THE 2006 PRUDHOE BAY SHUTDOWN:

WILL RECENT REGULATORY CHANGES

AND BP MANAGEMENT REFORMS

PREVENT FUTURE FAILURES?

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND

INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 16, 2007

Serial No. 110–46

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41–657 PDF 2008

THE 2006 PRUDHOE BAY SHUTDOWN:

WILL RECENT REGULATORY CHANGES

AND BP MANAGEMENT REFORMS

PREVENT FUTURE FAILURES?

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND

INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 16, 2007

Serial No. 110–46

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov

THE 2006 PRUDHOE BAY SHUTDOWN: WILL RECENT REGULATORY CHANGES AND BP

MANAGEMENT REFORMS PREVENT FUTURE FAILURES?

COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR., New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

DIANA DEGETTE, Colorado

Vice Chairman

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff

GREGG A. ROTHSCHILD, Chief Counsel

SHARON E. DAVIS, Chief Clerk

BUD ALBRIGHT, Minority Staff Director

(II)

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

BART STUPAK, Michigan, Chairman

DIANA DeGETTE, Colorado

CHARLIE MELANCON, Louisiana

Vice Chairman

HENRY A. WAXMAN, California

GENE GREEN, Texas

MIKE DOYLE, Pennsylvania

JAN SCHAKOWSKY, Illinois

JAY INSLEE, Washington

JOHN D. DINGELL, Michigan (ex officio)

ED WHITFIELD, Kentucky

Ranking Member

GREG WALDEN, Oregon

MIKE FERGUSON, New Jersey

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

JOE BARTON, Texas (ex officio)

(V)

C O N T E N T S

Page

Hon. Bart Stupak, a Representative in Congress from the State of Michigan,

opening statement ................................................................................................ 1

Hon. Ed Whitfield, a Representative in Congress from the Commonwealth

of Kentucky, opening statement ......................................................................... 5

Hon. Charlie Melancon, a Representative in Congress from the State of Louisiana, opening statement ................................................................................... 6

Hon. Greg Walden, a Representative in Congress from the State of Oregon,

opening statement ................................................................................................ 7

Hon. Gene Green, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 8

Hon. Jan Schakowsky, a Representative in Congress from the State of Illinois, opening statement ....................................................................................... 10

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 11

Hon. Joe Barton, a Representative in Congress from the State of Texas,

prepared statement .............................................................................................. 62

WITNESSES

Carolyn Merritt, chair and chief executive officer, U.S. Chemical Safety and

Hazard Investigation Board ................................................................................ 13

Prepared statement .......................................................................................... 15

Answers to submitted questions ...................................................................... 267

Richard Fairfax, Director, Directorate of Enforcement Programs, Occupational

Safety and Health Administration, U.S. Department of Labor ....................... 24

Prepared statement .......................................................................................... 27

Answers to submitted questions ...................................................................... 277

Jonne Slemons, coordinator, Petroleum Systems Integrity Office Division and

Oil Gas, Alaska Department of Natural Resources ........................................... 36

Prepared statement .......................................................................................... 39

Answers to submitted questions ...................................................................... 306

Stacey Gerard, Acting Assistant Administrator, Chief Safety Officer, Pipeline

and Hazardous Materials Safety Administration, U.S. Department of Transportation ................................................................................................................ 46

Prepared statement .......................................................................................... 49

Answers to submitted questions ...................................................................... 314

Robert A. Malone, chairman and president, BP America, Incorporated, Houston, TX .................................................................................................................. 82

Prepared statement .......................................................................................... 85

Answers to submitted questions ...................................................................... 319

SUBMITTED MATERIAL

Subcommittee on Oversight and Investigations exhibit binder ........................... 117

(1)

THE 2006 PRUDHOE BAY SHUTDOWN: WILL

RECENT REGULATORY CHANGES AND BP

MANAGEMENT REFORMS PREVENT FUTURE

FAILURES?

WEDNESDAY, MAY 16, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC.

The subcommittee met, pursuant to call, at 9:30 a.m., in room

2123 of the Rayburn House Office Building, Hon. Bart Stupak

(chairman) presiding.

Members present: Representatives Melancon Green, Schakowsky,

Inslee, Dingell, Whitfield, Walden, Burgess, and Barton.

Staff present: John Sopko, Scott Schloegel, Chris Knauer, Richard Miller, Rachel Bleshman, Alec Gerlach, Jodi Seth, Alan

Slobodin, Dwight Cates, and Matthew Johnson.

OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. STUPAK. The hearing on the ‘‘2006 Prudhoe Bay Shutdown:

Will Recent Regulatory Changes and BP Management Reforms

Prevent Future Failures?’’ will come to order. Each Member will be

recognized for 5 minutes for an opening statement. I apologize to

everyone. We are waiting for one or two Members who are stuck

in traffic. They should be here soon, including chairman of the full

committee, as he wants to participate in this hearing. So we started a little bit late today. I will begin with my opening statement.

On March 2, 2006, BP discovered that oil was leaking from a

major transmission pipeline responsible for connecting its west oil

field with the Trans-Alaskan Pipeline. Almost 200,000 gallons of

crude spilled out of the pipeline and became the largest spill in

Prudhoe Bay history. Prudhoe Bay oil field is the Nation’s largest

and most strategic oil field producing 400,000 barrels a day. What

started as a single oil spill ended in the shutdown of the entire

Prudhoe Bay oil field. As a result, the Nation faced a significant

reduction, almost 8 percent, of its domestically-produced oil supply.

This shutdown caused a severe spike in oil prices.

This committee’s investigation into the failures of BP’s Alaska

operations began shortly after the Department of Transportation

issued its March 15, 2006 Corrective Action Order. The CAO manVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
2

dated that BP smart pig a number of key pipelines, including the

Western Operating Area and the Eastern Operating lines.

At last year’s September 6 Oversight and Investigations Subcommittee hearing, a number of key questions were posed to BP

about its Alaska pipeline maintenance and safety. Among the key

questions raised at that hearing was: ‘‘What role did cost-cutting

play in managing the field and did it have any affect on whether

to smart pig or maintenance pig the critical transit lines that ultimately led to the field’s shutdown?’’ The committee members also

posed a number of organizational and management question on

how BP’s pipeline maintenance decisions were made. Members

were assured by BP that cost cutting measures did not affect maintenance and a lack of maintenance did not cause the oil leak.

Today’s hearing was originally intended to be an update as to

what corrective actions BP, as well as State and Federal agencies,

had taken to improve conditions at Prudhoe Bay. Unfortunately, as

a result of recent documents produced to the committee, we will

also need to revisit the issue of what caused the leaks.

In the 6 months since our last hearing, a number of new developments have occurred, including a reorganization of BP’s Alaska

management structure and personnel, as well as the engineering

and rebuilding of key pipelines. Evidence shows that severe cost

cutting pressures existed between 1999 and 2005, which may explain why pipeline corrosion mitigation activities were never undertaken.

Several thousand documents recently provided by BP shed additional light on how the Prudhoe Bay oil field was managed. Some

of these documents were actually available to BP officials before,

before the September 6 hearing, yet BP failed to disclose this information to the committee. These documents show that cost cutting

pressures on Prudhoe Bay operations were sever enough that some

BP field managers were considering reducing or halting the range

of actions related to preventing or reducing corrosion.

For example, some documents detail proposals to cut funding for

corrosion inhibitor. These documents show that proposals were

made between 1999 and 2004, and in such locations as the ‘‘produced water’’ lines which we understand are highly susceptible to

corrosion. Documents also suggest that corrosion monitoring efforts

such as smart pigging, coupon pulling and digging up crossroads

for visual inspections were reduced or put on hold because of budgetary pressures. This was occurring while BP received more than

$106 billion in profits. The documents further show that BP’s Corrosion, Inspection and Chemicals Group, CIC Group, was under extreme pressure to constantly find new ways to cut costs.

For instance, one e-mail from October 2001 said, and I quote,

As you know, we are under huge budget pressure for the last quarter of the year

and therefore we have to take some rather disagreeable measures. Can you please

implement the following changes/reviews:

Shut down the PW, this is produced water lines, inhibition systems for the remainder of the year.

Discontinue the additional corrosion inhibitor for velocity control.

These need to happen as soon as possible.

The author of this e-mail refused to testify at the September 6

hearing and instead took the fifth amendment. While it is not

known if specific activities as referenced in this e-mail occurred,

3

other e-mails and documents show BP field managers were being

asked to choose between saving money and critical maintenance.

BP recently released to the committee a major audit conducted

by Booz Allen Hamilton which attempted to answer key questions

on why last year’s shutdown occurred. The audit assessed both

management and processes which led to the corrosion and the failures of the Oil Transit Lines. The Booz Allen Hamilton report also

found weaknesses in the way BP’s Alaska unit was structured. The

Booz Allen Hamilton findings included the following:

There was no formal holistic risk assessment for pipeline integrity.

BP’s corrosion management strategy was developed in the late

1990’s and had not been substantially reviewed or revised until recently, despite specific direction to do so in a 2004 internal audit.

BP’s Alaska team often operated in vertical silos and there was

little sharing of technical knowledge outside of Alaska or even

across key business segments within Alaska.

BP’s information technology infrastructure was fragmented and

weak, making data analysis on key areas of the system difficult or

impossible.

While some credit should go to Booz Allen Hamilton for identifying a number of weaknesses in BP’s management of Prudhoe Bay

operations, it also failed to answer why certain decisions were

made or more importantly, not made. It also failed to explain why

some of the field’s key operational assets, such as the transit lines,

were allowed to corrode and were not smart-pigged.

Two other reports about BP were also finalized since our last

hearing. These include the Report of BP U.S. Refineries Independent Safety Review Panel, known as the Baker Panel Report, and

the U.S. Chemical Safety and Hazard Investigation Board, CSB, report.

These reports focused on the 2005 Texas City refinery explosion,

which resulted in 15 deaths and 180 injuries, as well as the other

four BP refineries in the United States. The findings of these two

reports have relevance to BP Alaska operations and they also explain what went wrong at Prudhoe Bay. We will hear today from

the Chemical Safety Board that ‘‘There are striking similarities in

the reported causes of the 2006 pipelines and the 2005 explosion

at the BP Texas City refinery.’’ In fact, as reported by the Chemical

Safety Board, most, if not all the seven root causes that BP consultants identified for the Prudhoe Bay incidents have strong

echoes in Texas City. These include the checkbook mentality of cost

cutting where budgets and funding were largely based on affordability as opposed to necessity and were not supported by an analytical process to prioritize risk.

It is the committee’s understanding that considerable design and

construction work has already gone into rebuilding the systems

that failed at Prudhoe Bay. BP should be applauded for their reconstruction. Nevertheless, we will hear from Department of Transportation and the State of Alaska on how these efforts are progressing, whether it believes BP’s physical problems have been

solved and how it will prevent future failures.

Within the past month, for example, the State of Alaska created

the Petroleum Systems Integrity Office, which will attempt to serve

4

as a bridge between the various State and Federal agencies now responsible for regulating Prudhoe Bay operations. The coordinator

for that office will also testify today. We look forward to understanding how this new organization differs from what was used in

the past and whether it will be more effective in regulating pipeline

and oil production operations.

Roughly 6 months ago, BP president Bob Malone made a commitment to this committee that he would return to provide a

progress report. I am pleased that he is before us, but I want to

know is about Booz Allen report’s findings; how senior management intends to restructure Prudhoe Bay operations so pipeline

failures are not repeated and how the contributing factors which

led to the tragic Texas City explosion reflect on the failures at

Prudhoe Bay. Also, one of the primary findings in the Chemical

Safety Board report was that cost cutting and budget pressures

from BP executive managers impaired process safety at Texas City.

BP’s Health, Safety and Environment Business Plan for 2005

warned that the refinery would ‘‘kill someone in the next 12 to 18

months if changes were not made.’’ Nonetheless, BP’s Group Refining Management executives issued a 25 percent reduction challenge.

An internal BP document found and again, I quote, ‘‘A culture

that evolved over the last years at Texas City seemed to ignore

risk, tolerated non-compliance and accepted incompetence.’’ It

found that the Group Vice President for Refining ‘‘was well aware

of under-investment at’’ Texas City refinery and failed to draw the

necessary inferences from the warning signals, such as a 2002 report which found that there was potential for a major site incident.

Isn’t under-investment essentially a polite way of saying we will

cut costs without regard to safety? Similarly, documents made

available to this subcommittee suggest that BP field managers

were under extreme pressure to cut costs in Alaska. E-mails and

budget challenges paint an environment of extensive cost cutting to

save money in the Prudhoe Bay operations.

While some may argue that these activities did not relate to the

shutdown or any given spill, my review of the mountain of circumstantial evidence can only lead me to conclude that severe

pressure for cost cutting did have an impact on maintenance of the

pipelines. With such severe pressure to reduce costs, would a pipeline manager have been able to propose excavating the low points

to examine for corrosion? Would a manager be allowed to smart pig

or maintenance pig the oil transit lines? These corrosion maintenance activities are very expensive. In an atmosphere where managers were contemplating shutting down corrosion inhibitor to save

money, I doubt the high costs associated with these proposals

would have been tolerated.

This investigation has been difficult. Documents which should

have been produced half a year ago were not made available to us

until a few weeks ago and more seem to roll in each day. In fact,

over 800 pages were provided to committee staff at 8:00 p.m. last

night. The committee’s findings thus far paint a picture of how cost

cutting impacted the way the oil field was run. There are dozens

of documents showing how employees, because of budget pressure

5

from management, struggled to make the right call when it came

to meeting the bottom line or to maintain pipeline integrity.

Perhaps most cynically, budget pressure was being exerted dur- ing the 1999–2006 time period when BP earned more than $106

billion in after-tax profits. As a result of BP’s poor management of

Prudhoe Bay, the public are the ones who ultimately are left footing the bill as the costs of supply interruptions are passed on to

them in the form of higher prices at the pump. This practice of

record high corporate profits coupled with continued cost cutting

and neglect of infrastructure must end. The atmosphere of little accountability, minimal penalties and no financial risk due to the fact

that oil companies merely heap their additional costs onto the

backs of consumers at the pump, will not continue to be tolerated

by this Congress or the American consumers.

This committee will continue to investigate BP’s management of

this strategic oil field and as more documents become available, additional hearings may be warranted. I just hope BP does not turn

into the Los Alamos of the north.

And with that, I would yield time for opening statement to my

friend, Mr. Whitfield, from Kentucky.

OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

Mr. WHITFIELD. Thank you, Chairman Stupak, and this morning

we revisit the topic that the Oversight and Investigation Subcommittee examined at some length last fall at a September 7,

2006 hearing. BP was and remains today responsible for the operation and integrity of the transit lines as they move crude oil from

the wells on the north slope to the Trans-Alaska pipeline system.

Specifically, BP-Alaska has operational unit known as the Corrosion, Inspection and Chemicals Group that is directly responsible

for monitoring and mitigating pipeline corrosion.

During our investigation last year, we learned that a key component of this corrosion control program had been neglected with respect to the transit lines, a practice known as pigging, where devices are placed into the pipelines to clean out sludge, sediment,

sand and other material. Smart pigs, on the other hand, provide

pipeline operators with a comprehensive picture of internal and external corrosion of the pipelines. The western transit pipeline that

leaked in March 2006 had not been pigged since 1998 and the eastern transit pipeline that leaked in August 2006 had last been

pigged in 1991.

Documents recently produced to the committee by BP reveal that

employees had discussed pigging the transit lines on many occasions, but the idea was routinely rejected. We were stunned that

BP’s transit pipelines, which transport one of the country’s most

vital domestic resources of crude oil, had been allowed to deteriorate to such a state. BP testified that they thought their corrosion

and monitoring program was state-of-the-art and that pigging transit lines was not imperative. Obviously, that judgment was wrong.

In fact, some of the testimony by Admiral Barrett, the head of

DOT’s Pipeline and Hazardous Materials Safety Administration at

that time, is worth repeating here. He said typically, up on the

6

north slope and generally in the industry, he would see maintenance pigs every couple of weeks, certainly every couple of months,

but never on these lines. Last year we sought to understand exactly what BP knew and when they knew it and what steps the

company would take to adequately respond to the concerns raised

by its own employees, as well as others.

We wanted to know why the transit pipelines were not properly

maintained and did budget pressures lead to decisions that resulted in the neglect of these lines. BP has recently provided the

committee with over 5,000 pages of documents related to these

questions and as Chairman Stupak pointed out, many of these documents were available to them last September. And so we are disappointed that BP decided to withhold these documents for so long.

However, the documents do provide insight on the cost pressures

faced by pipeline safety managers that may have led to bad decisions on corrosion management. And these questions need to be explored more fully today.

We also look forward to testimony from the representatives of

the Pipeline and Hazardous Materials Safety at DOT today, as well

as the Chemical Safety Board and OSHA, as well as the Alaska

Department of Natural Resources is represented here today, as

well. We look forward to their testimony. We also welcome back

Mr. Bob Malone, president of BP America and look forward to what

he will say about BP’s plans for future operations at Prudhoe Bay

and at BP facilities around the country.

At a time when the American people are paying the highest

prices for gasoline in a long time, and when the American people

are consuming around 22 million barrels of oil every day, we do not

have any margin of error for maintenance problems in this industry. And we want to make sure that the production and the transportation and the refining and the distribution is working the way

it is supposed to work in order to protect our economy and to shield

the American people from higher fuel prices.

So we look forward to the testimony as we all work together to

address the serious issues facing our country and thank you again,

Chairman Stupak, for having this hearing. I yield back my 19 seconds. Thank you, Mr. Chairman.

Mr. STUPAK. Mr. Melancon for an opening statement.

OPENING STATEMENT OF HON. CHARLIE MELANCON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA

Mr. MELANCON. Thank you, Mr. Chairman. I appreciate it.

Prudhoe Bay is an important component of our Nation’s domestic

energy supply, producing roughly 8 percent of domestic oil and gas.

I do have an understanding of energy producing regions of the

country and of energy production. As you may know, I represent

much of the energy producing Gulf Coast of Louisiana, as my

friend, Mr. Green, next to me, and we produce roughly 30 percent

of our domestic supply of oil and gas out of the Gulf of Mexico.

The impact of shut in production during Hurricanes Katrina and

Rita rippled across our Nation’s economy in the form of higher

prices at the pump for all Americans. Similarly, a shutdown of the

distribution system in the oil fields of northern Alaska have disVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
7

rupted supply. The Prudhoe Bay shutdown pushed the price of oil

above $70 a barrel and gasoline above $3 a gallon. Because of

tightly balanced supply and demand in the world markets and a

lack of refining capacity in the United States, even a small disruption in supply can impact all our constituents’ wallets. As we speak, retail gasoline is climbing above a $4 threshold in

parts of the country. Continued high prices have created a market

dependent on production in unstable and dangerous regions of the

world. We live in a time when a crude oil pipeline explosion in Nigeria will impact the downstream prices at the pump in New York

City. Our energy supply is intertwined, tightly balanced and vulnerable to events far beyond our control. Because of geopolitical instability and consistent volatility in the prices, I believe that securing our domestic energy supply should be one of our Nation’s top

priorities. America’s enemies know that creating a supply disruption like the refinery explosion in Texas City can take as much as

400,000 barrels a day out of the market.

What we have learned from the Chemical Safety Board investigation in Texas City, the Baker Panel Report on BP’s five U.S.

refineries, the BP-sponsored Management Accountability Project

evaluation related to the Texas City refinery explosion and the

Booz Allen report on Prudhoe Bay pipeline leaks is that the same

kind of supply disruptions threatened by terrorists can result from

underinvestment in basic refining maintenance, corrosion protection of critical pipelines and management’s failure to keep hydrocarbons inside the pipes using long established process safety management.

Prudhoe Bay and the Gulf must keep producing, no matter what,

in order for our economy to enjoy prosperity and our energy supply

to remain secure. That means that BP and its working interest

owners should not be making short-terms tradeoffs between cost

cutting to boot the bottom line, and necessary investments in safety

and pipeline integrity. I am glad that BP has been accessible in its

dealings with the subcommittee and your recent efforts to disclose

information requested is appreciated. However, I share some concerns of the committee about the speed in which documents have

been produced.

Furthermore, I understand that many answers still remain illusive and we will ask many questions here today and hope that we

will get honest and deliberative answers. I would like to thank the

witnesses for appearing today and I am looking forward to learning

more about the Prudhoe Bay and Texas City incidents and what

BP is doing to learn from these past mistakes. Thank you, Mr.

Chairman.

Mr. STUPAK. Thank you, Mr. Melancon. Mr. Walden, please, for

an opening statement.

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON

Mr. WALDEN. Thank you, Mr. Chairman. Thank you for providing this hearing for us, a follow-up from the one that I chaired last

year. The leaks we deal with here in Washington generally don’t

hurt the environment, but leaks in oil pipelines in Alaska and elsewhere can and do and that is why we are here today, to figure out

8

what went wrong, why did it go wrong and how do we make sure

it doesn’t happen again, to the best of our human ability. Because

we want to make sure the environment is protected and that the

flow of oil can proceed safely and efficiently. So I look forward to

learning more about what went wrong, why it went wrong and

what we can do to fix it so it doesn’t happen again.

Why were alarms ignored when they went off? Why is somebody

driving along the pipeline has to sniff out the hydrocarbons, since

they are already leaking? How do we make sure that doesn’t happen again? So Mr. Chairman, I look forward to hearing from our

witnesses and the questions that we have to ask them and I thank

you again for holding this hearing.

Mr. STUPAK. Thank you, Mr. Walden. Mr. Green for an opening

statement.

OPENING STATEMENT OF HON. GENE GREEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GREEN. Thank you, Mr. Chairman, for holding the hearing

and I want to welcome our panelists today. I especially want to

welcome Ms. Merritt and thank you for the job you have done and

your staff has done at the Chemical Safety Board on this particular

issue. This issue is probably one of the most important in the district I represent in Texas, where we have both refineries, chemical

plants and pipelines that play such an important part of our life

and our local economy and of course, in the economy of our Nation.

As the father of two children, I have tried to teach them many

life lessons; one of them, the most important, is when you make a

mistake, you find out why you made that mistake and you learn

from that experience. We must ask ourselves what went wrong and

how can we improve and how can we emerge stronger than before.

I hope today’s hearing helps shed some light on whether BP America, the Occupational Safety and Health Administration and other

industrial players learn from the mistakes of the past to help protect the health and safety of America’s workers and maintain the

integrity of our Nation’s critical energy infrastructure.

Although unfortunately, I do not believe all the lessons have

been learned from the accident in Prudhoe Bay nor the accident

that hit home in Texas City. On March 15, 2005 an explosion at

BP’s Texas City refinery took 15 lives. One of them was a constituent of mine from Baytown, Texas, and injured 180 others. This was

the worst workplace disaster since 1990, one that still affects the

lives of these families who lost loved ones in the blast.

And I believe we look back at 1990, there was a chemical facility

in Pasadena, TX, that is in our district, that exploded, which

means this I take very seriously and I think between Charles

Melancon and I, there is not two Members who are closer to the

energy industries, because it is our tax base and our job base. But

if you are making lots of money like BP does, no matter what company you are, and you are cost cutting and you are causing the

lives of 15 people to be lost or product to be left out on the tundra

in Alaska, you have to be answerable for it and that is why we are

here today and I just wish we also had oversight in our committee

on OSHA, because obviously they are not doing their job, either.

9

But I will let the Committee on Education and Labor take care of

that with our encouragement.

The U.S. Chemical Safety Board, an independent agency that investigates major chemical accidents, completed the most thorough

investigation in its history of the accident in Texas City and came

up with several important conclusions. Cost cutting, failure to invest and production pressures from BP management, in the safety

performance, BP did not provide effective oversight of its safety culture and major accident prevention program.

BP lacked an effective culture to report safety concerns and

OSHA should increase inspection and enforcement at all U.S. refineries and chemical plants should require these corporations to

evaluate the safety and impact of mergers, reorganizations and

downsizing. As a result of the investigations, CSB has made new

recommendations to BP board of directors, OSHA and others to rectify inherent flaws and discrepancies that led to the disaster.

I hope today’s testimony and the question and answer will determine that those recommendations are followed. Although I have to

admit, last summer I was at a plant in my district and I asked,

touring that plant, I said seems like that construction shack is

pretty close to the unit and I was told we are getting ready to move

that. I said this last year at the hearing and I am saying it today,

BP cost 15 peoples’ lives and 180 injured. Those of us who work

and live in the energy industry need to know we need to learn from

the mistakes that BP made. And if they haven’t moved those

shacks now, that should be done; should have been done right

afterwards.

After reviewing the recommendations, I introduced H.R. 141 in

this 110th Congress and it seeks to require more accurate injury

and accident logs for all employees, including contract workers at

these sites across the country. These site logs, I believe, will better

enable OSHA to determine which sites need inspection to protect

workers’ safety. When I found out that in the energy industry, so

much of our work is now done by contract workers, but when that

injury for that worker or death is not counted on that site, something is wrong.

One of the most startling conclusions I have come to realize,

since reviewing BP’s two major accidents, is many of the fundamental causes in Texas City and the exact same causes found in

Prudhoe Bay almost 1 year later and obviously, we have a lesson

that is lost. Whether BP’s operations are in Alaska or Texas or

anywhere in our country, Congress expects BP to invest in the necessary resources to protect human life and the environment and

our economy and we should do all we can to ensure the commitment be followed through for the American people. These actions

come at a most unfortunate time. One of the Congress’s top priorities includes addressing climate change and believe an important

part of this piece will be ensure adequate oil and natural gas production to provide affordable, reliable energy for U.S. consumers.

Incidents such as we are going to discuss today breeds on that

distrust citizens already have in the high energy prices and apparent neglect that certain energy companies are providing to their

workers in the infrastructure. Mr. Chairman and ranking member,

thank you again for holding this hearing and I know we held one

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last year and I hope we will continue to do this because we make

things in my district that are volatile and I want to make sure we

use every safety precaution we can to protect my constituents, and

I yield back my time.

Mr. STUPAK. Thank you. Mr. Burgess for an opening statement,

please.

Mr. BURGESS. Thank you, Mr. Chairman. I have a prepared

statement that I will put into the record, but let me just say, when

we had this hearing last September and we specifically left out

anything that dealt with the Texas City accident. I thought that

was an oversight by the Oversight Committee. I thought we should

have included the fact that there were 15 people lost in Texas. We

should have included the facts of that accident as part of our hearing last September, so I am grateful that now we do have the

chairman of the U.S. Chemical Safety Board to testify before us

this morning and certainly, in reading through that testimony in

preparation for this hearing, it does come up that there apparently

were striking similarities between the accident that occurred in

Texas City and the conditions that led to the non-inspection of the

transfer lines in the Prudhoe Bay area that led to the hydrocarbon

leaks on the north slope.

So I think this is getting at the essence of the critical heart of

the problem. I obviously am anxious to hear BP’s answer to some

of the issues that have been raised, but I agree with my colleague

from Texas that it is not just because those were Texans that were

lost, but we all have an obligation to protect lives and safety and

welfare of our constituents and while energy is of vital importance

to our country and at no time in our country’s history has it been

more important than it is right now, we must not ignore the safety

concerns for the people who provide us the ability to have that energy. So thank you, Mr. Chairman, for holding the hearing and I

will yield back the balance of my time.

Mr. STUPAK. Thank you, Mr. Burgess. Texas City, as I made in

my opening statement and we will hear today, there were so many

similarities of management between what happened in Texas City

and Prudhoe Bay, I think that is why you see greater emphasis

upon it at this hearing and appreciate your input at this hearing.

Mr. Inslee, I think, is next for an opening statement, please.

Mr. INSLEE. Thank you. I will reserve my time, Mr. Chairman.

Mr. STUPAK. Ms. Schakowsky.

OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Ms. SCHAKOWSKY. Just a couple of things. I was at the hearing

last September and so of course, I am very much looking forward

to seeing the kinds of changes that were made, but I am looking

now at the reports that BP commission from Booz Allen to examine

the root causes of both Prudhoe Bay and the Texas City disaster.

The No. 1 cause would be of deep concern and great surprise to my

constituents who are now paying $3.49–$3.59 in Chicago for gasoline. The first is BP had a ‘‘deeply ingrained cost management

ethic’’ as a result of low oil prices. That was last year and oil

prices, gas prices were still pretty high then and for the Prudhoe

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Bay and for Texas City, cost cutting and budget pressures from BP

Group executive managers impaired the process.

Really, we are talking about record high oil prices and that is not

new this year. We had this surge in prices last year, as well. I

think people who are filling their tanks are expecting a little bit

more, perhaps a lot more from British Petroleum, from BP, in the

way of spending the necessary money to prevent these kinds of accidents and devastating oil leaks that do such damage to our environment. So I am looking forward to seeing what progress has been

made and I want to commend our chairman. All too often we have

hearings on a topic and reveal a problem, but sometimes we don’t

get back and check up and see how things have progressed, so I

really appreciate this hearing today, Mr. Chairman, and I yield

back my time.

Mr. STUPAK. I thank the gentlelady. Seeing no other Members

who wish to be recognized, at this time I am going to ask unanimous consent, if it is OK with you, Mr. Whitfield, to, if Mr. Dingell

or Mr. Barton comes for an opening statement, we will accommodate them when they arrive? Without any objection, so ordered.

That concludes the opening statements by members of the subcommittee and I will call our first panel of witnesses. Stacy Gerard,

Assistant Administrator of the U.S. Department of Transportation

Pipeline and Hazardous Materials Safety Administration; Ms.

Jonne Slemons, coordinator of the Petroleum Systems Integrity Office at the Alaska Department of Natural Resources; Ms. Carolyn

Merritt, Chair and CEO of the U.S. Chemical Safety and Hazard

Investigation Board; Mr. Richard Fairfax, Director of the Enforcement Programs at the Department of Labor’s Occupational Safety

and Health Administration.

I welcome the witnesses to the committee. It is the policy of this

subcommittee to take all testimony under oath. Please be advised

that witnesses have the right under the rules of the House to be

advised by counsel during their testimony. Do any of our four witnesses before us wish to be represented by counsel at this time? All

indicating no. Therefore, I would ask if you would please rise and

raise your right hand and take the oath.

[Witnesses sworn.]

Mr. STUPAK. Let the record reflect that the witnesses replied in

the affirmative. They are now under oath. We will begin with our

opening statement. Ms. Merritt, you are on my left. We will start

with you, please, if you would, for 5 minutes.

Ms. MERRITT. Thank you.

Mr. STUPAK. Excuse me a minute. We said that we would accommodate either Mr. Dingell or Mr. Barton. Chairman Dingell, has

arrived and he has been very active in this investigation, so if you

may, I will ask you to hold a minute. We will turn to the chairman

of the full committee, Mr. Dingell, for an opening statement.

Please, sir.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Chairman DINGELL. You are most gracious. Thank you.

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The hearing today was supposed to be a simple follow up of last

September’s hearing that concerned the shutdown of the Prudhoe

Bay field. This committee was preparing for today’s hearing at that

time. However, a number of documents were recently discovered by

British Petroleum and turned over to us; for that, we commend

them. These documents clearly shed new light on the cause of the

Prudhoe Bay failures and raise questions about the testimony of

BP officials who appeared least year.

They suggest that cost cutting drove many key management decisions in the Prudhoe Bay field and dovetail with a number of reports that surfaced since last year’s hearings that also raise serious

questions about BP management. One study conducted by the

Chemical Safety Board found that severe cost cutting contributed

to the refinery explosion in Texas City that killed 15 people.

These new documents and reports strongly suggest that BP field

managers were asked to consider trimming key activities related to

halting or mitigating corrosion to meet very tight safety and maintenance budgets. For example, we recently found an e-mail that

discusses corrosion inhibitor and how it would prevent corrosion in

the produced water lines. It reads, in part, that, and I quote now,

Due to budgetary constraints, the decision has been made to discontinue the inhibitor currently being injected at Gathering Center 2 and Gathering Center 3. The

bulk tank should run out within the next 2 days and will not be refilled.

What is particularly interesting is a follow-up e-mail that suggests that BP staff were aware that this would increase corrosion.

The e-mail reads as follows, in part:

FYI-We have conducted the field trial of the produced water inhibition chemical

and found it to be very successful at cleaning up the system and arresting corrosion

activity. Unfortunately, we did not budget a full year’s chemical expense. We are

now at a point where the original monies for this program are used up, so we will

be shutting it down until year’s end. In the meantime, the produced water system

may be subject to increased corrosion activity and fouling.

Mr. Chairman, these e-mails are quoted because they capture the

essence of what went wrong with Prudhoe Bay. Workers were often

forced to forego safety measures to save money and to ultimately

increase BP’s profits. Other e-mails that we recently uncovered

refer to stopping or halting other key corrosion inspection programs, including smart pigging, looking for corrosion under the insulation that covers and thus hides the pipe, and digging up key

road crossings where corrosion can be a significant problem. These

are all key activities in running a safe field. Yet these programs,

in many cases, appear to have been halted or cut due to budgetary

reasons.

This is the core of what we have learned about the way British

Petroleum managed Prudhoe Bay. Until BP fully acknowledges the

role cost cutting and budget pressure played in creating this mess,

I fear other problems like this may be occurring at other BP facilities throughout the United States. At a time when oil and gas

prices are again squeezing consumers, it is critical that we keep a

vigilant eye on how these precious resources are managed. As the

largest oil field in North America, oversight of Prudhoe Bay’s management is a wise investment of the committee’s time and attention.

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I thank you for holding this hearing, Mr. Chairman, and I look

forward to today’s testimony. I yield back the balance of my time.

Mr. STUPAK. Thank you, Mr. Chairman, for your opening statement.

Ms. Merritt, we will begin with you now. I remind the witnesses

that they are under oath, including your opening statement. Please

start.

TESTIMONY OF CAROLYN MERRITT, CHAIR AND CHIEF EXECUTIVE OFFICER, U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD

Ms. MERRITT. Thank you, Mr. Chairman, Ranking Member

Whitfield and the distinguished members of the committee. I am

Carolyn Merritt, Chairman of the U.S. Chemical Safety Board. The

Chemical Safety Board is an independent, non-regulatory Federal

agency that investigates major chemical accidents. Today, I speak

as an independent member of that board.

The CSB recently completed a 2-year investigation of the disaster

at the BP Texas City refinery, which killed 15 workers, injured 180

and was the worse U.S. workplace accident since 1990. On March

23, 2005 a distillation tower and blowdown drum were flooded with

highly inflammable hydrocarbons, causing a massive explosion and

fire that filled workers in a nearby trailer. This accident was the

direct result of organizational and safety deficiencies at all levels

of the BP Corporation.

At the committee’s request, we reviewed the Booz Allen Hamilton

report on Prudhoe Bay and compared its findings with our own.

Mr. Chairman, there are striking similarities in the reported

causes of the BP Prudhoe Bay pipeline incident and the BP Texas

City explosion. Virtually all of the seven root causes identified for

the Prudhoe Bay incidents have strong echoes in Texas City. Both

reports point to the significant role of budget and production pressures in driving BP’s decision-making and ultimately harming safety. Our report describes what BP itself called a ‘‘checkbook mentality.’’ Budgets were not large enough to control known risks, but

spending was nonetheless limited to the budgets provided.

Cost considerations led to drastic staffing and training cuts and

even dissuaded BP from replacing its antiquated blowdown drums

with an inherently safer flare system, which likely would have prevented this accident. Both investigations found deficiencies in how

BP managed the safety of process change. The Booz Allen report

speaks of a ‘‘normalization of deviance where risk levels gradually

crept up due to evolving operating conditions.’’

In BP Texas City, abnormal startups were not investigated and

became routine, while critical equipment was allowed to decay. By

the day of the accident, the distillation equipment had six key

alarms, instruments and controls that were malfunctioning. Trailers had been moved into dangerous locations without appropriate

safety reviews.

In Prudhoe Bay, BP’s internal audit findings faced ‘‘long delays

in implementations, administrative documentation of close-out even

though remedial actions were not actually taken, or simple noncompliance.’’ In Texas City, the closure rate for action items from

incident investigations was only 33 percent and maintenance perVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
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sonnel were authorized to close job orders even if no work had been

completed. Other common findings include flawed communication

of lessons learned, excessive decentralization of safety functions

and high management turnover. BP focused on personal safety statistics but allowed catastrophic process safety risks to grow. I describe all these commonalities in greater detail in my written statement.

Finally, the CSB investigation included an analysis of OSHA’s

role in enforcing safety rules at refineries and chemical plants. We

found that OSHA did not conduct any comprehensive, planned

process safety inspections at the Texas City Refinery or any U.S.

refinery for at least 10 years prior to this event. Other jurisdictions, including the United Kingdom, and California’s Contra Costa

County, are doing comprehensive regular inspections each year of

major oil and chemical facilities every 3 to 5 years. Those are models that we should emulate at the Federal level. The CSB therefore

recommended that OSHA conduct more comprehensive inspections

and train more specialized inspectors.

Mr. Chairman, more stringent Federal oversight will help protect

our workers and our communities from chemical disasters. Improved process safety also protects the American public from gasoline supply disruptions that analysts say cost millions of dollars a

day at the pump. I thank the committee for convening this important hearing today and will be pleased to answer your questions.

Thank you.

[The prepared statement of Ms. Merritt follows:]

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Mr. STUPAK. Thank you. Mr. Fairfax, please, opening statement.

TESTIMONY OF RICHARD FAIRFAX, DIRECTOR, DIRECTORATE

OF ENFORCEMENT PROGRAMS, OCCUPATIONAL SAFETY

AND HEALTH ADMINISTRATION, U.S. DEPARTMENT OF

LABOR

Mr. FAIRFAX. Thank you, Chairman Stupak, Ranking Member

Whitfield and Congressman Dingell and members of the subcommittee. I appreciate the opportunity to appear today before you

to discuss OSHA’s efforts to protect health and safety at America’s

refineries.

My name is Richard Fairfax. I am the director of OSHA’s Enforcement Program and I have been with the agency for 29 years.

As a side note, I just would like to point out, prior to joining OSHA,

I worked in refineries in both California and Texas as a pipe fitter

and welder, so I am somewhat familiar with those industries.

Twenty-one States and Puerto Rico have chosen to exercise the option given to them by the OSH Act to operate their own occupational safety and health program. These State programs conduct

inspections in their own jurisdictions. Alaska, where BP’s Prudhoe

Bay facility is located, is a state-plan State and not covered by Federal OSHA.

We believe that OSHA’s efforts to address workplace safety and

health are achieving results, as evidenced by all-time low occupational injury and illness rates and fatality rates. The overall workplace injury and illness rate is 4.6 per 100 employees in 2005. That

is the lowest rate since the Bureau of Labor Statistics began collecting data in 1973. Since 2002, the injury and illness rate has

fallen by more than 13 percent and the fatality rate has fallen by

about 7 percent.

Enforcement is a key component to our strategy and let me be

perfectly clear in stating that compliance with OSHA standards is

mandatory, not voluntary, and all employers are responsible for ensuring the safety and health of the employees at their worksite.

Since 2001, OSHA has proposed more than three quarters of a billion dollars in penalties for safety and health violations and we

have made 56 criminal referrals to the Department of Justice since

2001. The refinery industry is a major focus for us. Last year we

and our State partners conducted 98 inspections in refineries.

When OSHA encounters a company that repeatedly ignores its

legal obligations and places employees at risk, the agency employs

it Enhanced Enforcement Program. This program targets employers with serious violations related to worker fatalities or multiple

and willful repeated violations of various laws that we have. For

these employers, OSHA schedules mandatory follow-up inspections

and negotiate comprehensive settlement agreements and provisions

in those agreements to protect the workforce and we will conduct

inspections of other work places of that same employer.

As to the inspection that killed 15 workers at BP Products in

Texas City, OSHA conducted the most extensive inspection of a refinery in the agency’s history. In a settlement agreement with BP,

BP Products paid more than $21 million in penalties and agreed

to abate all cite hazards and agreed to extensive additional monitoring analysis of safety operations at the Texas facility. In JanuVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
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ary 2006 OSHA referred this case to the Department of Justice to

determine if criminal charges should be pursued against the company.

To determine whether similar conditions existed at other BP facilities, OSHA issued and enhanced enforcement alert to all its regional offices and state-plan States. OSHA’s inspection at the BP

facility refinery in Oregon, OH, under this alert, identified a number of violations very similar to those found in Texas City. Using

the Enhanced Enforcement Program, OSHA penalized the company

more than $2.4 million and this inspection resulted in 32 willful

violations. Similar to Texas City, the violations found employees located in vulnerable buildings and found numerous ignition sources

that compound the risk of fire and explosion; again, very similar

to BP in Texas City.

Additionally, under this alert, with assistance from our staff and

OSHA’s region 5, Indiana-OSHA, which is a state-plan State, conducted an inspection of BP Products facility in Whiting, Indiana.

That inspection resulted in over $300,000 in penalties and we

issued several willful violations in that inspection. We are currently conducting a follow-up inspection at Texas City, including an

investigation of an incident last month in which more than 100

workers were taken to the hospital after complaining of flu-like

symptoms.

Since OSHA has begun enforcing the Process Safety Management Standard, there has been a steady decline in the number of

fatality and catastrophe events. These are the types of incidents

which the Process Safety Management Standard was promulgated

to prevent. The number of fatal or catastrophic events related to

PSM has declined from 24 in 1995 to five in 2005.

To address refinery safety and to address some of the recommendations of the Chemical Safety Board, prior to the event in

Texas City, we began working on a National Emphasis Program for

refineries. That program, our national program, is very close to

being ready to be released. The emphasis program will use a new

inspection strategy which frankly, I am quite proud of that we will

use to yield better results in our inspections. OSHA will encourage

its State partners to implement the emphasis program and/or to

create their own emphasis program. Our agency will inspect, in the

next 2 years, all 81 refineries under OSHA’s jurisdiction under this

program.

OSHA currently provides three course on Process Safety Management at its training institute. More than 200 of our compliance officers have received instruction in one or more of these classes. We

project that by the time we complete our Advanced Process Safety

Management Course this fall, we will have trained more than 280

workers or employees of OSHA.

Mr. Chairman, although we have made considerable progress in

reducing injuries and illnesses in the American workplaces over the

last 36 years, any fatality, including those at petrol and chemical

companies is one death too many. We are aware of the devastation

wrought by refinery explosions and fires in the communities where

they are located. Our staff has met with the families of these workers and seen the toll that it takes. Our agency is using all its reVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
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sources to reduce the dangers and risk in the refinery industry, as

well as all companies nationwide.

Mr. Chairman, that concludes my testimony and I would be

happy to answer your questions.

[The prepared statement of Mr. Fairfax follows:]

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Mr. STUPAK. Thank you, Mr. Fairfax. Ms. Slemons, if you would

for an opening statement, 5 minutes.

TESTIMONY OF JONNE SLEMONS, COORDINATOR, PETROLEUM SYSTEMS INTEGRITY OFFICE DIVISION AND OIL GAS,

ALASKA DEPARTMENT OF NATURAL RESOURCES, ANCHORAGE, AK

Ms. SLEMONS. Chairman Stupak, Representative Whitfield, Vice

Chairman Melancon and distinguished members of the committee,

thank you for the opportunity to appear here today. My name is

Jonne Slemons. I am the acting coordinator of the new State of

Alaska Petroleum Systems Integrity Office.

The March 2006 pipeline corrosion in the Prudhoe Bay Unit led

to a spill of approximately 200,000 gallons of oil from a transit line

onto the tundra. Five months later, a different transit line on the

same unit leaked 735 gallons onto the tundra. After the August

spill, BP determined that the Prudhoe field, which accounts for 8

percent of domestic output, had to be partially shut down, reducing

by half the field’s production of 400,000 barrels of oil a day, directly

affecting gasoline prices nationwide and costing the State of Alaska

approximately a million dollars per day.

BP acknowledge problems when the leaks were discovered that

called into question their assumptions and decisions regarding corrosion monitoring. Those events have been and continue to be carefully investigated. Remedial actions are underway and the flow of

oil has resumed. But the spills and shutdown demonstrated to the

State and to the Nation that preventive safeguards in both operator performance and government oversight were lacking. I would

like to describe to you the actions being instituted by the State of

Alaska in response to those events.

First, the Department of Environmental Conservation has promulgated regulations for oversight of flow lines upstream of the

separation facility, pipelines not regulated by the Pipeline and Hazardous Materials Safety Administration. Those regulations were

approved shortly after the events of 2006 and are now in phased

implementation with full implementation scheduled for 2009.

Second, and on a much broader scale, on April 18th, Alaska’s

governor, Sarah Palin, signed Administrative order 234, which created the Petroleum Systems Integrity Office or PSIO. We believe

that the PSIO will have a significant and long-term effect on preventing future incidents such as those described above.

The PSIO resides within Alaska’s Division of Oil and Gas, a division of the Alaska Department of Natural Resources. The division

conducts oil and gas lease sales, issues oil and gas leases, performs

royalty accounting, administers the creation and operation of oil

and gas units, approves surface activities and facilities, conducts

inspections and reviews to ensure protection of coastal resources

and compliance with the lease terms and stipulations. Traditionally, the division has not engaged in the review, approval or inspection of maintenance programs or practices. As is common throughout the country, the division has relied on the ‘‘enlightened self-interest’’ of operators to maintain their equipment properly in order

to maximize the safe and continuing production of oil and gas resources.

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The events of 2006 in the Prudhoe Bay Unit taught us that we

cannot rely on ‘‘enlightened self-interest’’ to ensure that prudent

maintenance practices are carried out. We also learned of several

regulatory gaps in oversight of oil and gas infrastructure. The

PSIO addresses these findings.

Governor Palin’s Administrative order establishes that the PSIO

resides within the Division of Oil and Gas, the State’s landlord,

and there the body responsible for ensuring that State leases are

properly maintained. The PSIO will utilize the broad authorities

vested in the division through our oil and gas leases.

The order also establishes that the Alaska Department of Natural Resources Commissioner shall be the lead official for communication and coordination with all Federal agencies relative to oversight of oil and gas exploration, production and transportation on

State lands.

It further establishes that the Coordinator of the PSIO shall be

the lead official in exercising oversight of maintenance of oil and

gas facilities, equipment and infrastructure.

And finally, it establishes that designated State agencies coordinated by the PSIO shall participate in interagency activities and

provide technical assistance as requested by the PSIO. Those designated State agencies are the Alaska Departments of Natural Resources, including the Office of Habitat Management and Permitting, the Office of Project Management and Permitting, the Division of Mining, Lands and Water, and the State Pipeline Coordinator’s Office. It also includes the Alaska Oil and Gas Conservation

Commission and the Departments of Environmental Conservation,

Fish and Game, Public Safety, Revenue, Transportation and Public

Facilities, Labor and Workforce Development, Law and the Washington, DC Governor’s Office.

In regard to the PSIO’s coordination with Federal agencies, we

have conducted introductory meetings with the U.S. Coast Guard

and the U.S. Army Corps of Engineers and we have met several

times with the Pipeline and Hazardous Materials Safety Administration of the U.S. Department of Transportation. Further, we have

established a Letter of Intent with PHMSA to document our mutual commitment to work cooperatively in the regulation and oversight of oil and gas productions and transportation in Alaska. As

part of that agreement, the State and PHMSA will delineate clear

jurisdictional roles and develop a unified strategic plan for the

oversight of oil and gas production and transportation, including

risk assessment, standards, inspections and overall, communication.

In addition to coordinating the efforts of State agencies and providing a point of contact for Federal and local government coordination, the Administrative order also directs specific actions. Two primary tasks are identified as a starting point.

First, a regulatory gap analysis, which will assess the authorities

and practices of State and Federal agencies regarding oil and gas

oversight to avoid duplication and identify any regulatory gaps.

The second task is the evaluation and approval of operators’

maintenance and oversight programs, including inspections, to ensure compliance with approved programs.

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The regulatory gap analysis is underway. When it is complete,

the PSIO will commence the assessment of operators’ maintenance

programs, beginning with that of the Prudhoe Bay Unit. I expect

both of these efforts to be substantially completed within the calendar year. Follow-up tasks, such as development of regulations to

address oversight gaps and assessment of the maintenance programs of other oil and gas units will be designed and implemented

based upon the results of the gap analysis and the initial maintenance assessment. Concurrent with these efforts, a comprehensive

risk assessment of all oil and gas facilities and infrastructure is

planned to be conducted by an independent third part. This risk assessment will identify and prioritize areas of risk and will provide

valuable direction to our focus going forward.

Alaska is the only State in the country to require industry to

allow regulator access to operator facilities in order to ensure compliance with their own maintenance programs. We look forward to

breaking this new ground and to cooperative efforts with our Federal partners, and in doing so, maximizing the safe and stable flow

of our oil and gas resources to the Nation. Thank you.

[The prepared statement of Ms. Slemons follows:]

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Mr. STUPAK. Thank you. Mr. Gerard, your opening statement,

please.

TESTIMONY OF STACEY GERARD, ACTING ASSISTANT ADMINISTRATOR, CHIEF SAFETY OFFICER, PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION, U.S. DEPARTMENT OF TRANSPORTATION

Ms. GERARD. Thank you. Chairman Stupak, Ranking Member

Whitfield, members of the committee, I am Stacey Gerard, the

Chief Safety Officer of PHMSA, the Pipeline and Hazardous Materials Safety Administration. Thank you for the invitation to appear

today. I am pleased to discuss PHMSA’s actions to oversee the safe

continued operations of BP Exploration Alaska. I would also like to

thank the committee for its leadership in advancing the important

safety legislation we know as the PIPES Act. PHMSA is moving

forward with several rulemakings, including extending full, regulatory protection to low-stress hazardous liquid pipelines. Just yesterday we posted a supplemental notice proposing new additional

requirements for low-stress pipelines.

We do have some progress report concerning our oversight of

BPXA. Based on our ongoing monitoring and the degree of control

over BP, we exercise, through orders, our confidence in engineering, operations and maintenance of the existing transit lines is cautiously increasing. BP has begun replacement of the Prudhoe Bay

transit lines and is beginning to address management problems

that contributed to the failures they experienced last year. They

have a long road ahead to address these concerns.

We also are improving coordination with the State of Alaska,

which will result in better oversight of future BPXA activities in

Alaska. Earlier this week, as Ms. Slemons mentioned, we did sign

a Letter of Intent to confirm our new and approved commitment,

recognizing the impact on nationwide crude production following

the shutdown of the system this past year. PHMSA maintained a

monitoring presence on the north slope through the process of both

getting a better understanding of the transit line conditions and

controlling their safe operation. A review of the data from testing

has been extensive.

It took an extraordinary effort to get BPXA ready to pig the transit lines, but it is done now. The end line inspection results, along

with other external test findings, indicated that the lines are ‘‘fit’’

for continued use until the new pipelines are ready next year. Any

damaged observed was not significant enough to warrant immediate repair, but PHMSA is requiring aggressive corrosion control

and continuous monitoring. We issued a third amendment to our

order on April 27 to that point.

Additionally, we are requiring that these lines be pigged on a 12-

month cycle, that is smart pigged, and provide us with the results

for review. We have continued our examination of corrosion to improve our understanding of how the leaks occurred and the risk of

further line degradation. PHMSA is reviewing and analyzing the

pipeline designs, maintenance policies, corrosion monitoring methods, inspection procedures and operating practices.

Last September, we believed that internal corrosion induced by

microbial activity caused the western, the WOA, pipe to deteriorate

47

at the low section at the Caribou Crossing. Additional testing since

then reinforces that assessment. We have found evidence of an environment conducive to microbial sulfur reducing bacteria leading

to localized corrosion.

Additionally, sludge likely reduced the effectiveness of any corrosion inhibitors that were being used prior to the cleaning regime

we have required. Given the many risk factors on the north slope

environment, including use of water in the production process, the

chemistry of the crude oil product itself, and the varied geological

factors in the production field, we believe that BPXA should have

been running cleaning pigs on these lines on a regular basis to reduce the potential for this microbial process.

PHMSA has reviewed BPXA’s plans for rebuilding the eastern

and western pipelines and we oversee the construction. The plans

reflect many upgrades over the existing system and construction of

the new pipeline is underway. The new lines are designed to

PHMSA code. Smaller pipe diameters to increase fluid velocity

should minimize solids and microbial growth. Pipe elevation will be

higher, providing better access for inspection and maintenance and

reducing collection of water and solids. Better coatings and insulation will help to reduce external corrosion. A dedicated chemical injection system will provide greater effectiveness.

All segments will have pipe launching and receiving facilities

that are appropriate to the harsh climate. BP’s schedule calls for

all of the new oil transit systems to be in operation by the end of

December 2008. If the project milestones were to change, we would

require BP to resolve issues with us. PHMSA requires a strong

space systems approach to ensure pipeline safety and reliability.

Our Integrity Management approach continues to show positive results. IMP, as we call it, is our primary strategy to protect infrastructure and people and managed system risks through processes

that improve safety performance.

Integrity Management is solidly based on process safety management principles. IMP is the operator’s responsibility. Company

leaders must communicate this IM to all employees and know the

approach is understood, executed and measured. Transparency is

critical throughout the organization and identifying risks, choosing

controls and evaluating program effectiveness. As risks change, the

operator needs to be vigilant. They need to use the best data on

risk, make the best risk control decisions and employ resources to

the greatest risk, worst first.

We have championed this message for 15 years. More recently,

we have looked at the lessons from the Texas City refinery accident

as determined by the Chemical Safety Board and other reports.

The Process Safety Management message should be highly instructive to BP. If safety demands, it is BP’s responsibility to go beyond

Integrity Management minimums. Top management must have

and share safety values throughout the organization. Safety has to

be integrated into business priorities. Employees need a trusting

and open environment for the discovery and resolution of safety

problems.

Emphasis needs to be on looking forward on what could happen,

rather than solely through the rear view mirror on what has happened. We are currently working with BPXA and establishing leadVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
48

ing indicators on improved processes to help track how safety programs are working. We will address how risk assessment and risk

management can become more effective. BP is putting all their jurisdictional pipelines into the Integrity Management Program, a

good first step. This is a change and they have a way to go. We

will be monitoring this process carefully and for a long time.

I also want to highlight the commitment of the Department and

the State of Alaska to coordinate our efforts. We believe better insights on improved safety, environment and reliability performance

will be derived from a holistic systems perspective, looking at all

oil and gas operations through the same lens. We foresee good opportunity for progress through improved coordination of our programs. Thank you. I would be pleased to answer any questions.

[The prepared statement of Ms. Gerard follows:]

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Mr. STUPAK. Thank you, Ms. Gerard. Before we go to questions,

I see the ranking member of the full committee, Mr. Barton, is

here. Mr. Barton, would you care to make an opening statement?

Mr. BARTON. Thank you, Mr. Chairman, but in the interest of

time, I want to apologize for being late. We have got another hearing going upstairs, so I have to shuttle back and forth.

[The prepared statement of Mr. Barton follows:]

PREPARED STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

Mr. Chairman, I am very pleased that you have continued our investigative work

on this issue, because more work is needed to get to the bottom of what went wrong

last year.

At our subcommittee hearing last September, I had hoped that the committee

would get to the bottom of what caused the leaks that led to the shut-down of

Prudhoe Bay oil field last August. I had hoped that the subcommittee could make

sure that all the facts were in the public domain on what caused the corrosion that

led to the spills in both the east and west transmission lines on the North Slope

of Alaska.

BP left many questions unanswered last September. The subcommittee issued a

subpoena to Mr. Richard Woollam—the BP executive in charge of corrosion control

and the individual most knowledgeable about what went wrong—but Mr. Woollam

asserted his fifth amendment right against self-incrimination and declined to provide testimony or answer questions before the subcommittee.

After the hearing, the subcommittee discovered that BP failed to produce important documents that were its possession before the hearing. In October, we sent BP

a letter demanding an explanation on why some of these documents were not provided. Finally, just last month, the floodgates opened and BP provided thousands

of documents responsive to several written requests from the committee from last

year and that should have been provided much earlier.

I had hoped that this hearing could focus on BP’s path forward, the company’s

plans to replace corroded transit lines, and BP’s efforts to rebuild the public trust

in its North American operations.

But how do we know that BP has taken the necessary steps to correct its past

mistakes? Instead, BP and its lawyers have withheld important information from

the committee throughout our investigation. And now it looks like the company had

plenty to hide. The recently provided documents reveal questionable corrosion management decisions in the years leading up to the leaks in 2006. Until these concerns

are fully understood and addressed, no one should conclude that BP has turned the

corner.

In addition to problems in Alaska, BP has experienced more serious problems at

its refinery in Texas City. The U.S. Chemical Safety Board recently investigated the

Texas City Refinery explosion that killed 15 people in March 2005. That report

found ‘‘organizational and safety deficiencies at all levels of the BP Corporation.’’ I

am glad the CSB is here today to discuss their findings.

I look forward to the testimony today from chairman and president of BP America

Mr. Bob Malone. I believe Mr. Malone has taken several positive steps since he took

over last summer, and I am confident that he wants to set things right. His company got off to a bad start and then it made things worse. Now would be a good

time to demonstrate that BP can be a reliable producer of petroleum and a reliable

producer of truth, too.

I thank the chairman and I yield back.

Mr. STUPAK. I understand and there are a number of hearings.

I know I will be shuffling back and forth as well, and Mr. Melancon

will have to take over.

Mr. Whitfield asked unanimous consent that the binders—which

I will be asking questions from—be made part of the record. Without objection, so ordered.

Members will have 10 minutes for questions.

Ms. Merritt, if I may start with you, please, with my questions.

On page 25 of your Chemical Safety Board’s Investigation Report

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on the Texas City refinery explosion, the first finding is cost cutting and budget pressures from BP Group executive managers impaired process safety performance at Texas City. Is that correct?

And how deeply had BP cut and for how long? I mean, was this

recent, did it go back at this Texas City refinery? Could you explain

a little bit more on page 25 of your report?

Ms. MERRITT. Thank you. Yes, that is correct. How far back did

it go? Well, actually, 1999 we know that the first 25 percent operating budget cut was issued.

Mr. STUPAK. So 1999, that is when BP just purchased it from

Amoco?

Ms. MERRITT. That is correct. And that was issued by Lord

Browne.

Mr. STUPAK. OK. And Mr. Browne, at that time, was the CEO

of BP, right?

Ms. MERRITT. That is right.

Mr. STUPAK. In your testimony you state there are striking similarities in the reported causes of the 2006 events involving BP’s

Prudhoe Bay pipelines and the 2005 explosion at the BP Texas

City refinery. What are those similarities?

Ms. MERRITT. Well, there were a number of them. One of them

is management had changed efficiencies. One of the things that we

found in our investigation was that changes were made in processes, procedures and operations without an appropriate evaluation

of those risks. Failure to close action items from audit; there were

many audits that were conducted at Texas City, as well as is reported in the Booz Allen report, and items that were identified in

those audits that should have been red flags were not evaluated by

management and they were not properly addressed, investigated or

corrected.

Inadequate communications and excessive decentralization; the

organization at BP was highly decentralized. There were a lot of

people responsible for a lot of things, but it was almost impossible

to find a chain of accountability for process safety in the organization.

Mr. STUPAK. The committee asked you to take a look at the Booz

Allen Hamilton report and on page 2, and you alluded a little bit

to this in your testimony, the Booz Allen Hamilton report found

that, and I quote, ‘‘budgets and funding levels were largely based

on affordability versus necessity and were not supported by an analytical process to prioritize risk.’’ Is this finding essentially identical to a checkbook mentality, the words you used, found by the

Chemical Safety Board in their audit of BP?

Ms. MERRITT. Yes, exactly. Budget cost cutting became the driving factor in management bonuses and recognition and as a result,

short-term cost cuts were often made at the risk of long-term risks,

so we found that consistent with the BP investigation.

Mr. STUPAK. You said bonuses. Did the bonuses, I take it, for the

executives, were they based upon profitability of the company? I

know I brought up $106 billion over the years; we are talking about

from 1999 to 2006. So if you cut your maintenance costs, which increases the risk factors, but if you cut costs, therefore there is more

money, therefore more profits, i.e. bigger bonuses, is that fair?

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Ms. MERRITT. That was the plan. Their performance standards

focused only 10 percent on safety and that was based on a lost time

incident rate rather than a recognition of risk, of growing catastrophic risk.

Mr. STUPAK. Thank you. Ms. Slemons, there should be a binder

there with a bunch of tabs. Can you go to No. 28 for me?

Ms. SLEMONS. Yes, sir.

Mr. STUPAK. And No. 28, if you will, is an August 31 letter to

Mr. Malone from this subcommittee signed by Mr. Barton, Mr. Dingell, Mr. Whitfield and myself. Again, this is back in August 2006.

There is another letter, October 4, from Mr. Whitfield and if we go

on there, in the letter of—all letters are there and in order as they

were written. There is a letter of October 28 and attached to it is

the Compliance Order by Consent before the State of Alaska Department of Environmental Conservation.

Ms. SLEMONS. What was the date of the letter, sir?

Mr. STUPAK. October 28. But it would be CBOC there. The compliance order, Compliance Order by Consent.

Ms. SLEMONS. Yes, sir, I am looking for it. I don’t see it here. Tab

28, correct?

Mr. STUPAK. Yes.

Ms. SLEMONS. I have the Compliance Order by Consent.

Mr. STUPAK. OK, there you go. Let me ask you this. On that compliance order, when I take a look at it here—I am on page 5, paragraph 23. It says in order to address the violations outlined, count

1 through 4, specifically, BPXA agrees to perform the following

tasks by the dates indicated herein. Then there are about eight

items they have to do, two of them which, No. 3 was take EOA,

that is the Eastern Operating Area pipeline, from FS1 launcher to

Skid 50 by 6/30/02 right underneath there.

The next one, No. 4, pig WOA, Western Operating Area, pipeline

segments, if necessary, by 9/30/02. Then we find they are required

to do the pigging. Now, this is going back some time. Yet, Alaska

reversed this requirement. It was a consent agreement. BP agreed

to pig these two operating areas, Eastern and Western, by 2002,

but then suddenly there was an agreement not to do it, not to do

the pigging. Do you have any reason why that was rescinded by the

State of Alaska after they agreed to do it in a compliance order?

Ms. SLEMONS. I have asked the Department of Environmental

Conservation for the reasons for that decision. The intent of the

consent order by decree, as I understand it, was to identify the actions that BP needed to take prior to testing a leak detection system, specifically. Sediments were raised as an issue that could affect test performance and were the prime reason for requiring the

pigging. This consent order by decree took quite some time to actually accomplish and to move through and there were several actions that took place over the course of, as I understand it, about

a year.

Approximately 1 month before the leak detection test was to be

performed, BP responded to the various issues identified and noted

that sedimentation would not affect the leak detection test results,

therefore the pigging was not necessary. And in conversations with

the Department of Environmental Conservation, it is my understanding that DEC did consider that issue to be addressed and that

65

it would not affect the leak detection system test, which was their

primary goal.

Mr. STUPAK. But was anyone aware that even at that date, it

was probably 10 years before that, it was the Eastern line, I think

it was, had not been pigged for 10 years?

Ms. SLEMONS. I can’t answer to what the DEC officials’ knowledge was at that time.

Mr. STUPAK. What about the solids in the pipeline? Wouldn’t that

affect the flow and the integrity of those pipelines?

Ms. SLEMONS. One would think, of course.

Mr. STUPAK. And isn’t the standard now every 3 years you have

to pig a pipeline, transit oil pipeline?

Ms. SLEMONS. Yes. And in fact, they are pigged quite frequently.

Mr. STUPAK. You said this took a long time to put together. This

consent order was issued in May 2002 and then on August 9, 2002,

BP asked to eliminate the requirement of piggings for the lines and

then let us say in a month later, actually 5 days later, State of

Alaska agreed to it. It seems like it takes a long time to put together but then as soon as they want something, snap, quick, it is

done, it is resolved and that is a critical element of maintaining the

integrity of these lines, were they not?

Ms. SLEMONS. I agree that it is a critical element, yes, sir.

Mr. STUPAK. OK, thank you.

Ms. Gerard, in your testimony, you said something there about

the—and I want you to explain a little bit more—the sludge build

up makes the corrosion inhibitor that we have been talking about

ineffective. Explain that a little bit more for us, if you would,

please.

Ms. GERARD. The corrosion inhibitor should be able to reach the

wall of the pipeline, but if sludge and sediment is adhering to the

wall of the pipeline, then the inhibitor doesn’t have a good chance

to do its job.

Mr. STUPAK. So how would you get the sludge that is adhering

to the wall of the pipeline, how would you get it out?

Ms. GERARD. By regular cleaning of the pipeline.

Mr. STUPAK. By pigging, is that correct?

Ms. GERARD. Usually by cleaning pigs, yes, sir.

Mr. STUPAK. Ms. Slemons, I know you weren’t there at the time,

but any reason why Alaska didn’t require them to do it then? I

mean, we had it in the order, they rejected the order; no explanation why other than they didn’t think it was necessary. I mean,

if you get the sludge building up, you know you have to get it out.

You have got to pig it. They were told to do it and less than a

month later, you were told you don’t have to do it.

Ms. SLEMONS. Mr. Chairman, it has been explained to me that

the entire focus of the COB was the leak protection system and

that the explanation that BP offered regarding the sediment and

the requirement of pigging, that the pigging was not a requirement

to address the leak detection system was sufficient at the time. Beyond that, I am afraid that is just beyond my expertise. I would

be happy to find any answers that I can for you and provide them

later.

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Mr. STUPAK. When you have sludge building up on the side

walls, the corrosion inhibitors are not working and then you don’t

pig, that pipeline is going to leak eventually, right?

Ms. SLEMONS. And so we saw that it did, sir.

Mr. STUPAK. Thank you. My time has expired. Mr. Whitfield for

questions, please.

Mr. WHITFIELD. Thank you, Mr. Chairman.

Ms. Gerard, Mr. Malone took over the reins of BP America sometime last year, after the event at Prudhoe Bay, and my understanding that he replaced the entire management team in Alaska and

I am assuming that you all, and I would ask all of you involved,

that new team, I am assuming, has been more responsive than certainly they were before. Would that be accurate?

Ms. GERARD. The new team has been extremely responsive.

Mr. WHITFIELD. And have you been involved with them at all?

Ms. SLEMONS. No, sir.

Mr. WHITFIELD. Ms. Slemons, I am sure you have.

Ms. SLEMONS. Yes, I have, sir.

Mr. WHITFIELD. And what is your assessment of the new team?

Ms. SLEMONS. I also find them to be extremely responsive and

cooperative.

Mr. WHITFIELD. OK. Now, in your testimony, you mentioned that

Prudhoe Bay taught you that you cannot rely on enlightened self

interests to ensure that prudent managed maintenance practices

are carried out and by that, I am assuming that you meant that

the company took on that responsibility and no one really monitored it at all, is that correct?

Ms. SLEMONS. That is correct. That has traditionally been the

status.

Mr. WHITFIELD. And prior to the formation of the integrity group

that you are now with, what authority did the State of Alaska have

over these pipelines?

Ms. SLEMONS. Over the specific pipelines, we did not have oversight authority. The Department of Environmental Conservation

has authority, generally, throughout the State, for environmental

concerns, protection of land, water and air.

Mr. WHITFIELD. Right. But you had no authority over the actual

maintenance of these low-stress pipelines?

Ms. SLEMONS. That is correct. We believe that to be the fact.

Mr. WHITFIELD. And DOT, prior to the passage of the PIPES Act

by Congress last year, you had no authority over the low-stress

pipelines, Ms. Gerard?

Ms. GERARD. That is not exactly correct. We had authority that

we had not exercised over the low-stress pipelines in rural areas.

We had the authority prior to the PIPES Act. The PIPES Act gave

us some specific additional requirements.

Mr. WHITFIELD. And so that is when you did this correction action order or——

Ms. GERARD. We did the correction action order the week following the accident.

Mr. WHITFIELD. And Ms. Merritt, did your agency have any oversight or responsibility for these pipelines and safety issues or do

you primarily become involved after an accident?

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Ms. MERRITT. Yes. Well, we have authority to investigate hazards, but normally, the pipeline would not have been something we

have looked at.

Mr. WHITFIELD. And Mr. Fairfax, what about OSHA? What responsibility did you all have prior to the leakage?

Mr. FAIRFAX. Alaska is a state-plan State, so we had no really

involvement or authority, although I will point out if there is a

complaint related to pipeline safety, that way we would have jurisdiction for investigating the complaint of the whistleblower related

to pipeline safety.

Mr. WHITFIELD. OK. Well, looking back in retrospect, I mean, obviously BP had some major problems and some major failures in

their maintenance program, but in retrospect, did government fail

in any way in this process? Yes, Ms. Gerard.

Ms. GERARD. We regret that we did not have the regulation of

rural low-stress pipelines in effect before the accident occurred. We

had regulation on low-stress pipelines in populated areas and of

course, all high-pressure pipelines, but we had just begun the process of public meetings and proposing regulation just about the time

the accident occurred.

Mr. WHITFIELD. So you had the authority to oversee these, but

the regulations were not in effect?

Ms. GERARD. That is correct.

Mr. WHITFIELD. But they are in effect today?

Ms. GERARD. We have just issued a supplemental notice that

adds to our original proposal the additional requirements that the

PIPES Act mandates for all low-stress pipelines. The PIPES Act

broadened areas of coverage to include all low-stress pipelines and

all parts of part 195 of the Federal Pipeline Safety Code. That is

a bit broader than what the administration had proposed.

Mr. WHITFIELD. And if you had had those regulations in place

prior to this event, what steps would you have taken to be more

up to speed on the maintenance and the condition of those pipelines?

Ms. GERARD. If this was a regulated pipeline, we would have

been conducting a comprehensive Integrity Management inspection, operator qualification inspections and all other types of inspection of our code that we routinely do for all regulated pipelines.

Mr. WHITFIELD. And how many miles of pipelines do you regulate

today? Do you have any idea?

Ms. GERARD. All pipelines in the United States.

Mr. WHITFIELD. And pigging is a regular maintenance step that

is taken on all those pipelines, correct?

Ms. GERARD. We believe that most operators routinely clean

their pipelines in order to be able to maintain them in a safe condition. The Pipeline Safety Code doesn’t specifically use the word

cleaning. We do require smart pigging in high-consequence areas to

be able to assess condition of pipeline.

Mr. WHITFIELD. And how expensive is that for a company, say,

smart pigging? Do any of you on this panel have any idea of the

cost of that?

Ms. GERARD. I would say an average segment of pipeline would be about $50,000 to $80,000 to pig, to smart pig, based on the

length, the condition, the type of pig.

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Mr. WHITFIELD. I see. Now, it is my understanding that the

Western and the Eastern pipelines are now in operation and yet

there is a construction project going on for 16 miles of pipeline, is

that correct, Ms. Slemons?

Ms. SLEMONS. Yes, that is correct.

Mr. WHITFIELD. And do you feel confident that BP can operate

the old transit lines safely over the next few years as they try to

complete this new pipeline?

Ms. SLEMONS. We are confident in census assessment that those

lines are fit for use and we are keeping a close eye.

Mr. WHITFIELD. And does the State of Alaska have the authority

to impose fines or take other actions to see that that is done?

Ms. SLEMONS. The Department of Environmental Conservation

has recently promulgated new regulations that address flow lines,

which are those lines that extend from the wellhead to the production facilities and those regulations are in phased implementation

now and do include several different layers of penalty, including

fines. For the OTL lines, themselves, the State of Alaska does not

have fining capabilities. PHMSA regulates those lines.

Mr. WHITFIELD. Oh, so you have no authority to enforce on those

lines, the OTL lines?

Ms. SLEMONS. We believe that the broad authority in our oil and

gas leases allow us to assert ourselves and exercise oversight wherever that is necessary, however it is our policy not to duplicate

oversight where it is sufficient and PHMSA’s oversight of those

lines is what we rely on at this time.

Mr. WHITFIELD. And since BP acquired these lines from Amoco

in 1999, have there been any additional spills in Alaska other than

this one, what, it was 210,000 gallons, is that correct? Is that the

only spill that you are aware of?

Ms. SLEMONS. Since 1999 there have been several very small

spills, most of them below the reporting threshold, some at the reporting threshold. There have not been, to my knowledge, any

major spills other than those.

Mr. WHITFIELD. And my understanding is that BP operates,

what, five refineries in the U.S., is that correct, today or is it four?

Ms. MERRITT. Five.

Mr. WHITFIELD. Five? And they operated the Texas City refinery,

as well, correct?

Ms. MERRITT. That is correct.

Mr. WHITFIELD. And that refinery is not in operation today

or——

Ms. MERRITT. Yes, it is in operation. However, the unit where

the explosion occurred in 2005, I believe, is not operational.

Mr. WHITFIELD. Yes. Now, I know that Lord Browne resigned. I

am not sure if he resigned or he was asked to resign as chairman

of BP International, but I am assuming that part of that probably

came about because of these events at Prudhoe Bay and the Texas

City refinery and just that culture of problems relating to maintenance and so forth. Are you all aware of that from your personal

knowledge?

Ms. MERRITT. No.

Mr. WHITFIELD. OK. I yield back my 25 seconds.

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Mr. STUPAK. Can I use your 25 seconds? Ms. Gerard, I asked Ms.

Slemons about the Compliance Order by Consent on Alaska. You

issued compliance orders, do you not, DOT?

Ms. GERARD. Yes, we do, under our statutory authority.

Mr. STUPAK. In fact, on this one, you are requiring them to pig

every 12 months, if I remember correctly, right?

Ms. GERARD. That is correct.

Mr. STUPAK. Do you ever waive, after you ask them, if it is part

of a consent order, do you ever go back and waive the pigging requirements, like Alaska did? I just find that highly unusual, because that is such a critical part of maintaining integrity of a line.

Ms. GERARD. We would not waive pigging requirements.

Mr. STUPAK. OK, thank you. Mr. Melancon.

Mr. MELANCON. Thank you, Mr. Chairman. Let me start by asking, if I could, each one of you, and I think I understand Alaska

does not have the ability to fine on the pipeline incident because

of the spills?

Ms. SLEMONS. We do not have regulatory fining authority for

those pipelines, however the Department of Law is investigating

both civil and criminal suits as we speak.

Mr. MELANCON. OK. You have the ability to fine, is that correct?

I am sorry.

Ms. GERARD. We have the ability to fine for violations of our regulations.

Mr. MELANCON. And to date, how much have you fined BP?

Ms. GERARD. We have reserved the right to fine BP and have not

completed that enforcement action yet.

Mr. MELANCON. What is the preliminary estimates of fines?

Ms. GERARD. It would be preliminary to say what the preliminary fine was.

Mr. MELANCON. So then, maybe I should ask you if BP is consulting with you to determine how much it is going to be.

Ms. GERARD. I would not say that, but the fines are established

in statute.

Mr. MELANCON. They are in statute?

Ms. GERARD. Yes, they are.

Mr. MELANCON. On the chemical safety, the fines for the refinery, after these incidences that BP has had, what are the total

fines that have been issued against BP?

Ms. MERRITT. The OSHA fine was—and Mr. Fairfax probably

could answer that better than I can.

Mr. MELANCON. Yes, I will go to him first.

Ms. MERRITT. I think it was $21.6 million.

Mr. MELANCON. OK. And that is from your agency?

Ms. MERRITT. No, no, we do not issue fines or penalties or write

regulations. We are an investigative board, similar to the National

Transportation Board; make recommendations.

Mr. MELANCON. I have got you. Then, Mr. Fairfax, on the issue

of fines, we have got at one plant five dead, I believe, another plant

15 dead, 180 people injured. What was the total fines against BP

for these?

Mr. FAIRFAX. The total fine for the British Petroleum for the explosion was a little bit over $21 million and then we followed up

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with an inspection at the Oregon, Ohio facility and the penalties

issued in that one were a little bit in excess of $2.4 million.

Mr. MELANCON. Do you recall the profits of BP in these specific

years? Do you know?

Mr. FAIRFAX. No, no. I heard it mentioned earlier but I just don’t

remember what was quoted.

Mr. MELANCON. Just based upon what I have seen of earnings

of all companies, in recent years, and I have been in support of

them, $21 million sounds like kind of a low ball to me.

Mr. FAIRFAX. Well, that is the highest penalty ever issued by

OSHA.

Mr. MELANCON. Maybe we, as legislators, need to review it. Is

that by statute or is that by rule or regulation?

Mr. FAIRFAX. It is in the statute.

Mr. MELANCON. It is in the statute. Ms. Gerard, last September

the Pipeline Hazardous Materials Safety Administration proposed

new regulations to cover low stress oil transit lines such as the

Texas City refinery to Prudhoe Bay. Yet, 7 months later, these regulations have not been issued. Why haven’t they been issued?

Ms. GERARD. The passage of the PIPES Act did significantly expand the original proposal that we issued and we are required to

do regulatory analysis to consider the additional mileage and the

effect on small business, the effect on the Nation’s energy supply.

Comments on the docket, in fact, have indicated that there could

be an adverse impact for western States who may not be able to

keep pipelines in operation if these requirements were imposed, so

we have to address those requirements in going to a final rule. The

supplemental notice that we published yesterday, or we posted yesterday, picks up all the additional requirements of the PIPES Act

and seeks comment on that, which is required by due process.

Mr. MELANCON. Now, the PIPES Act was effective when?

Ms. GERARD. In December.

Mr. MELANCON. This past December?

Ms. GERARD. Just this past December.

Mr. MELANCON. But this goes back to 2006 when we started the

problem with the Prudhoe Bay issue?

Ms. GERARD. Well, the PIPES Act that passed at the end of December only at the end of December gave us clear additional requirements that we needed to add to our regulatory proposal, so

those new requirements were only effective, basically, at the beginning of this year.

Mr. MELANCON. OK. So you have got all of these regulations that

have been issued?

Ms. GERARD. They have been proposed and we were required to

propose additional requirements to be consistent with the new law

that passed in December. We have to get comments on those in the

next 30 days and we will be proceeding with all due haste to meet

the statutory deadline in the PIPES Act, to be complete within a

year.

Mr. MELANCON. Within a year. Now is that year going to be back

to 2006, because I think we have past a year.

Ms. GERARD. It would be a year from December 2006. But in the

meantime, BP is—they are protected by the compliance order that

PHMSA has issued and amended three times, so we have 36 to 37

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specific requirements which we can enforce using our statutory authority.

Mr. MELANCON. Do you find that the approval is a slow in coming or is this normal? I understand. How much did you add into

it with the PIPES Act?

Ms. GERARD. It was quite significant to consider all the additional regulations in the Federal Code, in addition to the requirements that we have proposed and given the fact that there is a lot

of small operators in parts of the United States, we had to hear

their comments and issues with, for example, the high cost of doing

assessments like pigging and consider the effect on their operations, particular an issue in the Rocky Mountain States.

Mr. MELANCON. It is kind like I tell my son, if you can’t afford

Mercedes, you get a Chevrolet because buying is the cheap part. It

is the maintaining that is the problem.

Ms. GERARD. Well, we have to be concerned about drinking water

supply and if the pipelines operators chose not to operate, whether

it would be as safe in a truck on a Rocky Mountain road.

Mr. MELANCON. Is there no regulations for preconstruction of

ownership and maintenance and requirements of bonds, none of

that?

Ms. GERARD. Until we bring the rural low-stress operator under

regulation, they are not regulated, but we expect them to have good

corporate stewardship no matter whether they are regulated or not.

Mr. MELANCON. Now, BP is under compliance under audit presently?

Ms. GERARD. That is correct.

Mr. MELANCON. And how long on the Prudhoe Bay issue do we

plan to keep them under audit?

Ms. GERARD. As long as it is necessary.

Mr. MELANCON. Meaning?

Ms. GERARD. Years.

Mr. MELANCON. Years?

Ms. GERARD. As long as it is necessary.

Mr. MELANCON. So what do we do during those years, are we

going to be checking them or are they going to be pigging these

things or are they going to be cleaning these lines? What exactly

is the agency going to be doing?

Ms. GERARD. Well, first of all, when this low-stress regulation is

final, any of the system that is still low stress would be regulated.

With the rebuilding of the pipelines, the majority of the lines we

expect will no longer be low stress and they will become regulated

when they are rebuilt and operational and they are a higher stress.

In the meantime, PHMSA maintains, on-duty, several inspectors

who are on site to witness all the required activities, including in

the construction activities. And so they are required to assess and

maintain corrosion protection, patrol, surveil, basically continuously understand the threats and address those threats on a priority basis.

Mr. MELANCON. BP indicated that the reason why this replacement line they were building in Alaska, because of lack of steel,

they asked for a deferment or something to that effect. When did

they make that request?

72

Ms. GERARD. I am not sure what request you are referring to. I

know that there was a commitment to have the new construction

done sooner than December 2008, but we reviewed their plans and

for the significance of the upgrades that they have proposed, and

pig launching and receiving, design to code, corrosion inhibitor systems, replacing the pipelines on new supports, deeper and stabilizing the soil, we believe that the rebuilding plan is worth the time

of the December 2008 deadline.

Mr. MELANCON. So next year, 2008?

Ms. GERARD. December 2008.

Mr. MELANCON. Thank you, Mr. Chairman. I yield back my time.

Mr. STUPAK. For questions, Mr. Barton, please.

Mr. BARTON. Thank you, Mr. Chairman. My first question is to

you, Mrs. Gerard. We passed what we call the PIPES Act last fall,

on a bipartisan basis, giving more authority to regulate some of

these low-stress, low-pressure lines. From what I can tell, that authority, you are attempting to use it but your final rule has not

been implemented yet because of some problem at OMB. Is that

correct or incorrect?

Ms. GERARD. No, sir, we published a supplemental notice yesterday which picks up the additional requirements that you PIPES

Act, and I want to say thank you very much for giving us the

PIPES Act. It is a great improvement for safety. So with that supplemental notice being out and getting public comment in the next

30 days from operators, about any additional burdens or operational problems we might need to consider, we expect to get the

final rule on time, in accordance with the statutory deadline you

gave us, sir.

Mr. BARTON. So you think that is going to be implemented in the

time we fashioned?

Ms. GERARD. Yes, sir.

Mr. BARTON. OK. Now to you and the rest of the group, I know

we have got a different mix of regulatory authorities, both State

and Federal. Is there any additional Federal legislation that this

committee or other committees need to implement to help you do

your jobs?

Ms. MERRITT. One of the things I would like to comment on is

that the process safety rule, which was implemented in 1993, was

well thought out and an excellent rule. From the industry perspective, I have been in process engineering in many different industries for a long time. It was needed but it hit the nail on the head.

There are two sides to that. One is the 14 elements that industry

is required to implement, but the other side of that is the enforcement element that is written into the rule. OSHA has the authority

to do program quality verifications and the way it was conceived

is that these would be conducted as multi-day, possibly multi-week

investigations by multiple inspectors who have education in engineering, refineries, chemical facilities, and they know what they

are looking at. If this part of the rule had been implemented, which

it was not, these program quality verifications would have done a

lot to have sustained the implementation of PSM in industry. In

1993, I was part of the requirement, both at corporate and facility

levels, to put it into place and I can tell you that the perspective

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of having a PQV audit did a lot to help us with that implementation.

Mr. BARTON. Is that something that you want Congress to take

a look at legislatively, or is that something you just want somebody

in the administration to arbitrate between you and OSHA?

Ms. MERRITT. Well, I don’t think it is between us and OSHA, but

the necessity for implementation and enforcement of the process

safety rule is certainly necessary and the provision is there if

OSHA were to implement it to have the authority to do the PQV

audits. Our recommendation is that OSHA conduct the PQV audits. These are not the same thing as just a one-day inspection.

Mr. BARTON. OK. Thank you. We will continue that. Now you,

ma’am. I think you represent Alaska?

Ms. SLEMONS. I do, the State of Alaska. Thank you for the question. I would like to speak to OSHA funding, if I could. You opened

the door about improvements to Federal legislation.

Mr. BARTON. We will stipulate that you can always use more

money. I mean, if that is what you are going to say, I can save you

2 minutes.

Ms. SLEMONS. It is not, sir.

Mr. BARTON. OK.

Ms. SLEMONS. The problem that we see with the OSHA funding

is not that we need more, as you know, because everyone could always use more, but one of the problems is that Federal funding

does not keep pace with increasing costs and it is our understanding that legislation does not allow it to do so. Increasing funding

can be interpreted in several ways. We interpret it as not applying

to simply inflation proofing the funding that we get. Over time, the

funds available to Alaska, for both consultation and the enforcement arm of Alaska OSHA, have been eroded to the point where

inspector positions are kept vacant in order to free up those funds

for day-to-day business. So the ability to inflation proof the OSHA

funding that comes our way would be important to the State of

Alaska.

Mr. BARTON. Thank you.

Ms. SLEMONS. Thank you, sir.

Mr. BARTON. Well, I have only about 4 full minutes, so I am

going to kind of cut to the chase. In response to either Mr.

Whitfield or Mr. Stupak’s question about how BP was cooperating,

everybody gave an affirmative answer, that you thought BP was

trying to cooperate. That is a little bit surprising to me, since the

number one person, Mr. Richard Woollum, who was their corrosion

manager, as far as I can tell, BP is putting on leave, he is still

being fully paid, but he is not allowed to talk to anybody. Have any

of you folks or your designees been able to interview Mr. Woollum?

That doesn’t sound like cooperation to me. The guy that is most responsible for the program, who apparently is part of a criminal investigation, I say apparently, because I don’t know that for a fact,

and he won’t—his attorneys won’t let him to talk to the committee

staff. He took the fifth amendment, which he has every right to

take. But if I had a full-time employee working for me and I was

cooperating, I would at least let that individual who worked for me,

while protecting his individual rights under the Constitution, I

74

would at least make him available to be interviewed, especially if

the company says he is fully cooperative.

Now, I have got also a list of things here in the committee memo

that, since the investigation started in this subcommittee back in

September of last year, kind of a timeline of what has been going

on, and a retired U.S. District Court judge, who has been tasked

with interviewing all of the complaints that the employees of BP

have on safety. They have looked at 11 so far. In nine cases, the

judge said they were substantiated, one is still to be determined

and one was unsubstantiated. It says, our committee staff believes

that the Alaska BP managers have resisted recommendations by

the ombudsman and as a result, problem resolution has been delayed. That doesn’t sound like cooperation to me.

I am also made aware, in October 2006, we finally got a copy of

an Alaska Department of Environmental Conservation consent

order, by decree, that BP was aware of sediment buildup in the oil

transit lines. This is back in 2002. They did not provide that document to our subcommittee staff. Everything that is in this document, it looks like BP is trying to do the right thing in public and

they are fighting like a tiger in private, but not implementing. So

I know Mr. Malone is in the audience and he has been in to see

me and I assume he has seen Mr. Stupak and Mr. Whitfield and

Mr. Dingell and I will stipulate that he is trying to do the right

thing, but it sure seems to me that everybody below him is resisting at least the implementation phase. Am I wrong? Are these staff

reports that are given to me just incorrect?

Ms. GERARD. The answer that we gave on responsiveness related

to new executive leadership put in place in December-January

timeframe. We have under orders requested actions in about 37

areas under corrective action orders, and the company has been responsive to those. We are beginning to pursue inquiry with the BP

on the extent to which the system BP has put in place to address

employee concerns, how it is working, how it is organized, and we

have notified BP that we intend to pursue investigation in that

area.

Mr. BARTON. How strongly are you pursuing interviewing Richard Woollum?

Ms. GERARD. We have not attempted to interview Richard

Woollum. We have been working with Mr. Bill Hedges and his

team and we have requested required sampling of pipe wall, pipe

fluids, solids, extensively and we have gotten access to the materials, we have done the analysis, we have looked at the results and

we feel that the response we are getting from the current corrosion

management leadership team is acceptable.

Mr. BARTON. Well, my time has expired, Mr. Chairman. I am

going to yield back. I hope that we can continue to pursue this. I

know it is a difficult balancing act between the rights of the individuals and also, frankly, the rights of the corporation. But the

Booz Hamilton report that BP authorized talks about a ingrained

corporate culture and systemic management failure. And that is

not congressional investigation words. Those are words of their own

consulting company. And these folks that represent the regulatory

authorities at the State and Federal level can do the very, very

best that they are allowed to do by law and if the entity in quesVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
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tion, in this case British Petroleum, doesn’t admit the problem and

willingly agree to redress it, you are just going to shuffle the deck

chairs. You are not going to really get the change that you need

to in order to operate the BP facilities, not only efficiently and profitably, but safely. And this is an issue of a safety and we had numerous people killed. We have had a complete shutdown, at least

temporarily, of the largest oilfield in North America, because of, apparently, a management culture that just refuses to get it, or at

least did refuse to get it. And I don’t know how we get to the bottom of that, but I hope, on a bipartisan basis, we will continue to

try. And with that, I yield back.

Mr. STUPAK. I thank the ranking member. You know me, I am

persistent and I will get the answers and I am sure we will have

another hearing. I said in my opening that I hope that BP did not

become the Los Alamos of the north, but you never know. I think

we are headed for another hearing. We have three votes on the

floor, but I think we can still get in Mr. Green for 10 minutes.

Mr. GREEN. Thank you, Mr. Chairman. Mr. Fairfax, I want to appreciate Occupational Safety being before the Energy and Commerce Committee and Oversight Committee. I know our jurisdiction is elsewhere. But you heard my opening statement and I have

similar plans along the use of ship channeling and I want to make

sure that we learn from those mistakes. The Texas City Refinery

experience and the extraordinary high number of deaths, 23 workers over 30 years, 10 workers died during the previous 20 years,

yet in your testimony you state that, prior to the explosion at BP

Products in Texas City in March of 2005, there were no incidents

at the Texas City Refinery that caused OSHA to employ the Enhanced Enforcement Program, a program OSHA uses to identify

companies that repeatedly place its workers at risk. How can a refinery that, we know now, has one of the worst safety records in

America not raise that red flag at OSHA?

Mr. FAIRFAX. Well, the Enhanced Enforcement Program actually

started in October of 2004, so an incident before that did not get

picked up in the program. That was a program we launched.

Mr. GREEN. There wasn’t any effort to look at previous safety

records?

Mr. FAIRFAX. No, we always look at previous safety records and

the incidents that happened previous to the 2005 explosion, we certainly investigated, we have issued citations and penalties in those

incidents, the Enhanced Enforcement Program we have was not in

place at that time, so the 2005 inspection was really the first one

where we launched that effort and did an alert for British Petroleum and conducted several other inspections.

Mr. GREEN. The Chemical Safety Board reported on the Texas

City accident and found that, while OSHA did conduct a few unplanned inspections of the refinery in response to accidents or referrals, OSHA did not conduct a comprehensive planned process

safety inspections at the refinery. In addition, from 1995 to 2005,

OSHA only conducted nine such inspections anywhere in the country and none in the refinery section. How do you explain this low

inspection record on the refinery industry, which statistically has

more fatalities and catastrophe problems than the next three industry sectors combined?

76

Mr. FAIRFAX. I would have to go back and look at the data. I

don’t think I really agree with that. We have certainly done program inspections. I will agree that we haven’t done as many as we

should have, particular in the Texas area during that time period.

We were focusing a lot on chemical plants, which you have and in

Louisiana, have a lot of chemical plants. We had a local emphasis

program at that time and it was focusing on process safety management in the chemical industry. One thing I want to make clear,

I have been listening and it sounds like everyone seems to think

that process safety management only applies to refineries. It

doesn’t. It applies to lots and lots of facilities, poultry plants,

meatpacking plants, chemical facilities. We are doing inspections

under that program in all of them. Just prior to the explosion in

2005, we did start putting together an national emphasis program

and you know, I certainly appreciated the recommendations from

Chem. Board, because that helped us in further developing a program. I will say that the Secretary just approved that program yesterday and we will be launching it shortly and under that program

we will be doing process safety management inspections in every

refinery under our jurisdiction for the next 2 years.

Mr. GREEN. Well, I know budget is always the issue, but it seems

like, in our area, in Texas, the particularly the Houston area and

Texas City, if there is an accident, it is not just somebody in a

meatpacking plant that may have a problem, it is one person, but

we make volatile chemicals. Unless you are very safe, they are

going to blow up and they are going to kill people, plus the pollution, and that is why I think the emphasis ought to be looking at

where the most injuries and the most damage could be done. So I

am glad it was started. When did you say it was started?

Mr. FAIRFAX. Just before the explosion.

Mr. GREEN. OK. The Chemical Safety Board has made several

major recommendations to OSHA, some of which OSHA has acted

upon. And in 2002, after a 2-year study, the Chemical Safety Board

recommended that OSHA expand the process safety management

standard to include reactive chemicals, which could possibly prevent such reactive chemical accidents in and near our district.

What is the status of that recommendation at OSHA, and why

hasn’t OSHA moved forward on that recommendation?

Mr. FAIRFAX. We have actually moved forward on the recommendation. We evaluated that recommendation, as we do every

recommendation we get.

Mr. GREEN. You have been reevaluating, though, since 2002?

Mr. FAIRFAX. No, we have gotten, I think, 16 recommendations

from the Chem. Board and we have implemented, Carol may know

better, but I think nine of those recommendations. I am the one

dealing with reactive chemicals. We did evaluate, at the time, the

recommendation that came. We did not feel that we needed to open

up the rulemaking for the Process Safety Management Standard.

We have developed, and it is not done yet, but we have developed

a directive for dealing with interpretation and inspections for reactive chemicals. We think that will cover the recommendation, plus

some other things.

Mr. GREEN. Let me ask you, I had the impression in 2002, after

the two-study, that CSB recommendation to OSHA, on the process

77

safety management, PSM. Has it not been 5 years since you recommended that?

Ms. MERRITT. Yes, just about almost exactly 5 years.

Mr. GREEN. Mr. Fairfax, as I sit here today, in 5 years, do you

know how many plants that should have been looked at that,

again, are very volatile unless everything works right? And we

need those chemicals, we need those refined products and I want

to—their jobs and out tax base, but I also know that if there is not

oversight from the Federal agency for inspections for job safety, 5

years is way too long to act on a recommendation.

Mr. FAIRFAX. I certainly hear you. In fact, you missed my oral

testimony earlier. I used to work in the refineries in your area

many years ago, so I am familiar with it, but it is not just to say

that just because we haven’t completed a directive on reactive

chemicals, that we haven’t been doing anything. We have been

doing a lot in the area and we certainly can do more in our refinery

emphasis—points to that. But we have done a tremendous amount

of process safety work. We are retraining all of our investigators

and we have done inspections. As I mentioned earlier, we had a

local emphasis program where we were targeting the chemical

plants in your area as well as in Louisiana and throughout what

we call our region 6, which is the Texas area.

Mr. GREEN. Well, I know OSHA has and I have plants that have

been awarded, because of their safety record, and so I appreciate

that OSHA is proactive on that side. But I also know, if there is

a problem, like whether it is Texas City or some other plant that

is in my area, I want to be very proactive so we don’t end up having another loss of 15 lives. And I guess the frustration is, and like

I said in my opening statement, as Democrats, we are a minority

here on energy legislation and what happens up here with this,

this flies in the face when you see BP’s profits, even in the years

that they were doing the cost cutting, whether it is in Alaska or

in Texas City, and we see that. So if we can’t depend on the management to do it, that means the Federal agency has to do it. And

again, 5 years is way too long, because I would hope that I don’t

go home tomorrow or Friday and see another tragedy, but it is just

frustrating to see that.

Mr. FAIRFAX. I understand, Congressman. Let me just say a couple of things. First off, every workplace death that comes in that

happens in this country comes across my desk and we prepare a

condolence letter for that. It deeply affects me. But as far as reactive chemicals, under the Process Safety Management Standard,

we are working on a directive to implement and it will deal with

reactive chemicals and deal with that on our inspections, but also

the Process Safety Management Standard incorporates the NFPA

standards that deal with reactive chemicals and we are addressing

it through those industry consensus standards, which direct how

industry should be applying and dealing with reactive chemicals.

Mr. GREEN. Well, I appreciate the condolence letter, but I would

rather it be done before the fact.

Mr. FAIRFAX. I understand.

Mr. GREEN. And I have been a legislator both on the State level

and the Federal level for my area and I have watched, when the

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agers, because they are also under the pressure. And I have also

watched what has happened. The same thing that happened at BP/

Texas City, it happened at ARCO, in Sheldon and Channelview in

the 1980’s. They start writing big checks to survivors, but it is real

difficult to explain that to a 6-year-old child, that you have a million dollars, son, to take care of your education, but you don’t have

a father, and that is what OSHA is tasked to do and that is our

job to make sure that if you are not doing it, we do whatever we

can to encourage you to do it, whether it is funding or statutory

law, and I guess that is the frustration that, again, Congressman

Melancon and I both have that problem and we want those chemicals and we want that refined product, but we also want it done

safely.

Mr. FAIRFAX. That is our same goal, also.

Mr. GREEN. Thank you, Mr. Chairman.

Mr. STUPAK. Before I yield back, Mr. Fairfax.

Mr. FAIRFAX. Yes, sir?

Mr. STUPAK. When Ms. Merritt talked about the PVQ Audit Program, is OSHA in favor of that?

Mr. FAIRFAX. It is the PQV.

Mr. STUPAK. PQV.

Mr. FAIRFAX. It is program quality verification .

Mr. STUPAK. OK.

Mr. FAIRFAX. That is a targeting system and process safety management evaluation that we launched when the Process Safety

Management Standard came out. Yes, we are in favor and yes, I

agree with it, but we found, in launching that program, that it

ended up being too open-ended and resource intensive. The inspections just took too long and we weren’t doing our job elsewhere.

Mr. STUPAK. In order to get the safety that Mr. Green and we

all insist upon, you almost have to do it, do you not?

Mr. FAIRFAX. We do but the new program we are getting ready

to launch, I think it is far better than anything we have ever had

before.

Mr. STUPAK. Can you do this PQV plus your new program?

Mr. FAIRFAX. The new program is basically an improvement of

the PQV. We will cancel the PQV program and replace it with this

new one, which incorporates the elements of the PQV system that

we did. And you know, it allows us to more effectively, and with

better use of resources, address process safety management in the

refinery industry, and once we are done with the inspections, we

plan on expanding that. I think it is a better system. It is one of

the best emphasis programs I have ever seen developed. I have

been with OSHA 29 years, so——

Mr. STUPAK. OK, we will be interested in seeing that. We have

got three votes on the floor. We will hold this committee in abeyance for the next half-hour. We should be back by 12:10. Then they

promised us, for 3 hours we don’t have any votes. We should be

able to finish this hearing. You are not excused. We would like you

to come back because we have got a couple more Members yet who

would like to ask questions, OK, before this panel here. Then we

will go to Mr. Malone after that. Thanks.

[Recess]

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Mr. STUPAK. Before we hear questions from Mr. Inslee, a couple

of housekeeping matters. I talked with Mr. Whitfield, with unanimous consent, to submit the Chemical Safety Board of March 23,

2007, the Booz Allen Hamilton report. It is a very thick report but

I will now make it part of the record; the management of change

document received last night. It is 13 pages. I provided it to you

earlier, Mr. Whitfield. In the upper right-hand corner, the work

order No. is 29314644. And last but not least, the March 12, 2003

VECO Alaska report. That report will also be entered, with unanimous consent, into the record. Without objection and hearing none,

those four documents will be entered.

Next, I would turn to Mr. Inslee for questions, please. Ten minutes, sir.

Mr. INSLEE. Ms. Slemons, I want to ask you about the compliance order by consent situation. In May 2002, the State of Alaska

required BP to determine sediment levels and to commencing pigging. On August 9, BP asked for that elimination. On August 14,

the State of Alaska sent a letter removing that requirement. It is

well understood that suspected sediment buildup is really a red

flag and I listened to your testimony saying, well, this wasn’t your

requirement, originally. It was not related to issues of corrosion.

But I am having a hard time understanding how you could have

and why you would have required, originally, pigging for reasons

of preventing corrosion, if that is the reason you do it, and then

think it is not important enough. How could that have happened?

Ms. SLEMONS. I was not present in the discussions that were

held between DEC and BP. I was also not present at the discussions internal to DEC determining what they would require and

why. All I can report to you today is what they have reported to

me, which is that leak detection was their focus. I share your concern about the change in that decision and I do intend to look into

this. What I find, I will be happy to provide to you afterwards, but

I simply don’t have that information now.

Mr. INSLEE. Well, I appreciate that and if you would provide us

any more, I would appreciate it, because I am continually flabbergasted of the failure to do pigging after our loss in Bellingham,

WA, a loss to these kids. We have been asking the industry to do

pigging because it is the most acceptable, most reliable way. The

industry has come back with news and said, oh no, we have other

sort of abstract models to do it. But models don’t prevent corrosion,

always, as we have found out and so we expect our regulators to

be aggressive on this and if you could provide us more information,

and hopefully you will take back to the State of Alaska that we

want you to be aggressive on this and we will back you with aggressive on this. I hope that you will continue to do so. I want to

ask you if you could turn to tab 24 to talk about the budget issues

and the lack of corrosion inhibitor. On tab 24 there is an e-mail of

October 2005 and it says, ‘‘attached, please find a list of potential

budget control objects broken out by chemicals and manpower.’’ Do

you have that before you?

Ms. SLEMONS. I do.

Mr. INSLEE. And the next page is a spreadsheet which is attached to the e-mail and it talks about a proposal to reduce the inVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00086 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
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jection rates of corrosion inhibitor. It would save $400,000 a month.

Do you see that?

Ms. SLEMONS. Yes, sir.

Mr. INSLEE. And then another line item says reduce biocide frequency to every 2 weeks. Projected savings of $36,000 a month.

And of course, biocide is used to prevent organisms from eating

away the walls, when it does, right?

Ms. SLEMONS. Yes.

Mr. INSLEE. And then at both of those items you will see a column marked risk category and it is rated as high. In other words,

BP has seemed to understand that that reduction or that safety

measure would create a high risk and yet they decided to take that

risk anyway, for cost reasons. Does that appear pretty clear to you

of what happened there?

Ms. SLEMONS. It does.

Mr. INSLEE. OK. If you look at tab 16 now. At tab 16, it talks

about CIC grew 2002 budget challenge $1 million opportunities,

which I assume mean the things listed there are opportunities to

save a million dollars. And it shows in the third line 40H chemical

ops, corrosion, and below that, about halfway down in the notes it

says 10-percent reduction in inhibition levels would result in a 30-

percent increase in corrosion rate. Could you explain what that

means?

Ms. SLEMONS. I can take a guess at it. It appears to me that the

relationship in the reduction in inhibition levels, the use of that

particular chemical is not linear and that, in fact, a small reduction

in the use of that chemical would reduce—would result in a larger

increase in corrosion rate than the actual reduction.

Mr. INSLEE. In the dangerous side of the nonlinear side, you get

a larger risk factor than you do a linear cut in expenditures.

Ms. SLEMONS. That is my interpretation, yes.

Mr. INSLEE. Now I want to ask, in relationship to the budget

pressure issue, I want to ask what you have done to prevent budget pressures, in regard to executive compensation, from allowing

these kinds of decisions to happen again. Has the State done anything to address the issue of executives increasing their bonuses by

making decisions like this?

Ms. SLEMONS. We have not, Congressman, and I would explain

that answer. Our oil and gas leases give us very broad authorities

on several issues, especially regarding access to plans for construction, operations, maintenance plans and performance logs and

records of the operators. Our authorities do not address the intent

of management decisions. Neither do they allow us to go in and

look at the internal decision-making processes of the company. To

the extent that PHMSA has a window into the operational management system of BP and into the similar systems in other companies, with our letter of intent, we will be looking at that information. The State of Alaska does not have the authorities that allow

us to do that.

Mr. INSLEE. And do you know if the Department of Transportation is looking at that issue? The concern is, if you have an executive compensation system that rewards danger and increasing

risk in a nonlinear fashion, you are going to have problems no matVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00087 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
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ter how observant and the regulatory ambitions you have. Do you

know, is anyone else looking at that potential?

Ms. SLEMONS. I certainly understand the concern and we share

that concern. I am told by Mr. Nard that, in fact, they are looking

at that, which encourages me that we too will be able then to see

that information.

Mr. INSLEE. OK. Could you go to tab 13, if you will, please? Tab

13, a part of this, it says ideas for saving money. It is on page 18

and I will just read it. You don’t have to follow around. ‘‘Ideas for

saving money, in no particular order, to turn off PW, produced

water and chemical and OBCQ—will help out here.’’ Then on page

6 it says, ‘‘as you know, we are under huge budget pressure from

the last quarter of the year and therefore we have to take some

rather disagreeable measures. Can you please implement the following changes-shut down the PW innovation systems for the remainder of the year-discontinue the addition of corrosion inhibition

for velocity control.’’

So it looked to me like BP was changing their existing status quo

maintenance protocol in a way that would create a known increased risk. Does your regulatory scheme prevent companies from

going backwards from the status quo on maintenance? In other

words, do you have something that would prevent them from going

backwards from existing maintenance protocols, or at least require

your approval from doing so?

Ms. SLEMONS. Yes, we will. We don’t currently because this program is just getting off the ground. But one of the tasks that was

identified in the administrative order is the development by operators of maintenance plans or quality assurance plans that come to

the PSIO for review and approval. Where we find them weak, we

will require that they be beefed up before they are approved. Once

those plans are approved, then there is an open and transparent,

if you will, agreement. The operators know what they are conforming to and we know what we are inspecting to, and any changes

to that maintenance regime, those plans that are included in that

document, would require our approval before we would sign off on

it.

Mr. INSLEE. And will that regime be in place?

Ms. SLEMONS. For BP, we have asked for their preliminary documentation in July. We will be looking at the Prudhoe Bay unit first

and then we will be proceeding to look at other units around the

State, in a priority order based on risk.

Mr. INSLEE. Ms. Gerard, could you address this issue of executive

compensation and how it is tied to safety decisions and whether or

not the regulatory arm or arms of the Federal Government should

do something to prevent that from being an incentive for risk taking?

Ms. GERARD. Our integrity management requirements today are

focused on the assessment of the condition of the pipeline, identification of risk, prioritization of that risk, remediation and evaluation. Up until this point in time, we have not established requirements that go to cultural issues. However, as it relates to our ongoing relationship with BP and oversight under our corrective action

order, we have had discussion with BP about a number of organizational and cultural program activities that we believe is necessary

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for us to oversee, as part of their implementation of their OMS, Operating Management System. One of the items involves identification of metrics related to safety culture, creating transparency in

the organization, as it regards all employees’ participation in hazard identification, for example, and we believe that there should be

metrics that are part of the executive performance plan; that we

believe that we should be able to take a look at how executives are

doing at meeting those metrics as part of their annual——

Mr. INSLEE. Are you going to insist on having that, then?

Ms. GERARD. That is the plan.

Mr. INSLEE. Because I have respected some of the things BP has

done. They have done some good things in energy and I have admired some of the things they have done. But obviously there is a

cultural failure here that was rather broad-based and to deal with

it you need something sort of intrinsic in the organization. Thank

you.

Mr. MELANCON [presiding]. I think that concludes the questions.

I want to thank the panel for coming here and I will apologize for

the delay in our process if you all can move your process a little

quicker. Thank you so much for being with us today.

The committee will call before it Mr. Robert Malone, chairman

and president of BP America, please. Thank you, Mr. Malone, we

appreciate you being here today. It is the policy of this subcommittee to take all testimony under oath. Please be advised that witnesses have the right under the rules of the House to be advised

by counsel during your testimony. Do you wish to be represented

by counsel?

Mr. MALONE. No, sir.

Mr. MELANCON. Then, if you would please rise and I would swear

you in?

[Witness sworn]

Mr. MELANCON. Let the reflect that the witness replied in the affirmative. You are now under oath. You may proceed with your

opening statement.

TESTIMONY OF ROBERT A. MALONE, CHAIRMAN AND

PRESIDENT, BP AMERICA, INC.

Mr. MALONE. Mr. Chairman and members of the subcommittee,

my name is Bob Malone and I am chairman and president of BP

America. We are privileged to be the Nation’s largest producer of

domestic oil and gas and we take our commitments here seriously.

When I accepted the position in the summer of 2006, BP was facing the biggest challenge we have ever had. I agreed to take this

job to move BP forward and I set six goals: (1) do all I can to ensure that BP never again experiences a tragedy like Texas City, or

allows portions of the critical North Slope pipeline to degrade to

the point that we must shut it down. (2) to create a culture in

which workers are confident that their concerns and ideas will

make a difference. (3) to provide our people with the skills, the systems and the support they need to ensure that budget pressures

never compromise the safety or integrity of our operations. (4) put

in place a central team of auditors and process safety experts to

monitor our operations, identify gaps and ensure that they are

closed. (5) restore trust in BP America by ensuring that we deliver

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on the promises we have made to workers, to regulators and the

communities in which we operate; and (6) to work with employees

and regulators to make BP America an industry leader in process

safety and integrity management.

I am encouraged by the changes I have seen during my visits to

BP operations around the Nation. I am pleased with the progress

we are making, but there is still much to do. Today, I want to assure you that we get it. We have learned the lessons of the past.

Thanks to the State of Alaska, DOT, OSHA, other regulators, the

Baker Panel, the U.S. Chemical Safety Board, our own investigations, recent reviews by independent consultants and input from

this committee, we have a far deeper understanding of the gaps in

our operations than ever before. Some of these assessments have

been harsh and they have been deeply troubling, but we recognize

that unless we understand the cause of what happened, we cannot

make the necessary changes to ensure that it doesn’t happen again.

The reports were based on in-depth reviews of our operations.

Hundreds of interviews of members of our workforce and reviews

of the written records and documentation requested by investigative teams. I have reviewed all of these reports and some of the

supporting documentation. It is apparent from reading these reports, from visiting our operations and talking to our employees,

that process safety and integrity management was not given sufficient priority or focus in our operations. That finding is a common

theme throughout the reports and my own assessment.

I have also read some of the key e-mails selected from thousands

of pages that we provided to this committee. It is disturbing to me

if even one person in our organization thought of options of placing

budget considerations over the safety and the integrity of our operations. It is clear that budget impacted our culture and that we

stopped being curious. We asked our people to keep our operations

cost competitive and safe and we failed to provide them with the

systems and the skills required to recognize and mitigate all of the

risks that are inherent in operating complex facilities. Adequate

risk assessment tools were not applied with the type of rigor and

challenge that we now expect.

There were many reasons for the budget pressures that exist in

Alaska, including a 17-year, 75 percent decline in Prudhoe Bay and

years of low wellhead prices. And although the corrosion program

spending increased ever since 2001, it appears as though our corrosion team members developed options for operating within budget.

Some workers expressed opposition to some of the measures being

considered. The cause of the level of frustration evident in some of

the e-mails is absolutely unacceptable to me and I am encouraged

that our workers did make their concerns known. It is important

that we communicate the risks they see associated with any reduction in budget or activity levels so that accountable managers can

make sound decisions. However, I am not going to be satisfied until

no one feels it is necessary to suggest cost-cutting options that he

or she believes compromises the safety of our operations.

As to the cause of the leaks on the oil transit line that occurred

last year, the fact is, is that our corrosion team had an unwarranted sense of confidence in their own program. They believed

that they were appropriately managing risk, but they did not have

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the right tools to challenge their own assumptions. Booz Allen

Hamilton concluded that without better risk assessment processes

sensitive to changing conditions in the field, larger corrosion program budgets alone would not have prevented these leaks.

When I appeared before this committee last September, I made

a number of commitments. As promised, I have retained a panel

of corrosion and large infrastructure maintenance experts to recommend improvements in the way we manage corrosion. We increased operations in maintenance spending in Alaska and Texas

City and our other U.S. refineries. I appointed to Judge Stanley

Sporkin as our U.S. Ombudsman and assigned his office responsibility for responding to current concerns as well as reviewing all

of the employee concerns raised since 2000. I created an internal

operations advisory board and recruited an external advisory council. I built a team of internal safety and operations and compliance

and ethics experts and we have engaged with employees and contract workers at all levels across the organization. We have also

conducted safety culture assessments and are addressing work environment changes.

Progress on another commitment to replacement of the Prudhoe

Bay OTL system is well underway. Rather than just replacing old

pipe for new, we opted to design a new $250 million system, sized

for the future Prudhoe Bay production. During the winter, more

than 600 workers constructed 8 miles of ice roads, completed 1,250

wells and they did it all in subzero conditions without a single losttime accident. I was there in March to check on the project and I

can guarantee you that it was well below 40 degrees. About 8 miles

of new pipe had been installed and we are on track to commission

this system in late 2008. Full implementation of our new corrosion

strategy is going to take time. We are adding more engineers, we

are meeting with the teams at each of the facilities, and we are

identifying areas of concern to operators and to technicians working on the front line. The plan is to finish these reviews by October

of this year and to complete all of the follow-up inspections by yearend. If there are problems, we are going to find them and we are

going to fix them.

We are using BP’s new operations management system to drive

change in a way that the company approaches four key areas: people, plant, process and performance. We want the right people with

the right skills in the right places. The members of the new Alaska

and Texas City leadership team have deep operating experience.

Our two top operating managers for the North Slope have each

been involved in oilfield operations for more than 30 years. We are

expanding and renewing our Alaska workforce and during 2006

and 2007, we will add nearly 400 BP employees. We have changed

the structure of the organization, creating what we call a technical

directorate that sets engineering and operation standards and verifies that they are met and adequately resourced. The head of the

technical directorate reports to the head of BP Alaska and to me.

We are making a significant culture change across our operations,

ensuring that all employees feel free to raise concerns and ideas

and that their contributions are taken into consideration in how we

do business.

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Under plant we are focusing on all of the conditions of our process facilities and pipelines. The OTL replacement is part of a larger

renewal program designed to extend the Prudhoe Bay oil and gas

production another 50 years. Under process we are working to become an industry leader in process safety and integrity management. And under performance our new operating management systems defines what is expected from our team in Alaska, in the

areas of plant integrity, process safety and safety culture.

It is impossible to visit Texas City, Prudhoe Bay or other BP locations across this country and not be impressed by what has already been done, what is being done, and by the people that are

doing it. I believe that when embedded in Alaska our U.S. refineries, the operating management system and the right safety culture

will deliver sustainable change and make BP an industry leader in

these critical areas. Please know we get it. We know what is

wrong. We have a plan for fixing it. We have the people and the

funding. We just need time to make these changes. Thank you and

I would be happy to answer any questions.

[The prepared testimony of Mr. Malone follows:]

STATEMENT OF ROBERT A. MALONE

My name is Bob Malone and I am Chairman and President of BP America Inc.

BP America and its subsidiaries employ more than 36,000 people and produce

666,000 barrels of crude oil and 2.7 billion cubic feet of natural gas per day. We

operate five refineries with a capacity to process nearly 1.5 million barrels a day

of crude oil, and a system of pipelines and terminals throughout the United States

that supply over 70 million gallons per day of gasoline and distillate fuels to customers in 35 States.

We are privileged to operate the largest oil field in North America—Prudhoe Bay

on Alaska’s North Slope (exhibit 1). The Texas City Refinery is our largest and most

complex refinery (exhibit 2). Our charge is to operate these assets in a safe, efficient

and environmentally responsible way for the benefit of neighboring communities,

our business partners, our customers, our employees and our shareholders. The

public’s faith in us has been tested over the last two years by the tragic explosion,

fire and deaths at Texas City and by corrosion in the oil transit pipeline system that

moves processed crude oil from Greater Prudhoe Bay to the Trans Alaska Pipeline

System (TAPS).

These experiences have changed BP and all of us who work for the company. We

are determined to learn from what happened and to become a better, stronger company. I was sent here in July 2006 by our Group CEO and the BP Board, to lead

that effort. I came with a set of principles that guide my work in the U.S. We are

making progress towards our goals. However, there is much to do and accomplishing

all that needs to be done will take time.

I was asked by Chairmen Dingell and Stupak to address whether budget pressures led to the corrosion and leaks which occurred last year on the oil transit lines

at Prudhoe Bay. Additionally, they asked whether we suspended the use of corrosion

inhibitor chemicals for extended periods of time due to budget pressures.

We have found there was false sense of confidence in the effectiveness of the existing corrosion management program and in the condition of the oil transit lines.

BAH concluded that in the absence of better risk assessment processes, budget increases alone would not have prevented the leaks. Our own work has revealed that

the workforce did not have an adequate process to challenge their own assumptions.

This question is also addressed in a recent investigation conducted for me by Booz

Allen Hamilton (BAH). Their report, and other documents produced to this subcommittee, makes it clear there was a concerted effort to manage the costs in response to the continuing decline in production at Prudhoe Bay. The documents also

reveal that the effort to manage costs frustrated some workers who were accountable for delivery of certain aspects of the corrosion management program.

Booz Allen Hamilton concluded, however, that the leaks that occurred on the OTL

system last year resulted not from budget pressures, but primarily from the lack

of a formal, holistic risk assessment process that was sensitive to changing operations and conditions in the field.

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We are making the corrosion management program improvements recommended

by Booz Allen Hamilton. We are adding people and resources. And most importantly, we are revamping our corrosion management strategy. At the heart of that

strategy will be a comprehensive risk assessment process sensitive to changing operating conditions. The strategy will apply to all Greater Prudhoe Bay facilities and

systems and will utilize an industry recognized, proven and commercially available

risk based inspection (RBI) program.

We understand that budget pressures, poorly managed, can impact the culture of

an organization. It can lead to a ‘‘make do/can do’’ mentality. It can dampen the

willingness of people to raise concerns or think in new or different ways—especially

if they believe they will not be heard or that there is no money to spend on their

idea or concern.

We now know as a result of the studies done at both Texas City and Alaska and

from our own employee surveys that we must change the way we identify, assess,

understand and communicate risk. We also recognize that we must do a better job

of listening to and resolving employee concerns. And finally, we understand that we

must change the way we integrate what we have learned into our operations and

our budget decisions.

Better communication and better risk assessments will mean better budget decisions. The foundation of this risk management process is to understand that occupational safety, process safety and environmental standards cannot be compromised.

The next step is to be equally clear that budget discussions recognize and address

our priority of safe, reliable operations.

BP America is committed to safety, and the expectation of our management is

that budget guidelines should never result in a compromise in safety performance.

That is and has long been our philosophy, but we believe we can improve the way

we receive and resolve employee concerns and enhance the way we identify, assess,

eliminate and/or manage risk, and that, by doing so, we can make sure that that

philosophy is more than just words.

Chairman Dingell referred us to several email communications from the Alaska

workforce that BP America has provided to the committee regarding budget pressures and considerations about ways to lower budgets or limit budget overruns. We

are researching the situations described to determine how the issues raised in those

emails were ultimately resolved. The frustration evident in some of those emails

causes me concern. It is clear to me the employees were troubled by some of the

cost-saving options identified for consideration. I am encouraged, however, that they

were making their concerns known.

Regarding the use of corrosion inhibitor chemicals, an investigation is being conducted by the BP Ombudsman, Judge Stanley Sporkin. This investigation will include a review of documents and interviews with personnel and is expected to be

completed in July. I expect that Judge Sporkin will keep you apprised of his

progress, and I will share his final report with the committee upon completion.

However, we are not waiting on the outcome of this investigation to take action. BP

America has initiated a review of our inspection programs for all North Slope facilities and systems. This will verify the current condition of the pipelines and processing facilities, identify concerns in each operating area and inform the implementation of the comprehensive RBI program.

I am here today to provide you with an update on the commitments I made at

the hearing last September; update you on the status of the Greater Prudhoe Bay

Oil Transit Line replacement project; share what we have heard and learned from

the reports and studies of the incidents; and outline the actions we are taking to

reestablish BP as an industry leader in the area of process safety and to restore

the faith and confidence of the American people in our operations.September 2006

Commitments

I committed to initiate a number of actions to drive operational and safety change

within BP America, and I am pleased today to report back to you on the progress

we have made in fulfilling these commitments:

I retained three of the world’s foremost experts on corrosion and infrastructure

management. They have received unhindered access to review our corrosion management system on the North Slope and to suggest management and operational

changes to improve it. Their report will be complete this summer. We will apply

what we learn to all of our pipeline operations.

BP America committed to significant spending increases to upgrade all aspects of

safety at our refineries. We have publicly committed to spend $7 billion to improve

those operations. In addition, we have more than doubled our spending on major

maintenance projects in Alaska.

I appointed retired U.S. District Court Judge Stanley Sporkin, as Ombudsman,

reporting directly to me. He has initiated a review of all worker allegations that

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have been raised on the North Slope since 2000 and has conducted other reviews

to investigate concerns raised by our employees.

I created an Operational Advisory Board, composed of fifteen senior business leaders in BP America, to lead our effort on safety, operational integrity and compliance.

This group meets quarterly and each member has committed to implementing a different, holistic approach to managing U.S. operations.

I have recruited an External Advisory Council to assist and advise me on all aspects of BP America’s US businesses and to focus in particular on safety, operational integrity, compliance and ethics. We have met as a Council twice, most recently two weeks ago. That meeting included a day at the Texas City refinery.

I have built my own team of internal experts on employee safety, safety culture,

process safety, operational integrity, and compliance and ethics to assist me in monitoring these aspects of our business.

I continue to meet with employees to reinforce my expectations of them: that they

must ensure that our operations are safe, that they understand they have both a

right and responsibility to shut down any process they feel is unsafe or operationally

unsound, and that they are encouraged to raise concerns on any issue. This engagement has been through town hall meetings, site visits, conferences, email and internal company publications. I have even created my own web blog to communicate

with employees.

These conversations have provided me with encouragement that we are on the

right path. In fact, in a survey now being conducted on the North Slope by the Ombudsman’s office, 98 percent of respondents would report issues that impact health,

safety or environmental protection; and the safety culture survey indicates that 97

percent of employees believe they have the ability to report and to stop any unsafe

operation. Further, 92 percent felt comfortable reporting concerns directly to their

supervisors or line managers. Similarly, across refinery operations, we have initiated a ‘‘Stop Work If You Think It Is Unsafe’’ program as a condition of unit

startups.

I have also been to Texas City and the North Slope a number of times and the

work I have witnessed demonstrates that all of us are unified behind the need and

the desire to improve. The milestones achieved at Texas City and Alaska are significant. At Texas City, those milestones include:

• Nearly 300,000 hours of leadership and other training;

• A total rebuilding of the training program with more than 30 new instructors;

• More than 400 new people hired;

• 15.5 million man-hours worked in 2006—3 times the average U.S. refinery—

under entirely new safety systems;

• An infrastructure renewal program so large that it requires scaffolding sufficient

to scale Mt. Everest 7 times; and

• A complete overhaul and safe re-commissioning of the 27-mile steam system.

Similar achievements have been made on the North Slope during this past Arctic

winter:

• Since the incident we have completed 21,000 ultrasonic tests on the oil transit

lines;

• Since the incident we have removed insulation and inspected and re-insulated

more than 43,000 ft (8 miles) of pipe;

• Since August 2006, we have increased BP employees on the North Slope by

more than 10 percent; and

• We had 110,000 construction man-hours worked this winter on oil transit line

replacement without a lost time accident or recordable injury.

OIL TRANSIT LINE (OTL) REPLACEMENT

Prudhoe Bay’s oil transit line system is undergoing a major upgrade, initially focusing on rebuilding the field’s most critical pipe segments, a phase that will take

until the end of next year. By then, we will have installed approximately 16 miles

of oil transit lines from the flow stations and the gathering centers to Skid 50, near

the starting point of TAPS.

The winter 2007 construction season recently ended. I am pleased to report that

approximately 8 miles of new pipe has been installed. This feat is impressive given

that during the 3-month construction season more than 600 workers constructed 8

miles of ice roads, installed 680 vertical support members, performed 1,250 welds

and installed this nearly 42,000 feet of new pipe all in sub-zero arctic conditions.

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WHO HAS INFORMED BP AMERICA’S THINKING?

The progress made in Alaska and the actions taken at Texas City are among the

many examples that prove that BP America is a different company than it was six

months ago. This change has only been accomplished with the support of our employees, management, and the entire BP Group. And, this is why I am confident

that we are on the right path to distinguish ourselves as a leader in personnel safety, process safety and operational integrity.

However, these early actions are just the starting point. There is much more to

do to drive renewal within BP America. The first step of renewal was to assess the

incidents, take the learnings and then develop a set of actions to respond. Since the

Texas City tragedy and the Alaska pipeline incidents, BP America has commissioned a number of studies and also received third-party reports that have assisted

us in our efforts. These reports and studies have been freely shared with State and

Federal regulators and Congress and are supporting the changes occurring within

BP America.

I would like to briefly describe the nature of these reports; how they were received

by BP America and the actions we have taken or are contemplating as part of our

operational renewal plans within the U.S.

BOOZ ALLEN HAMILTON STUDY

I commissioned Booz Allen Hamilton (BAH), as an independent third party, to

identify any organizational, process, information systems and/or governance issues

that may have contributed to the March and August 2006 oil transit line (OTL) leak

incidents. BAH conducted its study between November 2006 and January 2007and

recently delivered its final report. BAH received BP’s full cooperation during its review. The consultants interviewed past and present members of the Alaska management and Corrosion Inspection and Chemicals (CIC) teams and were provided all

documents they requested as part of their review. I understand that some questions

about the report have recently been raised by the committee, and we are working

with Booz Allen Hamilton to provide the answers.

INDEPENDENT CORROSION ASSESSMENT TEAM STUDY

I initiated this study in August 2006, just after the shutdown of the Eastern Operating Area (EOA) of the Prudhoe Bay field, to provide an independent assessment

of our Alaskan operation’s current corrosion management program and to make recommendations needed to firmly establish the program up to an industry-leading position. This is a ‘‘forward looking’’ study that is intended to meet the needs of our

commitment to a fifty-year future in Alaska.

To develop recommendations, an Independent Corrosion Assessment Team (ICAT)

was assembled comprised of two internationally recognized experts in corrosion

mechanisms and an internationally recognized expert in large asset management.

The ICAT will issue its final report this summer.

Additionally, a BP Alaska Corrosion Strategy—overviewed by members of the

ICAT—is complete and is being implemented.

LEGACY EMPLOYEE CONCERNS STUDY

During the hearings last year, I committed to review all employee concerns raised

at our Alaska operations since 2000 to determine whether there were any unresolved issues or whether the resolution of concerns adequately addressed matters

that presented health, safety or environmental questions. This task was assigned

to the Ombudsman’s office, and they retained MPR, Inc., an independent engineering firm, to assist in the review and disposition of the technical issues.

The initial task was the collection, review and categorization of the historical employee issues. There are approximately one thousand concerns in the Legacy Review

Issue process at this time. While none of the issues has been identified by the Ombudsman’s office as representing an imminent safety threat, the analysis work is ongoing.

The committee staff has had an ongoing dialogue directly with my Ombudsman

regarding his investigations. A final report from the Ombudsman’s office on the Legacy Issue Review will be provided with identification of issues needing further evaluation or corrective action. The target date for completion of this project is July,

2007.

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NO TOLERANCE FOR RETALIATION

On the broader issue of employee retaliation, BP was asked to ensure that there

is no tolerance for retaliation against workers who raise safety and health concerns

and to provide a transparent mechanism to ensure concerns are resolved in a timely

manner.

BP does not tolerate retaliation against workers who raise safety concerns. It is

prohibited by our Code of Conduct and I have made it clear that I expect appropriate action to be taken to anticipate and prevent, or mitigate, any such incidents

or behaviors that may discourage workers from raising safety, environmental or

other concerns. However, I also recognize that tackling long term behaviors takes

time and training.

BP America has a number of systems and processes for resolving employee concerns including the BP ‘‘Open Talk’’ Program and the Ombudsman’s office. BPXA

currently has seven different avenues—we are evaluating how to streamline these

avenues for greater effectiveness and efficiency, but for now we would rather have

more opportunities than fewer.

COMPLIANCE ORDER BY CONSENT (COBC) REVIEW

Following the hearing in September 2006, the Oversight and Investigations Subcommittee asked BP America to investigate whether BPXA failed to disclose information regarding its awareness of sediment in the OTLs to the Congressional staff

prior to the hearings, and, if so, to explain that failure.

This concern arose because of the post-hearing identification of a 2002 Compliance

Order by Consent (COBC) entered into between BPXA and the Alaska Department

of Environmental Conservation (ADEC) that referred to the existence of sediment

in the lines.

In November 2006, I asked Billie Garde, as a consultant, to conduct an investigation on behalf of BP America and to provide a report to me. An interim report has

just been completed and a briefing of the interim findings has been provided to committee staff, at its request. The investigation found that our preparation for the September, 2006 hearing was not based on all information available to the corporation,

and thus neither I nor the committee staff had information that may have been

helpful for the hearing. For that, I apologize.

FATAL ACCIDENT INVESTIGATION REPORT—ISOMERIZATION UNIT EXPLOSION FINAL

REPORT (MOGFORD REPORT)

Following the March 23, 2005 incident at the Texas City Refinery, BP assembled

an incident investigation team, led by John Mogford, to identify the underlying root

causes of the incident. On May 17, 2005, the team released an interim report to

communicate its preliminary findings. The team released its final report on December 9, 2005. The report was intended to deepen understanding of the causes of the

incident; to recommend corrective actions to prevent recurrence of a similar incident; and to improve safety performance at the site. The investigation used the BP

root cause methodology supplemented by guidance issued by the Center for Chemical Process Safety.

The interim report made recommendations in the areas of: (1) People and Procedures; (2) Control of Work and Trailer Siting; and (3) Design and Engineering. The

final report augmented those recommendations and made a significant number of

additional detailed, site-specific proposals for corrective actions designed to address

the root causes and underlying cultural issues identified by the investigation team.

BP U.S. REFINERIES INDEPENDENT SAFETY REVIEW PANEL (BAKER PANEL)

Pursuant to a recommendation from the Chemical Safety and Hazard Investigation Board (CSB), BP convened an independent safety review panel, chaired by

former U.S. Secretary of State James A Baker III to assess process safety management systems and safety culture at its five U.S. refineries.

The Panel carried out its work throughout 2006 and reported its findings in 2007.

The report is hard-hitting and unique. We have committed to implement all of the

report’s recommendations, and many measures have already been taken, or are underway, a fact the Panel recognized when it observed that ‘‘since March 2005, BP

has expressed a major commitment to a far better process safety regime, has committed significant resources and personnel to that end, and has undertaken or announced many measures that could impact process safety performance at BP’s five

U.S. refineries.’’

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U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD

The CSB report addressed the causes of the Texas City incident. We recognize

and appreciate the effort CSB put into this investigation.

BP America will implement actions consistent with the recommendations of the

CSB and will communicate this to Chairman Merritt within the next few days.

LEARNINGS

What did these reports teach us and how have they informed our changes? We

have spent considerable time analyzing the findings of these studies and integrating

their recommendations into a cohesive plan to help BP America grow to become an

industry leader in process safety. We found these reports to contain several common

themes that have been incorporated into our new operating management system

(exhibit 3). These common themes and some corresponding observations are shown

below:

Communications and Leadership—The reports indicated that some concerns were

either not communicated effectively or sufficiently heard. The organizational culture

must consistently encourage greater upward and cross-functional communication.

The Mogford report regarding Texas City, for example, noted that a ‘‘lack of leadership visibility and poor communication through the complex siloed organization did

not assist in delivering the right messages’’ regarding the priority of safety at the

site.

Management’s Technical Knowledge—As observed in the Booz Allen Hamilton report, because the corrosion group ‘‘was hierarchically four levels down from senior

leadership, corrosion risk management had less visibility.’’ As a result, ‘‘the technical evaluation of corrosion risk was not challenged by senior management to fully

understand the tradeoffs made within CIC and at the Field Operation level.’’ Regarding management knowledge at Texas City, the Mogford report stated ‘‘there

needs to be a greater line management understanding and ownership of process

safety management.’’

Accountability and Clarity of Expectations—BP America’s entrepreneurial culture

engendered significant discretion and autonomy to its business unit leaders, and expectations, responsibilities or accountabilities were not always well understood.

Greater organizational clarity must be pursued to ensure understanding of operational accountabilities.

Knowledge, Expertise, and Training—Technical and institutional knowledge in

some businesses rested with a few key individuals. Greater depth and technical capability needs to be embedded more consistently across the organization. BP America has begun to substantially increase the number of hires, training and the knowledge base across the U.S.

Risk Identification and Assessment—BP America businesses have always conducted risk assessment across their operations but those assessments were not always the result of a comprehensive, systematic risk assessment process that was

consistently applied throughout the businesses. The Mogford Report observed that

the Texas City site had ‘‘no comprehensive and consistent business plans focused

on the systemic reduction of process risks.’’ The Booz Allen Hamilton Report found

that ‘‘there was no formal, holistic risk assessment process for pipeline integrity.’’

Effective Process Safety/Integrity Management System—As operational and environmental conditions changed, BP America’s systems and processes haven’t been

sufficiently sensitive to make the corresponding adjustments. These processes must

be more flexible and subject to greater input and challenge from the organization.

Sufficiency of Resources—We now know as a result of the studies done at Texas

City and Alaska and our own employee surveys that we must make changes in the

way we identify, assess, understand and communicate risk. We must also change

the way we integrate that knowledge into our operations and our spending decisions. I believe that better risk assessments will lead to improved budget discussions and spending decisions will be better as a result.

BP has a strong cost-focused performance culture. We made a virtue out of doing

more for less. The mantra of more-for-less says that we can get 100 percent of the

task completed with 90 percent of the resources. This approach needs to be deployed

with great judgment and wisdom. When it isn’t, we run into trouble.

We are committed to safety and the expectation of our management is that budget

guidelines should never result in a compromise in safety performance.— We believe

we can come closer to always achieving this goal by improving the way we receive

and resolve employee concerns and by enhancing the way we identify, assess, eliminate or manage risk. Safety must be the overriding priority in all we do—and it will

be.

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Audit, Compliance, and Monitoring—We have several different systems for monitoring and auditing performance and compliance. Enhanced rigor must be applied

together with common standards, appropriate capabilities and adequate resources to

follow up and address identified concerns. According to the Mogford Report ‘‘[audit]

action items did not appear to be tracked and effectively closed.’’ The Booz Allen

Hamilton Report observed that ‘‘a number of key assurance processes (e.g., Audit,

Management of Change) were not ‘closed loop’ to ensure that required changes were

truly implemented and documented.’’

Process Safety as a Core Value—Process safety must be instilled as a core value.

BP America has always held safety as a core value as reflected in the company’s

concerted effort to continually reduce the number of workplace injuries and fatalities across its operations. The success of this effort can be seen in our occupational

safety performance metrics. At Texas City, the company reduced OSHA injury rates

by more than 70 percent in the five year period before the March 23 explosion. We

relied on these metrics as an indicator of process safety as well. We now understand

that this reliance was a mistake.

In addition, we are taking action in the area of worker fatigue and overtime, adherence to formal processes and incident investigations and reporting.

THE OPERATING MANAGEMENT SYSTEM

We are folding BP America’s Health, Safety & Environment management system

into a broader, comprehensive operating management system. This new system is

based on the International Standards Organization’s management system framework and is designed to support a more rigorous approach to compliance and risk

management. Implementation of the system, which will be introduced to BP operations worldwide, is first taking place in U.S. refineries, Alaska and other selected

locations.

This enhanced framework provides clear guidance in what we have defined as the

eight elements of operating in BP America: risk; procedures; assets; optimization;

organization; leadership; results; and privilege to operate.

At its core, the framework helps define and add clarity to the people, plant, process and performance measures facilities need to undertake to ensure reliable, safe

operations. We have begun to implement this new system in Alaska through the

‘‘Renewal’’ program and at Texas City through the ‘‘Focus on the Future’’ program.

In both cases, we are integrating the learnings from the expert studies and analyses

and adopting action plans that focus on critical operational components.

HOW HAS OMS INFLUENCED BP’S OPERATIONS?

The operating management system framework is changing the way BPXA approaches the people, plant, process and performance issues that influence our operations (exhibit 3).

PEOPLE

The new head of BPXA has assembled a new leadership team since last September with a renewed emphasis on operational capability and clarity in their accountabilities. An example of this is the separation of technical assurance from operations.

To achieve this, BPXA created and staffed a Technical Directorate organization

of 150 technical experts that are responsible for setting and verifying the standards

to which BPXA will operate. The Directorate will review budgets of the line and provide assurance that major risk items are adequately funded. They are independent

of the line organization and have direct accountability to both me and the President

of BPXA.

Similarly, the oil transit lines will now be managed as a system by a single area

manager. This will ensure better oversight and accountability over their operation.

PLANT

When we committed to replace the 16 miles of oil transit line serving Greater

Prudhoe Bay, we could have approached the project as simply a repair and maintenance project. That is, replace the existing pipe with new pipe of the same composition and quality using existing associated infrastructure. In fact, our preliminary

plan announced in August 2006 reflected just that scenario. However, upon further

analysis and with a view to the future, we decided to incorporate additional technologies into the project to ensure oil transit line integrity and long-term safe operations.

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An important component of this project was the engagement and involvement of

the field operations staff in the planning and design of the new pipeline facilities.

In addition, we re-designed the project to incorporate best available technology designed both to enhance daily operations and streamline its use. The OTL system

will include a range of leading technology and equipment, such as improved corrosion-resistant pipe (insulated carbon steel with special epoxy coating) and elevated

vertical support members where possible, upgraded ancillary pipeline facilities, addition of permanent pipeline pigging facilities, improved corrosion monitoring and

new leak detection systems.

NEW ABOVE-GROUND STRUCTURE (EXHIBIT 4)

To protect the fragile tundra environment and wildlife, the project is installing

hundreds of Vertical Support Members designed to hold the pipeline higher above

the tundra. Where possible, the new 7-foot clearance will protect the permafrost, accommodate wildlife movement, discourage snowdrifts and support more effective

and efficient pipeline maintenance activities.

Better ancillary pipeline facilities

Pipeline facilities throughout the system will be equipped with best available

technology, operator-friendly equipment. Twenty new modules will support operations and enhanced maintenance of the pipeline, built with an eye toward the future and easy worker access to equipment.

Key elements of this system include equipment to measure and remove factors associated with corrosion that can lead to pipeline leaks. The factors associated with

the recent leaks—stagnant water, sediment buildup, and bacteria—have been ‘‘engineered’’ out of the new pipeline system.

The infrastructure will include the necessary facilities to support use of ‘‘maintenance pigs,’’ capsule-shaped devices that run through the pipeline to clear out sediment and stagnant water; ‘‘smart pigs,’’ devices that measure pipeline wall thickness; equipment that injects corrosion-inhibiting chemicals directly into the oil transit lines; and a demonstration project to determine if a new, highly sensitive leak

detection technology that allows detection of even small leaks, will work in abovegrade Arctic piping.

NEW PERMANENT PIGGING FACILITIES (EXHIBIT 5)

The OTL project upgrade includes permanent, heated facilities that accommodate

maintenance and smart pigs, as well as newer higher-quality equipment. The new

facilities, designed for access to all equipment, will include new pig ‘‘launchers’’ at

upstream locations and ‘‘receivers’’ at downstream locations so a maintenance pig

can be inserted into a stream of oil to clean out the pipe or a smart pig can be inserted to inspect and diagnose internal and external pipeline corrosion.

The new modules will allow us to run maintenance and smart pigs regularly.

Maintenance pigs, run on a routine basis, will help to reduce water and sediment

build-up. Any solids resulting from regular runs will be analyzed for bacteria growth

and/or sediment build-up to help identify changing conditions in the pipeline system. Pipeline and corrosion specialists will then make appropriate adjustments in

operations or inspections.

NEW EQUIPMENT TO SUPPORT ‘‘CHEMICAL-INJECTION’’

By cleaning the inside of the pipe through pigging and ‘‘sweeping’’ fluid velocities,

corrosion-inhibiting chemicals are much more effective at adhering to the pipe surfaces where they both coat the internal pipe and are toxic to bacteria. We are installing equipment that will inject these chemicals directly into the transit lines,

rather than relying on carry-over from upstream applications. This equipment will

work hand-in-hand with our corrosion-monitoring techniques.

LEAK DETECTION (EXHIBIT 6)

Complementing pigging and corrosion control is a new leak detection system to

measure the volume of flow in the line. This new equipment will be installed as the

primary system for the entire OTL renewal project.

The primary method will use several types of meters, including a new software

program, to read the volume of liquid going into and coming out of the pipeline segments. This system is designed to detect leaks as small as 1 percent of the flow rate,

as well as catastrophic leaks.

The secondary pilot system uses a chemical analysis method that passes an air

sample past a hydrocarbon analyzer, which indicates whether any crude oil has esVerDate 11-SEP-98 09:58 Sep 10, 2008 Jkt 000000 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 Q:\DOCS\110-46 SCOM1 PsN: SCOM1
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caped from the pipe and, if this has happened, triggers an alarm. This method is

intended to detect pinhole leaks, such as the ones experienced in 2006.

PROCESS

Underlying these new investments and organizational changes is the adoption of

new risk assessment and management procedures. These tools will allow us to better identify, evaluate and target concerns with adequate budget support. BP has already initiated risk-based inspections for its entire North Slope operation and modified its operating and maintenance practices on the OTLs. For example, CIC staff

has been doubled and they have expanded their work to include greater interaction

with operations personnel and with in-field inspectors including face-to-face dialogue

and more rigorous hands-on-pipe visual and other inspection protocols.

PERFORMANCE

Management assurance has been facilitated by the adoption of a new closed-loop

safety and operations integrity management system. This new system will incorporate clear leading and lagging indicators, enhanced communication and transparency up the line, formal reporting and clear authorities and accountabilities that

are properly linked to incentives. The BP Group Safety Culture & Leadership initiative is well underway for Greater Prudhoe Bay, and is beginning at other facilities.

Culture change is among the goals of the OMS process.

While it is clear that OMS has begun to drive renewal in Alaska, behaviors have

also begun to change elsewhere in the organization. Recently, the steam provider

to our Toledo refinery experienced a plant upset causing a loss of steam to the refinery. The refinery initiated emergency shut-down procedures as designed and without incident. A day later, as Toledo began normal restart, personnel noticed a leak

on one of the overhead lines from a process unit. The refinery was again taken down

and upon inspection, it was determined that a stress fracture had occurred on a pipe

weld during the initial steam-provider induced refinery shut-down. We could have

performed a spot repair on the unit and continued restart operations but, informed

by a comprehensive risk assessment, we are performing additional unit inspections

to properly identify any other impacts, perform repairs and initiate safe restart.

This is exactly the behavior that OMS drives and what I am reinforcing throughout

BP America’s operations.

CONCLUSION

Much of my job over the past year as Chairman and President of BP America has

been to assess and develop new standards of operation and to ensure that the standards we have set are met.

When I appeared before the committee last September, I asked that we be measured by ‘‘what we do, not what we say.’’ We have made tremendous progress over

the past several months due to the deep commitment of BP America’s management

and employees to this renewal process. I am pleased with the progress but not yet

satisfied.

Renewal is taking hold. We are investing for the future but the process of renewal

will take a number of years to fully realize. Similarly, culture change will require

the same sustained commitment of management for employees to embrace BP

America’s new OMS model. I know that BP America and its 36,000 employees are

up for the challenge. My commitment is to make this all happen.

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Mr. MELANCON. Mr. Malone, thank you and I am going to apologize for the second time in one day. We are going to suspend to go

vote and then we will reconvene as soon as we can get back up

here. Thank you.

[Recess]

Mr. STUPAK [presiding]. I call the subcommittee back to order. I

apologize again. There is procedural games being played on the

floor, so we think we have a couple hours. Another motion arose.

But since we are through all the rules in that, there will be no intervening votes for a while, so maybe we can get through this, so

I appreciate your patience. It is just hard getting continuity going

in testimony or questions. Mr. Malone, if I may, there should be

a document there. Does he have it, the hazardous review statement, the one we put in by UC?

Mr. MALONE. Yes, sir, I have it.

Mr. STUPAK. OK. If you would go to page, well, in the upper

right-hand corner on the fax, page 7, if you would. Hazardous review statement. My concern is this: I am sorry I was in and out

on your opening statement. I did have a chance to see it. As I ran

to the floor, they handed me a copy of it and I am encouraged

about what you said about cooperation and things like this, but I

am a little concerned. This document before us, which is 13 pages

long, if you read it, it talks about this chemical change does pose

HSE, that is Health Safety and Financial risk. Are you with me?

Mr. MALONE. Yes, I am.

Mr. STUPAK. OK. And the last paragraph says suspending the

supplemental injection into the PW system is, therefore, unlikely to

cause loss of contaminant of equipment material in the short term,

1 or 2 years; however, it will shorten the life of the system, resulting in either abandonment or expensive repair or replacement in

the medium to long term, 3-plus years, and this is 1999. The concern I have is, if it is one person or two persons, it seems to be

systemic throughout the whole BP organization; cut maintenance,

increase profits, and whether you get bonuses or whatever you

guys have, the $106 billion in profits during this period of time.

But we got this document last night. In response to us, you said

you have this database of 20 million documents, so everything will

be in there and you will peruse it and make sure we have everything, but this isn’t in the database. So while I am encouraged by

your testimony, I don’t know how we can be assured that we are

going get the documents we need. And you end up your statement

by saying judge me by what we do, not what we say, but yet we

still have to go outside of even your folks to get documents we need

to ask questions on. Why wouldn’t this have been in your main 20

million and all of that? Are there other documents like that? You

heard Chairman Barton rather frustrated today about what is

going on. Do you care to respond on that?

Mr. MALONE. Well, this is the first time I have seen this document. I was told that it was found during our ombudsman review

that he is doing, Judge Sporkin is doing currently, and it was provided to the committee.

Mr. STUPAK. But why isn’t Judge Sporkin’s documents in part of

those 20 million we are supposed to have access to?

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Mr. MALONE. Mr. Chairman, I don’t have an answer for that. We

have populated the database with something over 20 million documents and I heard earlier this week, we think we have them all

in there, but obviously we do not, but I can’t say why this one

wasn’t in the database.

Mr. STUPAK. Well, around here, especially where we sit on this

side of the dais, it is not unusual for departments and agencies to

dump documents on us the night before and hope we miss something, but this committee staff on both sides is very good and they

are going to go through this. If you will, you have got that binder

in front of you, walk with me through these documents, if you will.

And something you probably won’t have to look at, and you have

heard about them and I sure you are familiar with them. If you go

to page 82 on tab 10, that is the Booz Allen Hamilton report, and

in there they say the report is the folly in finding poor corrosion

management at Prudhoe Bay. OK, Booz Allen is a separate binder.

I am sorry, sir. There should be a separate binder, Booz Allen, page

82, table 10.

Mr. MALONE. Yes, sir, I have it.

Mr. STUPAK. OK. I am looking at the second one, risk management. Budgets and funding were largely based on affordability versus necessity and were not supported by an analytical process to

prioritize risk. Senior management incentives were based on cost

and production. And if you go to tab 4, page 2, on the bottom, this

is an 1991 e-mail from John Todd in the CIC group and it concerns

the halting of use of the corrosion inhibitor in produced water lines

and here is what it says: ‘‘Due to budgetary constraints, the decision has been made to discontinue the PW inhibitor currently being

injected at GC–2 and GC–3. The GC–2 bulk tank should run out

within the next 2 days. It will not be refilled.’’

Mr. Malone, in fact, if you go to page 1 of that same tab, No. 4,

you will see how this was viewed by superiors. This e-mail is from

the head of the CIC group, Richard Woollum, the gentleman who

refused to testify. It says, ‘‘John and Rick, my impression from the

FMT meeting is that we will not be getting any relief on the budget. They all think that PW—is the right thing to do, but no one is

prepared to let loose the purse strings.’’ That is 1999 when the

profits of BP was $5.1 billion. If you go to tab 16, this document

is a 2002 budget challenge document for the corrosion group. On

the third line down they suggest a reduction of the use of inhibitor

to save money. What is troubling is that there is also a note which

states, ‘‘A10-percent reduction in innovation levels would result in

a 30-percent increase in corrosion rate.’’ This is 2002 when your

profits were $6.9 billion.

If you look at tab 20 in your binder, you will find a spreadsheet,

Greater Prudhoe Bay/2004 Field Lifting Cost Challenge, Maintenance and Reliability. Essentially, each year various groups within

the CIC group were asked to search for ways to save money. Mr.

Malone, the second entry states, and I read, ‘‘cancel partial PW inhabitation at GC gathering centers. That action could save the

company $670,000.’’ That is 2004. Your profits were $17.2 billion

that year. If you go to tab 13, page 8, this is now 2001 and this

e-mail sent to Richard Woollum from a person named Dominic, who

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neer. Dominic says, this document was from the 2003 time period

and yet again, there is discussion about halting the injection of corrosion inhibitor in the produced water lines, in order to save money

and meeting tight budget. And it states, ‘‘ideas for saving money,

in no particular order: turn off PW chemical and halt PCQ inhibitor will help out here.’’ Again, in 2001, your profit was $8 billion.

Then finally, if you go to tab 13, page 6, towards the bottom is

a similar e-mail from Richard Woollum. He is advocating shutting

down the inhibitors to save money, but even he acknowledges that

this is a very disagreeable measure to take. Here is what he has

to say. ‘‘As you may know, we are under a huge budget pressure

for the last quarter of the year and therefore we have to take some

rather disagreeable measures. Can you please implement the following changes to reduce: shut down the PW inhibitor for the remainder of the year, discontinue the addition of corrosion inhibition

for velocity control.’’ Again, in 2001, your profits were $8 billion.

Here is the part that bothers us, Mr. Malone. Having looked at

all of these six examples, these six e-mails, will you agree with me

that there is a pattern of cost-cutting pressure during a time of

healthy profits?

Mr. MALONE. Mr. Chairman, as my opening statement said, we

recognized there were extreme budget pressures at Prudhoe Bay,

yes, sir.

Mr. STUPAK. OK. Will you agree with me that this cost-cutting

pressure could have contributed to a culture that disincentifies or

discourages preventive maintenance?

Mr. MALONE. Mr. Chairman, not only could, we believe it did.

Mr. STUPAK. As has been said a couple of times today, you have

over $106 billion in profits during this time period. Was it really

necessary to skimp or save on this maintenance, especially when

we talk about the health, safety and welfare? And I know, in your

opening, you mentioned Texas City and you mentioned Prudhoe

Bay, but you see the same thing in Ohio and some of the other

places that we have talked about. All four of them, your other locations that the reports have been on, the Baker report, they all indicated the same thing. At what point is your corporate responsibility

where you put maintenance to make sure that it is safety, not just

for healthier workers, but also to make sure that strategic oilfields

are not shut down. Where the corporate responsibility where profits are secondary to really your responsibility to the American people?

Mr. MALONE. Mr. Chairman, if I could. I followed most of the

documents and I apologize. The last couple I was not able to follow

the tabs with you, but I understand. There are two important comments for me to make, is that I need to make sure that we understand the time of the Prudhoe Bay and the cost budget pressures

that we had at that time. This was a time when the field was declining. It declined over 75 percent over that time period. And also

the price of oil was, I think, on average about $15 a barrel. That

is what I have been told. Yes, there were budget pressures because

we had a huge infrastructure, a very expensive infrastructure, built

for artic environment and as the production level dropped, so did

we need to find the facilities to match up against that production

level.

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Mr. STUPAK. I don’t disagree, but you knew that field was dropping when you bought it, because you have been partners up there

for some time and you bought it from ARCO shortly before 1999,

right?

Mr. MALONE. No, we started it with ARCO.

Mr. STUPAK. Right, but then you bought them out. When did you

buy out ARCO? 2000. So you knew that had to be declining and

therefore, as you get declining quality of oil, you get more water

and you get more sediment. So therefore that would increase costs

of maintaining the pipe, not lessen the cost of maintaining corrosion inhibitors and smart pigs and maintenance pigs from going

down. You had to have a due diligence to report or something, before you purchased out ARCO or something. I would think they

would say the last time they pigged a pipe, because it is what, 16

years and we now find out. So 10 years before, they didn’t even pig

before you bought it.

Mr. MALONE. Well, Mr. Chairman, I wanted to at least give that

as the backdrop—excuse me—of the climate that we had during

that time. What I am not saying to you is that we don’t recognize

that the budget pressures that existed created on our employees a

very difficult situation and I would say that we see these e-mails

and that is what we have asked on the inhibitor. As you know, I

have asked Judge Sporkin to look at that. I can’t respond to the

complete picture of that. We have a review going on there. On the

OTLs, we asked that it be looked at by Booz Allen Hamilton and

their conclusion, which you have, was that even with more money,

they wouldn’t have pigged the line. They were that confident in

what they were doing on that pipeline.

Mr. STUPAK. But Booz Allen, in the March 2007 report, says on

page 72, budget pressure eventually led to de-scoping some projects

and deferring others. For example, the plan to run a smart pig in

the OTL you just talked about was dropped in 2004 and 2005. So

that sort of counters what you just said. That is in the Booz Allen

report, March 2007.

Mr. MALONE. Mr. Chairman, I have been told that Booz Allen

Hamilton has sent a correction in to the committee on that.

Mr. STUPAK. See, here is my problem. Whether it is this one,

Booz Hamilton, or else Billie Garde’s report, when something

comes up that is critical and proves the point that you dropped

maintenance which led to this leak which led to the shutdown of

the field, it gets whitewashed. This was your final report. The

other witnesses who appeared before us on the first panel, and I

know you listened to them, especially Ms. Merritt, you lied on the

Booz Allen report. Now, when Booz Allen comes to the committee

and we dig through it and we find a line that is pretty damning

of BP, suddenly Booz Allen Hamilton wants to pull back that report and drop that line. I get real suspicious. My time is up but

I am sure we will probably go another round. I will to Mr.

Whitfield.

Mr. WHITFIELD. Thank you, Mr. Chairman. And Mr. Malone,

thanks for being with us today. When did you actually become the

president and chairman of BP America?

Mr. MALONE. July 1 of last year, but it feels like an eternity.

Mr. WHITFIELD. And where were you prior to that?

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Mr. MALONE. I was the chief executive of BP Shipping Limited.

I was based on London, England.

Mr. WHITFIELD. Yes. And I am glad to hear you acknowledge

that decisions were made frequently on budgetary reasons rather

than on safety reasons and so forth, and I think that is certainly

reflected and it is refreshing that you acknowledge that. But when

you look at the Baker Panel report and the Chemical Safety

Board’s report and the internal reports that you all did and Booz

Allen and others, when you look at all of the shortcomings of the

culture and management at BP America, it is really quite disheartening that such a large company could, for example, they talk

about problems in leadership and trusting and open communication

and management technical knowledge and accountability and clarity of expectations and worker fatigue and excessive overtime and

process safety is a core value. All of those things came up lacking.

And so when you came in and from your perspective, trying to

move off in a new direction now, in your experience as a manager,

what did you find most perplexing in the culture of BP Petroleum

for you to deal with?

Mr. MALONE. I think there are two things that are very important, which is I want to highlight that we are looking at all of those

reports and we have looked at all of the recommendations and we

are incorporating all of those report recommendations and if they

supplement or assist us in moving forward—excuse me—we are

going to use those recommendations. The direct answer to your

question, the most striking to me was the rigor around process

safety management and the Baker Panel, Congressman, gave us a

real gift and that is that we didn’t have that embedded in our culture and that was striking to me coming back.

Mr. WHITFIELD. It is so important that, particularly with companies being in oil today, they have some management principles and

be above board and be transparent and be honest and straightforward, because there is a large segment of the American people

who, particularly with fuel prices being what they are, are looking

for a culprit and you are the ideal culprit to look at and particularly when you have this kind of history. And you feel quite confident moving forward, though, with the new management changes

in Alaska and elsewhere, that you all can address some of these

problems.

Mr. MALONE. I am. It is going to be a long process. This is not

something that is going to occur in the next year or two. To embed

process safety management under our system, it is going to take

years, but I am very encouraged with, as I go to Alaska and as I

go to Texas City, the new management in both of those locations

have embraced process safety management and our Alaskan team,

which is essentially a brand new team, I have been very impressed

with their commitment to get this right.

Mr. WHITFIELD. And do you all operate, is it five refineries in the

United States?

Mr. MALONE. Yes, sir, five.

Mr. WHITFIELD. And what is the capacity of those five refineries?

Or the total capacity would you say per day?

Mr. MALONE. I thought I might be asked that. Right now, when

they are full capacity, we can produce, for example, crude rate at

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each one of the refineries, I going to—if you don’t mind, I will just

try to do a quick add. The crude capacity is almost 3 million barrels a day.

Mr. WHITFIELD. Three million barrels a day?

Mr. MALONE. That is correct.

Mr. WHITFIELD. Of those five refineries?

Mr. MALONE. Yes, sir.

Mr. WHITFIELD. Now, has BP given any thought to building additional refineries in the United States?

Mr. MALONE. No, sir, we have not. What we have been doing,

Congressman, is trying to expand our existing refinery capacity

and we have been doing that over the last 10 or 15 years.

Mr. WHITFIELD. So it is your intention to continue to expand

where you are located today?

Mr. MALONE. Yes, Congressman, and in fact, we announced

about less than a year ago that we were taking our Whiting refinery and we were expanding capacity there to be able to take heavy

crude from Canada and that goes as planned, it is about 1.2 million

gallons of gasoline more a day.

Mr. WHITFIELD. Yes. Let me just ask you, if you were at a Rotary

Club in a rural part of the country and you had given your remarks

and someone stood up and asked you the question and they said,

Mr. Malone, you are the chairman and president of a large oil company and I personally think that your salaries are too high and

your performance awards are too high and that oil companies are

gouging us consumers down here and the amount of money that we

pay for gasoline is just outrageous, although we recognize that in

other parts of the world, they pay more than here. But how would

you respond to the charge that the oil companies are gouging the

American people today?

Mr. MALONE. Well, we have been trying to do an education right

now—excuse me—because right now we depend on imports to meet

our demand here in the United States and if you look at the last

few months, and this is what I talk to people about, one, our actual

consumption was higher in the first quarter of this year, 2 percent

higher than the year before and normally that is the time when

consumption is down of gasoline. It has actually risen. The economy is strong; people are driving. The second thing is that we have

less turn around time, so a lot of our refineries were down and

also, at the same time, we have a lot of refineries that had bad incidents and there are still down. And third, the imports, turn

around is going on in Europe at the same time, so there is not the

volume of gasoline to come in. So what has happened, price has

risen strictly based on supply and demand.

Mr. WHITFIELD. I have no further questions.

Mr. STUPAK. Now, for Members, we have got another quorum

call, I understand. If we have a real vote, I will go there, but I am

not going to go with this quorum call, so I am going to keep this

hearing moving. Mr. Melancon for 10 minutes for questions.

Mr. MELANCON. Thank you, Mr. Chairman, I appreciate it. Mr.

Malone, thank you for being patient with us on the floor. Mr. Malone, when you were asked away, were you—before, I bet there are

days you wished you were back.

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Mr. MALONE. I know I shouldn’t say this, but I remember my

shipping company. It was a great job.

Mr. MELANCON. One of the things that, and as I look at what

transpired, the explosion in Texas City, the spill in Prudhoe and

I look at the profits that year. Do we or has anybody provided us

with the executive bonus packages were those 2 years, or what the

dividends that were paid to the stockholders during those periods?

And if not, I would like to request, if you could, that we could get

that information. The President was up at Wall Street a couple of

weeks and talking about executive salaries. He wasn’t very warmly

received and I am not one for fooling with them, but if you are

going to be cutting safety for the workers in your company, then

it is a concern to me if, in fact, there—and I would like to see that,

if I could, maybe on a 5-year spread, just to see, was the management back then, or executives, trying to just keep a steady bonuses

or dividends going to your stockholders.

I have been a person that defends the oil and gas industry. As

Mr. Green mentioned and I think you were here, it is difficult for

me to try to convince Democrats on my side of the aisle that oil

companies are doing a good job in the Gulf of Mexico and offshore

when things like this occur. As a matter of fact, I am sure some

of them are giggling around, saying Melancon says everything is

cool. But one of the things I guess caught my attention early is Mr.

Woollum and you know, your testimony was about working with us

and trying to bring the company and move it in the right direction

and do the right things, and I have heard of witness protection, but

usually it is for the prosecutors and not the defendant. And so I

guess my question is simply who has made that determination that

no one can talk to Mr. Woollum?

Mr. MALONE. Congressman, Mr. Woollum, as you may know, in

September, chose to take the fifth [amendment] at the hearing.

That was his choice. He was represented by counsel. So the reasons

for that would have been addressed with he and his counsel. I am

not in a position to do that.

Mr. MELANCON. I heard earlier the lady from Alaska talk about

that there has been no fines and no penalties. As a matter of fact,

it almost sounded like everything went away. That bothers me. I

mean, I am from Louisiana. We have been accused of everything,

so I thought every other State was doing everything right. Does

anybody in your executive chain know what has led to just no

fines, no penalties? Is there something in their statutes that deal

with criminal negligence and whether you can continue to operate

in the State if it is found such? That bothers me.

Mr. MALONE. Well, Congressman, I know there are actions to be

taken by the Federal Government and I think we have heard that

today. I don’t know the status with the State, but I will get that

for you.

Mr. MELANCON. One of the things, and if you will go to tab 20,

the spreadsheet called the Greater Prudhoe Bay/2004 Field Lifting

Cost Challenge, Maintenance and Reliability. This spreadsheet appears to be part of the budget challenge process employees seem to

go through each year. The first item listed is the CIC, Corrosion

Inspection Chemicals group. Cancel 2004 smart pig program. If you

follow over to the right of the spreadsheet, you see that this could

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save the company $250,000. Do you know that this cut was made

and again, why are they talking about having to cancel something

as important as a smart pig to save money?

Mr. MALONE. Congressman, I don’t know what they are speaking

of here, whether it is the oil transit lines or the flow lines or produced water lines, I don’t know. If it is using inhibitor, as I mentioned earlier, we do have someone looking at that. If it was on the

OTL, I had Booz Allen look at that. I am happy to take a look at

that for you, but I don’t have any information today.

Mr. MELANCON. Yes. Looking just at that first question and with

all due respect, maybe we ought to have some people that are down

further in your organization in Alaska or the United States operation that were there and that were part of what transpired at

those times. Is there any problems with us requesting those folks,

some of those folks, and can you help us identify those?

Mr. MALONE. Congressman, the answer is we will work with

Congress, absolutely.

Mr. MELANCON. Also in the same document, tab 20, there is a

line item, cut all Sunday barbeques, CPS fund runs, CPS safety

fair booths. BP was examining a $25,000 cut in areas intended to

boost employee morale and promote safety. I mean, it got that bad?

How much money did they make that year, $17.2 billion?

Mr. MALONE. We will put this fund run back in right away, sir.

Mr. MELANCON. I am not a runner but you know——

Mr. MALONE. Congressman, it was difficult in Alaska. If I could

just say that we recognized that those budget pressures put our

employees in a very difficult place and if that goes on long enough,

we know that you create a culture, and as I said in my opening

statement, where the word I used was curious, but it where people

no longer begin to challenge and think. And what we need to do

and what we are working on is to establish a culture where every

employee will raise an issue and will have a comprehensive risk assessment. That means it takes all the risk, water in the lines, solids, all the expertise we can get and run it through a comprehensive risk to understand what that risk is and then have a management process to allow that a decision gets made at the right level

around the risk and that every employee has a voice, and that is

our ultimate objective in what we are trying to do in Alaska and

in Texas City and across all our businesses.

Mr. MELANCON. And I realize that you run just the American operations for BP and their worldwide company. They made $17.2 billion. Did they lose money in the Alaska operation that year or in

the next year? Did you lose money in the American operations

when the Texas City facility exploded or, I think, the year before

when the other facility exploded with five people killed?

Mr. MALONE. We normally don’t record that way. I can get that

answer for you, sir.

Mr. MELANCON. OK. I guess where I am coming from there is

you are big multinational corporation. You would expect that, at

some points in time, with justifiable information, for instance, the

downturn in the production out of the Prudhoe field, that corporate

would say we understand why things are tight and you maybe cut

a little bit, and that is where I keep trying to get to. Who specifically made those recommendations? Was it up the chain or at the

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bottom of the chain? It appears that it was more up the chain. And

can you help identify those folks so we can maybe find out what

actually took place on the ground before and after these events?

Mr. MALONE. Congressman, the way BP’s management system

works, that ultimately local management is accountable for its

budget and it is held accountable for its production and its safety

and integrity. That rests with the business unit. And a business

unit is our language for Alaska or Texas City.

Mr. MELANCON. I guess if I was in Alaska I would say you sent

me here. Move me elsewhere. I don’t want to do this.

Mr. MALONE. Well, Congressman, we have a new head of Alaska.

His name is Doug Suttles and he has assembled an outstanding

team in the last few months that is moving the process that I had

talked with you about forward. We have a new refinery manager

at Texas City, a gentleman named Keith Casey. They are committed to process safety management and to getting this right through

the culture and both of them are actively engaged in moving us forward.

Mr. MELANCON. Well, with the price of a barrel of oil, they ought

to be able to get this thing cleaned up, I would hope. I think my

time has run out. Thank you. I yield back the balance of my time.

Mr. STUPAK. I thank the gentleman. Mr. Green for questions.

Mr. GREEN. Thank you, Mr. Chairman. And welcome again from

all of us, Mr. Malone. I have a district in Houston not too far from

Texas City and one of my constituents was a contract worker there

and died in 2005. I also understand that BP and other companies

have that similar philosophy that the plant manager is responsible.

But I also know the criteria comes from the home office, wherever

it is at, whether it is for Exxon Mobil in Las Gallinas or wherever.

And I have dealt with a lot of plant managers on the use of the

ship channel in 20 years and they are given that criteria and they

are under pressure to cut that, not for themselves, but for above.

And to say that I am glad you have new people at both places, but

I also know they need the support and the encouragement from the

folks above them so they don’t get these hard and fast numbers

that say this is what you need to cut, whether it is the smart pigs

in Alaska or some of the safety inspections or safety things in

Texas City. So you could put anybody there, but if you don’t give

them support from the upper management, their bosses, it doesn’t

do you any good. The main plate capacity at Texas City Refinery

is 460,000 barrels a day, as far as you know?

Mr. MALONE. Yes, sir.

Mr. GREEN. Do you know how many barrels are currently being

produced?

Mr. MALONE. About half that. We are about 130,000 right now.

Mr. GREEN. OK. Do you know, is there a plan for being able to

get up to the capacity safely?

Mr. MALONE. Yes, and if I could, just for the record, I am an engineer but my math is pretty poor and I just noticed that I took

total and added the backup. So in answer to your question, the capacity of our refinery system is 1.525.

Mr. GREEN. OK.

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Mr. MALONE. Congressman, yes, we do have a plan. We are hoping to have Texas City back at full production by the end of the

year.

Mr. GREEN. OK. I know you have five other refineries in the

United States. Are any of them operating at full capacity now?

Mr. MALONE. Right now our Carson and our Cherry Point refineries are operating near capacity. Carson is main-plated to 265. It

is operating currently at 265 and operating at 235. Cherry Point

is 235; operating at 225. And Texas City, 465; 225 now. Lido is at

155. It was up 30, but we had an incident. And Whiting, 405; it

is currently operating at 225.

Mr. GREEN. Well, next week we will put on a different hat in our

committee and ask about production capacity in not only BP, for

other refineries. And I wanted to ask you before our chairman did

from northern Michigan, but——

Mr. MALONE. I thought that, maybe, it was where the question

was coming from.

Mr. GREEN. At the last hearing last year, Mr. Marshall, who was

then president of exploration in Alaska, responded to a question I

asked him, stating, safety and integrity spending at BP are their

highest things. They don’t get cut. They are the things that get

through the budget and cost is not a consideration. However, the

Booz Allen report for Prudhoe Bay, the CSB report for Texas City,

and the Baker Panel report for all five of BP’s U.S. refineries, all

concluded that cost cutting and budget pressures impaired safety

performance at your refineries. Mr. Marshall is not here, but since

you are, is there a disconnect from what he told us last year?

Mr. MALONE. Well, I can’t speak for Mr. Marshall, but what I

would tell you is that we have learned a lot. As I said in my opening statement, we have learned a lot since this last hearing and we

now recognize that there were pressures on our employees.

Mr. GREEN. I understand. But after the 2005 accident in Texas

City, BP conducted what is termed the management accountability

review to determine responsibility. Isn’t it true that various current

BP executives and safety officials that were interviewed in private

during this process believe that budget cuts were one of the major

causes of the Texas City Refinery accident?

Mr. MALONE. I am sorry, I can’t answer that question. I have

read the report but I can’t answer that.

Mr. GREEN. After the March 2005 accident, I also understood

that BP pledge about $7 billion to upgrade equipment in U.S. refineries and I think that tells us some concern about what we needed

to do to have that kind of investment in those refineries. What improvements have been made since that commitment over a year

ago now?

Mr. MALONE. Well, I think those expenditures were what we

think, over the next four or 5 years, I believe, we would be spending in order to get process safety management and our integrity

management in place at our refining system in Alaska, so I think

you will see progress being made in all our refineries as we are

taking out, and this has been highlighted, blow-down stacks and

putting in flares, as we are moving trailers out, as we are putting

in explosion-proof buildings. You will see that activity taking place

across our refining system.

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Mr. GREEN. I don’t know if you heard my questions of the first

panel. Having spent a lot of time at both refineries and chemical

plants in my area, I hope that a lot of your competitors and some

colleagues are listening and responding to what you are doing because, like I said, I was at a plant last year, it was a chemical

plant, and there was a portable building much closer than it should

have been to a unit. And I asked them at that time, I said I hope

you all have learned from what happened. You don’t want to go

through what BP is going through. And I hope the rest of the industry is hearing that, because it just does so much damage, not

only to BP, but also to the industry as a whole.

Mr. MALONE. Congressman, if I could just make one comment on

that. We found the industry to be very, very interested and I am

told are in contact with us and I know they read the Baker Panel

report and it has been distributed widely. We put it on the web so

that everyone had it.

Mr. GREEN. Mr. Chairman, I have no other questions right now,

but there are some I would like to submit for the record. I know

we have a vote and I don’t know if you and I have already missed

that vote or not.

Mr. STUPAK. It is a quorum call and it is still open and I am not

going to go back. I want to get through this hearing. It will probably be followed by a vote and we will have to do it because will

be a recorded vote. You yield back? OK. The record shall reflect

that Congresswoman Sheila Jackson Lee is here and she has been

throughout these hearings monitoring them and even on the floor

she catches Members and shares her concerns about the health and

welfare of BP and its employees, so I am always glad to have her

here.

It has been requested that we put in a Vinson & Elkins report,

dated February 22, 2007, entitled ‘‘BP Comments on Chemical

Safety Board’s Draft of Final Report of March 23, 2005 Explosion

at the BP Products Texas City Refinery’’. Without objection, we will

enter that.

I would also like to put in the interim report of investigation on

failure to disclose sealed BP documents to a congressional subcommittee, and other issues prepared on behalf of BP America by

Billie Garde. So without objection, those two will be entered.

I have a couple me questions, if I may. I would ask you just at

the end of my questions about those budget pressures found on

page 72 of the final report of March 30 of Booz Allen Hamilton, and

you said that line is going to be taken out. Is it going to be replaced

with anything, do you know, or is it just going to be scratched out?

Mr. MALONE. I do not know. It is Booz Allen’s report and they

have not told me.

Mr. STUPAK. OK. Those 29 words, if it is Booz Allen’s report that

we received to explain those 29 words, 159 pages from BP’s attorneys, not Booz Allen. So that is why I was wondering if they are

going to. I just think a little overkill. As I said earlier, 159 pages

to explain 29 words and it is not coming from Booz Allen, it is coming from Vinson & Elkins. So let me ask you this. If you go to Booz

Allen report page 80, after seeing this you will probably want to

take this out too. But it says, page 80, ‘‘Because no leading risk indicators or root causes were studied when the product composition

113

changed, it was not flagged as an important corrosion management

issue. This led to an increase in corrosion risk on the oil transit

lines that ultimately precipitated the two incidents.’’ Now, you

don’t disagree with that statement, right?

Mr. MALONE. And which paragraph?

Mr. STUPAK. The second paragraph, the second line. However, it

starts, ‘‘because no leading risk indicators or root causes were studied when the production composition changed’’ and that was that

oil makeup you were talking about, ‘‘it was not flagged as an important corrosion management issue. This led to an increase in corrosion risk on the OTL that ultimately precipitated the two incidents.’’ Do you see that there?

Mr. MALONE. I do.

Mr. STUPAK. OK. You don’t disagree with that statement? Basically it says, because of lack of maintenance, we had the two leaks.

Mr. MALONE. Again, Congressman, when Booz Allen concluded

that had we—the answer is that if we pigged the line, and which

we now know in hindsight, it could have prevented the leak.

Mr. STUPAK. Or even a corrosion inhibitor would have been

maintained, maybe, or extended the life of that line a little longer,

at least.

Mr. MALONE. My understanding is that we were using corrosion

inhibitor.

Mr. STUPAK. Correct. But as the earlier panel said, corrosion inhibitor doesn’t work if you have got so much sludge in the pipeline,

therefore it doesn’t get to the walls and cleans it out.

Mr. MALONE. I understand.

Mr. STUPAK. Yes, OK. And you basically testified that the lack

of maintenance did in fact cause the two leaks, correct? I don’t

mean to put word in your mouth.

Mr. MALONE. No, what we found in both cases, that had Booz

Allen found for me that had we given them more money, they

would not have pigged the line; that they believed they had a system that was preventing corrosion. They believed they knew what

they were doing in order to prevent those leaks. So Mr. Chairman,

that is the data I have to go on, is what Booz Allen has found. We

now know——

Mr. STUPAK. But if you go to page 72, before you drop those 29

words where Booz Allen said the plan to run the smart pig in the

OTL, oil transit lines, was dropped 2004 and 2005.

Mr. MALONE. Mr. Chairman, I only know——

Mr. STUPAK. You dropped that.

Mr. MALONE. What I heard was that, again, this is what I have

been told, is that was not for the OTLs. It was for the other pipelines, not for the—which is why what they misread. This was actually a flow line, which is above the gas handling.

Mr. STUPAK. Yes, I know, we have got 159 pages trying to explain that, but I still—it is no more confusing than anything, but

let go here. Here is the point I am trying to make. Carolyn Merritt

of the Chemical Safety Board testified that there were striking similarities in the reported causes of the 2006 events involving BP’s

Prudhoe Bay pipelines and the 2005 explosion at BP Texas City

Refinery. And in her statement she said the lack of investment in

maintenance and new equipment was compromising safety in

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Texas City and leaving the site at risk for a major accident. It goes

on. The Chemical Safety Board, page 147, changes to the safety organization resulted in cost savings, but to a diminished process

safety management function. What this is all telling me, whether

it is Ms. Merritt or the Chemical Safety Board or whether it is all

of this testimony that we have had today, if you would have increased maintenance, we might not have had these problems. So

my question is, today, what percentage of BP’s budget goes to

maintenance of your refineries? You have five refineries, the one in

Texas, Texas City, California, Indiana, Washington, Ohio, and then

you have the Alaska or North Slope. So what percentage? Has that

percentage gone up?

Mr. MALONE. I don’t know. I will find that for you.

Mr. STUPAK. As your profits go up, will your maintenance budget

increase?

Mr. MALONE. Take our commitment that we made to spend, Mr.

Chairman, $7 billion over the next few years on our refinery system as an indication to commit.

Mr. STUPAK. But if I remember correctly, you spent $1.5 billion

at Texas City and that is only at 50-percent capacity, so you could

spend $7 billion right at Texas City just to get back to the capacity

you were at before the explosion, and all of the rest of your maintenance in your fields up in the North Slope and the other four refineries would still be in bad shape. Ohio obviously is in bad shape

when you have got a $24 million fine or they wouldn’t have investigated that. So I want to make sure the whole operation, as your

profits increase, I would hope your maintenance and safety would

increase in the same proportion. Let me ask you this, if I may. Now

VECO, you are familiar with the VECO report, this one right here?

It is March 12, 3003.

VECO was a contractor, QBP. The finalized report, which estimated cost of installing—excuse me—pig launching and receiving

facilities at 71 locations identified in the aforementioned pigging facility priority list, that pigging facility priority list included three

sections of the eastern operating area line, which hadn’t been

pigged for 16 years, and it was one of the three lines listed. It was

one of the lines that was severely corroded and found leaking in

August 2006. Why was the VECO report prepared for BP in 2003?

Why did BP want to a VECO report?

Mr. MALONE. I don’t have an answer to that.

Mr. STUPAK. OK. The VECO report, can you get us one in writing, if you can, who wanted it and why? The VECO report provided

a range of estimates from $164 million to $643 million to install

these 71 pig launchers and receivers. The staff was told that this

report went nowhere because of cost. Do you know if that is true?

Mr. MALONE. No, I do not.

Mr. STUPAK. Will you check that out for us and get back to us?

The day before this hearing, the committee received communications from your staff, BP’s staff, I should say, indicating that the

VECO report was promising to install pig launchers and receivers

in locations where BP already had pig launchers and receivers. Is

BP now suggesting that VECO was sent off to prepare cost estimates for work that didn’t need to be done and that the corrosion

inspections and chemical group was so unaware of the assets under

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its stewardship that it prepared a pigging priority list which contained launchers which already had fully functional launchers and

receivers? I mean, we were—reports. VECO does a report and

when we asked questions from staff, your staff, BP’s staff, they say,

oh no, we didn’t need it because we already had it. Why would you

spend all of that money for a report if you already knew you had

it?

Mr. MALONE. I can’t answer that, Mr. Chairman.

Mr. STUPAK. OK.

Mr. MALONE. Mr. Chairman, if I could? I tried to have, as I committed to this committee, to have Booz Allen do an extensive review of interviews and materials that related to the transit line

and then to produce its report, and that is what I have done and

I am going on their recommendation on my——

Mr. STUPAK. And we hope that BP is not pressuring Booz Allen

to change their reports when they get a little critical. Let me ask

you this one because I think this is actually one of your documents.

Tab 29 in your folder there. BP gave us a document showing where

each of the many of the reports that BP needed to make to progress

in several key areas, and it is right there. It is a colored chart, a

one-pager.

Mr. MALONE. Yes, sir.

Mr. STUPAK. Did you prepare this? I was told you prepared it.

Mr. MALONE. My team prepared that with me.

Mr. STUPAK. OK. All right. So according to this document, it is

the various reports, they say that BP needs to make progress in

almost every item with the exception of one. Does this suggest that

BP U.S. operations are in need of a major overhaul? I mean, look,

you have got the Baker Panel, the Chemical Safety Board, Mogford,

Booz Allen Hamilton, and the map, and everything needed to be

improved upon. Did you guys need a major overhaul?

Mr. MALONE. Mr. Chairman, we tried to take all of these reports,

which we did voluntary most of them, to try to learn from both of

these tragedies. We looked across all of these and we said where

are the common elements that we can learn in order so that we can

design our forward program and cover all of the gaps? This was

meant to show that we listened to everyone, CSB, Baker Panel, everyone, in designing that forward program. But there were similarities in what we found in these reports between Texas City and

Alaska.

Mr. STUPAK. Mr. Whitfield, questions?

Mr. WHITFIELD. No, sir.

Mr. STUPAK. Mr. Melancon? I guess with that, we have completed. I thank you very much for your time. I think it is safe to

say that, after this hearing, there will probably be another one.

When I said earlier that I hope you don’t become the Los Alamos

of the north, I sincerely mean that. But we have a number of

things we are still looking for and we are still receiving documents.

As I said, we received some last night and we want to see what

the final Booz Allen says. So with that, you are excused, sir. Thank

you for your time and we look forward to your questions and answers to some of your questions you provide to this committee and

make sure they will be followed up in writing. Thank you.

Mr. MALONE. Thank you, Mr. Chairman.

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Mr. STUPAK. That concludes our questions. I want to thank all

of our witnesses for coming today and your testimony. I apologize

again for the disruptions because of the procedure votes on the

floor. I ask for unanimous consent that the hearing record will remain open for 30 days for additional questions for the record. Without objection, the record will remain open. That concludes our hearing. The subcommittee is adjourned. Thank you.

[Whereupon, at 2:45 p.m., the subcommittee was adjourned.]

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