, I would say environment and industry is going 
hand in hand. I would hope that your agency would promote that 
and not hinder that.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Rice, good to have you here. You are recognized for 5 
minutes.
    Mr. Rice. Thank you so much. It is my great honor to be 
here, Mr. Chairman. Thank you for having me.
    Mr. Graves, thank you for having me.
    I am not on this committee. I am from Myrtle Beach, South 
Carolina, which is a big tourism area, and we are considering 
opening the Atlantic offshore for drilling. My community is 
very concerned about it, which is why I am here, to learn a lot 
more.
    Mr. Henderson, I want to start with you. Is it your 
position that no offshore drilling is safe? A really quick 
answer.
    Mr. Henderson. No, sir, it is not.
    Mr. Rice. OK.
    Mr. Henderson. I am not naive enough to dismiss the 
importance that oil and gas exploration has meant for the 
United States.
    Mr. Rice. Is there anybody who----
    Mr. Henderson. My grandfather protected oil in World War 
II. I understand the importance of it.
    Mr. Rice. All right. Is it your position that there is no 
deepwater--that we should shut off deepwater drilling?
    Mr. Henderson. Absolutely not.
    Mr. Rice. OK, good.
    Mr. Herbst, I want to talk to you for just a few minutes. 
You say that increased production and increased safety are not 
mutually exclusive. I think I heard you say that, right?
    Mr. Herbst. That is correct.
    Mr. Rice. So, you think we can do this, and we can do this 
in a safe manner.
    Mr. Herbst. Certainly.
    Mr. Rice. Ms. Davis, certainly you believe that there needs 
to be a little more control to prevent, I would think, the 
Macondo-type incidents from occurring. Would you not agree with 
that?
    Ms. Davis. I agree there was a loss of life, and that is 
something you can never get back. I think, respectively, we 
know we have to do things in a safer manner. But we have always 
worked in this industry and we have been very safe. When that 
occurred, it was a terrible, terrible accident. We hope we 
never have to do it again.
    Mr. Rice. Are you saying that we should just leave it to 
industry to self-impose additional safety measures, that the 
government should have no role in that? Is that what you are 
saying?
    Ms. Davis. No, sir. I think industry and government should 
work collaboratively together to come up with solutions that 
are going to be viable for the industry.
    Mr. Rice. So, you agree that there should be some 
additional level of oversight, but the proposed rule is far 
beyond what you agree with?
    Ms. Davis. I don't know that it needs to be additional 
oversight. I think there needs to be some clarity in the 
ruling.
    Mr. Rice. OK.
    Mr.--I can't say your name--Leimkuhler?
    Mr. Leimkuhler. That is closer than most get.
    Mr. Rice. Would you agree with that, that there should be 
some additional oversight after Macondo?
    Mr. Leimkuhler. I think so. I think, clearly, and it has 
happened. Clearly, it should have been, and it happened.
    Mr. Rice. OK.
    Mr. Leimkuhler. We have----
    Mr. Rice. Do you think that we can do this drilling, and do 
it in a safe manner, protect the environment with reasonable 
protections for people, and still continue to increase 
production?
    Mr. Leimkuhler. Absolutely.
    Mr. Rice. Mr. Herbst, this Well Control Rule, is this your 
graph here--the losses of well control incidents in the Gulf of 
Mexico 2008? Is this your graph?
    Mr. Herbst. Yes, that is BSEE's graph from the annual 
report.
    Mr. Rice. That is a little scary to me. From 2008, we have 
eight loss of well control incidents. In 2013, we had eight; 
and in 2014, we have seven. Are you saying that even with these 
additional measures that have been imposed, that we are 
continuing to have loss of control of wells at the same rate as 
before?
    Mr. Herbst. Not to be too alarming, you have to look at the 
definition of loss of well control. That can be a very small 
release where the well is not under control. We are not talking 
about the things like Macondo where there was only one----
    Mr. Rice. So, when you are speaking of losses of well 
control, in orders of magnitude, there has been nothing that 
approaches Macondo; correct?
    Mr. Herbst. Nothing to the loss of life or pollution.
    Mr. Rice. OK. All right.
    Mr. Henderson. Mr. Rice, if I may clarify my response to 
your question, if I were in your position----
    Mr. Rice. A very short time.
    Mr. Henderson. Yes, very short. I would absolutely not 
support deepwater drilling off the coast of South Carolina.
    Mr. Rice. OK. Thank you, sir.
    Mr. Leimkuhler, do you agree with that? Do you think the 
Atlantic should be opened to offshore drilling?
    Mr. Leimkuhler. No, I do not agree with that. I think it 
should be opened to offshore drilling. I think there needs to 
be allowances made, given the population density on the 
coastline. There ought to be a certain offset that should be 
enforced.
    Mr. Rice. Ms. Davis, do you agree with that? Do you think 
the Atlantic should be opened to offshore drilling? Yes or no?
    Ms. Davis. I think opportunity should be allowed.
    Mr. Rice. Dr. Mason, I have 13 seconds left.
    Dr. Mason. Yes.
    Mr. Rice. Mr. Herbst, do you think the Atlantic should be 
opened to offshore drilling?
    Mr. Herbst. I believe with input from the states, yes.
    Mr. Rice. Thank you.
    Mr. Henderson. One last comment, if I may.
    Mr. Rice. I yield my time. My time has expired. Thank you.
    Mr. Henderson. All it takes is one disaster to destroy the 
beaches in Myrtle Beach.
    The Chairman. Let me ask a couple of questions.
    Ms. Davis, if I can zero in on you--apologies for that, but 
there has been a general consensus from public comments we have 
had that a Well Control Rule could lead to another shutdown of 
the kind in the Gulf if it was enacted as it is currently 
written.
    You kept your business afloat during the last shutdown. 
What would be the business impact if there was another shutdown 
so close on the heels of the last one?
    Ms. Davis. Mr. Chairman, we lost 70 percent of our business 
as a result of the shutdown the last time with the moratorium, 
70 percent, because we worked in deepwater primarily, and our 
company was a small business that felt that was a great place 
to work in the future. If you worked there, you were in a 
really good position.
    If that were to happen today with the low price of oil, 
compounded with a tragedy, I just don't know what the 
implications would be. But we are survivors. We have worked 
through many, many challenges. I think we would still be here. 
We would find a way to work.
    The Chairman. In your testimony, you also talked about the 
diverse business environment that fosters small entrepreneurs 
and that could become extinct. Could you just expand on that? 
Explain how Federal regulations could actually be threatening 
to small business.
    Ms. Davis. Well, in my experience, small business, we work 
under different programs because of government allowances for 
small, minority, women-owned business opportunities. It gives 
us a great leverage to be able to work in the industry. It is 
not the primary reason you work in the industry, but it is 
considered. Small business is a big part of this great country.
    So I think, from my perspective, we have to be able to 
continue to be allowed to work. We are reinventing ourselves 
today as things change. We are looking for new opportunities, 
new product lines to explore, and new ways to do business. We 
will continue to operate. Small businesses will suffer, but 
people are resilient. They will find a way to work through it.
    The Chairman. I appreciate that optimism in what the future 
can bring. Unfortunately, sometimes when we have prescriptive 
rules that lock in a procedure, it doesn't allow for change 
even if that change is positive. I know Dr. Mason realizes 
this. I am in education as well. Education is very slow to 
change. Government is a whole lot worse; so we need to do that.
    Mr. Leimkuhler, if I could ask you about these changes.
    By the way, it is a good German name. I understand it, a 
good German name.
    Offshore operators have undergone a myriad of changes and 
new safety requirements. How would the Well Control Rule be 
different from the other regulations you have had to go through 
in the last 5 years?
    Mr. Leimkuhler. I think the biggest challenge would be, 
once again, to get us back to that drilling margin. If you take 
a look at that margin and you apply that to the operational 
procedures LLOG has used in our wells in the past, I apply that 
to the next 5 years and I've gotten with the reservoir 
engineers and said, OK, if we can no longer drill these 
depleted zones, we can put a well into a zone as soon as it 
starts to deplete, putting in additional wells would be an 
extreme challenge to us. Our estimates are that that would 
remove 12 sidetracks from our approved plans, as well as four 
new wells. The total production of those five would be a 
reduction in Federal royalty money of about $900 million over 5 
years.
    The Chairman. What about the concept, though, of safety 
here? Could this rule undermine safe operations rather than 
enhance them?
    Mr. Leimkuhler. It is possible. You can, because what that 
is going to do, it is going to encourage operators to resist 
raising your mud weight to maintain that margin. In the past, 
when you would have gone into that area and ran it that close, 
you are going to increase the probability that you will take a 
kick, and decrease the probability you will take loss per 
turns.
    The Chairman. I have a limited amount of time here. I would 
like to talk about how OPEC is playing around in this area and 
the impact that it is having, both in the real world and the 
private sector. Dr. Mason, let me just talk to you very briefly 
here about what LSU is doing and what you were saying about the 
workforce.
    As I understand it, the workforce off the coast is an aging 
workforce. It needs to be replaced. These are good-paying jobs, 
but we need to have Americans that are trained to be able to 
take this, and that is what you are trying to do. I understand 
part of your argument was if we cut the production by 
regulation, which is, as you said, as viable as market forces, 
what we are doing is stopping the amount of money that we can 
invest in education to produce that workforce. Is that what you 
are saying? This becomes a vicious cycle.
    Dr. Mason. Yes, it becomes a vicious cycle, and as you 
noted earlier, it creates an entire career track and industry 
in compliance, with compliance being the new growth industry 
rather than the actual production.
    The Chairman. I would just say, I have 15 seconds. You said 
the LSU funding comes from renewable energy sources? Did I 
mishear you?
    Dr. Mason. The funding goes primarily toward research in 
renewables.
    The Chairman. Goes to research. Thank you.
    Dr. Mason. Although it does come from renewable and other 
sources that are usually not fossil fuels.
    The Chairman. That is OK. I just misheard.
    We have time for another round of questions here.
    Dr. Fleming.
    Mr. Fleming. Yes, thank you, Mr. Chairman.
    I just want to drill down a bit on what we have learned, 
amalgamate the baseline of information today, and I want to 
focus on Mr. Leimkuhler and Mr. Herbst.
    Mr. Leimkuhler, based on the regulations as we know them to 
be today, and they are not finalized, at least we don't know 
for certain that these are going to be the final rules, is this 
going to affect your ability prospectively to drill more wells 
productively and economically?
    Mr. Leimkuhler. I believe it will. I think it will probably 
take from 15 to 20 percent of the wells that are currently in 
my approved plans and restrict my ability to execute and drill 
those wells.
    Mr. Fleming. OK. Do you see that having a negative impact 
on price; that is, causing increase in prices to consumers?
    Mr. Leimkuhler. In the past, to be honest with you, I don't 
think it has. But what we are seeing right now is the U.S. oil 
price totally dominated by supply and demand, and if you are 
going to take that production off the market, then it is going 
to be oil that is not there. In the past, I thought that oil 
was dominated by OPEC, but that the rise in U.S. oil 
production, reaching the levels it has, that if we restrict 
U.S. production, I think we will see an increase in price.
    Mr. Fleming. Mr. Herbst, we are really talking about 
prospective versus real-time evaluation and regulation. How 
flexible, how compliant do you think BSEE will be going forward 
to take the input from the industry's real experts, the 
engineers who are expert in this, and to fashion those 
regulations in the final written draft in a way that is not 
going to cause 10 or 15 percent reduction in viable sites?
    Mr. Herbst. Let me answer that this way. Since we have 
received the industry comments and other comments, I have 
assigned three staff members, two of those with over 30 years 
of experience, industry and regulatory experience, to work on 
those and try to understand those comments and see if there are 
other ways to accomplish the same thing through those industry 
comments.
    They have worked numerous meetings through this. I am 
getting that feedback. I am speaking directly with Director 
Salerno weekly on this. I think if we can accomplish the same 
objective by another means which industry has brought up, I 
think there will be that flexibility.
    Mr. Fleming. How receptive are you to real-time rules and 
regulations--that is to say, constant input and adjustment to 
be both safe, protective of the environment, and safe for 
humans, especially people on the rigs; and then at the same 
time accommodating the viability of those sites that need to be 
drilled in order to maximize and exploit natural resources?
    Mr. Herbst. If I get your question right, an important part 
of our regulations, which this new rule does not impact at all, 
is alternative compliance. So again, if industry can come up 
with a better mouse trap, a better way of reaching that same 
objective, that regulation is there now and will continue.
    Mr. Fleming. OK.
    That is all I have, Mr. Chairman. I yield back.
    The Chairman. Mr. Graves.
    Mr. Graves. Thank you, Mr. Chairman.
    Mr. Herbst, I want to highlight the chart that was 
referenced, the one on the right side there. Having spent 
several months every single day out on the Gulf of Mexico 
during some of the period covered here, would you agree that 
there was more vigilance in the Gulf of Mexico during the 2010-
2014 period, where you see the spike, than any other period in 
our Nation's history?
    Mr. Herbst. Are you talking about vigilance from----
    Mr. Graves. In terms of the number of people that were 
simply out on the Gulf of Mexico in boats looking for oil.
    Mr. Herbst. Right. I am not sure if I get the question. 
Those reports are mandatory by regulation that they must report 
loss of well control events.
    Mr. Graves. My point is this: you had the moratorium, which 
froze some aspects of energy production; correct?
    Mr. Herbst. Yes.
    Mr. Graves. OK, and the permatorium as well. That spike, I 
am going to guess, also corresponds with when the spigot was 
turned back on, the moratorium/permatorium was largely lifted. 
In addition, you had more vigilance out there in the Gulf of 
Mexico, in that I have never in my life seen so many boats and 
people out there. I understand there are mandatory reporting 
requirements, but if people aren't out there to see it, are 
they going to know that the things have actually spilled? So, I 
think it is an important distinction to make there.
    Number two, I also want to point out, and following up on 
Congressman Rice's comments, you can look--I believe it is 
1973. There were 2,200 separate spills in the United States 
related to waters, coastal and river waters in the United 
States--2,200. The cumulative volume of oil that was spilled in 
those 2,200 spills was like one-tenth of the oil that was 
spilled in the Deepwater Horizon. This thing was absolutely 
one-of-a-kind, the only type scenario in its universe. I would 
remind you of what I said about the Judge's comments--gross 
negligence, willful misconduct, and all sorts of other one-of-
a-kind type scenarios.
    Dr. Mason, let me ask you a question. If this Well Control 
Rule, BOP rule, as anticipated, does cause a reduction, a 
continued reduction in the Gulf of Mexico's production relative 
to the remaining public lands in the United States, is that 
going to cause a decrease in demand or utilization of oil and 
gas in the United States?
    Dr. Mason. No, absolutely not.
    Mr. Graves. So, we are going to end up supplying that, in 
some cases supplementing it with additional foreign oil. Would 
that be----
    Dr. Mason. That is correct.
    Mr. Graves. One of the producers that is here, could you 
tell me, do you think that the United States has a more robust, 
a safer regulatory regime here than, for example, Venezuela, 
Nigeria, other countries? Or do you think those countries, that 
are some of the major suppliers to the United States, have a 
better or safer regulatory regime?
    Mr. Leimkuhler. Relative to the countries you mentioned, I 
think we absolutely have a better regulatory regime.
    Mr. Graves. OK, thank you.
    Mr. Henderson, are you a proponent of the global 
environment, or just the environment in Louisiana or the United 
States?
    Mr. Henderson. All three.
    Mr. Graves. All of them. OK, thank you.
    Mr. Herbst, let me go back and ask you a question. BSEE 
took, as I recall, 3 to 4 years to write this rule, and they 
initially proposed a 2-month comment period, and then a 3-
month. I will say it again. The complexity of this--and I sat 
through briefing after briefing, I sat through the BP trial, 
trying to get my head around all this stuff--incredibly, 
incredibly complex activities here, and obviously getting it 
right is critical.
    In some of the meetings I have had with some of the 
operators, it has been said to me that they are concerned that 
some of the proposed rule implications could cause less safe--
less safe--operating conditions than we currently have today. 
Do you think that, considering the fact that it took Interior 3 
to 4 years to actually write this rule--that it is appropriate 
to have a rule that has such profound economic consequences, 
such profound potential impacts on our environment here in 
Louisiana, as Mr. Smith noted, the most productive commercial 
fisheries in the continental United States, one of the most 
productive ecosystems on the continent--Do you think it is 
appropriate to only give industry 3 months to comment on 
something that it took the Department 3 to 4 years to write?
    Mr. Herbst. That is personally outside of my call, but it 
is a very complex rule. It took a lot of input from a lot of 
different people. As mentioned before, standards were a big 
part of incorporating into this rule. Industry shouldn't be 
surprised by that part of the rule. The other pieces, that is 
why we are continuing to work with those commenters, to get the 
best----
    Mr. Graves. I believe Interior asked the National Academy 
to look at the real-time monitoring to provide a report back to 
Interior, to BSEE, on that aspect of the connectivity, the 
real-time monitoring. Has that report from the National Academy 
been received by Interior?
    Mr. Herbst. I am not aware. I would have to get back to you 
on that question.
    Mr. Graves. I don't believe that it has, and I am just 
wondering if you could follow up for the record, if you can 
please explain to the committee why you would ask for a report, 
not get it back, and yet go ahead and finalize or issue your 
proposed rule without being informed by the National Academy's 
feedback on that issue, which could cause cyber threats and 
other safety issues in the Gulf.
    Mr. Herbst. I will get back to you on that.
    Mr. Graves. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Westerman.
    Mr. Westerman. Thank you, Mr. Chairman.
    As we have gone through this discussion and the things I 
have read about in the past, the term ``drilling margin'' comes 
up. It seems to be one of the key issues here, and obviously 
the safe drilling margin has to do with pressures in the 
drilling rig and in the pipe. But there is also another kind of 
margin that is an economic margin, that I think Dr. Mason has 
talked about, and it seems like this drilling margin may create 
such a small economic margin that it is going to hurt the 
industry in such a way that even the research at LSU can be 
affected into coming up with new renewable kinds of energy, 
which I am a big proponent of as long as they are economical.
    So, Dr. Mason, in your research, have you looked at the 
relative economics of fossil fuel energy versus renewable 
energy in our current state?
    Dr. Mason. That is something of tremendous interest to 
researchers like myself. We are trying to work that out right 
now. One thing that I do see from this type of proposed 
regulation, very large regulation coming through in big chunks, 
as Mr. Fleming referred to earlier, is that it creates an 
uncertainty on the part of companies bidding for lease rights 
in the Gulf, an uncertainty that the economics of what they are 
bidding on may change significantly after the fact. Those 
bidders will rationally bid down prices, potentially below 
reservation prices at which the Treasury and the Department of 
the Interior would be willing to grant such leases.
    In the meantime, we have Mexico becoming active in the same 
Gulf and looking for prices to exploit their own reserves, and 
it is fairly easy for companies to just move right across the 
line within that Gulf, within the same ecosystem to, as others 
noted, a less safe drilling environment. So, I think we are 
right on that margin.
    Mr. Westerman. The last two Western Gulf and Central Gulf 
lease sales had the lowest number of bids in 20 years. What are 
the causes for such low industry interest in purchasing leases?
    Dr. Mason. I think we are seeing the economics of the Gulf 
go south due to over-regulation and other influences, low oil 
prices, a confluence of factors right now; so this is probably 
a bad time to move.
    Mr. Westerman. Mr. Leimkuhler, what do you believe are some 
reasons for the drop-off in interest?
    Mr. Leimkuhler. I think that basic economics is part of the 
driver in that respect. That is the primary driver, the overall 
economics and the projection forward of those not improving for 
some period of time.
    Mr. Westerman. Do you think we will see similar results in 
the recently announced lease sale for next spring?
    Mr. Leimkuhler. I haven't taken a look at what has actually 
been proposed. I am unfamiliar with that, so I can't comment on 
it.
    Mr. Westerman. OK.
    Ms. Davis, your company is not conducting any offshore 
drilling operations and would not fall under any of these 
regulatory provisions, yet you are adamant about the negative 
consequences this rule will have and how it will impact your 
business. I know in Arkansas it can even impact business. It 
can impact the economy across the whole country.
    Were you invited to meet with BSEE this year and share any 
of your views?
    Ms. Davis. No, I have not been.
    Mr. Westerman. To your knowledge, did BSEE conduct any 
listening sessions in the Gulf region to hear about possible 
unintended consequences of the rule?
    Ms. Davis. Not to my knowledge.
    Mr. Westerman. Mr. Herbst, can you address that?
    Mr. Herbst. If you are talking about the invites for this 
week, those were for folks that commented on the rule. The rule 
as proposed is open to all for commenting. But if they 
commented on the rule, they were invited back, from what I 
understand, to clarify those points in their comments.
    Mr. Westerman. Mr. Chairman, I yield back.
    The Chairman. Thank you.
    Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Herbst, as I understand it, the rule requires the 
establishment of the BSEE-Approved Verification Organization, 
or BAVO. Has that been defined?
    Mr. Herbst. It has not been finalized at this point, but 
the concept of having a verification organization is in the 
rule.
    Mr. Smith. When will it be defined?
    Mr. Herbst. I am not certain on that. I will have to get 
back to you.
    Mr. Smith. OK. How would industry or the public comment on 
something that hasn't even been defined in a proposed rule?
    Mr. Herbst. Again, they can comment on how it is 
implemented. They can comment on the idea of having a 
verification organization, not having one, who may be the best 
to do that type of work, and those comments then would be taken 
into account.
    Mr. Smith. So, they can public comment based on what 
possibly might be in a rule, but not even suggested that is in 
a rule, but a possibility?
    Mr. Herbst. Again, the requirement of a verification 
organization to verify the BOPs is in the proposed rule, and 
again they could comment on how that is implemented.
    Mr. Smith. Could this verification organization be industry 
leaders?
    Mr. Herbst. I believe, as it is written or intended, it is 
third party.
    Mr. Smith. So, it could be environmentalists?
    Mr. Herbst. It would have to be someone with the expertise, 
that would have to have that expertise, especially around BOPs, 
to be that verifying organization.
    Mr. Smith. But there is nothing in the proposed rule that 
explains possibly who this third party is?
    Mr. Herbst. No. We have similar rules in place now for 
third-party verification, and those areas are clearly defined. 
This is still open at this point.
    Mr. Smith. How many other requirements established in the 
proposed rule may not be defined in various other provisions?
    Mr. Herbst. I am not sure how I would be able to answer 
that. If we think we have defined it, but again as we meet with 
industry, if there are questions or concerns, or it needs 
clarification, that is what would be built into the final rule.
    Mr. Smith. All right.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Rice.
    Mr. Rice. Just a couple more questions.
    I am looking at the map here put out by LLOG of the Gulf, 
the coast of the Gulf, and this issue about Mexico piques my 
interest. How far offshore does our U.S. Government 
jurisdiction go in regulating this offshore oil, Mr. Herbst?
    Mr. Herbst. It is out to the economic exclusive zone. It is 
200 miles. With Mexico, the United States has a trans-boundary 
agreement, and we have worked through that. We have continued 
to work with the Mexican regulators, originally CNH, now SIA, 
as far as how operations along that border will proceed.
    Mr. Rice. All right. And that 200 miles would apply in the 
Atlantic as well?
    Mr. Herbst. Yes, it would.
    Mr. Rice. OK. So, a foreign country could come and drill 
201 miles off our shore?
    Mr. Herbst. I am not the expert on that, but I would 
believe so.
    Mr. Rice. OK. Mr. Herbst, I am going to pick on you for a 
little while. Is there more risk in deepwater drilling than 
there is in shallow water drilling?
    Mr. Herbst. The risks can be there for both depending on 
how the operations are conducted.
    Mr. Rice. Mr. Leimkuhler, would you say there was more or 
less risk in deepwater or the same?
    Mr. Leimkuhler. I would say the risk is very project 
dependent. The safest well I've ever drilled was in 9,000 feet 
of water, the most risky was in 32,000 feet of water. It all 
depends upon the subsurface rocks you are drilling through in 
that environment, and that is not water----
    Mr. Rice. These pressures that oil comes out, the pressure 
the oil is under, is that necessarily related to the depth of 
the water, or is it somewhat related to the depth of the water?
    Mr. Leimkuhler. It is related to the depth of the well and 
the regional geology in which it sits.
    Mr. Rice. OK.
    Ms. Davis, do you think deepwater drilling is less or more 
risky than shallow water drilling, or the same?
    Ms. Davis. I don't think there is any more risk in 
deepwater.
    Mr. Rice. All right.
    What is deep, Mr. Herbst? How do you define what deepwater 
is?
    Mr. Herbst. It has been defined differently over the years. 
Currently it is 500 feet of water depth is deepwater, the way 
we define it.
    Mr. Rice. OK.
    I yield back my time.
    The Chairman. Thank you.
    I have a couple of quick questions for a few people.
    Mr. Herbst, let me start with you. You said to one of the 
questions that if companies commented on the rule, they were 
invited back. So, all companies who made comments would be 
ensured of meeting with BSEE?
    Mr. Herbst. From what I understand, if there was interest, 
BSEE asked if they needed to clarify their comments. Again, you 
had to have commented before, and this was an opportunity to 
clarify those comments.
    The Chairman. So, all companies who commented are going to 
have a meeting, or at least be invited to a meeting?
    Mr. Herbst. I don't know for sure. I was not the one who 
sent out the invites.
    The Chairman. All right.
    Look, I had a great Aunt Bessie. You guys need to change 
your acronym. I liked her.
    [Laughter.]
    The Chairman. Dr. Mason, universities like LSU obviously 
adjust their curriculum. I was interested in your testimony 
that asserted that the Federal regulatory environment is 
essentially migrating the job opportunities to compliance, 
rather than exploration and production. Is that accurate, and 
can you expand on that for just a couple of minutes, or less?
    Dr. Mason. Sure. That is a well-known dynamic in regulated 
industries. We are seeing that in financial services now in 
response to Dodd-Frank, where we are not seeing banks lend to 
consumers or businesses. We are seeing them beef up compliance 
in all different areas to meet these thousands of pages of new, 
unknown regulations that are still not even written. So, we are 
bound to do the same thing here in oil and gas. It is pretty 
straightforward.
    The Chairman. So, traditionally then, market forces usually 
drive what the job market becomes. It seems like in the Gulf, 
the biggest market force now is the Federal Government.
    Dr. Mason. Yes. The Federal Government and state 
governments can become part of the market force, creating job 
opportunities in what I would view as a somewhat perverse 
fashion at times, if it is not driving safety on the margin, 
and we have seen this before.
    The Chairman. All right. That could or could not be good. I 
would appreciate Mr. Herbst saying that you are actually going 
to be soliciting industry's comments again. That is essential. 
That is very important.
    Maybe to Ms. Davis and Mr. Leimkuhler again. OPEC is 
purposely depressing oil prices with their policies, and it 
seems to me it is having a real impact on both small and large 
businesses, especially here in the Gulf. Ms. Davis, can you 
just tell me personally how this has impacted the current 
hiring trends and the business investments in the Gulf?
    Ms. Davis. It makes it very difficult to plan anything. To 
the point we talked of earlier, with all these regulations, 
things that are changing the environment, and all the things 
that are happening with OPEC, a company like RIG-CHEM can't 
sustain for much longer. We will go away, and small business 
will be hurt.
    To your point about OPEC, we don't know, we have no way to 
predict what is going to happen for the future. All I can do is 
tell my employees every day that we have to keep looking for 
new opportunities; but with more regulation, that will not 
happen.
    The Chairman. I appreciate that. This area of discussion is 
so broad, we didn't have a whole lot of time to go into a lot 
of things. We didn't even go into the exporting ban. But it 
seems very obvious that OPEC has a unique strategy that they 
are using to see if they can drive our country into a 
particular pattern. What scares me is, I think they are 
successful right now, which is worrisome to me, especially for 
the potential this country has as far as energy production and 
the significance of affordable energy in the ability of the 
entire economy to go forward, as well as how it helps people in 
their daily lives. If we do not have affordable energy, we 
don't have a lifestyle that is worth living, and that becomes 
extremely significant.
    Mr. Lukeheimer--Leimkuhler. I am sorry; I am dyslexic. Mr. 
Leimkuhler--I am not dyslexic, by the way. I just say that.
    [Laughter.]
    The Chairman. And I forgot the question. No, the same 
question.
    Mr. Leimkuhler. It creates that condition quite often.
    The Chairman. I am running down your time. Just OPEC's 
impact on the business climate here in the Gulf.
    Mr. Leimkuhler. Right now, with the decline in oil prices, 
our net margins have been basically reduced by somewhere on the 
order of 70 percent. Therefore, right now, we are not really 
looking to expand. I currently manage the drilling contracts at 
LLOG. We are going to live up to the contracts we signed. But 
are we going out and looking to sign up more rigs? Not at this 
time. We need to see an improvement in the economic conditions 
to expand our rig count back to where it was about 2 years ago.
    The Chairman. Thank you. That is not a positive sign, but I 
appreciate that answer very much.
    The committee does have a couple of other assignments here. 
If anyone wants a 2-minute final question? If not----
    Mr. Graves. Can I just do----
    The Chairman. You can do a 2-minute wrap-up, and then let 
me do a wrap-up.
    Mr. Graves. Thank you. Mr. Chairman, thank you very much.
    I want to thank all of you for being here. I think that all 
your perspectives are certainly helpful; and I want to be 
clear, I have spoken to every Member here. I think that 
everyone wants to get this right, that we want to improve 
safety. Looking at BP alone, I believe they are going to end up 
spending in excess of $50 billion.
    There is a huge incentive for companies to get this right, 
a financial incentive, and I think that is important to keep in 
mind.
    Looking at it a little bit more parochially--this is part 
of our economy, it is part of our culture. Senator Vitter 
talked about that earlier. It is a big part of what we do here, 
and I am concerned about the global environment. I think it is 
important to keep in mind that you don't just change rules 
here, and all of a sudden everywhere else the same thing 
happens. We are going to increase our dependence on foreign 
energy where it is produced less safely. So, we lose the jobs, 
you get an adverse impact to the environment, and I think that 
is wrong.
    We have to get this right. Showing the disparity that 
Congressman Smith talked about in the cost estimate, $800 
million to $32 billion, there is a huge disparity there in 
terms of what industry is estimating and what the Federal 
Government is estimating. I think I even read something saying 
the Federal Government thought this could save money, which I 
don't get. We have to reconcile these.
    Mr. Herbst, I want to ask you if BSEE would commit to doing 
public meetings and not just to meet with companies that have 
submitted comments, to meet with everyone who wants to meet on 
this. We have to get this right, and I think that is very, very 
important.
    Last, I just want to say that, ultimately, this is critical 
for the U.S. energy security, as the Chairman noted, so we are 
not subject to the whims of OPEC to the degree we are today; 
and I think it is critical for our environmental security. 
Thank you.
    The Chairman. Thank you all. I want to thank everyone who 
has been involved in this particular hearing. The city and the 
state has been very kind and gracious to us in holding a 
hearing down here. I am happy we were able to be here.
    I appreciate the fact that the two Senators from Louisiana 
were able to be here as part of this hearing.
    The current Members who are here, thank you for your 
attendance and thank you for your thoughtful questions.
    I thank the witnesses who came here for your time and 
effort.
    I noticed I was able to meet former Congressman Johns, 
appreciate you being here as well. I think after this hearing 
you are grateful that you are no longer here, right?
    [Laughter.]
    The Chairman. You made the right choice there.
    With all of that, I thank the witnesses for your testimony, 
both written and oral testimony.
    Members of the committee may have additional questions for 
you. We are going to ask that you would respond to those in 
writing. Under Committee Rule 4(h), the hearing record is open 
for 10 business days for those responses to get to you and be 
returned to us.
    If there is no further business, without any objection, I 
just pounded the gavel and we are now in adjournment.

    [Whereupon, at 10:55 a.m., the committee was adjourned.]

            [ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD]

    Prepared Statement of the International Association of Drilling 
                              Contractors
    Thank you for the opportunity to submit written comments for the 
record. The International Association of Drilling Contractors (IADC) is 
a trade association representing the worldwide interests of the onshore 
and offshore drilling industry since 1940. With over 1,800 members, 
IADC membership reaches nearly every state in the United States. Our 
members operate the vast majority of onshore rigs in the United States 
and offshore, our drilling contractor members operate all the Mobile 
Offshore Drilling Units (MODUs) operated in areas subject to the 
jurisdiction of the United States. These comments are offered without 
prejudice to communications that may be offered directly by IADC member 
companies.
    As a trade association, IADC's purpose is to advance drilling and 
completion technology, improve industry health, safety, environmental 
and training practices; and champion sensible regulation and 
legislation which facilitate safe and efficient drilling. Through 17 
Committees and 15 global Chapters, IADC creates the space for members 
to connect, collaborate and create solutions aimed at addressing the 
industry's most critical issues.
Current Industry Landscape and Industry Outlook for the Drilling 
        Contractor
    At the leading edge of the oil and gas industry, only the drilling 
contractors build, own, and operate the rigs without which no well 
could be drilled, completed, produced or worked-over. The drilling 
industry is in the midst of a major recapitalization as currently 230 
new offshore units are being built for future delivery. The costs of 
these units range from about $200 million for a shallow-water jack-up 
unit to nearly $1 billion for a deepwater drillship. Similar 
recapitalization has taken place with onshore drilling contractors in 
order to provide equipment to drill wells to be hydraulically 
fractured: these units cost from $20-$40 million. Both onshore and 
offshore, the latest design drilling units are more effective, safer 
and more environmentally efficient than earlier units.
    The demand for secure and affordable energy is clearly the driver 
for drilling activity. In August 2015,\1\ amid high uncertainty in the 
global oil market, the U.S. Energy Information Agency (EIA) lowered 
crude oil price forecasts in the Short-Term Energy Outlook (STEO), 
anticipating benchmark West Texas Intermediate crude oil prices to 
average $49 per barrel (b) in 2015 and $54/b in 2016, $6/b and $8/b 
respectively lower than forecast in the previous month's STEO. Such 
lackluster price forecasts reflect in a similarly lackluster demand for 
oil and gas, which in turn depresses current drilling activity and 
near-term outlook.
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    \1\ http://www.eia.gov/todayinenergy/detail.cfm?id=22572.
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    Changing market conditions, both in the United States and 
internationally, have dramatically impacted the oil industry as a 
whole, creating an environment of caution and uncertainty for the 
drilling contractor. Baker Hughes has issued the rotary rig counts \2\ 
as a service to the petroleum industry since 1944, when Hughes Tool 
Company began weekly counts of active U.S. and Canadian drilling 
activity. On September 4, 2015, Baker Hughes' reported 33 offshore 
units in U.S. waters compared to 65 in October 2014; a market reduction 
of almost exactly 50 percent within a 12-month period.
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    \2\ http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-
reportsother.
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    The decline in offshore rig count continues in spite of some 
stability in the oil price in the 2nd/3rd quarters 2015--albeit at a 
low level. The majority of drilling companies, both onshore and 
offshore, have been forced to decommission rigs and shift priorities 
from future investments to address internal financial constraints. One 
U.S.-headquartered offshore drilling contractor that has focused on the 
shallow water sector, where well productivity is lower than the deeper 
Gulf, filed for bankruptcy this summer and the company's stock has been 
delisted from the NYSE and is now trading on the OTC market.
    The reduced rig count is reflected in drilling-related employment. 
According to an August 19, 2015 Rig News Article, 50,000 energy jobs 
have been lost during the months of June, July, and August, on top of 
100,000 employees laid off since oil prices started to decrease in fall 
of 2014.
    The U.S. Gulf is one of the highest cost basins in the offshore 
sector in which U.S. companies operate. Uncertainty in oil and natural 
gas markets, which will likely continue over the next several years, is 
clearly a major factor in declining rig count in U.S. waters. However, 
in addition to this market uncertainty, the U.S. oil and gas industry 
is contending with layers of new regulatory proposals that further 
increase uncertainties and, if implemented, will impose further costs 
on the U.S. industry, rendering it less competitive in the global 
marketplace.
Harmful Regulations Impede Economic Growth and Threaten Survivability
    IADC will never object to regulations that are necessary or enhance 
safety and operational integrity. And, as in any business, drilling 
contractors require confidence in and consistency of new regulations, 
with sufficient lead time to fully implement them.
    Throughout IADC, our members share the belief that for the 
prevention of blowouts, explosions and fires, well control is the most 
critical area. IADC and member experts from across all areas of the 
industry are working together, and ahead of governments everywhere, on 
the improvement of competency programs and technical solutions in well 
control performance.
    A powerful example of this is the recent creation of the Well 
Control Institute (WCI). The WCI is a unique industry oversight body, 
comprising the most senior representatives from operators, drilling 
contractors and equipment manufacturers in the industry. The WCI is 
committed to developing solutions to issues such as blowout preventer 
equipment reliability and rig crew competency.
    Within the context of well control, IADC recently launched 
WellSharpTM, a root and branch overhaul initiated by 
industry to redefine how well control training and assessment is 
delivered with the goal of keeping wells in a safe state throughout 
their life span, and avoiding blowouts. IADC accredits training 
institutions, whether commercial or company in-house, to conduct 
training that meets or exceeds the curriculum requirements set forth in 
WellSharpTM. The new standard requires trainees to be more 
engaged in the learning process and to undergo individual skills 
assessments appropriate to their specific well control roles and 
responsibilities. The knowledge-assessment database identifies specific 
knowledge gaps and allows instructors to review and close these gaps 
with each trainee before the completion of training. The system 
provides metrics regarding the alignment between the course taken and 
the trainee's job position and affords analysis of instructor 
performance. It is a truly unique, multifaceted program developed to 
accomplish a step-change in well control competency, enhancing crew 
capabilities and eliminating errors.
    A current joint industry effort is a blowout preventer (BOP) 
reliability and performance improvement program. IADC and the 
International Association of Oil and Gas Producers (IOGP) and their 
members are collaborating to develop significant and continuous 
enhancements to BOP operability and reliability. This is an 
unprecedented collaboration between oil and gas producers, equipment 
manufacturers and drilling contractors that began in the U.S. Gulf. It 
will give far greater assurance that BOP's across the world will 
function on demand whilst also driving out cost related to equipment 
being out of service.
    U.S.-based offshore drilling contractors first initiated the data 
sharing project that underpins the BOP reliability program, supported 
by the recommendations for reporting of equipment malfunctions and 
failure in API Standard 53, Blowout Prevention Equipment Systems for 
Drilling Wells, Fourth Edition (API 53). The BOP reliability program 
establishes a permanent performance improvement tool that will track 
and capture performance of BOP equipment.
    The Macondo incident provoked the assemblage of the largest ever 
collaboration of well control subject matter experts and principals to 
create solutions to, and apply continuous improvement in, well control 
performance. A major focus of these efforts has been the API standards 
program and other international standardization platforms. IADC has 
connected its members to work collaboratively as subject matter experts 
on a vast number of standards committees.
    Industry has taken its own lead to fulfill the responsibility to 
secure safer, cleaner and more efficient drilling operations and IADC 
also strives to support and work with government agencies to develop 
regulations that are targeted, relevant and proportionate. Regrettably, 
recent U.S. offshore regulatory initiatives could actually lead to a 
less safe drilling environment.
    IADC believes the Bureau of Safety and Environmental Enforcement's 
(BSEE) new proposed regulation on well control and blowout prevention 
is precisely the type of overly prescriptive regulation that restrains 
best industry safety practice and its subsequent benefits: innovation, 
jobs and economic growth.
    IADC readily acknowledges and commends the efforts of BSEE staff to 
produce such a major draft rule. We also appreciate the tremendous 
external pressures applied to the Bureau by opponents to the U.S. oil 
and gas industry, many of them uninformed and inexpert in the matters 
of well control and offshore operational integrity. However, the 
(undoubtedly) unintended consequences of BSEE's inflexibly prescriptive 
Well Control Rule fails to account for and to encourage substantial 
industry improvements post-Macondo. In some cases, the requirements of 
the rule are simply unfeasible, requiring industry to operate sub-
optimally. In addition, the measures in the rule differ widely from 
international standards and will negatively impact the market for U.S. 
MODUs.
    IADC's formal response to the BSEE draft BOP rule, minus its 
detailed technical annexes, is attached to this statement for the 
committee's convenience. The committee should note that IADC, and other 
key organizations and associations, have urged BSEE to continue to work 
with industry to jointly analyze ``respective sections of the proposed 
rule in order to reach mutual understanding of the proposal, to correct 
fundamental flaws in the proposed rule, and allow constructive 
development of rules that are ultimately both workable and effective. 
We further request that the comment period be reopened during the 
workshops and that the presentation and discussion be part of the 
official record.'' \3\ We sincerely hope the Bureau will respond to the 
unanimous call from industry experts and leaders in this respect.
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    \3\ Industry's joint comments submitted to the Department of 
Interior in response to BSEE's proposed rulemaking entitled, ``Oil and 
Gas and Sulphur Operations in the Outer Continental Shelf--Blowout 
Preventer Systems and Well Control.'' Comments were submitted via 
electronic submission to: http://www.regulations.gov/.
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Positive Policies to Spur Safer Energy Production:
    As this committee works to develop new policies and legislation, 
IADC recommends, among other things, the below changes to existing law 
to spur energy production:

  1.  Narrowly targeted amendments to Outer Continental Shelf Lands Act 
            (OCSLA)--We urge, on behalf of both industry and the 
            agencies involved, an amendment to OCSLA to allow BSEE & 
            USCG more flexibility to undertake risk-based (rather than 
            mandated annual) inspections in line with other leading 
            jurisdictions in Europe, Canada and Australia. We encourage 
            the proposed reforms by Director Salerno of BSEE to secure 
            for the Bureau the goal of targeting risk and allocating 
            scarce specialist resources where they are most needed.

  2.  Increased offshore access--Based on the latest Federal estimate, 
            the U.S. OCS contains approximately 90 billion barrels of 
            oil and over 404 trillion cubic feet of natural gas. 
            However, over 85 percent of the OCS remains off limits for 
            leasing. The only areas open to OCS production lie in the 
            west of the Gulf of Mexico, a few legacy leases off 
            California, and areas in Alaska. New areas in the Atlantic 
            off Virginia, the Carolinas and Georgia should be included 
            in the 5-year plan for 2017-2022. In order to continue the 
            development of our Nation's offshore resources, Congress 
            should ensure new areas are included for continued 
            development on the OCS.

      In particular, it is important that all 26 OCS regions are made 
            available for full exploration, utilizing the latest 
            seismic technologies to delineate oil and gas potential. 
            The Atlantic OCS contains an estimated 4.72 billion barrels 
            of oil and 37.5 trillion cubic feet of natural gas, while 
            the Eastern Gulf of Mexico holds an estimated 5.07 billion 
            barrels of oil and 16.08 trillion cubic feet of natural 
            gas. Those amounts represent more than 20 times the 2012 
            Federal offshore oil production and over 94 times the 2012 
            Federal offshore natural gas production. It is 
            strategically important for the United States to confirm 
            the availability of these resources and their potential for 
            economic development.

      In the Arctic, it is vital that the United States maintain and 
            accelerate opportunities to develop offshore oil and gas in 
            the resource-rich Beaufort and Chukchi Seas. The region 
            holds an estimated 23.6 billion barrels of oil and 104 
            trillion cubic feet of natural gas. The United States must 
            assert its economic interests in the Arctic at a level 
            commensurate to the initiatives of its Arctic neighbors and 
            competitors.

  3.  Clarification of contractor liabilities/responsibilities under 
            BSEE regulations--IADC has raised concern many times 
            regarding uncertainty in contractor liabilities and 
            responsibilities under BSEE's regulations. These result 
            from post-Macondo changes to agency policy reinterpreting 
            assignment of regulatory responsibility for their entire 
            suite of regulations, without the benefit of administrative 
            rulemaking as provided for by the Administrative Procedure 
            Act. IADC has addressed this situation in responding to 
            rulemaking proposals issued after the policy change. 
            Unfortunately, no rules have been made under APA and thus 
            it is not possible to anticipate how the agency policy may 
            have changed, particularly when anticipating the proposed 
            BOP rule.

  4.  Lifting the Crude Oil Export Ban--IADC lends its support to other 
            organizations representing the oil and gas industry for 
            lifting export restrictions on crude oil as it would 
            bolster price growth for domestically produced oil and 
            facilitate job creation. IADC wishes to emphasize that the 
            oil and gas industry, which includes drilling contractors, 
            accounts for 5.3 percent of total U.S. employment. The 
            number of jobs supported by the upstream segment alone in 
            2010--2.2 million--is larger than the populations of 15 
            states.

      Every new oil and gas exploration and production job supports 
            three new jobs in the supply chain and another six jobs in 
            the broader economy. The supply chain extends beyond the 
            oil producing regions into every state in the union. A new 
            IHS study finds that lifting the ban would introduce an 
            annual average 124,000 jobs into the supply chain and that 
            394,000 jobs annually would be created economy-wide between 
            2016-2030.\4\
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    \4\ http://www.energy.senate.gov/public/index.cfm/files/
serve?File_id=4d087117-d0ac-4446-9610-73f19c6592e8.

      The crude oil supply chain would add $26 billion to the GDP per 
            year 2016-2013. Labor income would rise by more than $21 
            billion per year, on average, which translates to an 
            additional $158 per household. Cumulative government 
            revenues from corporate and personal taxes attribute to 
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            supply chain industries would increase by $429 billion.

Closing
    Overall, the next 3 years will be challenging for the drilling 
contractor due to uncertainty over oil prices and Federal regulations. 
History shows that, with the ebb and flow of the oil market, industry 
should expect continued decline in U.S. crude oil production before it 
resumes growth again in late 2016 as EIA estimates.\5\ It remains to be 
seen how industry fares in the upswing as a result of the impacts of 
potentially deleterious regulation such as those that are currently 
proposed. The U.S. industry has, by its innovation and advanced 
technology, secured both an energy price miracle for Americans, and the 
world's top spot in oil production. The question U.S. policymakers must 
decide is whether their ambition is for the United States to 
responsibly develop these resources and to continue to set an 
outstanding world example, or bequeath that to another jurisdiction.
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    \5\ http://www.eia.gov/forecasts/steo/report/.

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Submitted by:

Stephen Colville

                                 *****

The following document was submitted as an attachment to Mr. Colville's 
testimony. This document is part of the hearing record and is being 
retained in the Committee's official files:

    --IADC letter to BSEE