Senate Energy & Natural Resources Oversight Hearing “Well control rule and other regulations related to offshore oil and gas production”

Sen. Lisa Murkowski (R-AK) opened the hearing on “Oil and Gas and Sulphur Operations in the Outer Continental Shelf – Blowout Preventer Systems and Well Control” (well control rule) by saying that offshore oil and gas regulations are a national issue, not just confined to the coastal states. Federal offshore production tops one million barrels of crude oil per day, and one trillion cubic feet of natural gas per year.

The purpose of the hearing was to examine the well control and related rules that govern offshore production. The rules are aimed at ensuring the safety of offshore operations and prevent incidents like the Macondo oil spill.

Sen. Murkowski said the well control rule is an extremely technical document, and the committee wants to ensure that it will actually enhance offshore safety.

Other points Sen. Murkowski made in her opening statement:

The overall share of oil and gas production has declined during the current administration, and it is fair to examine if offshore regulators are striking the right balance and actually designing rules that will meet their objectives.
Over the past several months, many experts have submitted concerns for the record about mandatory drilling margins, blowout preventer specifications, real time monitoring, and other subjects. If left unaddressed, these requirements may actually increase the risk of a catastrophic accident, the experts said.
The Senator is deeply disturbed about the administration’s handling of Arctic resources. “The regulatory maze imposed from Washington DC created the situation in which successful oil exploration of Alaska’s offshore was an uphill battle every step of the way,” she said.
Two companies have now pulled out of Alaska’s Arctic region. While the Arctic’s physical environment is tough, the decisions were actually prompted by a deteriorating regulatory environment.
A new paradigm is in order, one that recognizes the Arctic’s federal offshore areas as the frontier, requiring a modern, adaptable leasing structure, designed to help rather than block exploration.

In her opening remarks, Sen. Maria Cantwell (D-WA) said safety and environmental protection are important, especially in fragile oceans and ecosystems. The BP Deep Water Horizon incident was a human, economic, and ecological disaster, and it could have been avoided. The immediate cause of the blowout can be traced to a series of systematic failures, risk management, and a broken safety culture, along with government mismanagement.

Other points made by Sen. Cantwell:

The well control rule will address inadequate risk management and oversight. While progress has been made, the “loss of well control” remains an issue. Since 2010, 23 separate loss of well control incidents have occurred at an estimated rate of six to eight per year.
Residents, the environment, the coastal economies, the taxpayers, and not even the oil and gas industry can afford a repeat the Deep Water Horizon incident.
The rule has been more than five years in the making with input from 50 different companies.
Performance-based requirements allow industry experts—who know the systems the best—to comply with the requirements in the most efficient ways. But, in order for these to work, the industry must uphold its end of the bargain by improving transparency, so that regulators and industry can adapt to new challenges.
The administration has worked in good faith to ensure everyone’s voice is heard. No safety standard can be 100 percent fail safe, but incremental improvements can be made to oil production procedures and safety.
The U.S. Coast Guard, NOAA, and other experts have repeatedly testified about serious gaps in oil spill response technology. The U.S. is not prepared today to handle a large spill and the oil spill response structure has not been updated for decades.
The Coast Guard does not have the ability to clean up oil on ice, a huge concern not only in U.S. waters, but also in neighboring Arctic countries.
NOAA’s role in the Department of the Interior’s (DOI) offshore leasing decisions needs to be strengthened.
The rule should be finalized without further delay or changes.

The witness panel featured Brian Salerno, Director of the Bureau of Safety and Environmental Enforcement (BSEE) for DOI, Erik Milito, Director of the American Petroleum Institute, Dr. Mark Rockel, Principal Consultant for Rambol Environ, and Jacqueline Savitz, Vice President of U.S. Oceans for Oceana.

Salerno’s main points:

The proposed rule under consideration was developed in order to reduce the risk of another Deepwater Horizon tragedy. It was developed from the analysis and critical thinking that followed the Macondo blowout.
Numerous investigations were conducted after the blowout. Included in the written testimony are over 400 recommendations, with approximately 160 related to blowout preventers, well design, and safe well operations. The proposed well control rule synthesizes and incorporates many of these recommendations. It also adopts 10 industry standards to reduce risk across all phases of drilling activity.
The bureaus extended the original 60 day comment period and received over 5,000 pages of technical comments, which are still being reviewed.

Salerno also discussed the Arctic rule, which drew over 100,000 formal comments.

Salerno said his agency is committed to putting out good rules that improve safety and environmental protection, and that can be achieved by the industry.

Milito’s main points:

S. energy needs are predicted to rely on petroleum and natural gas for decades to come. The U.S. outer continental shelf will continue to play a key role in supplying those resources. Offshore sources currently account for about 1.4 million barrels of oil per day, and make up about 16 percent of U.S. oil production.
After 2010, more than 100 standards were improved for safety, environmental management, well design, blowout prevention, and spill response. The Center for Offshore Safety was created to advance the industry’s safety improvement goals through system audits and the sharing of best practices.
The government has drafted various new regulations related to safety and environmental regulation systems, well integrity, and blowout prevention.
The industry remains concerned about various regulatory activities related to offshore energy development. Specifically, rules for well control and Arctic operations. In both cases, certain proposed requirements may not appreciably improve safety and operations.
Many of the requirements proposed in the well control rule could create unintended consequences that would shift risk rather than decrease it.
In regard to the Arctic, the industry has time to ensure that any published regulations protect the workers and the environment. The National Petroleum Council released a report earlier this year that concluded that oil and gas exploration in the Arctic is extensively regulated, requiring 60 types of permits through 10 federal agencies.
Regulation should be adaptive to reflect advances in technology and ecological research and achieve an acceptable balance considering safety, environmental stewardship, economic viability, energy security, and compatibility with the local communities.
As the government finalizes any of its pending regulations, it should ensure that it is not implementing overly restrictive requirements that would inhibit innovation in advanced technology.
API remains optimistic that government and industry will work together to achieve the appropriate regulations. With the proposed Arctic rule, the government cut off dialogue, but API hopes DOI will reconsider.

Dr. Rockel’s main points:

Rambol Environ performed an analysis of DOI’s Alaska OCS regulations.
The same season relief drilling rig rule would require all Arctic operators to contract a second rig capable of drilling a relief well prior to the onset of the ice season. The cost is estimated at over $3.2 billion dollars and the benefits are estimated at only $791 million.
The relatively minor benefits are because of the low probability of a well blowout in the shallow exploration and appraisal wells in the high Arctic. A hierarchy of barrier and control technologies could, depending on the situation, provide a faster and more environmentally protective response than a relief well, and be more cost efficient.
Drilling a relief well is not the only method an operator can use to control a late season blowout. Regulations already require the operators to submit plans showing they can curtail operations in response to emerging environmental hazards.
Decisions on when operators should end their drilling seasons should be based on whether the drilling assets are still capable of drilling safely for the predetermined periods that the operators had planned.
The 100 percent mechanical recovery capacity requirement is inefficient and may result in additional impacts to the environment from having more vessels on the scene. The emergency response team also may determine that the best response involves in-situ burning and dispersants.
Any Arctic regulations dealing with oil response should allow the operators and the people on scene to apply a net environmental benefits analysis approach and account for all appropriate response tools.
If codified into regulation, these elements would be inconsistent with U.S. policy guidance directing agencies to a performance-based regulations would not be in harmony with international standards and best practices.

Savitz’s main points:

Oceana regards offshore drilling as a dangerous practice that puts marine ecosystems at risk and threatens the coastal economies that depend on healthy ecosystems.
Oceana advocates for a transition from fossil fuels to renewable fuels. Because this will not happen overnight, Oceana supports the strict safety efforts.
While a significant improvement over the status quo, the proposed rules are not robust enough to protect the oceans. Still, the regulations address many of the issues raised in the Deep Water Horizon investigations and Oceana urges their implementation as soon as possible.
In just the four years following the Deep Water Horizon, BSEE reported that offshore drilling had resulted in 1000 injuries, more than 400 fires and explosions, 20 losses of well control, and 11 spills, as well as many fatalities.
Oceana recommends that the regulations be improved by requiring companies to deploy two shear rams that are capable of controlling the well on all blowout preventers. This would also ensure redundancy so that if one blind shear ram failed to separate the pipe, the second one could do it.
The compliance period in the proposed rule will cause unnecessary and potentially harmful delays.
The fines for risk taking are inadequate and inspection rates are abysmal. Both are discussed in more detail in Savitz’s written testimony.
Oceana recommends that the Congress and the administration prevent the expansion of offshore drilling in the Atlantic and Arctic oceans. The only sure way to prevent the harm caused by offshore spills is to decrease U.S. dependence on fossil fuels, and transition to clean, sustainable renewable energy sources such as offshore wind power.

Sen. Murkowski started the question and answer period by posing a series of questions to Salerno. Some highlights of the exchange were:

Salerno confirmed that he is committed to careful consideration of the expert comments offered by offshore operators.
Murkowski mentioned specific regulatory issues—BSEE-approved verification organizations (BAVOs), proposed casing and cementing requirements, blowout preventer inspections every 14 days—and asked if rule revisions are being considered. Salerno said that in some cases inspections now occur every seven days, and that a 21-day inspection requirement is open for comment. Obviously, he said, the industry cost is lower with the greater interval, and other provisions, such as maintenance record requirements, could achieve a net safety benefit.
Referencing the opposition to Arctic OCS development, Sen. Murkowski asked if Alaska production is beneficial to the country and if it can be done in a safe and environmentally sound manner. Salerno answered yes, and said that is why BSEE issued permits for Shell’s Arctic operations. He added that due to lack of regional infrastructure, Arctic operators have a higher burden in providing all of the equipment they may need in case of emergencies.
Murkowski cited Shell’s over $7 billion investment in Arctic development, and that part of the company’s problem was the challenging and unpredictable federal regulatory environment in offshore Alaska. She said she would like to have more predictable federal regulations, ones that acknowledge that the Arctic is different. One example is that the Arctic features less hazardous shallow water.

During her questioning, Sen. Cantwell asked Salerno about the process for verifying blowout preventers.

Salerno responded that third party testers would ensure the preventers are functioning properly. The third party provisions were stepped up after 2010, but the new regulations take them to a more rigorous level. The new rule will provide more details about what the third parties will test for and what will be developed over time.

Sen. Cantwell asked Savitz if her concerns about the rule are that it isn’t stringent enough, or that the Arctic wasn’t taken into consideration.

Savitz answered that Oceana’s concerns are general, and that the proposed rule will not prevent potential accidents. In the Deep Water Horizon disaster, for example, the blind shear rams did not succeed in stopping the flow, and that redundancy is not required. So, some ideas still need to be looked at and strengthened. To be sitting at this table six years after a major spill looking at a rule for the last line of defense is incredibly disturbing, she said.

Sen. Bill Cassidy (R-LA) mentioned the people who died during the tragedy, and that this hearing is also about protecting people’s lives. He said one of the widows of a person who died opposed the immediate moratorium on offshore drilling because her neighbors depended on the income from offshore industry. Clearly, he added, a balance must be found to not completely kill an industry that is so important to the livelihoods of so many people.

Referencing Milito’s testimony, Sen. Cassidy asked Salerno if he agreed that the requirement for 20 new receptacles—involving shutoff valves, hoses, tubes, etc. that the remotely operated vehicles (ROV) would attach to—provides greater possibilities for leaks and other failures.

Salerno said BSSE does not believe the risk would increase, but the agency is reviewing a large volume of industry technical feedback. He said that when an ROV is operating on a blowout preventer and isn’t equipped to do so, risk is incorporated in that fashion as well.

Milito clarified that there are already places for ROVs to attach, but rule would require another 20, adding more potential points of failure.

Sen. Cassidy said the de-assembling of a blowout preventer every five years could create problems and introduce the possibility of more human error. Salerno answered that the five year mark is based on an API Standard 3.

Milito responded that different components of the blowout preventer are maintained over the course of five years. Pulling the whole unit out of service after five years is not justified given the way the industry maintains and inspects its equipment.

Sen. Cassidy asked Salerno why this is not adequate. Salerno responded that BSEE has received a lot of comment on this issue, and it’s being reviewed.

Sen. Cassidy asked about situational awareness. Milito’s testimony had suggested that the responsibility and authority for decisions should stay with the people on the rig because people elsewhere don’t have situational awareness, and communication lag time inevitably results.

Salerno said the rule does not shift command authority from rig to shore. Instead, it transfers capability to a second set of eyes so that experts on shore can provide additional diagnostic expertise. The decision about where to authorize command and control lies with the company.

Sen. Elizabeth Warren (D-MA) commented on Milito’s written testimony, where he said offshore drilling is “safer today than it ever has been, and that new safety rules for industry are too prescriptive and would just prevent the industry from conducting more drilling.”

Sen. Warren said that 10 days before the Depp Water Horizon disaster, API criticized the opponents of offshore drilling, saying that people should not be concerned, that offshore drilling is “very low risk,” and new technologies “close and shut off any type of opportunity for any kinds of liquids or fluids to get into the environment.”

She asked Milito if the opponents of offshore drilling were wrong about their concerns in the 10 days prior to the disaster.

Milito answered that we should always be concerned that these types of incidents might occur. He believed, however, that offshore drilling is still a low risk activity and that it can operate in a performance-based system.

Sen. Warren said the oil industry comes to the Congress repeatedly to say what a great job it’s doing with safety and that no more oversight is needed. But, because this is what the industry said right up until the BP rig exploded, the American people should be a little skeptical about petroleum industry statements.

Addressing Savitz, Sen. Warren asked if she is confident that current industry practices will protect the country from another BP disaster.

Savitz answered, “of course not.” She said the take away points are that the industry did not anticipate the Deepwater Horizon scenario and its equipment couldn’t deal with the situation. There’s no way to know if the industry will have learned from past mistakes and will be prepared to deal with a repeat incident, or if something completely different will happen, she added.

Before new rigs operate in the Atlantic, Sen. Warren said the country needs to take a hard look at what more drilling would mean. The risks are too great to simply take the drilling companies at their word that they have everything under control.

Sen. Steve Daines (R-MT) said the proposed rule represents another attempt by President Obama’s administration to prevent American energy generation. Risk management, national security, environmental protection, economic impact are all factors that need to be weighed to come up with good sound rules and policy. Instead, the rule is too extensive, overreaching, and more stringent than current global standards. The rule disregards the affected states and the good paying jobs and tax revenues that offshore production creates, the senator said. Salerno said that it is a misinterpretation of the rule.

Sen. Daines then asked about the rule’s predicted loss of 5,000 jobs by 2030. Salerno said that was a bad analysis.

Sen. Daines asked Salerno to explain the job loss and cost analysis that was included in his testimony. Salerno said rule’s objective is to advance safety. If some provisions within the rule do not do that and actually increase costs, those elements of the rule are not justified.

Sen. Al Franken (D-MN) said the hearing had focused on whether the proposed rule is over-prescriptive. He asked the witnesses about improvements since the BP disaster, if the improvements will be carried through, and what assurances can be offered that a disaster won’t happen again.

Milito responded that in 2010 the industry worked with the government on safety and environmental management systems, which is a key part of offshore safety because it forces companies to create a system-wide approach to safety and it requires them to be audited to ensure that a safety culture is truly embedded in their operations.

Salerno said the improvements were the initial first steps, but other factors were left unresolved since the 2010 spill. The technology to center the drill pipe blowout preventer so that the shearing rams will work effectively has not yet been fully addressed, for example, but will be with the rule.

Sen. Franken said that following the Climate Summit in Paris, there’s a push to “keep it in the ground.” Based partly on safety, he asked what oil should be kept in the ground.

Savitz said the Atlantic and the Arctic would be good places to draw the line. The Atlantic has been referred to as the “Saudi Arabia of offshore wind.” Developing offshore wind would create 90,000 more jobs, so the issue is not jobs versus the environment.

Savitz added that deep water drilling technology development has outpaced spill prevention technology.

Sen. Corey Gardner (R-CO) asked about the rule’s job losses. Salerno said he does not anticipate the rule will be a job loss issue, but rather an increase in safety. Sen. Gardner asked for an economic analysis part of the rule.

Sen. Gardner asked if a one-size-fits-all rule might make operations in some regions less safe. Salerno answered that the rule allows alternative compliance. If a regulation does not fit a particular set of circumstances, a company can propose an alternative way to achieve the intended level of safety.

Milito said the industry’s concern is that broad provisions included in a regulation could actually force bad behavior. If a prescriptive environment exists, and additional prescriptive elements are added to it, regulators have difficulty adapting the regulations.

Milito added that the industry supports the majority of the rule’s provisions, but certain elements cause concern.

Sen. Mazie Hirono (D-HI) asked Salerno how engaged BSEE is with the industry to ensure that the rules are practical and actually reduce risk.

Salerno said the rule came out of post-disaster technical analysis, followed by workshops, and meetings with industry associations and other stakeholders. Towards the end of the comment period, more meetings were held with industry to get clarification on the submitted comments. Another meeting is scheduled for next week for additional clarification. Over several years, 50 meetings have been held to develop and perfect the proposal.

Sen. Hirono asked if oil spill costs were factored into the cost-benefit analyses. Salerno said they were, and most companies would want to avoid those very high costs.

Sen. John Barrasso (R-WY) said stakeholders are concerned that the rule is excessively prescriptive. Performance based methods—where goals are set and industry must figure out how to achieve them—may work better for obtaining continued safety improvements.

Salerno said BSSE’s intent is that the rule be perceived as a hybrid.

Sen. Murkowski said alternative compliance allows for industry flexibility, and might have worked out better for Shell last summer. BSSE approved Shell’s exploration plans in July, but Shell couldn’t commence operations until August. The company needed to cease operations in less than two months, by the end of September. Shell cannot afford to have regulatory uncertainty, she said.

Sen. Murkowski asked Dr. Rockel what specific changes DOI should make to the Arctic rule. She added that the 10-year lease length could be reexamined, given that the operating season is so short.

Dr. Rockel said the same season relief requirement is egregious to the industry. Keeping the performance standard with the same level of protection would be adequate. The presence of a same season relief rig on site shortens the season. Also, more flexibility could be provided for the worst case discharge. The rest of the world uses a net environmental benefit analysis where all participants have the best information on how to react to a discharge. He added that other Arctic nations are more performance-based while the U.S. is prescriptive.

Dr. Rockel said the U.S. needs to be a leader in the Arctic, and other countries will want to model their OCS programs after a U.S. safe and reliable Arctic drilling program.

The Beaufort Gyre sends Russian ocean currents to the U.S., so most of the concern should not be about U.S. drilling spills, but about spills in other countries’ waters impacting U.S. shores.

Sen. Murkowski said the U.S. should pay attention to safety and regulatory certainty. Shell and Statoil—the two companies that were front and center in the U.S. Arctic—have pulled out for the indefinite future. She said the U.S. is now in the “back seat” on oil development because regulatory issues and hurdles have put the industry on an indefinite pause.

Sen. Cantwell agreed that the Arctic is a U.S. priority. She said Salerno is not able to respond to a lot of issues because he is in the middle of finishing up a regulatory process. She added that if the line is sharp, people will be better able to understand and comply with the rules, and well loss can be controlled in a timely fashion.

Sen. Cantwell asked Salerno for any final comments about changing industry culture. Salerno said this is why the rule is a hybrid. A lot of feedback was offered that the performance-based environmental management standard (adopted from API) was too vague. Specifics were added to answer questions about how to meet the standard.

In her closing remarks, Sen. Murkowski said she hopes the final rules will ensure that the oil industry can operate offshore, because right now there is no industry in U.S. Arctic waters.