Legal Liability for Oils Spills

STATEMENT OF

BOB ABBEY

ACTING DIRECTOR

MINERALS MANAGEMENT SERVICE

DEPARTMENT OF THE INTERIOR

BEFORE THE

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

U.S. HOUSE 0F REPRESENTATIVES

HEARING ON "LIABILITY AND FINANCIAL RESPONSIBILITY FOR OIL SPILLS UNDER THE OIL POLLUTION ACT OF 1990 AND RELATED STATUTES"

JUNE 9, 2010

Thank you, Chairman Oberstar, Ranking Member Mica and members of the Committee for the opportunity to testify about the Minerals Management Service's (MMS) authority under the Oil Pollution Act of 1990 ("OPA 90"). Before I begin my testimony, I want to express how saddened my staff and I are over the tragedy that occurred on April 20, 2010, on board the Deepwater Horizon. The spill resulting from this tragic accident has been declared a "spill of national significance" by the Department of Homeland Security and is of grave concern to the MMS and the Department of the Interior. The Obama Administration and the Department are dedicating every available resource to mitigate this disaster, prevent further damage to our environment, help our fellow citizens, and comprehensively and thoroughly investigate this event.

Secretary Salazar appointed me Acting Director of MMS on Friday, May 28, 2010. Our focus at the MMS has been and continues to be dealing with the Deepwater Horizon oil spill and the issues the event has raised regarding the safety of other OCS oil and gas operations. I appreciate the opportunity to be part of the MMS organization for as long as Secretary Salazar needs me to serve in that capacity. I am honored to talk to the committee today about how MMS performs its duties under the Oil Pollution Act of 1990 (OPA 90).

The Oil Pollution Act of 1990, a law enacted following the Exxon Valdez spill, initiated a National effort to formalize planning, preparedness, and response for oil and hazardous material spills that occur both onshore and offshore. Implemented through Executive Order 12777, OPA 90 gives the Secretary of the Interior authority to regulate spill planning and preparedness activities for facilities seaward of the coastline, other than deepwater ports, that handle, store or transport oil. Subsequently, the Secretary delegated his authority under OPA90 to MMS. MMS's responsibilities include enforcing spill prevention measures, reviewing spill response plans, inspecting spill containment and cleanup equipment, reviewing spill financial liability limits, and certifying spill financial responsibility.

Enforcing spill prevention measures

In ensuring its authorities under OPA are met, MMS, has established procedures, methods, and other requirements for equipment to prevent and to contain discharges of oil and hazardous substances from offshore facilities, including associated pipelines.

Prevention is our most important safety strategy. MMS's approach to prevention has four major program components: 1) the Technology Assessment and Research Program; 2) an extensive offshore personnel training program; 3) a regulatory program, which includes approval of plans, facilities, and operations, and an inspection of those facilities and operations; and 4) accident investigations. In the case of a spill, MMS also provides representatives to the National Response Team and Regional Response teams.

Accidents reported to the MMS may trigger an investigation by the MMS district office in which the incident occurred. In the case of a major accident, MMS may create an investigative panel of district, regional, and headquarters personnel, as well as representatives of the U.S. Coast Guard and other Federal agencies. Findings from both types of investigations may lead to the issuance of safety alerts, technology assessment and research, changes in the training program, and/or improvements in the MMS regulatory program, all of which are intended to promote greater safety and environmentally sound operations. .

Reviewing Oil Spill Response Plans

The authority for MMS to regulate oil spill planning for affected facilities is derived from OPA 90 and Executive Order 12777. Regulations that direct the owners and operators regarding federal oil spill planning, preparedness, and response requirements are detailed in 30 CFR Part 254 – Oil Spill Response Requirements for Facilities Located Seaward of the Coastline to ensure that private personnel and equipment are available.

30 CFR 254, which became effective on June 23, 1997, requires that all owners or operators of oil handling, storage or transportation facilities located seaward of the coastline submit an Oil Spill Response Plan (OSRP) to MMS for approval. An OSRP is developed by an owner or operator of an offshore oil and gas facility and describes how the owner or operator will respond to a spill from its facility. Regional OSRPs cover multiple facilities or leases of an owner or operator that are located in the same MMS Region. MMS reviews and approves these plans every two years unless there is a significant change that requires that the plan be revised immediately.

An OSRP must demonstrate that an operator can respond quickly and effectively whenever oil is discharged from their facility. The operator must immediately carry out the provisions of the plan whenever there is a release of oil from a facility. An owner or operator must also carry out and document the training, equipment testing, and periodic drills described in the plan, and these measures must be sufficient to ensure the safety of the facility and to mitigate or prevent a discharge or a substantial threat of a discharge. The plan must be consistent with the National Contingency Plan and the appropriate Area Contingency Plan(s). An operator must take all appropriate actions necessary to immediately abate the source of a spill and remove any spills of oil.

MMS's Inspection Program

MMS has 62 inspectors and 11 field engineers located in 7 districts – there are 5 districts in the Gulf of Mexico, and 1 each in the Pacific Region and Alaska Region. The President's Fiscal Year 2011 Budget Request includes funding for an additional six inspectors for offshore oil and gas facilities in the Gulf.

In order to determine whether an operator's performance on the OCS is in compliance with applicable laws and regulations, the OCSLA provides for scheduled onsite inspections at least once a year of each facility on the OCS and also periodic unannounced onsite inspections where no advance notice is given. If those inspections find noncompliance with applicable requirements, a wide range of enforcement actions can be taken, depending on the circumstances, ranging from written warnings to financial penalties, to drilling and/or production shut-ins of platforms, wells, equipment, or pipelines.

As a matter of policy, Minerals Management Service inspectors and field engineers conduct complete inspections of all safety devices and environmental standards for drilling activities approximately once a month while drilling rigs are on location. MMS also conducts inspections of up to 3,600 OCS production facilities every year. Finally, MMS conducts unannounced inspections generally targeting operators for whom compliance concerns exist or who are conducting inherently dangerous operations, such as welding, construction activities, and normal production activities at the same time.

If an operator is found in violation of a safety or environmental requirement, MMS issues a citation requiring that the violation be fixed within 14 days. On average about 24,000 inspections per year are conducted and 2,500 Incidents of Non-Compliance (INCs) are issued. Many of these INCs are for minor non-compliance issues such as marking equipment improperly, but some are for serious non-compliance issues such as unauthorized bypassing of safety devices.

Evidence of serious non-compliance may result in the assessment of civil or criminal penalties for failure to comply with requirements under the law, a license, a permit, or any regulation or order issued under the Outer Continental Shelf Lands Act.

In the spirit of working to improve and reform the MMS inspection program, and as part of our MMS reform agenda, in September 2009 the Secretary asked the National Marine Board, an arm of the highly respected National Academy of Sciences, to direct an independent review of MMS's inspection program for offshore facilities. The results of that review are due to us this fall and will help us enhance the effectiveness of that program as we implement our reforms.

But there is room for improving the MMS's inspection activities, and we are working to identify needed improvements.

On May 27th Secretary Salazar delivered to the President the results of the 30-day safety review that he ordered us to undertake. The purpose of that Safety Report was to evaluate oil and gas safety measures that could be put in place on an interim basis before the on-going investigations to identify the root cause of the BP oil spill disaster have been completed. The report recommends a number of specific measures that can be taken on both a short and longer term basis to improve the safety of offshore oil and gas activities, including aggressive new operating standards and requirements for offshore energy companies. Key recommendations include a recertification of all Blowout Preventers for new floating drilling operations; stronger well control practices, blowout prevention and intervention procedures; tougher inspections for deepwater drilling operations; and expanded safety and training programs for rig workers.

MMS strives to conduct an announced inspection of each of the roughly 3,600 Outer Continental Shelf (OCS) production facilities every year. These production facilities range from large multi-well production hubs to small single well caissons. Because inspectors travel to these facilities by helicopter, it is not uncommon for poor weather conditions to impact this goal; yet MMS routinely inspects 95 to 98 percent of all production facilities per year. In addition to announced inspections of production facilities, we conduct unannounced inspections and generally target those operators for whom we have compliance concerns. In addition, we conduct increased inspections when operators are conducting activities that are inherently dangerous, such as simultaneous operations like welding, construction activities, and normal production activities at the same time. Inspectors regularly witness the testing of devices on these production facilities to ensure they are operating within their specified tolerances.

OPA 90 established requirements for periodic inspection of equipment used to contain and remove discharges from offshore facilities, including associated pipelines. Accordingly, MMS conducts periodic drills of spill discharge removal capacity under relevant response plans for offshore facilities located in both state and federal waters. MMS also conducts both announced and unannounced oil spill drills to determine preparedness. On an annual basis, MMS conducts over 30 unannounced oil spill drills to verify that operators are prepared to quickly and efficiently respond to spills from their facilities. MMS publishes annual reports of these drills.

OPA 90 expanded MMS's responsibility and authority for oil spill prevention and response for both platforms and pipelines in Federal and State coastal waters. These inspections are in accordance with 30 CFR 254.43 (a) where the response equipment is inspected at least monthly and regularly maintained, and (b) in the areas of equipment availability, operational readiness, equipment maintenance and record keeping. Last year, MMS's Oil Spill Removal Organization Equipment Inspection Team conducted nearly forty inspections of the spill response equipment stockpiles.

Reviewing Financial Liability Limits and Certifying Financial Responsibility

Oil Spill Financial Responsibility (OSFR) amounts are assessed based on worst case oil-spill discharge total volumes associated with the covered offshore facility. Although a mobile offshore drilling unit (MODU) is classified as a vessel, a well drilled from a MODU is classified as an offshore facility under OPA 90. For facilities located wholly or partially in the OCS the applicable amount of OSFR to be assured ranges from $35 million for worst case oil spill discharge volumes of over 1,000 to up to 35,000 barrels to $150 million for worst case oil spill discharge volumes of over 105,000 barrels of oil.

OPA 90 provides that parties responsible for offshore facilities must establish and maintain OSFR for those facilities according to methods determined by the President. The responsibility to ensure that offshore facilities are adequately covered by OSFR amounts was delegated to the MMS. This responsibility covers both the OCS and certain State waters. Responsible parties must demonstrate as much as $150 million in OSFR if the MMS determines that it is justified by the risks from potential oil spills from covered offshore facilities (COFs).

Parties responsible for more than one COF must demonstrate the highest amount of OSFR that applies to any one of the COFs.

Responsible parties must provide OSFR certification by surety bond, insurance, self-insurance or guarantee. Coverage must be continuously maintained by the responsible party for all its leases, permits, and rights of use and easements with COFs. Self insurance can only be used as OSFR evidence if appropriate net worth or unencumbered net assets are demonstrated.

Under Executive Order 12777, the President delegated to the Department of the Interior the responsibility to adjust limits of liability with respect to offshore facilities, including associated pipelines, to reflect increases in the Consumer Price Index.

While the United States has one of the most comprehensive offshore oil and gas regulatory regimes in the world, we recognize there are many areas that would benefit from careful review and improvement. The report that the Secretary delivered to the President on May 27th made a series of recommendations designed to improve safety processes and procedures, including some new testing, inspection and reporting requirements for blowout preventers and related safety equipment. Similarly, the Safety Oversight Board established by Secretarial Order on April 30th is in the initial stages of gathering information necessary to develop recommendations designed to address a wide variety of improvements. The Board is reviewing current practices in areas such as permit approvals, inspections, safety and environmental reviews. We will also carefully review the recommendations of the special Presidential commission that has been established once the commission has completed its review. All of these efforts will contribute to improving our regulatory framework, oversight of these regulations, and enforcement responsibilities to help prevent, to the greatest degree possible, the series of catastrophic events that began with 11 tragic deaths on April 20th from happening again.

Conclusion

Mr. Chairman, that concludes my prepared statement. I would be happy to respond to questions you or Members of the Committee have.