In 2004, the Coast Guard and the Minerals Management Service—a component of Interior that was subsequently reorganized into the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE), and, most recently, the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE)— signed a memorandum of understanding (MOU) to delineate inspection responsibilities between the agencies. Per the MOU, the Coast Guard is responsible for ensuring (1) the safety of life and property on offshore energy facilities and vessels engaged in OCS activities; (2) workplace safety and health, including enforcement of requirements related to personnel, workplace activities, and conditions and equipment on the OCS; and (3) security of offshore energy facilities. The MOU assigns Interior responsibility for, among other things, managing the nation’s oil, natural gas, and other mineral resources on the OCS in a safe and environmentally sound manner. In addition to delineating inspection responsibilities between the Coast Guard and Interior, the MOU is further divided into five memorandums of agreement, one of which addresses the agencies’ responsibilities where jurisdiction overlaps. In accordance with this memorandum of agreement, the Coast Guard is the lead agency with responsibility for the inspection and testing of all marine and lifesaving equipment onboard fixed and floating offshore energy facilities and MODUs, and Interior is the lead agency with responsibility for the inspection and testing of all production and drilling equipment on these facilities. The Coast Guard, however, had authorized Interior (specifically, what was then the Minerals Management Service) to perform inspections of fixed offshore energy facilities and to enforce Coast Guard regulations applicable to such facilities. For example, the Coast Guard is to conduct an initial inspection of each new fixed offshore energy facility to determine whether it is compliant with Coast Guard safety regulations. However, after the initial inspection, the Coast Guard has authorized Interior’s inspectors to conduct such safety inspections on behalf of the Coast Guard and enforce Coast Guard regulations applicable to those facilities as a means to avoid duplicating functions, reduce federal costs, and increase oversight for Coast Guard compliance without increasing the frequency of inspections. Therefore, with respect to fixed offshore energy facilities, the only inspections for which the Coast Guard is exclusively responsible beyond the initial safety inspection are the annual security inspections, to the extent that these facilities meet the applicable criteria, as described below. The Coast Guard continues to have responsibility for conducting inspections and enforcing its regulations on floating offshore energy facilities and MODUs. In accordance with federal laws, agreements between the Coast Guard and Interior described above, and Coast Guard guidance, Coast Guard is responsible for conducting annual security inspections of offshore energy facilities that meet or exceed any one of three thresholds for production or personnel—(1) producing greater than 100,000 barrels of oil a day, (2) producing more than 200 million cubic feet of natural gas per day, or (3) hosting more than 150 persons for 12 hours or more in each 24-hour period continuously for 30 days or more. We refer to the 57 offshore energy facilities that met or exceeded these thresholds at some point from 2008 through 2010—and were therefore subject to security inspections during those years—as “OCS facilities.” Of these 57 OCS facilities, all of which are located in the Gulf of Mexico, 41 are fixed OCS facilities and 16 are floating OCS facilities. Staff at Coast Guard headquarters oversee and develop policies and procedures for field staff to follow when conducting security inspections of OCS facilities and to assist affected owners and operators so that they can comply with maritime security regulations. Among other things, Coast Guard marine inspectors in the field units conduct security inspections of OCS facilities by taking helicopter rides to facilities that can range up to 200 miles offshore. Once arriving, inspectors are to conduct on-site interviews with facility security officers and observe operations to verify whether required security measures are in place. As of August 2011, the Coast Guard had about 12 active marine inspectors who were qualified to conduct security inspections of OCS facilities. These inspectors work out of six field units near the Gulf of Mexico—Mobile, Alabama; Morgan City, Louisiana; New Orleans, Louisiana; Corpus Christi, Texas; Galveston, Texas; and Port Arthur, Texas. In line with the responsibilities set forth in the MOU discussed above and to ensure compliance with applicable laws and regulations, Interior has an offshore oil and natural gas inspection program intended to verify that the operator complies with Interior regulations and requirements at a well site. Interior’s offshore oil and natural gas oversight includes inspections of production activities including drilling, regular production activities, meters, abandoned platforms, and pipelines, among other things. Also in accordance with the MOU between the two agencies, Interior conducts both “full” and “limited” inspections of fixed offshore energy facility on behalf of the Coast Guard. During the full inspections of staffed, fixed offshore energy facilities, Interior’s inspectors are to review all applicable Coast Guard requirements, which include 27 safety items. During limited inspections, which are to be conducted on all fixed offshore energy facilities in the course of conducting inspections at those facilities for Interior’s purposes, Interior’s inspectors are to review less than half of the safety items. During these inspections, Interior’s inspectors are to, among other things, check for safety items such as the presence of equipment designed to prevent tripping, slipping, or drowning. Coast Guard OCS facility guidance provides that Coast Guard personnel are to conduct security inspections of OCS facilities annually, but our analysis of inspections data show that the Coast Guard has not conducted such inspections for most of these OCS facilities. For example, the Coast Guard conducted about one-third of the required annual inspections of OCS facilities from 2008 through 2010 (see table 1). Specifically, our analysis of Coast Guard inspections data shows that in 2008 the Coast Guard inspected 7 of 56 OCS facilities, which was e 13 percent of the required annual inspections. More recently, in 2010, th Coast Guard inspected 23 of 51 (45 percent) OCS facilities that the Coast Guard should have inspected. Our analysis of Coast Guard inspections data shows that the Coast Guard generally inspected a greater percentage of floating OCS facilities than fixed OCS facilities (see table 2). For example, from 2008 through 2010, the Coast Guard conducted annual security inspections of 54 percent of floating OCS facilities compared to 24 percent of fixed OCS facilities. During our interviews with Coast Guard marine inspectors and their supervisors, we learned that some field units did not know that they were responsible for conducting security inspections of these fixed facilities, approximately one-third of which are not staffed because operations are automated. For example, marine inspectors in the Coast Guard field unit that oversees more than half of the OCS facilities stated that they had only recently learned that they were responsible for conducting security inspections of fixed OCS facilities. These marine inspectors stated that they thought that security inspections of the fixed OCS facilities within their area of responsibility were carried out by another field unit and that they had only been conducting annual security inspections of the floating OCS facilities. Further, other Coast Guard officials stated that it is easier to arrange for security inspections of floating OCS facilities because marine inspectors visit those facilities more frequently for other types of inspections, such as hull or safety inspections, whereas for fixed OCS facilities, the Coast Guard is required to conduct an initial safety inspection of each new facility and then is solely responsible for conducting annual security inspections of fixed OCS facilities once a year for annual security inspections. The Coast Guard does not have procedures in place to help ensure that its field units conduct annual security inspections of OCS facilities annually in accordance with its guidance. Standards for Internal Control in the Federal Government state that internal controls should include control activities, such as policies, procedures, and mechanisms that help ensure management directives are carried out. However, the Coast Guard does not have such control activities in place. For example, the Coast Guard’s OCS facility guidance does not describe specific procedures for the way in which Coast Guard staff should track whether annual security inspections have been conducted. Further, Coast Guard district officials and most local field unit supervisors and marine inspectors we spoke with do not maintain any kind of tool, such as a spreadsheet or calendar, to remind them when annual security inspections of OCS facilities are due. Coast Guard officials from five of the six Coast Guard field units that conduct annual security inspections of OCS facilities told us that they do not maintain a spreadsheet or other management tool to track whether annual security inspections had been conducted. For example, at three of these locations, Coast Guard officials told us they rely on owners and operators to inform them when inspections were due rather than independently tracking when annual inspections were due. As a result of no procedures or control activities to manage the offshore security inspection program, the Coast Guard is not complying with its established maritime security requirements for most of the OCS facilities. Without conducting annual inspections of OCS facilities, the Coast Guard may not be meeting one of its stated goals of reducing the risk and mitigating the potential results of an act that could threaten the security of personnel, the OCS facility, the environment, and the public. In our October 2011 report, we made a recommendation, among others, that the Coast Guard develop policies and procedures to monitor and track annual security inspections for OCS facilities to better ensure that such inspections are consistently conducted. The Coast Guard concurred with this recommendation and stated that it is planning to update its OCS facility policy guidance for field units to monitor and track annual security inspections for OCS facilities to better ensure that such inspections are consistently conducted. Interior’s inspection program has not consistently met its internal targets for production inspections, as we have reported in recent years. In 2008, we reported that Interior had not met its targets for conducting production inspections—examining metering equipment used to measure oil and natural gas production. Interior officials responsible for conducting production inspections in the Gulf of Mexico told us they completed about half of the required inspections in 2007, raising uncertainty about the accuracy of oil and natural gas measurement. In March 2010, we found that Interior had not routinely met its oil and natural gas production inspection goals. Specifically, we reported that Interior met its inspection goals only once—in 2008—during fiscal years 2004 through 2008, for four district offices we reviewed in the Gulf of Mexico and the Pacific. Interior inspection staff told us that, during these years, there was a shortage of inspectors and that inspections were delayed because of cleanup related to Hurricanes Katrina and Rita in 2005. We are unable to present data for these years because, according to Interior officials, district offices often did not correctly record production inspections on their inspection forms; since then, Interior instituted a policy to record inspections correctly. Also in March 2010, we reported that Interior had encountered persistent human capital challenges in its inspection programs designed to ensure accurate measurement of oil and natural gas from federal lands and waters. In particular, we reported that Interior was hindered by difficulties in hiring, training, and retaining key inspections staff. We reported that this difficulty in attracting and retaining key staff contributed to challenges in meeting its responsibilities to conduct inspections, thereby, reducing its oversight of oil and gas development on federal leases, potentially placing the environment at risk. In our report, we made a number of recommendations to Interior to address these issues, some of which Interior is already in the process of implementing. Although Interior has not consistently met its internal targets for production inspections, it has exceeded its target for Coast Guard compliance inspections. For fiscal year 2010, the most recent year reported, Interior’s goal was to conduct full inspections covering all applicable Coast Guard regulations on 10 percent of the estimated 1,000 staffed, fixed offshore energy facilities. For fiscal year 2010, Interior reported that it more than met this goal by conducting such inspections on 169 of the 1,021 staffed, fixed offshore energy facilities—about 17 percent. Further, Interior reported that it has met internal targets for these inspections for the previous 5 years. In addition, Interior reported that in fiscal year 2010 its inspectors also conducted limited inspections for compliance with Coast Guard regulations on all other fixed offshore energy facilities in the course of inspecting these facilities for their own purposes. Interior has recently been reorganizing its offshore inspection program, which has resulted in some uncertainty regarding its inspection capabilities. After the Deepwater Horizon incident in April 2010, Interior initiated a reorganization of its bureau responsible for overseeing offshore oil and natural gas activities. Specifically, in May 2010, Interior reorganized its Minerals Management Service—the bureau previously tasked with overseeing offshore oil and natural gas activities—and created the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE). On October 1, 2011, Interior was further reorganized by dividing BOEMRE into two separate bureaus, the Bureau of Ocean Energy Management (BOEM)—which oversees leasing and resource management, and the Bureau of Safety and Environmental Enforcement (BSEE)—which is responsible for issuing oil and natural gas drilling permits and conducting inspections. We have reported that Interior could face challenges during its reorganization. In June 2011, we testified that Interior’s reorganization of activities previously overseen by MMS will require time and resources and may pose new challenges. We stated that while this reorganization may eventually lead to more effective operations, organizational transformations are not simple endeavors. We also expressed concern with Interior’s ability to undertake this reorganization while meeting its oil and natural gas oversight responsibilities. We believe that these concerns are still valid today. While Interior was reorganizing its oversight responsibilities, it was also reforming its inspection program and, according to Interior, these reforms have created uncertainty regarding future oversight inspections. As part of the inspections program reform, Interior plans to hire additional staff with expertise in oil and natural gas inspections and engineering and develop new training programs for inspectors and engineers involved in its safety compliance and enforcement programs. Specifically, Interior reported in February 2011 that it was seeking to hire additional inspectors for its offshore inspection program to meet its needs during fiscal years 2011 and 2012. Interior reported that it had 62 inspectors—which, it reported, was not sufficient to provide the level of oversight needed for offshore oil and natural gas production. Interior has also requested additional funding to implement these changes. Further, Interior has stated that its new inspection program may involve inspectors witnessing more high-risk activities, and in-depth examination of some aspects of Gulf oil and natural gas production, and so inspections may take more time in the future and be more difficult to fold into the existing inspection schedules. As a result, Interior reported that it was difficult to determine how many inspections would be conducted in fiscal year 2012. While the Deepwater Horizon incident was not the result of a breakdown in security procedures or the result of a terrorist attack, the loss of the Deepwater Horizon, a foreign-flagged MODU, and the resulting oil spill have raised concerns about U.S. oversight over MODUs that are registered to foreign countries. In this regard, various circumstances govern the extent to which the Coast Guard oversees the security of MODUs. In general, MODUs operating on the OCS implement security measures consistent with applicable security requirements—specifically, they implement requirements in accordance with U.S. security regulations and the International Maritime Organization’s International Ship and Port Facility Security (ISPS) Code. Depending on the particular characteristics and operations of the MODU—for example, its method of propulsion or its personnel levels—it may be subject to Coast Guard security regulations governing vessels (33 C.F.R. part 104) or OCS facilities (33 C.F.R. part 106). MODUs will fall under applicable Coast Guard regulations if (1) they are self-propelled—that is, they are capable of relocating themselves, as opposed to other types that require another vessel to tow them—in which case they are subject to the ISPS Code and 33 C.F.R. part 104, or (2) they meet production or personnel levels specified in 33 C.F.R. part 106. Whereas the Coast Guard may physically inspect a U.S.-flagged MODU to ensure compliance with applicable security requirements, the Coast Guard’s oversight of foreign-flagged, self-propelled MODUs, such as the Deepwater Horizon, is more limited. In the case of self-propelled, foreign-flagged MODUs, the Coast Guard will assess compliance with part 104 by reviewing a MODU’s International Ship Security Certificate, which certifies compliance with the ISPS Code. While Coast Guard inspectors may also observe security measures and ask security related questions of personnel, absent consent from the flag state, the inspectors generally do not have authority to review a self- propelled, foreign-flagged MODU’s vessel security plan. In all other cases where MODUs are subject to Coast Guard security requirements, the Coast Guard assesses compliance with part 104 or part 106 through annual security inspections. Figure 1 illustrates the types of MODUs, the applicable security requirements, and the means by which the Coast Guard assesses compliance. The Coast Guard may not be fully aware of the security measures implemented by self-propelled, foreign-flagged MODUs because of its limited oversight of such MODUs. The Coast Guard and BOEMRE, BSEE’s predecessor, conducted a joint investigation into the Deepwater Horizon incident, and the Coast Guard’s report from the investigation emphasized the need to strengthen the system of Coast Guard oversight of foreign- flagged MODUs. The Coast Guard’s report from the joint investigation stated that the Coast Guard’s regulatory scheme for overseeing the safety of foreign-flagged MODUs is insufficient because it defers heavily to the flag state to ensure safety. While the investigation focused on issues that were not related to security, such as safety, these findings may have implications for security oversight because the Coast Guard also relies on the flag state to carry out responsibilities for assessing compliance with security requirements. The joint investigation team recommended, among other things, that the Commandant of the Coast Guard develop more comprehensive inspection standards for foreign-flagged MODUs operating on the OCS. The Commandant concurred with this recommendation and has chartered an Outer Continental Shelf Activities Matrix Team, which has been tasked with providing recommendations on the establishment and implementation of an enhanced oversight regime for foreign-flagged MODUs on the U.S. OCS. According to Coast Guard officials, it is likely that MODUs operating in deepwater would be subject to security requirements because the industry is increasingly using dynamically positioned MODUs that are able to maintain position without being anchored to the seabed, and as such MODUs are self-propelled, they would be subject to the ISPS Code and 33 C.F.R. part 104. Additionally, the Coast Guard is conducting a study designed to help determine whether additional actions could better ensure the security of offshore energy infrastructure in the Gulf of Mexico, including MODUs. This study is expected to be completed in the fall of 2011. Gaining a fuller understanding of the security risks associated with MODUs could better inform Coast Guard decisions and potentially improve the security of these facilities. Further, the Coast Guard has implemented a new risk-based oversight policy for MODUs, including foreign-flagged MODUs, to address safety and environmental protection issues. This policy includes a targeting matrix to assist inspectors in determining whether a foreign-flagged MODU may require increased oversight, based on inspection history or other related factors, through more frequent examinations by the Coast Guard. Additionally, the policy calls on Coast Guard field units to conduct random, unannounced examinations of a portion of all MODUs in their areas of responsibility. Although this policy does not directly address security, increased oversight resulting from this new policy could help mitigate some of the ways in which a MODU might be at risk of a terrorist attack. Chairman LoBiondo, Ranking Member Larsen, and Members of the Subcommittee, this completes our prepared statement. We would be happy to respond to any questions you may have at this time. For questions about this statement, please contact Stephen L. Caldwell at (202) 512-9610 or caldwells@gao.gov, or Frank Rusco at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. In addition to the contacts named above, key contributors to this testimony were Christopher Conrad, Assistant Director; Jon Ludwigson, Assistant Director; Lee Carroll and Erin O’Brien, analysts-in- charge; and Alana Finley. Thomas Lombardi provided legal support and Lara Miklozek provided assistance in testimony preparation. Maritime Security: Coast Guard Should Conduct Required Inspections of Offshore Energy Infrastructure. GAO-12-37. Washington, D.C.: October 28, 2011. Deepwater Horizon Oil Spill: Actions Needed to Reduce Evolving but Uncertain Federal Financial Risks. GAO-12-86. Washington, D.C.: October 24, 2011. Maritime Security: Progress Made, but Further Actions Needed to Secure the Maritime Energy Supply. GAO-11-883T. Washington, D.C.: August 24, 2011. Oil and Gas: Interior’s Restructuring Challenges in the Aftermath of the Gulf Oil Spill. GAO-11-734T. Washington, D.C.: June 2, 2011. Maritime Security: DHS Progress and Challenges in Key Areas of Port Security. GAO-10-940T. Washington, D.C.: July 21, 2010. Oil and Gas Management: Interior’s Oil and Gas Production Verification Efforts Do Not Provide Reasonable Assurance of Accurate Measurement of Production Volumes. GAO-10-313. Washington, D.C.: March 15, 2010. Mineral Revenues: Data Management Problems and Reliance on Self- Reported Data for Compliance Efforts Put MMS Royalty Collections at Risk. GAO-08-893R. Washington, D.C.: September 12, 2008. Maritime Security: Coast Guard Inspections Identify and Correct Facility Deficiencies, but More Analysis Needed of Program’s Staffing, Practices, and Data. GAO-08-12. Washington, D.C.: February 14, 2008. Maritime Security: Federal Efforts Needed to Address Challenges in Preventing and Responding to Terrorist Attacks on Energy Commodity Tankers. GAO-08-141. Washington, D.C.: December 10, 2007. Maritime Security: The SAFE Port Act: Status and Implementation One Year Later. GAO-08-126T. Washington, D.C.: October 30, 2007. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: The April 2010 explosion of the Deepwater Horizon, a mobile offshore drilling unit (MODU), showed that the consequences of an incident on an offshore energy facility can be significant. A key way to ensure that offshore energy facilities are meeting applicable security, safety, and production standards is through conducting periodic inspections of the facilities. The Coast Guard and the Department of the Interior (Interior) share oversight responsibility for offshore energy facilities. The Coast Guard is to conduct security inspections of such facilities, whereas based on an agreement between the two agencies, Interior is to conduct safety compliance inspections on some offshore facilities on behalf of the Coast Guard as well as its own inspections to verify production. This testimony addresses: (1) the extent to which the Coast Guard has conducted security inspections of offshore energy facilities, and what additional actions are needed; (2) the extent to which Interior has conducted inspections of offshore energy facilities, including those on behalf of the Coast Guard, and challenges it faces in conducting such inspections; and (3) the Coast Guard's oversight authority of MODUs. This testimony is based on GAO products issued from September 2008 through October 2011. The Coast Guard conducted about one-third of its required annual security inspections of offshore energy facilities from 2008 through 2010 and does not have procedures in place to help ensure that its field units conduct such inspections in accordance with its guidance. The Coast Guard's guidance does not describe specific procedures for the way in which Coast Guard staff should track whether annual inspections have been conducted. For example, Coast Guard field unit supervisors and marine inspectors GAO interviewed from five of the six Coast Guard field units that are to conduct annual security inspections said that they do not maintain any tool to track whether such inspections had been conducted. GAO recommended in October 2011 that, among other things, the Coast Guard develop policies and procedures to monitor and track annual security inspections. The Coast Guard concurred and stated that it is planning to update its guidance for field units to address these issues. Interior's inspection program has not consistently met its internal targets for production inspections, and faces human capital and reorganization challenges, but has met its limited target for compliance inspections conducted for the Coast Guard. In March 2010, GAO found that for four district offices it reviewed, Interior only met its production inspection goals once during fiscal years 2004 through 2008. Further, GAO reported that difficulties in hiring, training, and retaining key staff had contributed to challenges in meeting its inspections goals. However, in recent years, Interior reported that it met its 10 percent target to conduct compliance inspections of staffed, fixed offshore energy facilities on behalf of the Coast Guard. In fiscal year 2010, Interior reported that it exceeded its target and conducts such inspections on 169 of the 1,021 staffed, fixed offshore energy facilities and has met this target for such inspections for the previous 5 years. In May 2010, Interior reorganized its bureau responsible for overseeing offshore energy activities. In June 2011, GAO reported that while this reorganization may eventually lead to more effective operations, GAO is concerned with Interior's ability to undertake this reorganization while meeting its oversight responsibilities. Among other things, Interior plans to hire additional staff with expertise in inspections and engineering. Amidst these changes, Interior reported that it was difficult to determine how many inspections it would conduct in fiscal year 2012. The Coast Guard has limited authority regarding the security of MODUs registered to foreign countries, such as the Deepwater Horizon. MODUs are subject to Coast Guard security regulations if (1) they are self-propelled or (2) they meet specific production or personnel levels. Whereas the Coast Guard may physically inspect a U.S.-flagged MODU to ensure compliance with applicable security requirements, the Coast Guard's oversight of foreign-flagged, self-propelled MODUs, such as the Deepwater Horizon, is more limited. The Coast Guard is conducting a study designed to help determine whether additional actions could better ensure the security of offshore energy facilities, including MODUs. Further, the Coast Guard has implemented a risk-based oversight policy for all MODUs to address safety and environmental protection issues. Although this policy does not directly address security, increased oversight resulting from this policy could help mitigate the risk of a terrorist attack to a MODU. GAO has previously recommended that the Coast Guard develop policies and procedures to monitor and track annual security inspections for offshore energy facilities and that Interior address its human capital challenges. The Coast Guard and Interior agreed.