    [Senate Hearing 114-404]
    [From the U.S. Government Publishing Office]

                                                             S.  Hrg. 114-404

    THE WELL CONTROL RULE AND OTHER REGULATIONS RELATED TO OFFSHORE OIL AND
                                 GAS PRODUCTION

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                          ENERGY AND NATURAL RESOURCES
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   ----------

                                DECEMBER 1, 2015

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

    THE WELL CONTROL RULE AND OTHER REGULATIONS RELATED TO OFFSHORE OIL AND
                                 GAS PRODUCTION

                                                            S. Hrg. 114-404

    THE WELL CONTROL RULE AND OTHER REGULATIONS RELATED TO OFFSHORE OIL AND
                                 GAS PRODUCTION

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                          ENERGY AND NATURAL RESOURCES
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                DECEMBER 1, 2015

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

               Available via the World Wide Web: http://fdsys.gov

                                 _________

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                   COMMITTEE ON ENERGY AND NATURAL RESOURCES

                        LISA MURKOWSKI, Alaska, Chairman
    JOHN BARRASSO, Wyoming               MARIA CANTWELL, Washington
    JAMES E. RISCH, Idaho                RON WYDEN, Oregon
    MIKE LEE, Utah                       BERNARD SANDERS, Vermont
    JEFF FLAKE, Arizona                  DEBBIE STABENOW, Michigan
    STEVE DAINES, Montana                AL FRANKEN, Minnesota
    BILL CASSIDY, Louisiana              JOE MANCHIN III, West Virginia
    CORY GARDNER, Colorado               MAZIE K. HIRONO, Hawaii
    ROB PORTMAN, Ohio                    ANGUS S. KING, JR., Maine
    JOHN HOEVEN, North Dakota            ELIZABETH WARREN, Massachusetts
    LAMAR ALEXANDER, Tennessee
    SHELLEY MOORE CAPITO, West Virginia
                        Karen K. Billups, Staff Director
                    Patrick J. McCormick III, Chief Counsel
                Tristan Abbey, Senior Professional Staff Member
                Angela Becker-Dippman, Democratic Staff Director
                    Sam E. Fowler, Democratic Chief Counsel
              Clayton Allen, Democratic Professional Staff Member
            Brie Van Cleve, Democratic Science and Technology Fellow

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Murkowski, Hon. Lisa, Chairman, and a U.S. Senator from Alaska...     1
    Cantwell, Hon. Maria. Ranking Member, and a U.S. Senator from
      Washington.....................................................     2

                                   WITNESSES

    Salerno, Brian, Director, Bureau of Safety and Environmental
      Enforcement, U.S. Department of the Interior...................     9
    Milito, Erik, Group Director, Upstream and Industry Operations,
      American Petroleum Institute...................................    73
    Rockel, Dr. Mark, Principal Consultant, Ramboll Environ..........   345
    Savitz, Jacqueline, Vice President, U.S. Oceans, Oceana..........   350

              ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

    Cantwell, Hon. Maria:
        Opening Statement............................................     2
        Written Statement............................................     5
    International Association of Drilling Contractors:
        Letter for the Record........................................   398
        Statement for the Record.....................................   409
    Milito, Erik:
        Opening Statement............................................    73
        Written Testimony............................................    75
        Responses to Questions for the Record........................   389
    Murkowski, Hon. Lisa:
        Opening Statement............................................     1
    Rockel, Dr. Mark:
        Opening Statement............................................   345
        Written Testimony............................................   347
        Responses to Questions for the Record........................   392
    Salerno, Brian:
        Opening Statement............................................     9
        Chart: U.S. OCS Loss of Well Control Events (2007-2014)......    10
        Chart: Chevron, Apache and Walter Oil & Gas Incidents........    11
        Written Testimony............................................    13
        Responses to Questions for the Record........................   385
    Savitz, Jacqueline:
        Opening Statement............................................   350
        Written Testimony............................................   352

    THE WELL CONTROL RULE AND OTHER REGULATIONS RELATED TO OFFSHORE OIL AND
                                 GAS PRODUCTION

                                  ----------

                           TUESDAY, DECEMBER 1, 2015

                                           U.S. Senate,
                     Committee on Energy and Natural Resources,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:07 a.m. in
    Room SD-366, Dirksen Senate Office Building, Hon. Lisa
    Murkowski, Chairman of the Committee, presiding.

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

        The Chairman. Good morning. The committee will come to
    order.
        I would like to welcome our panel here this morning as we
    begin our oversight hearing on offshore oil and gas
    regulations.
        Offshore oil and gas production, of course, is an issue of
    national importance, not merely a topic for the coastal states
    that support it. According to the Office of Natural Resources
    Revenue, Federal offshore production tops one million barrels
    of crude oil per day and one trillion cubic feet of natural gas
    per year.
        Those volumes are sizable, but we have seen a decline as a
    share of overall domestic production during this
    Administration. Since 2009, Federal offshore oil production is
    basically flat at best, while Federal offshore gas production
    has been cut in half.
        A lot of us believe that our offshore production could and
    should be higher than it is today, a lot of us believe that
    more production would be good for our economy and for our
    security, and a lot of us are concerned that the offshore
    regulatory system has too often held projects back--my State of
    Alaska is probably Exhibit A, case in point.
        No one here will suggest that offshore production should go
    unregulated or that safety should ever be anything except a top
    priority, yet it is also fair to examine whether our offshore
    regulators are striking the right balance and actually
    designing rules that will meet their objectives.
        Which brings us to the focus of today's hearing, and that
    is the well control rule, and a series of related rules that
    govern offshore production in Federal areas. The stated aim of
    the well control rule, to ensure the safety of oil and gas
    operations offshore, to prevent incidents like the Macondo
    spill from ever happening again, is certainly one that I share.
        The well control rule is, at its core, an extremely
    technical document, better suited perhaps to engineers than
    certainly to Senators here. As the committee with jurisdiction
    over the agency that issued the rule, however, we still need to
    do what we can to ensure that it will actually enhance the
    safety of offshore productions and operations. On that front,
    it appears that we have considerable cause for concern.
        Over the past several months, many seasoned veterans of
    offshore exploration and production have submitted comments for
    the record about various aspects of the well control rule, as
    proposed. These experts have raised concerns over mandatory
    drilling margins, blowout preventer specifications, real-time
    monitoring, and more. They suggest in their comments that, if
    left unaddressed, these requirements may actually increase the
    risk of a catastrophic accident, actually taking us in the
    wrong direction.
        When industry veterans come forward to express concern
    about a rule's impact on safety and not on the regulatory
    burden that a rule would impose or the jobs or the production
    it could cost, but safety, then I think it is something that we
    should all be paying attention to.
        I also want to make a final point on Alaska. I have been
    deeply disturbed, and I have said so quite publicly, regarding
    the Administration's handling of our Arctic resources. The
    regulatory maze imposed from Washington, DC created a situation
    in which successful exploration of Alaska's offshore was an
    uphill battle every step of the way.
        We have now seen two companies pull out of an area on our
    Outer Continental Shelf that holds an estimated 24 billion
    barrels of oil and 104 trillion cubic feet of natural gas, and
    again where there is very, very strong local support for
    development. Now, we all know that the physical environment in
    the Arctic is tough, but it was not the environment that
    prompted these decisions. It was, to a large degree, the
    regulatory environment which continues to deteriorate.
        I believe that a new paradigm is in order, one that
    recognizes the Federal offshore areas in the Arctic are a
    ``frontier play'' worthy of a modern, adaptable leasing
    structure designed to help, than rather to block, exploration.
    So I think you could probably expect more from me on this, as
    well as the committee.
        With that, I turn to Senator Cantwell for her comments.

     STATEMENT OF HON. MARIA CANTWELL, U.S. SENATOR FROM WASHINGTON

        Senator Cantwell. Thank you, Madam Chair, and thank you for
    holding this hearing. I also want to welcome the witnesses
    today to share their insight on this proposed well control
    rule.
        Safety and environmental protection in energy production
    are important, especially in fragile ocean ecosystems, so I am
    glad that there is much interest in this rule today.
        I think it is safe to say that the BP Deepwater Horizon
    explosion and oil spill was a human, economic, and ecological
    disaster of epic proportions. Eleven members of the crew were
    killed in an explosion and 17 others were injured, and oil
    spewed into the ocean for nearly three months, a mile below the
    surface, before the magnitude of the damage became apparent.
        It is estimated that 171 million gallons--that is, five
    million barrels--of oil escaped the uncontrolled well. So
    people and wildlife were exposed to oil and toxic chemical
    dispersants. Unfortunately, local economies and critical
    habitats of the Gulf were impacted.
        It is clear now that this disaster could have been avoided
    and that multiple Blue Ribbon panels all concluded that the
    immediate cause of the blowout can be traced to a series of
    systematic failures in risk management and a broken safety
    culture.
        Another contributing factor--government mismanagement--has
    been addressed through the reorganization of the Minerals
    Management Service into separate leasing, revenue, and
    enforcement bureaus. There have been changes to the way these
    new regulatory bodies interact with the industry they oversee
    to ensure that they avoid the circumstances where we have
    regulators captured by the industries they are supposed to
    regulate.
        Setting aside organizational issues, the well control rule
    at issue today will address the other primary cause of the
    Deepwater Horizon disaster--inadequate risk management and
    safety oversight--by codifying the advances made by industry
    experts and regulators over the last five years.
        We have made progress since Deepwater Horizon, but ``loss
    of well control'' remains an issue. In fact, since 2010, there
    have been 23 separate ``loss of well control'' incidents. The
    Administration estimates that we experience between six and
    eight of these incidents a year. We cannot afford these kinds
    of risks. The residents, the environment, the coastal
    economies, the taxpayers, not even the oil and gas industry can
    afford a repeat of the Deepwater Horizon disaster.
        So although none of the events have been as significant as
    Deepwater Horizon, the fact that these keep happening only
    emphasizes the need for comprehensive, robust safety standards,
    which this rule provides. Although hindsight is 20/20 and we
    cannot reverse what happened on the Deepwater Horizon, we can
    work to not repeat history, and that is what this rule is
    trying to help.
        This rule has been more than five years in the making with
    input from more than 50 different companies. Its goal is to
    define safe drilling practices, operational expectations for
    drilling equipment, performance criteria for blowout
    preventers, and increasing monitoring and verification.
        I know that performance-based requirements allow industry
    experts who know these systems to best comply with the
    requirements in the most efficient ways, but in order for these
    to work, industry has to uphold their end of the bargain. We
    must also improve transparency through mechanisms like data
    sharing when things go wrong so that regulators and industry
    can adapt and face these new challenges. I am sure we are going
    to hear more about that today.
        In summary, the Administration has worked in good faith to
    ensure everyone's voice is heard. They extended the comment
    period and hosted workshops. I think that they have done their
    due diligence on being inclusive. It is time to move forward on
    this process with the final rule.
        I recognize that no safety standard can be 100 percent
    failsafe, but we can work to make incremental improvements to
    oil production procedures and safety. I urge my colleagues to
    recognize that we still have serious gaps in oil spill response
    technology. The Coast Guard, NOAA, and other experts have
    testified to this fact again and again and again. The United
    States is not prepared to handle a large spill like the
    Deepwater Horizon. Our oil spill response infrastructure has
    not been updated for decades.
        As we drill for oil in deeper and deeper water, the Coast
    Guard has repeatedly stated that we do not have the ability to
    clean up oil on ice. This is a huge concern. Not only do we
    have Arctic exploration occurring in U.S. waters, but also our
    neighboring countries are investing heavily in Artic
    exploration. As we open up new habitats to oil and gas and
    transportation, including in the Arctic, new science and
    technologies are sorely needed.
        So that is why we need to strengthen NOAA's role in the
    Department of the Interior's leasing and sales decisions. And
    certainly NOAA should have essentially the same input as
    members of the public in discussing these issues.
        It is clear today that we have many challenges in front of
    us, but I think that this rule should be finalized without
    further delay. I look forward to hearing from the witnesses and
    their testimony.
        Thank you, Madam Chair.
        [The prepared statement of Senator Cantwell follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Senator Cantwell.
        With that, we will turn to our panel. We will begin with
    Mr. Brian Salerno. Mr. Salerno is the Director for the Bureau
    of Safety and Environmental Enforcement, affectionately known
    as ``Bessie,'' at the Department of the Interior.
        He will be followed by Mr. Erik Milito. Erik is the
    Director for the American Petroleum Institute. We welcome him
    back to the committee.
        Next we have, Dr. Mark Rockel, who is the Principal
    Consultant for Ramboll Environ, and rounding out the panel this
    morning we have Ms. Jacqueline Savitz, who is Vice President of
    U.S. Oceans for Oceana.
        Welcome to the committee. Mr. Salerno, if you would like to
    lead off. We would ask you to keep your comments to five
    minutes, and your full testimony will be incorporated as part
    of the record.

      STATEMENT OF BRIAN SALERNO, DIRECTOR, BUREAU OF SAFETY AND
       ENVIRONMENTAL ENFORCEMENT, U.S. DEPARTMENT OF THE INTERIOR

        Mr. Salerno. Yes, ma'am. Chairman Murkowski, Ranking Member
    Cantwell, members of the committee, thank you for the
    opportunity to appear today to discuss the proposed well
    control rule and other regulations related to offshore oil and
    gas production.
        The last time I testified before this committee was nearly
    five years ago after the Deepwater Horizon tragedy. My purpose
    then, as a Coast Guard flag officer, was to focus on the
    nation's response to that disaster. Today, I appear in support
    of initiatives to reduce the risk of such an event from
    occurring again.
        As you know, the Bureau that I now direct was formed after
    the Deepwater Horizon tragedy for the purpose of promoting safe
    operations and environmentally sound development of the
    nation's offshore energy resources. The proposed rules being
    examined today were developed with these purposes in mind.
        The proposed well control rule is an outgrowth of an
    unprecedented amount of analysis and critical thought that
    followed the Macondo blowout. The circumstances of that tragedy
    are well known, including a terrible loss of human life,
    widespread environmental damage, and economic harm to several
    states and to other industries such as fishing and tourism.
        The numerous investigations, which were conducted in the
    aftermath of the blowout and which are referenced in my written
    testimony, resulted in over 400 recommendations to the Bureau
    with approximately 160 related to blowout preventers, well
    design, and safe well operations. The proposed well control
    rule synthesizes and incorporates many of these
    recommendations. It also adopts ten industry standards, all of
    this in an effort to reduce risk across all phases of drilling
    activity.
        The pressing need for the well control rule is demonstrated
    by the fact that incidents involving losses of well control
    continue to occur, and they occur at the same rate as they did
    before the Macondo blowout. You can see from the chart behind
    me that in 2013 and 2014 alone there were a combined total of
    15 incidents where control of the well was lost.
        [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Some of these developed into serious situations such as the
    2013 blowout at the Walter Oil & Gas facility.
        [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        In that case, all 44 workers were fortunately evacuated
    safely; however, the fire lasted for over 72 hours and the rig
    was completely destroyed, resulting in a financial loss
    approaching $60 million.
        In developing the proposed rule, BSEE sought input and
    advice from a wide variety of sources. In addition to the
    various post-Macondo studies and the associated
    recommendations, there were workshops, listening sessions, and
    information exchanges. All told, BSEE conducted over 50
    meetings with various companies, trade associations, and other
    stakeholders.
        Following publication of the proposed rule in April 2015,
    BSEE extended the original 60-day comment period by an
    additional 30 days to provide added opportunity for interested
    parties to comment. As a result, BSEE received over 5,000 pages
    of technical comments from over 170 comments.
        We are still in the deliberative stage of the process where
    we review each of the comments and determine if and how
    language from the proposed rule should be modified. As part of
    this process, we are taking into account the technical concerns
    that have been expressed about safe drilling margins, blowout
    preventer inspections, accumulator capacity, and real-time
    monitoring, among others.
        We are also reviewing the concerns we have heard regarding
    the use of prescriptive language and about the potential for
    unintended consequences. All of that is being considered in the
    deliberative process.
        Shifting just for a moment to another rule of interest to
    this committee, the proposed Arctic rule, it was developed
    following a process of technical development and stakeholder
    engagement similar to the well control rule. In developing the
    Arctic rule, we and our sister agency, BOEM, held numerous
    public meetings and other outreach activities. We received well
    over 100,000 formal comments. BSEE and BOEM are currently
    reviewing those comments.
        We are committed to putting out good rules which will raise
    the bar on safety, improve environmental protection, and which
    will be realistic and achievable for the industry. The comments
    that are now under consideration for both of these rules
    provide ample feedback to help us achieve all of those
    objectives.
        This concludes my formal statement, and I look forward to
    your questions.
        [The prepared statement of Mr. Salerno follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Mr. Salerno.
        Mr. Milito, welcome.

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

        Mr. Milito. Thank you, Chairman Murkowski, Ranking Member
    Cantwell, and members of the committee.
        My name is Erik Milito, and I am director of Upstream and
    Industry Operations for the American Petroleum Institute. My
    responsibilities include advocating for the advancement of
    safety in offshore operations.
        Safe, responsible energy development in the Gulf of Mexico
    and beyond is vital to the U.S. economy and job growth and to
    U.S. energy and national security. The U.S. Energy Information
    Administration projects that our economy will rely upon oil and
    natural gas for more than half of our energy needs for decades
    to come, and the U.S. offshore will continue to play a key role
    in supplying those resources.
        Today, the offshore accounts for about 1.4 million barrels
    of oil per day and makes up about 16 percent of our nation's
    total oil production. As we move forward, we must work to
    ensure that we have a regulatory system in place for the U.S.
    offshore, including offshore Alaska, that promotes the safe
    development of our energy resources.
        Fortunately, today, we have a strong system in place to
    safely develop those resources. Over the past half-decade,
    joint efforts from our industry and the Federal Government have
    resulted in significant enhancements in the safety of offshore
    operations. Our thoughts and prayers continue to go out to the
    families who lost loved ones in 2010, and a comprehensive
    review by the industry after the 2010 spill has led to improved
    spill prevention, subsea containment, and response
    capabilities.
        More than 100 exploration and production industry standards
    were developed or enhanced, including standards for safety and
    environmental management, well design, blowout prevention, and
    spill response. And today, our industry can rapidly deploy the
    most advanced subsea well containment technology available.
        We have also created the Center for Offshore Safety to
    advance our industry's safety improvement goals. The Center for
    Offshore Safety builds on our industry's strong safety culture
    through the completion of safety system audits and by sharing
    best practices for safe and responsible energy production, some
    of which have already been incorporated into Federal
    regulations. The center has also implemented data collection
    and reporting and has issued two annual reports providing
    detailed and transparent information for lessons-learned
    efforts.
        Likewise, the Government has stepped up to the plate by
    drafting various new regulations, including new rules related
    to safety and environmental management systems, well integrity,
    and blowout prevention. The interim final drilling safety rule
    was published in October of 2010 and revised in 2012. The
    Government also has new requirements in place for the
    demonstration of adequate spill response capability and well
    containment resources. Congress has taken positive steps as
    well by dedicating funding for offshore enforcement activities.
        However, we remain concerned about various regulatory
    activities related to offshore energy development, specifically
    proposed rules for well control and Arctic operations. In both
    cases, certain proposed requirements may not appreciably
    improve safety in offshore operations. In fact, various
    provisions of the proposed well control rule could actually
    serve to increase risk and reduce safety.
        Our goal is to constantly improve operations integrity and
    decrease risk, but many of the requirements proposed in this
    rule could create unintended consequences that would shift risk
    rather than decrease it.
        As it relates to the Arctic, it is clear we have time to
    make sure that any regulations that are published achieve the
    objectives of promoting energy development and protecting our
    workers and the environment. The National Petroleum Council, at
    the request of the Secretary of Energy, released a report
    earlier this year that concluded, ``oil and gas exploration and
    development in the Arctic is extensively regulated.''
        Progressing offshore development in the Arctic would
    require around 60 permit types through ten Federal agencies.
    Regulations should be adaptive to reflect advances in
    technology and ecological research and achieve an acceptable
    balance considering safety, environmental stewardship, economic
    viability, energy security, and compatibility with the
    interests of local communities. Prescriptive regulation may
    inhibit the development of new, improved technologies by
    suppressing the potential opportunity that drives advancement.
        As the Government finalizes any of its pending regulations,
    it should ensure that it is not implementing overly
    prescriptive requirements that will serve to inhibit innovation
    and technology advancement. Our industry has a proven track
    record of working with the Federal Government to improve
    offshore safety. We remain optimistic that dialogue between the
    Government and industry experts will continue, and the final
    well control rule will rely on the best technical knowledge to
    achieve the mutually desired safety objective.
        With the proposed Arctic rule, the Government has denied
    our requests for continued engagement and dialog, but we are
    hopeful they will reconsider.
        Thank you for your time, and I look forward to your
    questions.
        [The prepared statement of Mr. Milito follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Mr. Milito. Dr. Rockel, welcome.

      STATEMENT OF DR. MARK ROCKEL, PRINCIPAL CONSULTANT, RAMBOLL
                                ENVIRON

        Dr. Rockel. Good morning, Chairman Murkowski, Ranking
    Member Cantwell, and members of the Senate Energy and Natural
    Resources Committee.
        My name is Mark Rockel. I am Principal Consultant for
    Ramboll Environ, and I have over 30 years of experience in
    natural resource economics.
        Ramboll Environ has prepared an analysis to inform OMB's
    review of regulations promulgated by Department of the Interior
    governing oil and gas exploration activities in the Alaska
    Outer Continental Shelf. Included is a benefit-cost analysis of
    three elements that may be included in these regulations.
        The same-season relief rig is a requirement that would
    direct all Arctic operators to contract a second rig capable of
    drilling a relief well prior to the onset of winter ice. Over a
    20-year exploration and appraisal phase, the present value of
    an SSRR requirement is nearly $3.2 billion in cost to the
    lessee. In contrast, the benefits of this requirement over the
    same time period has been estimated at only $791 million.
        The relatively minor benefits associated with a same-season
    relief rig requirement are due in part to the low probability
    of a well blowout in the shallow exploration and appraisal
    wells of the U.S. Arctic Outer Continental Shelf. There is a
    hierarchy of barrier and control technologies and responses
    that, depending on the situation, could provide not only a
    faster, more environmentally protective response than a relief
    well, but one that is more cost-efficient. The availability and
    use of other technologies to stop a loss of well control is
    reinforced by U.S. Government records. Since 1971, there has
    not been a single blowout event in the U.S. controlled by a
    relief well.
        The relative costs and benefits of a same-season relief rig
    requirement cannot be supported. Further, the modest benefits
    of such a requirement could be preserved and potentially
    exceeded given advancing technologies if the United States
    adopted a performance standard calling for same-season relief
    rig equivalency.
        For season drilling limitations requires that an Arctic
    operator cease drilling into hydrocarbons at a prescribed date
    based on the anticipated onset of winter ice. Over a 20-year
    exploration and appraisal phase, the present value of such a
    seasonal limitation requirement is $6.8 billion in cost to the
    lessee. In contrast, the benefits are estimated at $301 million
    over the same period.
        The rationale underlying the seasonal direction limitation
    is that it is necessary to ensure that an operator has time to
    use the single-season--the same-season relief rig to drill a
    relief well prior to the onset of winter ice. Yet drilling a
    relief well is not the only method or most efficient method an
    operator could use to control a late-season blowout. Even where
    the assumption is made that a relief well is the only or
    preferred response, the benefits gained from imposing a
    blackout window are minimal.
        Regulations already require that an operator submit a
    Critical Operations Curtailment Plan or as part of the
    Exploration Plan to demonstrate that it has a plan to curtail
    operations in response to emerging hazards in the environment.
        Further, in other areas where BOEM regulates offshore oil
    and gas activities, including the Gulf of Mexico, the agency
    does not regulate prescribed end-of-season dates based on
    seasonally reoccurring environmental threats such as
    hurricanes.
        Whether and if an operator is required to end his drilling
    season should be driven by whether the assets the operator is
    bringing to the theater are capable of safely drilling for the
    period of activity the operator has planned.
        And finally, for 100 percent mechanical recovery capacity,
    that requires an operator maintain mechanical assets sufficient
    to account for 100 percent recovery of a worst-case discharge.
    The cost of this requirement over a 20-year exploration and
    appraisal phase is $119 million to the lessees, but there are
    no appreciable environmental and social benefits attributed to
    this if you compare it with an approach that has been used
    throughout the world, a net environmental benefits analysis.
    And this approach is applied to all United States Outer
    Continental Shelf regions and around the world.
        Requiring an operator to maintain 100 percent mechanical
    assets is inefficient and may result in additional impacts to
    the environment from having more vessels at sea. The impacts
    cannot be justified considering that in the event of an actual
    oil spill an emergency response team may determine the best
    option for responding is not with mechanical recovery tools but
    also with other tools in the toolbox such as in situ burning
    and dispersants. Any Arctic regulations dealing with oil
    response should allow the operators and the people on scene to
    apply a net environmental benefits analysis approach and
    account for all appropriate response tools.
        If codified in a regulation, these elements would be
    inconsistent with U.S. policy guidance directing agencies
    toward performance-based regulations and would not be in
    harmony with international standards and best practices.
    Denmark, Canada and Greenland have all adopted elements of
    performance-based regulation for drilling requirements, well
    control, and independent verification and oil response.
        Thank you for allowing me the opportunity to testify today.
        [The prepared statement of Dr. Rockel follows:]

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        The Chairman. Thank you, Dr. Rockel.
        Ms. Savitz, welcome.

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

        Ms. Savitz. Thank you. Good morning, Chairman Murkowski,
    Ranking Member Cantwell, and members of the committee. Thank
    you for the opportunity to testify today.
        My name is Jackie Savitz and I am Vice President for U.S.
    Oceans at Oceana, the largest international advocacy
    organization that is focused exclusively on ocean conservation.
        Oceana regards offshore drilling as a dangerous practice
    that places our marine ecosystems at risk and threatens the
    coastal economies that depend on healthy oceans for fishing,
    tourism, and recreation. We therefore oppose the expansion of
    offshore drilling into the Arctic and Atlantic Oceans, and we
    advocate for a transition away from fossil fuels and toward
    clean energy to avoid the worst impacts of climate change.
    Doing so will also reduce pollution, increase energy security,
    and create job security.
        We realize that the U.S. will not stop offshore drilling
    overnight, so we applaud the efforts of BSEE to increase
    drilling safety. While the proposed rule is not robust enough
    to protect the oceans, it is a significant improvement over the
    status quo and addresses many of the concerns raised by the
    commissions that investigated the Deepwater Horizon tragedy.
        We therefore urge the Administration to finalize and
    implement this rule as expeditiously as possible. Our interest
    in this rule stems from our concern about the damage to ocean
    ecosystems and human communities that depend on them. Oil and
    gas are toxic to fish, shellfish, marine mammals, birds, sea
    turtles, and corals, virtually every part of the marine food
    web.
        The BP oil spill in the Gulf of Mexico killed an estimated
    5,000 marine mammals and nearly a million coastal and offshore
    birds. More than 1,000 sea turtles were found dead, and at
    least three deep-sea coral communities were extensively
    damaged. Some of those losses had direct impacts on Gulf Coast
    communities, harvest of oysters and fish were reduced
    devastating the Gulf's fishing communities and tourists fled
    the region. In fact, tourism suffered even in parts of the
    Florida coast where no oil even washed ashore.
        Nearly six years have passed since the BP disaster. It is
    deeply concerning that there has been no legislation and few
    regulatory changes to improve well control or the dependability
    of blowout preventers in all that time.
        In just four years following the Deepwater Horizon, BSEE
    reported that offshore drilling caused more than 1,000
    injuries, more than 400 fires and explosions, more than 20
    losses of well control, 11 spills, and 11 more fatalities.
    Given this perilous operational backdrop, BSEE should quickly
    finalize and implement the rule.
        We would, however, urge BSEE to make some improvements.
    They should require companies to deploy two shear rams that are
    capable of sealing the well bore on all blowout preventers.
    Requiring the installation of two blind shear rams would add
    redundancy to the system so that if one blind shear ram failed
    to sever the pipe, the second one might be able to do so. On
    the Deepwater Horizon, one set of blind shear rams failed to
    complete a seal because a portion of drill pipe was knocked out
    of alignment in the explosion, and this led to the release of
    catastrophic amounts of oil and natural gas.
        And the problem is pervasive. West Engineering Services, an
    industry safety specialist, found that only three of the seven
    blowout preventers successfully sheared pipe in realistic
    emergency conditions.
        Oceana is concerned that the compliance periods proposed in
    the rule will cause unnecessary and potentially harmful delays,
    especially considering that the rule comes out more than five
    years after the Deepwater Horizon disaster. BSEE compounds this
    delay by introducing a potential three- to seven-year
    compliance period for critical aspects of the rule, including
    the installation of two shear rams.
        BSEE is also considering the inclusion of a ten-year
    compliance period for companies to install important technology
    that is capable of severing components of the drill string. In
    all, it could be more than 16 years after the Deepwater Horizon
    catastrophe before BSEE finalizes and the industry implements
    these critical safety regulations, 16 years. This timeline is
    not acceptable.
        Further, two systemic problems remain that make the risk of
    loss of well control unacceptably high. These include the
    inadequate fines that incentivize rule-breaking and risk-taking
    and the abysmal inspection rates. Both are discussed in more
    detail in our written testimony.
        In conclusion, we commend BSEE for the safety improvements
    proposed in the well control rule and urge the agency to
    strengthen it by requiring redundant blind shear rams and
    reducing compliance periods and to promulgate the final rule as
    soon as possible.
        Even with these recommendations adopted, offshore drilling
    will continue to pose a grave threat to lives and livelihoods,
    as well as marine ecosystems. We saw in 2010 that offshore
    drilling can be life-threatening to workers, harmful to ocean
    ecosystems, and destructive to the human communities that
    depend on them. But it appears we did not learn. We therefore
    recommend that Congress and the Administration do not allow the
    expansion of offshore drilling into the Atlantic and Arctic
    Oceans. The only sure way to prevent the harm caused by
    offshore spills is to decrease our dependence on fossil fuels
    and transition to clean, sustainable renewable energy sources
    like offshore wind power.
        This concludes my statement. I look forward to your
    questions and further discussion.
        [The prepared statement of Ms. Savitz follows:]

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        The Chairman. Thank you, Ms. Savitz.
        Thank you to each of you for your comments this morning and
    for joining us at this important hearing.
        Let me start with you, Director Salerno. You have indicated
    that with the number of comments that you have received on the
    well control rule, as well as the Arctic rule, you are
    continuing to review these and to take them into account. I
    would certainly hope that we have your commitment this morning
    and going forward that as the agency is reviewing these rules,
    whether it is the well control rule or the Arctic rule, that
    you will take into careful consideration the expert comments
    that are offered up by the--truly, I think, some of the finest
    offshore operators that we have, many American companies, that
    you are taking those into account.
        Mr. Salerno. Yes, Senator, we are taking those into
    account, reviewing them very, very carefully.
        The Chairman. Let me ask about what you may be considering
    among the revisions. There was discussion not necessarily in
    the oral testimony here but in the written testimony about the
    BSEE-approved verification organizations, the BAVOs as you call
    them. This is something, I know, that has been pointed out as a
    concern. It is also my understanding that the industry experts
    think that the proposed casing and cementing requirements may
    actually increase risk. Then there is a proposal that you take
    the blowout preventers off-line every 14 days.
        While it does help, I guess, to actually take them out and
    physically look at them, but the increased risk when you take
    them out and put them back in again, what does that do to it?
    You know, if you were to do that with your car's brakes every
    14 days, that does not necessarily ensure that you are going to
    have greater safety protection. It might actually increase your
    risk. So can you tell the committee what some of the revisions
    are to the rules that you may be considering at this time?
        Mr. Salerno. Well, we specifically asked for comment on the
    testing frequency on the blowout preventers. In some cases it
    is currently seven days, and we propose going to 14 days. So
    that actually represents a benefit, an economic benefit to the
    industry. And we have asked for a comment on whether or not
    that could be further extended to 21 days. We have not made any
    decisions on that, but we have received a lot of comment on
    that area. Obviously, you know, the greater the interval, you
    know, the less the cost to industry. So there is an interest
    there.
        That would be offset by other measures such as increased
    maintenance provisions, recordkeeping provisions, and third-
    party oversight. So that is the offset that would still achieve
    a net safety benefit.
        The Chairman. Let me ask specifically about the Arctic. Ms.
    Savitz has suggested that offshore oil exploration should not
    be expanded to the Arctic. Do you think that responsible
    offshore production in Alaska is not only beneficial to my
    state, to energy security, to really the economic well-being of
    the country, but also that it can be done compatibly with the
    environment?
        Mr. Salerno. As far as operating safely and in an
    environmentally sound manner, we do believe that is possible.
    That is why we issued permits this past season to Shell in
    order for them to operate.
        But the Arctic is different. It is a much more difficult
    place to operate. Unlike the Gulf of Mexico, there is not the
    infrastructure, as I know you are well aware. You know, should
    something happen and you need specialized capabilities, you
    really have to have it in the theater. In the Gulf it is
    readily available within easy reach, not so in the Arctic. So
    that does place an increased burden on the operator to provide
    that equipment in case of emergency.
        The Chairman. I think Shell fully understood that, and that
    was why they had the number of vessels that they had,
    recognizing that they did not have the resources that you have
    in the Gulf.
        But you would agree, I am assuming, that as we are seeing
    the departure of Shell up north, as we are seeing Statoil with
    the decision that they made also to return their leases, it has
    been suggested by the Administration or certainly the Secretary
    that it was due to lack of interest.
        As you think about the financial investment and commitment
    that Shell made, over $7 billion over a period of seven years,
    to get to the point where they were able to drill exactly one
    exploration well, it makes it pretty daunting. As they made
    their decision to cease further exploration activity, they said
    the decision reflects both the Berger well result, which was
    disappointing--we recognize that--the high cost associated with
    the project. Again, there is a difference between the Arctic
    and the Gulf, and we recognize that means higher costs. I do
    not think that Shell anticipated it would mean $7 billion to
    get to one well, but also the challenging and unpredictable
    Federal regulatory environment in offshore Alaska.
        That is, of course, what we are talking about today and how
    we can ensure that there is a more predictable Federal
    regulatory environment and one that acknowledges the fact that,
    yes, the Arctic is different, but it is also different in some
    ways that make it less complicated, the fact that you are not
    drilling in deep water, the fact that it is very shallow. So we
    will explore these in the next round.
        I will now turn to Senator Cantwell.
        Senator Cantwell. Thank you, Madam Chair. As somebody who
    spent many hours when Congress was dealing with this issue in
    the aftermath of the actual explosion, I am reminded of the
    actual report that was done by the National Commission on the
    BP Deepwater Horizon Oil Spill and Offshore Drilling. There was
    a lot of discussion then about what should be done.
        In fact that Oil Spill Commission put out a letter just
    last year saying President Obama's Oil Spill Commission made
    fundamental commonsense recommendations, including
    Congressional action on improving safety for rigs, eliminating
    conflicts of interest in regulatory agencies, expanding
    liability limits of companies to make sure that they have
    adequate resources for emergencies. These have been ignored by
    Congress, by the way.
        So the notion that we are here today focusing on the one
    thing that did get implemented, which in my opinion could have
    gone further. Having sat through those hearings on blowout
    preventers, I would have implemented immediate third-party
    validation. Given what the blowout preventer provides in this
    particular instance, I would have gone further. So here we are
    now and some people are trying to delay a rule that is so vital
    to helping us not have the same accident happen again.
        Mr. Salerno, I wanted to ask you about the process by which
    preventers are going to be verified--you just talked about the
    five-year process--but how we are going to get third-party
    verification so that we know that blow out preventers are
    working correctly to begin with and how are we going to have
    oversight of that in the future?
        Mr. Salerno. Yes, Senator. They are features of the
    proposal. You know, there would be third-party certification to
    make sure that the blowout preventers actually function as
    intended, that the testing provision, periodic recertification
    of the BOP functions and making sure that they continue to
    operate as intended.
        The third-party provisions, they were stepped up after
    2010, but this takes it to a little more rigorous level. The
    BSEE-approved verification organizations are essentially the
    next step in building out what already exists within the
    industry as a cadre of third-party verifiers. But we want to
    put more specificity as to what that means, greater clarity as
    to the standards that will be used for BOP testing.
        Senator Cantwell. So that will be developed over time? Is
    that what you are saying?
        Mr. Salerno. That is correct. It would be developed over
    time. We put it in the rule. The use of the BSEE-approved
    verifiers would take place one year after we publish a list of
    who those verifiers are. We anticipate that many of the
    companies that now do verification would apply to be the BAVO
    in that category. There are a number of companies out there who
    would do that.
        Senator Cantwell. Ms. Savitz, is your concern that the rule
    is not stringent enough or the conditions of the Arctic were
    not taken into consideration?
        Ms. Savitz. Well, our concerns with the rule are general
    about how the rule would be applied anywhere, including the
    Arctic. In specifically looking at the well control rule, our
    concern has to do with the fact that we do not believe this
    rule will necessarily prevent an oil spill, but we do think
    that it improves the status quo. It makes drilling a little
    safer. It does not mean drilling is safe.
        For instance, in the Deepwater Horizon, for example, we had
    blind shear rams that did not succeed in severing the drill
    pipe creating a barrier to flow. There is no redundancy in the
    requirement for blind shear rams in this rule. There is no
    requirement that the blind shear rams are able to sever tool
    joints. So there are still some things that need to be looked
    at and strengthened.
        But the idea that we are sitting here now almost six years
    after that, those hearings that you mentioned, still talking
    about putting in place rules to deal with the last line of
    defense, the failsafe in offshore drilling, is incredibly
    disturbing. I know that as we all sat there during the
    Deepwater Horizon and watched the oil gushing from that well
    day after day after day thinking if only there was something we
    could do, and there was nothing we could do at that time. The
    only thing we could do was stop drilling in deep water and stop
    drilling offshore, but short of that, let us put some safety
    measures in place. And, in fact, we are finally getting around
    to doing that. It is not a moment too soon.
        Senator Cantwell. Thank you. Thank you, Madam Chair.
        The Chairman. Senator Cassidy.
        Senator Cassidy. Thank you, Madam Chair.
        Well, first, I thank you tragically for the pictures of
    those who died. I knew the families of one of them. So I agree
    that it is in their honor that we come here to try and prevent
    this from happening again.
        I will also point out that one of the widows of one of
    those who died opposed the moratorium, saying that several
    people in her house and on her street depended upon the income
    from working on those rigs in order to support their family.
        So clearly there is a balance here. How do we achieve
    safety but not kill an industry with a thousand cuts, an
    industry which is so important to the livelihood of so many?
        So that said, Mr. Salerno, I have several questions frankly
    based off of Mr. Milito's testimony because, again, my
    technical expertise is not in this area, but common sense
    sometimes applies. He points out that your requirement of 20
    new receptacles, which would involve shuttle valves, hosings,
    tubings, etcetera, for the ROVs to attach to is in and of
    itself a recipe for potential leaks and malfunctions. That
    makes sense. I am a physician. I know that when you have
    equipment, the more Rube Goldberg-ish it is, the more likely it
    fails. Now, the 20 new receptacles, do you disagree that that
    would create more possibility for leaks, etcetera?
        Mr. Salerno. We do not believe it would increase the risk,
    but, Senator, we have received again a volume, great volume of
    technical feedback from the industry, which we are now
    considering.
        Senator Cassidy. Intuitively, though, the more openings you
    have to a system, the more points of vulnerability you have. I
    mean, I think that is a general, you know--a sieve is more
    likely to leak than something which has only one opening.
    Twenty more receptacles seems to make it more like a sieve than
    it does something with only one opening. Is that not true?
        Mr. Salerno. It is also true, sir, that if you needed an
    ROV to actuate functions on the BOP and you did not have the
    means to do that, you incorporate risk in that fashion as well.
        Senator Cassidy. Now, it is implied in the testimony that
    there are 23 existing panels, I presume, for 23 places for ROVs
    to currently attach. But this would be in addition to those in
    which the ROV can currently attach?
        Mr. Salerno. I would have to check----
        Senator Cassidy. Mr. Milito, is that in addition to?
        Mr. Milito. Yes, the proposed rule would require 20
    additional receptacles.
        Senator Cassidy. Additional. So there are places now for
    the ROVs to attach, but there are 23 more, again, 23 more
    potential points of failure. Now, again, there are going to be
    smarter people than me that figure that out.
        Second, the disassembling of the BOP every five years, that
    in itself seems to be a point of hazard. In medicine it is an
    axiom if you do procedures, ultimately, you will have an
    accident. This is a procedure, and it introduces the
    possibility for human error every five years in the
    disassembling and the reassembling. Again, that is intuitive
    and that is based upon real-life experience, but tell me why
    you apparently disagree with that.
        Mr. Salerno. Well, a five-year interval was actually based
    on an API standard, API Standard 53. So that is where the five
    years comes from.
        Senator Cassidy. Now, Mr. Milito, you raise that as an
    objection in your testimony. How would you respond to that?
        Mr. Milito. Yes, our concern is that over the course of
    five years the maintenance occurs through different components
    of the blowout preventer, so by pulling the whole BOP out of
    service for that length of time is not justified given the way
    that the industry operationally maintains, inspects----
        Senator Cassidy. So API's feeling is that you could do it
    piecemeal and accomplish the same goals without the need to
    completely deconstruct?
        Mr. Milito. Absolutely.
        Senator Cassidy. Okay, okay. When you piecemeal, do you
    eventually piece the whole meal?
        Mr. Milito. Absolutely. The five-year requirement means
    that you have got to get through the whole BOP over that five-
    year period.
        Senator Cassidy. Why is that not adequate, Mr. Salerno?
        Mr. Salerno. Well, Senator, we have received a lot of
    comment on that, and those are comments we are considering.
        Senator Cassidy. Okay. Then let me also ask, and I think
    this is really key. You mentioned in that Chevron explosion--
    no, the Walter Oil & Gas, that there was a kick that was not
    recognized. In the Macondo there was a kick which was not
    recognized. That is all human error, and it requires
    situational awareness. Milito's testimony suggests that the
    rule shifts responsibility for operational decisions away from
    the rig to those who are not onsite, they are remote.
        But by doing this, you transfer authority from those who do
    not have a situational awareness to those who might be far away
    with inevitably some lag time in communication and perhaps
    some, you know, ``oh my gosh, I have got to go to the bathroom,
    I will be right back'' sort of incidents up there in Houston.
        So, that said, again, intuitively, it seems like you would
    want authority to rest with those with situational awareness,
    those who are onsite, those who could administer the CPR when
    the person goes down, not wait a second, can you tell me if I
    should do mouth-to-mouth? I will get on it as soon as you let
    me know. Thoughts?
        Mr. Salerno. Yes. The rule does not shift command-and-
    control authority from the rig to shore. It addresses
    capability so that there will be a second set of eyes so that
    you can have, you know, extra experts on shore to provide
    diagnostic expertise to assist in assessing an anomaly.
        The decision as to where command and control resides is
    with the company. So we talk about capability, not where the
    command and control resides. So people have interpreted it that
    way. It is an incorrect interpretation.
        Senator Cassidy. My time is over. I yield back. Thank you.
        The Chairman. Senator Warren.
        Senator Warren. Thank you, Madam Chair.
        So when BP's Deepwater Horizon oil rig exploded, it killed
    11 workers and it set off an oil gusher that spewed millions of
    barrels of crude into the Gulf of Mexico. It covered an area
    ultimately that was the size of Florida. Nearly a million
    seabirds died, sea turtles washed up dead, choked to death by
    oil in their throats, workers and small businesses lost
    literally billions of dollars. The BP oil spill was a massive
    catastrophe by any measure, and we are here today to make
    absolutely sure this catastrophe does not occur again. So
    finally, 5-1/2 years after the explosion, the Administration
    has proposed a drilling safety rule to address some of what
    went wrong with Deepwater Horizon.
        Mr. Milito, you are here representing the oil industry, and
    in your written testimony, which I looked at last night, you
    argue that offshore drilling--and I want to quote this
    correctly--is ``safer today than it ever has been'' and that
    ``new safety rules for industry are too prescriptive and would
    just prevent you from conducting more drilling.''
        Now, this is not the first time you have made that kind of
    claim. Exactly ten days before the Deepwater Horizon disaster,
    you criticized opponents of offshore drilling and said that
    people should not be concerned about offshore drilling because
    offshore drilling is ``very low risk'' and new technologies
    ``close and shut off any type of opportunity for any kinds of
    liquids or fluids to get into the environment.''
        So here is my question. Do you still think that the
    opponents of offshore oil drilling were wrong to be concerned
    about the risks involved in offshore drilling ten days before
    your industry caused an historic disaster?
        Mr. Milito. I think we should always be concerned about the
    potential for any kind of----
        Senator Warren. So you think that we are right to be
    concerned?
        Mr. Milito. Oh, yes, we should always be concerned about
    these types of incidents from occurring, and the original quote
    in there was actually from the Commissioners of the
    Presidential Deepwater Oil Spill Commission who said it is
    safer now than it was five years ago. So that was coming from--
    --
        Senator Warren. So when you said ``very low risk'' and
    ``close and shut off any type of opportunity for any kinds of
    liquids or fluids to get into the environment,'' when you said
    that ten days before this massive explosion, you were wrong, I
    take it?
        Mr. Milito. Well, that is--my belief still is today that it
    is a low-risk activity and that we can continue to do this with
    a performance-based system that----
        Senator Warren. So you feel the same as you did ten days
    before that explosion?
        Mr. Milito. I feel that we have a regulatory framework that
    has changed dramatically----
        Senator Warren. I am not asking about the changes. I am
    asking about you said ten days before the explosion that new
    technologies ``close and shut off any type of opportunity for--
    --
        Mr. Milito. That----
        Senator Warren.--any kind of liquids or fluids to get into
    the environment.''
        Mr. Milito. That is the intent of technologies, and that
    is----
        Senator Warren. The intent, but I take it that was not the
    fact.
        Mr. Milito. That is not how it is done.
        Senator Warren. No, that is not in fact. You know, in fact,
    your whole industry has dismissed safety concerns. Just weeks
    before the BP oil spill Jack Gerard, the head of the American
    Petroleum Institute, who I think is your boss said, and I will
    quote again, ``the oil and natural gas industry has a proven
    track record''--words that I think you have used here this
    morning--``of safe oil and natural gas development.'' Again,
    this was just weeks before the Deepwater explosion.
        The oil industry comes in here repeatedly and explains that
    it is doing a great job on safety, and it says, like before,
    they do not need more oversight. But considering this is
    exactly what the oil industry was saying right up until the
    minute the BP rig exploded, I think the American people are
    right to be a little skeptical of oil industry claims.
        So, Ms. Savitz, you are a marine biologist who has been a
    leader on ocean conservation issues for decades now. Now that
    the Government is bowing to industry pressure and proposing to
    expand oil drilling into the Atlantic Ocean for the first time
    in decades, are you confident that current industry practices
    will protect us from another BP disaster?
        Ms. Savitz. Thanks, Senator Warren. Of course not. Of
    course we are not confident of that. And I think the takeaway
    point from the conversation you are having is the industry
    simply, seems like, did not anticipate the scenario that played
    out during the Deepwater Horizon. They did not anticipate the
    shift in the way the drill bore landed in the annulus, and
    their equipment was not capable of dealing with it.
        Will the same thing happen again in the next one? Maybe,
    and maybe they will be prepared this time because maybe they
    learned something, or maybe something completely different will
    happen. And there is no way to know that and there is no way to
    know that we will be able to stop it if it does happen.
        If there is such a spill, we are talking about major losses
    to coastal economies. We have seen a lot of communities now
    rising up against that. Ninety-one coastal communities have
    passed formal resolutions against offshore drilling.
        Senator Warren. We cannot afford the environmental or the
    economic cost of another BP spill. So it seems to me that
    before new oil rigs are set up in the Atlantic, we need to take
    a very hard look at what additional drilling would actually
    mean. The discussion is too important to simply take the oil
    and gas companies at their word when they tell us, like they
    did 5-1/2 years ago, that they have got it all under control.
        Thank you, Madam Chair.
        The Chairman. Senator Daines.
        Senator Daines. Thank you, Madam Chair.
        I can say I certainly appreciate BSEE's desire to develop
    offshore energy safely. I say that as an avid outdoorsman,
    someone who enjoys the streams of Montana, the mountain peaks,
    and hunting and backpacking and so forth, and protecting our
    environment.
        But this proposed rule is concerning, and I believe it
    represents yet another step in the Obama Administration's
    efforts to reduce American energy production. As we are looking
    at it, I am trained in chemical engineering, and looking at the
    tradeoffs in risk management certainly, and looking at how do
    we protect national security, how do we protect our
    environment, how do we protect our economy, because they have
    to weigh all these factors to come up with good, sound rules
    and policy.
        In BSEE's own words, it said ``it is one of the most
    substantial rulemakings in the history of BSEE.'' The proposed
    rule indeed is extensive. It is overreaching its requirements
    and they are more stringent than current global standards, yet
    the proposed rule and BSEE's rulemaking process have
    demonstrated a disregard for the states that will be affected
    where offshore oil and gas production means good-paying jobs,
    it means significant tax revenues, it is the livelihood of tens
    of thousands of American families, and it is a trend that we
    are seeing far too often, in my opinion, with this
    Administration's rulemaking, including my home State of Montana
    with the current Clean Power Plan.
        The Clean Power Plan, which I think would be better
    described as the Unaffordable Energy Plan, the University of
    Montana just released a study two weeks ago. It will cost our
    state 7,000 jobs and $145 million in tax revenues. So those are
    revenues that go directly to pay for our schools, for our
    teachers, for our infrastructure. In fact, the University of
    Montana study concluded that it is the most significant
    economic event to occur in Montana in over 30 years. This is
    what is at stake in coming out of Washington, DC and the EPA.
        So my question for Mr. Salerno, BSEE expects the proposed
    well control rule to cost over $883 million over the next ten
    years. While their analysis does not address the number of jobs
    lost, others project a loss of over 50,000 jobs by 2030, as
    well as monetary costs much higher than what is currently
    cited. I wonder if you would please address these estimates, as
    well as my concern that this rule would set the stage for
    additional regulations on drilling, including offshore
    development.
        Mr. Salerno. Well, Senator, there is no intent to shut down
    drilling in this rule. The intent is to make it safer and to
    be, you know, environmentally responsible as the companies
    pursue offshore energy resources.
        We have asked for additional cost information from the
    industries, one of the specific requests in the proposal. We
    have received some of it. But I have also observed comments in
    the press, which, you know, basically reflect, you know, your
    concerns. From my perspective, in many cases it is a
    misinterpretation of certain provisions of the rule where there
    are assumptions that we will make certain types of drilling
    impossible----
        Senator Daines. So are you challenging--is the analysis
    wrong? The 50,000 jobs lost by 2030, that is not accurate? It
    is a bad analysis?
        Mr. Salerno. As----
        Senator Daines. Is it bad algebra? What is it?
        Mr. Salerno. As a result of this rule? Yes, I think it is a
    bad analysis.
        Senator Daines. So, Mr. Milito, can you explain the jobs in
    the cost analysis that is cited in your testimony as well as
    perhaps others?
        Mr. Milito. Yes, and I would like to repeat that our focus
    here is on a driving a rule that advances safety. That is the
    objective that we have, and we wanted to make sure that we
    understood where the Government's cost estimates matched up
    with what independent engineering consultants would come up
    with. And that is why we did it, and we saw the disparity
    between $883 million over ten years versus the $30 million and
    felt that that in and of itself is a compelling disparity that
    should really force us all to relook at the rule.
        What Blade did is they looked at the provisions of the
    rule, they determined, you know, what the overall cost and
    investment impacts would be, the delays, and they came up with,
    you know, the drop in production of 500,000 barrels a day, the
    drop in investment, and also the associated job loss that would
    come from that. So it is really based upon the expertise coming
    out of a lot of engineers in an engineering firm, along with
    the economic analysis that brought out those numbers.
        Senator Daines. So have you had any challenges? I mean, it
    sounds like it has been a thorough, well-thought-out,
    reasonable set of assumptions that come to these conclusions.
    Is anybody challenging your numbers?
        Mr. Milito. I am not aware that they are, but once again,
    you know, we want to focus on making sure that the requirements
    of the rule are really advancing safety and not really
    impacting the safety elements of offshore in a negative way.
    And given that, you know, some of these provisions may not do
    that, it may increase costs, then you are really not justifying
    those elements of the rule.
        Senator Daines. Right. Thank you. Thank you, Senator.
        The Chairman. Senator Franken.
        Senator Franken. Thank you, Madam Chair.
        I was here five, six years ago when the Deepwater Horizon
    tragedy happened. This is 11 workers killed, and I guess $20
    billion of cost to BP and all the damage to businesses and
    etcetera, etcetera. We want to prevent this from happening
    again.
        The issue seems to be here whether this is over-
    prescriptive. Can I get a sense from either Mr. Milito or
    anybody here on what have been the improvements since the BP
    disaster and whether those are going to be carried through here
    and how is this over-prescriptive considering the incredible
    environmental damage and loss of life? And, Mr. Milito, the
    Senator from Massachusetts did quote you as saying beforehand
    that this was not going to happen. So how can we be assured
    that it will not happen again?
        Mr. Milito. Yes, that is a great question, Senator Franken.
    I think if you look back to 2010, we worked closely with the
    Government. The Government issued the safety drilling rule in
    that year just six months after the Gulf oil spill. That rule
    in and of itself requires a blowout prevention system, casing
    and cementing requirements, testing, maintenance. We actually
    have in that rule third parties that have to come in and
    certify and validate that your blowout prevention system is
    going to work in compatibility with the system.
        We also now have requirements for safety and environmental
    management systems. API put out a standard well before the
    spill on the safety environmental management systems, and that
    is a key part of offshore safety because it forces companies to
    create a system-wide approach to safety, and it requires them
    to be audited to make sure that there is truly a culture of
    safety that is being reflected in our operations. So a lot has
    happened. We do not oppose the well control rule. We just want
    to make sure that we get it right.
        Senator Franken. I understand. We have seen too many loss-
    of-well-control events since BP. There have been no deaths,
    there have been no great disasters, but I am interested in Mr.
    Salerno's perspective on how safety has improved when it comes
    to drilling in the Gulf and just your sense of how the well
    control rule does and does not implement recent technological
    advances or how it does more.
        Mr. Salerno. Yes, and thank you, Senator.
        Well, there have been improvements, as Mr. Milito
    mentioned, of the drilling safety rule, but they were sort of
    initial first steps. There are a number of provisions left, you
    know, unresolved that came out of these many studies after
    Deepwater Horizon.
        For example, technology to center the drill pipe in a BOP
    so that the shearing rams will actually work effectively, that
    has not yet been fully addressed. That will be addressed in
    this rule. There are some provisions in the industry standards
    which, although generally helpful, fall short of things we
    believe really need to be included such as double shear ram on
    surface BOPs. That was discussed in the industry standards, but
    there is an opt-out provision. So if a company feels that it is
    not appropriate for their operations, they can opt out of it.
    We feel that needs to be a little bit more strenuous. So there
    are a couple of examples where we feel we are not quite there
    yet. This rule will address those.
        Senator Franken. Okay. I guess here is a big question.
    There is a movement to keep it in the ground. Some of us are
    going to Paris for this climate summit. The price of oil has
    gone down, the price of gas has gone down. Is there some sense
    that we should be looking at what oil we might want to keep in
    the ground and base that partly on safety? Ms. Savitz?
        Ms. Savitz. Yes, Senator, thank you.
        You know, we believe that expanding drilling into frontier
    areas like the Arctic and the Atlantic would be a good place to
    draw the line to start with, to say let us not industrialize
    our coasts that do not already have oil drilling. And in those
    areas, especially in the Atlantic, we have heard the Atlantic
    referred to as the Saudi Arabia of offshore wind.
        So while we cannot stop drilling overnight, we also cannot
    start developing clean energy overnight. We have to start
    developing clean energy now, encourage that development so that
    we can get the benefits that it brings. Offshore wind, for
    instance, on the Atlantic could be powering many homes, in
    fact, would create 90,000 more jobs than developing offshore
    oil in the same area.
        So it is really not jobs versus the environment. It is
    really jobs versus jobs. Do you want dirty energy jobs or clean
    energy jobs? And if you go with the clean energy jobs, besides
    getting more energy and more jobs, you also get less pollution,
    less carbon in the atmosphere, and you can avert the worst
    impacts of climate change.
        And so the real key here to me is, you know, we can hope
    that the industry is doing a better job even though the
    statistics do not necessarily demonstrate that, but if we
    really want to stop offshore drilling, we have two choices:
    stop the drilling or put really strong regulations in place.
        We cannot count on industry to do that themselves. They
    have developed drilling technology in deeper and deeper waters
    without simultaneous development of prevention technology. They
    have a history of cutting corners. That is what we saw with
    Deepwater Horizon. So we either have to regulate it or we have
    to draw the line, and we would draw the line.
        Senator Franken. Okay. Thank you, Madam Chair. I would note
    that you are from Alaska, and I am from Minnesota, and we do
    not have any oil not to drill. So it was easy for me to ask
    that last question. [Laughter.]
        The Chairman. Senator Gardner.
        Senator Gardner. Thank you, Chair Murkowski.
        And our oil is at one time--deep water is longer from
    Colorado, deep water. [Laughter.]
        Thank you very much to the panelists for being here today.
        I wanted to follow up a little bit on what Senator Daines
    mentioned before to Director Salerno. He mentioned that BSEE
    does not address jobs lost in the rule. Could you explain the
    process of when you will look at that consideration, an
    economic consideration of costs-benefits, jobs lost?
        Mr. Salerno. Well, we do not anticipate that there will be
    a reduction in drilling as a result of this rule, so it is not
    really a job-loss issue. It is an increase-in-safety issue.
    Now, some of the----
        Senator Gardner. Will you come out with an official finding
    of economic benefit versus cost and say that you believe that
    there is no job loss? Is that part of the requirement----
        Mr. Salerno. There is an economic analysis, a cost-benefit
    analysis required. It is a regulatory impact analysis. That is
    publicly available. It is scrutinized at OMB, which does a very
    thorough job----
        Senator Gardner. That is already available, you said?
        Mr. Salerno. Yes, sir, it is, and it will be revised based
    on additional cost information that we have received through
    the comments.
        Senator Gardner. Thank you. My experience in Colorado in
    2000--I believe it was 2007--there was a regulatory rewrite of
    some oil and gas rules. One of the rules had talked about a
    certain type of valve that was--I think the rules prescribed
    that it was to remain closed during operations of oil and gas
    drilling activities.
        The challenge with this prescription, though, was that it
    affected the western slope of Colorado differently than the
    eastern plains of Colorado, two different geologic conditions,
    as well as topographic conditions. One area relied upon
    groundwater and another area relied upon surface water, and
    this prescription drove a lot of the conversations about
    whether or not we should have a one-size-fits-all rule that
    actually might make it less safe in operation in parts of
    Colorado as they tried to make this fit for everyone.
        Based on the concerns that we have heard today and the
    testimony that we have heard today, is there a concern that
    this one-size-fits-all model could result in a higher level of
    risk, as we have heard today with various testimony?
        Mr. Salerno. No, I think those comments really ignore the
    fact that our regulations already, the current ones, include
    provisions for alternative compliance so that if a regulation
    does not fit a particular circumstance, a company can come in
    with a proposal for an alternative way to achieve the level of
    safety that is envisioned. That it is reinforced in this
    proposed rule in several places.
        So even where we have put in targets--you know, safe
    drilling margins is probably the best example that has caught
    industry's attention, that was put in there with the
    expectation that there will be circumstances where that target
    may not be achievable or even the best target. But it is
    something that is managed through the permitting process, that
    dialog back and forth between my agency and the industry to
    come up with, you know, what is acceptable for that particular
    well.
        Senator Gardner. Mr. Milito, would you like to respond to
    that?
        Mr. Milito. Yes, and it is a great point on
    prescriptiveness versus performance-based regulation. And if
    you look at what has been occurring over the past five years,
    we have seen, you know, over 150 of these wells related to that
    particular provision drilled safely. So we think the system is
    actually working. It provides the ability of the industry to
    work with the permit approvers to come to a final decision
    based upon the overall risk of the operation.
        Our overall concern is that when you make it into a reg,
    they can become extremely rigid. And if you look at some of
    these requirements, they actually could force bad behavior by
    redesigning a well, not looking at the best and optimal ideal
    mud weight. There are different issues that could arise, and if
    you are already in a prescriptive environment, which the
    regulations currently are, and you are adding prescriptive
    elements to it, it becomes more difficult as a regulator to
    really, you know, go back and adapt those regulations.
        We develop our standards, which we are pleased to see the
    agency adopting, but we are able to go back and revise those
    rather quickly and make sure that we are keeping up to date
    with the technologies.
        The last thing I would like to note is that, overall, we
    are very supportive of a majority of the provisions in this
    rule. There are certain provisions in it that we have concerns
    about from a safety standpoint.
        Senator Gardner. Well, and I think that some of your
    colleagues, Director Salerno, at the Department of the Interior
    I have recently had conversations with regarding the EPA's
    failure to fully understand the complexity of the Gold King
    Mine, that the release of three million gallons of toxic
    material into the river by the EPA--the Bureau of Reclamation,
    the Department of the Interior actually did an analysis on the
    cause of that and what happened. It has been clear through
    those conversations the Bureau of Reclamation believes that you
    cannot have a--because we were talking about how do you prevent
    that kind of release of toxic material from happening again in
    the future? Do we need industry--you know, a standard across
    the government that does not exist right now?
        It became very clear from our conversation with the Bureau
    of Reclamation that they believe a one-size-fits-all approach
    to Federal compliance would actually be counterproductive, that
    there is no way to see how a mine differs from another mine. To
    put a prescriptive overlay upon them all would not be in the
    best interest of safety.
        So with the concerns that Mr. Milito just expressed, is
    there not a point to some of the prescriptions that they agree
    go too far and actually have an adverse or inverse affect on
    safety?
        Mr. Salerno. Again, Senator, I would point out that there
    is a longstanding provision in our regulations for alternative
    compliance to address those very concerns, and it is a well-
    exercised one. The industry uses it regularly, but we have that
    dialog with our subject matter experts to make sure that the
    regulations are applied in an appropriate way.
        Senator Gardner. Thank you. I will just end by raising some
    of the safety issues we have heard, I think, from testimony
    before both the House and the Senate from Secretary Moniz,
    Secretary Jewell, and EPA Administrators Jackson and McCarthy
    that there has never been a single incident of contamination of
    groundwater through hydraulic fracturing. So we have made
    tremendous progress in safety and continue to do good work.
        The Chairman. Thank you. Senator Hirono.
        Senator Hirono. Thank you, Madam Chair.
        Mr. Salerno, I heard you say just now that there is an
    alternative compliance provision or structure so that with
    regard to any particular rule it is not one-size-fits-all?
        Mr. Salerno. That is correct, Senator.
        Senator Hirono. So can you give me an example of where the
    oil and gas industry has used this provision to modify the
    impact of a rule?
        Mr. Salerno. There are various technical provisions in the
    regulations which, you know, may or may not be appropriate in
    any given situation. And so there is a general provision within
    our regulations currently. It is reinforced in several
    locations in the proposal so that, anything for, you know,
    exploratory drilling, for example, there is a provision in
    there saying any provision in the subchapter, if the operator
    wishes to propose alternative compliance, they can do so. So
    that is done. It is generally managed down at our regional
    level, people who are closest to the scene, subject matter
    experts who can engage in that dialog with the industry.
        Senator Hirono. Thank you. According to your testimony,
    your Bureau is now reviewing over 5,000 pages of technical
    feedback on the draft rule. Can you elaborate on how you
    engaged with the oil and gas industry in developing the rule to
    ensure that the rules are practical and there are practical
    steps to reduce the risk of accidents and death?
        Mr. Salerno. The engagement was very extensive. Quite
    honestly, it started with all of the technical analyses from
    the various commissions--studies, reports, recommendations that
    came out of the Deepwater Horizon. That is what is here. And
    there was a tremendous amount of industry engagement in the
    production of these studies. That was followed with workshops,
    with meetings with industry associations, with individual
    companies, other stakeholders over the course of several years
    to really go through the details of this. And out of all of
    that we generated the proposal.
        With the proposal being published in April, of course,
    there was a comment period, ultimately 90 days. That is when
    the 5,000 pages were presented to us. Subsequent to the closing
    of that comment period, we had some very narrowly tailored
    meetings with industry to get additional clarification on the
    comments, which were submitted during that timeframe. And in
    fact, we have one more meeting scheduled for next week along
    those lines just for additional clarification, not new
    comments, but just to clarify what they provided. So all told,
    again, it has been about 50 different meetings with industry--
    --
        Senator Hirono. Did you say 5-0?
        Mr. Salerno. Five-zero over the course of several years to
    develop this proposal and to perfect it.
        Senator Hirono. Thank you. For you again, Mr. Salerno. If
    the environmental and safety regulatory standards laid out in
    the WCR are implemented, operators will have to factor in the
    cost of the compliance with the rule in addition to their
    operating costs. Can you speak about the economic impact
    operators will face when complying with the WCR and does this
    cost of compliance outweigh the benefits of avoiding another
    Deepwater Horizon disaster?
        Mr. Salerno. We did estimate about $880 million over a ten-
    year period. That includes, you know, direct costs for
    compliance with new provisions. We assume compliance with the
    industry standards already. Some of the provisions in the rule
    such as spill containment is already required, so that is not a
    new cost. There are also some benefits to the rule such as the
    change in the inspection frequency of BOPs from 7 to 14 days,
    and should it go to 21 days, that would be even an additional
    benefit. So all of that was considered in calculating the
    overall cost.
        Senator Hirono. Did you also take into consideration--I
    realize this is difficult to predict because you do not want to
    make any predictions based on the actual occurrence of
    disasters--but when there is a disaster and there are deaths,
    then the company ends up paying huge amounts in settlement
    costs. For example, BP is facing some, what, $20 billion.
        Mr. Salerno. Well----
        Senator Hirono. Were those factored in or considered in
    some way?
        Mr. Salerno. Yes, we did look at the cost--the benefit,
    quite honestly, of avoiding oil spills, avoiding loss of life,
    and there are actuarial tables that we used that are included
    in the cost-benefit analysis. So yes, they were considered.
        And on the BP, yes, it was about $20 billion for a response
    cost, but if you look at their legal liabilities and fines and
    penalties, it is actually closer to $60 billion. So that is a
    significant cost that I think any company would seek to avoid,
    and if that can be avoided, that is also a benefit to this
    rule.
        Senator Hirono. Thank you. Thank you, Madam Chair.
        The Chairman. Senator Barrasso.
        Senator Barrasso. Thank you, Madam Chairman.
        Mr. Salerno, a number of the stakeholders are concerned
    that the proposed well control rule may actually increase, not
    decrease, the risks involved in the offshore oil and gas
    production. The stakeholders argue that the proposed rule is
    excessively prescriptive. In other words, the proposed rule too
    often specifies how industry must achieve the rule's
    objectives. Stakeholders argue that the proposed rule should
    instead be performance-based. In other words, the proposed rule
    should establish objectives for the industry while allowing the
    industry to develop the best methods to achieve the objectives.
        Stakeholders raising these concerns are not just oil and
    gas producers. They actually include government agencies,
    agencies like the U.S. Chemical Safety and Hazard Investigation
    Board. You know, in July of this year, that Chemical Safety
    Board submitted comments to the proposed rule, and in its
    comments, the board explained that--let me just go through
    this--``while minimal compliance requirements may be necessary,
    prescriptively requiring them can lead to safety plateaus
    rather than continued safety improvements that meet or exceed
    the standards identified by the proposed rule.'' They went on
    to say that they were concerned that some of the prescriptive
    requirements and even the standards identified in the proposed
    rule may not always reflect current industry best practices.
        So the question is, how do you respond to the concerns that
    both the Chemical Safety Board and the oil and gas industry
    have raised about the proposed rule?
        Mr. Salerno. Well, we have heard concerns about
    prescriptive language. Our intent, quite honestly, is to
    approach it as a hybrid, to provide enough specificity in the
    rule so it is very clear what the standard of safety envisioned
    is so it is clear what the target is for the industry, but also
    provide the provisions for alternative compliance should new
    technology become available. We do not want to lock in today's
    technology for the future. If somebody can develop something
    better, obviously, we are very interested in that, so provide a
    pathway for that but to make sure that it achieves at least
    that level of safety envisioned in the rule.
        Senator Barrasso. Yes, because this is highly unusual for a
    Federal agency and the oil and gas industry to both agree that
    a proposed rule issued by another Federal agency would inhibit
    safety advances. It does not happen every day, does it?
        Mr. Salerno. Well, we disagree with the assertion that this
    would--this rule would make things unsafe. I mean we are a
    safety organization. Our whole purpose in life is to make
    things safer, not less safe. So these concerns that have been
    raised, you know, we are taking them very seriously and we are
    considering how best to address those as we move forward with
    the finalization of the rule.
        Senator Barrasso. Mr. Milito, would you like to respond to
    Mr. Salerno?
        Mr. Milito. It is a great question, Senator Barrasso. I
    think what it comes down to is making sure we have a proper
    balance of regulations that are advancing safety yet at the
    same time encourage innovation and the advancement of
    technology.
        What we have done in the past several years is develop
    industry standards which really create a strong baseline which
    gives you that performance-based element to move forward with
    safe equipment, safe operations, and the blowout prevention
    equipment document we put out is being incorporated and
    referenced as a requirement. Our concern is that they are
    adding on a lot of different elements that were not considered
    in the process of developing an industry-wide standard. The
    BSEE experts were at the table in the development of that.
        So once you go outside of a process where things were
    thought out and developed according to a consensus, then you
    are adding prescriptive elements on that may not make sense in
    the eyes of the experts. So it is very important to have that
    balance, and we would like to see more of a performance element
    when it comes to things like blowout prevention equipment.
        Senator Barrasso. Mr. Salerno, yesterday, the international
    climate negotiations began in Paris. The President is there
    this morning. The goal of the conference, they say, is to reach
    an agreement to reduce carbon emissions worldwide. Two members
    of this committee believe the United States should unilaterally
    end oil and gas leasing on Federal lands and waters. The
    members have introduced legislation to do just that. It is
    called the ``Keep It in the Ground Act.'' So the question is,
    do you believe that ending oil and gas leasing on Federal lands
    and waters is a reasonable and effective way to reduce carbon
    emissions worldwide?
        Mr. Salerno. Sir, that is way above my pay grade. My role
    is, where leasing is done and drilling is permitted, that it is
    done safely. And that is the focus of this rule. It really does
    not get into national energy policy.
        Senator Barrasso. But would--actually ending the oil and
    gas leasing on Federal lands and waters, is that a reasonable
    and effective way to reduce carbon emissions worldwide?
        Mr. Salerno. I will defer to my other agencies within the
    Department of the Interior on the leasing issues, sir.
        Senator Barrasso. Well, you are the Director of the Bureau
    of Safety and Environmental Enforcement, so I would just like
    to get your thoughts on this proposal.
        Mr. Salerno. Yes, the environmental enforcement has
    predominately to do with keeping oil in the pipe, you know, in
    drilling activity and in production activity. It is making sure
    it goes where it is supposed to go, not into the ocean. So that
    is the boundaries of my authority. So I would be stepping way
    out of my lane to venture an opinion on some of these other
    questions, sir.
        Senator Barrasso. Thank you, Madam Chairman.
        The Chairman. Thank you. Senator Hoeven.
        Senator Hoeven. Thank you, Madam Chairman. I would like to
    thank all the witnesses for being here today.
        I want to start with Mr. Salerno and really continue the
    questioning that both Senator Gardner and Senator Barrasso have
    been asking you about as I came in here, and that is this
    concept of a Federal one-size-fits-all rule. Is that what we
    have here?
        Mr. Salerno. I do not believe so. There is alternative
    compliance language in our current regulations and again
    reinforced in the proposal. So it allows for the fact that
    certain situations may require different solutions.
        Senator Hoeven. So, Mr. Milito, tell me about that
    alternative language. Does that provide the flexibility that
    works for industry?
        Mr. Milito. I think the baseline regulation should be
    really reflective of the best regulatory language you can have
    to advance safety, and we should not be starting out with a
    baseline that has language that could potentially have
    unintended consequences that also increase risk.
        We are also concerned about having to rely on alternative
    compliance decisions, which are becoming more and more
    difficult to come by over the past five years. And it puts the
    industry in the position of having a very uncertain regulatory
    environment if you are not relying on the underlying regs to
    get your permit approval. So we have a lot of concern about
    having a predictable, certain regulatory environment when you
    are relying on alternative compliance decisions.
        Senator Hoeven. Mr. Salerno, how would you address that?
        Mr. Salerno. The specificity in the rule does provide a
    target. If we did not provide a target, that becomes uncertain
    in its own right. It always becomes a matter of dialog, you
    know, at some point between the industry, by the company that
    is seeking to drill a well, and the technical experts that are
    reviewing the permit application. But at least that is a
    starting point and where the discussion begins, and everything
    is evaluated against that target.
        Senator Hoeven. Before the Bureau finalizes the rule, will
    you be incorporating the additional recommendations from
    industry stakeholders like Mr. Milito?
        Mr. Salerno. We are considering all of the comments from
    industry, from other stakeholders. Right now, we are in that
    deliberative process, which is where we consider how and if the
    language in the proposed rule would be modified.
        Senator Hoeven. Well, what I hear is your alternative
    compliance provisions are not adequate. Are you willing to
    address them?
        Mr. Salerno. Well, we believe they are adequate because
    they are currently being used, and they again are reinforced in
    the proposal. But again, we have got numerous comments from the
    industry, from other stakeholders as well, and we are
    considering all of those comments, including the use of
    alternative language as we move towards finalization.
        Senator Hoeven. Ms. Savitz, would you not agree that one-
    size-fits-all is problematic given all the different conditions
    that we have in terms of whether we are drilling in deep water,
    shallow water, different parts of the world, different places
    offshore? And so is not flexibility a necessary part of a good
    rule?
        Ms. Savitz. My understanding, Senator, is that the role
    includes both some prescriptive requirements and also some that
    have flexibility and that BSEE is working through the comments
    from the industry to determine which ones it is appropriate to
    take which approach.
        In the case of the Deepwater Horizon, one of the decisive
    moments in that process was when workers failed to adequately
    interpret the results of a failed pressure test. To me there is
    no excuse for that. That is the place where I think maybe it
    would have been better if there was a rule that when you failed
    a pressure test, you stop work, you take certain actions. The
    workers failed to do that and a disaster ensued. And so I
    believe there is a time and a place for everything, that there
    should be some prescriptive requirements, and obviously, I am
    glad to hear that the agency is considering which, on a case-
    by-case basis, are appropriate.
        Senator Hoeven. Mr. Milito, how would you respond to that?
        Mr. Milito. Yes, I think the efforts really since 2010 to
    focus on safety and environmental management systems by both
    the industry and the Government have really raised the bar
    considerably. We have the Center for Offshore Safety in place,
    and they have worked hard to make sure we have independent
    third parties who come in and audit companies' safety systems,
    and we have the Government adopting the standards and a lot of
    the best practices to make sure that when companies are being
    analyzed are being analyzed based upon their whole safety
    system. So a lot of this is really outside the scope of this
    rule when it comes to advancing safety, but a lot has been done
    since 2010 to truly move in the direction.
        With this rule we support a lot of this rule. There are
    just some provisions that we think we need more time to work
    with the Government on to make sure that we get it totally
    right.
        Senator Hoeven. Mr. Salerno, that is a good place for you
    to respond. You heard his last comment. Please respond to that
    specifically how you would approach what he is asking, which is
    saying, look, they can live with a fair amount of this rule,
    but there are some things they would like you to work with them
    on. Are you willing to do that?
        Mr. Salerno. We are considering the comments that have come
    from API and from the----
        Senator Hoeven. You said you are considering the comments
    before. My question is whether you are still willing to work
    with the industry in the area of flexibility to try to address
    some of the concerns that they are raising?
        Mr. Salerno. We have one more meeting scheduled with
    industry next week. What I would like to----
        Senator Hoeven. You are not going to answer me, are you?
        Mr. Salerno. I cannot tell you specifically how--I cannot
    announce any decision----
        Senator Hoeven. Are you willing to provide more flexibility
    in line with industry's request?
        Mr. Salerno. We are considering their comments, sir. That
    is all I can tell you. I cannot give you any definitive
    decisions on what we are doing with the comments at this stage.
    I would be happy to come back and explain it to you when I can.
        Senator Hoeven. Again, I hear Ms. Savitz and her concern
    about safety and knowing what to do if something happens. I
    understand that. We all want, obviously, to protect the
    environment. But I am hearing clearly from industry and you are
    hearing clearly from Members of Congress that a one-size-fits-
    all does not work so a good rule has flexibility so that it
    works in any circumstance and you can have that flexibility to
    make sure it works. Frankly, that is ultimately better for
    safety and the environment as well.
        Mr. Salerno. And I would argue, sir, we do apply
    flexibility, and that is our agency practice. That is the way
    we operate. That does not change with this rule.
        Senator Hoeven. Okay, but I want you to listen to the folks
    sitting next to you. They are asking for more flexibility. You
    have said you will consider that. I hope you do.
        Mr. Salerno. Yes.
        Senator Hoeven. Thank you.
        The Chairman. Thank you, Senator Hoeven.
        This has been a good discussion with the questions going
    around. I think it was important to acknowledge that since the
    disaster in the Gulf, industry has stepped forward with safety
    measures on their own, and of course the regulatory environment
    has changed a great deal. I think it was also important to get
    some of that on the record here this morning.
        This whole issue of alternative compliance is one that,
    while it does allow for a level of flexibility as Senator
    Hoeven has been discussing, I think, too, it also presents that
    level of regulatory uncertainty. I mean, we certainly saw some
    of that play out with Shell's exploration or their plans this
    summer when the permits that they had--they believed to allow
    them to tee up a work plan that would go without delay.
    Instead, what we saw was final BSEE approval came July 22 but
    Shell was not able to commence any operations until August.
    Then Dr. Rockel mentioned this in terms of the tight time
    frames that they are dealing with, what many people do not
    understand is the very, very, very limited season that we have
    within the Arctic because of the environmental issues that are
    coming. When the ice is coming, the work plan does not allow
    you to be in the water.
        Shell was looking at a situation that they needed to cease
    their drilling operations by the 28th of September because
    their exploration plan required their operations to cease by
    October 31. So when you think about it, it is less than two
    months that you are in the water, less than two months. Ask
    anybody. Senator Cassidy is sitting down there in the Gulf of
    Mexico and has the benefit of some warm weather. You have got
    some hurricanes down there, but it is basically 365 days a
    year.
        So when you compress your season into less than two months
    and recognize that you have got to get the flotilla up there
    that Director Salerno was talking about in order to put them in
    place for all of this, it is an operation that simply cannot
    have additional regulatory uncertainty. They need to know going
    into it what it is going to look like.
        Dr. Rockel, I would like you to speak just a little bit--I
    do not want you off the hook this morning because when we are
    talking about the Arctic plan, this is where you clearly have
    some expertise. I would like to hear from you this morning what
    you think the Department of the Interior should be doing with
    the Arctic rule as it stands today. You have mentioned a couple
    things, the same-season relief well, you mentioned a little bit
    about the mechanical recovery tools, the relief well
    requirements.
        I have suggested that the Administration needs to look at
    changing the current ten-year term for offshore leases in
    recognition of the shortened drill season and just the extra
    challenges of operating in the region.
        Can you give to the Committee some of your suggestions in
    terms of what Interior should be doing specific to the Arctic
    plan?
        Dr. Rockel. Thank you, Senator. I believe that, as I
    articulated earlier, the same-season relief rig requirement is
    pretty egregious to the industry. However, keeping it as a
    performance standard, which would mean you would have it as
    equivalency, a same-season relief rig equivalency. So if you
    have the same level of protection, that would be adequate. In
    other words, promote that regulatory flexibility from a
    performance standard.
        The reason the season is so short, to September 28, was
    because they were willing to--they were interested in making
    sure that you could have that same-season relief rig on site.
    And so if you get rid of the one or allow that flexibility,
    then you do not have to--you can extend the season, which when
    you look at the opportunity cost of those days lost, as you
    point out, over time it can be significant in terms of billions
    upon billions of dollars in terms of production forgone.
        And then the third has to do with the mechanical--having
    the mechanical for the worst-case discharge, and you want more
    flexibility. I think what has been successfully accomplished
    throughout the world is having the operators and stakeholders,
    including the governments, work on something called a net
    environmental benefits analysis whereby if there is a release,
    everybody decides on scene who has the best information what to
    do, and use all the tools in the toolbox, including in situ
    burning, including dispersants, making that call depending on
    the sensitivity of the environment, depending on the weather
    conditions and the ocean conditions and everything else, in
    other words, onsite having the best information available to
    make those decisions.
        The Chairman. Are we taking the lessons learned from other
    Arctic nations that have exploration opportunity, whether it be
    Russia, whether it be Norway, are we taking from them some of
    the best practices and looking to develop an Arctic rule
    utilizing that?
        Dr. Rockel. I do not believe we are.
        The Chairman. Why is that?
        Dr. Rockel. We are more prescriptive, whereas Norway and
    Greenland and Canada seem to be more performance standard-
    based. I think one thing that I feel strongly about is the
    United States needs to be a leader in the Arctic.
        The Chairman. Are we?
        Dr. Rockel. I do not--it depends who you talk to. But I
    think what we need to be able to demonstrate is that we can
    have a safe, reliable Arctic drilling program that other
    countries can look at and say, yes, they can do it and they are
    doing it the right way, they are doing it the correct way, they
    are doing it the safe way.
        I am particularly concerned about our friends to the West
    because, as you well know, the Beaufort arm moves from the
    Russians down to Alaska, so my big concern about the next
    blowout is not going to be in the United States. It is going to
    be there coming into our waters. So I would say that
    maintaining that leadership position in the Arctic Council with
    the other countries, using the performance standards, and all
    regulations ultimately need to be based on sound science, sound
    engineering, and that is the only way we are going to get----
        The Chairman. Well, Mr. Rockel, I could not agree with you
    more. I believe that the United States should set those
    standards. I think working with our regulators in a way that
    does exactly what Mr. Milito has been talking about, making
    sure that we are paying attention to safety first but also
    making sure that there is regulatory certainty that helps to
    make sure that it is economic as a project. I fear that we have
    ceded any leadership, any standards-setting in the Arctic right
    now.
        The two players that were front and center in the U.S.
    Arctic, Shell and Statoil, are no longer there as of the end of
    this season. Shell's words are they are out for the indefinite
    future, and Statoil has basically said they have turned back
    their leases.
        For us as leaders in an Arctic environment, which the
    United States clearly should be doing, I think we are ceding
    the standards, I think that we are ceding an economic
    opportunity, and I think that is most unfortunate.
    Unfortunately, I think the reason that we are now taking this
    backseat is because of some of the regulatory issues and
    hurdles that we have faced that have sent operators that did
    have great interest in the Arctic and put them on an indefinite
    pause. Let me turn to Senator Cantwell.
        Senator Cantwell. Well, thank you, Madam Chair. You and I
    definitely agree that the Arctic is a priority for the United
    States, and you and I certainly agree on the fact that we need
    an icebreaker fleet. Dr. Rockel did not mention that, but those
    other Arctic nations definitely have a very robust fleet.
        But my question is back to Mr. Salerno. I wanted to point
    out we are in a regulatory process that we are finishing up, so
    you really cannot answer some of these questions in detail, and
    so I just want to point that out for everybody. As much as you
    might like to, you really cannot, so thank you for that.
        Also, I think we need to remember that what we are trying
    to do here is change a culture. We did do that to a certain
    degree by changing the structure within Interior and The
    Mineral Management Service, but you have to think it is pretty
    appalling where we were at that time. My question is, people
    are talking about flexibility in a rule or not being too
    prescriptive. The real issue is the better the bright line, the
    better people will be able to understand what it is they have
    to comply with.
        For me, having again sat through those hearings about
    blowout preventers and the lack of scrutiny that was given to
    them before, it seems to me that the sharper and crisper the
    requirements are about testing, about regulation, about
    oversight of blowout preventers, the better we are going to be.
    I see you nodding your head, Ms. Savitz. Is that something that
    you wanted to comment on?
        Ms. Savitz. Absolutely. I mean, I think the important thing
    in this type of situation is that we have--you know, if we are
    not going to stop drilling, which clearly I have not convinced
    everybody of yet, that we are able to control a loss of well
    control in a timely fashion, whether--what we have seen is
    oftentimes that other intervention methods that we think are
    going to work do not work. Remember back in 2010 the junk shot
    and the top hat and all these things we had never heard of
    before, they did not work. And ultimately, it was the relief
    well that we were told it would take three months to drill and
    it did. And so obviously it is something that we want to be
    prepared to do.
        We have a short window of operations in the Arctic, and if
    the Russians are going to be drilling in the Arctic, I
    certainly hope they have the capacity to control loss of well
    control with the relief well. And so I would like to see us be
    leaders in that context as well.
        Senator Cantwell. Thank you. Mr. Salerno, do you have any
    general comments about changing culture? Because to me, when
    you say to people, okay, here are some general rules and some
    of you can follow this part and some of you can follow that
    part, it is difficult. The crisper the rule, the brighter the
    line. Usually what happens within a culture is that everybody
    understands what that bright line is and they know what they
    have to comply with.
        Mr. Salerno. Thank you, Senator. No, it is an important
    point, and that is why we have tackled this as a hybrid
    approach, to provide the bright line, the target information,
    the clarity, what it would take to achieve the level of safety,
    but then also provide a pathway for alternatives. So that is
    the hybrid nature of it.
        To pick up on something Mr. Milito said earlier about
    safety and environmental management systems, that is a
    performance-based system. API has their standard. We have
    adopted that standard in our regulations. But what is
    interesting, and to your point, Senator, is a lot of the
    comments that we have received as that rule has been put into
    place is, gee, you are not specific enough. We do not really
    quite know how to meet your intent.
        So that is why we are really looking at this well control
    rule as a hybrid and why it is important to provide that degree
    of specificity certainly for the industry so they have a target
    but also for the general public so it is very clear what the
    level of safety envisioned is in this Federal rule.
        Senator Cantwell. Thank you. I certainly hope that we
    continue to march towards a changing of the culture from where
    we were at the time of the Deepwater Horizon to something where
    people understand the safety level that we are going to make a
    commitment to. So thank you very much.
        The Chairman. Senator Cassidy.
        Senator Cassidy. Thank you, Madam Chair.
        First, not that it is apropos of this committee hearing,
    but it has been mentioned several times, the idea that if the
    United States leaves its oil in the ground, there will be less
    CO2 emitted sounds plausible but it is totally absurd. And I
    say that not to be mean.
        But the Iranians want to increase their oil by two million
    barrels a day. According to the International Council on Clean
    Transportation and the Carnegie Endowment for International
    Peace, the Iranians emit two to three times more CO2
    equivalence than we do in our Gulf of Mexico rigs. Based on two
    million a day, if we cede that market to the Iranians, there is
    going to be 100,000 metric tons of CO2 emitted that will not be
    if we create those jobs in the United States and produce our
    own oil. Understanding that, I know it sounds plausible, but a
    little bit of examination shows that it is not.
        Secondly, Mr. Salerno, again, thinking of those 11 that
    died and their families, I thank you for your commitment to the
    safety of these workers. I thank you for that.
        So I will continue my line of questions along the lines of
    specific regulations that may or may not perhaps make it safer.
    Looking at Mr. Milito's comments but also the comments of
    others, there is an issue of the drilling margins. You have
    ascribed a certain weight that has to be achieved. I am told by
    industry that this never came up in the discussions beforehand
    and that 63 percent of the wells drilled since 2010 actually
    would have failed the current regulation on drilling margins.
        Also, in Mr. Milito's testimony, he suggests that using
    this amount of weight may decrease the circulation within the
    cement, and in so doing, may actually compromise the strength
    of the cemented well I presume because the weight, again, not
    allowing circulation, does not allow a complete mixing of
    everything that is going to make the cement have the highest
    integrity. So thoughts about that?
        Mr. Salerno. The drilling margin really is an attempt to
    define a safety margin. It is to make sure you have more
    pressure inside----
        Senator Cassidy. I accept that, but apparently 63 percent
    of the wells drilled since 2010 would have failed this test.
    Empirically, we have a safety margin which seems to be
    different than the one that you have defined.
        Mr. Salerno. No, I think that ignores, again, the
    alternative compliance provisions. That is a target. It is----
        Senator Cassidy. I accept that, but if 63 percent of the
    time they have to look for a waiver of your regulation, that
    makes a mockery of the regulation, correct?
        Mr. Salerno. No, I would not say so. Again, Senator, we
    have received a lot of comments, a huge volume of comments on
    the drilling margin issue. So we are going through all that
    very carefully.
        Senator Cassidy. I accept that, but there should be some
    rationale--and again, I am not an engineer. I keep saying that,
    but it is true. There has to be some rationale, again, if
    empirically it shows that you can have a drilling margin which
    is not at what you prescribe and, again, 63 percent of the
    wells would have failed but they were safely--it is somewhat
    arbitrary in which the drilling margin was established without
    kind of a basis in empiricism.
        Mr. Salerno. Well, it is again based on the expertise of
    our folks in the field who deal with these issues all the time.
    Again, the idea here is to keep more pressure in the pipe than
    you have in the formation. If the reverse is true, you have a
    kick or maybe a blowout.
        Senator Cassidy. I accept that.
        Mr. Salerno. So that is to prevent blowouts.
        Senator Cassidy. Now, Mr. Milito's testimony, though,
    suggested that every now and then you want to have some mixing
    within that cement which allows, I gather, a kind of more even
    permutation of that which would strengthen the cement. It is
    plausible. I do not know if it is true, but it is plausible.
    Mr. Milito, do you have any comments on that?
        Mr. Milito. This is one of the key areas in rule that we
    have expressed significant concern. The industry actually came
    out with the standard bulletin on this to make sure that we
    have a kind of baseline document to make sure we are
    considering this issue as we move forward and do it safely so
    that we are maintaining the right amount of pressure in the
    well in accordance to what the Director said.
        So fundamentally what is in the rule is not reflective of
    what is happening in the Gulf of Mexico, and I think the key
    point here is why would you move forward with that type of rule
    when that does not reflect actual operations that are
    occurring?
        Senator Cassidy. Okay. Next point, one more thing, Mr.
    Salerno. Industry is saying that you are asking for some
    technology which has not yet been developed. I think Ms. Savitz
    suggested this is not true, but they maintain that it is, that
    the technology does not currently exist to center a cementing
    pipe before it is sheared, yet, you prescribed that. So if the
    technology does not exist, how can it be complied with?
        Mr. Salerno. Well, the technology has been developed. You
    know, we have discussed this with equipment manufacturers. We
    know it exists. There is also a timeframe for compliance, and
    this is out, I think--believe seven years on that particular
    item. So there is plenty of time for that capability to be
    adequately marketed, installed, and tested.
        Senator Cassidy. Mr. Milito, do you have any comments on
    whether or not that technology--again, because it seems a
    question of fact. I have been told both ways.
        Mr. Milito. It comes down to the phasing period. We are in
    a position where the industry is able to move forward and
    advance technologies, but we need to make sure we have the
    appropriate phasing period to make sure we have it available to
    market to continue Gulf operations.
        Senator Cassidy. I thank you all for your testimony and for
    being here. I yield back.
        The Chairman. Thank you, Senator Cassidy, and thank you to
    each of you for your comments here this morning.
        Director Salerno, I think you heard clearly from the
    members of the committee this morning, the hope is that you are
    looking to all of the comments that have been elicited out
    there and that the expertise that the industry offers is
    considered as well.
        I appreciate greatly the fact that nobody is saying, hey,
    we do not need these regulations. Nobody is suggesting that we
    want anything other than the highest of safety standards to
    ensure a level of not only safe environmental operation but to
    ensure that the men and women who are working in this industry
    are always able to return home at the end of their shift at the
    end of their day. We care very greatly for them and their
    families.
        But I do think that this is all about finding that balance,
    and it is not always just a cost-benefit analysis or approach
    that goes into this. Making sure that we are working with the
    industry, whether it is to make sure that there is a transition
    time that is reasonable, whether there is alternative
    compliance that actually means something, these are all issues
    that I hope you take into great consideration as you are moving
    toward the final rules.
        Recognizing again the very distinct issues that we face in
    the Arctic, you are formulating an Arctic rule so that
    operators may have some certainty out there. I hope that the
    rules that you construct are ones that will ensure that we have
    an industry in our offshore because right now, I think it is
    fair to say we have none. We had some, and it was just a mere
    matter of months ago where we had operators that, even given
    the low prices of oil, were willing to take the financial risk,
    were willing to make the commitment to what they believed to be
    enormous prospects, great benefit from an energy security
    perspective for our country, great benefit for jobs. And they
    are no longer looking to those prospects at least for this
    indefinite future.
        That does not bode well for my state, and I do not think it
    bodes well for this country. When we are talking about being
    that world leader from an energy perspective and from an
    environmental perspective, we need to have people in the
    industry that are willing to make that investment. Right now,
    the Gulf of Mexico is happening, but offshore Alaska is not.
        So we need to know that the rules of the road are fair and
    balanced, and again, with a clear eye toward environmental
    standards and safeguards because, as we know, the Arctic is a
    circle up there. Whether it is Russia that may be performing
    with standards that we do not like, if we have not been up
    there to help set the standards, it is tough for us to be
    pushing back too hard in this area. We are all in this
    together.
        I appreciate the comments from all of you and from the
    committee. With that, we stand adjourned.
        [Whereupon, at 12:59 p.m., the hearing was adjourned.]

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