[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
                            
                            
                            
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                            
                            


                       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
               
               

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