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[Senate Hearing 112-1]
[From the U.S. Government Publishing Office]

                                                          S. Hrg. 112-1
 
                      NATIONAL COMMISSION REPORT 
                          ON THE BP OIL SPILL

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   TO

 REVIEW THE REPORT AND RECOMMENDATIONS, INCLUDING ANY RECOMMENDATIONS 
  FOR LEGISLATIVE ACTION, ISSUED BY THE NATIONAL COMMISSION ON THE BP 
           DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING

                               __________

                            JANUARY 26, 2011

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

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont             MIKE LEE, Utah
DEBBIE STABENOW, Michigan            RAND PAUL, Kentucky
MARK UDALL, Colorado                 DANIEL COATS, Indiana
JEANNE SHAHEEN, New Hampshire        ROB PORTMAN, Ohio
AL FRANKEN, Minnesota                JOHN HOEVEN, North Dakota
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Graham, Hon. Bob, Co-Chair, National Commission on the BP 
  Deepwater Horizon Oil Spill and Offshore Drilling, Miami Lakes, 
  FL.............................................................     6
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     4
Reilly, Hon. William K., Co-Chair, National Commission on the BP 
  Deepwater Horizon Oil Spill and Offshore Drilling, San 
  Francisco, CA..................................................    23

                                APPENDIX

Responses to additional questions................................    49

                      NATIONAL COMMISSION REPORT 
                          ON THE BP OIL SPILL

                              ----------                              

                      WEDNESDAY, JANUARY 26, 2011

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:34 a.m. in room 
SR-325, Russell Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. The hearing will come to order. This is our 
committee's first hearing in the 112th Congress.
    We appropriately begin with an issue of highest priority. 
That is the Deepwater Horizon tragedy. We have an important 
role to play in understanding what happened, ensuring that it 
will never happen again. The subject deserves our urgent 
attention.
    It's now 9 months since the Deepwater Horizon offshore 
drilling rig exploded and sank taking the lives of 11 people. 
Following that explosion oil gushed into the Gulf of Mexico for 
almost 3 months before it could be contained, spilling an 
estimated 170 million gallons, the largest oil spill in our 
Nation's history. As I said at the time of the disaster, this 
is not just a Louisiana problem.
    This is America's problem. Despite the passage of time this 
remains a serious problem. Not just for the Gulf region, but 
for the Nation as a whole.
    While there may be disagreement about where and how to do 
it, no one can doubt the need to continue to produce domestic 
oil and gas. However much of our remaining reserves are 
offshore and in deep water and far below the ocean floor. The 
Deep Water Horizon tragedy has taught us that such development 
involves a highly complex interplay of technologies and human 
decisions that sometimes must be made quickly on the basis of 
uncertain and evolving information. State of the art safety 
systems with sufficient margin for error and clear lines of 
communication, responsibility and authority are essential.
    Now that the oil is under control it's tempting for those 
of us with some distance from the events to ignore the 
difficult reality of offshore drilling and move on to other 
things. Those in the Gulf who have dealt directly with the loss 
of life or the environment and the economic consequences of the 
tragedy cannot do that. For their sake and for the national 
interest, the rest of us must not do that either. We must 
complete this work and assure that this oil and gas development 
is done safely, every time, and that failure is not an option.
    For all those reasons we need to be sure that we have in 
place systems in our government and in industry so that this 
type of tragedy cannot happen again. Beyond that we should lead 
the world in development of these systems and technologies and 
not settle for standards that are less rigorous than those of 
other nations. This is a complex and challenging matter. The 
committee unanimously reported legislation in the 111th 
Congress that would take many of the necessary steps.
    Since then the Department of Interior has taken a number of 
important actions to address these issues. Nevertheless I 
continue to believe that legislative change is necessary to 
fully ensure safe operations going forward. I intend to 
introduce legislation again in this Congress, bipartisan 
legislation, as is the effort here in our committee. Additional 
information has been made available from a variety of sources 
since we prepared the legislation that we proposed last summer. 
This new information will help us make improvements to our 
bill.
    In that regard we're very appreciative of the detailed and 
thoughtful work of the National Commission on the BP Deepwater 
Horizon Oil Spill and Offshore Drilling. Working under a 6-
month deadline they produced an impressive body of work 
including key recommendations for achieving the kind of system 
of offshore energy development that we aspire to have. We're 
very grateful for the work of the Commission, their excellent 
staff.
    We're pleased to have the Commission Co-Chairs, Senator Bob 
Graham, our former colleague and the Honorable William Reilly, 
as our witnesses today.
    Before we call on them let me defer to Senator Murkowski 
for any comments she would want to make at this time.
    [The prepared statement of Senator Bingaman follows:]

 Prepared Statement of Hon. Jeff Bingaman, U.S. Senator From New Mexico

    The hearing will come to order. This is the Committee's first 
hearing in the 112th Congress. We appropriately begin our work with an 
issue of the highest priority--the Deepwater Horizon tragedy. We have 
an important role to play in understanding what happened and ensuring 
that it will never happen again. This subject deserves our urgent 
attention.
    It is now nine months since the Deepwater Horizon offshore drilling 
rig exploded and sank, taking the lives of eleven people. Following 
that explosion, oil gushed into the Gulf of Mexico for almost three 
months before it could be contained, spilling an estimated 170 million 
gallons--the largest oil spill in the nation's history.
    As I said at the time of the disaster, this is not just Louisiana's 
problem. This is America's problem. Despite the passage of time, this 
remains a serious problem not just for the Gulf region, but for the 
nation as a whole.
    While there may be disagreement about where and how to do it, no 
one can doubt the need to continue to produce domestic oil and gas. 
However, much of our remaining reserves are offshore, in deep water, 
and far below the ocean floor. The Deepwater Horizon tragedy has taught 
us that such development involves a highly complex interplay of 
technologies and human decisions that sometimes must be made quickly on 
the basis of uncertain and evolving information. State of the art 
safety systems with sufficient margin for error and clear lines of 
communication, responsibility, and authority are essential.
    Now that the oil is under control, it is tempting for those with 
some distance from the events to ignore the difficult reality of 
offshore drilling and move on to other things. Those in the Gulf who 
have dealt directly with the loss of life or the environmental and 
economic consequences of this tragedy cannot do that. For their sake, 
and for the national interest, the rest of us must not do that. We must 
complete this work, and ensure that this oil and gas development is 
done safely every time, and that failure is not an option.
    We hear concerns about the economic consequences of slowing down 
the leasing and permitting process to address safety issues. We must be 
sensitive to these issues and efficient in our regulation. But even if 
we focus only on economics, the worst outcome for the industry would be 
another accident or an ongoing lack of confidence in industry 
operations. Of course there is much more than industry economics at 
stake--the very lives of oil and gas workers, the livelihood of workers 
in other industries, and the irreplaceable coastal environment.
    For all these reasons, we must ensure that we have systems in place 
in our government and in the industry so that this cannot happen again. 
Beyond that, we should lead the world in development of these systems 
and technology and not settle for standards that are less rigorous than 
those of other nations.
    To achieve these goals is a complex and challenging matter. This 
Committee unanimously reported legislation in the 111th Congress that 
would take many of the necessary steps. Since then the Department of 
the Interior has taken a number of important actions to address these 
issues. Nevertheless, I continue to believe that legislative change is 
necessary to fully ensure safe operations going forward, and intend to 
introduce legislation again in this Congress.
    Additional information has become available from a variety of 
sources since we prepared our legislation last summer that will help us 
make improvements to our bill. In that regard, I am very appreciative 
of the detailed and thoughtful work of the National Commission on the 
BP Deepwater Horizon Oil Spill and Offshore Drilling. Working under a 
six month deadline, they produced an impressive body of work, including 
key recommendations for achieving the kind of system of offshore energy 
development that we aspire to have.
    We are grateful for the work of the Commission and their excellent 
staff, and are pleased to have the Commission co-chairs, Senator Bob 
Graham and the Honorable William Reilly, as our witnesses today.
    Before we hear from them, let me turn to Senator Murkowski for any 
opening remarks she would like to make.

    [The prepared statement of Senator Sessions follows:]

  Prepared Statement of Hon. Jeff Sessions, U.S. Senator From Alabama

    Thank you Mr. Chairman, The Deepwater Horizon incident is a very 
serious disaster and it is heartbreaking to think of the lives that 
were lost, the livelihoods that have been affected, and the impact on 
the environment.
    The damage that began in the Gulf of Mexico on April 20, 2010, did 
not stop when the well was capped and the oil was contained. The 
environmental impact of this accident is unprecedented, and many of the 
long-term effects may remain unknown for years to come. Alabamians are 
still suffering despite the establishment of the Gulf Coast Claims 
Facility and the promises made by BP and Ken Fienberg to make everyone 
whole.
    Unfortunately many complex problems remain and Gulf Coast residents 
are still living with the threat of foreclosure, bankruptcy, or being 
forced to pull money from their retirement accounts or children's 
college funds to pay the bills. In addition, small businesses along the 
Gulf Coast that make the majority of their income in the summer months 
have been crippled and are fighting to stay open.
    Now, these problems are being compounded by high gas prices. 
According to the Energy Information Administration, current gasoline 
prices around the country average $3.16 a gallon. Approximately 70% of 
the cost of gasoline can be attributed to the price of crude oil. As 
the largest component of the price of gasoline, this accounts for more 
than refining costs, retailing fees, and state and federal taxes 
combined. The Department of Interior estimates that the Outer 
Continental Shelf contains approximately 85.8 billion barrels of oil 
and of these, 44.9 billion barrels are estimated to be in the Gulf of 
Mexico. Tapping into these reserves would bring more oil to the global 
market and help lower its price. In addition, producing more oil here 
at home would keep American income in the U.S., create jobs, and reduce 
the amount of money we send to foreign countries. I believe that it is 
unthinkable that we have no problem relying on countries such as 
Brazil, Saudi Arabia, Iran, and Venezuela, for increased oil imports, 
while refusing to produce our own domestic reserves.
    The reality is, if we do not drill in the Gulf, we will buy the oil 
from a foreign source. I truly believe that America must move toward 
greater energy independence and self-sufficiency by adopting a 
comprehensive energy plan built on the principles of fuel diversity and 
responsible domestic exploration. I recognize we cannot accomplish this 
overnight. Currently, the United States consumes on average 18.8 
million barrels of oil a day. The greater our dependence on foreign 
energy, the greater the threat to America's national and economic 
security.
    Offshore drilling is an important industry to my state and to our 
nation. According to the American Petroleum Institute, the offshore 
industry is responsible for nearly 200,000 jobs in the Gulf of Mexico 
and a Mobile Chamber of Commerce survey found that the industry 
employees over 1,000 individuals from Alabama. Offshore drilling in the 
Gulf of Mexico supplies 30 percent of America's domestic energy 
production and 80 percent of the Gulf's oil comes from operations at 
depths of water greater than 1,000 feet. Since the spill occurred, the 
exploration and production of these resources has virtually stopped. 
Following the Administration's announcement of their supposed lifting 
of the moratorium, only two permits for deepwater drilling have been 
issued, which is down 88 percent according to the Gulf Permit Index.
    As Mr. Graham has pointed out in his prior comments, offshore 
drilling provides the second largest single source of revenue to the 
federal government after income taxes. The oil and gas industry 
provides the U.S. Treasury over $20 million each day and contributes $1 
trillion to the U.S. economy.
    Ultimately, we need to address this incident--but must proceed 
cautiously to avoid passing legislation that may present unintended 
consequences to our economy and energy security. We must conduct a 
comprehensive review of our current oil and gas policies to prevent 
another crisis similar to what happened in the Gulf. We must feel 
confident that we can move forward with domestic energy production 
safely and effectively. Our nation depends on energy exploration on the 
Outer Continental Shelf, and we must do all we can to make certain that 
oil and gas production is conducted under the strongest environmental 
protections.
    Thank you for your work and efforts in assembling this report, and 
I look forward to your testimony.

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

    Senator Murkowski. Thank you, Mr. Chairman. I do appreciate 
that you have convened the hearing this morning. I was 
optimistic that we would be able to welcome our new committee 
members here, but we're still waiting for those assignments to 
be made. I think we all recognize how much we get out of these 
hearings, they are very worthwhile.
    I do understand your desire to have this hearing on a 
timely basis. But I also observe that this issue is very 
difficult and complex.
    Further, I believe that once our committee is fully 
organized we'll need to ensure that every member of the 
committee has an opportunity to not only hear, but ask 
questions and express their views on these matters. Every one 
of our constituents uses energy. They rely on us to help ensure 
it is affordable, secure and increasingly clean.
    I think we recognize that this past year was challenging on 
many fronts. I don't think anyone on this committee would ever 
want to relive the events of last spring and summer.
    We lost 11 men.
    We lost the oil rig they worked on.
    The oil was released into the Gulf of Mexico for 87 days.
    I have said before that this terrible tragedy brought back 
the worst memories of the Valdez spill in Alaska 20 years 
earlier. Last year's spill was stopped in mid-July. But it 
remains appropriate for us to help those impacted by seeking to 
seek to prevent future disasters.
    The report that we are here to consider today will 
certainly play a role in that effort. I respect and appreciate 
the Commission's work. Also note the presence of the two 
Chairmen here. I look forward to your presentation today.
    I'll also point out that as this hearing's background memo 
notes there are four other prominent reports on the Deepwater 
Horizon incident.
    We have one from the Joint Department of Interior/Homeland 
Security investigation.
    We have a 30-day report from the Department of Interior's 
Safety Oversight Board.
    We have the National Academy of Engineering report which 
isn't due out until March.
    Then there's finally the BP's internal report which came 
out last fall.
    As expected I don't think that these reports are perfectly 
congruent. It leaves a great deal of work for us to do in 
analyzing where there is agreement among these conclusions and 
where there might be need for more inquiry. I hope that we will 
at least informally agree on a threefold pledge regarding our 
offshore policy.
    That is, first, that no victim of a spill should ever go 
uncompensated.
    That taxpayers should never be on the hook for a company's 
damages.
    Third that these priorities are managed in a way that not 
only preserves, but also promotes a competitive, domestic 
offshore industry.
    I think that should be agreeable and achievable for all of 
us.
    One of the true ironies in the tragedies in the Gulf 
disaster was that it both opened and reopened such horrific 
wounds for the fishermen and others who saw their livelihoods 
compromised by its sudden impact. These effects were brought 
first by the oil spill and later by the Administration's 
moratorium on offshore drilling which has cost thousands of 
jobs and had a chilling effect on our Nation's energy policy. 
We have to begin confronting those choices today.
    More specifically we have to decisively recognize the risks 
and the rewards of offshore energy exploration. There's simply 
no better way to take measure of those risks and rewards than 
by visiting the Gulf of Mexico, witnessing the balance between 
the many users of the ocean and their respect for one another. 
In my experience the fishing, tourism and energy industries are 
perfectly capable of co-existing, just as they did for many 
decades before last year's incident. The economies of states 
like Alaska and Louisiana indisputably depend on all three. The 
loss of any one will lead to instability and hardship.
    Americans require seafood. We love our vacations at the 
beach. We depend on oil to live our lives. It's a delicate 
balance, but a co-existence that we have sustained.
    So I view our job here, Mr. Chairman, as finding a way to 
return to a point where our regulators and industry are working 
to keep all three of these sectors in a secure and sustainable 
livelihood. We absolutely need to look at ways to improve our 
offshore system and make those operations safer. The 
uncertainty that we have had to face over the past year has 
been staggering. I hope that today's hearing will provide some 
ideas and some clarity as we chart an expeditious path forward.
    With that, I look forward to the presentation from the 
gentlemen before us and welcome them.
    The Chairman. Thank you very much. I now ask Senator 
Graham, Mr. Reilly, to go ahead with their presentations in 
whichever order they'd like. We, again, thank you very much for 
the hard work you've put into this effort and your staff and 
congratulate you on the excellent report you've presented to 
us.
    But if you could each take somewhere in the range of 10 
minutes and give us your recommendations. Then we will 
undoubtedly have questions.
    Senator Graham.

 STATEMENT OF BOB GRAHAM, CO-CHAIR, NATIONAL COMMISSION ON THE 
  BP DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING, MIAMI 
                           LAKES, FL

    Senator Graham. Thank you very much, Mr. Chairman. It shows 
what being away from here for 6 years will do to you. We very 
much appreciate the invitation that you've extended and the 
opportunity to present our report.
    I also wish to extend our best wishes to the other members 
of the committee. I understand that Ranking Member, Senator 
Murkowski has had a family crisis recently and we hope that 
everything goes well for your----
    Senator Murkowski. It all came out fine. Thank you.
    Senator Graham. My long time friend and colleague, Bill 
Reilly and I will divide our report with Bill talking about the 
basic safety issues and recommendations. I will talk about 
containment, response and restoration.
    In May of last year President Obama created our Commission 
and asked it to determine first the causes of the Deep Water 
Horizon disaster.
    Second, to evaluate the response to that disaster.
    Third, to advise the Nation about how future energy 
exploration should take place in a responsible manner.
    On January the 11th, we released our report, a copy of 
which I believe has been made available to all members of the 
committee, and we are very pleased that this report was 
completed on time, within our 6 months allowance, under budget 
and is a unanimous report of the seven members of the 
Commission. Those are aspects that we're very proud of and 
recognize that that's not always the case.
    Although our membership came in for some initial criticism 
as lacking in independence and lacking in technical expertise, 
I believe we've demonstrated that our work was completely 
independent. That we have not shied away from criticism where 
we thought that criticism was deserved whether it was at the 
White House, the Congress or the industry itself. Our 
competency will be judged by our report, its findings and its 
recommendations.
    We began our effort 6 months ago with a trip to the Gulf 
with an extraordinary staff led by Executive Director, Richard 
Lazarus. We used hearings, interviews, face to face meetings, 
to hear from as many voices as possible with a dedication to 
following the facts wherever they might lead. The 
Commissioners, the staff of scientists, lawyers, engineers and 
policy analysis worked hard and under very demanding deadlines 
to make our inquiries broad, deep and effective.
    When the President created this Commission, his Executive 
Order charged us with finding the root causes of the accident 
and recommending measures that would ensure that such a 
disaster would never happen again or if it did occur that the 
measures to mitigate against damage of the magnitude caused by 
Deep Water Horizon spill would not recur. In his statement, 
Bill Reilly will discuss these new safety measures. I am going 
to discuss response and containment and then restoration.
    The response to the Deep Water Horizon spill both at the 
government and industry level fell short. Although many 
responders acted quickly and in some cases heroically, the 
Commission concluded that neither BP nor the Federal Government 
was prepared to conduct an effective response to a spill of 
this magnitude and complexity. There was a failure to plan in 
advance, a failure to coordinate effectively with State and 
local governments and lack of information concerning what 
response measures would be effective.
    In addition, neither the industry nor the Federal 
Government had invested in research, development and 
demonstration to improve the technology for response or for 
controlling the flow of oil from the damaged Macondo. Much of 
the technology was the same technology that we saw used in 
response to the Exxon Valdez spill 20 years earlier in Alaska. 
There had been virtually no enhancement of our technological 
capability to deal with a major oil spill.
    Equally troubling at the outset of the spill neither 
government nor industry had sufficient expertise to determine 
the rate of the flow of oil. This lack of accurate knowledge 
impeded the efforts to determine the appropriate control 
technology and to do it on a timely basis. All these factors 
together made for a long and costly response effort that, at 
least in the early stages, did not meet the standards which 
Federal law requires. The Nation watched on television as day 
after day they saw the flow of oil from the broken pipe.
    In our report the Commission makes a number of 
recommendations to improve response and containment.
    Among those recommendations that the Department of 
Interior, consulting with other agencies, should develop a more 
rigorous set of requirements for industry response plans.
    That the EPA and the Coast Guard should involve State and 
local governments as significant players in spill response 
planning.
    That Congress should provide adequate and sustained funding 
for oil spill research. We will not waste another 20 years 
without improving the technology to do so.
    That industry should fund a private organization to 
develop, adopt and enforce standards of excellence to assure 
continuous improvement in equipment for large scale response, 
containment and rescue.
    The Commission's recommendations are far reaching in this 
area. There is a role for Congress, for the executive branch 
and industry in significantly improving our capabilities. There 
is also a role for Congress in conducting oversight to assure 
that all of these actions are taken.
    Now I'd like to turn to how this disaster might play a 
positive role in restoring the Gulf of Mexico, one of the 
Nation's most valuable ecosystems. As a result of the Deep 
Water Horizon spill over 170 million gallons of oil were 
spilled into the Gulf with some portions still remaining on the 
ocean floor and possibly settling on that floor. The Macondo 
disaster placed further stress on coastal resources already 
degraded by many decades by a variety of economic and 
development activities, including energy production.
    On April 19, 2010, the day before the Deep Water Horizon 
disaster, the Gulf was, as it remains, a highly productive 
ecological and industrial region that nonetheless had seen 
years or decades of degradation. Americans rely on the coast 
for many things including energy, seafood, tourism. Making the 
day before April 19, 2010, the target for restoration would set 
our goal at an unnecessarily low aspiration. Rather we should 
use this as an occasion for this environmental disaster to aim 
higher.
    The Commission chose to aim higher by recommending that the 
Federal Government, working closely with the Gulf States, make 
a renewed and national commitment to the Gulf of Mexico and its 
natural resources. Currently no funding source exists to 
support comprehensive, regional restoration efforts. Estimates 
of the cost of Gulf restoration vary widely. But according to 
testimony before our Commission, fully restoring the Gulf will 
require between $15 and $20 billion or a minimum of $500 
million a year for 30 years.
    The litigation process related to the Gulf Deepwater 
Horizon spill is likely to generate at least some of those 
needed funds. But Congressional action will be required to 
assure that the funds reach the Gulf. The Commission recommends 
that 80 percent of any Clean Water Act penalties and fines be 
directed to Gulf restoration.
    The Commission also recommends that Congress create an 
effective State/Federal authority to administer Gulf ecosystem 
restoration policy. If funding is to be most effectively 
directed at long term system restoration, a decisionmaking body 
should see that binding priorities are set and funding criteria 
adhered to. The structure of the Alaska Exxon Valdez Oil Spill 
Trustee Council should inform the structure of a Gulf Coast 
Council. As in Alaska, Congress should assure that the 
priorities and decisions the Council are informed by input from 
Citizen Advisory Councils that represent the diverse 
stakeholders and that restoration decisions are rooted in the 
best science.
    Mr. Chairman, I conclude my remarks by making a general 
point that is simple and obvious, but often over--forgotten 
when we talk about drilling in the Outer Continental Shelf. 
These resources, the Gulf of Mexico, the Federal areas of the 
Gulf of Mexico, belong to all of us. They belong to the 
American people. Since the 1950s when the decision was made to 
lease Federal tracts in the Gulf for oil and gas exploration we 
have had a national responsibility to see that that exploration 
was done in a manner that was safe, environmentally protective 
and beneficial to the Nation.
    As my colleague will outline that responsibility has become 
greater as the industry has moved into deeper and deeper and 
inherently more risky areas of the Gulf. Drilling offshore will 
never be reduced to zero risk. But as a Nation we can take some 
concrete steps that will dramatically reduce the chances of 
another Macondo.
    The Commission believes these steps are necessary, steps 
necessary as we fulfill our role as a prudent landlord of this 
property that belongs to the people of the United States. If 
dramatic steps are not taken we fear that at some point in the 
coming years another failure will occur and that we will wonder 
why the Congress, the Administration and the industry stood 
idle. The people of the Gulf who have suffered so much and all 
Americans deserve to know that their government and the 
industry are going to do.
    Mr. Chairman, I appreciate the opportunity to present these 
remarks. I will ask that our written statement and the full 
report be entered into the record. I look forward to responding 
to your questions.
    [The joint prepared statement of Hon. Bob Graham and Hon. 
William Reilly follows:]

 Joint Prepared Statement of Hon. Bob Graham and Hon. William Reilly, 
 Co-Chairs, National Commission on the BP Deepwater Horizon, Oil Spill 
                         and Offshore Drilling

                            I. INTRODUCTION

    Chairman Bingaman, Ranking Member Murkowski, and members of the 
Committee, thank you for the opportunity to testify today on behalf of 
the National Commission on the BP Deepwater Horizon Oil Spill and 
Offshore Drilling.
    The explosion that tore through the Deepwater Horizon drilling rig 
last April 20, as the rig's crew completed drilling the exploratory 
Macondo well deep under the waters of the Gulf of Mexico, began a 
human, economic, and environmental disaster.
    Eleven crew members died, and others were seriously injured, as 
fire engulfed and ultimately destroyed the rig. And, although the 
nation would not know the full scope of the disaster for weeks, the 
first of more than four million barrels of oil began gushing 
uncontrolled into the Gulf--threatening livelihoods, the health of Gulf 
coast residents and of those responding to the spill, precious 
habitats, and even a unique way of life. A treasured American 
landscape, already battered and degraded from years of mismanagement, 
faced yet another blow as the oil spread and washed ashore. Five years 
after Hurricane Katrina, the nation was again transfixed, seemingly 
helpless, as this new tragedy unfolded in the Gulf. The costs from this 
one industrial accident are not yet fully counted, but it is already 
clear that the impacts on the region's natural systems and people were 
enormous, and that economic losses total tens of billions of dollars.
    On May 22, 2010, President Barack Obama announced the creation of 
the National Commission on the BP Deepwater Horizon Oil Spill and 
Offshore Drilling (the ``Commission''): an independent, nonpartisan 
entity, directed to provide thorough analysis and impartial judgment. 
The President charged the Commission to determine the causes of the 
disaster, and to improve the country's ability to respond to spills, 
and to recommend reforms to make offshore energy production safer. And 
the President said we were to follow the facts wherever they led.
    This Commission report (the ``Report''), which we ask be made part 
of the hearing record in its entirety, is the result of an intense six-
month effort to fulfill the President's charge. As a result of our 
investigation, we conclude:

   The explosive loss of the Macondo well could have been 
        prevented.
   The immediate causes of the Macondo well blowout can be 
        traced to a series of identifiable mistakes made by BP, 
        Halliburton, and Transocean that reveal such systematic 
        failures in risk management that they place in doubt the safety 
        culture of the entire industry.
   Deepwater energy exploration and production, particularly at 
        the frontiers of experience, involve risks for which neither 
        industry nor government has been adequately prepared, but for 
        which they can and must be prepared in the future.
   To assure human safety and environmental protection, 
        regulatory oversight of leasing, energy exploration, and 
        production require reforms even beyond those significant 
        reforms already initiated since the Deepwater Horizon disaster. 
        Fundamental reform will be needed in both the structure of 
        those in charge of regulatory oversight and their internal 
        decision-making process to ensure their political autonomy, 
        technical expertise, and their full consideration of 
        environmental protection concerns.
   Because regulatory oversight alone will not be sufficient to 
        ensure adequate safety, the oil and gas industry will need to 
        take its own, unilateral steps to increase dramatically safety 
        throughout the industry, including self-policing mechanisms 
        that supplement governmental enforcement.
   The technology, laws and regulations, and practices for 
        containing, responding to, and cleaning up spills lag behind 
        the real risks associated with deepwater drilling into large, 
        high-pressure reservoirs of oil and gas located far offshore 
        and thousands of feet below the ocean's surface. Government 
        must close the existing gap and industry must support rather 
        than resist that effort.
   Scientific understanding of environmental conditions in 
        sensitive environments in deep Gulf waters, along the region's 
        coastal habitats, and in areas proposed for more drilling, such 
        as the Arctic, is inadequate. The same is true of the human and 
        natural impacts of oil spills.

    We reach these conclusions, and make necessary recommendations, in 
a constructive spirit: we aim to promote changes that will make 
American offshore energy exploration and production far safer, today 
and in the future.

                  II. THE ROOT CAUSES OF THE EXPLOSION

    The Commission examined in great detail what went wrong on the rig 
itself. Our investigative staff uncovered a wealth of specific 
information that greatly enhances our understanding of the factors that 
led to the explosion. The results of that investigation are described 
in detail in Chapter 4 of the Report. The separate report of the chief 
counsel, to be published soon, will offer the fullest account yet of 
what happened on the rig and why. There are recurring themes of missed 
warning signals, failure to share information, and a general lack of 
appreciation for the risks involved. In the view of the Commission, 
these findings highlight the importance of organizational culture and a 
consistent commitment to safety by industry, from the highest 
management levels on down.
    To summarize, the Macondo blowout happened because a number of 
separate risk factors, oversights, and outright mistakes combined to 
overwhelm the safeguards--promised by both government and by private 
industry--to prevent just such an event from happening. But most of the 
mistakes and oversights at Macondo can be traced back to a single 
overarching failure--a failure of management by BP, Halliburton and 
Transocean. Set out below are what Commission investigative staff 
determined were ``key facts.''
    Key Facts.--The investigation team identified several key human 
errors, engineering mistakes and management failures including:

   A flawed design for the cement slurry used to seal the 
        bottom of the well, which was developed without adequate 
        engineering review or operator supervision;
   A ``negative pressure test,'' conducted to evaluate the 
        cement seal at the bottom of the well, identified a cementing 
        failure but was incorrectly judged a success because of 
        insufficiently rigorous test procedures and inadequate training 
        of key personnel;
   Flawed procedures for securing the well that called for 
        unnecessarily removing drilling mud from the wellbore. If left 
        in place, that drilling mud would have helped prevent 
        hydrocarbons from entering the well and causing the blowout;
   Apparent inattention to key initial signals of the impending 
        blowout; and
   An ineffective response to the blowout once it began, 
        including but not limited to a failure of the rig's blowout 
        preventer to close off the well.

    Key Findings.--The ``key facts'' led investigators to make the 
following ``key findings'':

   Errors and misjudgments by at least three companies--BP, 
        Halliburton and Transocean--contributed to the disaster.
   Management failures included:

    --Inadequate training of key personnel.
    --Inadequate management of numerous late-stage well design 
            decisions.
    --Poor communication within and between the companies involved.
    --Inadequate risk evaluation and risk mitigation measures.

   The disaster could have been prevented. Notably, workers on 
        the rig incorrectly interpreted clear warning signs of a 
        hydrocarbon influx during the negative pressure test. If 
        recognized, those warning signs would have allowed them to shut 
        in the well before the blowout began.
   Government regulations did not address several key causes of 
        the blowout, and regulators lacked the resources or technical 
        expertise to address others.
   Whether purposeful or not, many of the risk-enhancing 
        decisions that BP, Halliburton, and Transocean made saved those 
        companies significant time (and money).

    The Commission's investigation concludes that these failures were 
preventable. Errors and misjudgments by at least three companies--BP, 
Halliburton and Transocean--contributed to the disaster. Federal 
regulations did not address many of the key issues. For example, no 
regulation specified basic procedures for the negative pressure test 
used to evaluate the cement seal or minimum criteria for test success. 
The chapter also notes that, ``. . .whether purposeful or not, many of 
the decisions that BP, Halliburton, and Transocean made that increased 
the risk of the Macondo blowout clearly saved those companies 
significant time (and money).''
    Attached to this testimony is a table that sets out decisions that 
increased risk at Macondo, while potentially saving time.*
---------------------------------------------------------------------------
    * All attachments have been retained in committee files.
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           III. REGULATORY OVERSIGHT AND THE NEED FOR REFORM

Regulatory Oversight
    The responsibilities assigned to the Minerals Management Services 
(MMS) in an effort to regulate the offshore oil and gas industry have 
created conflicts of interest and have been subject to pressure from 
political and industry interests. MMS was not only responsible for 
offshore leasing and resource management; it also collected and 
disbursed revenues from offshore leasing, conducted environmental 
reviews, reviewed plans and issued permits, conducted audits and 
inspections, and enforced safety and environmental regulations.
    Over the course of many years, political pressure generated by a 
demand for lease revenues and industry pressure to expand access and 
expedite permit approvals and other regulatory processes often combined 
to push MMS to elevate revenue and permitting goals over safety and 
environmental goals. As a result, the safety of U.S. offshore workers 
has suffered. The United States has the highest reported rate of 
fatalities per hours worked in offshore oil and gas drilling among its 
international peers (the U.K., Norway, Canada, and Australia) but has 
the lowest reporting of injuries. This striking contrast suggests a 
significant under-reporting of injuries in the United States.
    These problems were compounded by an outdated organizational 
structure, a chronic shortage of resources, a lack of sufficient 
technological expertise, and the inherent difficulty of coordinating 
effectively with all of the other government agencies that have had 
statutory responsibility for some aspect of offshore oil and gas 
activities. Besides MMS, the Departments of Transportation, Commerce, 
Defense, and Homeland Security, and the Environmental Protection Agency 
(EPA) were involved in some aspect of the industry and its many-faceted 
facilities and operations, from workers on production platforms to 
pipelines, helicopters, drilling rigs, and supply vessels.

Reorganization Needed
    To remedy this conflict of interest, Congress should create an 
independent agency with enforcement authority to oversee all aspects of 
offshore drilling safety (operational and occupational) as well as the 
structural and operational integrity of all offshore energy production 
facilities, including both oil and gas production and renewable energy 
production. The roles and responsibilities of BOEMRE should be 
separated into three entities with clearly defined statutory 
authorities.

          (1) The Offshore Safety Authority would have primary 
        statutory responsibility for overseeing the structural and 
        operational integrity of all offshore energy-related facilities 
        and activities, including both oil and gas offshore drilling 
        and renewable energy facilities. Congress should enact an 
        organic act to establish its authorities and responsibilities, 
        consolidating the various responsibilities now under the OCSLA, 
        the Pipeline Safety Act, and Coast Guard authorizations. This 
        should include responsibility for all workers in energy related 
        offshore activities.
          (2) The Leasing and Environmental Science Office would be 
        charged with fostering environmentally responsible and 
        efficient development of the Outer Continental Shelf, and would 
        act as the leasing and resource manager for conventional 
        renewable energy and other mineral resources on the OCS. The 
        Office would also be responsible for conducting reviews under 
        the National Environmental Policy Act (NEPA).
          (3) The Office of Natural Resources Revenue would be 
        responsible for revenue collection and auditing.

    Congress should review and consider amending where necessary the 
governing statutes for all agencies involved in offshore activities to 
be consistent with the responsibilities functionally assigned to those 
agencies. The safety-related responsibilities of the new offshore 
safety agency should be included in a separate statute.
    Since the Commission issued its final report on January 11th, 
Secretary of the Interior Ken Salazar has already announced changes in 
the organization within Interior that reflect many of the Commission's 
recommendations. Other Commission recommendations will require 
congressional action, especially those recommendations that seek to 
promote the independence of the Offshore Safety Authority from 
politics. For instance, the Commission recommends that the head of the 
Safety Authority be appointed to a fixed term that cuts across any one 
Presidential Administration, a change that can be accomplished most 
effectively only by statute.

Regulation to Better Manage Risk
    The Commission also recommends a more comprehensive overhaul of 
both the leasing program and the regulatory policies and institutions 
used to oversee the safety and environmental protection of offshore 
activities. The goals must be to reduce and manage risk more 
effectively, using strategies that can keep pace with a technologically 
complex and rapidly evolving industry, particularly in high-risk and 
frontier areas, and to secure the resources needed to execute the 
leasing function and provide adequate regulatory oversight. To 
accomplish these goals the Commission offers the following three 
recommendations:

   The DOI should promulgate prescriptive safety and pollution-
        prevention standards that are developed and selected in 
        consultation with international regulatory peers and that are 
        at least as rigorous as the leasing terms and regulatory 
        requirements of peer oil-producing nations.
   The Department of the Interior (DOI) should develop a 
        proactive, risk-based performance approach specific to 
        individual facilities, operations, and environments, similar to 
        the ``safety case'' approach in the North Sea which requires 
        drilling rigs to be certified and have safety management 
        obligations separate and apart from the operator
   Working with the International Regulators' Forum and other 
        organizations, Congress and the DOI should identify those 
        drilling, production, and emergency-response standards that 
        best protect offshore workers and the environment, and initiate 
        new standards and revisions to fill gaps and correct 
        deficiencies. These standards should be applied throughout the 
        Gulf of Mexico, in the Arctic, and globally wherever the 
        international industry operates. Standards should be updated at 
        least every five years, as under the formal review process of 
        the International Organization for Standardization (ISO). (See 
        below for expansion on the development of international 
        regulations.)

    BOEMRE currently relies heavily on prescriptive regulations 
incorporating a number of industry technical standards. Prescriptive 
regulations must be the basis of an effective regulatory system, but 
given the many variables in deepwater drilling, prescriptive rules can 
never cover all cases. The federal agency responsible for offshore 
activity must have a regulatory approach that integrates more 
sophisticated risk assessment and risk management practices into its 
oversight of energy developers operating offshore. The focus should 
shift from prescriptive regulations covering only the operator to a 
foundation of augmented prescriptive regulations, including those 
relating to well design and integrity, supplemented by a proactive, 
risk-based performance approach that is specific to individual 
facilities (production platforms and drilling rigs), operations, and 
environments. Both the operator and the drilling rig owners would have 
a legal duty to assess and manage the risks of a specific activity by 
engaging all contractors and subcontractors in a coordinated safety 
management system.
    To ensure that Interior has the ability to provide adequate leasing 
capabilities and regulatory oversight for the increasingly complex 
energy-related activities being undertaken on the OCS, budgets for 
these new offices as well as existing agencies should come directly 
from fees paid by the offshore industry, akin to how fees charged to 
the telecommunications industry pay for the expenses of the Federal 
Communications Commission, the Nuclear Regulatory Commission, the 
Office of Pipeline Safety which are essentially fully funded by such 
regulated industry payments. Through this mechanism, Congress, through 
legislation, and DOI, through lease provisions, could expressly oblige 
lessees to fund the regulation necessary to allow for private industry 
access to the energy resources on the OCS, including renewables.

                        IV. ENVIRONMENTAL REVIEW

    As part of its inquiry into the existing regulatory structure for 
offshore drilling, the Commission reviewed existing mechanisms for 
protecting the environment. In its work on this question, the 
Commission focused on two issues: (1) the application of National 
Environmental Policy Act (NEPA) requirements to the offshore leasing 
process and (2) the need for better science and greater interagency 
consultation to improve decision-making related to management of 
offshore resources.

NEPA
    Based on the Commission's review of leasing and permitting 
processes in the Gulf of Mexico before the Deepwater Horizon incident, 
the Commission concluded that the breakdown of the environmental review 
process for OCS activities was systemic and that Interior's historical 
approach to the application of NEPA requirements for offshore oil and 
gas activities needs significant revision. In particular, the 
application of tiering, use of categorical exclusions, the practice of 
area-wide leasing, and failure to develop formal NEPA guidance all 
contributed to this breakdown. The Commission recommends that the 
Council on Environmental Quality and the Department of the Interior 
revise and strengthen the NEPA policies, practices, and procedures to 
improve the level of environmental analysis, transparency, and 
consistency at all stages of the OCS planning, leasing, exploration, 
and development process.

Improved Interagency Consultation and Environmental Science
    Under OCSLA, it is up to the Secretary of the Interior to choose 
the proper balance between environmental protection and resource 
development. In making leasing decisions, the Secretary is required to 
solicit and consider suggestions from any interested agency, but he or 
she is not required to respond to the comments or accord them any 
particular weight. Similar issues arise at the individual lease sale 
stage and at the development and production plan stage. As a result, 
NOAA--the nation's ocean agency with the most expertise in marine 
science and the management of living marine resources--effectively has 
the same limited role as the general public in the decisions on 
selecting where and when to lease portions of the OCS. The Commission 
recommends a more robust and formal interagency consultation process in 
which NOAA, in particular, is provided a heightened role, but ultimate 
decision-making authority is retained at DOI. The Commission further 
recommends the creation of an Office of Environmental Science, led by a 
Chief Environmental Scientist, with specified responsibilities in 
conducting all NEPA reviews, coordinating other environmental reviews, 
and whose expert judgment on environmental protection concerns would be 
accorded significant weight in leasing decision-making.

                 V. REFORMING INDUSTRY SAFETY PRACTICES

Changing Business As Usual
    Without effective government oversight, the offshore oil and gas 
industry will not adequately reduce the risk of accidents, nor prepare 
effectively to respond in emergencies. However, government oversight 
alone cannot reduce those risks to the fullest extent possible. 
Government oversight must be accompanied by the oil and gas industry's 
internal reinvention: sweeping reforms that accomplish no less than a 
fundamental transformation of its safety culture.
    Even the most inherently risky industry can be made much safer, 
given the right incentives and disciplined systems, sustained by 
committed leadership and effective training. The critical common 
element is an unwavering commitment to safety at the top of an 
organization: the CEO and board of directors.

Industry Self-Policing as a Supplement to Government Regulation
    One of the key responsibilities of government is to regulate--to 
direct the behavior of individuals and institutions according to rules. 
Many businesses and business groups are involved in internal standard 
setting, evaluation, and other activities that constitute self-policing 
or self-regulation. But even in industries with strong self-policing, 
government also needs to be strongly present, providing oversight and/
or additional regulatory control--responsibilities that cannot be 
abdicated if public safety, health, and welfare are to be protected.
    Industry-standard setting and self-policing organizations are 
widespread in the United States and in most industrialized nations--
typically for operations marked by technical complexity, such as the 
chemical, nuclear power, civil aviation, and oil and gas industries, 
where government oversight is also present. These processes coexist 
where there are relatively limited numbers of people with the requisite 
expertise and experience, making it hard for government to be able to 
rely solely on its own personnel (especially when government cannot 
compete with private-sector salaries for those experts). Support for 
standard setting and self-policing also arises in industries whose 
reputations depend on the performance of each company, and where 
significant revenues are at stake. However, industry self-policing is 
not a substitute for government but serves as an important supplement 
to government oversight.
    After Three Mile Island, the nuclear power industry established the 
Institute of Nuclear Power Operations (INPO), a nonprofit organization 
with the ambitious mission ``to promote the highest levels of safety 
and reliability--to promote excellence--in the operation of commercial 
nuclear power plants.'' The oil and gas industry, like the nuclear 
power industry, has both the substantial economic resources and the 
necessary economic incentive to make it happen. INPO was formed because 
doing so was in the industry's self-interest. As the Deepwater Horizon 
disaster made unambiguously clear, the entire industry's reputation, 
and perhaps its viability, ultimately turn on its lowest-performing 
members. If any one company is involved in an accident with widespread 
and potentially enormous costs, like those that followed the Macondo 
blowout, everyone in the industry--companies and employees--suffers, as 
do regional economies and the nation as a whole. No one, in industry or 
in government, can afford a repeat of the Macondo explosion and spill.
    Like the nuclear power industry in 1979, the nation's oil and gas 
industry needs now to embrace the potential for an industry safety 
institute to supplement government oversight of industry operations. To 
be credible, any industry-created safety institute would need to have 
complete command of technical expertise available through industry 
sources--and complete freedom from any suggestion that its operations 
are compromised by multiple other interests and agendas. As a 
consensus-based organization, the American Petroleum Institute (API) is 
culturally ill-suited to drive a safety revolution in the industry. For 
this reason, it is essential that the safety enterprise operate apart 
from the API. API's longstanding role as an industry lobbyist and 
policy advocate--with an established record of opposing reform and 
modernization of safety regulations--renders it inappropriate to serve 
a self-policing function.
    The INPO experience makes clear that any successful oil and gas 
industry safety institute would require in the first instance strong 
board-level support from CEOs and boards of directors of companies for 
a rigorous inspection and auditing function. Such audits would need to 
be aimed at assessing companies' safety cultures and encouraging 
learning about implementation of enhanced practices. The inspection and 
auditing function would need to be conducted by safety institute staff, 
complemented by experts seconded from industry companies. There would 
also need to be a commitment to share findings about safety records and 
best practices within the industry, aggregate data, and analyze 
performance trends, shortcomings, and needs for further research and 
development. Accountability could be enhanced by a requirement that 
companies report their audit scores to their boards of directors and 
insurance companies.
    The industry's safety institute could facilitate a smooth 
transition to a regulatory regime based on systems safety engineering 
and improved coordination among operators and contractors--the 
principles of the U.K.'s ``safety case'' that shifts responsibility for 
maintaining safe operations at all times to the operators themselves. 
It should drive continuous improvement in standards and practices by 
incorporating the highest standards achieved globally. The industry 
also needs to benchmark safety and environmental practice rules against 
recognized global best practices. The Safety and Environmental 
Management Program Recommended Practice 75 (API RP 75) developed in 
1993 by the API and incorporated by reference in the Department of the 
Interior's new workplace safety rules, adopted in October 2010, is a 
reasonable starting point.

                      VI. RESPONSE AND CONTAINMENT

    As part of its charge from President Obama, the Commission looked 
at the effectiveness of the response to the spill. There were 
remarkable instances of dedication and heroism by individuals involved 
in the rescue and cleanup. Much was done well--and thanks to a 
combination of good luck and hard work, the worst-case scenarios did 
not all come to pass. But it is impossible to argue that the industry 
or the government was prepared for a disaster of the magnitude of the 
Deepwater Horizon oil spill. Twenty years after the Exxon Valdez spill 
in Alaska, the same blunt response technologies--booms, dispersants, 
and skimmers--were used, to limited effect. On-the-ground shortcomings 
in the joint public-private response to an overwhelming spill like that 
resulting from the blowout of the Macondo well are now evident, and 
demand public and private investment. So do the weaknesses in local, 
state, and federal coordination revealed by the emergency.
    Neither BP nor the federal government was prepared to conduct an 
effective response to a spill of the magnitude and complexity of the 
Deepwater Horizon disaster. Three critical issues or gaps existed in 
the government's response capacity: (1) the failure to plan effectively 
for a large-scale, difficult-to-contain spill in the deepwater 
environment; (2) the difficulty of coordinating with state and local 
government officials to deliver an effective response; and (3) a lack 
of information and understanding concerning the efficacy of specific 
response measures, such as dispersants or berms. Moreover, the 
technology available for cleaning up oil spills had improved only 
incrementally since 1990. The technologies and methods available to cap 
or control a failed well in the extreme conditions thousands of feet 
below the sea were also inadequate. Although BP was able to develop new 
source-control technologies in a compressed timeframe, and the 
government was able to develop an effective oversight structure, the 
containment effort would have benefitted from prior preparation and 
contingency planning.

Improved Oil Spill Response Planning
    The Department of the Interior should create a rigorous, 
transparent, and meaningful oil spill risk analysis and planning 
process for the development and implementation of better oil spill 
response. Several steps are needed for implementation:

   Interior should review and revise its regulations and 
        guidance for industry oil spill response plans. The revised 
        process should ensure that all critical information and spill 
        scenarios are addressed in the plans.
   In addition to Interior, other agencies with relevant 
        scientific and operational expertise should play a role in 
        evaluating spill response plans to verify that operators can 
        conduct the operations detailed in their plans. Specifically, 
        oil spill response plans, including source-control measures, 
        should be subject to interagency review and approval by the 
        Coast Guard, EPA, and NOAA. Other parts of the federal 
        government, such as Department of Energy national laboratories 
        that possess relevant scientific expertise, could be consulted. 
        Plans should also be made available for a public comment period 
        prior to final approval and response plans should be made 
        available to the public following their approval.
   Interior should incorporate the ``worst-case scenario'' 
        calculations from industry oil spill response plans into NEPA 
        documents and other environmental analyses or reviews.

Spills of National Significance
    The Gulf oil spill presented an unprecedented challenge to the 
response capability of both government and industry. Though the 
National Contingency Plan permitted the government to designate the 
spill as one of ``national significance,'' this designation did not 
trigger any procedures other than allowing the government to name a 
National Incident Commander.
    EPA and the Coast Guard should establish distinct plans and 
procedures for responding to a ``Spill of National Significance.'' 
Specifically, EPA should amend or issue new guidance on the National 
Contingency Plan to:

   Increase government oversight of the responsible party, 
        based on the National Contingency Plan's requirement that the 
        government ``direct'' the response where a spill poses a 
        substantial threat to public health or welfare.
   Augment the National Response Team and Regional Response 
        Team structures to establish additional frameworks for 
        providing interagency scientific and policymaking expertise 
        during a spill. Further, EPA, NOAA, and the Coast Guard should 
        develop procedures to facilitate review and input from the 
        scientific community--for example, by encouraging disclosure of 
        underlying methodologies and data.
   Create a communications protocol that accounts for 
        participation by high-level officials who may be less familiar 
        with the National Contingency Plan structure and create a 
        communications center within the National Incident Command--
        separate from the joint information center established in 
        partnership with the responsible party--to help transmit 
        consistent and complete information to the public.

Strengthening State and Local Involvement
    The response to the Deepwater Horizon disaster showed that state 
and local elected officials had not been adequately involved in oil 
spill contingency planning, though career responders in state 
government had participated extensively. Unfamiliarity with, and lack 
of trust in, the federal response manifested itself in competing state 
structures and attempts to control response operations that undercut 
the efficiency of the response overall.
    EPA and the Coast Guard should bolster state and local involvement 
in oil spill contingency planning and training and create a mechanism 
for local involvement in spill planning and response similar to the 
Regional Citizens' Advisory Councils mandated by the Oil Pollution Act 
of 1990.
    In addition, a mechanism should be created for ongoing local 
involvement in spill planning and response in the Gulf. In the Oil 
Pollution Act of 1990, Congress mandated citizens' councils for Prince 
William Sound and Cook Inlet. In the Gulf, such a council should 
broadly represent the citizens' interests in the area, such as fishing 
and tourism, and possibly include representation from oil and gas 
workers as ex-officio, non-voting members.

Research and Development for Improved Response
    The technology available for cleaning up oil spills has improved 
only incrementally since 1990. Federal research and development 
programs in this area are underfunded: In fact, Congress has never 
appropriated even half the full amount authorized by the Oil Pollution 
Act of 1990 for oil spill research and development.
    Specifically, Congress should provide mandatory funding (i.e. 
funding not subject to the annual appropriations process) at a level 
equal to or greater than the amount authorized by the Oil Pollution Act 
of 1990 to increase federal funding for oil spill response research by 
agencies such as Interior, the Coast Guard, EPA, and NOAA. In addition, 
Congress and the Administration should encourage private investment in 
response technology more broadly, including through public-private 
partnerships and a tax credit for research and development in this 
area.

Dispersants
    Prior to the blowout, the federal government had not adequately 
planned for the use of dispersants to address such a large and 
sustained oil spill, and did not have sufficient research on the long-
term effects of dispersants and dispersed oil to guide its decision-
making.
    EPA should update and periodically review its dispersant testing 
protocols for product listing or pre-approval, and modify the pre-
approval process to include temporal duration, spatial reach, and 
volume of the spill. EPA should update its dispersant testing protocols 
and require more comprehensive testing prior to listing or pre-
approving dispersant products. The Coast Guard and EPA should modify 
pre-approvals of dispersant use under the National Contingency Plan to 
establish procedures for further consultation based on the temporal 
duration, spatial reach, or volume of the spill and volume of 
dispersants that responders are seeking to apply. EPA and NOAA should 
conduct and encourage further research on dispersants.

Containment
    The most obvious, immediately consequential, and plainly 
frustrating shortcoming of the oil spill response set in motion by the 
events of April 20, 2010 was the simple inability--of BP, of the 
federal government, or of any other potential intervener--to contain 
the flow of oil from the damaged Macondo well.
    At the time of the blowout on April 20, the U.S. government was 
unprepared to oversee a deepwater source-control effort. Once the 
Secretary of Energy's science team, the U.S. Geological Survey, the 
national laboratories, and other sources of scientific expertise became 
involved, the government was able to substantively supervise BP's 
decision-making, forcing the company to fully consider contingencies 
and justify its chosen path.
    The National Response Team should develop and maintain expertise 
within the Federal government to oversee source-control efforts. The 
National Response Team should create an interagency group--including 
representation from the Department of the Interior, Coast Guard, and 
the Department of Energy and its national laboratories--to develop and 
maintain expertise in source control, potentially through public-
private partnerships.

Industry's Spill Preparedness
    Beyond attempting to close the blowout preventer stack, no proven 
options for rapid source control in deepwater existed when the blowout 
occurred. The Department of the Interior should require offshore 
operators to provide detailed plans for source control as part of their 
oil spill response plans and applications for permits to drill.
    These plans should demonstrate that an operator's containment 
technology is immediately deployable and effective. In applications for 
permits to drill, the Interior should require operators to provide a 
specific source-control analysis for each well. As with oil spill 
response plans, source-control plans should be reviewed and approved by 
agencies with relevant expertise, including the Interior and the Coast 
Guard.

Improved Capability for Accurate Flow Rate Estimates
    Early flow rate estimates were highly variable and difficult to 
determine accurately. However, the understated estimates of the amount 
of oil spilling appear to have impeded planning for and analysis of 
source-control efforts like the cofferdam and especially the top kill.
    The National Response Team should develop and maintain expertise 
within the federal government to obtain accurate estimates of flow rate 
or spill volume early in a source-control effort. The National Response 
Team should create an interagency group--including representation from 
Interior, the Coast Guard, the national laboratories, and NOAA--to 
develop and maintain expertise in estimating flow rates and spill 
volumes. In addition, EPA should amend the National Contingency Plan to 
create a protocol for the government to obtain accurate estimates of 
flow rate or spill volume from the outset of a spill. This protocol 
should require the responsible party to provide all data necessary to 
estimate flow rate or spill volume.

More Robust Well Design and Approval Process
    Among the problems that complicated the Macondo well-containment 
effort was a lack of reliable diagnostic tools and concerns about the 
well's integrity. The Department of the Interior should require 
offshore operators seeking its approval of proposed well design to 
demonstrate that:

   Well components, including blowout preventer stacks, are 
        equipped with sensors or other tools to obtain accurate 
        diagnostic information--for example, regarding pressures and 
        the position of blowout preventer rams.
   Wells are designed to mitigate risks to well integrity 
        during post-blowout containment efforts.

Industry Responsibilities for Containment and Response
    Industry's responsibilities extend to efforts to contain any big 
spills as quickly as possible and to mitigate the harm caused by spills 
through effective response efforts. Both government, which must be 
capable of taking charge of those efforts, and industry were woefully 
unprepared to contain or respond to a deepwater well blowout like that 
at Macondo. All parties lacked adequate contingency planning, and 
neither had invested sufficiently in research, development, and 
demonstration to improve containment or response technology.
    From now on, the oil and gas industry needs to combine its 
commitment to transform its safety culture with adequate resources for 
containment and response. Large-scale rescue, response, and containment 
capabilities need to be developed and demonstrated--including 
equipment, procedures, and logistics--and enabled by extensive 
training, including full-scale field exercises and international 
cooperation.
    To that end, at least two industry spill containment initiatives 
have emerged that build on ideas and equipment that were deployed in 
response to the Macondo blowout and spill. The nonprofit Marine Well 
Containment Company was created in July 2010 by four of the major, 
integrated oil and gas companies. The second spill containment 
initiative is being coordinated by Helix Energy Solutions Group, which 
played a role in the Macondo well containment efforts.
    Yet neither the Marine Well Containment Company's planned 
capabilities nor Helix's go past 10,000 feet despite the fact that 
current drilling technology extends beyond this depth. Also it seems 
that neither is structured to ensure the long-term ability to innovate 
and adapt over time to the next frontiers and technologies. What 
resources, if any, either initiative will dedicate to research and 
development going forward is unclear.
    The primary long-term goal of a spill containment company or 
consortia should be to ensure that an appropriate containment system is 
readily available to contain quickly spills in the Gulf of Mexico with 
the best available technology. Any spill containment company or 
consortia should ensure that it remains focused on this goal, even when 
doing so potentially conflicts with the short-term interests of its 
founding companies, in the case of MWCC, or the parent company, in the 
case of Helix. An independent advisory board, with representatives from 
industry, the federal government, state and local governments, and 
environmental groups could help keep any spill containment initiative 
focused on innovative, adaptive, effective spill response over the long 
term.

                     VII. FINANCIAL RESPONSIBILITY

    Oil spills cause a range of harms, including personal, economic and 
environmental injuries, to individuals and ecosystems. The Oil 
Pollution Act makes the party responsible for a spill liable for 
compensating those who suffered as a result of the spill--through human 
health and property damage, lost profits, and other personal and 
economic injuries--and for restoring injured natural resources. The Act 
also provides an opportunity to make claims for compensation from a 
dedicated Oil Spill Liability Trust Fund. The Oil Pollution Act, 
however, imposes limits on both the amount for which the responsible 
party is liable, and the amount of compensation available through the 
trust fund. In the case of the Deepwater Horizon spill, BP (a 
responsible party) has placed $20 billion in escrow to compensate 
private individuals and businesses through the independent Gulf Coast 
Claims Facility. But if a less well capitalized company had caused the 
spill, neither a multi-billion dollar compensation fund nor the funds 
necessary to restore injured resources, would likely have been 
available.
    Liability for damages from spills from offshore facilities is 
capped under the Oil Pollution Act at $75 million, unless it can be 
shown that the responsible party was guilty of gross negligence or 
willful misconduct, violated a federal safety regulation, or failed to 
report the incident or cooperate with removal activities, in which case 
there is no limit on damages. Claims up to $1 billion for certain 
damages can be made to, and paid out of, the Oil Spill Liability Trust 
Fund, which is currently supported by an 8-cent per-barrel tax on 
domestic and imported oil.
    The Oil Pollution Act also requires responsible parties to 
``establish and maintain evidence of financial responsibility,'' 
generally based on a ``worst-case discharge'' estimate. In the case of 
offshore facilities, necessary financial responsibility ranges from $35 
million to $150 million.

Inadequacy of Current System
    There are two main problems with the current liability cap and 
financial responsibility dollar amounts. First, the relatively modest 
liability cap and financial responsibility requirements provide little 
incentive for oil companies to improve safety practices. Second, as 
noted, if an oil company with more limited financial means than BP had 
caused the Deepwater Horizon spill, that company might well have 
declared bankruptcy long before paying fully for all damages. In the 
case of a large spill, the Oil Spill Liability Trust Fund would likely 
not provide sufficient backup. Thus, a significant portion of the 
injuries caused to individuals and natural resources, as well as 
government response costs, could go uncompensated.
    Any discussion of increasing liability caps and financial 
responsibility requirements must balance two competing public policy 
concerns: first, the goal of ensuring that the risk of major spills is 
minimized, and in the event of a spill, victims are fully compensated; 
and second, that increased caps and financial responsibility 
requirements do not drive competent independent oil companies out of 
the market. A realistic policy solution also requires an understanding 
of the host of complex economic impacts that could result from 
increases to liability caps and financial responsibility requirements.

Options for Reform
    As this Committee and others in Congress consider options for 
addressing these problems, the Commission recommends that first, 
Congress significantly increase the liability cap and financial 
responsibility requirements for offshore facilities. To address both 
the incentive and compensation concerns noted above, Congress should 
significantly raise the liability cap. Financial responsibility limits 
should also be increased, because if an oil company does not have 
adequate resources to pay for a spill, the application of increased 
liability has little effect. Should a company go bankrupt before fully 
compensating for a spill, its liability is effectively capped. If, 
however, the level of liability imposed and the level of financial 
responsibility required are set to levels that bear some relationship 
to potential damages, firms will have greater incentives to maximize 
prevention and minimize potential risk of oil spills and also have the 
financial means to ensure that victims of spills do not go 
uncompensated.
    Second, the Commission recommends that Congress increase the limit 
on per-incident payouts from the Oil Spill Liability Trust Fund. If 
liability and financial responsibility limits are not set at a level 
that will ensure payment of all damages for spills, then another source 
of funding will be required to ensure full compensation. The federal 
government could cover additional compensation costs, but this approach 
requires the taxpayer to foot the bill. Therefore, Congress should 
raise the Oil Spill Liability Trust Fund per-incident limit. Raising 
the Oil Spill Liability Trust Fund's per-incident limit will require 
the Fund to grow through an increase of the per-barrel tax on domestic 
and imported oil production. An alternative would be to increase the 
Trust Fund through a surcharge by mandatory provisions in drilling 
leases triggered in the event that there are inadequate sums available 
in the Fund.
    Third, the Commission recommends that the Department of the 
Interior enhance auditing and evaluation of the risk of offshore 
drilling activities by individual participants (operator, driller, 
other service companies). The Department of the Interior, insurance 
underwriters, or other independent entities should evaluate and monitor 
the risk of offshore drilling activities to promote enhanced risk 
management in offshore operations and to discourage unqualified 
companies from remaining in the market.
    The Interior Department currently determines financial 
responsibility levels based on potential worst-case discharges, as 
required by the Oil Pollution Act. Although the agency's analysis to 
some degree accounts for the risk associated with individual drilling 
activities, it does not fully account for the range of factors that 
could affect the cost of a spill, and thus the level of financial 
responsibility that should be required. Interior should analyze a host 
of specific, risk-related criteria when determining financial 
responsibility limits applicable to a particular company, including, 
but not limited to: geological and environmental considerations, the 
applicant's experience and expertise, and applicable risk management 
plans. This increased scrutiny would provide an additional guard 
against unqualified companies entering the offshore drilling market.

                VIII. SPILL IMPACTS AND GULF RESTORATION

    Even before the highly visible damages caused by the spill became 
clear, many crucial Gulf economic and ecological resources--fisheries, 
transportation, tourism--faced long-term threats. First, more than 
2,300 square miles of coastal wetlands--an area larger than the State 
of Delaware--have been lost to the Gulf since the United States raised 
the massive levees along the lower Mississippi River after the 
devastating Great Flood of 1927. Exceptionally powerful hurricanes, 
always a threat to the region, struck the coast in 2005 (Katrina and 
Rita) and 2008 (Gustav and Ike), causing even more wetland loss. 
Second, low-oxygen bottom waters were in the process of forming a 
massive ``dead zone'' extending up to 7,700 square miles during the 
summer of 2010. Referred to as hypoxia, this phenomenon has intensified 
and expanded since the early 1970s as a result of nutrient pollution, 
mainly from Midwestern agriculture. And finally, the Deepwater Horizon 
disaster made matters worse: 11 rig workers killed in the explosion and 
17 injured; many thousands of people exposed to contaminated waters, 
coasts, beaches, and seafood; thousands out of work; birds and sea 
animals killed and significant habitats damaged or destroyed. The 
Commission's investigation made plain that existing authorities are not 
adequate to redress these significant harms and ensure restoration of 
the Gulf.

Human Health Impacts
    The National Contingency Plan overlooks the need to respond to 
widespread concerns about human health impacts. For smaller oil spills, 
the response effort is generally carried out by trained oil spill 
response technicians, but given the scale of the response to the 
Deepwater Horizon spill and the need to enlist thousands of previously 
untrained individuals to clean the waters and coastline, many response 
workers were not screened for pre-existing conditions. This lack of 
basic medical information, which could have been collected if a short 
medical questionnaire had been distributed, limits the ability to draw 
accurate conclusions regarding long-term physical health impacts. EPA 
should amend the National Contingency Plan to add distinct procedures 
to address human health impacts during a Spill of National 
Significance. Spills of this magnitude necessarily require a 
significant clean-up effort, potentially exposing workers to toxic 
compounds in oil and dispersants.

Consumer Confidence
    Images of spewing oil and oiled beaches in newspapers and on 
television set the stage for public concern regarding the safety of 
Gulf seafood. Additional factors contributed to the lingering 
impression that the public could not trust government assurances that 
the seafood was safe: the unprecedented volumes of dispersants used, 
confusion over the flow rate and fate of the oil, frustration about the 
government's relationship with BP in spill cleanup, and lawsuits filed 
by fishermen contesting the government's assurance of seafood safety. 
The economic blow to the Gulf region associated with this loss of 
consumer confidence is sizable. BP gave Louisiana and Florida $68 
million for seafood testing and marketing, as well as money to assess 
impacts on tourism and fund promotional activities. As of early 
December 2010, BP was considering a similar request from Alabama.
    In future spills, however, there is no guarantee that a responsible 
party will have the means or the inclination to compensate such losses. 
Such indirect financial harms are currently not compensable under the 
Oil Pollution Act. Nevertheless, losses in consumer confidence are real 
and Congress, federal agencies, and responsible parties should consider 
ways to restore consumer confidence in the aftermath of a Spill of 
National Significance.
    The Commission recommends that Congress, federal agencies, and 
responsible parties take steps to restore consumer confidence in the 
aftermath of a Spill of National Significance.

             LACK OF SUSTAINED FUNDING FOR GULF RESTORATION

    A lack of sustained and predictable funding, together with failed 
project coordination and long-term planning, has resulted in incomplete 
and often ineffective efforts to restore the Gulf's natural 
environment. No funding source currently exists to support regional 
restoration efforts. While cost estimates of Gulf restoration vary 
widely, according to testimony before the Commission, fully restoring 
the Gulf will require $15 billion-$20 billion, or a minimum of $500 
million per year, over 30 years. A number of different sources 
currently provide funding to individual states for restoration, however 
none of these sources provides funds for Gulf-wide coastal and marine 
restoration, and none is sufficient to support the sustained effort 
required. Most policymakers agree that without a reliable source of 
long-term funding, it will be impossible to achieve restoration in the 
Gulf.
    Several Gulf States and the federal government have filed or are 
expected to file suit against BP and other companies involved in the 
spill, which will likely create opportunities to direct new restoration 
funds to the region. In some cases, congressional action will be 
required to ensure that funds are directed to this purpose. The 
Commission recommends that 80 percent of any Clean Water Act penalties 
and fines be directed to Gulf restoration. Should such penalties and 
fines not be directed to the Gulf, Congress should consider other 
mechanisms for a dedicated funding stream not subject to annual 
appropriations. Although such mechanisms face hurdles, the fact remains 
that resources are needed if progress on coastal restoration is to 
continue. Inaction is a prescription for further degradation. Should 
CWA penalties not be redirected to Gulf restoration, Congress should 
consider other mechanisms for a dedicated funding stream not subject to 
annual appropriations.

Decision-making Body for Expediting Work
    In order for funding to be most efficiently directed at long-term 
restoration, a decision-making body is needed that has authority to set 
binding priorities and criteria for project funding. The Gulf Coast 
Ecosystem Restoration Task Force is now in place, as recommended by the 
September 2010 report on restoration from Secretary of the Navy Ray 
Mabus to the President, and subsequently established by Presidential 
Executive Order. According to the Executive Order, the job of the Task 
Force is to begin coordinating the different restoration projects being 
undertaken by various jurisdictions in the Gulf, coordinating related 
science activities and engaging stakeholders. However, as many in 
Congress and the Administration have suggested, the Task Force lacks 
some features necessary to effectively direct long-term restoration 
efforts in the Gulf--most importantly the ability to set binding goals 
and priorities.
    The Commission recommends that Congress establish a joint state-
federal Gulf Coast Ecosystem Restoration Council. The Council should 
implement a restoration strategy for the region that is compatible with 
existing state restoration goals. Experience in major restoration 
endeavors, including those in the Gulf, has shown that, absent binding 
goals to drive the process, restoration projects are insufficiently 
funded, focused, or coordinated. Therefore, the restoration strategy 
should set short-and long-term goals with binding criteria for 
selecting projects for funding. Key criteria should include national 
significance; contribution to achieving ecosystem resilience; and the 
extent to which national policies--such as those related to flood 
control, oil and gas development, agriculture, and navigation--directly 
contributed to the environmental problem. Congress should also ensure 
that the priorities and decisions of the Council are informed by input 
from a Citizens Advisory Council that represents diverse stakeholders.

Restoration Rooted in Science
    Finally, but essentially, restoration decisions must be rooted in 
science. An approach that draws heavily on information and advice from 
scientists will result in project selection and funding allocations 
that are more likely to lead to an effective region-wide restoration 
strategy. Such an approach will also advance transparency in decision-
making and enhance credibility with the public.
    The Commission accordingly recommends the establishment of a Gulf 
Coast Ecosystem Restoration Science and Technology Program that would 
address these issues in three ways: (1) by creating a scientific 
research and analysis program, supported by the restoration fund, that 
is designed to support the design of scientifically sound restoration 
projects; (2) by creating a science panel to evaluate individual 
projects for technical effectiveness and consistency with the 
comprehensive strategy; and (3) by supporting adaptive management plans 
based on monitoring of outcomes scaled both to the strategy itself and 
to the individual projects or categories of projects included in it.

Managing Ocean Resources
    The Commission recommends that as a part of management and 
restoration efforts in the marine environment, greater attention should 
be given to new tools for managing ocean resources, including 
monitoring systems and spatial planning. Marine scientists have emerged 
from the Deepwater Horizon incident with more precise questions to 
investigate, as well as a better sense of monitoring needs in the Gulf 
of Mexico, which because of its multiple uses and economic value should 
be a national priority. To that end, the National Ocean Council, which 
the President initiated in July 2010, should work with the responsible 
federal agencies, industry and the scientific community to expand the 
Gulf of Mexico Integrated Ocean Observing System, including the 
installation and maintenance of an in situ network of instruments 
deployed on selected production platforms. Participation in this system 
by industry should be regarded as a reasonable part of doing business 
in nation's waters.
    Coastal and marine spatial planning has the potential to improve 
overall efficiency and reduce conflicts among ocean users. Congress 
should fund grants for the development of regional planning bodies at 
the amount requested by the President in the fiscal year 2011 budget 
submitted to Congress. Ocean management should also include more 
strategically sited Marine Protected Areas, including but not limited 
to National Marine Sanctuaries, which can be used as ``mitigation 
banks'' to help offset harm to the marine environment. Given the 
economic and cultural importance of fishing in the Gulf region--and the 
importance of Gulf seafood to the rest of the country--scientifically 
valid measures, such as catch share programs, should be adopted to 
prevent overfishing and ensure the continuity of robust fisheries.

                  IX. THE FUTURE OF OFFSHORE DRILLING

    The central lesson to be drawn from the catastrophe is that no less 
than an overhauling of both current industry practices and government 
oversight is now required. The changes necessary will be transformative 
in their depth and breadth, requiring an unbending commitment to safety 
by government and industry to displace a culture of complacency. 
Drilling in deepwater, however, does not have to be abandoned. It can 
be done safely. That is one of the central messages of the Commission's 
final report. The Commission's recommendations are intended to do for 
the offshore oil and gas industry what new policies and practices have 
done for other high risk industries after their disasters. The 
Commission believes that the potential for such a transformation to 
ensure productive, safe, and responsible offshore drilling is 
significant, and provides reason for optimism even in the wake of a 
disaster.
    The significance of the Deepwater Horizon disaster, however, is 
broader than just its relevance to the future of offshore drilling. The 
disaster signals the need to consider the broader context of the 
nation's patterns of energy production and use, now and in the future--
the elements of America's energy policy. The explosion at the Macondo 
well and the ensuing enormous spill--particularly jarring events 
because of the belief they could never happen--force a reexamination of 
many widely held assumptions about how to reconcile the risks and 
benefits of offshore drilling, and a candid reassessment of the 
nation's policies for the development of a valuable resource. They also 
support a broader reexamination of the nation's overall energy policy.
    Important decisions about whether, when, where, and how to engage 
in offshore drilling should be made in the context of a national energy 
policy that is shaped by economic, security, pace of technology, 
safety, and environmental concerns. Offshore drilling will certainly be 
an important part of any such policy, but its relative importance today 
will not, and should not, be the same a half-century from now. The 
nation must begin a transition to a cleaner, more energy-efficient 
future. Otherwise, its security and well-being will be increasingly 
dependent on diminishing supplies of nonrenewable resources and on 
supplies from foreign sources.
    Drilling for oil in the Gulf of Mexico, however, is not solely a 
matter for U.S. consideration. Both Mexico and Cuba have expressed 
interest in deepwater drilling in the Gulf in the near future. 
Potential sites are close enough to the United States--Cuba's mainland 
lies only 90 miles from Florida's coast and the contemplated wells only 
50 miles--that if an accident like the Deepwater Horizon spill occurs, 
fisheries, coastal tourism, and other valuable U.S. natural resources 
could be put at great risk. It is in our country's national interest to 
negotiate now with these neighbors to agree on a common, rigorous set 
of standards, a system for regulatory oversight, and operator adherence 
to an effective safety culture, along with protocols to cooperate on 
containment and response strategies in case of a spill.

                             FRONTIER AREAS

    Our Commission also examined prospects in so called ``frontier 
areas.'' On December 1, in the wake of the Deepwater Horizon 
experience, Interior Secretary Ken Salazar announced that the 
Administration would not proceed with drilling in areas where there are 
``no active leases'' during the next five-year leasing plan. As a 
result, exploration and production in certain frontier areas--the 
eastern Gulf and off of the Atlantic and Pacific coasts--are deferred. 
The Secretary also indicated that plans for 2011 drilling in Alaska's 
Beaufort Sea would be subjected to additional environmental 
assessments.
    The major interest in offshore Alaska reflects the likelihood of 
finding significant new sources of oil there. The Chukchi and Beaufort 
Sea off Alaska's north coast rank behind only the Gulf of Mexico in 
estimated domestic resources. But finding and producing those 
potentially important supplies of oil offshore Arctic Alaska requires 
the utmost care, given the special challenges for oil spill response 
and containment, and heightened risks associated with this frontier, 
especially its extreme cold, extended seasons of darkness, hurricane-
strength storms, and pervasive fog--all affecting access and working 
conditions--and the extraordinary richness of its ecosystems and the 
subsistence native communities dependent upon their protection. To deal 
with these serious concerns about Arctic oil spill response, 
containment and the heightened environmental stakes the Commission 
recommends three approaches before the Department of the Interior makes 
a determination that drilling in a particular area is appropriate. 
First, the Department should ensure that the containment and response 
plans proposed by industry are adequate for each stage of development 
and that the underlying financial and technical capabilities have been 
satisfactorily demonstrated in the Arctic. Second, the Coast Guard and 
the oil companies operating in the Arctic should carefully delineate 
their respective responsibilities in the event of an accident--
including search and rescue--and then must build and deploy the 
necessary capabilities. Third, Congress should provide the resources to 
establish Coast Guard capabilities in the Arctic, based on the Guard's 
review of gaps in its capacity.
    The Arctic is shared by multiple countries, many of which are 
considering or conducting oil and gas exploration and development. The 
extreme weather conditions and infrastructure difficulties are not 
unique to the U.S. Arctic. Damages caused by an oil spill in one part 
of the Arctic may not be limited to the waters of the country where it 
occurred. As a result, the Commission recommends that strong 
international standards related to Arctic oil and gas activities be 
established among all the countries of the Arctic. Such standards would 
require cooperation and coordination of policies and resources.
    Bringing the potentially large oil resources of the Arctic outer 
continental shelf into production safely will require an especially 
delicate balancing of economic, human, environmental, and technological 
factors. Both industry and government will have to demonstrate 
standards and a level of performance higher than they have ever 
achieved before.
    Creating and implementing a national energy policy will require 
enormous political effort and leadership--but it would do much to 
direct the nation toward a sounder economy and a safer and more 
sustainable environment in the decades to come. Given Americans' 
consumption of oil, finding and producing additional domestic supplies 
will be required in coming years, no matter what sensible and effective 
efforts are made to reduce demand--in response to economic, trade, and 
security considerations, and the rising challenge of climate change.
    Last June, this committee reported a bill that would reform the 
regulation of offshore drilling. The Outer Continental Shelf Reform Act 
of 2010, if passed, would effect notable changes, many of which are in 
line with the Commission's recommendations. The Committee proposed to 
divide MMS into distinct bureaus with focused missions. The Commission 
expanded on that by recommending a clear distinction between the land 
management responsibilities of planning and leasing on one hand and the 
safety oversight and enforcement roles on the other. The Department of 
the Interior has just initiated the next phase of the reorganization of 
the former MMS to achieve that clarity of purpose critical to 
eliminating conflicts of interest. We applaud the detail of the 
Secretary's plan for reorganization. While the legislation and actions 
taken by Interior represent significant reforms, the Commission 
believes it is important to go a step further. The Commission 
recommends that Congress pass an organic act to establish the new 
Bureau of Safety and Environmental Enforcement as a wholly independent 
agency housed at Interior, with a Director appointed by the President 
for a five or six year term. That authority is essential to ensure the 
right institutional independence to protect the welfare of offshore 
workers and the environment. Reorganization without statutory 
clarification might be undone for the sake of efficiency once the 
memory of the Deepwater Horizon has dimmed. That should not be allowed 
to happen.
    The Commission recommendations go a step further than the Committee 
bill, in that we believe the budget for a competent safety regulator 
must be guaranteed with funding from an assessment on the regulated 
industry. This step is essential if we want to ensure that those 
responsible for protecting In addition, the agencies charged with 
regulating drilling must be adequately funded to ensure that they can 
perform their duties, expedite permits and reviews as needed, and hire 
experienced engineers, inspectors, and scientists.
    The Commission will provide, within one week after this hearing, a 
more detailed side-by-side comparison of the Committee bill and the 
Commission's recommendations.
    The extent to which offshore drilling contributes to augmenting 
that domestic supply depends on rebuilding public faith in existing 
offshore energy exploration and production. We have proposed a series 
of recommendations that will enable the country and the oil and gas 
industry to move forward on this one critical element of U.S. energy 
policy: continuing, safe, responsible offshore oil drilling to meet our 
nation's energy demands over the next decade and beyond. Our message is 
clear: both government and industry must make dramatic changes to 
establish the high level of safety in drilling operations on the outer 
continental shelf that the American public has the right to expect and 
to demand. It is now incumbent upon the Congress, the executive branch, 
and the oil and gas industry to take the necessary steps.

    The Chairman. Thank you very much. Your full statement will 
be part of the record as will Mr. Reilly's. Why don't you go 
ahead with your presentation?

 STATEMENT OF WILLIAM K. REILLY, CO-CHAIR, NATIONAL COMMISSION 
 ON THE BP DEEPWATER HORIZON OIL SPILL AND OFFSHORE DRILLING, 
                       SAN FRANCISCO, CA

    Mr. Reilly. Thank you, Mr. Chairman. Senator Murkowski, 
members of the committee, it is an honor and a privilege for us 
to appear before this committee now as it has been to serve on 
this Commission. We have, as Senator Graham described, spent 
the last 6 months developing these recommendations. I think 
what we have to report to the President and to you and to the 
country is fundamentally a positive, a hopeful and even an 
optimistic report.
    We vitally need the resources of offshore oil and gas. 
That's where the future lies in this industry. It's a major 
contributor to our supplies. It will become a significantly 
more important contributor in the future.
    The country's confidence however, in our ability to access 
those hydrocarbons safely, responsibly with protection for the 
environment has been shattered. That is a matter of concern for 
government and it certainly is a matter of concern for 
industry. We need the resource. Our economy, our mobility, our 
way of life requires it.
    This Commission concludes that we can access it safely and 
responsibly. We know how. We recommend in the report the 
measures, the institutional changes, actually quite modest 
ones, particularly with respect to the amount of new money that 
we think is necessary. But we absolutely must take some of 
these steps because when one looks at the history of government 
oversight of this enterprise, and of industry's own having 
fallen into a sense of complacency about safety, the history. 
The record is not pretty.
    We conclude that industry--that government first, through 
several Administrations has allowed revenues which were one 
major priority that it was expected to produce and to oversee 
to drive concerns for safety and environment. There are many 
reasons for this.
    One of them has to do simply with budgeting. The budget for 
the agency has gone down in the last 20 years while oil and gas 
development offshore has tripled. The agency does not have 
adequate resources to continue to do what the country asks it 
to do. It is not sufficiently trained, professional, nor are 
its people compensated. That is a fundamental reality.
    Also because of the combination of its responsibility to 
generate revenue with one hand and also to regulate and protect 
with the other it has been conflicted. We believe that a 
fundamental reform needed and this is a cost free reform, is to 
create a wall of separation between the revenue generation that 
will occur at the Interior Department as a consequence for 
leasing. Revenues, that by the way are very substantial and 
which are second only to the Internal Revenue Service in total 
Federal receipts on the one hand and safety and regulation on 
the other.
    Secretary Salazar has moved in this direction. We applaud 
those moves. We do not think they are sufficient.
    We believe that in order to create a sustainable entity 
with integrity, free from political interference and from the 
concerns of revenue generation, a distinct entity must be 
created, a safety institute within the Interior Department to 
regulate for safety and environment. It should have access to 
all of the resources of the government, of the Department. But 
have an independent director, much like the FBI Director 
appointed for a term of years and immune to political 
interference.
    We have used the terms complacency and systemic which have 
drawn the lightning. They have been heavily criticized and 
particularly by leaders in the industry. I understand why. 
Because many companies have extremely impressive systems for 
safety and environmental management, our Commission spent many 
hours in the presence of at least three of those companies and 
our senior technology and science advisor, Richard Sears, 
claimed 33 years of experience in offshore oil and gas 
development.
    We respect those systems. We understand how good they are. 
However, at the conclusion of their presentations I found 
myself asking, well with all that you are doing, and I couldn't 
think nor could our Commission staff have anything more to ask 
them to do in many cases. Your rigs were nevertheless shut down 
in the Gulf.
    Not only that, your response plans were concerned to 
protect walruses, your fatality rate is five times what it is 
in the North Sea which is a much more punishing environment and 
as I was told in the very first week of my appointment by the 
CEO of BP, Tony Hayward, we have no adequate subsea containment 
capability or technology. What I have heard so many industry 
people say is well, no one thought this could happen. I think 
that is another way of saying well we were complacent.
    The government was complacent. Industry was complacent. I 
personally have some history in the oil and gas industry. I 
didn't think it could happen.
    In order to address the industry part of this issue and to 
recognize that however fast we undertake reforms within the 
Interior Department to build up that Department and make it the 
match for the people that it's regulating. Its inspectors 
better trained in understanding the technologies and able to 
oversee them. Industry itself has got to establish a safety 
institute.
    Other high risk industries have done this. The chemical 
industry after Bhopal established Responsible Care. The nuclear 
industry after Three Mile Island established the Institute for 
Nuclear Power Operations.
    These enterprises are designed to raise the standard of 
everybody so that even the best companies, in fact especially 
the best companies have an interest in making them work. There 
were many people in industry who were fully aware of BP's 
challenged history with respect to safety. They had no way of 
doing anything about it.
    With a safety institute, much like INPO for the nuclear 
industry they would be able to have best practices designed, do 
evaluations, do audits, third party audits, and then give 
grades.
    Draw to the attention of the CEOs of the lagging companies 
their failings and ask if they do what the nuclear power 
corporations group does, actually call them out.
    Ask them publicly to explain or at least within the 
industry to explain why they are getting a low grade and what 
they propose to do about it.
    We also conclude in the report that we need to recognize 
the international dimensions of the problem. If you look at a 
map of the Gulf of Mexico a very large part of it is not 
subject to the sovereign jurisdiction of the United States. We 
now know that Mexico intends within the next 2 years, as does 
Cuba, to go into offshore oil and gas development.
    We require with respect to the Gulf, in my view, in our 
view, an agreement among the three countries about best 
practices and the kinds of standards that will govern 
everyone's operations. We need the same thing in the Arctic. 
We've already seen Denmark move ahead and Greenland last summer 
with two new wells.
    Russia has just overseen an agreement between Rosneft and 
BP to develop the Arctic and its waters. Canada will no doubt 
move ahead. There's every reason for us to engage as a matter 
of foreign policy these countries in ensuring that the Arctic 
is subject to a common high standard of environmental 
protection and safety.
    Oil and gas is one important industry in the Gulf. 
Fisheries and tourism also matter. We need to manage them in a 
way that each is compatible with the other.
    We can do that. It is very vitally important in our view to 
inject more science in the decisionmaking affecting areas that 
are determined to be eligible for leasing. Then in the way that 
development and permitting is allowed to go forward.
    I would conclude by saying that other countries, most 
notably the United Kingdom and Norway, have responded to 
catastrophes of their own in the offshore environment by 
improving their standards. Norway and the UK both created 
something called The Safety Case. It is something that 
militates against a check the box mentality with respect to 
regulation.
    It says present to the regulator an analysis of a 
particular problem, a particular formation with its pressures 
and its challenges, whatever they may be. Explain how you, the 
company that's going to be the operator responsible for 
developing it, how you propose to address those risks, how you 
propose to guard against a problem.
    That has worked effectively in those 2 countries in the 
eyes both of industry and of the international regulators. We 
need to do something like that in our own environment. If we do 
I think it will begin to restore the confidence of the country 
in this industry and get us on with the job that we all 
consider so important.
    So in a very real sense for Senator Graham and myself and 
for the members of the Commission, we've done what we can do. 
We're delighted to have the attention and the concern expressed 
by so many of you. But in a very real sense now it's over to 
you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much. We'll go with 5 minute 
round of questions. Let me start out.
    Let me ask first about the statistic that you, Mr. Reilly, 
gave us here about the United States having the highest 
reported rate of fatalities. You mention, I think, 5 times the 
fatalities that have been experienced in the North Sea. Are 
there some regulatory requirements that are imposed in these 
other countries, in the United Kingdom, in Norway, that you 
believe we have failed to impose?
    Is that the explanation? Is it these entities that you've 
referenced that have been established? What explains that 
difference in the rate of fatalities?
    Mr. Reilly. My sense of this is that there are two or three 
elements that play a key role.
    One is there is a very close relationship between the 
regulatory enterprises and those who they are regulating with 
careful, steady, monitoring of activities and a deep analysis 
of what is proposed by an industry with respect to development. 
That is The Safety Case that I mentioned.
    The second is that the unions are more powerful. There is 
probably a more immediate give and take with respect to safety 
rules on the part of people who are looking after those on the 
rigs, especially for the high risk businesses of helicopters 
and diving. I think both of those play an important part.
    I guess I would say that a third reason is probably a 
culture that involves much better control over contractors and 
a much more close scrutiny of contractor activities carried out 
on behalf of operators.
    I had a conversation recently with a chairman of one of the 
majors who commented that Norway was the gold standard as far 
as his company was concerned. He said we had our catastrophe 
back in the early 1980s. We learned from it. But the regulation 
is very, they're very practical, very specific, very much a 
give and take and very particular to the well situation that's 
being addressed. That is The Safety Case in a nutshell.
    The Chairman. You also recommend this, that the industry 
establish its own institute to deal with safety and to 
establish safety standards and monitor that safety, as I 
understand it. You make reference to this institute of nuclear 
power operations, INPO, which is--was established after the 
Three Mile Island incident for the nuclear industry. Suggest 
that a similar institute should be established related to oil 
and gas.
    You go on to talk about how, in your view, the current, the 
American Petroleum Institute is not properly equipped or 
designed to perform this function. Could you describe that a 
little bit more and explain how close this analogy is between 
the nuclear industry and the oil and gas industry?
    Mr. Reilly. Let me give my own personal impressions. I 
serve on the board of a company that has two nuclear reactors 
in Comanche Peak in Texas, 2,300 megawatts of nuclear power. I 
have been consistently impressed that the senior management 
after the evaluators have come through from INPO, which they do 
every couple of years, has been extraordinarily respectful of 
the people who are evaluating them, having been an 
administrator of EPA, that was not always my experience with 
the people that we regulated. But it is true for this group.
    The group is focused not on compliance. It's focused on 
best practice. The company that I'm associated with recently 
scored a No. 1.
    The CEO made a remark to me. He said if we do everything 
this year that we did last year we will not get a No. 1 because 
they raised the bar. They raise the standard every year.
    INPO is an independent enterprise totally separate from any 
other aspect of nuclear promotion, for example. That is part of 
its strength. It is exclusively focused on safety. It's about 
400, a staff of 400, a budget of $100 million or so, paid for 
by industry. The fact that it has only one responsibility and 
that responsibility does not include advocacy gives it, I 
think, its special respect and independence.
    Now with respect to the American Petroleum Institute I 
really became aware in the course of the life of this 
Commission of the tremendous technical resources that it 
possesses. It does standards development for industry with its 
task forces. It certifies equipment. It is the gold standard, I 
understand, for equipment worldwide in the oil and gas 
industry.
    But it also advocates. In fact, that was my only previous 
encounter with it when in all the years I had lived in 
Washington. So I think the reality is both for optics and for 
effective, independent operation of something that has a 
distinct and exclusive mission on safety, it has to be a new 
enterprise.
    The Chairman. My time is up.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. Thank you both, 
gentlemen.
    Mr. Reilly, you mention that the use of the term systemic 
sets off its own controversy. Within your report the statement 
is made ``Three major companies failed to apply rigorous 
process safety measures to their drilling operations in the 
Gulf of Mexico, Halliburton and Transocean which service 
drilling operations throughout the Gulf along with BP.'' Then 
you conclude that there's a systemic nature of the offshore 
industry's problem.
    But if you apply the same logic that you have two doctors 
who make some pretty fatal errors with a patient that therefore 
the entire hospital staff is somehow necessarily responsible 
for what could be considered routinely making these fatal 
errors on other patients. Is this a fair assessment of the 
report's conclusion?
    If that is the case, have we just basically been lucky then 
that for the past few decades that a spill of this magnitude 
has not occurred with some other 14,000 wells that are in the 
Gulf of Mexico?
    Mr. Reilly. Senator, I would answer that question with one 
word. Yes.
    I would cite some statistics here on loss of well control 
which are 79 losses of well control between 1996 and 2009, I 
think are the dates. I think you should have those handouts. I 
know you can't read them from here. I can't read them from 
here.
    But those are, in many cases, near misses and lucky 
accidents because they did not result in an explosion, for 
example or in some cases even in a major spill. But they 
involve loss of well control. That is the hydrocarbons. Gas was 
moving.
    Senator Murkowski. Does loss of well control mean a blow 
out?
    Mr. Reilly. No, it doesn't mean a blow out, but it means 
very often a blow outs could happen if it's not managed, if 
it's not corrected for. A loss of well control is not supposed 
to happen in the industry. It is a mistake.
    The notion of systemic and I know this is troublesome to 
the industry and particularly to the companies which have 
worked so hard to make themselves safe. I say systemic, we say 
it's systemic because the presence of the two contractors who 
are implicated along with BP in this accident is global. They 
are operating everywhere for virtually everybody.
    So everybody depends upon the quality of their work. Not 
only that, but in the 1990s and even late 1980s the industry 
began to divest itself of a number of capacities that it had, 
many that had for example independent capacity to monitor and 
to measure and evaluate cement when it was provided. They no 
longer have that most of them now.
    So they take what is given them as BP did in this case. It 
turned out the cement had failed several tests by Halliburton 
itself. Our Commission had the formula that we were given by 
Halliburton tested and it failed nine tests in an independent 
or in a laboratory run by Chevron.
    It's inconceivable to us that Halliburton would only have 
provided faulty cement to BP. Just as it's inconceivable to us 
to Transocean which is the largest rig operator in the world 
would only have failed to see gas rising in the drill pipe on a 
BP rig. It really requires too much imagination, I think, to 
imagine that all of it could have occurred only with respect to 
one company in one place at one time.
    Senator Murkowski. I understand clearly what you are 
saying. Your report also recognizes that you have at least two 
companies that you cite as having exemplary records for 
operating in the OCS. You have a situation where you have 
pinpointed obviously three operators. For those three operators 
the sins are being held against everybody that is operating 
there.
    Again, the word systemic appropriately raises some 
concerns.
    Mr. Reilly. Could I just interject?
    Senator Murkowski. Please go ahead.
    Mr. Reilly. Even if one does not accept that it is a 
systemic problem everybody's exploratory rigs were shut down in 
deep water in the Gulf. That is one reason why I think it is 
the answer to it is very much a systemic answer. I think the 
industry is going to have to take itself, the responsibility 
for having the institute we describe so that those very good 
companies some of whose leaders most strenuously object to the 
term systemic and feel they've been painted with that brush 
have a means in the future of preventing one company from 
implementing them all.
    Senator Graham. If I could just add to what Bill has said. 
You used the example of two doctors in a hospital. One of the 
things that physicians are required to do is to diagnose the 
ill patient before they prescribe what to do about their 
condition. We think we have the same responsibility.
    We could have diagnosed this. One option was that this was 
one rogue company. Therefore the solution was to punish/
sanction that one company.
    That was not our diagnosis. In the area that I spoke of, 
restoration, it was stunning how ill prepared the industry writ 
large was to respond to this incident. This--the capacity to 
respond is an industry wide issue. The investment in the 
research so that we will be constantly improving our capability 
to respond is an industry wide issue.
    So for those reasons we thought the word systemic was 
appropriate, accurately diagnosed the problem. Therefore we 
provided prescriptions on that basis. I don't think they are 
onerous prescriptions. The use of The Safety Case, as is 
currently done in the North Sea, exactly the same companies 
that are operating in the Gulf of Mexico, the major companies 
are operating in the North Sea. So that we're not asking them 
to do something that is--with which they are unfamiliar.
    I think another important thing that's happened in terms of 
the prior safety record is that record was in areas of less 
than 1,000 feet where the industries had decades of experience. 
What's happened since 1900 is the industry had been moving into 
first deep and now what is referred to as ultra deep drilling. 
The risks are exponentially greater as you go into those deeper 
waters. Therefore, the need to have an industry wide, systemic 
approach to how we can do it in the safest possible manner, I 
think, is compelling.
    Senator Murkowski. My time has expired.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman. Thank you Chairman 
Graham and Chairman Reilly. I think your report is full of 
important recommendations.
    The one I want to zero in on is this matter of the 
contractors. Because I think as the committee has looked at 
this issue it's important to really sort out all of the key 
relationships between who actually does the work. So we've got 
BP holding the lease from the Federal Government. Then you've 
got contractors. They own the rigs and they do the drilling.
    The problem has been that the contractors hide behind the 
lease holders and try to shield themselves from liability. So 
what we heard at Chairman Bingaman's hearing earlier is that 
after the event both Halliburton and Transocean rushed to blame 
BP. I actually went to the SEC filings and saw the lengths that 
Transocean goes in order to absolve themselves of liability.
    My question revolves around what the Senate is now looking 
at, is if all you do is lift the liability limits which is 
what's being discussed here in the Energy Committee. We're 
debating it here in the Senate. The contractors and the 
pervasive problems that you all have pointed out aren't going 
to be subject to liability. They've absolved themselves.
    So my question to both of you to begin is should the 
Congress consider some sort of special approach to ensure that 
there's accountability with the contractors.
    For example, the Congress could consider a separate Federal 
certification and bonding requirements for the drilling 
contractors.
    You could say that in deep water, for example, there ought 
to be some specific measures put in place to hold these 
contractors accountable.
    My sense is if you don't do something like that and all you 
do is lift the liability limits we will continue to have this 
finger pointing routine in case after case after case and won't 
have built up the kind of tier of safety protection that the 
public deserves. I'd be interested in either of your comments.
    Mr. Reilly. My own sense of that and I discussed that with 
the Chairman of one of the major companies, who said a good 
operator is in charge of everything that happens and extremely 
rigorous with respect to policing contractors. To fix liability 
on those who actually won the lease and have the responsibility 
and write the contracts for their contractors is probably 
better than the alternative of trying to parcel out. 
Particularly given how hugely complex their relationships and 
the number of service contractors are that support one large 
rig, for example.
    I have always been struck by the differential in accident 
rates among contractors in the oil and gas industry verses 
operators. They're typically quite significant. They're not 
significant with respect to every company. But most companies, 
they are.
    Most good operators work very hard to try to make sure that 
the whole stream of support services that they have is managed 
respectively, is managed effectively. I know in the case of the 
nuclear power industry, the INPO evaluations that I mentioned 
go well back into the supply chain to look at those who supply 
the fuel, who transport the fuel, who do the construction and 
so forth. I think that is probably the safer, more reassuring 
way to go rather than to try to get in the middle of contractor 
relations on the part of the operator. You want the operator to 
be on the line for what happens.
    I would expect that one consequence of this might be that 
in the future operators not only will be more rigorously 
observant with respect to their contractors, but also 
contractually will probably try to share more liability.
    Senator Graham. If I could just add----
    Senator Wyden. Chairman Graham, just as you get into it 
there is no question, Chairman Reilly, that would make more 
sense. But when you look at these contracts, that's why I went 
to the SEC filing. That absent the BP, that BP in this case who 
holds the lease being really hardnosed with respect to these 
indemnity, you know, provisions, all bets are off with respect 
to the contractors because I've seen the lengths that the 
contractors are going.
    It's really striking when you see this Transocean. I mean, 
it's clear they saw the ball game as absolving themselves from 
liability. So my first choice would be the BPs of the world 
playing a hardnosed game with the contractors. But I just don't 
see that to date.
    Chairman Graham.
    Senator Graham. I would make a couple of comments.
    One, the most significant accident prior to Macondo 
occurred in Australia. Australia set up a commission of inquiry 
to review that. As I have understand their report they 
basically absolved Halliburton which provided the cement which 
was, as it was in this case, a critical element in allowing 
this explosion to occur.
    Because of this legal focus of attention on the prime 
contract, who in this case I think was a Norwegian company, so 
I would agree with the--Bill's observation. That I think while 
it's not a perfect solution. That of the options placing 
responsibility on the permitee is the best of the options.
    One other thing that I would say this raises, the 
regulators, in our judgment, have not adapted to the new 
realities of the way the industry is operating. Too often they 
continue to see this as vertically integrated industry that it 
may have been in times past. Not only has it become an 
extremely diverse industry in terms of the use of special 
expertise, but it also has not given adequate, give the 
regulators adequate attention to the safety consequences of 
that--in the way in which they go about their operations.
    So I think that's another reason to seriously consider our 
suggestion that we need to substantially enhance the capability 
of the regulator in part because of this greater complexity of 
achieving safe operations.
    Senator Wyden. My time is up, but as you all furnish more 
examples of potential cement problems just makes the case for 
one way or another overhauling this contractual relationship. 
Thank you both.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman. I want 
to welcome our guests. Thank you.
    I appreciated your editorial in today's Politico that you 
wrote called the due diligence for deep water oil drilling both 
of you put in and found it very helpful. We need to remember 
that 11 people lost their lives in this tragedy. The exact 
causes of the accident are still unknown.
    The report states the crew could have prevented the blow 
out or at least significantly reduced its impact if they had 
reacted in a timely and appropriate manner and human error a 
component to this. Clearly there are lessons that need to be 
drawn from this tragedy, ways to promote safety, to reduce 
risk, to improve oil spill response. In my opinion shutting 
down offshore energy exploration would be the wrong lesson to 
take from this. Offshore exploration creates jobs, drives 
economic development.
    The Administration's response of a moratorium seems to be 
at a point where people are making it permanent and others--and 
people in the Gulf region are calling it a permatorium. It has 
basically stopped offshore drilling. Jobs and economic recovery 
have been significantly jeopardized.
    The Department of Energy forecast domestic production is 
going to decrease at least 13 percent in 2011. The gas prices 
are increasing. The nationwide average is now over $3 a gallon.
    I've had concerns throughout and have worked with members 
of this committee on amendments to create a truly bipartisan 
Commission because I've had concerns from the beginning. Mr. 
Reilly, you and I have talked about this in my office, that the 
Commission the President set up was philosophically opposed to 
offshore drilling. One of the members of the Commission heads 
an environmental group that has actively been involved in 
litigation related to the oil spill.
    The--I've been critical that the Commission has lacked 
members with critical, technical expertise in offshore 
drilling. There was no petroleum engineer or rig safety expert. 
That that had an impact on the credibility of the Commission.
    I'd like to focus a little bit on that failed blow out 
preventer. I think people across the country who had never 
heard of a blow out preventer after the tragedy in the Gulf all 
focused on the blow out preventer. They saw news stories around 
the clock. I thought it was a crucial piece of understanding 
the cause of the accident.
    Now the autopsy for the blow out preventer started just on 
November 16. The Associated Press has now reported that the 
testing has been delayed again on the blow out preventer. The 
device was raised from the sea floor on September 4. It then 
sat for 2 months at a NASA facility in New Orleans before 
testing started. The investigating team overseeing the testing 
and this is a report out just earlier this week isn't willing 
to comment.
    Did the Commission run specific tests on the blow out 
preventer?
    Mr. Reilly. No sir, we did not. This issue was obvious from 
the start. In fact I raised it with the President at our first 
meeting that we did not expect to have the blow out preventer 
then up from the water, deep water, much before late August. I 
think that was in fact true.
    So there has been no forensic analysis of the BOP and nor 
did we address that in our own deliberations because of course 
we didn't have access to it.
    Senator Barrasso. So do you think your investigation was 
limited without the results and without even this 
investigation?
    Mr. Reilly. We're pretty confident we figured out what 
happened.
    Senator Barrasso. Human error?
    Mr. Reilly. We know that the BOP did not activate. So 
that's your fundamental fact that is relevant to the situation. 
But with respect to the decisions that were made and the 
consequences they had, we're confident that we go to the bottom 
of this.
    Senator Barrasso. I wanted to go also to a couple places in 
the report and you mentioned it in the editorial as well as 
your comments about Cuba and Mexico in terms of potential 
impacts if there are drilling accidents in those areas. Because 
we know right now that there is a large Russian oil and gas 
production company which has contracted with Cuba that they 
have planning on exploratory wells. They're going to be within 
50 miles of the coast of the United States which if there is a 
problem could affect fisheries, coastal tourism.
    It seems that Cuba has already leased these blocks within 
50 miles of the coast of Florida according to your report with 
plans for seven exploration wells by 2014. You made some 
recommendations here. Do you know if the Administration is 
taking up on that? What we, as your home State of Florida, 
others might not even hear about it in Wyoming, that's the 
concern. What are the impacts of Russians coming in, their 
companies drilling within that close of a distance to the 
United States when our own companies aren't allowed to do so?
    Mr. Reilly. I think they're worrisome. I have met with the 
Mexican regulator, Juan Carlos Zepeda, about Mexico's own 
standards and been reassured that also to learn that Secretary 
Salazar has met with the President of Mexico, President 
Calderon, about some of these issues and has invited us to go 
down with him in March to work with the Mexicans.
    I've also asked Zepeda if Mexico would use its 
relationships with Cuba to become an interlocutor to try to 
ensure that they also respect whatever is decided by the 
Mexicans and by us together. Mexico would very much like to 
have a treaty and we'd like to have it resolved by the end of 
this year. The President has said after that he will have less 
influence as a lame duck President.
    Given Cuba's relationships with Mexico, I would imagine 
that would be taken seriously by them. My understanding is and 
this is really, probably fifth hand, that Cuba is sensitive to 
what they have learned and what we have learned with respect to 
the problems that we've had in deep water and interested itself 
in ensuring that it doesn't happen to them.
    Senator Barrasso. Thank you. Thank you very much, Mr. 
Chairman. My time's expired.
    The Chairman. Thank you.
    Senator Udall.
    Senator Udall. Thank you, Mr. Chairman.
    Good morning to both of you. Thank you for your hard work 
and in particular I want to thank your staff and make the 
comment that this document is wide ranging. It's readable. 
Concrete recommendations. It won't just sit on a shelf, I can 
assure you.
    I did also want to comment. Senator Barrasso, I thought 
made an important suggestion to the committee last year. It's 
unfortunate in a sense that we didn't get our wide ranging 
energy bill out of the committee and that your idea could have 
been implemented. I'm not sure, Senator, how we complement and 
in some cases critique what's in here, but I'd be more than 
happy to work with you as we move forward.
    I was thinking as well, listening to you, that if we had a 
lot of these protocols in place then we probably wouldn't have 
had to have a moratorium after this spill because although we 
all want no spills in the future and we're going to work 
overtime to make that a reality, there may well be another 
spill. If we have to shut down the entire industry and I know 
Senator Landrieu is here, that's not a good thing. That hurts 
our economy, hurts job creation and the like.
    I did want to ask you about Cuba. But I think you've 
already, you've expressed, I think, some thoughtful ideas 
there. I'm not sure your work is done.
    You may both have to be co-diplomatics there. I know, 
Senator Graham, you've got great working knowledge of our 
relationship or non-relationship with the Cubans. In particular 
given that I think our own companies can't even collaborate 
with the Cuban government. This is a thorny problem but one 
that you've drawn important attention to.
    If I might given, that my home State of Colorado has a lot 
of onshore development and there have been some serious blow 
outs in places like West Virginia and Pennsylvania just last 
year, do you have any thoughts about your recommendations 
applying to onshore oil and gas developments?
    In particular, when you look at safety cultures and safety 
regulations across the board?
    Mr. Reilly. As a commission we did not get into that. But 
in one of the questions that has arisen is would a new safety 
institute established by the oil and gas industry have 
responsibilities that go beyond the offshore environment. Our 
sense is that certainly to begin with it should not.
    The offshore environment presents a distinct set of 
challenges and problems. It's more than enough to occupy a new 
institution for some time. So probably it would be a mistake. 
There are other regulatory bodies that, pipeline safety and so 
forth, chemical response, that do attend to aspects of the 
onshore oil and gas industry.
    So our sense is that for now we would confine it. What we 
say and have confined our recommendations to the offshore 
environment.
    Senator Udall. Senator Graham.
    Senator Graham. I agree with what Bill has said. I would 
underscore one of the differences between offshore and onshore, 
onshore is a combination of drilling on publicly owned lands 
and privately owned lands. So the government has a regulator 
role and a landlord role.
    In the case of the Federal waters in the Gulf of Mexico, 
it's all public land. In my judgment that sets a different set 
of obligations that yes, we're interested in having effective 
regulation, but we ought to also be concerned as the owner of 
the land for its prudent use.
    A use that does not adversely affect our asset.
    A use that is compatible with other users in the Gulf, 
particularly the seafood and the tourism industries.
    So I would agree with that. We've got a lot of work to do 
to deal with the assignment that was given to us which was the 
future of offshore drilling. There could well be some learning 
in that process that might be applicable and eventually applied 
to onshore that was outside of our jurisdiction.
    Senator Udall. Senator, I want to mention I was excited to 
hear you talk about restoring the Gulf's ecosystems. I know I 
don't have to convince Senator Landrieu that that's important. 
Perhaps this tragic incident can create more motivation to put 
some of the resources you mentioned into the Gulf--since we all 
have a stake not only because it's our gas station, but it's 
also where we get the large majority of our seafood. Then the 
tourism industry that's so important to your State is also 
affected.
    My time's expired. But again I wanted to thank you and in 
particular I may want to follow up on the R and D ideas that 
you had.
    Senator Shaheen and I have introduced a combination of 
bills that we hope we can generate support from the Chairman 
and the Ranking Member that would expand the kind of R and D 
that's done both in the Federal realm, but as well in the 
private realm focusing on well head safety. But then also spill 
responses. I know Senator Shaheen probably will want to talk 
about her ideas in that regard.
    Thank you again.
    The Chairman. Senator Landrieu.
    Senator Landrieu. Thank you, Mr. Chairman. I want to thank 
both leaders of this Commission, Senator Graham and Mr. Reilly 
for your contributions to this effort which is an extremely 
important subject for our Nation, for the Gulf Coast and 
particularly for the State of Louisiana that serves as host. 
Primarily Texas and Louisiana serve as hosts along with 
Mississippi and Alabama to some degree, but much less to this 
great industry.
    I want to just say to the members of this committee how 
impressed I am with the intensity that you both put into this 
work. Following it very closely at some points through this 
work you've managed to aggravate the White House and the 
President, who appointed you, the environmental community and 
the industry. So there is some hope that this report has, you 
know, found some sort of balance and----
    Mr. Reilly. Making me feel we better get out of town.
    [Laughter.]
    Senator Landrieu. If we can review it with that in mind.
    Second, one of my colleagues brought up again his, and I 
want to stress this, brought up again his uncomfortable-ness 
with the makeup of the Commission. I want to say again, I was 
very uncomfortable when this Commission started for all the 
reasons that the Senator outlined. But I found through your 
work and reading your reports and testifying before your 
Commission, meeting with your members, listening to what 
other--how other people reacted that you all took a very 
balanced approach.
    One thing that I'm particularly pleased about because I 
don't think people expected this is that this committee made an 
unequivocal or this Commission, comment or statement about the 
importance of the future of this industry. That it's important 
that America have this industry. That we strive to make it the 
best in the world.
    That it's, I didn't hear the word indispensable. I'm not 
sure the word indispensable is written here. But you've 
communicated how important a robust, offshore oil and gas. I 
don't want to put words in your mouth, Mr. Reilly, but could 
you just repeat, you know, just briefly that part of your 
testimony which I think is important as we begin.
    Mr. Reilly. Senator Landrieu I opened with that statement 
today. I think it is an absolutely vital industry. Vital to our 
economy, to our mobility, to our way of life is what I said. It 
seems obvious that irrespective of one's views with respect to 
the transition that we need to carbon free fuels to away from 
fossil fuels. That will be true for many, many years to come 
under any scenario that I have seen that we can imagine.
    I would like to comment a little further, if I might.
    Senator Landrieu. Just 20 seconds because I don't want to 
take up----
    Mr. Reilly. On the credentials of the committee we did have 
resources that were quite considerable. Richard Sears, I 
mentioned his long experience in the industry, the meetings 
that we had, the technical help we had from many sources. But 
it really does strike me in fairness now. This is the product 
of what we did.
    If you have problems with it, specific criticism and I 
haven't heard that from those who've been criticizing the 
makeup of the Commissioners. It seems to me it's time to focus 
on what we proposed----
    Senator Landrieu. We can do and move forward together.
    Mr. Reilly. What we determined were the causes rather than 
our credentials.
    Senator Landrieu. One of the other significant parts of 
this particularly to the people of the Gulf Coast in Louisiana 
is your strong recommendation that 80 percent of the penalty 
dollars be directed to the Gulf Coast. Senator Graham, I'd just 
like to ask you in 30 seconds. What struck you as, you know, 
sort of the most important influential element that went into 
that recommendation?
    I mean what did you see? What did you hear that made you 
really believe that this is the right thing to do because as 
you know that is not current law. We're going to have to change 
a law which I have introduced and will re-introduce to do so.
    Senator Graham. One, the Gulf of Mexico is a major American 
asset.
    No. 2 it has been substantially degraded in recent decades 
in significant part due to Federal decisions and Federal 
actions.
    Third, this tragedy will be compounded if we learn nothing 
about the opportunities that are available to us.
    I believe this is the chance that we may not have again in 
the foreseeable future to make a significant movement toward 
restoring this critical part of our Nation. To allow it to have 
a new birth to perform all of the functions that it has done 
for us not only in the provision of energy but also in the 
provision of important food stocks and a source of regeneration 
for our people.
    Senator Landrieu. One final point. I think that we have to 
be very careful. I know the systemic has been the lightning rod 
here.
    In defense of the industry on this point I'll make just a 
couple of other facts, you know, noted for the record.
    No. 1, I think it's important to say again since 1947 to 
2009 only 175 thousand barrels have been spilled from over 16.5 
billion barrels of oil produced. That's about one-one 
thousandth of a percent spilled verses total production. I 
think that's a pretty good record. If the industry was as 
cavalier and complacent and totally unfocused on safety and 
environmental concerns, I don't think that would be the 
statistic. That is what it is.
    Second, we have to be very careful comparing ourselves to 
Norway. I want, Mr. Chairman, to put this in the record. There 
were 140 million hours worked in the Gulf of Mexico. We're the 
most robust area in the world, as you know.
    More operators.
    More people.
    More rigs.
    More money produced.
    Norway worked only 41 million man hours in the same period 
last year. Australia worked only 15 million. So if our, you 
know, rate of injury to workers is five times higher, we're 
still ahead of the game because this is ten times more man 
hours worked. I think we've got to be very careful because our 
industry is so large.
    I'll conclude with this. We are proud of this industry. We 
know it's essential for America's future. I ask every member of 
this committee, Republican and Democrat, before you vote on 
this final report, you owe it to yourself to come down and see 
this industry in action.
    You can talk to environmental groups. You can talk to 
industry groups. But it is important to get your eyes on what 
we are getting ready to sort of recalibrate and reregulate. 
Thank you.
    Mr. Reilly. Those are quite fair comments, Senator. I 
accept them.
    I would just say that among the industry people I have 
surveyed they are extraordinarily complimentary, particularly 
to the Norwegian system, but to the Norwegian and UK regulatory 
systems. They experience the regulation there and consider that 
it is more practical, more rigorous and ultimately satisfying 
to them. They comply with those rules.
    So I don't want to build too much on the Norwegian 
experience. You're right. It's a much smaller country. Most of 
it is not deep water by the way. But I take your point.
    The Chairman. Senator Cantwell.
    Senator Cantwell. Thank you, Mr. Chairman. Thank you 
gentlemen for your report and for your work on this.
    My questions focus specifically on MMS and their--the 
reforms that we need to have at MMS. The fact that as an agency 
an oversight, the fact that input from other agencies and third 
parties are so important. So I wanted to ask you specifically 
about your recommendation on page 264 which is about NOAA 
providing comments and recommendations concerning specific 
geographic areas that should be excluded from the leasing 
program or treated in a specific manner due to ecological 
sensitivities for reasons relevant to NOAA's ocean and 
coastline and science expertise.
    Now I know Chairman Rockefeller has been very big on this. 
I mean, my colleagues, Senator Boxer has recently introduced 
legislation in regards to protecting our coastal areas. So you 
seem to be very much in favor of making sure that Interior hear 
from NOAA as it relates to science and sensitivity areas of our 
oceans and how to proceed.
    Senator Graham. I would say two of the themes that run 
throughout our report are first, the focus on science that we 
need to bring to bear the best science that within the 
government and outside the government to make these decisions.
    Second is specificity. For a period from the late 1930s up 
until the 1990s most of our offshore oil and gas in the Gulf 
was in fairly well known, predictable areas. Therefore large 
tract leasing made some sense. As we move into deeper, deeper 
waters the circumstances from one site to the next can be quite 
different in terms of the geology, the pressures, the other 
factors that would contribute to the level of riskiness.
    So we want to bring that best science on a more focused 
basis to evaluate specific sites as to their appropriateness, 
the range of risk and the commitment of the ultimate permittee 
to adopt measures that will mitigate those risks on that 
specific site.
    Senator Cantwell. Thank you, Senator Graham. Because I want 
to know that in 2007 NOAA recommended that MMS dramatically 
scale back its planned oil and gas lease sales in the Chukchi 
Sea because of the environmental concerns because obviously if 
some disaster happened there we have far, far less resources or 
ability to reach that area. Basically MMS ignored NOAA's 
recommendations and went forward with the lease sale as 
planned.
    So these are issues that are happening every day. So I 
appreciate the report saying specifically Interior must adopt 
NOAA's recommendations or publish writing for why they're not 
so that we can get to the heart of this issue.
    Second, the Commission's report includes a recommendation 
to have regular third party audits on certification. I look at 
the ABS Certification Societies that provide oversight for part 
of the rigs. To me they could have provided a valued third 
party validation of whether the equipment also functioned as 
advertised. So I appreciate that that is also in your report to 
strengthen the MMS oversight.
    Senator Graham. I think all of those suggestions are 
worthy, but they all reflect the fact that our regulatory 
system has not kept up with the opportunities and the realities 
of the way the industry is currently operating. So maybe one 
of, if not the most recommendation to Congress those--that 
thing which is singularly within its capability--is to provide 
the adequate funding for the restoration and ongoing the 
adequate funding to see that we have a regulatory system that 
allows us to be that prudent landlord in the protection of the 
safety and condition of the Gulf of Mexico.
    Senator Cantwell. But it's hard for an agency like MMS to 
provide that skill or technical expertise within inside the 
agency. But certainly they can have third party contractors who 
oversee that.
    Senator Graham. That's--that difficulty is a substantial 
part of the reason that we think it's important to have this 
safety function be as singular and protected from inappropriate 
external influence as possible.
    Senator Cantwell. Thank you.
    Mr. Reilly. If I could just comment on that, Senator?
    I would draw your attention to this chart, MMS budget in 
Gulf of Mexico crude oil production. That shows that the budget 
of MMS in 1984 was about 250--what's that? Oh, I don't know the 
page number.
    I think you have it.
    Senator Cantwell. In an attachment or?
    Mr. Reilly. Ok. We will cite the page number in a minute.
    Senator Cantwell. Is this the chart?
    Mr. Reilly. Yes, it's that chart.
    Actually I don't think you can see but what it says on the 
gray line which is the budget of MMS went from $250 million to 
under $200 million over that period, 1984 to 2009 while the 
production of oil and gas subject to it in the Gulf of Mexico 
went from 200 to 600 million barrels of oil. So threefold 
increase in the production. Reduction in the budget of the 
agency.
    It's really obvious, it seems to me that we have been 
implicated, all of us, in allowing that budget to remain 
constant and actually to decrease while the challenge to the 
people doing the regulating was so much more significant. I was 
struck in the course of our inquiries to discover that in 
California an inspector is responsible for about 6, as I 
recall, rigs. In the Gulf the number is something like 55.
    This is an agency that is under resourced. Although we 
would all like to be able to focus on those recommendations 
that do not have money attached to them in this current 
budgetary climate, on that one, I don't think there's any way 
to avoid it.
    Senator Cantwell. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman. Thank you both 
very much for all of the work that you and the Commission and 
all of the staff have done to put forward such a helpful 
report.
    As Senator Udall suggested, I want to go back and talk 
about oil spill research and response. That's something that 
Senator Udall, Senator Bingaman and I have been working on 
legislation. I found it stunning at the first hearing this 
committee did after the spill happened where we had 
representatives from BP, Halliburton and Transocean. When I 
asked the question how much money are you spending on oil spill 
research, deep water oil spill research? The answer from each 
of them was, zero.
    So I think this is clearly one place where we've got to 
focus. I was really pleased to see that that's one of the key 
recommendations from the report. I'm also particularly 
interested because at the University of New Hampshire we have a 
coastal response research center. Dr. Nancy Kinner there who 
heads it has been doing some of the leading research in the 
world in this area.
    But as you talk about the private sector institute that you 
would envision would be the way to address some of the leading 
research in this area.
    How do you envision that actually happening?
    Do you see that the industry recognizes this need and is 
willing to respond to that?
    Right now as you know there is sort of a multi layered 
effort that's never been funded within the Federal system to 
try and address oil spill response. How do you see the two of 
those working?
    Could you just talk a little bit more about how we move 
this issue along?
    Mr. Reilly. Our history with respect to response and 
investments is not impressive.
    Senator Shaheen. Right.
    Mr. Reilly. We started----
    Senator Shaheen. Dismal.
    Mr. Reilly. We started after Exxon Valdez to make a 
reasonable try at it and I think it's gone down about 50 
percent in the remaining years as memories of that disaster 
have waned. The establishment on industry initiative of the 
well containment corporation is in my view a very responsible 
and appropriate thing for them to do. The amount of money 
they've committed to it is serious money, a billion dollars 
from four companies and maybe BP is now going to join it and 
make it No. 5.
    The Secretary of the Interior also wants to make research a 
major function of a new industry academic government enterprise 
he wants to create beginning with a FACA Committee Advisory 
Group there. So there's a lot more attention going to it. We 
really do desperately need it though.
    I think the industry will probably respond significantly to 
some aspects of this problem with the Marine Well Containment 
Corporation. But there's some fundamental research needed both 
on skimmer technology which is relatively primitive. Based on 
what I saw in Alaska back in 1989 with the Exxon Valdez, it 
hasn't really evolved much.
    It's probably--it's hard for me to--and there's some who 
say it's not that clear how you would change some of these 
ships. I don't find that really quite believable. The open 
ocean presents a lot of challenges to skimming. That's really 
the basic problem we're dealing with, the wave and wind action.
    The dispersants question needs research. It needs trials. 
We've recommended that in the report. It seems to me that--and 
I've always been suspicious of dispersants as largely cosmetic. 
They do get into the water column and fish can't avoid it and 
the rest.
    In this case we concluded that it was a responsible 
decision by the EPA Administrator to allow it and to allow it 
in that quantity. But what really struck me as anomalous was we 
had the debate about the safety of the dispersant Corexit was 
proposed to be used after the spill.
    Senator Shaheen. Right.
    Mr. Reilly. We've never done any open water experiments at 
all in Arctic waters in open, very cold, very icy waters, to 
find out what in fact happens to hydrocarbons and how the 
dispersants work with them and how fast do they degrade and so 
forth. There's a lot of information that we ought to have at 
the ready before we suddenly in real time are asked to make 
decisions.
    Senator Graham. If I could just add----
    Senator Shaheen. Please.
    Senator Graham. A paragraph to that. It seems to me that 
what we saw after the explosion was crisis research.
    Senator Shaheen. Right.
    Senator Graham. We were struggling to try to answer 
questions because we needed the answers today to respond. What 
we need to be moving to is not only an enhanced quantity and 
quality but also anticipatory research where we can ask what 
are the questions that we might need to answer five or ten or 
more years from now. I believe that the kind of initiative that 
you have advocated would give us that ability to be able to 
look over the horizon and be better prepared the next time we 
have to face a crisis.
    Senator Shaheen. Thank you. My time is up.
    The Chairman. Thank you. Let me just ask one other question 
that occurred to me.
    I believe your recommendation is that the--this 
governmental regulatory agency responsible for safety be funded 
entirely with fees on the regulated industry itself. So that 
it's not subject to the vagaries of Congressional 
appropriations. That's my understanding of what you 
recommended.
    Are you suggesting that this research should also be funded 
in that way or that that should be something that the Congress 
appropriates on an annual basis?
    Senator Graham. I would--my own answer to that question 
would be I think that's part of the industry responsibility. If 
you're going to have effective regulation it needs to be based 
on the best science. The best science is going to require this 
investment in R and D.
    But whether it's done through the industry in a predictable 
and sustainable manner or is done through Congressional 
appropriations, it's important that it be done. If the Congress 
wants to accept that responsibility on its own, then it needs 
to feel an obligation to fulfill that responsibility.
    Mr. Reilly. One challenge that is special to this industry 
is it's enormously dynamic. It's developing very fast. The 
technologies that are used in deep water were not around 25 
years ago.
    One has to be concerned in regulating the industry that the 
regulator stays abreast of the groups being regulated. That has 
not happened. They've fallen behind.
    They've admitted in interviews that we have been privy to 
that they don't understand some of the basic technologies that 
negative pressure test, centralizers and the like. That's got 
to change and research has got to be a part of that. Research 
capability, I would think within the Department of the 
Interior, and research strengthening of NOAA as well.
    I don't see any way around trying to ensure that a very 
fast moving industry simply doesn't get beyond the capacity of 
the people who are exercising oversight.
    The Chairman. Senator Murkowski, do you have additional 
questions?
    Senator Murkowski. Yes, Mr. Chairman. Thank you.
    As we focus on the Gulf of Mexico we can't help but think 
about our future opportunities when it comes to offshore, of 
course that is the Arctic. You have both referenced.
    Clearly we were impacted up North. We had hoped that Shell 
would be able to proceed with a project out in the Beaufort and 
Chukchi. That has been put on hold at least for an additional 
year.
    But the report recommends that the Interior Department 
closely examine each stage of the exploration and the 
development to see if the capabilities do exist for adequate 
risk management in the Arctic before allowing that stage to 
proceed. The question to you and Mr. Reilly would be whether 
this recommendation allows for essentially a two track process 
where you can have a build out of both the Federal Coast Guard, 
search and rescue and the industry response capacity at the 
same time that you have plans for exploration moving forward. 
Presuming again, that you do have the industrial and the Coast 
Guard response capacity that is growing, I guess commensurate, 
with the exploration program.
    Mr. Reilly. We specifically recommend against a moratorium 
in the Arctic. That's black letter language in the report. But 
we recognize that the challenges there are very important.
    It's a very distinctive environment. The kinds of 
regulations that would be effective in the Gulf would probably 
not be so appropriate in the icy conditions of the Arctic. We 
recommend that movement of the Coast Guard facility with a 
search and rescue capability to closer to the area, 
particularly in the Chukchi, that is proposed for leasing that 
Shell has now leased and a number of other recommendations 
relative to the establishment of better baseline science about 
the important species there many of them either threatened or 
endangered.
    The recommendation though, as I would interpret it is very 
much one that acknowledges that many of these recommendations 
will take some time. The baseline science as it is proposed 
would take minimum of 3 years for all four seasons each year. 
The Coast Guard capacity to do search and rescue a little 
closer than 1,000 miles away obviously may take some time. But 
it probably ought to get an early priority.
    In the meantime I think it has to be recognized that the 
industry itself can provide a number of the functions and 
should provide a number of the functions. In fact one of the 
reasons we know what we know about polar bears is $30 million 
of science was spent by Shell. The Shell proposal for 
development there or exploration there is good as I have ever 
seen. I think that's generally acknowledged by most observers 
who have looked at it with their prevention capability and also 
the response planning that they have with a 500 thousand gallon 
tanker standing by and a top hat capability immediately 
accessible and so forth.
    So I think that it's a reasonable proposition to expect 
that the decision that the Secretary has made to permit the 
Beaufort development to go forward this summer or at least to 
do so once a number of environmental studies have been 
complete. Then to anticipate that within another year or so 
drilling would be permitted in the Chukchi. I think those are 
perfectly reasonable and consistent with our Commission's 
report.
    I would draw attention to the fact that some of the 
challenges in the Arctic are less severe than they are in the 
Gulf. The formation in the Chukchi, I understand, is about 
5,000 feet down verses 18,000 feet in the Macondo situation. 
The pressures are one fourth or one third as much. The well--
depth of the sea itself is 140 feet so there's no need for 
robots to do the reparatory work in the case of an accident or 
a need to correct some technology.
    So there are a number of things that militate against 
assuming that it is a wholly impossible challenge that the 
country can't confront. It seems to me if there are the 27 to 
35 billion barrels of recoverable oil that have been estimated 
by USGS there we need to pay very special attention to safety 
and environmental protection. But we also need to recognize 
reality and probably do so in a responsible, careful way.
    Senator Murkowski. I appreciate your statement. I think it 
is important to reinforce the need for additional research 
should not be used as a de facto moratorium on activity in the 
Arctic. If we carry out this effort within specific timeframes 
in order to inform the decisionmaking process. We are all 
ahead.
    My time is up. But I have one quick question if I might 
continue, Mr. Chairman?
    I mentioned in my opening statement that there are some 
four other studies that are either underway or have been 
completed. This committee will be looking to the 
recommendations from the Commission. The question I direct 
toward our panel is how much more do we need in order to make 
an informed decision as we move to make these changes 
structurally, organically in order to ensure that we have the 
best operating industry offshore and both environmentally and 
for the economic future of the country?
    Senator Graham. Just as said the need for additional 
environmental studies in the Arctic should not be used as a de 
facto moratorium. I would suggest similar things. I don't 
believe that the bulk of our Congressional recommendations such 
as the 80 percent of the funds be directed toward restoration 
are going to be a focus of or significantly challenged by any 
of the other studies that are underway to the degree that we 
have followed those other studies.
    So I would suggest that there's a lot of good work that 
this committee can engage in now and it's likely to be into the 
spring before you're at a point to actually make some final 
judgments. By that time, for instance the report of the 
engineering academy will be available and all.
    So will the report of the forensic analysis of the blow out 
preventer, I doubt that they will substantially affect the 
recommendations that we've made. But that information will be 
available to you. But don't, I would urge, use the fact that 
there's always more that you can learn as an excuse to do 
nothing.
    Mr. Reilly. Could I add just to what Senator Graham said 
that obviously the blow out preventer has to be understood. 
That will happen over the next year. You will be informed about 
that.
    Second, I regret that we did not have time to get into the 
more detail about the kind of training and formation that 
people at the BOEMRE require to be effective in the new 
environment. That is something worthy of focus. I believe the 
National Academy of Engineering will address that particular 
with respect to technical and engineering training requirements 
and what those standards should be. They do have implications, 
by the way for compensation because if you want to get people 
who are the match for the people that they're regulating you're 
going to have to pay them a little more proportionately to what 
in fact out on those rigs are getting paid.
    Then finally with respect to the liability determination, I 
don't know who else is going to do work on that. But there is a 
significant amount of attention that's needed, I think, to look 
at the insurance industry. Look at the way in which one would 
reconcile the need to continue to have vigorous and vital 
independent community of oil industries at the same time as we 
protect the country and the taxpayer against the consequences 
of any mistake that they might make.
    We did not really resolve that definitively. But it's 
something that going forward, I think, still remains to be 
done. It's unfinished business.
    Senator Murkowski. Thank you, Mr. Chairman.
    The Chairman. Senator Landrieu.
    Senator Landrieu. Thank you.
    Just two other points.
    One, following up on this support of this oversight agency 
and independent safety agency, I want to after further review 
of it, support that concept. I was initially skeptical. But 
I've talked to a number of people on all sides of the issue and 
reviewed again the report. I think having an independent safety 
agency connected to the newly reorganized Bureau of Oceans 
Management would be a step in the right direction.
    I just caution us all when we are looking to the industry 
for additional fees. I want to make sure the record reflects 
that the industry already in just bonuses, severance and 
royalties contribute about $7 billion every year in average of 
the last ten. So we're spending only about $300 million. As you 
said that number has been flat, $250 to $300 million. It's less 
than 4 percent of the money that is generated.
    I'm not counting corporate taxes paid by these entities. 
I'm not counting sales tax generated by their direct activities 
on the Gulf. I'm not counting income tax paid by every worker 
and business owner in the Gulf.
    I don't know what that number is. We should know. But just 
royalties, bonuses and severance taxes direct from the offshore 
industry is seven billion. So I think we've already got enough 
money. Reallocate it to give more, a greater percentage of that 
coming in, to the regulatory regime.
    If we could get that up, I mean it's a pitiful, you know, 4 
percent. I mean, you used to have to spend 10 or 15 or 20 
percent usually in development work. You know, spend that money 
to make that money.
    We're investing less than 4 percent getting the 7.2. As I 
said that's a small percentage of what the industry. So I'd 
caution my colleagues before looking to this industry for 
additional fees and taxes. They're already paying a 
considerable amount.
    Finally just, not so much that was a comment, but another 
comment. I'm going to submit for the record, Mr. Chairman, the 
latest shallow water permit was released 3 days ago to Apache 
to drill in 175 feet. Here is the list.
    [The information referred to follows:]

                         Offshore Safety Record

   Over 2,000 deepwater wells have been drilled since 1992 and 
        over 42,000 total wells since 1947. Since 1971 up until this 
        accident, not a single spill caused by a well blowout exceeded 
        1,000 barrels.
   From 1947 to 2009, 175,813 barrels have been spilled from 
        over 16.5 billion barrels produced. That is about 1/1000th of a 
        percent of the total production spilled.

    Senator Landrieu. We've had 28 shallow water permits 
issued. There are 10 pending. But to date there's not one 
permit has been issued for deep water drilling in the Gulf.
    This industry, 9 months after this accident, deep water 
drilling is still virtually shut down. There are two to three 
hundred people working on each one or were working on each one 
of those rigs, Mr. Chairman, not counting the onshore support 
activities and suppliers all over the country. So while the 
moratorium has been lifted I just want to make a point no 
permits for deep water are being issued.
    So I'd like to end with Senator Graham's comment. Let's not 
make, you know, the excuse of waiting for more reports to stop 
doing what we know we can do safely now even if it's a one on 
one review of each drilling operation.
    Get these people back to work.
    Then continue to vigorously work on the liability issues 
and the safety issues and the research issues and the 
investment in the environment.
    Thank you.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Yes, I'd like to go back to the oil spill 
R and D issue. As you referenced the Oil Pollution Act in 1990 
set up an interagency committee, Interior, Coast Guard, EPA, 
NOAA, to develop and respond for oil spills and to do research 
and response. I wondered if the Commission had looked at how 
that agency functions and whether you have any recommendations 
relative to its functionality.
    One of the things that we found in talking to people as we 
were developing our legislation last session is that there was 
this sense that nobody was in charge of this aspect of dealing 
with responding to drilling, particularly deep water drilling. 
So I was wondering if you had recommendations from the report 
on that issue.
    Senator Graham. I'm not familiar with the specifics of the 
operation of that interagency group. All I can say is that when 
the crisis hit they had not equipped us to be able to respond 
in a manner that I think is appropriate.
    We have made a recommendation that the President, by 
Executive Order, should establish a group of both governmental 
and non-governmental experts to work on all these issues that 
relate to response including maintaining our research and 
development capability to be able to develop the defense 
against an accident at the same rate that the industry has 
developing the offense for drilling in increasingly deeper and 
more risky environments.
    Mr. Reilly. My impression of what has been done in Alaska 
is positive. The only reason we know about the persistence of 
hydrocarbons under the sands of many of the beaches of Prince 
William Sound is because there has been a monitoring program in 
effect that was amply funded for quite a while. The arguments 
about whether or not the herring crash is attributable to the 
oil spill to the extent that there are--there's any real 
information that is more than speculation.
    It's the consequence of the fact that when the amount of 
money was parceled out for the trustee agencies in Alaska, it 
was done so, not in one lump sum, but over a period of years.
    I think the lesson for us in this case is to make sure that 
we have a continuing capability to determine whether there is 
impact on the Bluefin Tuna which spawns in the Gulf and 
actually would have come into contact with the oil and gas.
    What about the crabs and the oysters?
    Are there lasting impacts on the larvae and their 
fertility?
    All of those questions--it would be very unfortunate to let 
5, 10 years go by, have another incident and not have learned 
from this one. So the degree to which there is scientific 
research--money made available over a period of time and not 
suddenly dispersed and forgotten--I think is important to one 
of the lessons that we need to respect here.
    Senator Shaheen. But that would speak to a funding stream 
as Senator Bingaman suggested that is not based on the annual 
budgeting process but is a dedicated funding stream from some 
other source.
    Mr. Reilly. In the case of Alaska as I recall it was a 
billion dollar outlay that was extended--or fine rather that 
was applied over a period of 10 years. That funded the 
monitoring as I recall, the research.
    Senator Shaheen. But for that period of 10 years.
    Mr. Reilly. Yes. I think they found a way to stretch it out 
more.
    Senator Shaheen. But I'm thinking about as we think about 
the oil spill research and response function also. I thought 
the Commission's recommendation----
    Mr. Reilly. That's--I'm not--I wasn't talking about 
response.
    Senator Shaheen. No, no. I understand. You were looking at 
a different aspect of the research.
    But I thought your fee on offshore leases was--provided 
that dedicated funding source.
    Thank you.
    The Chairman. Senator Murkowski, do you have additional 
questions?
    Senator Murkowski. Just very quickly to follow up on the 
Oil Spill Liability Trust Fund. It was established to ensure 
that if there is an incident we have a fund to tap into, but 
not necessarily for research. We have discussed ways you can 
reserve money from the Oil Spill Liability and Trust Fund to 
provide for that necessary stream of research which I think is 
very important.
    One of the things that we saw last year when we were 
debating not only how we would address MMS restructuring but we 
were also getting into the end of the session where we were 
looking to essentially find funds to pay for different 
initiatives. The Oil Spill Liability Trust Fund all of a sudden 
came to everyone's attention.
    The producers pay an assessment of eight cents a barrel 
which goes into that trust fund. It has accrued an amount of 
about a billion dollars. Suddenly folks were looking at that as 
an opportunity to access the reserve fund differently from the 
purposes for which it was intended.
    I believe that we need to increase that fund and the 
assessment. I feel pretty strongly that you don't increase the 
assessment increase the value, the amount in that fund, and 
then use it as a pay for things other than it was intended 
which is to provide for that reserve fund in the event of 
emergency just as we had with the Deep Water Horizon.
    Your report does not address the issue of the liability cap 
which is currently set at 75 million under OPA. You recognize 
that it should be significantly increased. I appreciate the 
fact that you have not gone into how much that figure might be 
in terms of a significant increase.
    Can you explain the factors that we should use when 
determining a liability regime?
    I laid out a few very general statements in my opening that 
no taxpayer should ever be on the hook. Did you look to that 
aspect or did you just say it needs to be increased?
    Senator Graham. I would agree with all the points that you 
made, Senator, about the considerations. If this had been a 
slightly different set of circumstances, for instance if it had 
not been BP, but a less financially capable firm or if it had 
been a financially capable firm that was very litigious and 
wanted to litigate every step of the way we would be in a much 
different position today than we are with BP using its deep 
pockets and doing things like putting up the $20 billion to 
meet immediate payments. So I think the 75 million is clearly 
inadequate.
    It's a 20-year-old number. It was a number that was derived 
to deal with the shallow water circumstances as dramatically 
demonstrated by Exxon Valdez. What we learned with Deep Water 
Horizon is that the consequences of a negative act can be 
multiplied if it's done in the deep waters.
    Now I'm now going to speak personally and not for the 
Commission. It seems to me that if there's going to be a 
liability limit it should be in relation to the risk that that 
particular activity represented. To use the simplest measure 
the depth of the water that there might be an appropriate 
liability limit if you're operating at 140 feet.
    It would be a quite different liability limit if you're 
operating at 5 or 6 thousand feet. There may be a point at 
which time no liability limit is appropriate because the 
potential damage is so serious. If we had a liability limit and 
isn't strictly applied to these deep water situations you can 
anticipate there's going to be a lot of victims who won't 
receive appropriate compensation for their losses or that the 
Federal taxpayers will be asked to come and fill the gap. 
Neither of those are acceptable outcomes.
    Senator Murkowski. I thank you for that.
    We introduced legislation last session that would address a 
dozen risk factors as you have laid out. I know that Senator 
Landrieu has looked at that approach as well. But I think it is 
important to recognize that when you are drilling offshore 
there are places that are a little bit riskier. Some are a lot 
more risky than others. It's appropriate to access liability 
taking those into account.
    Mr. Chairman, I thank the gentlemen for their testimony 
this morning. I have no further questions.
    The Chairman. Senator Shaheen.
    Again thank you both very much for your excellent testimony 
and this excellent report.
    We also want to extend special thanks to Richard Lazarus 
who is your Executive Director of the Commission and the fine 
staff of the Commission for the good work that they have done.
    Also note that Shirley Neff who used to be with us here on 
the committee staff was part of your Commission staff and we 
know of her good work.
    So we thank you very much. We will do our best to take your 
good recommendations and move ahead with them.
    Mr. Reilly. Thank you, Mr. Chairman.
    The Chairman. That will conclude our hearing.
    [Whereupon, at 11:30 a.m. the hearing was adjourned.]

                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions 
                         From Senator Bingaman

      THE ROLE OF API AND INDUSTRY IN DEVELOPING SAFETY STANDARDS

    Question 1. In your testimony, you mention that the American 
Petroleum Institute should not be the organization that writes 
standards and handles the safety enterprise of the offshore drilling 
industry. Did you and your Commission staff look into other 
possibilities for organizations who might be better suited, or was it 
your recommendation that the new Bureau for Safety and Environmental 
Enforcement write and enforce new safety regs, exclusive of industry 
input?
    Answer. The Commission concluded that the safety of offshore 
drilling could best be achieved by having both government and industry 
create independent entities designed to ensure the safety of offshore 
drilling operations. For industry, we recommended the creation of an 
independent self-policing entity for offshore oil and gas akin to the 
Institute of Nuclear Power Operations (INPO), which the nuclear power 
industry created in the immediate aftermath of the accident at Three 
Mile Island in 1979. We did not find any pre-existing industry entity 
within the oil and gas industry capable of taking on the self-policing 
function that the Commission concluded is necessary. Nor is this 
surprising because none exists, any more than it did for the nuclear 
power industry before they formed INPO . For government, we recommended 
the creation of an independent safety authority within the Department 
of the Interior, roughly analogous to the Nuclear Regulatory 
Commission, which the federal government created to enhance its own 
oversight abilities in response to Three Mile Island.. Of course, that 
new safety authority would, like other agencies with rulemaking 
authority, provide industry and other parties with relevant information 
with meaningful opportunity to comment on proposed rules and to provide 
other forms of input during the agency's decision-making process.

                         RESEARCH & DEVELOPMENT

    Question 2. On p. 21 of your testimony, you mention the need for 
public-private partnerships as well as tax credits for R&D for improved 
spill response technology development. Did you also consider how to 
best implement an R&D program for safety prevention equipment? Did you 
consider existing R&D programs and how to best leverage those to create 
the R&D program that appears to be greatly needed in light of the 
industries inability to advance safety technologies beyond their own 
proprietary technologies? Can you elaborate more on the R&D program(s) 
that you would envision to better prevent and prepare for oil spills of 
any magnitude?
    Answer. Although the Commission did not make a recommendation 
focused specifically on safety technology research and development, 
many of its recommendations require operators to improve offshore 
safety, including by investing in better safety technologies. For 
instance, the Commission recommends that BOEMRE put into place new 
prescriptive safety regulations that are at least as rigorous as those 
of peer oil-producing nations. Other nations, unlike the United States, 
require a minimum of at least two tested well barriers. They also have 
requirements for specific riser disconnection capacity and backup 
activation systems for blowout preventers. The Commission further 
recommends that BOEMRE implement a proactive, risk-based performance 
approach to regulating specific individual facilities--similar to the 
``safety case'' approach used in the North Sea--that would require 
operators to take more responsibility for the risk management process. 
And the Commission recommends that industry create its own safety 
institute in the mold of INPO, which would lead industry, in policing 
itself, to push for everimproved safety of offshore operations. Each of 
these steps would create incentives for operators to develop new, more 
effective safety technologies.
    The Commission also recommends creating regulatory and monetary 
incentives to advance spill response technology research and 
development. Spill response technologies barely improved during the 20 
years following the Exxon Valdez spill. Similarly, although the Nixon 
administration had recognized the need for subsea containment 
technology as early as 1969, no deepwater containment technology had 
been developed prior to the Deepwater Horizon spill.
    There are a host of reasons that spill response research and 
development has lagged behind the development of exploration and 
production technology. Congress has never appropriated even half of the 
$28 million per year authorized by the Oil Pollution Act of 1990 for 
spill response research and development, and the amount Congress did 
appropriate generally decreased over time as the Exxon Valdez spill 
receded in the public's mind. In the past, MMS review of industry oil 
spill response plans was cursory, and the agency did not require 
operators to demonstrate capacity for subsea containment. Coast Guard 
and BOEMRE regulations for oily water discharge do not account for 
efficiency of skimmer technology and therefore do not incentivize 
improved efficiency. And EPA's permit-process for open-water testing of 
spill response technology is inefficient at best.
    The Commission's recommendations take on these reasons for limited 
response research and development over the last 20 years. The 
Commission recommends a congressionally structured funding mechanism 
that assures adequate and sustained funding for this critical dimension 
of improved safety. A possibility would be congressional approval of 
using a portion of the royalties from deepwater production for this 
specific purpose or sanctioning funds raised through lease provisions 
to be utilized for this specific purpose without the necessity of 
annual appropriations for spill response research and development to 
ensure adequate funding and to remove it from the vagaries of the 
annual appropriations process. The Commission recommends interagency 
review and approval of industry spill response plans to better ensure 
that operators can live up to the representations about response 
capacity that they make in their plans. The Commission recommends that 
operators be required to demonstrate containment capacity in their 
response plans. The Commission recommends reforming Coast Guard and 
BOEMRE regulations to encourage development of more efficient skimmers 
and streamlining of EPA's permitting process for open water testing. 
And the Commission recommends the use of a targeted tax credit and 
public-private partnerships aimed at developing improved spill response 
technologies. Rather than prescribing specific new developments in 
response technology, the Commission recommends incentivizing research 
and innovation in the public and private sectors. With those incentives 
in place, experts in spill response can develop the technologies that 
will maximize spill response capacity.
    Congress could play a critical role by holding regular, at least 
annual oversight hearings on the safety of offshore oil and gas 
development with research and development initiatives and advances as a 
significant part of that hearing agenda.

                               FLOW RATES

    Question 3. You mention on p. 24 of your testimony that new 
protocol for calculating and estimating flow rates needs to be 
developed in advance of any future spills. I agree that this is 
critical for planning purposes, but how do you propose to do this in 
light of the requirement that operators do not have to submit their 
logging and geophysical data until 30 days following the completion of 
the well? In the case of Macondo, it took quite a long time for the key 
technical experts within the Department of Energy and Interior to 
receive the data necessary to correctly calculate an accurate flow 
rate. Surely the industry could also work on a way of fitting 
technology to any new containment equipment or response that could 
measure flow rates out of a damaged wellhead like that of Macondo.
    Answer. The Commission recommends that the government create a 
protocol to obtain accurate estimates of flow rate or spill volume from 
the outset of a spill. This protocol need not rely upon logging or 
geophysical data provided by operators. U.S. Geological Survey Director 
Marcia McNutt, who heads the government's Flow Rate Technical Group, 
has stated that, in a future deepwater blowout, the government will be 
able to quickly and reliably estimate oil flow using the 
``[o]ceanographic gear'' successfully deployed by the Woods Hole 
OceanographicmInstitution during the Deepwater Horizon spill.\1\ The 
Woods Hole team used a remotely operated vehicle mounted with sonar and 
acoustic sensors to determine the volume and velocity of the outflow 
from the Macondo well. This method of calculating flow rate does not 
depend upon logging or geophysical data, nor does it require physical 
contact with the blowout preventer or other subsea equipment.
---------------------------------------------------------------------------
    \1\ Transcript, Deepwater Blowout Containment Conference (September 
22, 2010), http://www.doi.gov/news/video/Deepwater-Blowout-Containment-
Conference.cfm (Director McNutt stated as follows: ``So we now know 
exactly what we do if this ever happens again, what technique we would 
use first, under what circumstances, and we could have the right 
technology in the field within hours to days of a blowout and have a 
flow rate that we could put forward to the American people, and we 
would trust that answer and we would not need multiple methodologies to 
have a good flow rate. . . . What we found were the best techniques 
actually were in the ocean. It was important to get equipment into the 
bottom of the ocean. Oceanographic gear was the best way to do it.'').
---------------------------------------------------------------------------
    In addition, the Commission recommends that the government protocol 
require the responsible party to provide the government with all data 
necessary to estimate flow rate or spill volume. Thus, when a spill 
occurs, a responsible party should provide the government with any 
information in its possession that could assist the government in 
calculating the flow rate. The Commission further recommends that well 
components, including blowout preventer stacks, be equipped with 
sensors or other tools to obtain accurate diagnostic information--for 
example, regarding pressures and the position of blowout preventer 
rams. If this recommendation is implemented, responsible parties--and 
therefore the government--would have access to data on well pressures 
and conditions within the blowout preventer at the outset of a spill, 
which would be helpful in estimating the flow rate.

            RISK ASSESSMENT/MANAGEMENT FOR OFFSHORE DRILLING

    Question 4. There has been considerable discussion in the time 
since the oil spill about more adequately characterizing risk and 
planning for high risk scenarios. I see a major challenge to risk 
management in the industries unwillingness to share proprietary data 
that is required to more accurately assess how risky a given situation 
is. How would you suggest that regulators and industry overcome this 
barrier?
    Answer. The problem of industry reluctance to share proprietary 
business information does present challenges, but not insurmountable 
ones. Both industry and the government have faced similar challenges in 
other areas where risk regulation is required and have overcome those 
issues in those other contexts. We are confident they can do so for the 
offshore industry as well.
    The challenges, while substantial, are not qualitatively different 
and are similarly surmountable. For instance, relevant lessons can be 
borrowed from the techniques used by the EPA to regulate risks 
presented by chemicals, while protecting confidential business 
information submitted to the federal government by businesses, and by 
the protections provided by INPO to operators of nuclear power plants 
who are subjected to rigorous and intensive inspections. In all of 
these analogous settings, meaningful risk regulation requires some 
exposure of confidential business information and a commensurate need 
to ensure that government regulators and industry selfpolicing entities 
protect that information from unauthorized release.

                                  CUBA

    Question 5. On pg. 37 of your testimony, you highlight a growing 
concern for environmental safety in the Gulf--it is the oil and gas 
exploration that is taking place in Cuban waters to the northwest of 
Cuba. The Cuban oil industry is quite young--it only recently came 
about in the mid-90's. They do not have the experience in regulating 
that we do here in the US. It is also unclear that they would have the 
preparedness should a big oil spill event occur in their waters. This 
poses a huge safety risk for the rest of the Gulf. You state that the 
US should ``negotiate now with these neighbors to agree on a common, 
rigorous set of standards, a system for regulatory oversight, and 
operator adherence to an effective safety culture''. In light of the 
embargo that the US has in place for Cuba, US oil companies cannot even 
conduct businesses in Cuba. Some of the US companies have the strongest 
safety record for working in the Gulf. How would you suggest that we go 
about undertaking this very critical, time sensitive task of assisting 
our neighbors with their growing offshore energy development when our 
own companies cannot collaborate and work with the Cuban government?
    Answer. The need to ensure safe offshore drilling in the Gulf is 
clearly compelling, and exists regardless of whether that drilling 
falls under the immediate jurisdiction of Cuba or Mexico. A major spill 
in a drilling operation anywhere in the Gulf could have disastrous 
economic or environmental consequences for the United States. That is 
why we were heartened when, as Co-Chair Reilly testified, Mexican 
officials informally approached Mr. Reilly to express an interest in 
working with the United States to forge safe drilling standards that 
would be uniformly applicable throughout the Gulf and, to that same 
end, entering into direct conversations with Cuba with which Mexico, 
unlike the US, has close diplomatic relations. The Commission has not 
had occasion to determine precisely the best way to ultimately achieve 
the desired result over the long term, but the Co-Chairs believe that 
entering into these discussions with Mexico is an important, immediate 
first step.

                           BLOWOUT PREVENTER

    Question 6. Your testimony and report note that the blowout 
preventer was not available for your examination. How were you able to 
do a thorough investigation and determine the causes of the accident 
without being able to examine this piece of equipment?
    Answer. The Commission could do so for the straightforward reason, 
explained in our Final Report, that even if the blowout preventer did 
fail, that failure did not cause the explosion that killed 11 men on 
April 20th. As our report explains, the rig crew realized too late what 
was happening and thus activated the BOP too late to have prevented an 
explosion. By the time the crew tried to activate the BOP, gas had 
already flowed above the BOP and was rocketing up the riser. That gas 
is what ignited on the 20th.
    By contrast, as the Commission report further explains, if the crew 
had heeded warning signs earlier in the day, they could easily have 
prevented the explosion from happening. These included misinterpreting 
the negative pressure test used to check the integrity of the cement 
job. In the hour or so before the explosion, there were several other 
odd and unexpected pressure readings that the crew should have realized 
were signs of a problem, but unfortunately did not. If they had 
properly recognized these signs, they could easily have closed in the 
well.
    To be sure, the blowout preventer failures may potentially have 
played a part in the severity of the oil spill, but the disaster as a 
whole was due to a rather staggering series of errors by the three 
companies, all of which our investigation has documented. These errors 
can be addressed through better regulation, better training for 
workers, and a strong commitment to safety by both the companies and 
the regulators. Examples of key mistakes by BP, Halliburton, and 
Transocean as identified by the Commission's investigation include

   Failure to get a good cement job
   Failure to understand that the negative pressure test 
        indicated that the cement was instable
   Problems with BP's temporary abandonment procedures, in 
        particular, its decision to displace mud from the riser before 
        setting additional barriers to back up the cement at the bottom 
        of the well. This left the faulty cement at the bottom of the 
        well as the only physical barrier that could prevent the flow 
        of hydrocarbons into the well
   Failure to understand that a kick was occurring, even though 
        there were several odd and unexpected pressure readings in the 
        hour or so leading up to the explosion that the crew should 
        have realized signaled a problem
   Failure to respond appropriately once mud and gas began 
        spewing onto the rig floor. The crew should have diverted the 
        gas overboard instead of diverting it through the mud-gas 
        separator. While it is not entirely clear this would have 
        prevented the explosion, it could have at least limited its 
        impact.

    For these reasons, the blowout preventer analysis, while important, 
will not change the Commission's conclusions that a failure of 
management led to numerous risky and unnecessary decisions made by the 
companies involved, each of which led to the occurrence of the blowout. 
The blowout preventer can, like a seatbelt, reduce the amount of harm 
that is caused, but in the circumstances of the Macondo well, even a 
properly functioning blowout preventer was not a root cause of the 
accident and its immediate tragic consequences for those on the rig on 
the night of April 20th.

                         INDUSTRY SAFETY RECORD

    Question 7. The industry has drilled over 40,000 wells in the Gulf 
of Mexico without an accident of this magnitude. Yet your report 
suggests that the safety issues related to this accident are systemic 
and not the result of an anomalous, isolated incident. How do you 
square that finding with the industry's safety record?
    Answer. The problems we identified that led to the Macondo well 
blowout reveal an industrywide failure to manage and plan for the 
heightened risks presented by deepwater drilling, which represent only 
a small fraction of those 40,000 wells drilled in the past. The 
Commission was appropriately concerned not with the past but the 
present and the future. It is in the deep waters of the Gulf where the 
most oil is to be found and, for that reason, where most future 
drilling in the Gulf is now headed. It is also where, because of those 
same high volumes of oil and heightened safety risks, the potential for 
another environmental catastrophe is greatest.
    What our investigation revealed is that the industry as a whole 
had, because of the lack of past accidents in less risky waters, failed 
systematically to manage the risks presented by deepwater or to plan 
for the contingency of an accident there. The systemic nature of the 
lack of risk management was underscored by the role played in the 
Macondo well blowout not just by the largest operator of deepwater 
drilling in the Gulf--BP--but also by the involvement of two of the 
largest service contractors--Transocean and Halliburton--upon which 
most of the entire industry is dependent. The Commission's conclusions 
were further bolstered by the fact that none of the oil companies was 
in fact prepared to contain and respond to an oil spill of the 
magnitude of the Deepwater Horizon spill even though they each had 
submitted plans to the federal government claiming that they were. None 
of those claims was in fact true.

Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions 
                         From Senator Murkowski

                                 ARCTIC

    Question 8. Regarding the recommendations for additional Coast 
Guard facilities and infrastructure in the Arctic: do the commissioners 
agree that this additional capacity would be a wise investment even 
without the prospect offshore drilling, as shipping lanes open up and 
Arctic fisheries become a possibility in the future?
    Answer. The Commission did not have occasion to consider the need 
for these additional resources outside the context of offshore drilling 
because that question was not fairly within the President's charge to 
the Commission, which was strictly limited to the offshore drilling 
context. Certainly, however, nothing in the Commission's 
recommendations, which were to increase those Coast Guard resources, is 
inconsistent with the conclusion that such additional resources would 
be appropriate wholly apart from the compelling need for their presence 
in support of offshore drilling.
    Question 9. The report recommends that the US take the lead in 
developing international agreements for standards for Arctic offshore 
oil and gas drilling. As of the submission of these questions, the US 
is not competitively producing or even exploring its Arctic resources. 
So, do we have evidence that other producing nations (i.e. Russia and 
Canada) would be interested in proceeding on our timeline?
    Answer. We know that other nations are actively considering 
offshore drilling in the Arctic and that the U.S has a compelling 
interest in ensuring safe drilling practices within the Arctic for the 
straightforward reason that unsafe drilling by any nation there could 
have disastrous economic and environmental consequences for U.S. 
territory. The same mutual incentives exist for those other nations as 
well, which provides the essential ingredient for active engagement 
with those nations in developing in an expeditious fashion 
international agreements for uniformly applicable Arctic drilling 
standards.
    Question 10. This same point applies to the Gulf of Mexico, where 
not only Cuba is actively leasing very close in to Florida's waters, 
but also where Mexico as a nation is, for the first time ever, allowing 
private companies to contract for drilling in its almost entirely 
untapped offshore areas, including deepwater. Are there any indications 
of a willingness to proceed at the same pace of the US, and what 
specific commitments have been contemplated in your discussions with 
these foreign governments?
    Answer. As described in his testimony, Commission Co-Chair Bill 
Reilly has had informal discussions with Mexican government officials, 
who have expressed an interest in working with the United States now to 
develop common standards applicable to drilling in the Gulf, as 
necessary to ensure safe drilling practices. Mexico would like to work 
with Cuba as well, which is also contemplating offshore drilling in the 
Gulf.
    Question 11. If Mexico, Canada, Russia, or Cuba proceed with 
offshore drilling either in a way that the US government has 
insufficient information about, or in a way we believe to be unsafe or 
environmentally irresponsible, what steps does the Commission 
contemplate the US might take?
    Answer. The Commission never had occasion to address that 
particular hypothetical. The Commission's recommendations were directed 
instead at how best to minimize the chances of that hypothetical 
becoming a reality. We recommend that the federal government act now to 
work with other nations in the Arctic and the Gulf to develop 
international safety standards that would uniformly apply to all 
drilling in those waters.

                          SCOPE OF THE PROBLEM

    Question 12. Has industry always and consistently been opposed to 
changes in its regulatory regime?
    Answer. The Commission has never suggested that industry has been 
opposed to every change in regulations that apply to its operations. 
What the Commission found was that industry impeded the implementation 
of the kind of vigorous, pro-active risk management approach that other 
nations adopted decades ago, and that aspects of which would have 
provided for safer drilling operations in the United States. The 
Commission further found, based on its investigation, including 
interviews with officials from major oil companies, that the American 
Petroleum Institute systematically favored regulatory standards that 
reflected current practices and often the least common denominator 
within industry, rather than best industry practices.
    Question 13. In Chapter 3, this report found that industry has been 
historically resistant to change. Did the commission find any instances 
of the offshore industry actually suggesting stronger safety standards 
for Interior to implement? Have such recommendations ever been made and 
accepted?
    Answer. The Commission does not doubt that there have been 
occasions when industry has favored government adoption of stricter 
standards. The Commission has never suggested that it found that 
industry has reflexively and consistently opposed every proposal for 
stricter regulation. What the Commission found was that industry 
resisted certain, significant reform efforts that would have provided 
for greater safety and that, as a general matter, the American 
Petroleum Institute, which frequently speaks for the industry as a 
whole, promoted safety standards that reflected current practices 
achievable by all rather than the best practices achieved within the 
industry.

                INTERAGENCY VETOES AND PARALLEL REGIMES

    Question 14. The commission seems to recommend a stronger role for 
cooperating agencies in the five year planning process, with some 
additional administrative reasoning requirements for the Interior 
Department in the consideration of comments from other interested 
agencies. Does the report favor giving agencies outside the Interior 
Department full overriding veto authority over Interior's decisions on 
OCS leasing, plan approval, and permitting? (Please discuss why or why 
not.)
    Answer. The Commission deliberately stopped short of providing any 
other agency with veto authority over the Department of the Interior's 
leasing decisions. The Commission found that Interior had failed to pay 
adequate attention to other expert agencies in the past, especially 
NOAA, which is why the Commission recommended adoption of a decision-
making process in which NOAA was provided a greater voice and Interior 
was required to explain its reasons for rejecting NOAA's 
recommendations on certain leasing decisions. The reason that the 
Commission stopped short of providing any other agency, including NOAA, 
with veto authority, is that the Commission concluded that it was 
important to have one agency ultimately responsible for leasing 
decisions and that Interior was the appropriate agency for that 
decisionmaking responsibility.
    Question 15. The Commissioners' testimony cites the adherence to 
the ``safety case'' regime of peer producing nations as a modest and 
relatively simple additional layer of compliance for US operators. Did 
the commission find any parallel legal and statutory hurdles in the UK 
and Norway that result in protracted or costly litigation similar to 
levels in the US? Specifically, are there similar mechanisms for 
citizen/NGO lawsuits challenging administrative decisions in these 
nations?
    Answer. The Commission is not aware of any protracted litigation 
relating to the introduction of the ``safety case'' method in those 
other nations, but the Commission also has no reason to anticipate that 
there would be such litigation in the United States should this nation 
embrace the kind of pro-active risk management system that the 
Commission has recommended. In the United States, the litigation that 
has existed has historically occurred and on occasion, delayed 
exploration and production offshore has been directed to the leasing 
and sale stages. Such litigation has not been directed at the 
individual drilling permit stages and there is no reason to assume that 
there is anything about the Commission's recommendations regarding the 
propriety of risk management that, if adopted, would change the nature 
of such litigation.
    Question 16. Did the Commission examine or find in peer regimes 
similar statutes to NEPA, the Endangered Species Act, the Clean Air 
Act, or the Clean Water Act?
    Answer. Most nations have environmental protection and pollution 
control laws analogous to those here in the United States. The 
Commission did not believe that any differences in those regulatory 
regimes, none of which relate directly to drilling safety, had any 
major relevance to our own nation's need to improve drilling safety in 
U.S. waters.
    Question 17. Did the commission examine comparative costs of labor, 
corporate and income taxes, and other significant financial elements 
contributing to the cost portfolio of offshore production in peer 
regimes?
    Answer. The Commission and its staff engaged in multiple 
conversations with leading officials in the oil and gas industry, 
including API, about the need for tougher prescriptive standards and a 
risk-management approach that borrowed aspects from the ``safety case'' 
method used by other nations. In none of those many conversations did 
any industry representative suggest that such possible cost 
differences, assuming they exist in terms of labor or taxes or other 
matters, made it economically infeasible for companies operating 
offshore in the United States to conduct their operations in a manner 
as safe as their operations offshore in other nations. The United 
States need not have a safety regime less protective than that provided 
for in other nations.
    Question 18. Does the Commission suggest or contemplate a ``safety 
case'' requirement as a substitution for any single existing statutory, 
legal, or regulatory hurdle that may exist in the US but does not exist 
in any parallel regime?
    Answer. The Commission has not recommended that the United States 
adopt wholesale the ``safety case'' regime used in other nations. As 
explained in the Commission's final report, the Commission recommends 
adoption of selected aspects of that kind of regime, coupled with 
technical safety regulations at least as protective as those applied in 
other nations.

                                 SAFETY

    Question 19. The report contends that our fatality rate in the US 
offshore is four times worse than European waters. This is attributed 
to a culture of complacency onboard the rigs and among the regulators 
and companies overseeing those rigs. Were any of these fatalities due 
to accidents that occurred away from the rigs, where jurisdictional 
lines change?

          a. If many or of the fatal accidents the commission cites 
        occurred in helicopter accidents, why are there no additional 
        safety recommendations where the FAA can play a role?
          b. If many or most of the fatalities the commission cites 
        occurred in helicopter accidents, how is it fair to attribute 
        the safety culture onboard drilling rigs, and the regulatory 
        capacity of a Department whose jurisdiction does not cover 
        aviation, for those accidents?
          c. Should BOEMRE inspectors board and inspect industry 
        helicopters?

    Answer. The statistics reported to the International Regulators 
Forum (IRF) upon which the Commission relied include fatalities and 
injuries that occur only at or near rigs. MMS had one reported fatality 
in the last three years as a result of a helicopter accident, but this 
fatality is not included in the IRF statistics. In addition, the 
fatality and injury statistics are per million hours worked and, 
accordingly, they reflect only the relative risks to workers at or near 
rigs and platforms in United States waters, compared to other 
countries. For that reason, the difference cannot be explained simply 
because the number of hours worked offshore the United States might be 
greater.
    Because the scope of the accidents upon which the Commission was 
relying for its analysis of safety did not extend broadly to all 
helicopter accidents and was instead confined to the relatively few 
that occurred at or near rigs, the Commission did not have reason to 
investigate the safety of helicopters more broadly or to make 
recommendations regarding helicopter safety to the Federal Aviation 
Administration. That inquiry was beyond the Commission's charge. Nor 
did the Commission have reason to consider whether BOEMRE inspectors 
should board and inspect industry helicopters.

               HISTORICAL RECORD OF BALANCING OCEAN USES

    Question 20. Does the commission feel that, up until the Deepwater 
Horizon spill at least, a proper balance had been achieved between 
offshore oil development and the valuable fishing and tourism 
industries in the Gulf?
    Answer. The Commission concluded that prior to the Macondo well 
blowout, neither government nor the offshore oil industry were taking 
adequate measures to reduce the risk of a well blowout in deepwater, 
and the only question was not whether a potentially catastrophic event 
would happen, but when it would happen. The Gulf Coast and the valuable 
fishing and tourism industry were, for that same reason, fortunate that 
no accident had happened. On April 20, 2010, that luck ran out.
    Question 21. Were the fishing and tourism industries, prior to the 
Deepwater Horizon spill, productive and healthy?
    Answer. The fishing and tourism industries were far more healthy 
before the Deepwater Horizon spill than after the spill, which caused 
billions of dollars of damage to both.

                             MISCELLANEOUS

Oil budget
    Question 22. As reported in the press, there is some controversy 
over the report's characterization of the ``oil budget'' and the actual 
amount spilled. It seems that NOAA had an issue with referring to 
dispersed oil as ``gone,'' but once it is fully dispersed, would the 
commissioners want to clarify any more apt adjectives for describing 
the remaining oil particles?
    Answer. As laid out in the Commission's report (pages 167-69), the 
Commission does not take issue with how the original Oil Budget 
(released August 4, 2010) or the revised Oil Budget (released November 
23, 2010) described dispersed oil. The Oil Budget documents 
differentiated between ``chemically dispersed'' and ``naturally 
dispersed'' oil, but the documents nowhere suggested that such oil was 
``gone.'' The Commission did conclude that Carol Browner, Director of 
the White House Office of Energy and Climate Change Policy, 
inaccurately characterized the Oil Budget's findings when she stated 
during the Budget's rollout that ``the vast majority'' of the oil--
including dispersed oil--was gone. As documented in the Commission's 
report, NOAA Administrator Jane Lubchenco emailed Browner's Deputy 
immediately following Browner's statements in an effort to correct the 
record. Like Dr. Lubchenco, the Commission views the Oil Budget 
documents as accurate in describing dispersed oil as ``dispersed'' 
rather than gone.
    The Oil Budget does not distinguish between ``dispersed'' and 
``fully dispersed'' oil because all dispersed oil, even at low 
concentrations, remains in the environment. Dispersed oil is, however, 
subject to biodegradation, which does remove the oil from the 
environment altogether. Neither version of the Oil Budget attempted to 
quantify the rate of biodegradation of Macondo oil, which remains the 
subject of ongoing scientific research.

Oil Spill Liability Trust Fund
    Question 23. As you know, the Oil Pollution Act of 1990 created the 
Oil Spill Liability Trust Fund, which assesses an 8 cent per barrel fee 
that is deposited into what has accrued to a more than $1 billion fund. 
In the Commission's view, what are the appropriate uses of moneys paid 
into this Oil Spill Liability Trust Fund? Specifically, is it 
appropriate to use it as a ``pay-for'' in unrelated legislation, as we 
saw happen repeatedly late last year? Is it appropriate to use the fund 
for its original legislative purposes?
    Answer. The money in the Oil Spill Liability Trust Fund (Trust 
Fund) is authorized for many uses, including removal costs incurred by 
federal and state governments, damages caused by a spill, and spill 
response research and development. The Commission did not take a 
position on the full range of appropriate uses of the Trust Fund. The 
Commission did, however, make recommendations about research and 
development, and per incident damage payments, that are relevant.
    First, the Commission recommends the adoption of a structured 
funding mechanism for spill response research and development to ensure 
adequate funding and to remove it from the vagaries of the annual 
appropriations process. The Oil Pollution Act of 1990 authorizes $28 
million from the Trust Fund to be spent annually on oil spill response 
research and development. Since the passage of that Act, however, 
Congress has never appropriated even half of that amount, and the 
amount Congress did appropriate generally decreased over time as the 
Exxon Valdez spill receded in the public's mind. Creating a mandatory 
appropriation would ensure funding of response research and development 
at a level intended by the Oil Pollution Act.
    Second, the Commission recommends increasing the available per 
incident payout from the Trust Fund, which is currently limited to $1 
billion. An increase in this limit, in conjunction with an increase in 
the Oil Pollution Act's liability cap and financial responsibility 
limit for offshore facilities, will help ensure that adequate 
compensation is available to those who suffer from spills.
Budget Resources
    Question 24. Your report to the President includes a chart showing 
MMS' budget over the past 25 years. After reaching a low in 1997, the 
agency's budget has increased by about 40 percent. Your report calls 
for a reorganization of the agency, similar to what Interior has 
already undertaken, but also for considerably more resources for the 
agency. That brings up that the agency received about $180 million last 
year. How much more does the Commission advise the agency's budget 
needs to grow before it will have sufficient resources?
    Answer. The Commission received testimony from BOEMRE Director 
Michael Bromwich several times as to the resource needs to ensure both 
an adequate and competent staff. The Administration requested a 
supplemental increase to the FY11 budget of $91 million. This included 
a certain amount associated with the reorganization to eliminate the 
conflicts of interest between leasing, revenue collection and ensuring 
safety. The agency must both hire and retain a sophisticated 
engineering staff as well as skilled inspectors who will require 
ongoing training as well as continuous improvements in technical and 
management systems. A significant cost for the offshore program is 
leasing helicopters. To the extent those costs increase, they must all 
be covered as well

Implementation of Recommendations
    Question 25. Some of the early news stories on your report 
suggested that the President could implement many of your 
recommendations by issuing executive orders, rather than signing 
congressional legislation into law. Can the Commission describe which 
of your recommendations it considers suitable and proper to be carried 
out by executive order in a legally defensible way?
    Answer. As a general matter, it is preferable to have Congress 
enact legislation to implement many of the reforms recommended by the 
Commission. Comprehensive reform legislation, however, necessarily 
takes time for Congress to enact and, at least as an interim measure to 
get the offshore oil and gas industry up and running as quickly and 
safely as possible, there are many things the President could do in the 
near term.
    A few illustrative examples of such reforms the President could 
achieve, pending further legislative action, include:

   The Secretary of the Interior could, and indeed already has 
        since the Commission issued its Final Report, separate 
        Interior's safety regulatory authority from the revenue 
        generating office, including those responsible for their 
        supervision at Interior. The Secretary possesses authority to 
        separate even further those two functions, as the Commission 
        has recommended be done.
   Interior could require that industry meet safety 
        requirements that reflect best industry drilling practices and 
        could couple this with a pro-active risk management approach 
        designed to ensure the safety of individual operations
   Interior could require that industry design wells in a 
        manner that allows for expeditious well containment in the 
        event of a well blowout and that industry include 
        instrumentation that allows for accurate flow measurements in 
        the event of such a blowout and spill
   EPA and the Coast Guard could bolster state and local 
        involvement in oil spill contingency planning and create a 
        mechanism for citizen involvement in planning and response.
   Interior could require that an applicant for a drilling 
        permit demonstrate that it has access to readily available 
        resources for containment and response in the event of a well 
        blowout and spill
   Interior could use its existing authority in the drafting of 
        new offshore leases to impose fees on lessees as necessary to 
        defray the costs of their regulatory oversight

Lost Production
    Question 26. I understand--and appreciate--that your report focuses 
on ways to improve the safety of offshore drilling operations. As a 
policymaker, however, we have to examine whether recommendations could 
reduce offshore production and have energy security implications. One 
interim rule from BOEMRE included analysis in which reduced offshore 
production would simply be replaced with supply from OPEC. Does the 
Commission agree that the policy response to the Deepwater Horizon 
spill should not render us any more dependent on foreign oil?
    Answer. The Commission does not anticipate that any of the reforms 
that it recommends will render the United States more dependent on 
imports of oil and gas. Just the opposite is true. The purpose of the 
Commission's recommendations is to allow the significant oil and gas 
resources that are available domestically to be explored, developed, 
and produced, but to be done so more safely. Although it was beyond our 
Presidential assignment, the Congress might consider the development of 
a comprehensive petroleum policy which could place issues of 
production, national security and longevity of domestic resources in a 
broader context than that which was available to the Commission.
    Question 27. Would the Commission recommend that Congress consider 
steps to increase onshore and/or shallow water production, in areas we 
know we can produce with smaller potential consequences, if reform 
policies are likely to crimp deepwater exploration?
    Answer. Nothing in the Commission's recommendations is inconsistent 
with Congress's deciding to take such steps. Deepwater, however, is 
where the most significant domestic resources currently are, which is 
why the Commission sought to develop recommendations to allow for those 
significant resources to be explored, developed, and produced safely. 
To the extent, moreover, that there are issues not addressed by the 
Commission's final report, the Commission is not able to consider 
further recommendations. By Executive Order, the Commission ends no 
later than March 11, 2011 and the Commission cannot, consistent with 
the Federal Advisory Committee Act, deliberate on the new 
recommendations within the limited time available.
    Question 28. Does the Commission have a position on whether the US 
ought to produce a higher than current percentage of the oil it does 
use, or a lower percentage?
    Answer. The Commission did not take a position on that issue in its 
final report.

Economic Burden
    Question 29. Again understanding that your principal focus was 
safety, as it should be, have the Commissioners conducted any sort of 
economic analysis to determine the employment and revenue impacts that 
the Commission's recommendations might have?
    Answer. Nothing in the Commission's research suggested that 
economic costs would make it economically infeasible for companies 
operating in the Gulf to comply with the enhanced safety requirements 
contemplated by the Commission's recommendations. The Commission, for 
instance, learned during its investigation that many of the same oil 
companies operating in the Gulf were already complying with very 
similar safety requirements in waters offshore of other nations. The 
Commission perceived no reason why companies should be operating in a 
less safe manner in U.S. waters.

Time to Drill
    Question 30. To what extent did the Commission consider the length 
of time it takes to drill an offshore well when making its 
recommendations? Is it possible that your recommendations would 
frustrate the ability of companies to commence drilling within their 
lease terms? Please provide the Committee with an example of how much 
time it takes to drill the average deepwater well today, as compared to 
the amount of time it is likely to take to drill a deepwater well with 
all of your Commission's recommendations--including new environmental 
analyses, multiple new agencies involved in the approval of permits, 
and any other item that could change the amount of time it takes to 
drill a well.
    Answer. There is no reason why implementation of the Commission's 
recommendation would frustrate the ability of companies to commence 
drilling within their lease terms. Oil companies comply with comparable 
drilling safety requirements in waters offshore other nations without 
unreasonable delays. The Commission also does not believe that its 
recommendations will, taken together, necessarily delay, in particular, 
the time required in drilling a deepwater well. The Commission's 
recommendations are aimed ultimately at streamlining the process by 
providing for more able and expeditious government oversight than 
exists today. The industry's current delays in obtaining the necessary 
permits in the Gulf, for instance, are caused by an underfunded 
government regulator that lacks the resources necessary to ensure 
drilling safety in an expeditious manner. By providing for a fully 
funded and expert agency overseer, the Commission's recommendations may 
well enable industry to obtain the necessary permits more quickly than 
it can today once industry has made the necessary demonstration that it 
possesses the containment and response capacities that it lacked at the 
time of the Macondo well blowout.

Macondo Blowout
    Question 31. Chapters 1 and 4 of the report explain how a series of 
tragic management missteps, mistakes, and oversights led to the Macondo 
well blowout. In looking at the Chapter 9, however, to what degree are 
the Commissioners certain that the recommendations of the Commission 
would have prevented the disaster from occurring?
    Answer. Had those in charge of the drilling operations at the 
Macondo well last April been subject to a regulatory regime consistent 
with the Commission's recommendations, we are confident (although one 
can never be completely certain) that the mistakes that ultimately led 
to that well blowout would not have occurred. There would have been 
procedures in place that would have guarded against, among other things 
(i) the use by BP of an unstable cement slurry supplied by Halliburton; 
(ii) the failure by rig personnel to interpret the results of a 
negative pressure test, which showed the well's instability; (iii) the 
adoption of temporary abandonment procedures that unreasonably 
increased the risk of a well blowout; and (iv) the failure of rig 
personnel to respond to an instrumentation reading that showed that 
hydrocarbons were entering the well in an uncontrolled fashion and 
thereby signaled an impending well blowout.

Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions 
                          From Senator Sanders

    Question 32. In your report, you find that ``scientific 
understanding of environmental conditions in sensitive environments in 
deep Gulf waters, along the region's coastal habitats, and in areas 
proposed for more drilling, such as the Arctic, is inadequate.'' Yet 
your report also concludes that we should continue to open up new areas 
for offshore drilling, even in areas such as the Pacific and Atlantic 
where the Administration has reinstated a moratorium and where there is 
not widespread public support for new drilling. How can you conclude 
that we should open up new areas for drilling when by your own finding, 
we lack necessary scientific understanding of the environments in which 
new offshore drilling is proposed?
    Answer. The Commission recommends that the need for new information 
should not, standing alone, serve as a basis for a moratorium on new 
drilling. The Commission did not otherwise determine whether, when, or 
where drilling should occur in the Arctic, Pacific, or the Atlantic, 
concluding that those decisions should be made by the appropriate 
government officials based on a series of principles outlined in the 
Commission's final report.
    Question 33. The Energy Information Administration has found that 
opening up the Pacific, Atlantic, and areas around Florida not 
currently open for drilling would only save consumers 3 pennies per 
gallon by 2030. That contrasts with the fact that according to the 
Union of Concerned Scientists we can save consumers the equivalent of a 
dollar or more per gallon in 2030 just through the Obama 
Administration's current fuel economy standards of 35 miles per gallon 
by 2016. Would you agree that our nation should put priority on 
increasing fuel economy standards to reduce our dependence on oil and 
save consumers money, as opposed to opening up areas in the Pacific and 
Atlantic for new drilling even when states in those regions do not 
support it?
    Answer. The Commission has not previously addressed this issue in 
its prior deliberations and its final report and, in light of the 
Commission's termination date of March 11, 2011 and the requirements of 
the Federal Advisory Committee Act, is not now able to take on any new 
issues for the purpose of making a recommendation.
    Question 34. The oil industry's largest corporations have recorded 
record-breaking profits over the last decade. On page 257 of your 
report, you recommended that the off shore oil industry pay for its own 
regulation, similar to what is required of the telecommunication 
industry. In your estimation, how much money would this save the 
American taxpayer?
    Answer. We do not have a precise number but the cost would be in 
the order of only a few hundred million dollars per year, at most, 
which is a small fraction of the profits earned by the offshore 
industry. There is no reason why the American taxpayer, rather than 
industry, should pay for that cost of doing business on property owned 
by all Americans.
    Question 35. In his State of the Union address, President Obama 
laid out a plan to move to generating 80 percent of the nation's 
electricity from clean energy sources by 2035, and to pay for the clean 
energy technology development by eliminating the billions in taxpayer 
dollars we currently give to oil companies. In your considered view, is 
the President's plan to convert to far greater use of clean energy 
sources, and to eliminate giveaways and tax breaks to oil companies, a 
sensible way for this nation to proceed?
    Answer. The Commission has not previously addressed this issue in 
its prior deliberations and its final report and, in light of the 
Commission's termination date of March 11, 2011 and the requirements of 
the Federal Advisory Committee Act, is not now able to take on any new 
issues.

Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions 
                         From Senator Sessions

    Question 36. Alabama's economy, specifically the coastal counties, 
has been severely impacted by the tragedy in the Gulf. Tourism dropped 
dramatically last summer, and continues to suffer as our usual visitors 
choose other vacation locations. The Commission's report recommends 80 
percent of the Clean Water Act fines return to the Gulf States for 
``Gulf restoration.'' Does the Commission recommend these funds be 
allocated solely toward environmental restoration, or are economic 
concerns also being considered?
    Answer. The Commission recommends that this particular source of 
funds be allocated exclusively for ecological restoration. The 
Commission's rationale for this limitation is that there will be other 
sources of funds that will compensate individuals suffering those 
exceedingly serious adverse economic consequences. As importantly, and 
as noted in the Commission's Report (p. 213), ``[t]he economies of the 
Gulf--fisheries, energy, and tourism--are as rooted in the environment 
as any in the developed world. Restoration, or restored resilience, 
represents an effort to sustain these diverse, interdependent 
activities and the environment on which they depend for future 
generations.''
    Question 37. On page vii of the Summary Document of your 
Recommendations, you state ``the immediate causes of the Macondo well 
blowout can be traced to a series of identifiable mistakes made by BP, 
Halliburton, and Transocean that reveal such systemic failures in risk 
management that they place in doubt the safety culture of the entire 
industry'' So can we conclude the majority of your recommendations are 
based primary on your doubt, or can you provide detailed analysis of 
these mistakes versus the former operations on over 4,000 other 
deepwater wells drilled in the Gulf of Mexico to truly show 
statistically that the safety culture of the Industry is weak?
    Answer. The detailed analysis of the nature of the mistakes made 
are summarized in Chapter 4 of the Commission's Final Report and set 
forth in the detail that you seek in a several hundred page report to 
be released by the Commission's Chief Counsel in mid-February. The 
reasons why these errors support our conclusion that there is a 
systemic problem in industry even though this is the first major 
blowout of a deepwater well in the Gulf are several fold.
    First, the wells being drilled in deepwater in recent years, and 
that will continue to be drilled in the foreseeable future, are 
significantly riskier than the vast majority wells that have been 
drilled in the past, which is why one cannot rely on past safety 
records to predict the safety of future deepwater drilling in the Gulf. 
The Commission was appropriately concerned not with the past but the 
present and the future and it is in the deeper waters of the Gulf where 
the most oil is to be found and, for that reason, where most drilling 
in the Gulf is now headed. It is also where, because of those same high 
volumes of oil and heightened safety risks, the potential for another 
environmental catastrophe is greatest.
    More broadly, what our investigation revealed is that the industry 
as a whole had, because of the lack of past accidents in less risky 
waters, failed systematically to manage the risks presented by 
deepwater or to plan for the contingency of an accident there. The 
systemic nature of the lack of risk management was underscored by the 
role played in the Macondo well blowout not just by the largest 
operator of deepwater drilling in the Gulf--BP--but also by the 
involvement of two of the largest service contractors--Transocean and 
Halliburton--upon which most of the entire industry is dependent. The 
Commission's conclusions were further bolstered by the fact that none 
of the oil companies was in fact prepared to contain and respond to an 
oil spill of the magnitude of the Deepwater Horizon spill even though 
they each had submitted plans to the federal government claiming that 
they were. None of those claims was in fact true. The fact that all of 
the major oil companies failed to have in place meaningful oil spill 
response plans and similarly failed to have adequate containment and 
response capacity to deal with a deepwater well blowout make clear the 
lack of the kind of industry-wide commitment to safety culture that 
Americans can and should expect of those given the privilege of 
developing the nation's energy resources on public properties.

Joint Responses of Hon. Bob Graham and Hon. William Reilly to Questions 
                         From Senator Cantwell

                     REPAIRING ENVIRONMENTAL DAMAGE

    The Commission's recommendations talk about the need for a Natural 
Resources Damage Assessment (NRDA) process to provide ``transparent and 
appropriate'' restoration to compensate for the damage done by the oil 
spill to the natural resources and habitats in the Gulf of Mexico 
Region (pg 37). As a separate recommendation you also call for 80 
percent of the Clean Water Act (CWA) penalties from the BP Deepwater 
Horizon spill to be dedicated to long term restoration in the Gulf to 
restore decades of ecological degradation that preceded the spill.
    Question 38. Can you explain further how these two restoration 
efforts--one through the NRDA process and one funded by the CWA 
penalties--are different and how they should fit together?
    Answer. There is a distinction between legal action to recover 
costs for damages to natural resources and enforcement actions aimed at 
imposing civil or criminal penalties on the responsible party under an 
environmental statute. Both actions may be pursued, under separate 
authority, by states and the federal government in response to an event 
such as an oil spill. In bringing an enforcement action for civil or 
criminal penalties, the Department of Justice--on behalf of EPA, the 
Coast Guard, or another agency--acts in the role of prosecutor. By 
contrast, when the Department of Justice and/or states sue to recover 
natural resource damages, they are acting on behalf of the ``natural 
resource trustees'' with jurisdiction over the injured resources and 
the action is in many ways similar to a tort action.
    As a general rule, funds recovered as a result of civil or criminal 
enforcement actions under federal environmental statutes are deposited 
in the federal treasury and may not be used to redress the harms caused 
by the pollution event or incident. Under the Clean Water Act, the 
recovered funds would normally be deposited in to the Oil Spill 
Liability Trust Fund and would be available primarily for uses other 
than restoration of injured Gulf resources. Congressional action is 
required to redirect these funds to the Gulf.
    The authority to recover costs for damages to natural resources, on 
the other hand, is unique in that the funds recovered from responsible 
parties must be used to restore the resources injured by the event. The 
NRDA funds will be available for the purpose of ``restoring, 
rehabilitating, replacing or acquiring the equivalent of, the damaged 
natural resources'' injured by the spill. The measure of damages is 
based on the injuries resulting from the spill and is generally tied to 
``baseline'' conditions existing just prior to the spill.
    The Commission's proposal to direct 80% of penalties to Gulf 
restoration recognizes that there are many causes of degradation of the 
Gulf that have existed for decades, including flood control projects 
and energy development. The Deepwater Horizon spill was only one cause 
of coastal and marine degradation, but its effects have added to the 
deteriorating health of the Gulf.
    The Commission recognizes that NRDA funding should be directed at 
its legal purpose of restoring coastal and marine damages resulting 
from the spill, but recommends that the potential Clean Water Act 
penalties and fines could go toward addressing the systemic ecological 
damages that are not related to the spill, and that have drawn 
increasing attention over the last 20 years and are predicted to worsen 
over time. The Commission recommends, in particular, that the key 
criteria for funding include: national significance, contribution to 
achieving ecosystem resilience, and the extent to which national 
policies, such as those related to flood control, oil and gas 
development, agriculture, and navigation directly contributed to the 
environmental problem. Because Clean Water Act penalties would 
otherwise be deposited into the Oil Spill Liability Trust Fund, 
congressional action is necessary to direct those funds to Gulf 
restoration.
    Question 39. Given that the CWA penalties are penalties from an 
environmental statute to address environmental damage, do you agree 
that these penalties should be directed towards environmental 
restoration in the Gulf?
    Answer. The Commission does agree and, to that end, has recommended 
that 80% of those penalties be allocated to environmental restoration 
in the Gulf.
    Question 40. Your recommendations discuss the need for a Gulf-wide 
restoration approach that is rooted in science and informed by input 
from Gulf citizens and stakeholders. Can you elaborate on why a Gulf-
wide approach is important? What role can Congress play to ensure that 
such an effort moves forward and is efficient and effective?
    Answer. Scientists and policymakers view the Gulf as an ecosystem--
an interconnected web of ecological functions and resources whose 
individual survival depends on the health of the whole. The largest and 
most formidable challenges are to bring balance and efficiency to the 
Gulf's shared marine resources, and to address the rapid and continuous 
loss of wetlands, barrier islands, and shorelines comprising the 
Mississippi Delta and associated Chenier Plain of southwestern 
Louisiana. Beyond restoration of Delta and other coastal ecosystems, a 
broader restoration effort--guided by new research and an understanding 
of what long-term damages may be resulting from the spill--seeks to 
improve the environmental quality of the marine habitat. These issues 
link a complex web of problems (including the annual appearance of the 
low oxygen dead zone in waters of the Louisiana-Texas continental 
shelf) with the continued efforts to conserve the biodiversity and 
resources of offshore ecosystems.
    Restoration in the Gulf has been the subject of continued piecemeal 
efforts to fund and implement individual restoration projects. Funding 
has been authorized but not appropriated, and projects have stopped and 
started due to insufficient funding. Lack of sustained and predictable 
funding, project coordination and long term planning have resulted in 
incomplete and often ineffective efforts to restore the Gulf.
    Despite policies that have allowed continual degradation of the 
coast and marine ecosystems of the Gulf decade after decade, the 
economies of the Gulf--fisheries, energy, and tourism--are rooted in 
the environment. The Gulf region produces more than one-third of the 
nation's domestic seafood supply, including most of the shrimp, 
crawfish, blue crabs, and oysters; provides one-third of all domestic 
oil; and claims four of the top seven trading ports by tonnage. The 
northern Gulf also provides diverse fish nursery and feeding grounds in 
the form of expansive marshes, mangrove stands, swamp forests, and 
seagrass beds, and boasts some of best beaches and waters in the United 
States for recreation and tourism. Coastal tourism and commercial 
fisheries generate more than $40 billion of economic activity annually 
in the five Gulf States.
    Congress needs to act in order to move a Gulf-wide restoration 
effort forward. First, congressional action is required to direct a 
significant stream of funding to restoration of the Gulf. Redirecting 
80% of the Clean Water Act civil and criminal penalties paid by the 
responsible parties would ensure funding at the scale needed to begin 
achieving restoration. If Clean Water Act penalties are not directed 
toward Gulf ecosystem restoration, Congress should consider other 
mechanisms for a dedicated funding stream not subject to annual 
appropriations.
    Second, Congress should enact legislation to establish a joint 
state-federal Gulf Coast Ecosystem Restoration Council with authority 
to determine how restoration funds should be spent. The Council should 
set short-and long-term goals for restoration and establish specific, 
binding criteria for projects that would be eligible for expenditure of 
funds. A Gulf Coast Task Force is now in place, but it lacks the 
authority to set binding goals and priorities. Legislation could ensure 
this critical next step.
    Question 41. The Commission's recommendations note that 
historically most applications of the NRDA process have focused on 
coastal restoration, as opposed to restoration in water column or on 
the sea floor (pg 37). Would focusing primarily on coastal restoration 
be appropriate in this case? What suggestions do you offer for how to 
address the damage offshore, which you note is ``unprecedented and 
unknown'' (pg 36).
    Answer. The Commission's note that most applications of the NRDA 
process have focused on coastal restoration is directly related to the 
fact that most, if not all, past oil spill damages resulting in a NRDA 
have been to coastal habitats, surface waters, and animals. Since most 
spills occur at nearshore facilities, such as transfer stations, or on 
the ocean surface, as in tanker spills, the resulting damage to the 
deeper water column, if it exists at all, is often insignificant to 
warrant dedicated restoration. For example, small injuries to water 
column species such as zooplankton could be restored through salt marsh 
(coastal) restoration, because it improves the water quality and food 
sources necessary for zooplankton to thrive.
    The Deepwater Horizon spill, with its depth, volume, and duration 
creates a new challenge for Natural Resource Trustees charged with 
``acquiring, replacing or restoring the equivalent'' to the injured 
resource. The potentially large injury to water column species, many of 
which may reside 50 miles offshore and more than one mile deep cannot 
quickly be restored through coastal restoration projects. For example, 
we know that the Deepwater Horizon spill occurred during spawning 
season for many marine species, including oysters, blue crab, and 
bluefin tuna. The result could be a reduction in future populations due 
to a significant loss in juveniles and larvae. There is also emerging 
evidence that oil-laden organic material is settling on the deep water 
coral and other benthic communities causing (as yet unquantified) 
damage to these communities. Without direct and timely restoration of 
these resources, they may never recover to pre-spill conditions.
    Therefore, the Commission, while recognizing the challenge of 
marine restoration, concluded that focusing solely on coastal 
restoration would not be appropriate in this case. Potential 
restoration projects that may be implemented to directly benefit 
injured water column and benthic resources include coral reef 
restoration, expanded marine protected areas, and more comprehensive 
observing systems.
    As the question notes, much of the nature and extent of the damage 
to marine resources is as yet unknown. The Commission offers several 
recommendations to advance restoration of marine areas, including:

   Any potential settlement agreement between the responsible 
        party and the Trustees provide for long-term monitoring of 
        affected resources for a period of at least three to five 
        years.
   As a part of the restoration efforts in the marine 
        environment, greater attention be given to new tools for 
        managing ocean resources, including monitoring systems and 
        marine spatial planning. In this vein, the Commission 
        recommends expansion of the Gulf of Mexico Integrated Ocean 
        Observing System, including the installation and maintenance of 
        an in situ network of instruments deployed on selected 
        production platforms.
   A Gulf Coast Ecosystem Restoration Science and Technology 
        Program be established and funded to address science needs in 
        three ways: (1) by creating a scientific research and analysis 
        program, supported by the restoration fund, that is designed to 
        support the design of scientifically sound restoration 
        projects; (2) by creating a science panel to evaluate 
        individual projects for technical effectiveness and consistency 
        with the comprehensive strategy; and (3) by supporting adaptive 
        management plans based on monitoring of outcomes scaled both to 
        the strategy itself and to the individual projects or 
        categories of projects included in it.

              `FUNDAMENTAL TRANSFORMATION' OF THE INDUSTRY

    In addition to calling for sorely-needed improvements in government 
oversight and regulation, the Commission focused a great deal on the 
need for a transformation within the oil and gas industry itself. Your 
report stated [quote]:

          Government oversight must be accompanied by the oil and gas 
        industry's internal reinvention: sweeping reforms that 
        accomplish no less than a fundamental transformation of its 
        safety culture.

    Question 42. What are the top three big, tangible steps the 
industry needs to take to show the American public that they mean 
business about achieving the `sweeping reforms' the Commission is 
calling for?
    Answer. The industry needs first, to create a self-policing entity, 
akin to what the nuclear power industry did in establishing INPO in the 
immediate aftermath of the Three Mile Island accident in 1979. Second, 
industry needs to make readily available the technology capable to 
ensure containment of a deepwater well blowout within a few days of 
such an event. Finally, the offshore industry needs to create and fully 
fund an entity that will undertake the kind of sustained, significant 
research and development in oil spill response technology that industry 
promised in the aftermath of Exxon Valdez in 1989, but in fact failed 
to maintain.
    Question 43. If the oil and gas industry falls short of the 
fundamental transformation you are calling for, do you believe the 
industry has the right to ask for the trust of the American people in 
the future?
    Answer. We believe, based on our conversations with the oil and gas 
industry officials over the past several months, that those leaders 
understand the compelling need to transform industry safety culture, 
and that they will do just that.

                        WEST COAST DRILLING BAN

    As you may know, Senator Wyden and I and our other West Coast 
colleagues yesterday reintroduced legislation to permanently ban 
offshore drilling along the West Coast of the United States. This 
legislates the Department of Interior's conclusions in its five-year 
drilling plan that the West Coast is inappropriate for offshore 
drilling.
    Question 44. We all hope that government and the oil and gas 
industry make drilling much safer in the future. But even if it does 
become safer in the future, isn't it is still appropriate for the 
Administration and for Congress to say ``no'' to offshore drilling in 
areas where we think the risks don't outweigh the benefits?
    Answer. Nothing in the Commission's recommendations is inconsistent 
with the Administration and Congress deciding to disallow offshore 
drilling in any particular offshore area.
    Question 45. Will offshore oil drilling ever become totally 
riskless? As long as there is offshore drilling, can we ever totally 
guarantee that a tragedy like the BP oil spill will never happen again?
    Answer. There is no such thing as risk-free offshore drilling. In 
fact, almost no industry is totally risk-free. What the Commission 
nonetheless believes, however, is that the risks of such drilling, 
including in deepwater, can be reduced to reasonably acceptable levels 
if the appropriate safeguards are undertaken.

                  UNREALISTIC OIL SPILL RECOVERY PLANS

    The Commission report points out that BP's oil spill response plan 
for this well had blatant inaccuracies and made completely unrealistic 
assumptions about a worst-case scenario and BP's ability to respond.
    Question 46. Do you believe that this problem is still ongoing 
right now? Are there response plans currently in place that are 
inaccurate and have unrealistic assumptions?
    Answer. BP was not the only major company to have submitted oil 
spill response plans applicable to the Gulf based on blatantly 
inaccurate and unrealistic information. In the immediate aftermath of 
the Deepwater Horizon disaster, it quickly became apparent that other 
major oil companies had similarly flawed plans. Indeed, many of these 
plans repeated verbatim the same mistakes. The Commission has, for this 
reason, made a series of recommendations designed to ensure that oil 
companies do not continue to submit such plans in the future, but is 
not aware to what extent in recent months, oil companies have already 
begun on their own initiative to correct their prior safety lapses in 
this important respect.

                    ROOT CAUSE ANALYSES OF FAILURES

    In a technical paper presented by Transocean employee Earl Shanks 
at the Offshore Technology Conference in 2003, he wrote that:

          because of the pressure on getting the equipment back to 
        work, root cause analysis of the [blowout preventer] failures 
        is generally not performed.

    This echoes the Commission's finding that BP has had a history of 
utilizing a `band-aid' approach and failing to conduct effective root 
cause analysis procedures to identify systemic causal factors following 
past accidents.
    Question 47. Isn't industry's failure to investigate the root 
causes of blowout preventer failures and other mishaps a long-term 
safety risk?
    Answer. The Commission concluded that BP in particular, and 
industry as a whole lacked sufficient commitment to ensuring safety in 
deepwater drilling operations. Without a doubt, any such commitment 
would have to ensure the reliable operation of blowout preventers.
    Question 48. Which of the Commission's recommendations do you 
believe are particularly important for fundamentally and permanently 
shifting away from this `band-aid' mentality not just for blowout 
preventers, but for all drilling systems?
    Answer. It is hard to single out any one Commission recommendation 
because so many of the Commission recommendations are directed to this 
common end: some directed to changing government oversight and some 
more directed to industry self-policing. Two of the more significant, 
however, include the establishing of an independent and autonomous 
safety authority within the Department of the Interior and the 
establishment by the offshore oil and gas industry of a self-policing 
entity akin to that established successfully by the nuclear power 
industry in the aftermath of the Three Mile Island accident in 1979.

                       BLOWOUT PREVENTER FAILURES

    A 1999 MMS study that revealed 117 blowout preventer failures over 
two years also revealed that those failures were often not fixed. The 
study stated:

          for many of the failures observed. . . it was decided not to 
        repair the failure after MMS had granted a waiver (MMS granted 
        twelve such waivers). The failures in question were typically 
        failures in components that were backed up by another component 
        in the BOP stack.

    Question 49. If the status quo is to not fix blowout preventer 
failures when they happen, do you believe the status quo is acceptable?
    Answer. It is never acceptable to fail to take all reasonable and 
necessary steps to ensure the safety of well operations. And blowout 
preventers clearly play an important role in ensuring well safety.
    Question 50. Even if a failed component is supposedly backed up, 
doesn't intentionally not fixing a broken component increase the risk 
that the overall blowout preventer will fail in an accident?
    Answer. Blow-out preventers, like all other aspects of well 
operations, should always be maintained so as to ensure their reliable 
operation.

                         RELIABILITY STANDARDS

    A paper presented by Transocean employee Earl Shanks at the 2003 
Offshore Technology Conference outlined how reliability standards for 
blowout preventers were not explicitly part of industry's thinking, and 
were generally just assumed to be improving. It stated:

          A brief investigation into the specifications given to 
        blowout preventer control vendors revealed that rarely was any 
        equipment performance requirements given. . . Reliability was 
        assumed to be as good as the previous systems built. Or, in the 
        case of a new design, it was assumed better than before.

    Question 51. Isn't it dangerous to simply assume that newer systems 
are safer and more reliable if the industry and regulators are not 
making reliability standards an explicit requirement that is tested and 
measured?
    Answer. The reliability of equipment used in well operations is 
always essential to the safety of those operations. And, the mere fact 
that equipment is new is not the functional equivalent of such 
equipment also being reliable, especially reliable is frequently 
determined over time.
    Question 52. Should blowout preventer reliability standards be made 
an explicit part of decisionmaking by both the industry and regulators?
    Answer. Both industry and government should always take all 
reasonable and necessary steps to ensure that equipment used in well 
operations, including blowout preventers, is operating reliably and 
therefore safely.

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