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National Com mission on the

BP DEEPWATER HORIZON OIL SPILL

AND OFFSHORE DRILLING

Attachment 16

Written Testimony of Erik IVlilito

American Petroleum Institute



Testimony of Erik Milito, Upstream DirectorAmerican Petroleum Institute

Before the National Commission on BP D eepwater HorizonOil Spill and Offshore Drilling

August 25, 2010

Good afternoon Chairman Graham, Chairman Reilly and members of the commission.

Thank you for the opportunity to address safety in the oil and natural gas industry.

My name is Erik Milito. I am the upstream director for the American Petroleum Institute.

API has about 400 member companies, which represent all sectors of America’s oil and natural

gas industry. Our industry supports 9.2 million American jobs - including 170,000 in the Gulf

of Mexico related to the offshore development business - and provides most of the energy our

nation needs to power our economy and way of life.

Our industry’s top priority has always been to provide energy in a safe, technologically

sound and environmentally responsible manner. We support the commission’s work, and we

will do all we can to reduce the risks of an accident like this from ever happening again. Our

thoughts and prayers have always been with the families, the workers, and our neighbors in the

Gulf who are affected by this unprecedented and tragic accident. The men and women of the oil

and gas industry recognize our responsibility to understand what happened and why and to work

in cooperation with the government to come up with ways to improve industry equipment,

procedures and operations and how we are regulated.

It is important to understand the full range of what the oil and natural gas industry is doing

to enhance safety and environmental performance. I will talk about what our industry has done

and plans to do in response to the accident. My colleague John Modine will then discuss existingindustry safety programs.

The fact that such a terrible accident happened has encouraged some to think that safe

operations and equipment were unimportant to the industry and that the risks of more disasters

were and are high. I do not believe a fair look at the facts supports that conclusion. The safety

culture in the industry is strong. Our offshore companies work cooperatively among themselves

and with regulators to minimize risks, including through their participation in API’s standards

program. The safety record supports this. The incident and volume spilled trend lines have

generally gone steadily down. As we consider the possibility of creating an industry self-

regulation program, we want to keep in mind the safety context in which any such a program

would be created. John will provide that background.

Since the accident, the industry has looked at every aspect of safety and taken significant

steps to improve operations.

We have assembled the world’s leading experts to conduct a top-to-bottom review of

offshore drilling procedures, from operations to emergency response. Two industry task forces

that are addressing short- and long-term issues related to offshore equipment and offshore



operating practices delivered recommendations to the Interior Department in May, just a few

weeks after the accident occurred. While the task forces are not involved in the review of the

incident, they brought together industry experts to identify best practices in offshore drilling

equipment and operations. Their objective was to immediately move industry standards to a

higher level of safety and operational performance. The final report from the InteriorDepartment, dated May 27, 2010 and submitted to the President, incorporated many of their

recommendations.

One of the primary recommendations of the task forces is the development and integration

of safety systems and critical documents for the lease operator and the drilling contractor. I

believe the Commission heard some testimony about this during this morning’s discussion on

offshore drilling. The task forces recommended the adoption of a safety case, which is a

comprehensive and structured set of safety documents to ensure the safety of a specific vessel or

piece of equipment. The safety case will be integrated, or bridged, with the lease operator’s

safety management system through a Well Construction Interfacing Document, or WCID. The

task forces have developed a draft WCID for consideration by the Bureau of Ocean EnergyManagement, Regulation and Enforcement. I believe the Commission has received a copy as

well.

Most operators already have a safety management system in place, and the safety case is

already used around the world by the drilling community. Interior has agreed to mandate these

programs, and we expect them to release new rules to implement them. The integration or

bridging of these programs addresses several critical factors, including well design; identification

of hazards related to the geographical location of the well; identification of hazards related to the

location of the wellbore, pore pressure and fracture gradients; casing design; well execution; well

activity risk assessments; management structure, responsibilities and accountabilities;

management of change; personnel management, including competencies, training, experience

and certification requirements; and risk management processes.

Working with other energy trade associations, API also has assembled experts for two

additional task forces to review oil spill and blowout response capabilities. One task force will

focus on stopping and containing an oil leak at the wellhead. The other will focus on oil spill

response at the surface and shoreline. We expect the recommendations of those task forces to be

issued in a week or two.

Another example of industry’s ongoing leadership and commitment to safe operations is the

soon-to-be formed Marine Well Containment Company. Through this $1 billion effort,

engineers will design, develop and implement state-of-the-art containment systems that go

beyond the capabilities employed during the Deepwater Horizon incident. The system will

consist of a new subsea containment assembly, which will prevent oil from escaping into the

water in the event of future deepwater accidents. It will be deployable within 24 hours.

Our industry’s commitment to learn from this experience and to make offshore oil and

natural gas exploration and production safer continues. In the long-term, we intend to use any



findings from the investigations to improve the technologies and practices that will promote safe

and environmentally sound operations. As part of this process, we will continue to develop new

API standards and revise and adapt existing API standards to raise the bar on safety performance.

While the industry collectively is working to find ways to enhance safety, individual

companies are also closely reviewing their own equipment and procedures. The accident was a

shocking reminder, unprecedented or not, that terrible events are possible. This was powerful

incentive to the operators out on the water to redouble their efforts to prevent future possible

injury or loss of life, serious environmental damage, or massive economic liability.

Finally, we are currently studying the potential for enhancing safety through the creation of

a new industry safety oversight program. The Institute for Nuclear Power Operations (INPO) is

an example of such an organization for the nuclear industry. Other examples are "Responsible

Care" for the chemical industry and "Step Change in Safety," a UK-based program for oil

exploration and production.

These programs have helped elevate safety and environmental performance, and they maysuggest approaches for our own industry. However, a program for the U.S. offshore industry

would have to take into account its unique characteristics. Compared to the nuclear industry, it

involves a large number of tremendously diverse businesses, some very large and some far

smaller, often doing very different kinds of work. The offshore industry also operates under a

wide range of existing industry safety programs, and many federal agencies monitor and regulate

its activities. All of this would have to be considered in evaluating the viability of a new industry

oversight program.

All of what I have discussed, of course, will be affected by what the root cause analysis of

the incident tells us and by changes in the regulatory framework that ultimately are made.

We are striving to improve because we all wish to protect human life and the environment.

There is no higher objective. The initial safety and operational response has made us safer, and

we intend to build on that. But we also must continue the business of supplying the nation with

the energy it needs to stay strong, secure and competitive, including energy from the rich

resources in the deepwater Gulf. That will put people back to work now affected by the

moratorium while creating new jobs for Americans and supplying our government with much

needed tax and other revenues.

This concludes my statement. My colleague John Modine will now outline for you the

safety programs our industry had in place before the accident. Thank you.






Attachment 17

Written Testimony of John Modine

American Petroleum Institute



Testimony of John Modine, Director, Global Industry ServicesAmerican Petroleum Institute

Before the National Commission on BP D eepwater HorizonOil Spill and Offshore Drilling

August 25, 2010

Good afternoon Chairman Graham, Chairman Reilly and members of the commission. My

name is John Modine, and I am the director of Global Industry Services at the American

Petroleum Institute. Among other responsibilities, I manage API’s certification and training

programs, which contribute to a better informed and more safety-conscious industry workforce.

I would Dike to address regulatory oversight of offshore drilling, the industry’s safety

standards and certification programs, and other industry initiatives that enhance safe operations

in offshore development of oil and natural gas. As my colleague Erik Milito said, this is the

context - or starting point - for our path forward on safety. Our hope is that we will take the best

of what we have and make constructive, practical changes, so that we take full advantage of whatis already in place and what we know works.

Over the decades, an enormous amount of effort on the part of both the regulators and

operators has gone into staying safe offshore. Offshore oil and natural gas development has been

conducted for nearly 60 years in the Gulf of Mexico. More than 42,000 wells have been drilled,

including more than 2,000 deepwater wells. In that time, safety has been given increasing

emphasis. It is now a well-entrenched part of the offshore culture and never out of the minds of

the men and women who work on the rigs. And, as Erik has stated, the record in terms of spills

has steadily improved.

The Gulf accident casts a shadow over that achievement, and it necessitates a look at all thathas been done to look for ways to improve. We welcome that and have been conducting that

review, as Erik also has described. But what has been done - what is already in place to increase

safety - is considerable, and we need to shine a light on that and bring the best of it forward.

Federal regulation of oil and natural gas operators on the Outer Continental Shelf is

extensive. As Secretary Salazar testified earlier this year, the offshore oil and natural gas

industry "is a very highly regulated industry." There are 27 statutory authorities that apply to

OCS oil and natural gas operations, as well as 88 regulatory parts and 24 significant approvals or

permits.

But government regulation is not enough, and, as an industry, we have worked collectively

for many years to establish safer equipment and operating practices. The huge investments in

human capital and technology and the challenges of operating in the offshore environment

require this. We understand the risks. Safety is our top priority.

The API standards program is a critical part of how the industry has been advancing safety

and strengthening environmental stewardship. Since 1924, API has developed industry

standards and practices that promote reliability and safety through the use of proven engineering



practices. The API standards program is accredited by the American National Standards Institute

(ANSI), th~ authority on U.S. standard setting and the same organization that accredits programs

at several national laboratories. Our program undergoes regular audits to ensure it meets ANSI’s

essential requirements of openness, balance, consensus and due process.

API standards are developed collaboratively by industry experts, technical experts from

government, and other interested stakeholders. In fact, there are currently close to 80

government representatives serving as either members or observers on API standards

committees, representing ten federal agencies, eight state organizations, and three national

laboratories. Working together, we have helped create more than 500 standards, including some

240 exploration and production standards that address offshore operations. Seventy-eight of

these standards are referenced in Bureau of Ocean Energy Management, Regulation and

Enforcement regulations.

Government chooses to reference these standards, not just because of convenience or

efficiency, but because they are a product of the industry’s best technical thinking and have a

proven track record of promoting safe operations. Earlier this week, we greatly expanded public

access to our safety standards and all of those referenced in federal regulation.

Standards relating to offshore cover a range of areas, everything from blowout preventers to

comprehensive guidelines for offshore safety programs. These standards provide all operators

with solid engineering guidance and operational best practices. And standards are reviewed and

improved periodically or in light of circumstances calling for immediate action, such as the

incident in the Gulf. We are now reviewing all relevant offshore standards and have initiated

work on a new one covering design of deepwater wells.

The industry also runs certification programs and conducts frequent workshops that enhance

offshore safety. API’s Monogram Program, which was established in 1924, provides for the

consistent and reliable manufacture of equipment and materials used in the deepwater offshore

and across the industry. The Monogram Program draws on the expertise of a wide range of

technical experts, including those from government, academia, and other interested stakeholder

groups in addition to those from industry. Reliable, well-built equipment is obviously critical to

safe operations. We will conduct nearly 2,500 audits this year to verify that manufacturers are

complying with API quality and manufacturing standards.

In a recent notice to lessees, the Bureau of Ocean Energy Management identified API as a

qualified independent third party certifier of blowout preventers. They respect and depend on

our programs.

API also provides the Training Provider Certification Program, which certifies schools

globally that deliver training in accordance with industry standards and government regulations.

This includes safety courses for offshore workers. An API certification is issued only after

course-related documentation is completed and an on-site system audit is passed.



There are many other examples of industry safety training initiatives. The International

Association of Drilling Contractors has an accreditation program - Rig Pass - for training

courses for new rig employees. They also have WellCAP for training in drilling, workover and

completion, well servicing, coiled tubing, snubbing, wireline operations, and underbalanced

operations. The National Steps Network brings people together from the exploration andproduction industry to discuss safety incidents and best practices. API’s own WorkSafe program

trains and qualifies workers and contractors on their knowledge of industry safety standards.

And SafeLandUSA provides accreditation for health, safety and environmental training in the

industry.

Finally, industry trade groups sponsor dozens of workshops on offshore safety issues, such

as lifting and hoisting and contractor safety. And industry representatives participate on a Coast

Guard National Offshore Safety Advisory Committee, where there is a regular exchange of

information on offshore safety.

In the necessary and understandable effort to get to the bottom of what happened in the Gulf

accident, we are all looking to find and rectify every possible safety shortcoming. This is as it

should be. But it is also important to recognize the strengths of a system that has helped avoid

incidents. This system - expanded and improved in many ways over the years - provides a solid

foundation to build on for all who want to enhance safety.

Thank you.



Attachment 18

Public Comment by Glenn Erwin

United Steel, Paper and Forestry, Rubber, Manufacturing, Energy,

Allied Industrial & Service Workers International Union



Executive Board of Directors that it commission an independent panel to assess and

report on the effectiveness of BP North America’s corporate oversight of safety

management systems at its refineries and its corporate safety culture.

On October 24, 2005, BP announced the formation of the BP U.S. Refineries

Independent Safety Review Panel. Former Secretary of State James Baker chaired this

panel and I was asked to serve as a member.

Secretary Baker stated openly and often he expected us to "leave no stone unturned and

let the chips fall where they may". I believe we did just that. I also believe the report

should and does speak for its self.

Our findings are listed in the report as clearly as we could state them. We also made 10

recommendations that we as a panel believed would help to correct the issues we

identified.

We as a panel stated:"Finally, the Panel believes that all compan ies in the refining, chemical, andother process industries should give serious consideration to its recomm endations

and related commentary. W hile the Panel made no findings about companiesother than BP , the Panel is und er no illusion that the deficiencies in processsafety culture, manag ement, or corporate oversight identified in the Panel’sreport are limited to BP. If other refining and chem ical companies unde rstatTd the

Panel’s recommenda tions and related commentary and apply them to their ownsafety cultures, process safety manag ement systems, and corpo rate oversight

mechanisms, the Panel sincerely believes that the safety of the world’s refineries,

chemical plants, and other process facilities will be improved and lives will besaved."

I would like emphasize my belief while serving on the Panel and continues to this day

that if we had placed other oil refineries under the same scrutiny as we did BP we would

have found similar or other serious deficiencies. We only had BP under the microscope.

I would ask this commission to examine our report and attempt to see if the

recommendations we made were applied to the offshore drilling operation within BP and

other companies with offshore drilling operations. My fear is that this is not the case.

From my personal experience of 40 years in the petrochemical industry I have come to

understand some of the major problems within this industry. I believe you will also

identify these problems as you conduct your investigation.

1. The first one is that industry is using the wrong m easurement for safety.

Both the CSB and the Baker Panel reports stated that the industry is falsely relying on

their OSHA-recordable injury rates to measure safety. The Government Accounting

Office has found that employers frequently game these numbers. But even if the numbers

2



were reliable, they would not give an accurate picture of risk in the industry. Catastrophes

like the explosions on the Deepwater Horizon, at Tesoro in April, and Texas City in 2005

are low-probability high-consequence events. They do not happen every day, but when

they do, the result is disastrous. There is no correlation between the slips, trips and falls

that dominate the OSHA rates, and the hazards that cause catastrophic explosions, fires

and releases. To paraphrase Australian safety expert Andrew Hopkins, using injurystatistics to measure the likelihood of a major chemical accident is like determining the

risk of an airplane crash by looking at injury rates among the baggage handlers. Yet the

industry continues to tout its low injury rates. Ironically, BP was a finalist for a Minerals

Management Service safety award, which would have been presented May 3. Last year’s

winner was Transocean.

They are consumed with personal safety not process safety. This is a fatal flaw.

Industry spends by far too much time and resources to prevent slips, trips, fails, and

struck by incidents because that is the yardstick the government has designed. This

measurement is easily manipulated to keep the number low. I have experienced the

pressure workers feel to not report an injury. I can state with all certainty that the currentmethod of measuring does not give an accurate picture of how well the facility is

operated.

Let me drive the point home.

The BP refinery was celebrating a safety record at the time of the explosion. This safety

record was devoid of the true measurements of the current status of the facility. It was

solely based on personal safety not process safety.

Let me restate this. With all of our technology, with all of our ability to compile and sort

a mountain of data, with all of our laser precision measurements devices we still choose

to use a yardstick to measure safety in the workplace.

I challenge you to analyze the current measurement system. And do not be fooled by

industry groups that will tell you they have a plan. When the Baker Panel Report was

issued and the CSB issued its recommendations I did believe the industry would see the

light and change. Sitting here today I am convinced they will never see the light so they

need to feel the heat.

2. The second on e is that industry is not learning from their mistakes.

In the 2005 refinery fire let me list three quick examples:¯ The hydrocarbon was released to an atmospheric vent on the process unit

¯ failed management of critical equipment, particularly instrumentation and alarm

systems¯ allowing non-essential personnel in vulnerable work areas during process

operation



Interestingly, similar factors may have played a role in the Deepwater Horizon disaster.

¯ Escaping gas was vented to atmosphere.¯ Critical equipment, particularly the blowout preventer, failed - possibly due to

improper maintenance and management.

¯ Workers off duty lived on the rig, in close proximity to areas where a fire orexplosion could occur. News reports indicate that less than 20% of the personnel

on the rig were actually on duty.

But I would also like to point out that even after the 2005 refinery fire there are other

companies that still have equipment that vent to the atmosphere. We have seen fires that

have. resulted because hydrocarbons were allowed to escape and ultimately ignited.

3. Systemic changes need to be made in managing workplace safety

At this point in time the federal government does not have the personnel to adequately

inspect or monitor the process safety of the energy sector. Given the human,

environmental, financial cost, and threat to national security of these energy related

incidents now is the time to explore the possibility of full time federal process safety

inspectors at these facilities. These federal inspectors should be funded by the industry.

I am not a gambling man but those of you who are let me give you a tip. Put your money

on the fact that you will find that there were near misses or failures that pointed to this

incident. In fact there is no requirement to do a complete investigation on these incidents.But if an incident investigation had been done on any of these and corrective actions were

taken this incident would have been prevented.

These low impact incidents are seeds of learning. But the seeds are being choked out bythe weeds of blame and cover-up. Industry too often will discipline employees who are

involved in these incidents. This is a simple IQ test. If I report I might get disciplined, if I

don’t report I won’t get disciplined. Workers and first line supervisors are smart enough

to pass this test.

The biggest cultural shift that needs to be made is in management’s decision making

process. Decisions are made on a dime. Safety is not the deciding factor, its money.

Disagreeing with your boss is costly too. People are discouraged from taking an opposing

view. It is not the standard practice to encourage people to voice their opposing view

point.

The handicap we had on the Baker Panel and likewise the CSB was that we could only

recommend. Industry had to WANT TO comply with the recommendations for change to

occur. I submit their WANT TO is not big enough. I believe they need a good dose of

HAVE TO. If they HAVE TO we will not be "licking this calf over again".






Attachm ent 19

Pu blic Comment by Z ach Corrigan

Letter from Exec utive Director of Food & W ater W atch

Form L etter Rep resenting 5, 5 37 Letters From

Food & W ater W atch W rite-In Campaign



Hearing of the National Com mission on the

BP D eepw ater Horizon Oil Spill and Offshore D rilling

Ronald Reagan B uilding

Atrium Ballroom1300 Pennsylvania Avenue, NWWashington, DC 20004

Mem bers of the Comm ission, thank you. My name is Zach Corrigan. I am the Senior

Staff Attorney for Food & W ater Watch, a national non-profit consumer organization that

advocates for sustainable use of our freshwater and ocean resources. My comm ents today

reiterate the more detailed comm ents that we have already submitted.

I comm ent today on two issues. First, we w ould bring to your attention another BP-run

oil and gas facility in the Gulf o f Mexico, w hich, until its problem s are fixed, is a ticking time

bomb - perhaps the next Deepwater-Horizon-accident waiting to happen - the BP Atlantis. I do

so in the context of your broad m ission. Indeed , one of the best ways to "guard[] against.., the

impact of[] oil spills associated with offshore drilling[,]" as you are charged, is to prevent spills

by addressing kno wn p roblem s at operating deepw ater facilities. Second, I want to discuss BP’s

troubling use of CO REXIT.

In October 2007, the B P A tlantis, which is one o f the wo rld’s deepest platforms, started

production without proper engineering docum ents for its subsea compon ents. An internal

August 2008 email from B P man agem ent has acknowledged that these docum ent deficiencies

could lead to "catastrophic Operator errors." A w orst-case blowout at Atlantis could be a spill of

6 m illion gallons per day, three times larger than estimated of the H orizon spill.

MM S lcnew about these problems for at least a year, but it only launched an investigation

this spring wh en 19 mem bers of Congress deman ded it. Since that time, a total of 34 m embers

of Con gress have called for the shutdow n of A tlantis until proven safe.



I,!,, /d . 17 .. Vood & W ai~;r Wni:ch o 16/(; 1~ " ;tl’~ot, NW Suii :e ago Wa~ hi~l.~j toil , ! 10 2~)1)3(~

The Bureau of O cean Energy M anagement, Regu lation, and Enforcement is now

expec ted to com plete its A tlantis investigation this fall. B ut it has already taken many months,

even though determining B P’s comp liance w ith the law should have taken a mere matter of days.

This suggests that the agency is simply seeking to justify its own oversight failures.

BP’s disregard for the need to m aintain critical engineering docume nts is not limited to

Atlantis. It was one of the causes of BP ’s Texas City Refinery explosion that killed 11 people.

There is also evidence that the lack of such documen ts played a part in the Deepw ater Horizon

incident - for example contributing to operator confusion about its blowout preventer

configuration.

Therefore, we urge the Com mission to include in its investigation w hether BP had p roper

engineering docume nts for H orizon and all of its currently operating dee pwater facilities,

including A tlantis. The com mission should recomm end that the federal government im mediately

close BP’s deepw ater production operations such as Atlantis, until proven safe.

Second, in terms of chemical dispersant, nearly 2 million gallons of CO REXIT w ere

added to the G ulf of Mexico to respond to the H orizon spill, leading to 334 people in Louisiana

alone reporting health issues. Experts do not believe that EPA ’s limited laboratory testing

results can be extrapolated to determine the long-term e cosystem-wide effects and that it is too

soon to know the effects of this massive expe riment. We therefore ask the Com mission to

evaluate BP ’s use of COREX IT as well as make recomm endations to change the regulatory

process that allows comp anies to use such untested and po tentially harmful dispersant.



Christopher A. Smith,Designated Federal O fficerNational Com rnission on the BP D eepw ater Horizon Oil Spill and O ffshore DrillingU.S. Department of Energy,

1000 Independence Avenue, SW ,Washington, DC 20585

July 23, 2010

Re: BP’s Atlantis Project - Preventing A W orse Disaster Than T he Deepw ater Horizon

Submitted via the U.S. Postal Service. Please note that the email address provided in the

Federal Register Notice, BPDeepwalerHorizo~TCommission@hq. doe. corn, is incorrect.

Dear Mr. Smith and the Commissioners of the National Commission on the BP Deepwater

Horizon Oil Spill and Offshore Drilling:

On behalf of Food & W ater Watch (FWW ), a non-profit consumer organization thatworks to protect food, water, and ocean resources, I write this letter in order to com men t on thecomm ission’s ongoing investigation into the causes of the Deep water Ho rizon oil disaster andhow to prevent future oil spills. Specifically, this letter outlines som e of the know n problem s atanother BP -run facility in the Gulf of M exico, the Atlantis. As discussed below, the com missionshould m ake sure that it is investigating the A tlantis facility’s lack of engineering docum ents, asdoing so would further the com mission’s charge of preventing future oil spills associated withoffshore drilling. These problem s should also be investigated because they appear to be sim ilarto those at the Deep water H orizon project prior to its explosion. Finally, an investigation of

Atlantis will i llustrate how B P and the U.S. Minerals Management S ervice (MM S) have ignoredengineering-document requirements for very com plex platforms operating in challengingdeepw ater environments. FWW strongly suggests that the comm ission seek the first-handtestimony of former B P-subcontractor-turned-whistleblower K en A bbott and the experttestimony of process safety engineer M ike Saw yer to assist it in its investigation.

Throughout these comm ents, FW W urges the comm ission to make various policyrecomm endations to the federal governmen t based on the FWW ’s experience with the Atlantisfacility, including the follow ing:

Imm ediately close BP’s A tlantis Project as well as the company’s estimated 17 other

deepw ater drilling production operations in the G ulf of Mexico until an independ ent thirdpm~ y has proven that the facilities are operating with complete sets of engineer-approveddrawings for their above and below-sea components, as required by law.

¯ Check the m ore than 141 deepw ater oil producing projects operating in the Gulf ofMexico for complete engineer-approved docum entation.

¯ Debar BP from any future contracts with the federal government.



Rem ove the new bureau of Safety and Environm ent Enforcement from the auspices ofthe Bureau of Ocean Energy M anagement, Regulation, and Enforcement (BOEM RE) andreform it as an independen t agency organized to protect worker safety and theenvironment.

Other issues involved with the Deepw ater Horizon oil spill, including BP ’s response and use ofdispersants will be addressed in separate comm ents.

The Charge to The Com mission

As the comm issioners are well aware, Section 3 of Executive Order 13543 (M ay 21,

2010) instructs this Com mission to

(a) exam ine the relevant facts and circumstances concerning the root causes of theDeepw ater Horizon oil disaster; [and]

(b) develop options for guard ing against, and m itigating the im pact of, oil spillsassociated w ith offshore drilling, taking into consideration the environm ental, publichealth, and econom ic effects of such options, including options involving:

(1) improvem ents to Federal law s, regulations, and industry practices applicableto offshore drilling that would ensure effective oversight, monitoring, andresponse capabilities; protect public health and safety, occupational health an dsafety, and the environmen t and natural resources; and address affected

comm unities; and

(2) organizational or other reforms of F ederal agencies or processes necessary toensure such improvements are implemented and maintained.

This charge is a broad one, dictating that the comm ission not only exam ine the technical

causes of the Horizon disaster, but also necessary changes to the way our country regulatesoffshore drilling. As discussed below, the agency sh ould find the situation at the BP A tlantisfacility very troublesome. Rectifying serious existing problems at operating deepw ater facilities,such as those a t Atlantis, is the best way to "gua rd[] against.., the impa ct of[] oil spillsassociated with offshore drilling[,]" as the agency is charged. Mo reover, the facility’s documen tdeficiencies typify reoccurring issues at BP facilities and types of facilities that have hadaccidents in the past, thus suggesting systemic company-wide problems that may have

contributed to the Deep water H orizon incident. They also illustrate a culture of cutting cornersand shirking safety requiremen ts that needs to be eliminated at the comp any. Finally, theresponse by federal agencies to A tlantis, or, rather, the lack thereof, exemplifies the federalgovernm ent’s blatant disregard of its duties to protect the public from the g rave threats posed bythis company culture. This commission should examine the agency’s response and handling ofthe allegations surrounding A tlantis and recom men d policies that would prevent futurederelictions of duty.



The BP Atlantis: The Next Deepwater Horizon?

BP’s Atlantis Project became active in October of 2007. Located in "Hun’icane Alley,"

more than 150 miles from New Orleans in the Gulf of Mexico, at a water depth of more than

7,000 feet, it is one of the deepest moored semisubmersible oil and gas platforms in the world.

As detailed in his recent June 10, 2010 testimony to Congress,1 in March 2009, Ken

Abbott, a former company subcontractor, informed MMS that BP was missing thousands of

engineer-certified and up-to-date documents for the subsea components of its Atlantis Project.

BP is required to maintain such engineering drawings under federal law and by accepted

minimum industry standards. An internal BP email fi’om management in August 2008

recognized that using such incomplete documents could "lead to catastrophic Operator errors.’’2

In May 2009, independent process safety engineering expert, Mike Sawyer, reviewed Mr.

Abbott’s allegations as well as BP’s own database, and found that as of November 2008, only

274 of the project’s 7,176 engineering drawings detailing its subsea components had beenapproved by engineers in final, up-to-date, "as-built" status. 6,393 (90%) had never been

engineer approved.3

Engineer-approved "as-built" drawings are particularly important because they represent

the final specifications for the component or system. As Mr. Sawyer’s report detailed:

... The absence of a complete set of final, up-to-date, "as-built" engineering documents,

including appropriate engineering approval, introduces substantial risk of large scale

damage to the deep water Gulf of Mexico (GOM ) environment and harm to workers,

primarily because analyses and inspections based on unverified design documents cannot

accurately assess risk or suitability for service.

.̄. There is no va lid engineering justification or rational excuse for these violations andshort cuts.4

¯..The widespread pattern of unapproved design, testing, and inspection documentationon the A tlantis subsea project creates a risk of a catastrophic incident threatening theGO M deep -water environment and the safety of platform w orkers. The extent ofdocum entation discrepancies creates a substantial risk that a catastrophic event couldoccur at any time.

~ Attached as Exhibit A.2 See Exhibit B, attached.

3 See May 27, 2009 letter fi’om D avid PenN to Sylvia Murphy, Attorney-A dvisor, U.S. Department of Interior,

attached as Exhibit C.4 See May 18, 2009 Report of Mike Saw yer at 2, attached as Exhibit D. (Emph asis added and paragraph numbering

omitted.)



... Each of these categories of do cuments [m issing with A tlantis].. . is extrem ely criticalto the safe operation of the platform and its subsea componen ts. The requirements forengineering ap proval at each stage thro ugh final, "as-built" status are intended to verifyproper engineering, proper fabrication and construction, and to sup port properdevelopment of a [Safety and Environmental Management Program ]. The widespread

absence of proper docum entation leads to a higher probability of engineering and/orfabrication errors; w ithout "as-built" documents it is virtually impossible for the subsea

systems to be properly analyzed, operated and maintained for a substantial period oftime, w hich could lead to a catastrophic failure.5

Mr. Saw yer’s report concluded that BP A tlantis needed to be im m ediately shut in until

the proper docum ents are in place and verified to avoid an environm ental disaster:

Due to the crucial safety and environmental dangers of operating Atlantis without "as-

built" subsea design documentation, production should be shut in immediately until

complete and proper "as-built" engineering documentation is created, MMS verification

audits performed, and completed as-built documents delivered to operations.6

Our na tion cannot afford an accident at the BP Atlantis, as it would further dev astate theGulf of M exico environment and the coastal economies that rely on i t . According to BP’s ow nworst-case analysis in its environmental assessment, a spill from A tlantis could be m any timeslarger than that from the D eepwater Horizon. In two days, a blowout from B P A tlantis wouldspill more oil than from the Exxon Valdez.7 Meanw hile, it is our understanding that BP

continues to rely on an outdated regional respon se plan for this and other facilities in the Gulf ofMe xico. This plan, which w as approved by M MS , estimates that it has the capabilities torecover, even under ad verse w eather conditions, 339,207 barrels of oil per day from a facilitygreater than ten miles from the coast.8 In reality, BP’s actual response to the De epwater H orizon

proved that its capabilities were far feebler. Mo reover, the compa ny’s ongoing respo nse to theDee pwater H orizon incident certainly m ust significantly reduce BP ’s response capabilities.

Given the great risk of harm posed by a potentially larger accident in much deeper water

than H orizon at its sister Atlantis facility - which is operating only abo ut 150 m iles to southw estof where the D eepwater Ho rizon incident took place - the comm ission w ould be remiss in notincluding in its investigation all of the issues raised by M r. Abbott and M r. Sawyer regard ingAtlantis. As detailed mo re fully in the attached letter FWW sent to MM S prior to the Deepw aterHorizon incident,9 all evidence suggests that the facility does n ot have proper engineer-approvedand up -to-date drawings. It therefore poses a serious risk of an accident that wo uld rival orgreatly exceed the harm caused by the Deepw ater Horizon blowout. This commission is

uniquely situated w ith its broad mission to prevent such an accident.

5 Id. at 4. (Emphasis added and paragraph numbering omitted.)

6ld. at7.7 BP Exploration and Production, Site Specific Envirotmaental Impact Statement, Initial Development Operations

Coordination Document, April 17, 2003, Appendix E, at E-4, located at

http://ww w.~omr.mnas.~ov/Pl/PDFlma~.es/PLANS!21/22 160.pdf.~ BP Regional Oil Spill Response Plan, revision date: June 30, 2009, available at

http:i/www.mms.~ov/Deepwatel’Horizon/BP Regional OSRP Redactedv2.pdt:9 See attached as Exhibit E.

4



The comm ission should examine whe ther BP presently possesses a complete andaccurate set of certified engineering docum ents for the entire A tlantis Project, including thesubsea portions of the project. It should seek o ut the first-hand testimony o f former B P-subcontractor-turned-whistleblower Ke n A bbott and the expert testimony o f process safety

engineer M ike Sawyer to assist it with its investigation. Further, we urge the com mission todem and that, if BP d oes not have all of its required engineering docum ents for Atlantis, as allevidence sugge sts, the facility be shut dow n until proven safe. If BP indicates that it now has therequired documentation, we ask the comm ission to recomm end that the documents beindependently verified to e nsure their accuracy.

A Lack of Engineer Drawings and Deficient Hazards Analyses, a "Common Thread"

The com pany’s lack of critical design and as-built engineering draw ings is not a problemthat seems to be isolated to its Atlantis facility. In fact, in his Co ngressional testimony, Mr.Abbott noted that BP’s lack of as-built drawings is a "comm on thread running through BPdisasters from Texas City (15 de ad) to A laska (200,000 gallons spilled into A rctic tundra) toDeepw ater Horizon (blowout preventer modified and w ould not close) to B P A tlantis.’’1°

Indeed, BP’s own 2 001 comm issioned study of problems at it Greater Prudhoe B ay oilfield found that managers did not have as-built drawings.~l Moreover, the Chemical SafetyBoard ’s (CSB) investigation of the BP Texa s City facility accident found that one of the m aincauses of the accident was an inadequately designed piece of equipment called a blowdowndrum , for which - much like with its Atlantis Project - the com pany did no t maintain up-to-datedesign engineering documentation.

It is not sim ply the lack of critical engineering draw ings that seem s to be BP ’s m o d u s

operandi, but the compan y’s inability to perform adeq uate hazard analyses as a result. The C SBreported that, as the facility was m odified, the company m ade crucial erroneous assump tionsabout how the blowdown drum was built, leading it to improperly evaluate the hazards of thefacility as it changed. 12 M oreover, an independent p anel, chaired by former S ecretary of State,James A . Baker Il l, and formed at the request of CSB to conduct a thorough review of thecomp any’s corporate safety culture, safety man agem ent systems, and corporate safety oversightat its U.S. refineries, found that all of the comp any’s refineries did not have ad equate processhazards analyses. 13

Likewise, one of the primary problem s with BP ’s failure to maintain adequate comp lete,up-to-date as-built engineering drawings for its Atlantis facility is that the document deficienciesmake it impossible for the com pany to perform an adequate hazards analysis of its subseasystems. For instance, BP does no t or did not have a large percentage of Piping and Instrumen t

10 Exhibit A at 7 ,11 Review of O perational Integrity Concerns at Greater Prudhoe Bay, October, 2001, at 28, located at

http://www .propubl ica. o r b ! d o c u m e n t s /i te m ! 2 0 0 1 -bp-operational-integri _ty-report12 U.S. Ch emical Safety And H azard Investigation Board Investigation Report, Refinery Explosion And Fire (15

Killed, 180 Injured) at 111, located at http://www.csb.£ov/assets/document/CSBFinalReportBP.pdl:~3 The R eport of The B P U.S. Refineries Independent Safety Review Panel, January 2007 at 137.



Diagram s (P&IDs) for BP A tlantis. Of the 2,108 P&ID s that BP has detailing the subseacompon ents of Atlantis Proj ect, only 303 (14% ) had been approved b y engineers for design orconstruction. O nly one had been engineer-approved as "as built.’’14

P& IDs are critical documents, providing the schem atic details of the project’s piping and

process flows, valves, and safety-critical instrumentation. Federal law and m inimum industrystandards mandate up-to-date P&ID s so that companies can perform hazard analyses of theirsystems. Minimum industry standard Am erican Petroleum Institute Recom mend ed Practice 14J(API R P 14 J), which has been incorporated into MM S’s regulations,15 provides that 16

A facility must maintain P&IDs and certain other drawings, as the "[t]he minimum safety

and environmental information, which forms the basis of any hazards analysis.’’17

Any Hazards and Operability Study requires a "complete set of... P&IDs" and other

docum ents. 18

As Mr.

P& IDs and certain other drawings needed for a hazards analysis of even the lowest risk

facilities must be "up-to-date."~ 9

P&IDs and certain other documents need to be "maintained throughout the life of a

facility," for the more risky facilities,z°

Sawyer’s report discusses:

An accurate and com pleted "as-built" drawing packa ge reflecting the latest design orrevision of what wa s actually installed is the fundam ental building block of a S afety andEnvironm ental Managem ent Program (SEM P). The crux of the issue is not that Atlantishas m erely failed to v erify its "as-built" subsea docum ents. The real issue is that withoutverification of the as-built configuration and design details, crucial flaws starting withcompilation of process design information can exist in the S EM P. Unless corrected, theseflaws can permeate throughout the SEM P elements such as hazard analysis, managem entof change, and me chanical integrity. This risk is well understood by BP as evidenced inan internal em ail .... 21

Therefore, BP’s lack of engineering drawings and the corollary problem of inadequatehazard analyses due to the lack of such d rawings, are reoccurring issues at BP facilities,including the BP A tlantis.

~ 4Exhibit D at 3.

~ 5See 30 C.F.R. § 250.800(b)(1); 250.901(a)(14).

~ 6 API Re comm ended Practices for Design and Hazards A nalysis for Offshore Production Facilities, Second Ed.,May 2001 ; reaffirmed M arch 2007, Product No. 614 J02.~7 Id at 31-32.~ 8 I d at 39.

~9 Id at41.2o Id . at 44

2~ Exhibit D at 5.

6



W e strongly urge the comm ission to explore w hether one of the causes of the explosionand sinldng of the Deep water H orizon was the lack of adequate engineer-approved draw ings.Som e of the potential problems with Ho rizon seem analogous to the problems at Atlantisincluding the following:

1) The D eepwater H orizon’s blowout preventers did not close; on A tlantis, safetyshutdown system logic has not been eng ineer-approved; this could cause a failure ofshutdown systems;

2) The Deep water Horizon operations personnel did not understand the makeup of blow outpreventers - this would be du e to a failure to have up-to-date as-built docum ents; and is thesame problem as Atlantis;

3) A De epwa ter H orizon mechanic apparently did not have access to manual shutdownprocedures for diesel engines - again, this is a failure to have proper docu mentation; and

4) The D eepwater facility apparently had no gas sniffer and autom atic shutdown for thediesel engines, which is failure to have safety equipme nt and which hap pens w hen properengineering procedures are not followed.2 2

Mo reover, given BP’s pattern of poor docum ent-maintenance practices, the com missionshould imm ediately call for the short-term shut in of BP’s estimated 17 other deepwater drillingproduction operations in the Gulf of M exico until an independent third party has proven that theyare operating with comp lete sets of engineer-approved draw ings for their above and below-seacomp onents, as required by law.

And , at least one com menter has suggested that it might not simply be B P facilities that

are unable to maintain proper documents throughout the life cycle of their facilities:

Spe akers at do cument and d ata con ferences across the upstream, from geoscience toconstruction, have bemoaned the parlous state of their data and the difficulty of getting

ade quate reso urces for i ts managemen t . So me have forecast exposure to regulatory risks

and non compliance ’issues. ’

Many companies are s truggling to ad d ress the problem of m aintaining up-to-date

engineering documentation across the complex design, build and commission life cycle ofthe mo d ern offshore facility.2 3

Given this and the fact that MM S apparently has not been enforcing its requirements that

offshore compan ies maintain complete and accurate engineering documents, as detailed below,the comm ission should call for the imm ediate inspection of the more than 14 1 deepwater oilproducing projects operating in the Gulf of M exico for complete engineer-approveddocum entation. Insofar as the comm ission finds that the Deepw ater Horizon facility or otherfacilities had or have not maintained engineer-app roved and up -to-date drawings and haza rd

22 Exhibit A at 9.23 See Com ments on OIL IT Journal, July 2009 attached as Exhibit F.



analyses, as appears to be the case with Atlantis, the commission should recommend policy

solutions to address these issues. For example, a 2009 MMS proposed set of rules that were

never implemented would have made the hazard analyses that are required for deepwater

production platforms, such as Atlantis, applicable to all offshore facilities, including facilities

conducting exploration, like the Deepwater Horizon. The proposed rules would have also

required regular audits of these hazards analyses. According to the preamble of the proposal,"MMS believes that requiring operators to implement a Safety and Environmental Management

System will reduce the risk and number of accidents, injuries, and spills during Outer

Continental Shelf activities.2 4

As another exam ple of a policy change that addresses the problems of compan ies cuttingcorners on engineering-document maintenance, in 2007 MMS proposed but never implemented arule that would replace Notice to Lease and O perators (NTL ), NTL N o. 2007-G14, by requiringa nationwide, detailed independent verification of pipeline risers from floating platforms becausethey "are highly sop histicated and com plicated compon ents that require extensive specializedtechnical analysis and ov ersight. A lso, riser failures could have high failure consequences, such

as spills, explosions, fires and other major incidents.’’25

The p roposed rules would require theCertified Verification Agent to include as p art of its final installation report the as-built drawingsof a project’s pipeline risers.2 6

These po licy changes, am ong others, would go a long way to ensuring that BP and othercomp anies do not cut corners in maintaining their engineering docum ents, a practice that hasproven to be system ic in the company and a contributing cause to at least one lethal BP accident.

BP’s Culture of Disregard of Worker Safety and the Environment

The prob lems with the BP Atlantis are not only instructive towards the comm ission’s

investigation of the causes of the Deepw ater Horizon, they also illustrate a company culture ofdisregard for worker safety and the environm ent. Mr. Abbott spent seven m onths trying to getBP A tlantis’s docum ent problems resolved, but he faced bitter resistance.27 Moreover, once Mr.Abbott reported Atlantis’s problems to M M S, BP offered nothing but obfuscations. In January2010 , BP claimed in a letter to Congre ssional staff that it only learned o f the allegations in July2009 and called them " unsubstantiated.’’28 Despite BP’s assertions, FWW later discovered thatBP’s ow n Om budsm an’s Office started investigating the charges in April 2009, found them to beentirely valid, and indicated that the underlying problems w ere not new .~ 9

This is not an uncomm on theme found by those invest igat ing the company . Over the past10 years, BP has b een fined hundreds o f millions of dollars and been im plicated in four separate

instances of criminal m isconduct. These violations have prom pted the EPA to consider barringBP from govern men t contracts for engaging in fraudulent, reckless or criminal conduct.3° FW W

24 74 Fed. Reg. 28, 649 (June 17, 2009).

25 72 Fed. Reg. 56,442, 56,486 (October 3, 2007).

26 ld.

27 Exhibit A at 7.

28 See Janum2¢ 25, 2010 letter from Karen Westall to Deborah Lanzone, attached as Exhibit G.

29 See April 13, 2010 email from Billie Garde, Deputy Ombudsman, to Ken Abbott, attached as Exhibit H.

3o http://www.pr~ pub]ica.~r~ /artic~e/years-~f-interna~-bp-pr~bes-warned -that-neg~ect-c~u~ d-~ ead-t~-accidents.

8



has compiled and attached a Selected HistolT of BP Consumer, Environmental and WorkplaceSafety Violations demonstrating some of the most egregious violations. 3 1

It is not just that BP operates in a dangerous field; recent investigations demonstrate aculture inimical to worker safety and the env ironment. For exam ple, an internal BP 2 001 report

indicated that the com pany neglected safety shutoff valves.32

A 2004 report found a pattern ofintimidating workers wh o raised safety or environmental concerns.33 Mr. Baker’s report of BP’s

refineries after Texas C ity found that "significant pro cess safety issues exist at all five U.S.refineries .... ,, 34 It said "instances of a lack of op erating discipline, toleration of serious

deviations from safe operating practices, and app arent complacency tow ard serious processsafety risk existed at each refinery.’’35

In terms of the Texas C ity refinelT, in 2009 inspectors from the O ccupational Safety andH ealth A dministration found m ore than 700 safety violations and proposed a record fine of $87 .4million - topping the earlier record set by B P in the 20 05 accident. M ost of the penalties, theagency said, were because BP had failed to fully live up to its prior settlement agreement, despite

BP having over four years to con’ect the deficiencies. This has prompted the attorneys of theoriginal victims of the Texas C ity accident to call for an imm ediate revocation of BP’s criminalprobation.3 6

Even m ore recently, it was revealed that only two week s before the blowout in the G ulfof M exico, the Texas City refinery released tens of thousands of pounds of toxic chemicals forfol~y days. The incident stemmed from the compan y’s decision to keep producing and sellinggasoline while it attempted to repair equipment.3 7

"They are a recurring environmental criminal and they do not follow U.S. hea lth, safetyand environmen tal policy," said Jeanne Pascal, a former EPA debarmen t attorney who led the

investigations into BP . "At w hat point are we going to say w e are not going to do business withyou any m ore, bye? No ne of the other supermajors have an environm ental criminal record likethey do."

Based on all existing evidence, the comm ission should draw the sam e conclusion.W hether it is with its past violations of the law w ith Texas C ity and in Alaska, or its current non-comp liance with Atlantis, the company has a culture of fraudulent, reckless and criminalconduct. W e urge the com mission to use its uniquely broad m andate and call for EPA toimplemen t discretionary debarment of BP from any federal contracts with the U.S. governm ent.

Agency C oziness with BP

9



The B P Atlantis situation also illustrates the coziness of MM S and B P. For exam ple, theagency approved the company ’s Atlantis platform approval application even though BP wasrequired to submit a "com plete set" of "approved for construction fabrication drawings...including; e.g . . .. drilling, production, and p ipeline risers[,]" 30 C .F.R. § 25 0.905 (d), and longafter the facility was up and rumaing in Nov ember 200 8, the company had one engineer-

approved-for-construction subsea riser drawing.

M oreover, the agency approv ed the company ’s Deepw ater Operations Plan without as-built or even as-constructed P& IDs - critical elemen ts of the agency’s haza rds analysis - when,as discussed above, a recent 2005 rulemaking mad e API R P 14J m andatory, and indicated thatthe agency wo uld require an analysis of operational hazards to be included as an "integral" partof such plans.

The failure of the agency to detect and dem and that BP rectify the project’s documentdeficiencies represents a huge g ap in the agen cy’s oversight of the offshore oil and gas facility,reflecting either an agency culture of indifference or a lack of understanding ab out the agency’s

authority.

Add itionally, the agency did v ery little to ensure the platform is operating safely evenafter Mr. Abbo tt brought the issue to M M S’s attention. Inexplicably, according to a timeline ofevents provided by BP ,38 MMS staff ostensibly took no action to investigate Mr. Abbott’sallegations until June 30, 2009, several wee ks after the agency had m et with Mr. Abb ott’sattorney on the matter. And, apparently, the action that MM S first took was to discuss with BPwhich docum ents it wanted to exam ine, giving them an opp ortunity to evade serious compliancereview. Indeed, the agency allowed the com pany to take until July 21, 2009 - nearly three weeks- before the company would provide M MS certain as-buil t drawings. More fundam entallyproblematic, howev er, is that BP only turned o ver as-built drawings for the project’s topsides and

hull, despite the fact that Mr. Abb ott’s allegations have always be en about w hether BP m aintainscomp lete and accurate engineer-approved do cumen ts for its subsea compone nts.39

In essence, BP’s timeline indicates that agency staff never investigated the heart of theM r. Abbo tt’ s claims. Instead, agency staff issued at least one letter indicating that it did n ot seeany need. On October 19, 2009, FWW submitted a Freedom of Information Act (FOIA) requestfor "all agenc y record s, which toge ther or separa tely, indicate that . .. BP... has in itspossession a complete and accurate set of ’as built’ drawings, including... P&IDs... for itsentire Atlantis Project, including the subsea sector." FW W sought expedited processing for therequest. MM S denied the request on the grounds that while MM S regulations require as-builtdrawings, they do not need to be "com plete or accurate." M oreover, the agency explained, the"as-built" drawings are n ot required to complete a hazard analysis.4°

As pointed out in FW W ’s appeal of this decision, howe ver, MM S’s position was m orebased on prov iding cover for BP’s behav ior than it was the plain language o f the agency’s

38Attached as Exhibit K.

39Id

4o Attached as Exhibit L.

10



regulations.4 1

M oreover, over the course of 2009, MM S repeatedly refused to meet with FWW todiscuss these issues, saying that the agency co uld not jeopardize an investigation that it could notconfirm or deny was un derway - an obv ious false statemen t since the agency publicly announced

its investigation after it was launched in March 2010.42 M MS asserted the samemisrepresentation about the existence of an investigation to congressional staff repeatedly.

W hen FW W did meet with agency personnel in January 2010, it was only under thepremise that the particulars of Atlantis would not be discussed. M uch w as discussed at thismeeting, but perhaps most notably was that agency staff seemed to not know the contents of APIRP 1 4J, even though lessee adherence to it is a required by law.

The ag ency finally announc ed that it would investigate BP Atlantis in M arch 2010,almost a year after being contacted by M r. Abbott, but it only did so after the agency received aletter from 19 m embers of Congress demanding it.43

Surprisingly, even after the agency told m embers of C ongress that it was investigatingwhether the BP Atlantis had a comp lete set of engineering drawings, mem bers of its staff werestill indicating that the investigation would be anything but a serious fact-finding mission. In alater, April 30, 2010 response to a FW W FOIA request, the agency argued that it did not haveany records detailing the time that the agency had spent on its investigation of whether or n ot BPhad as-built drawings for the subsea comp onents of the B P A tlantis because it did interpret itsregulations as requiring such drawings.4 4

In M ay, 2010, 26 mem bers of Congress sent a letter to the agency complaining that MM Shad yet to interview M r. Abbott as part of its investigation and urging MM S to listen to the

expert engineer who reviewe d the Atlantis situation and who ca lled for an imm ediate shut-downuntil it can be shown that this platform is op erating safely.4 5

Even after this letter, the agency, to this day, has yet to m eet with M r. Abbott or theengineer, Mike Sawyer.

Despite this need for the agency to act with the utmost urgency, even recently MM S hasindicated it may take another three m onths to investigate and issue a report on the m atter.46 For

the investigation to take this long is unacceptable. As indicated in M r. Abbott’s testimon y,

41 Attached as Exhibit M.42 N oelle Straub, Greenwire, House D emocrats Seek Probe of B P Offshore Platform, March 2, 2010, available at

http://w ww .nytilnes .con]/gwire/2010/03/02/02 green wire-house-democrats-seek-probe-of-bp-offshore-plat-30115.html.43 Attached as Exhibit N.44 Attached as Exhibit O.4s Attached as Exhibit P.46 Defendants’ Opposition To Plaintiffs’ Motion For PreliminaE¢ Injunction at 5, filed June 10, 2010, Civil Action

No. 10-1759, in The United States District Court for The Southern District of Texas Houston Division.

11



BP has a d atabase of the engineering docum ents and the com pletion status of eachdocum ent. I have provided copies of that database to MM S. It would take a qualifiedperson no m ore than a few minutes to analyze the database for the information needed,and only a few hours to com pare the results to the actual electronic images of thedocuments.4 7

In sum, M M S’s response to the allegations surrounding Atlantis has been to defend thecom pany at eve ry turn, disregarding and undermining M r. Abbott’s allegations related to BP’slack of engineering draw ings. In its investigation of the B P A tlantis, the comm ission should notoverlook the agency ’s complicity and failure to enforce the law in order to protect BP. Thecomm ission should also exam ine whether the same lax oversight existed with the Deepw aterH orizon, including looking at why the agency ap proved the com pany’s w oefully deficientregional oil spill response plan, as mentioned above.

In recomm ending policies to address these issues, the comm ission should not be p lacatedby recent efforts to change the name of M M S to BO EM RE, or even efforts to separate the

agency into three distinct entities. Given the deep ties between the agency staff and oilcom panies such as BP - as is so clearly evident with MM S’s oversight of the BP A tlantis - morefundamen tal changes are needed. The com mission should recom mend that the new bureau ofSafety and E nvironmental Enforcement be removed from BO EM RE and reformed as anindependent agency o rganized to protect worker safety and the environme nt. Such reformsshould include reviewing and strengthening through public mlemak ing the approximately 100industry standards, such as API RP 14J, that have been incorporated into BOE M RE ’sregulations. These standards are w ritten to benefit industry, without public input. M oreover,because the standards are not d rafted by the agency, those staff charged w ith enforcing thestandards are not properly equipped to do so.

Conclusion

In summ ary, all evidence indicates that BP has n ot maintained a very large percentage ofthe critical engineering docum ents for the subsea com ponents of its Atlantis facility. This seemsto be a comm on practice for BP, and may have contributed to some of the reported causes of theDeep water H orizon project incident. Fixing the know n lack of engineering documen tation atAtlantis is the best way to prevent a similar oil spill in the G ulf. Therefore, the comm issionshould examine whether BP presently possesses a com plete and accurate set of certifiedengineering docum ents for Atlantis, including for its subsea com ponents and sho uld seek out thefirst-hand testim ony of K en Ab bott and Mike S aw yer. IfBP does not have all of its requiredengineering documen ts, it should recomm end that the facility be shut down until proven safe. If

BP indicates that it now has the required docum entation, we ask the com mission recomm end thatthe docum ents be independently verified. Because these problems may b e occurring elsewhere,the comm ission should imm ediately call for the short-term shut in of BP’s estimated 17 otherdeepwater drilling production operations in the Gulf of M exico until an independent third partyhas proven that they are operating with comp lete sets of engineer-approved draw ings. Thecomm ission should also call for the immediate check of the m ore than 141 d eepwater oil

47Exhibit A at 12,

12



producing projects operating in the Gu lf of Mex ico for complete engineer-approveddocumentation.

The prob lems with the BP Atlantis also illustrate a company culture of such fraudulent,reckless, and criminal conduct that the commission should recomm end that the company b e

barred from future federal contracts. Finally, the BP Atlantis situation illustrates a cozinessbetween M M S and B P that can only be rectified with a complete overhaul of the federal agencycharged with overseeing the offshore oil industry, including the remo val of the new bu reau ofSafety and Environment Enforcement from B OEM RE and its reform as an independent agencyorganized to protect worker safety and the environm ent. I look forward to hearing from you onthese important issues.

Sincerely,

W enonah Hauter

Executive D irector

The H onorable Representative Mr. Nick Rahall, Chairm an, House Com mittee on N atural ResourcesThe H onorable Representative Mr. Costa, Chairman, Energy and Mineral Resources Subcomm ittee,House Committee on Natural ResourcesThe H onorable Representative Mr. Ra~l M. G rijalvaThe H onorable Representative Edward Markey, Chairman, H ouse Select Com m ittee on EnergyIndependence and G lobal WarmingThe Honorable Representative Louise Slaughter, Chairwoman, House Rules CommitteeM s. Deborah Lanzo ne, Majority Staff Director, Subco mm ittee on Energy and M ineral Resources

M r. Steve Feldgus, Legislative Staff, Subcom mittee on Energy and M ineral ResourcesM r. Ken Salazar, Secreta13,, U.S. Department of the InteriorMr. Michael Bromwich, Director, Bureau of Ocean Energy Management, Regulation, andEnforcementM s. Mary L . Kendall, Acting Inspector General, Departm ent of the Interior

13



National Com mission on the B P O il Spill & Offshore Drill ing

DearCo-Chairmen Bob Graham and Will iam Reilly,

Our com munities in the Gulf of Mexico continue to feel the-impacts from the Deepw aterHorizon explosion, and an even bigger tragedy may be looming if BP Atlantis continues

operating in Gulf waters.

Your newly appointed commission has the power to demand that the Bureau of OceanEnergy M anagement R egulation and Enforcement imm ediately a.nd com pletely investigate

BP Atlantis and shu t down this rig until it is proven safe.

The B ureau of O c&an Ehergy, tasked w ith overseeing the safety of oil platforms, continuesto ignor.e evidence tl~at BP Atlantis is operating without important engineer approvedsafety documents.

We urge you to take a stand and hold BP accountable.

I look forward to your response.

Sincerely,

Form Letter for W rite-In Cam paign

5,537 Total Letters Sub m itted by Food & W ater Wa tch



National Comm ission on the



Attachment 20

Public Comment by Michael Gravitz

Environment America



Statement of Michael Gravitz, Oceans Advocate, Environment America

To

National Commission on the Deepwater Horizon Oil Spill

and Offshore Drilling

August 25, 2010

Washington, DC

Michael Gravitz, Oceans Advocate

Environment America

202-683-1250 work

301-351-5052 cellmike~environm entamerica.or~



Introduction

My name is Michael Gravitz. I am the Oceans Advocate for Environment America and

have worked extensively on the issue of offshore drilling for the past five years, including

testifying before the Senate Energy and Natural Resources Committee on drilling.

Environment America is the Washington, DC office of a federation of 29 statewide,

citizen-based, grassroots environmental organizations with over 1 million members,

supporters and email activists working for clean air, clean water, open space and ahealthier world. Every summer, we talk to over one million people with our canvassing

program. Sixteen of our state organizations are in coastal states including Environment

California, Oregon, Washington, Texas, Florida, Georgia, North Carolina, Virginia,

Maryland, New Jersey, New York, Connecticut, Rhode Island, Massachusetts, New

Hampshire and Maine. You can see why our members and state organizations care

deeply about the health of our Nation’s oceans and coasts.

Environment America and its affiliated state organizations have opposed the expansion of

offshore drilling outside of the Western and Central Gulf of Mexico for over two

decades. We strongly support permanent protection of areas that were formerly off limits

to drilling because:l. Offshore drilling inevitably produces daily pollution and occasional catastrophic

oil spills from each step of production and transportation: exploration, production

platforms, pipelines and tankers/barges.

2. Our marine and coastal environments are wondrous, treasured places already

under numerous environmental threats; drilling is an avoidable one.

3. Drilling requires coastal infrastructure that is prone to spilling, and, as we see in

Louisiana, destructive to the coastal environment.

4. The belief that offshore drilling offers a solution to our energy problems diverts

the public’s and politician’s attention from the long term solutions like clean

energy that would really address our problems.

Rather than argue the case for perm anent protection, which the S ierra Club will ably do, !am here to review the statutory reforms to the Outer Continental Shelf Lands Act(OCS LA ), regulatory reforms and structural reforms that our comm unity believes areneeded to address the serious problems w hich led to the Deepw ater Horizon disaster inthe Gulf of M exico. My com ments will be necessarily brief; we will submit moredetailed commen ts to the Comm ission at a later date.

OCSLA Reforms

OCSLA was first drafted decades ago, last updated in the 1990’s and is in serious need of

modification to reflect modem environmental thinking and standards.

OC SLA ’s purpose statement emphasizes "expeditious and orderly development" ofour oceans for energy an d other mineral resources with the implication thatenvironmental protection is of secondary importance. Certainly the drilling agency’sbehavior and decisions over the years makes this plain. Congress should rebalance



the purposes of O CSLA to make it clear that leasing, exploration and p roduction willoccur only where and when those activities can be p ursued while preserving andprotecting the health of our oceans. In man y places, the underlying natural resourcesand/or their sustainable uses will be more im portant than the underlyingnonrenewable oil and gas assets. Specifically, the purpose section of OCSLA shouldmake it clear that drilling only occu rs where scientists and regulators have a detailed

understand ing of the marine ecosystem that will be subjected to the hazards ofdrilling and o nly when the risks to that ecosystem are minim ized through rigoroussafety measures, strong inspections and enforcem ent and realistic containmen t andcleanup plans.

Section 18 of O CSLA , its core planning requirements, should be rew ritten to requiredetailed environmental analysis for much smaller units of the ocean than are cu rrentlyconsidered and again the balancing between ocean preservation and drilling must besubjected to a higher and more ex plicit standard that protects other sustainable usesand living resources of the coasts and oceans.

OC SLA should be amended to give other agencies like NOA A that have more oceanexpertise and scientific resources than D epartment of Interior a m uch larger role inthe planning stage for where and w hen to do leasing and g reater input in explorationand development decisions. Specifically, NOAA should be given an important andexplicit role in the environm ental reviews of leasing, exploration and productionplans and permits.

W hile we strongly support permanent protection for all of our oceans n ot currentlysubjected to leasing and drilling, we believe O CSL A sho uld explicitly protect areas ofthe oceans and coasts that are so unique, sensitive, productive or diverse, required forsome key lifecycle of a species, or more eco nomically valuable for other uses like

coastal tourism. Certain areas of our coasts have been preserved as w ildlife refuges,national seashores, estuarine reserves and so forth. Certain areas of the ocean havebeen de signated as national ma rine sanctuaries, habitat areas of particular concern orcritical areas for certain marine mam mals. Drilling in or near those kinds of placesshould b e explicitly proh ibited.

OC SLA should require the use of Best Available Technology on d rilling rigs forsafety, spill prevention and containment, and cleanup if needed. This would includeredundancies in safety systems like blowout preventers and m ore rigorous designcriteria, testing and inspections.

OC SLA should require the identification of realistic w orst-case oil spill scenarios andcorrespondingly robust and realistic spill containment and cleanup plans. By the way,the ’dirty little secret’ of spill cleanup is that no m atter how h ard respon ders try, inthe open ocean they are not likely to ever be able to capture and rem ove m ore than15-20% of spilled oil. BP h as spent billions of dollars to cleanup and remov e (i.e.,skim or burn~ispersing doesn’t count as removal) around 10 % of the oil thatgushed from its well. By indep endent scientific estimates that have been w ell



publicized, approximately 70-80% of BP ’s released oil is still in the Gu lf, not 25% asthe governm ent asserts.

Finally, OCSLA must allow the drilling permit agency sufficient time to adequatelyassess applications; 30 days is clearly insufficient. The rules m ust give the agencypower to comp el complete and honest information on permits.

Regulatory Reform

Regulatory reform must be comprehensive, tough and enforced through a new regime of

inspections and strict enforcement. Regulatory reforms embedded in the House’s

CLEAR Act and in Senate’s Clean Energy Jobs and Oil Company Accountability Act of

2010 (S.3663) would go a long way to reforming the industry and the drilling agency.

We urge you to consider these regulatory reforms and others that would implement our

recommended changes to OCLSA.

Oil Spill Liability Reform

Current oil spill liability in the Oil Pollution Act of 1990 was clearly not strong enough orexpensive enough to cause BP and other personnel to make careful safety decisions on

the Deepwater Horizon. We strongly believe that companies like BP should be fully

accountable for the environmental and economic costs of their spills. Therefore we

advocate that oil spill liability for responsible parties should be unlimited. Costs of spills

should not burden those affected or the taxpayers. We live in a modified free market and

price signals, including the cost of insurance for risky activities like drilling, are expected

to be internalized by market participants not externalized to the public.

Structural Reform

We would like to see the environmental data collection, analysis and recommendationfunctions of the drilling agency separated from the leasing function and given some

measure of independence. All too often in the past, environmental analysis and

recommendations have been overruled by leasing and permitting staff and concerns.

Som e have sugg ested that the drilling agency w ork in concert with a private, industrysponsored oversight organization such as INP O functions in the nuclear power plantrealm. This would be an industry-sponsored organization that sets consensus standardsand best practices, does some inspections and repo rting, and works with the regulatoryagency. Prior to the Deepwater Horizon debacle, a variety of industry groups did helpMMS create standards and best practices. Unfortunately, these efforts were too weak and

standards too diluted. There is no su bstitute for effective, independen t standard setting,inspections and enforcemen t of offshore drilling by a federal agency that is transparentand fully accoun table to the public. An y industry sponsored c ollective effort or groupthat works w ith the drilling regulators should d o so in a transparent, not secretive way.INPO is not an example of that model.



Conclusion

At the end of the day, it was industry and corporate complacency and greed combined

with federal regulatory complacency and laxity that led to the BP’s oil spill. That

complacency is fed by a feeling that oil spills large and small are very rare events, ’one in

a million’, or black swans in Wall St. parlance. This could not be farther from the truth.

One has only to look at official MMS data on spills, loss of well control and other

dangerous events to conclude otherwise.

If approximately 4,500 deepwater wells have been drilled in the Gulf to date, then the BP

spill is a 1 in 4,500 event. That’s far from one in a million. Or let’s use the backdrop of

all Gulf wells drilled to date, some 40,000-50,000. That makes the BP spill 20 times

more likely than a one in a million event. Put another way, if oil spills were equivalent to

commercial plane crashes, then we would see approximately seven plane crashes per day

(e.g., there are approximately 35,000 commercial flights in the US every day). We

wouldn’t find that record acceptable for plane safety and we shouldn’t find it acceptable

for oil drilling.

This little analysis makes it clear that to reduce the risk or frequency of catastrophic oil

spills to the existing rate of plane crashes, this Commission would have to decrease the

frequency of spills by many orders of magnitude. We hope that can be done eventually.

We will work diligently with government to help. But in the meantime we advocate for

permanent protection for our coasts and oceans so that spills are just not an option.

Contact:

Michael Gravitz, Oceans Advocate

Environment America

202-683-1250 work

301-351-5052 cell

mike~(~enviromnentamerica.or~



National Con’lmission on the



Attachment 21

Pu blic Co mment by N atalie Jou bert

Consumer Energy Alliance



¢ONSU PI ER l~ : iq ’L - I~ (~ YALL IA NC E

Statement By

N atal ie Jou bert

C onsu mer Energy Al l iance

Befor e the

N ational C ommiss io n o n the BP Deepwater Ho r izon Oi l Spi l l and Offshore D r i l l ing

Aug us t 25, 2010

W ashington, DC

O n behalf of Consumer E nergy A lliance, I app reciate the opportunity to comment

today on the impacts following the Deep water H orizon explosion, including the

economic effects of federal measures imp lemented to respond to the oil spill

incident.

CE A is a non-profit, non-partisan organization comm itted to working w ith elected

leaders, affected stakeholders and consumers to help create sound energy policy

and m aintain stable energy prices. CE A has 14 0 affiliated organizations, including

energy sup pliers and p roducers, manufacturers, small businesses, and comm unityorganizations, as well as a nationwide network of almost 280 ,000 consumer-

advocates.

As the federal government continues to review the circumstances and

consequences associated with the Deepwater Horizon accident I ask that the

National Commission and other federal policymakers carefully consider the

positive economic impacts that robust, thoughtful offshore oil and gas exploration

and development have on the Gulf Coast region and nationwide.

CEA strongly opposes the Administration’s decision to implement an open-ended

moratorium on offshore drilling, as well as the Administration’s failure to

implement a regulatory framework that safely, efficiently and expeditiously

resumes offshore development. Further, the continued regulatory and permitting

delays with regard to development of offshore energy in Alaska raise additional

concerns. The State of Alaska has long supported thoughtful development.



Indeed, the Trans-Alaska Pipeline, the permanent fund and tens of thousands of

Alaskan jobs depend on continued oil & natural gas development. The entire

nation relies on the safe, efficient and predictable supply of Alaskan energy.

Quite simply, the Administration’s continued delays in resuming offshore drillingis contributing to higher unemployment, a crippled economy and less stable

supplies of affordable energy. Even more troubling, a recent Wall Street Journal

article reports that the Department of the Interior was fully aware that over

23,000 jobs would be lost as a consequence of a suspension in deepwater drilling,

on top of the billions in lost revenue for state and local governments.

Offshore energy exploration and production are vital components of our national

energy strategy, as U.S. demand for oil and natural gas will continue to increase

for the foreseeable future.

Furthermore, offshore energy development creates and supports hundreds of

thousands of jobs throughout the U.S. economy. We cannot afford to

unnecessarily keep critical supplies of homegrown oil and natural gas off-limits

that can be safely leveraged into good-paying jobs and affordable energy for

struggling American families and small businesses.

In conclusion, CEA urges the National Commission and the Administration to act

with efficiency in setting boundaries for drilling in the Gulf. CEA also encouragesthose in the energy industry to work cooperatively with the federal government

to improve the regulatory system that oversees and ensures offshore safe,

responsible energy operations.

Thankyou.






Attachment 22

Public Comment by Norris McDonald

Center for Environment, Commerce & Energy



Center for Environment, Commerce & Energy

The Center for Environment, Comm erce & Energy (C enter), founded in 1985, is

an environme ntal organization ded icated to protecting the environm ent, enhancing

human, animal and p lant ecologies, promoting the efficient use of natural resources and

expand ing participation in the environmental move me nt.

The Cen ter provided input to the Interagency Ocea n Policy Task Force Task

Force at the CEQ Head quarters in Washington, D.C. The Center is a mem ber of the

Marine Fish C onservation Netwo rk (Network), w hich is the largest national coalition

dedicated to promoting the long-term sustainability of marine fish by pressing for

changes in the way we m anage our ocean’s fish.

The Cen ter opposes expanded d rill ing off the East and W est Coasts and Co asts

of Florida. The C enter will continue to work to reestablish the mo ratorium on expa nded

drilling.

The M acondo W ell should be put into production by a responsible offshore oil

production com pany. BP estimates that the reservoir contains upw ard of 50 m ill ion

barrels of oil. A significant portion of the money from such production should go directlyto the families of the 11 people killed du ring the April 20, 2010 explosion. Additional

revenues sh ould go to econom ic relief for the Gulf econom ies that have been negatively

affected by the oil spill disaster.

The Ce nter has opposed the moratorium on de epwater dril ling because of the

harm to the G ulf economy and our belief that the other companies have been op erating

responsibly.

The C enter supports the efforts of some of E xxon Mob il Corp, Roya l Dutch Shell

PLC and C onocoPhillips to provide em ergency response services for deepwater oil

blowouts.

African American Environmentalist Association3,629 K Street, NW, Suite 300, Washington, DC, 20006 (44 3) 569-5102 aaenvironment.com/CECE.htm



Statement of Norris McDonald

The Ce nter, through its membe rship arm, the African Ame rican Environmentalist

Association, is pursuing ownership stakes in offshore oil drilling operations because

blacks do not own any of the energy infrastructure and resources in Am erica. This is an

effort by us to g ain equity in the energy sector. AAEA is concerned that of the mo re

than 4,000 offshore oil wells in the Gulf of Mexico, none of the leases are held by b lack-

owned companies.

Blacks in Governm ent (BIG) have also raised the issue of few to no blacks in

MM S (BO E) ma nagem ent positions overseeing offshore drill ing. Citing the lack of

diversity am ong senior ma nagers at the Departm ent of Interior, BIG s ees the sam e cozy

’good old boy s’ network as contributing to the failed oversight that contributed to the

Gu lf oil disaster. BIG has de scribed in detail this cozy netw ork of attitudes in its recentWhite Paper on race relations at Interior. The White Paper is entitled "Critical Personnel

Issues Affecting B lack Em ployees in the Department of Interior." BIG is encou raging

Secretary Salazar to hold these departme nts accountable and shake u p the ’good old

boys and good old girls’ network of relationships when the nation’s best interests are at

risk. The O ffice of Personnel M anagem ent reported to Congress that Interior was the

only agency from 2002 to 2009 that did not meet its Relevant Civilian Labor Force

representation.

[William Reilly’s EJ Credentials]






Attachment 23

U.S. Chamber of Commerce Letter



Karen Alderman HarbertPresident and CEO

INSTITUTE FOR 21ST CENTURY ENERGY

U.S . CHAMB ER OF COMMERCE

August 25, 2010

1615 H Street, NW 1 lcVashington, DC 20062(202) 4634558 ] (202) 887 3457 Fax

~v.energ)~xi.org

The H onorable B ob Graham and Will iam R eillyNational Commission on the B P D eepwater H orizon O il Spill and Offshore Drillingc/o Christopher A. Sm ithM ail Stop FE-30U.S. Department of Energy1000 Independence A ve., S.W.Washington, DC 20585

Re: Proposed Recommendations to the President fi’om the National Commission on

the BP Deepwater Horizon Oil Spill and Offshore Drilling

The Institute Ibr 21st Century E nergy (E nergy Institute), an affiliate of the U nited StatesCham ber of Comm erce, the world’s largest business federation representing the interests of morethan three million businesses and o rganizations of every size, sector and reg ion, is pleased tosubmit these conunents to the National Commission on the BP Deepwater H orizon Oil Spill andOffshore Drilling in support of its charge to provide recomm enda tions to President O bama . TheEnergy Institute urges the C omm ission to recomm end that the adm inistration lift the moratoriumon offshore exploration an d sug gest policy options that do n ot tl’n’eaten econom ic growth, energysecurity, or U.S. com petitiveness.

M any options proposed in the pub lic arena to date, including legislation, would haveserious collateral consequen ces, considering the oil and na tural gas industry employs more thannine million Am ericans, including 46,000 in the Gulf Coast region. W e believe there is a brightline between increasing safety, protecting pun ic health, and safegua rding the environm ent onone hand an d creating a regulatory enviromnent so unfit for business that oil and gas com paniesthat operate in the United States w ill take their business elsewhere on the other.

The E nergy Institute strongly opposes efforts to set an unlimited or excessive liability capfor energy exploration activities. The Oil Spil! Liability Trust Fund provides mu ch-neededcertainty to companies that produce domestic energy resources and to Americans who areund erstandably concerne d about the potential for oil spill dam age. W hile it is prudent for

Con gress to revisit the existing $75 million liability cap, an ex cessive liability cap wou ld ma ke ita near certainty that oil exploration in the Gu lf and at other offshore locations across the U .S.wou ld dramatically diminish or cease altogether, because comp anies wou ld be unable to affordinsurance to cover the liability risk. Indepen dent produ cers, which hold approximately 90 pe rcentof Gulf leases and produce ap proximately 30 percen t of the oil and 60 pe rcent of natural gas inthe Gu lf, would be particularly hard hit. Silnply put, unlimited or ex cessive liability requirementswould m ake it -virtually impossible [br companies to econom ically produce d omestic energyresources.



M oreover, we urge the C ommission to avoid recolnmend ations that would increase theavailability of non-econ omic dam ages. B ecause su ch dama ges are entirely subjective, they oftenresult in exorbitant jury awards. Further, certain proposals could undo a U .S. Suprem e Cou rtdecision that limit the size and scope of punitive dam age aw ards in adm iralty cases and au thorizeretroactively dramatic pun itive dam ages verdicts in m aritime litigation - giving rise to possible

constitutions! due process implications. While increasing the availability of these types ofdam ages w ould purportedly assist those injured by the Gulf oil spill, the long-term neg ativeconsequ ences on the U .S. econom y would reach far beyond the oil spill context and could besevere.

In addition, the Energy Institute urges against recomm enda tions for creation ofmmecessary and duplicative regulatory obstacles for businesses could make it exceedinglydifficult to produce energy in the Gu lf. The current un certainty created by existing and planne dregulatory act ion stemm ing from S ecretary Salazar’s May 27 S afety Report to President O bamahas already caused en ergy producers to begin m oving infrastructure to other countries. In July,Baker H ughes CE O Chad D eaton announced that the oil services company would relocate 300 of

its 2,100 Gulf-based em ployees overseas and a lso move 25 percent of its assets to other countriesdue to "real uncertainty" surrounding tile federal go vernme nt’ s actions.

M oreover, while the moratorium purportedly only applies to deepw ater activities, relatedregulatory actions have created a de facto moratorium on an y offshore energy exploration. 7odate, the B ureau of Ocean E nergy M anagement, Regulation, and En forcement has only approvedthree Ap plications for Permit to Drill in shallow waters. A recent study prepared by W oodMcKenzie estimates that additional regulatory costs and delays could make productiou in muchof the Gulf of M exico uneconom ical, costing the governmen t billions of dollars in um:ealizedroyalties and costing the region thousands of jobs.

This situation llas essentially created a standstill on A merican jobs and econom ic growth

along the Gulf Coast. For exam ple, Louisiana faces losses of up to 10,000 jobs this summe r dueto the Departmen t of Interior’s blanket moratorium on d rilling, and by 2 014, the Gulf region isestimated to lose as man y as 120,000 jobs if the moratorimn continues, according to IHS Globalhlsights. Offshore operations ill the Gulf of M exico support hund reds of thousands of jobs andaccount for more than 30 percent of domestic oil production. M oreover, the C o-chairs of thiscommission have made public comments noting the potentially disastrous nnintendedconsequence s of the administration’s moratorium.

Finally, we w ould urge the Conm~ ission to avoid any recommendations to levy excessivenew energy taxes or f~es on A merican consumers and producers. The nascent economic recoverycmm ot afford add itiona! taxes on dom estically produced com modities.that the entire United

States depends on every day. Ultimately, such new taxes could further encourage Americanoperators to move investm ents elsewhe re, taking man y of the 9.2 rail.lion jobs in the oil and g asindustry with them. Excessive taxes w ould also invariably increase U.S . dependence on im portedenergy a s it did in the 198 0s, further increasing the risks to U.S . energy secu rity.

The Com mission has been given a broad scope O f issues to consider and upon w hich topotentially make recommendations to President Obama. The Institute for 2 !~t Century urges youto properly weigh any potential recomm enda tions against ira.pacts to the energy security and



economic com petitiveness of the G ulf Region and the country as a w hole . We ap preciate the

Com missioner’s service to the country on this important issue and value the opportunity toparticipate in this proceeding.

Sincerely,

Karen A. H arbert






Attachment 24

California State Lands Commission Proposal



CALENDAR ITEM

55

AB

Statewide08/20/10

StatesideM. DeB ernardo

AS PROPOSED BY STAFF

RESO LUTION BY THE CALIFORNIA STATE LANDS

COMM ISSION UR GING CONGR ESS TO ENACT FEDER AL LEGISLATION

THAT WOULD PROTECT THE NATION’S MARINE AND CO ASTAL

ENVIRONMENT FR OM CATASTROPHIC OIL SPILLS

W H E R E A S , California’s 1,100 mile coastline, with its beautiful beaches, uniquenatural hab itats, bustling ports, and w orld famo us tourist attractions, is truly aspecial place for its residents, visitors, businesses, a nd w ildlife; and

W H E R E A S , California has the largest ocean economy in the United States,

ranking first overall for both employment and gross state product, and containingthe first, secon d, and fifth busiest ports in the cou ntry; and

W H E R E A S , valuable wetlands located up and down the California coast provide

a vital l ink betwe en land and op en sea , exporting nutrients and organic m aterialto ocean w aters, and harboring w ater fowl and juveniles of num erous aquaticspecies including man y fish; and

W H E R E A S , the California State Lands Co mm ission (Com mission) hasjurisdiction over the state’s public trust lands, which include tide and submergedlands as well as the beds of navigable waterways; and

W H E R E A S , California’s public trust lands have been seriously harmed bydisastrous events like the196 9 Santa Barba ra oil spill, which spe wed m ore than 3million gallons of crude oil into the Pacific Ocean; an d

W H E R E A S , oil spills harm the environment, economy, and tourism by polluting

water an d land, killing wildlife, closing beac hes, and restricting water relatedrecreation, fishing activities, and ship m ovem ent; and



spill preparedness, prevention, response , restoration, research, and ove rsight;and b e it further

Resolved, that it urges C ongress and the P resident of the United States to

perma nently ban/offshore oil and gas lease sales off the coast of California; andbe it further new

Resolved, that the Commission’s Executive Officer transmit copies of thisresolution to the President and V ice President of the U nited States, to theGovernor of California, to the Majority and Minority Leaders of the United StatesSenate, to the Speaker and M inority Leader of the United States House ofReprese ntatives, and to each Sen ator and Represen tative from California in theCongress of the United States.

Adopted as amended 8/20/10






Attachment 25

California State Lands Commission Report to Commissioners



EXHIBIT A

C A L I F O R N I A S T A T E L A N D S C O M M I S S IO N

Report to Commissioners

Production and Marine Terminal Operations in

State Waters and the California State Lands

Commission’s Oil Spill Prevention Programs

Protecting State Waters

CSLC Staff Report

August 20, 2010



Table of Contents

I

II

III

Page

I n t r o d u c t i o n ............................................................................................................................. 1

Operat ions in State Waters

A. Oil Production Operations

1. CSLC Authority ............................................................................................. 3

2. Existing Oil & Gas Operations .................................................................... 3

3. O il & G as P roject Review Process ............................................................. 7

B. Marine Terminal Operations (MFD)1. CSLC Authority ............................................................................................. 8

2. Existing Marine Terminal Operations ....................................................... 8

Oil Spill Prevention P rograms

A. Oi l Product ion Spi l l P revent ion Programs (MRMD)1. Regulations

a. Oil & G as Drilling Reg ulations ..................................................... 9

b. Oil & G as P roduction Regulations .............................................. 12

c. P ollution Control, Operation Manuals

& Emergency Planning Regulations ............................................ 13

2. Pol lut ion & Safety Programsa. Drilling a nd W ell P rograms .......................................................... 13

b. P latform Inspections .................................................................. 17

c. P ipeline Inspections ..................................................................... 18

d. Facility Safety Audits .................................................................. 18

e. Structural Assessments ............................................................... 19

3. Spill & Safety R ecord .................................................................................. 20

4. Update of Current Regulations ............................................................... 20

5. Preliminary Analysis of CSLC Reg ulations In Ligh t of

British Pe troleum’s (BP ) G ulf of Mexico Blow out ................................. 22

B. Marine

1.

2.

3.

4.

Terminal Spil l Prevent ion Prog rams (MFD)

Regulations ................................................................................................. 24

Contingency Planning ................................................................................ 29

Spill Prev ention Prog ram ........................................................................ 30

Effectiveness of MFD’s Oil Spill P reve ntion Prog ram ...............................31

C. Pipeline and Terminal Leasing Programs (I.MD) .................................................... 33



D. Environmental P lanning and Manag ement Prog ram ( D E P M )

1. Overview ................................................................................................... 37

2. Evaluation of Projects Involving Oil Development and/or

Transportation .............................................................................................. 38

3. Examples of Oil Spil l Related Analyses and Mitigation Mea sures .. . . . .. . . 40

Chal lenges

A. Staffing1. MR MD Inspection Prog ram Structure and Staffing ............................. 43

2. MFD Staffing .......................................................................................... 44

B. Hiring & Retention .................................................................................................... 45

C. Training ................................................................................................................ 45

D. Funding (OSPR) .......................................................................................................... 46

Rec om m endations .................................................................................................................. 471. Bonding

2. Enforcement (Cease & Desist Authority)3. Training in W el l Control

4. Mit igating Loss of Technical Expert ise and Insti tut ional Knowledge5. Up date MRM D Dri ll ing & P roduction Reg ulations

6. Reclassification of the Mineral Resources Inspector Class

7. Increase Marine Fa cili t ies Div ision S taff8. Suppo rt Legislat ion



Introduction

At its June 28, 201 0, California State Lands Com mission (CS LC) meeting, the

Ch air of the Com mission directed CSLC staff to review oil production operations inState w aters by the A ugust 201 0 Com mission meeting, in l igh t of th e eve nts occurr ing inthe G ulf of Mexico relat ing to the Brit ish P etroleum (BP ) Deepw ater Horizon oi l spil l.Th e Ch air also directed CS LC staff to report on the CSL C’s oil spil l preve ntion activit iesand prog rams for oil production op erations and marine oil terminal operations in Statew aters, the ir effectiven ess, and to evaluate opportunities for improve ment of theseprograms. CS LC staff has prepared th is report to address the Comm ission Ch air’sdirective.

The C SLC h as served, since 1938, as manag er of the State’s sovereign lands,including ung ranted tidelands, submerged lands, and navigable w aterw ay s. The S tate’sjurisdiction includes the beds of nav igable rivers, streams, lakes, bays, t ide and

submerg ed coastal lands extending to a distance of th ree (3) nautical miles. By statute,the C ommission may lease these lands for the orderly development of State mineralresources. The Com mission, also by statute, ha s jur isdictional authori ty for operat ion ofmarine terminals’ oil spill prev ention prog rams to ensure th eir safety.

Oil production and m arine terminal opera tions in State w aters are clearly definedby statute, closely reg ulated, and constant ly mo nitored by th e Co mm ission staff. TheCS LC adm inisters its authority for these activit ies th roug h a n integ rated staff structuredw ithin four operating D ivisions, each w ith specific responsibility and duties to ove rseeact iv i t ies in State w aters. Th e M ineral Resources Ma nagem ent Div ision (MRM D) isresponsible for carrying out th e C omm ission’s responsibilities for mineral leasing and oilproduction activit ies. Th e Ma rine Facilit ies Division (MFD) carries out the C omm ission’s

responsibilit ies for marine terminal ope rations in State w aters. The La nd Mana ge mentDivision (LMD) is responsible for surface mana ge ment of S tate lands including leasingof marine oil terminals, and righ t-of-w ay for oil and gas pipelines crossing State w aters.The Div ision of Environmental Planning and Manag ement (DEPM ) ensures theCommission’s compliance with the provisions of the California Environmental QualityAct (CEQA).

Th e abov e Divisions, each w ith the ir unique abilit ies and expertise, jointly applycoordinated, collaborative, and support ive efforts toward C SLC manag ement ofact iv i t ies in State w aters. In describing the CS LC’s ma nag ement and p ollut ionprev ention prog ram in th is report, individual Division responsibilit ies w ill be clearlydiscussed.

Oil production activities, marine terminal ope rations, and pipeline infrastructurecarry an inh erent level of safety a nd pollution risk. The a ccident in th e deep w aters ofthe G ulf of Mexico is a solemn reminder of th ese risks. Th e CSL C h as long recognizedtha t th ese risks exist and, ove r many de cades, has dev eloped strong regulations,policies and practices to ensure th at the h igh est level of protection of State w aters ismaintained. Th is report describes th e ph ysical operations of offshore facilit ies, and



CSL C’s authori ty, and provides an ove rv iew of the regulat ions, programs, andsafeguards th at ensure the ma ximum protect ion of these faci l it ies and th e env ironment.

Finally, th is report concludes w ith a discussion o f the current and futurechallenges to th e C LSC ’s oi l spi ll prevention prog rams, and recommendations to ame ndcurrent regulations, policies and practices reg arding o il operations in order to furtherstrength en CS LC’s abil ity to protect State w aters.



Ope rations in State W aters

A. Oil Produc tion Operations

1. CSLC A uthority

Since 1938, CSLC h as served as manager of the State’s sovereign lands,including mo st h istoric tidelands, submerged lands, and navig able w aterw ay s. Thisjurisdiction is found in Division 6 of the P ublic Re source Co de (P RC ), and mo respecif ically in P RC §6301 , wh ich reads in part :

"[t]he Co mm ission h as ex clusive jurisdiction over al l ungranted t idelands andsubme rged lands owne d by the S tate, and of the beds of navigable rivers, stream s,lakes, bays, estuaries, inlets, and straits, including t idelands and subm erged landsor any interest therein, whe ther within or beyo nd the bo undaries of the State as

established by law, which have b een or m ay be acqu ired by the State ... [ t]heCom mission shal l exclusively administer and control all such lands, and may leaseor otherwise dispose of such lands, as provided by law, upon su ch terms an d forsuch consideration, if any, as are determined by it."

Under P RC §6108, the L egislature also auth or ized the C ommission to make andenforce all reasonable and proper rules and regulat ions consistent w ith law for thepurpose of carrying out the prov isions of Division 6.

In 1990 the California Legislature passed the Lempert-Keene-Seastrand Oil Spill

P revention and Re sponse Act. PRC §8755, adopted as part of the Act, requires thatCLSC regulations provide the "Best Achievable Tech nology and Best Achievable

P rotection" (BAT/BAP ), and prov ides, in part, th at:

the [State Lands] Com mission [CSLC ] shal l adopt rules, regulat ions, guidel ines, andcom mission leasing p ol icies for reviewing the location, type, character, performan cestandards, size and operation of al l existing and proposed m arine terminals withinthe state, whether or not on lands leased from the com mission, and al l other marinefaci li ties on lands under lease from the co mm ission to m inimize the p ossibi li ty of adischarge o f oi l... The [CSLC ] shal l ensure that the rules, regulations, guidel ines,and co mm ission lease cov enants provide the best achievable protection of publ ichealth and safety and the environment.

2. Existing O i l & Gas Operat ions

The Mineral Resources Manag ement Div ision (MRMD) ove rsees th e leasing a ndoperat ions of all mineral leases in State’s offsh ore t ide and subm erg ed lands along th estate’s more than 1,1 00 miles of coast line, extending from mea n h igh t ide out to three(3) nautical miles.



P resently, eighteen (1 8) producing offshore oi l & gas leases ex ist in State w aters(as show n in Figures 1 & 2). The leases are developed from offsh ore structures andfrom onsh ore coastal faci li ties. Ten (10) leases produce oi l f rom four offshore platforms,

and tw o man-made islands. Th e P latforms are located in offshore S anta Barbara, SealBeach and Huntington Beach, and one manmade island is off the coast of Ventura.Addit ionally, th e Long Beach U nit, located w ith in th e g ranted t idelands of th e City ofLong Beach , produces from four manm ade islands. Eigh t (8) active offshore leasesproduce oil from four onsh ore coastal sites, located in th e Huntington Bea ch a ndVentura areas.

Figure 1 " South ern California(Orange-L.A. County)

Oil & G as P roduction Operat ions

Figure 2 : Southern Cali fornia (Santa Ba rbara-Ventura C ounty)Offsh ore Oil & G as P roduction Operat ions

~ t a s P o i n t

U n l l :

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All offsho re production facilit ies deliver the ir oil and gas to onsh ore processing andsales facilities via offsho re pipelines, located on the oil lease o r in State rig h t-of-w ayleases. In addition to pipel ines serv ing p latforms and islands in S tate w aters, th e S tatemanag es r igh t-of-w ay leases for pipel ines crossing State lands that del iver oi l and g as

to sho re from federal oil platforms bey ond the three m ile l imit . A total of 36 oi l and g aspipelines (approxima tely 1 00 miles) cross State w aters.

Th e numbe r of active w ells producing offshore oi l on State offsho re interests hasremained betw een 1,030 and 1 ,105 through out th e past 1 0-year period (with minorfluctuations).

Ov er the pa st 10 y ears, approx imately 1 68 million barrels of oil (7 billion gallons)h ave been produced, treated and transported from S tate offsho re leases. Because ofthe maturity of the f ields current ly under lease in the State, production w ill cont inue todecline w ith out any new sources of oi l. The major i ty of w ells dr i lled or re-dri lled areused to replace current w ells and production.



During th is same 1 0-year t ime span th e cumulat ive revenue col lected fromoffshore oi l product ion h as totaled more tha n $2.4 bi ll ion. For the m ost recent f iscalye ar of 2009/201 0 th e revenue w as approximately $3 10 mil lion and ha s averagedalmost $350 m ill ion per y ear for the p ast f ive yea rs.

Th e MR MD staff that implement the prog rams discussed in th is report are h igh lyqualif ied, trained, and experienced professionals wh o h ave g iven the CS LC th e h igh estlevel of serv ice to assure the safest operat ions in State w aters. The C SLC staff hasplayed a signif icant part in generat ing and maintaining "non-tax reve nue" for the State

throug h safe manag ement and leasing of State mineral interests, particular ly oi l and ga sresources. In addition, throug h rules and regulat ions, and statutory leasing au tho rity,the staff h as dev eloped strong a nd effective safety standards for offsh ore dr i ll ing , wh ichh ave been adopted by the industry .

Staff is presently eng ag ed in updating ex isting oil and gas dril ling and productionregulat ions. MR MD efforts in th ese updates h ave be en under developm ent on anongo ing basis, but, in l ight o f the D eepw ater Horizon spi ll , the need for t imely adoptionh as become apparent . The ex tent to wh ich th e CSLC has imposed new requirementsthroug h already exist ing leases h as mainly depended on securing cooperat ion from thelessees, w ho m h ave be en compliant, or by lease amendment as part of a lessee projectappl icat ion. Now , how ever , the CSLC recognizes, pursuant to P RC §8755, it may hav e

the au thori ty to impo se new reg ulat ions upon al l ex isting leases. Reg ardless, the staffis confident th at, as in the p ast, the lessees w ill understand and ag ree w ith the nee d forthe updated requirements.



3. Oi l & Gas Project Rev iew Process

Th e CSL C’s MRM D is staffed with g eolog ists, engineers (in varied disciplines)and specialists in oil and g as, geo the rmal and mineral leasing, exp loration and

development, many of w ho m are registered professionals, h ave adv anced degrees, orye ars of f ield experience. MRMD is headquartered in Long Beach , and i t h as f ieldoffices in Hunting ton Beach and Sa nta Barbara. Its priority is th e orderly ov ersigh t andmanag ement of state resources, under the Comm ission’s leadership, in a safe andenvironmental ly protect ive manner.

MR MD is responsible for regulating all oil and ga s activit ies on State leases, andmaintains ong oing m onth ly inspections of all facilit ies on state offshore lease s. Becauseof the mult iple dr i ll ing and production environments, and th e leng th o f the f ield l ife, th eseregulat ions h ave alway s been considered "dynamic," and provide for improvedtech nologies as dev eloped under th e all-encomp assing definition of "good o ilf ield" or"good eng ineering" practice.

A Safety and O il Spil l P revention Audit Prog ram w as implemented in the 1 990’s.Th e Safety Audit tasks include th e compreh ensive eva luat ion of the design of the safetysystems of the offsho re platforms and islands, and th e associated onsho re processingfacilit ies, as w ell as a review of the corpo rate "safety culture," on a five y ear basis.

All ex isting o il and g as production operations started as resource dev elopme ntproposals submitted by prospect ive applicants. The review process for these projectsinvolves a r igo rous and comprehensive assessment by many CSL C Div isions,ex amining al l aspects of the project. Project manag ement and coordinat ion of thereview s are performed by MRM D w h ich sol ici ts input from eng ineering a nd geo logic,operat ions, environmental, leg al, f inance, and surface leasing div isions. Th e o bject iveof these project assessments is to ensure that propo sed projects fully implement al l ofthe reg ulations, policies, program s, and env ironmental mitig ations th at w ould berequired for Commission consideration

Sh ould the C ommission decide to approve a n oi l product ion or dev elopmentproject, MRMD staff review s and approves indiv idual w ell dri ll ing programs on S tate oi land g as leases both for resource managem ent and for safety and spi ll preventionpurpose s, and review s, inspects, and monitors th e structural performance of theplatforms including recu rring structural survey s for f itness, structural mo difications, andperiodic majo r structural eva luations. All new dril ling pro jects from current platformsrequire a rigorou s structural requalif ication to ensure th at the facility is safe and capable

to implement the project, and to require any streng thening or maintenance required tobring the facil ity up to current codes. In addit ion M RM D rev iew s, inspects, and monitorsthose pipelines under CSLC jurisdiction and cooperates with those other agencieswhere there is joint responsibility.



B. Marine Terminal Operations (MFD)

1. CSLC A uthority

The 1989 Exxon Valdez and the 1990 Am erican Trader crude oil spills in Alaskaand Huntington Beach respectively prompted the Leg islature to assess oi l spil lprevention mandates. Th e Leg islature found th at because of the inadequacy of spi llc leanup and response measures and techno logy , the emph asis must be put onprevention, i f th e r isk and conse quences o f oi l spil ls are to be m inimized. Th eLegislature passed the Lempert-Keene-Seastrand Oil Spil l Prevention and ResponseAct of 1990 ("the Act") which expanded CSLC’s oil pollution prevention jurisdiction.Specif ically P RC §8755, cited above, requires th at CLSC regulations provide th e "BestAchievable Tech nology and Best Achievable P rotect ion" (BAT/BAP ) at all marineterminals, w he ther or not on lands leased from th e C ommission.

Th e Act defined marine terminal as any marine facility u sed for transferring oil to orfrom a tank sh ip or tank barge. C SLC created the Marine Facilities Division (MFD) toimplement th e Act’s marine terminal inspection and reg ulation mandates.

2. Existing M ar ine Term inal Operations

As CSLC w as g iven new responsibilities and duties to prev ent oil spills into statew aters, it created the Marine Facilities Division (MFD), consisting of administrative offices in LongBeach and field offices in Hercules and Long Beach . MFD responsibilities included:

¯ Reg ularly inspecting a nd monitoring the o perations of all marine terminals;

¯ Adopting rules and regulations for reviewing the location, performance standards,and oth er cha racteristics of all existing a nd propo sed marine terminals;

¯ Dev eloping rules and reg ulations for th e content of marine terminal OperationsManua ls for protection ag ainst oil spills; and

¯ Ensuring th e best achieva ble protect ion of th e public he alth and safety and themarine env ironment in th e reg ulation of al l marine oi l terminals.



Oil Spil l Prevent ion P rogram s

A . O il P r o d u c t io n S p i ll P r e v e n tio n P r o g ra m s ( M R M D )

1. Reg ulat ions

Drill ing, production and o ffsh ore ope rating activities are conducted by lesseesand in a manner tha t conform to CS LC dril ling and produ ction reg ulations found in th eCalifornia Co de of Re gu lations (CCR ) at Title 2, Division 3, Ch apter 1 , and specif icallyin Art icles 3.2, 3.3 , 3.4, and 3.6. The reg ulat ions cover ev ery ph ase of an oi l and g asproject ’s l i fe cy cle from inception to abandonm ent, and pollution preve ntion during thatt ime. Th e fol low ing is a condensed a nd paraph rased compilat ion of the relevant dr il ling,production, and pollution prev ention regu lations.

a. A rt ic le 3 .2: Oi l and Gas D r il l inq R eg ulat ions

Th e dri ll ing regulat ions are found in Art icle 3.2 of the CC R cited above.The y cov er requirements from the rev iew of a proposed dril ling program to theult imate aba ndonm ent of every w ell on state property. More specif ically, th eycover w h at must be included in the dr il ling prog ram for a complete eng ineeringreview , requirements for casing, cementing of the casing, blow out preventionequipme nt, dril ling fluids ("mud"), drill site a nd rig safety equipme nt, pipelineinstallat ion, integ r i ty , and maintenance, and a bandon ment requiremen ts. TheMR MD staff also receives, and eng ineering staff review s, daily drill ing rep ortsfrom any w ell dr i ll ing on a state lease.

Table 1 . Article 3 .2: Oil and G as Dri ll ing R eg ulat ions

§2128 (d)

Program

Th e dril ling prog ram must comply w ith a l l law s and regulat ions,requires "good o ilf ield practice" (w h ich, at a m inimum , isequivalent to the best American P etroleum Insti tute [API]recommend ed pract ice and other relevant codes). Every w elldrill ing proposa l must be approv ed by staff before dril ling canbeg in. Th is entai ls a complete eng ineering rev iew of al l aspectsof the well design and associated programs (casing, cementing,mud, etc). Pr ior to com mencing dr il ling o perat ions from amobile drilling rig (drillsh ip, semi-submersible rig or "jackup " rig),the lessee must conduct a w ell site investigation, and receiveapprov al by staff , to demonstrate that the condit ions of theocean bo ttom are environme ntally com patible and suitable for

the proposed w ell site and. Additionally, in dr il ling o perat ionsfrom a drill sh ip or sem i-subme rsible rig (a.k.a. "f loatingoperations"), staff must be prov ided in th e de tailed dril lingprocedures addit ional safeguards w h ile remov ing the dril lingr iser and for running and cementing the casing strings.

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§21 28 (e) The regulat ions require tha t casing setting depth s be based onW ell Casing all relevant g eolog ical and eng ineering factors, including,Requirements. among othe r th ings, w ater depth and zone s of lost circulat ion or

other unusual characteristics.§21 28 (f) The regulat ions require th at the lessee use appropriateCasing cementing technology in order to ach ieve adequate cement f i llCementing up and bonding on al l casing cementing op erat ions.Requirements Additionally, our reg ulations require a cemen t bond log to be run

following pr imary cementing of the casing to aid in determiningw h ether a g ood bond and adequate cement fi ll up has beenachieved.

§2128(g) U pon comp letion of the cementing operat ions a pressure testPressure must be completed on all strings of casing (exce pt theTesting of conductor), to the m inimum levels out l ined w ith in the reg ulat ion

Casingto determine i f a leak may be present. I f during th e test th epressure declines more th an 1 0 percent in 30 minutes, or ifthe re is any oth er indication of a leak, corrective measu res mustbe taken so tha t a satisfactory test is obtained.

§21 28 ( i) Th is sect ion does not specify th e number or types of Blow outBlowout P reve ntion Equipment (BOP E), but requires that all portions of aPrevent ion blowout preve ntion sy stem be designed for the w ell conditionsEquipment and th at alternate meth ods of w ell control are av ai lable in th e(BOPE) ev ent of fai lure of any one po rt ion of the sy stem (i .e. , redunda ntRequirements systems). If one component of the system that is vital to well

control becomes inop erative, drill ing operations sh all be

suspended as soon as p ossible w ith out danger to th e w ell unt ilthe inoperative equipment is repaired or replaced.

§21 28 ( j) BOP E and related control equipme nt must be tested toPressure specifications outlined in th e regu lations as follow s: 1) w h enTesting, instal led on th e w ell; 2) after sett ing each casing str ing ; 3)Operational before dr il ling into any know n or suspected h igh pressure zone;Testing, 4) at least once a w eek during d rill ing ; and 5) follow ing repa irsInspection, or replacement tha t necessitates breaking any pressure seal inand the system.Maintenanceof Blowo ut

Prevent ionEquipment

§21 28 (m) The mud program must be designed to prevent the loss of w el lMud Program control. Adequa te quantit ies of mud m aterials must be

maintained at the drill-site and sh all be readily accessible foruse in we ll control. Th ree areas cov ered in th e regu lat ions are

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(Drilling mud con trol, mud quantities, and m ud test ing equipmen t. TheFluids/Mud mud den sity is th e primary co ntrol of formation pressures in th eControl, cont.) w ell . Th e mud co ntrol requirement out l ines procedu res to be

follow ed during pipe "trips" out of the h ole (replacing th e dril l bit)

and for mud deg assing equipment. Th e mud quantit ies sect ionrequires th at the mud prog ram tabulate, by depth a nd h ole size,the minimum volume of m ud and m aterials to be maintained atthe d r il l si te to keep the m ud "in shape ." Also, there must besufficient w eigh t mater ial to increase th e mud to the max imumdensity in the program i f needed. A dai ly inventory of mudmaterials must also be maintained and dril ling o perationssuspende d if the requ ired minimum qua ntities are not on h and.Lastly, monitoring equipme nt and mud testing requ irementsduring th e drill ing o perations are required. This includes thefollow ing dev ices: recording m ud pit lev el indicator, mud-vo lumemeasuring device, mud-return or ful l-h ole indicator, and g as-

detection equipmen t (all relating to early indication of a nimbalance of mud w eigh t to formation pressure).

§2128(n) Drill ing P ractices prov ides guidelines and procedures for fourDrilling critical operations that may be enco untered during d rill ingPrac tices & (o) operat ions. They include careful ly observ ing the vo lume o f mudInspection used to f i ll the h ole w h en pull ing dr il l pipe from o r returning i t

into the h ole, posting the max imum pressures al low ed do buildup ag ainst the BO P E in the ev ent of a "kil l" procedure, the rateof pul ling or running dr i l l pipe, and h ow to ha ndle produced f luidduring d rill stem testing.

Th e Dri l ling Inspect ion reg ulations give staff the autho rity toperform inspections of th e drill ing o perations to verify th atoperat ions are being conducted in accordance w ith regulat ionsand the a pproved w ell dr il ling program.

§2128(q) P rior to abandon ing a w ell the lessee m ust file a written noticePlugg ing & of intent ion to abandon th e w el l w i th CS LC staff . The not iceAbandonment covers t he current cond it ion o f the w e ll and the p roposed

meth od of abandonm ent. W rit ten approv al is required fromCSL C staff prior to commenceme nt of any abandonmentoperat ions. The reg ulat ions out l ine the forma tion zones th at

need to be isolated, isolation of open h ole and casing , th elength o f plug th at must be used, the test ing m ethod s todetermine the p lacement and hardness of each p lug, andrecordkeeping.

1 1



b. A rt ic le 3 .3: Oi l and Gas P roduc t ion R egu lationsTh e production facility (platforms and asso ciated onsh ore facilit ies)

regu lat ions are found in Art icle 3.3 (P roduction Re g ulat ions). They cov errequirements from well completions (and completion programs), well, wellhead,

production and platform safety sy stems (testing and inspections), w ellmaintenance w ork, Hydrog en Sulf ide ("H2S ") detection precautions and planning,electrical system s, fire and fire fig h ting sy stems, w elding practices, pipelineoperations and maintenance.

Table 2. Art icle 3.3: Oil and G as P roduction Re gulat ions

§2132 (a -g ) The se regulat ions require compliance w ith al l law s andProduction reg ulations and, as w ith the dril ling reg ulations, require "go odFaci li ty Safe ty o il field practice" (a lw ays assumed to be the best APIEquipment recommen ded pract ice and oth er releva nt codes). Al l w el land complet ion p rograms, including w ellh ead e quipment, must be

Procedures approved by staff , and any ch ange to the prog ram or equipmentmust also be approv ed. Th is is also a requirement for anyremedial and/or w ell maintenance w ork.

Subsurface safety v alves are required in the w ell if i t can f loww ithou t artif icial mea ns (i.e., pum ping , gas lift, or oth er lift ingmech anism). Month ly test ing of all subsurface safety valve s,and surface safety valves, is required, and th e tests arew itnessed and approved by MRM D inspectors. Safety dev iceson w ells on artif icial lift and a ll flow lines m ust also be testedmonthly , and are w itnessed and approved by MRM D inspectors.Sup ervision and training requiremen ts for production we ll

w orkers are also found w ithin this Article.

Subsurface injection proje cts require prior approv al of staff instate lands. At a minimum the production faci li ty safetyequipment and procedures must meet al l API recommendedpract ices (API RP 1 4C ). An integ rated safety control system(automatic shut down) is required on offshore facilities and isw itnessed and ap proved by staff. Fire and g as detect ionsy stems are also tested mon th ly . This is but a quick ove rv iewbut these reg ulations are comprehe nsive and discuss eachpiece of equipmen t and system o n the facilities and, pursuant toth is regulat ion, require month ly test ing w itnessed by M RM D

staff.

§2132 (h ) P ipeline inspection requires annual smart pigg ing or h ydrostaticPipeline pressure testing (to 1 .5 times ma ximum o perating pressure -Operat ions the h igh est requirement o f any regu la tions in sta te or federa land California wa ters), and th e results are review ed by a MRMDMaintenance. staff engineer.

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c . A rt ic le 3 .4: P ol lu t ion C ontrol and A rt ic le 3 .6: Op erat ion M anual &Em er~ lencv P lannin_~ R equlat ions

Article 3.4 (P ollution Control) and Article 3.6 (Ope ration Manuals and Emerg ency

P lanning ) of the C CR ’s cited above, describe emerg ency p lanning requirementsto av oid oi l spil ls, and th e content of o perat ions manuals required for everyfacility.

Article 3.4: Oil Spi l l Contingen cy P lanning/Cri tical Operat ions andCurtailm ent P lans: §2139 & §2141- CSLC regulations require a staffapprov ed oil spill contingency plan (or an OSP R approv ed plan per th eAct) and require a "Critical Operations and Curtailment Plan," that is, w h atthe operator w ill do if operations need to be suspended during crit icaloperations such as running casing, cementing, or environmental upset(Staff knows of no o ther reg ulatory ag ency th at requires such a plan).

Article 3.6: Operations M anual & Em ergency P lanning: §21 70 - §21 75-CSLC reg ulations require all marine facilities under CSL C jurisdiction toprepare, and receiv e staff approva l of, an ope rations manual describingequipment and procedures employed to protect th e public h ealth andsafety and th e env ironment and to prev ent oi l spills. The m anual mustdemonstrate comp liance w ith all applicable operating rules andregulations of th e CS LC and lease terms. Th e manual must include allemerg ency response plans for oil spills, detection and operations inh ydrog en sulfide env ironments, fire figh ting, w ell control, natural disasterresponse, facility evacuation, critical operation curtailment plans, security,communications, and a description of all systems safety and pe rsonnelsafety information.

2. P ol lut ion & Safety Prog ram s

MRM D assures ope rator compliance w ith the dr il ling and production regulat ionsthrough a series of technical oversigh t programs developed and conducted by theMR MD eng ineering staff . Th ese prog rams, described below, involve technical reviewand site surveillance programs performed by engineers and technicians, most beingestabl ished and developed ov er many decades and provide comprehensive analysis,ove rsigh t, and surve illance of offsh ore oil operations.

a. Dr il l ing and W el l P rogram s

Drill ing, redrill ing, w orkover and abando nment program s are review ed on a perw ell basis to ensure they are complete and meet or exceed all CSLC regulations.

A typical drill ing prog ram review encompasses th e follow ing components andengineering review.

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BOPE - The BOP E stack is conf igured to a l low c losing in of the w el lboresafe ly and ef fic ient ly w he n and i f needed. The BOP E stack has apressure rating that ex ceeds any pressures to be encountered from th e

w ellbore w h i le dr i ll ing. Staff calculates th e potent ial maximum surfacepressure from th e total depth of the w ell w h ich is used to determine sizeand pressure rating of the BOP E stack. The Div ision of Oil, G as, andG eothermal Resources (DOG G R) staff witnesses the pressure testing ofthe BOP E stack a fter installation (or p rior to installation o n a "floatingoperat ion"). W eekly test ing of the BO P E stack is ver i f ied by staff throughdaily m orning reports of the r ig act iv i ty . As provided by the C SLCregulat ions, dr il ling pe rsonnel are required to h ave current BOP E safetytraining and cert if icat ions are p rovided to C SLC staff . The fol low ing is anillustration (from Energ y Training R esources, LLC ) of a blow out preven tion"stack" and ty pes of prev enters (annular, pipe, blind/she ar) used on th eMacondo w e!l ( th e British P etroleum w ell that suffered the blow out in theG ulf of Mexico).

Casing - The casing p rogram for the w ell contains th e specif icat ions andlength o f each casing str ing to be run into the w ell. The casing desig n andsetting depth s are review ed by staff. Staff uses pressure gradient andreservo ir pressure data to calculate max imum allow able casing settingdepth s w ith a pplicable eng ineering safety factors. The col lapse strength ,

burst rating and tensile stress factors are all considered w h en app rovingthe type, w eigh t , g rade and coupling th read type of the casing to be run.A pressure test against the op en formation is required w h en dri ll ing out ofa casing str ing. Th is test establishes an equivalent mud w eigh t circulat ingdensity w h ich is used in determining subsequent casing sett ing depths.Th is is a crucial actual f ield mea suremen t because it could pre-empt th eoriginal casing design criteria and cause a casing str ing to be set and

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cemented at a sh al low er point than designed before dr il ling ah ead. Redri l lw ells must pass a pressure test of ex isting (original) casing and a casinginspection log is required to ensure th e integrity of the casing be fore theredri ll comme nces. Th e fol low ing i l lustrat ion (from Energ y TrainingResources, LLC) sh ow s casing and cementing from the Macondo w ell.

Macondo W ell DiagramSh ow ing C asing/Cementing

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Cem enting - Staff review s the ceme nting procedure for each ca sing stringincluded in th e dr i l ling p rogram. Cem enting is a process in w ell dr il lingthat usually o ccurs after steel casing is low ered into the freshly dr i l ledh ole. Liquid cemen t is pumpe d dow n the w ell in such a man ner that i t f il ls

the space betw een the casing and the dr il led h ole so that , w he n i th ardens, it creates an impermeable seal betwe en the casing and thedri lled ho le. It is important to h av e th is ceme nt seal for many reasons:

1 . The ceme nt suppor ts th e casing in the h ole;2 . The ceme nt seals off, and creates a barr ier to, the form ation

pressure and fluids from th e surface both inside and outside (in th espace betw een th e casing and dri lled hole) the casing (a potentialcause for a blow out);

3. The cement prevents any contamination from occurring by, orw ith in, the zones th at hav e been dr i lled th rough ; and,

4. Th e cement seal prevents any zone l iquid or gas from enter ing th ew ell except from the interval desired.

Th ese procedures are review ed to ensure adequate f il l Volumes are beingused beh ind the casing strings to cover oi l and ga s zones and fresh w aterzones. Co mposit ions of th e cem ent mixtures (and addit ives) are alsoreview ed for adequate compressive strengths. Surface casings requirecemen t returns to the surface, w h ile intermediate casing strings requirecement coverage 200 feet into the preceding larger casing. Productioncasings require cement coverage 500 feet above the h igh est oil and gaszones. A ceme nt bond log is run on intermediate and p roduction casingsto ensure cement f il l and adequate cement bonding and ha s beenach ieved. Th e log is submitted to staff for review .

Drilling Fluids ("l~iud") - Staff review s the m ud program w ith in th edril ling prog ram. The mud’s w eigh t counters formation pressuresdow nh ole and helps prevent gas or f luids from invading th e w ellbore,w h ich w ould cause a "kick". An uncontrol led "kick" at the surface is a"blow out." Mud w eigh t mater ial of suff icient quanti ty for th e max imumdensity in the dr i l ling prog ram must be ava i lable on site at al l times. The reis a zero discharg e po l icy w h ich is str ict ly enforced. Staff v isits the sitetwo to th ree t imes per w eek. P it Volume level indicators and gas leveldetection equipment w ith alarms are required on the mud sy stem tomonitor mud volume s and mud returns. A mud report describing th evo lumes, phy sical and ch emical cha racteristics and quantities in the activeand rese rve d rill ing fluids system is fi lled out daily a t the dril l ing site by a

dri ll ing f luids eng ineer. The dr i ll ing mud ty pe an d ch aracter istics maychang e as each sect ion of th e w ell is dri lled and each ph ase of th e mudprogram is reviewed by staff .

W orkover and abandonment programs are review ed thorough ly for completenessas w ell. W orkover and abandonm ent programs currently represent a far largerpercentage of the program rev iew w orkload tha n dr i ll ing and redril ling prog rams.

16



Abandonm ent programs are review ed to ensure that the placement and size ofcement p lugs seal the w el ls proper ly . W orkover programs are rev iew ed by staf ffor compliance w ith our oi l and gas regulat ions.

Each program review is performed by engineering staff and routed th rougheng ineering manag ement for f inal review and sign off before programs areapproved.

b. P la tform Inspect ions

Th e MRM D Inspection/Audit P rogram uses a tw o-pronged approach to assureBest Ach ieva ble P rotection on ma rine facilit ies in its jurisdiction. First, th e safetysy stem must be designe d correctly to prev ent spills, and maintenan ce andtraining p rog rams must be sufficient to preserv e system integ rity a nd providequalif ied ope ration. This is discussed below in th e "Facility S afety Au dits"

section. Seco nd, the facility m ust be inspected reg ularly to ve rify th at it is reliableand kept in a ful ly operable condit ion. P rotection w ould be comprom ised byeither de sign f law s or ope rational deficiencies.

The P latform Inspect ion P rogram provides the reliabil ity part of the protectionequation. Inspect ions are conducted at ev ery offsh ore faci li ty month ly, perMRM D reg ulations, and are conducted by MRM D inspectors from th e HuntingtonBeach or G oleta f ield offices.

Th e core of each inspection is ph y sical testing of the facilit ies production andprocessing alarms and shutdow ns. This includes each w ell’s surface and

subsurface safety v a lves, the eme rgency sh utdown sy stem, h igh and lowpressure and level alarms installed in ve ssels and tanks, toxic and com bustibleg as detectors, f ire and smo ke detection equipme nt, fire, aband on platform, andman ov erboard alarms, pipeline alarms, fire pump s, deluge and fire controlsystem, and the emerg ency generator . In addi t ion, the funct ioning ofnav igational aids is checked, spil l response equipment is inventoried,maintenance and calibration records of pressure re lief valv es, catho dic protectionrectifiers, f irefigh ting equipmen t, and life saving equipme nt are rev iew ed.Addit ionally, pipel ine r igh t-of-way survei llance, spi ll dr i ll , and bo om deploy mentrecords are checked for compliance w ith required schedules. Each inspect ionrequires two to three day s complete, and includes testing of an averag e of 31 7dev ices. Deficiencies are corrected immediately, or the a ffected equipment is

sh ut dow n and isolated, w h ich ma y require shu t in of the ent ire faci li ty .

The platform inspect ions provide assurance that th e safety systems are kept ingoo d operat ing condition, and that th e equipment to respond to emergencies andspills is av ailable and in g ood op erating condition. The Inspe ctors also conductdaily surve illance of opera tions, pollution ch ecks at facilit ies, beach es, and alongpipelines, as w ell as royalty p roduction verif ication duties.

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c . P ipe l ine Inspect ions

CS LC reg ulations require that all oil and g as pipelines in State w aters be

internally and ex ternally inspected annua lly . The test equipment and procedu resmust ha ve p r ior approva l, and the results of the tests must be review ed andapproved by MRM D eng ineers, in order to continue operat ion of th e pipel ine.

For th e internal inspection, an electronic "smart pig" inspection is required. Th isinspection is performed by p umping a n electronic mag netic f lux tool throug h thepipeline. The tool measures and records w al l th ickness a long th e ent i re length ofthe p ipel ine, w h ich identi fies any internal or external var iat ions in th ickness. Thinspots due to corrosion are identified, as w ell as any dama g e to the pipeline.Smart pig runs are analyzed by MRM D engineers using Am erican Society ofMech anical Engineers (ASME) cr iter ia and compared w ith previous runs toeva luate corrosion trends and rem aining serv ice l i fe. I f a sma rt pig run is not

mech anically feasible, a h ydrostat ic test to 1 .5 t imes the max imum operat ingpressure of the pipel ine is required. The test pressure is required to be h eld fore igh t hours in order to pass. Th is standard is more str ingent tha n any otherknown state or federal regulations for oil pipelines. Hydrostatic tests arew itnessed by an MR MD eng ineer, and eva luated using a material balancespreadsheet developed by MR MD and used by many operators to ver ify absenceof leaks.

The external inspect ion of a submerg ed pipel ine may be conducted by a diver orremote operat ing v eh icle (RO V). The e xternal inspection is used to detectdama g e, move ment, free spans (unsupp orted section of pipeline), or foreignobjects ly ing across the pipel ine, that may cause fai lure due to ph ysicalmov eme nt or accelerated corrosion. Video tapes and diver reports of ex ternalpipeline inspect ions are review ed by an MR MD e ngineer, and corrective act ionscoordinated with th e pipeline operator if necessary .

d. Fac i li ty Safety A ud its

As noted above, the S afety Audit P rogram prov ides an analysis of the technicaldesign of a facil ity ’s safety sy stem and veri f icat ion th at the alarms and controlsh ave been installed and operate as designed, and comply w ith MRM Dreg ulations and industry standards from AP I, ASM E, American Society forTesting and Materials (ASTM ), National Association of Corrosion Eng ineers

(NACE ), and oth er professional organizations. This analy sis requires that thefacility’s "Piping an d Instrumentation Draw ings," a schem atic represen tation ofthe lay out and specifications of all w ellhea ds, flow lines, process piping, vessels,alarms, and controls at the facility , be field verif ied for accuracy b efore th etechn ical eva luat ion is conducted. The a udit also review s equipmentmaintenance a nd corrosion prevention and inspection program s and results toeva luate f itness for purpose of pressure v essels, tanks, and piping. Th e design ,

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maintenance , and con dition o f the electrical pow er distribution circuits and firedetect ion and co ntrol systems a re analyzed and inspected by a th ird-partycontractor. Training and qua lif icat ion prog rams are rev iew ed to a ssurecompetent training in, and ove rsigh t of, operat ion o f the facil ity, and the Facili ty

Operat ing M anual and Spill Prev ention P lan are reviewed to ev aluate adequacyof procedures for norma l operation, upset conditions, and respon se to spillincidents. Org anizat ional safety culture, and th e leve l of maturi ty of safetyprograms, is evaluated by a Safety Assessment of Manageme nt Systems(SAMS) procedure, wh ich assesses these factors through a series of confidentialinterv iew s w ith a cross-sect ion of compa ny operators, engineers, managem ent,and contractors. The S AMS eva luat ion is a tool that addresses h uman errorfactors, and w hich can be used by the ope rator to improve p rograms to reduceh uman error.

The safety audit provides a comprehe nsive evaluat ion of facil ity design,condition, procedures, and person nel qualif ications, producing a matrix of actionitems that are prioritized by risk, and corrected during a follow -up ph ase. Sa fetyaudits are repeated every f ive y ears, as recommended by industry andgov ernment codes.

e. Structura l A ssessm ents

Another MR MD ov ersigh t program is the P latform Structural ReassessmentP rogram. Since the 1 990s, al l of fshore platforms in State w aters hav e beenanalyzed to AP I RP 2A standards by the op erators using f inite element numericalmodeling programs and a non-l inear t ime-history analysis to determine w h etherthey w ould w i th stand a 1 00-year return per iod storm ev ent and a 1000 y ear

return per iod ear thquake. Th ese analyses h ave been independent ly ver i fied byMR MD staff engineers. As a result of the a nalyse s, structural streng the ningpro jects w ere under taken at many of the p lat forms. Since th e analyses, theunderw ater jacket structure of each p latform is inspected on a periodic basis asoutlined in API R P 2A guidel ines, and corrective measures implemented asrequired. Facility modification prop osals tha t involve ad dition or relocation ofmajor equipment on a platform, such th at deck loads may be signif icant lyincreased or redistributed, require analy sis and ve rification th at ex isting structureor addit ions to th e structure w ill w ith stand the new loading. In addition, all newdrill ing projects from offsho re platforms require a rigorous structural analysis and,if necessary, a com plete platform requali fication to ensure th at the structure w illw ith stand the ad ditional loads imposed by the p roject, and to require any

streng thening or maintenance needed to br ing the structure up to current codes.Verif ication of the se analy ses is performed by an MR MD staff civil engineer w ithexpertise in structural analysis.

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3. Spi ll & Safety R ecord

The re are inh erent risks involved w i th these operat ions. The MR MD’s h igh estpr iori ty is public h ealth a nd safety, an d env ironmental protect ion. Th e D iv ision’sprog rams, policies, and reg ulations, w h ich are discussed in th is report, andimplemented by and th rough staff inspection, program review s, and survei llance, alongw ith the cooperat ive atti tude and operat ional v ig i lance of the lessees, are adh ered toand str ict ly fol low ed. The se prog rams and coope rat ion ensure tha t the ex cellent recordof infrequen t oil spill occurrences a nd safety incidences w ill continue to be m inimized.

As noted earlier, ove r th e past 10 y ears approx imately 1 68 million barrels of oil (7billion gallons) hav e been produce d, treated and transported from State offshore leasesfrom an averag e of betw een 1,000 and 1,100 w ells.

On a ve rage, offsh ore oil spill incidences in state w akers from oil and g as drill ingand production operat ions occur at a frequency of less than 1 2 p er yea r, and accountfor less tha n h alf a barrel (+/- 21 g al lons) in total volume . Exce pt for one 5-barrel spi llthat occurred in the Long Beach Harbor th ree ye ars ago, spi lls tha t do occur arege nerally mea sured in drops or ounces.

Th e low volume a nd infrequent incidence of spi l ls is a testament to th ecomm itment and dedication to safety by o ur lessees, and the e ffectiven ess of th eCS LC’s safety and pollution prevention reg ulations and programs. How ever, th is doesnot mean, nor do w e mea n to imply , th at a serious spi ll could neve r hap pen from ourfacil it ies, but that both our lessees and staff ha ve remained v ig i lant and h elped ensurethat state operat ions h ave h ad no serious problems.

4. Update of Current Reg ulat ions

Most of the current CSLC reg ulations were adopted in 1 980 and developed as aresponse to the blow out of P latform A in Federal waters off Santa Barbara in 1 969.Th ey are st il l considered h igh ly effect ive. Ho w ev er, ov er t ime staff has, for clar ity and/orin response to leg islation or new information (usually from incidents on state or federalplatforms), added oth er requirements not spelled out in the current regulat ions byincluding new lease terms (for specific dril ling requ irements) or as a co ndition ofapprov al of dr il ling or faci l ity p rograms. S taff is current ly complet ing an update of th eseregulations, including a new Article specifically addressing facility safety audits. Once

completed, these new and updated regulat ions w ill be brough t for Commission approv aland then go through the codif icat ion process w ith the O ffice of Administrat ive Law(OAL). Staff w i ll also include a mendme nts as app licable based on th e ult imate f indingsfrom the invest igat ion of the Deepw ater incident in th e G ulf of Mex ico (as review edbelow ). Staff is also reviewing the current updates sugg ested for th e federalregulat ions, as w ell as the state’s Div ision of Oil, G as, and G eothermal R esource

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regulations in the O ffice of Administrative L aw review process (in response to AB 1 960legislation).Some h igh l igh ts of the update include the fol low ing:

¯ Th e "Definit ions" sect ion w ould be ex panded to clar ify m any of the terms used.

¯ Th e numbering system and h eadings w ould be revam ped for ease of use infinding specific regulations (i.e., more "user friendly ").

¯ G ood o il field practice definit ion w ould be ch ang ed to Be st oil field practice(relates to our BA T/BAP responsibility ).

¯ Ch ang ed Blow out prevention and control plan w ould state that i t must beapproved by staff prior to initializing drilling operations.

Cement Bond Survey s w ould be upgraded to state that survey is to be runbefore furth er dr i ll ing is commenced ( intermediate casing and below ) orw henev er the BOP E is removed f rom the w el l and that pressure is to be re lievedfrom the w el l w h i le survey is being run.

¯ Casing P ressure tests wo uld be chang ed to include positive an._ _~_ d static tests onintermediate and subsequent casing str ings.

A subsea blow out preve nter stack w ould be required to include an acoustic oroth er "tertiary" remote com munication device (in addit ion to "dead m an" and R OV"ho t tap"), and ram redunda ncy a nd/or use of "variable bore rams" added fordrill ing out intermediate and subseq uent casing string s.

¯ On subsea installations, alternating control pods on successive op erational testsw ould be chang ed from may be used to shall be used.

A new Article 3.7 w ould be added detailing th e Com mission’s safety auditprogram requirements.

The pipeline operat ion, maintenance and inspect ion sect ion w ould be ex pandedand requires tha t reports on inspection submitted by op erator must includew ritten ev aluat ions of test results, w ith support ing calculat ions th at confirm th epressure integ rity of the p ipeline and its suitability for continued service.

¯ Art icle 3.6 Operat ions Manual and Emergency P lanning sect ion w ould beupgraded.

¯ A new Art icle 3.8 w ould be added reg arding underground inject ion and disposalprojects.

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¯ All regulat ions, w h ether updated, added or otherw ise unch ang ed, would beadopted or readopted pursuant to P RC §8755.

5. Pre l im inary Assessm ent of CSLC R egulat ions In L ight of B r it ish P et ro leum ’s

(BP ) Gul f o f Mexico B lowout

The CSLC staff has c losely moni tored the BP blow out that occurred in the G ulf o fMex ico, particularly as it may relate to the reg ulations, prog rams and practices w h ichthe C SLC applies to offshore oi l production act iv i t ies in State w aters. Althoug h athorough federal investigat ion is current ly underway but not yet complete, there h asbeen some published information sug gest ing some of the contributing causes of th eblow out. MRMD staff has assessed th is information as to h ow the S tate’s offsh oreenvironment, safety programs and regulat ions compare to tho se implemented on theBP Deepw ater Hor izon wel l .

Offshore Environment:

Th e G ulf of Mexico incident occurred approx imately 5 0 miles from th e G ulf Coa stand at a w ater depth of approximately 5,000 feet. Th e oi l reservoir th at w aspenetrated, at a depth of around 1 3,000 feet below the sea f loor, contained oi l ata pressure of approximately 1 0,000 pounds per square inch . These are v eryextreme condit ions comp ared to Ca lifornia state w aters.

In the S tate of Cali fornia ope rat ions, the deep est w ater depths are sl igh t ly morethan 200 feet, and most oi l reservoirs are around 4,000 to 5,000 feet below thesea f loor. Oil reservoir pressures are low because th e f ields are ma ture (h avingproduced ove r many yea rs), and mo st w ells require ex ternal assistance to br ingthe o i l to the sur face ( the y cannot "f low " on the i r ow n) . W h i le th is does not meana blow out on a new w ell or in a new f ield could never occur, the r isk is great ly

reduced compared to the B P dr il ling env i ronment . Unfor tunate ly h ow ever , ourdril ling occurs closer to sh ore so a ny spi ll w ould almost certainly impact th eshoreline quickly.

Blowout P revention Equipment:BP ’s blowout preve ntion equipment (BOP E) did not close off the w ellbore as i t isdesigned to do, though the cause is presently unknown. Th e BOP E appeared tobe configured w ith the ne cessary redundancies tha t conform to industrystandards; h ow eve r, th ere is some indication that part of the redunda nt closingsystem w as leaking: Th is migh t a lso expla in w h y th e r ig w as unable todisconnect the r iser from the BO P E and mov e off the site to prevent theexplosion and destruct ion of th e v essel. I t has a lso been repor ted th at the twobackup sy stems did not function prope rly.

Th e State’s BOP E requirements also provide for redundancies in the BO P Edesign. O ur regulat ions require test ing of th is equipment at specif ic intervals andtha t testing is observed by State inspectors, and recorded in w ell reports.Addit ionally, the BO P E is on the surface (at the p latform level), not on th e sea

22



f loor (below th e "f loat ing" dr il ling r ig as w as the case on the BP w ell) . Thisaccess makes testing and ma intenance ea sier and safer.

W ell Casinq:Th e detai ls of the BP Deepw ater Hor izon casing design and the decisions madeby B P for th e design are st i ll under inve st ig at ion. I t is not know n w h at leve l oftechnical rev iew w as made by the reg ulat ing ag ency.

W ells in State w aters are designed to conform to the exp ected w ell conditions,and the design is reviewed by State engineers before the w ell programs areapprov ed for drill ing .

Cem entinq of Casing:Reports that BP ’s Deepw ater Horizon casing w as cemented improperly need tobe ver i f ied during th e ongo ing invest igat ion. W e do understand, h ow eve r, thatthe cem ent quality, quantity, and placement w ith in the w ell w ere not ver i fiedth rough the use of cement bond survey tools . Th is equipment is designed tover i fy w he re the cement h as been p laced around th e casing, how h igh thecement has r isen, and how adequate ly i t has adh ered to the w el l casing and thege ologic formation.

State regulat ions require a cement bond log survey to be performed in al l wel lcasings that are placed throug h the oi l bearing interval of the w ell to ensure th ata suff icient cem ent bond (and sh ield) h as bee n attained. I f not, staff requires th eoperator to do a "remedial" cementing to co rrect th e deficiencies.

Daily Reports:

W ith regard to dai ly dr i l ling reports, it is staff’s understanding th at the G ulf Coa stMinerals Manag ement Serv ice staff (recently renamed th e Bureau o f OceanEnergy Manag ement, Regulat ion, and Enforcement) received th ese reports on aweekl~L basis.

State reg ulation requires daily drill ing reports to be called or faxe d into MRMD forreview by an engineer on a daily basis during all drilling activity.

Staff also requires tha t any ch ang es to a casing, cementing, drilling, orproduction plan be approv ed by staff prior to th e operation. The operator must contactthe staff dril ling eng ineer, w h o in turn may contact the Ch ief Engineer and/or theDivision Ch ief, to review , discuss, and ag ree th at the modification affords equivalent or

h igh er engineering and safety, and conforms to our regulations and industry and localpractices.

Staff has ex amined al l reported problems and disasters ( like the BP blowout) tolearn ho w and w hy these problems occur . W e constant ly rev iew industry and academ icart icles and reports, and f inal reports from inquir ies as to the cause of ev ery major

23



problem and rev iew the findings ag ainst our current regulations, lease terms, andpolicies, in order to build th e safest and best prog rams in the industry.

B . Mar ine Term inal Spil l Prevention Program s (MFD )

1. Regulat ions

P ursuant to PRC §8755, CSLC h as completed the following reg ulations to provide thebest achievable protection of th e public h ealth and safety and of th e env ironment by usingthe best achievable technology :

Marine Facilities Oil Spill Preve ntion (permanent regulations effective 1 2/5/91 );

Article 5, Marine Terminal Inspection and Management Regulations (effective12/20/92);

= Article 5.3 , Marine Terminal P ersonnel Training and C ertification (effective 4 /9/94);

= Article 5, Enforcement A mendment (effective 4 /9/94);

¯ Article 5, Miscellaneous Amendm ents (effective 1 1 /7/94);

Article 5.5, Marine Term inal Oil Pipelines (effective 9/1/98, ame ndmen t effective3/4/07);

Article 5.1, Marine Terminal Ph ysical Security (effective 2 /24/03 );

Oil Transfer and Transportation Emission and Risk Reduction Act (effective

9/12 /02); and

CCR Title 24, Part 2 (CBC) Chapter 31F, "Marine Oil Terminals;" informally

referred to as "MOTEMS" (effective 2/6/06).

MFD h as an ongoing process to review and accordingly modify i ts rules andregulations, to ensure that all operators of marine terminals within the state’s jurisdictionprovide the best achieva ble protection of public health, safety, and the env ironment.

The MFD process for developing reg ulations is based upon review and analysis of:

(1) International and national industry standards and pra ctices (e.g., InternationalSafety G uide for Oil Tankers and Terminals (ISG OTT), International Maritime Org anization,Oil Companies International Marine Forum, American Society for Testing of Materials,

American P etroleum Institute);(2) Federal regulations (e.g., U .S. Coast G uard, Title 33 of the C ode of Federal

Reg ulations (CFR) P arts 15 4-15 6); and,

(3) Other states’ regulations (e.g., W ashing ton) and oth er Califomia agencyregulations (e.g., California State Fire Marshal and the Office of Spill Prevention and

24



Response).

Findings based on this analysis of worldwide practices, regulations, andtechnolog ies are th en rev iew ed for feasibili ty and practicality for California application, w iththe recomme ndations by Tech nical Advisory G roups (TAG s), composed ofrepresentatives of industry, go vernme nt, academia a nd environmental orga nizations. Staffthen dev elops proposed regulat ions that are review ed during an ex tensive p ubliccomment ph ase, that are frequently modified in response to comm ents received, that arethe n submitted to the C omm ission, and the n, if approv ed, submitted to the C alifornia Officeof Administrative Law (OAL) for evaluation of compliance w ith th e AdministrativeProcedures Act. A brief history of the development and revision of l~he MFD’sregulations is provided below :

[] Article 5 - Marine Terminals Inspection and Manag emen t

Th ese reg ulations built upon and improv ed th e initial Marine Fac ilit ies Oil SpillP revention regulations by adding: (1) International Safety G uide for Oil Tankersand Terminals (ISG OTT) recommendations; (2) more comp rehe nsiverequirements for the ex cha nge o f information betw een terminals andvessels/barge s; (3) pre-transfer conference requirements; (4) requirements for aDeclaration of Inspection (DOI); (5) new operations manual requirements; (6)preventive booming requirement at time of transfer; (7) requirement for tugs and AssistantMooring Masters at offshore terminals; and (8) enforcement procedures.

To rev iew CSLC’s recommended revisions for feasibility and practicality of application,staff convened a TAG . CSLC prepared draft regulations that w ent through threerounds of public comments (392 comments) and public hearings. Regulations werereview ed and passed by OAL on Nove mber 20, 1992 , and became effective onDecember 20, 1992.

[] Amendments to Article 5 - M arine Terminals Inspection and Manag ement

Amendments wh ich improved Article 5 in th e last review cycle included requirements for:(1) notification of structural or equipment damage at terminals; (2) prevention of electricalarcing at onshore terminals through use of insulating flange s or non-conducting h oses; (3)transfer of packaged cargo and v essel’s stores only after authorization by both persons incharge; (4) limitations on continuous hours of work for terminal personnel; (5) equipmenttesting and conditions per federal requirements; (6) National Fire P rotection Assodation’s

electrical hazardous area diagram to be provided at the terminal; (7) annual bathymetricsurvey s at offshore terminals; and (8) booming during ballasting and deballasting.

The se amendments w ere based on staff analysis and recommendationsdeveloped during th ree meet ings w i th a TAG , wh ich ended in May 1 993. TheTAG recomme ndations w ere th en developed into draft regulat ions that w ent

25



th rough a publ ic hear ing and comment process. Th ese amendments w ereapproved by the O AL on October 1994, and became effect ive Nov ember 7,1994.

[ ] Art icle 5.3 - Marine Terminal P ersonnel Training and C ert if icat ion (T & C)

Th e provisions of th is article w ere based on information tha t included: (1) C SLC-funded studies on h uman and o rganizational errors, conducted at the U niversity ofCalifornia, Berkeley; and (2) human factor studies completed by the State of

W ash ington in 1993 . These studies revealed that more th an 80% of o i l sp il ls atmarine terminals can be traced to hum an and org anizational errors.

Recom mendations, based in part on the abo ve studies, w ere review ed w ith aTAG , during three meet ings f rom M arch-May 1993. Draft regulations w eredeveloped by C SLC a nd w ent th rough two rounds of public h earings and public

comm ent periods. Th e regulat ions became effect ive Apri l 9, 1 994.

[] Article 5.5 - M arine Term inal Oil Pipe lines

Th ese provisions w ere created in response to the nee d for greater precision intest ing and m aintenance of marine oi l terminal pipel ines. U nlike th e federalreg ulations found in Title 49 , of th e C ode of Fed eral Reg ulations, Article 5.5addresses the peculiarit ies relative to the generally shorter lengths of pipelinesfound at marine terminals.

In w h at has become standard pract ice, a TAG w as convened to develop th eseregulat ions and th e regulatory packag e w as subjected to the established publicreview and comm ent period required by a dministrative statute and monitored bythe OAL.

MFD has wo rked closely w ith th e California State Fire Marsha l to identify the overlaps injurisdiction at marine terminals. Throug h an MOU , joint inspections h ave be en conducted atall subject marine terminals, and th e jurisdictional "lines of demarcation" hav e beenestablished in w riting. Th is cooperation h as resulted in increased regulatory oversigh t.

[] Article 5.1 - Marine Terminal Ph y sical Security

Following th e terrorist attacks of Septembe r 11 , 2001 , CSLC staff polled marine

terminal operators rega rding security me asures in place to protect terminalpersonnel and assets ag ainst terror ism. Ex cept for fencing and l igh t ing, stafffound few measures implemented to deal w ith potent ial terror ist eve nts. Beyondthe a pparen t public safety conce rns, a terrorist act aga inst a marine terminalcould also g ive rise to a substantial oil spill.

As in previous cases, the CS LC conve ned a TAG and developed new regulat ions

26



in concert with U .S. Coa st G uard, state f ire and police age ncies, and marineterminal representat ives. The ne w reg ulat ions included the e stablish ment ofsecurity plans for each terminal, as well as requiring marine terminal security

off icers to implement th e plan and up date i t as necessary. Th ese reg ulat ions,l ike othe rs previously created, w ere subjected to public comment and review .

[ ] Oil Transfer and Transportat ion E mission and Reduction (OTTER ) Act

Th e Ca lifornia Legislature found that a sign ificant amoun t of oil is shippe d by tankvessel betw een the Lo s Angeles and San Francisco areas. The Leg islaturefound th at one of th e results of vessel traff ic along the central coast and into th eports of the Los Ang eles and San Francisco areas is that tons of oxides ofnitrogen are em itted into the air each day , wh ich could negate efforts made onland to meet federal ozone standa rds and othe r public he alth air quality g oals.

Th e Leg islature declared that current, accessible and accurate data regarding oiltransportation is crit ical to determining th e poten tial env ironmen tal quality, publich ealth, and environmental justice consequences that must be analy zed by stateand local age ncies for env ironmental impa ct reports and statements, emerg encyresponse planning, permit issuance, and air quality mitigation efforts. A furtherf inding of the Leg islature w as tha t tracking trends of these o i l sh ipments isnecessary to promote p ublic safety, hea lth and w elfare, and to protect public andprivate property , w ildlife, marine fishe ries, oth er ocean resources, and the na turalenvironment in order to protect and to preserve the e cological balance ofCalifornia’s coastal zone, coastal w aters, and coastal econom y .

Th e OTTER Act required CSLC staff to collect air emissions data from ocea n

shipping companies transporting oil between the Los Angeles and San Franciscoareas. Th e OTTER Act further required emission reports to the L eg islature on orbefore April 1,2004 through April 1,2009. The OTTER Act expired on January1 , 201 0. Inasmuch as the O TTER A ct set forth the spe cific duties of th e StateLands Co mmission, no regulat ions w ere deve loped nor required pursuant to theAct.

[] California Building C ode, Ch apter 31 F - Marine Oil Terminal Eng ineering a ndMaintenance Standards (MOTEMS)

The MOTEMS hav e been in ef fect s ince 2006. Th ere w i ll be progressiveimplementation, and by 2 01 5, 30 fixed onsh ore marine oil terminals in California

w ill comply. Th ese mo stly g er iatric marine structures, current ly being used totransfer multi-mill ions of g allons of oil per day , will be tech nolog ically andph y sical ly upg raded to modern standards. Pr ior to th e MO TEMS these faci l it ies,most ov er 50 y ears of ag e (considered to be the life span of marine structures),h ad no required, uniform inspection prog ram, no rules for seismically up g radingthe terminals, and no de terminat ion of f itness for mooring and berth ing largervessels. Vessel sizes h ave prog ressively g row n since the 1 92 0’s, and most of

2 7



these terminals w ere designed for substant ially sma ller vessels, w ith smallerw ind sail areas and impact velocit ies. Mooring do lphins and berth ingsubstructures are not suff icient for mo oring/berth ing today ’s much larger sizef leet, coupled w ith new requirements for tank vessels to be double hul led. Theseismic design criteria from the 1 92 0’s, ev en up to the most recent terminal builtin the 1 980’s, needs to be re-evaluated, and soil failures, including liquefaction,lateral spreading , slope stability w ere not even con sidered in the o riginal designs.All of th ese factors contribute to serious deficiencies to continuing operations ofCalifornia’s marine oil terminals.

As a result of the t994 No rthr idge earthqua ke, th e Federal EmergencyManag ement Agency (FEMA) made avai lable Hazard Mit igat ion G rant P rogram(HMG P ) funds to develop standards to reduce the damag e to cr it icalinfrastructure faci li ties from th e nex t earthquake . The funding w as av ai lable tostate/local agencies that could sh ow that the efforts w ould result in enforceable

codes. MOTEMS w as star ted w i th a FEMA g rant of $600K that w as thenincreased to $900K, with th e additional funding from the O il Spill P reve ntionAdministration Fund.

As the project matured, additional research and funding w ent to provide tsunamirun-up values for the S an Francisco Bay (only S outhe rn Cali fornia wa s includedin the original MO TEMS ve rsion), passing ve ssel studies to determine addit ionalloads on moored v essels, and more recently simplif ied metho ds to determine th eseismic dema nd/capa city of pile supported structures. Th is final effort w ill becompleted by the end of 201 0.

This new MOTEMS code, now part of the Cali fornia Building Code (CCR Title 24,

P art 2, Volume 2 , Ch apter 31 F "Marine Oil Terminals"), requires compliance inthe fol low ing areas:

¯ Mandated periodic above and unde rw ater inspections, w ith recordsmaintained.

Geotechnical upgrades, to avoid massive liquefaction, lateralspreading and structural collapse.

Seismic rehabil itat ion, so that th e structures can surv ive a 475-y earreturn period earthquake, w ith repairable damag e w ith in months, andw ith out a major oi l spi ll . These sam e cr i ter ia hav e been applied to

Ca lifornia’s oil refineries; the intent is to h ave marine terminals be"ha rdened" to the sam e level as refineries.

¯ M ooring and berthing of vessels, using eng ineering tools to determ ineactual term inal operating lim its.

28



Upgrades in piping systems, to withstand seismic displacements thatw ere never considered in the or ig inal design.

A compreh ensive f ire plan, implemented to g reat ly reduce thepossibility of a major f ire/explosion at the terminal. Firefighting tools,manpo w er and resources must now conform to current standards foroil terminals.

[] Mech anical and electrical sy stems must be verif ied, upg raded andreplaced as necessary.

[] Tsunami run-up values for the P orts of Los Angeles, Long Beach , P ortHuenem e and the San Francisco Bay - to be used for emerge ncyplanning.

Th e MOTEMS is th e f irst code of th is type in the U nited States and ha s becomea internat ional seismic standard for piers/wh arves. I t is referenced in a P IANC(Maritime Na vig ation Comm ission of the International Nav igation Association)text, "Seismic Design G uidelines for P ort Structures", 2001, by the W orkingG roup No. 34 and in 2004 NEH RP (FEMA 450, National Earth quake HazardReduction Prog ram). MOTEMS is recognized as the seismic analysis/designresource for the U .S. military "U nified Facilities Criteria, Design: P iers andW h arves, 28 July 20 05." It has become pa rt of California’s SHMP (State HazardMitigat ion P lan) and has been integrated into th e C alifornia EmergencyManag ement Agency ’s (CalEMA) 201 0 revision to the state’s emergency

planning. Th rough th is program, one major mar ine o i l terminal has beenseismical ly instrumented in th e S.F. Bay . During an earthqua ke, th eseinstruments can determine i f the in-structure response w as g reater than th edesign capa city . It can be decided w h ether th is faci li ty a nd/or oth ers sho uld shutdow n for inspect ion above and below the w ater l ine, and i ts continuing f itness-for-purpose determined.

Cont ingency P lanning

Althoug h the Act g ives th e autho rity for approval of marine faci li ty cont ingencyplans to th e Office of Spil l P revention and Respo nse (OSP R), CSLC p articipatesin cont ingency p lanning. Mar ine terminal contingency p lans are rev iew ed by

CSL C-MFD for consistency w ith approved op erat ions manuals. The Actestablished the Rev iew Subcommittee of th e State Interagency Oil SpillCom mittee (SIOSC ). Th e Subcom mittee is made up of the ch ief exe cutives ofthe D epartment of Fish and G ame, the S tate Lands C ommission, the C aliforniaCoastal Commission, the State Fire Marshal, the State Oil and Gas Supervisor,and the State W ater Resources Control Board, and for matters in th eirjur isdict ion, the San Francisco Bay Conservat ion and D evelopment C ommission.

29



All reg ulations and g uidelines adop ted pursuant to the Act are submitted to thereview subcommittee for review and comment, including amendments to theCalifornia oil spill contingen cy plan.

CSL C staff attends the regular ly scheduled mee tings of the pol it ical ly appointedOil Spill Tech nical Adv isory Co mmittee. This comm ittee is establish ed to providepublic input and independent judgm ent of th e act ions of the OS P R and S IOSC.Staff also regular ly part icipates in the U .S. Coast G uard Area Contingency P lanmeetings.

3. Spi ll P revention Program s

As CSL C w as g iven new responsibilities and duties to prev ent oil spills into statew aters, it created th e MFD, consisting of administrative offices in Long Beach and field offices inHercules and Long Beach . MFD responsibilities include:

¯ Re g ularly inspecting a nd monitoring the o perations of all marine terminals;¯ Adopting rules and regulations for reviewing the location, performance standards,

and oth er ch aracteristics of all existing and propo sed marine terminals;

° Developing rules and regulations for the content of marine terminal OperationsManu als for protection ag ainst oil spills; and

¯ Ensuring the best ach ievable protection of the public health and safety an d themarine environment in the regulation of all marine oil terminals.

Th e MFD program w orks as a system to provide for the best achievable protection of publicsafety, he alth, and the environment. Reg ulations hav e been adopted for th e operations atmarine terminals. CSLC requires and approves operations manuals at all marine terminals.

A h igh ly ex perienced Marine Safety staff monitors compliance in the field, observing oiltransfers seven day s a w eek. Current Marine Safety staff has an averag e 3 1 years ofmaritime ex perience. Monitoring is prioritized using an algorithm relating to degree of risk sothe highest risk events are attended. Staff monitors all first time tank vessel visits toCalifornia. Marine facilities are routinely inspected, and terminals regulated by CSLC mustfollow up on deficiencies noted during inspections. If violations of other agencies’requirements are observed, those agencies are also notified.

The entire MFD compliance program relies heavily on information, including an up-to-date,extensive database of activities and compliance issues. MFD h as an outreach program w iththe industry and community, with a purpose of sharing know ledge of better performance,equipment, procedures and personnel qualifications. All the information and knowledgegained by the compliance and outreach programs are fed back into the regulatory cy cle. Asa result of this cycle, a number of new reg ulatory programs h ave been instituted by th eCSLC. Marine terminals h ave been required to increase the range of personnel withcertified training, both company (from ma nagement down) and contractor personnel.Pipeline testing and maintenance standards ha ve been greatly improved. Engineeringinspections of terminal fitness-for-purpose led to the creation of the MOTEMS by the CSLC

30



and its adoption by the California Building Standards Commission.

Th ere are 10 h igh seismic r isk, 1 6 moderate r isk and 4 low r isk f ixed onsh oreCa lifornia marine terminals. The seismic risk catego ry is based on th e vo lume of oil atr isk. To date, both "h igh " and "moderate" r isk terminals hav e submitted their init ial audits,w ith scheduled complet ion dates for rehabil itation ranging from now to four to f ive ye arsinto the future. The ope rator/ow ner and CSLC must mutually ag ree upon these dates.Staff wil l monitor the p rogress of reh abilitation, to verify tha t th e sch edules and repairsare on track. Of the 1 0 h igh r isk terminals, most w i ll require substant ial structural andge otech nical reh abilitation to meet th e seismic demand (475-y ear return periodearthquake) of the MOTEMS. The 16 "moderate" r isk terminals have similar issues,even though the seismic demand is less than that required for "high r isk" terminals.

G eotech nical issues invo lve liquefaction, lateral spreading and slope stability. One oth ercomm on problem is th at the piping sy stems and seismic displacement of th ew h arf/trest le are not com patible. This w as nev er considered in the or ig inal design, andto avo id a massive o il spil l, pipeline stress analy ses are now required to verify pipelineinteg rity d uring and after an earthquake.

U nderstanding th at, in a marine env ironment, structures continue to deteriorateove r time, th e MOTE MS proce ss w ill continue to monitor the structural and ope rationalhe alth of these terminals, with a udits required ev ery th ree to six y ears for the remaininglife of th e structures. W ith a predicted 50-ye ar ex pected life span of a ma rine structure,and th e MO TEMS prog ram in-place, geriatr ic structures wil l be able to extend th eirf itness-for-purpose w ell beyond the ir original design life.

Additionally, any n ew construction at a terminal w ill be subject to the MO TEMScode, and in mo st cases the construction w ill be subject to th e "new " criteria, instead ofbeing treated as "exist ing".

4. Effectiveness of MFD’S Oil Spill Prevention Program

Every day more than 91 m illion gallons of oil are transferred at the fifty California marine oilterminals. The marine terminals are either structures fixed to th e sh ore on w harv es or piers,moorings located offsho re, or mobile (truck/tank vessel) facilities. Transfers are the disch arge ofcargo by tank vessels-to-shore, or loading of cargo from sh ore-to-tank vessels. CSLC monitoringand inspection of compliance w ith reg ulations h as limited both the number and severity of oil spills atmarine facilities. The a nnual number of transfers at California terminals has rang ed from 6000 tomore than 7000 over th e past ten y ears, and our staff h as monitored 45 percent of those transfers.Oil spills have been limited to less than twenty in most years and the quantity of each spill is usuallyvery small, often measured in drops. Since 1995 th ere h ave only been tw o marine terminal spills ofmore than 1000 g allons. In 2009, in 6596 transfers totaling 3 3.3 billion g allons ofoil throug hCalifornia marine oil terminals, only nine spills resulting in a total of 1 24 ga llons spilled. Many o f thespills were caused by the visiting tank vessel or during maintenance. Of the nine spills, seven w ere

31



related to terminal activities and two w ere attributable to shipboard activities.

Th e positive impact of our oil spill prevention program is reflected in me following g raph s:

A m ount o f Oi l Transferred In Past 10 Years

3836

34

32

3O

28

26

24

22

20

~ 36.6

26.7 z:., ~ ~Billion Gallons

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

32



Num be r of Oi l Spil ls In Past 10 Years

40

35

36

27 28 ~

- - IL 1

1 9

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Number of Sp ills



C. Pipe line and Term inal Leasing Prog rams (LM D)

The Land Ma nage ment Div ision (LMD) h as pr imary responsibil ity for the surfacemanag ement o f al l sove reign and scho ol lands in California. Th is responsibil ity includesthe ide ntification, location, and eva luation of th e State’s interest in the se lands and itsleasing and mana gem ent. LMD is therefore responsible for the leasing of marine oi lterminals and many o f th e r igh ts-of-way that accomm odate petroleum pipel ines or othe rpipelines and cond uits linking offsh ore oil platforms to onsh ore facilit ies. LMD is alsoresponsible for the leasing of r igh ts-of-w ay for pipel ines crossing many bays and r iversth rough out the State.

The Land Manag ement Div ision coordinates w ith staff of the Mineral ResourcesManag ement Div ision (MR MD), the M arine Facilities Division (MFD), and the Division ofEnvironmental P lanning a nd Manag ement (DEPM ) to deve lop lease provisionsapplicable to the se type s of leases. At present, the leases for these uses contain the

following provisions addressing the use and maintenance of the lease premises and thesteps to be taken in case of an oil spill or discharg e:

¯ For new construct ion, a Lessee must provide plans for review and approva l byCS LC staff prior to construction, construction monitoring repo rts, and a set of as-built plans show ing the f inal locat ion of th e improvem ents;

¯ Eve ry L essee m ust maintain records of all inspection, repair, testing, andmaintenance activit ies and prov ide copies of th ose records to the C SLC staff;

¯ A Lessee m ust provide c opies of all pipeline test procedures, prior to testing, forCSL C staff’s review and approva l;

¯ Rev iew a nd approval by CSL C staff is required pr ior to any repairs ormodifications by the L essee to the pipeline and improv emen ts;

¯ Every Lessee must provide a copy of the current pipel ine operat ions andmaintenance manual and p rovide updates as they are avai lable;

¯ A Lesse e’s operator mu st conduct training classes an d periodic drills simulating apipeline leak and the procedures to be followed w he n a potent ial leak is detected;

Eve ry Lessee must provide a copy of the Hazardous Spill Contingency P lan oroth er such contingency plan that includes: response to various major and minorspill scenarios; list of spill clean-up m aterials and equ ipment av ailable onsite; anda spill notification protocol and procedures;

Notification requirements are spe cified in case of a spill, includ ing 24-houremergency ph one number;

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Information to be provided to C SLC staff in case o f a spill, regardless of thecause or responsible party, must include the follow ing:¯ The name and company of the person repor ting;[] The name and te leph one number of a representat ive of th e Lessee that

CS LC staff may co ntact for furth er information;[] Th e estimated time and date of the sp ill;[] Th e source of the spi ll , i f know n;¯ Th e person o r persons responsible for the spi l l, if know n;¯ Th e substance spi l led, i f know n;¯ Th e estimated quantity spilled;¯ Th e cause of the spi l l, if know n;[] Th e act ion taken in response to th e spi l l; and¯ Any additional information as may be requested by th e CS LC staff following

notification of a sp ill.

All plans for abandonme nt and/or remov al and restoration of the lease prem isesare to be to the sat isfaction of th e CS LC staff and are to be completed w ith in acertain time frame (90 day s is often used, but th is is neg otiable) after ex pirationof the lease or after the Lessee h as obtained all permits or other g overnmentalapprovals as required by law .

In addition to leases involving transportation of oil, LMD a lso leases sove reignland for use as comm ercial marinas. Many of these com mercial marinas ha ve fueldocks for th e dispensing of ga soline for boats. The leases for th e marinas w ith fueldocks incorporate many of the same p rovisions as the leases involving oil, particularlyw ith respect to a spi l l cont inge ncy plan. In addition to these provisions, the comme rcialmarina leases h ave a provision that the Lessee must implement Best Manage ment

P ractices (BMP s) for Marina Ow ners/Operators. Th ese BMP s address a range ofsubjects including: emergency planning, sew ag e disch arge, underw ater boat h ul lcleaning , solid wa ste, and storm w ater runoff . Three of the BM P s apply direct ly to oi land fuel spills; Marina Ow ners/Operators are required to do the follow ing:

P e t ro le u m M a n a g e m e n t

[] Instruct staff not to use de terg ents or em ulsifiers on a fue l or oil spill.¯ P ost emergency teleph one numbers posted in prominent locations at th e

marina to repo rt oil or che mical spills.¯ Install and us e of fuel/air sepa rators on air ve nts or tank stems of inboa rd

fuel tanks to reduce the amount o f fuel spi lled into surface w aters during

fueling (alth oug h th is is a recomm endation, rather tha n a requirement).¯ P rovide a collection site for used oily p ads and use d oil or provideinformation on h ow and w h ere to dispose of the m.

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Hazardous W astes

Have a marina pol icy to manag e ha zardous wastes and hazardousmaterials.P ost a proh ibition on th e disposal of used oil, antifreeze, paint, solvents,varnish es and batteries into the dum pster or gene ral collection w astereceptacles.I f providing for hazardous w aste col lect ion, manag e the w astes in a properfashion th roug h the u se of structural ly so und, non-leaking containers, inaccordance w ith all local, state and federal law s.In the e vent of a spi ll or leak, clean up and dispose of m ater ials promptlyand prop erly and report the spill to all appropriate entities.If operating a collection facility is not feasible, provide information totenants on how and w here to dispose the i r wastes.Encourag e the use of alternat ive products to h azardous ho useh oldch emicals. There are m any non-toxic or less-toxic products th at can beused as alternative s.

¯ Liquid W aste

¯ Train marina employ ees in oil spill response p rocedures.¯ Keep adequate spil l response equipment a nd materials in strategic

locations.

In ligh t of th e environmental damag e and economic impact caused by the BP oi lspill in the G ulf of Mex ico, LMD h as initiated a review of its lease practices andprovisions. For exam ple, in the pa st, the bo nd (surety ) and insurance am ounts on a

long- term lease may h ave rema ined unch ange d th rough the fu l l lease per iod. Suretyrequirements in surface leases for petroleum-related facil it ies in th e 1 970s and 1 980soften range d from $10,000 to $100,000, wh i le insurance w as often between $1,000,000and $3,000,000. In recent years, LMD staff has beg un review ing the bond a ndinsurance amounts during th e lease term for adequacy w h enev er th e opportunity ar ises(i.e. , applications for lease a mendm ents and assignme nts). Th e result has been thatmany of these leases h ave been updated to more current amounts, including suretylevels of $1 to $3 million and insurance of $5 to $10 mill ion, or even m ore depe nding o nthe facilit ies an d th e po tential for l iability.

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Rec ommenda t ions :

In addition to review ing its current insurance and bond requireme nts for adequa cy , th eDivision is considering the follow ing actions:

Add a provision to new leases allowing CSL C staff to review and adjustinsurance and bond amounts at f ive-year lease anniversaries;

¯ Add a provision to new leases allowing CSL C staff to review and approve o i l spi llcont ingency plans;

¯ Incorporate a provision that, w h enev er possible, old pipelines must be able to beretrofitted, modified, or reconstructed to allow smart pigg ing; and,

Rev iew and update al l provisions of the lease (particular ly those relat ing to oi l

spi ll prevention and response and bond and insurance requirements) w h en anydiscret ionary approval of th e C ommission is required, such a s w ith anamendment or assignment of the lease.

Toge ther w ith the oth er Div isions of the CS LC, LMD str ives to stay abreast ofch ang es in th e oi l and g as industry. By continuously updating and ada pting o ur leasepractices and prov isions, both th e Division and the C omm ission are better prepared torespond to an oil or fuel spill and p rotect valuable pu blic lands.

37



D . E n v iro n m e n ta l P l an n in g a n d M a n age m e n t P r o gr am (D E P M )

1 . Overview

The D iv ision of Environmental P lanning and M anag ement (DEPM) w asorganized in 1975 to ensure C ommission compliance w ith the p rovisions of theCalifornia Environmental Quality Act (CEQA ), and to prov ide analy tical staff services(policy a nd tech nical) to the m embe rs of th e Co mmission, to its Executive O fficer, andto the l ine prog rams, including th e Mineral Resources Manag ement Div ision (MRMD ),Marine Facilit ies Division (MFD), and Land M anag eme nt Division (LMD). W ith resp ectto oi l spil l preve ntion and system safety, DEP M funct ions include the follow ing:

¯ Ensure that potential environmental impacts associated with projects proposedby applicants for leases from the Comm ission (e.g. , oi l and ga s developmentprojects, marine oil terminals, rights-of-way that accommodate petroleumpipelines on State lands unde r the C omm ission’s jurisdiction, and m arine oil

terminal and oil pipeline abandonment projects) are reviewed and analyzed.Specif ical ly DEP M staff manages the preparat ion of Env ironmental ImpactRe ports (EIRs) design ed to provide current, accessible and accurate data relatedto proposed p rojects that are critical to analy ses of the p otential env ironmentalquali ty, public hea lth and safety , environmental just ice, and othe r impa cts.

¯ W h en significant impa cts are identif ied, eva luate feasible project alternative s,work with applicants to modify their project proposals and formulate mitigationstrategies to el iminate or reduce to the max imum ex tent feasible th e intensity ofthe impa cts and focus on the p rotection of sensitive resources.

¯ P rovide the public w ith the o pportunity to part icipate effect ively in all steps of th eenvironmental review process from notice about a pe nding project to the

identification o f potential environme ntal impacts, project alternatives, andmitigation measures.

¯ Co ordinate w ith othe r state, federal, local, and regional age ncies and the publicin the rev iew of oi l deve lopment and transportation projects th at may affect Statelands. Th ese en tities include:

o California C oastal Co mmission;

o Ca lifornia Department of Fish and G ame including its Office of SpillP revention and Response;

o California Natural Resources Agency;

o San Francisco Bay Conservat ion and Development Com mission;

o State W ater Resources Control Board and Regional W ater Quali ty C ontrolBoards;

o Bureau of Ocean Energy Management, Regulation, and Enforcement( formerly the Minerals Manag ement Se rv ice);

o National Marine Fisheries Service;

38



o U.S. Coast Guard;

o U .S. Environmental Protect ion Ag ency;

o U.S. Fish and W ildl ife Service;

o City of Go leta;

o Santa Barbara County Energy Division;

o Ventura County P lanning D iv ision; and

o Local and reg ional Air Po llution Control Districts and Air Qua lityManag ement Distr icts

¯ For projects approv ed by th e Com mission, conduct or oversee mitiga tionmonitoring activit ies to ensure th at the m itig ation measures and lease conditionsadopted by the Com mission to mit igate the potent ial environmental impacts of anapprov ed project are impleme nted and effective.

2. Ev a luat ion of Projects Invo lv ing O i l D eve lopm ent and/or Transportat ion

DEP M’s environmental scient ists evaluate complex projects, such a s offshore oi land g as deve lopment propo sals and marine oil terminals, to ensure compliance w ithCEQA, the National Environmental Policy Act (NEPA) if applicable, and other federaland state law s and reg ulations. For projects wh ere the Comm ission is the designatedCEQA Lead Ag ency, DEP M staff manages consultants contracted to prepareEIR’s/Environmental Impact Statements (EISs) and oth er env ironmental docum ents forlease applicat ions review ed by the C ommission, review the de tailed and complexmaterials provided for th e EIRs/EISs, and ov ersee compliance w ith the terms of EIRMitigat ion Monitor ing and R eport ing P rograms. W h ile lease neg otiat ions conducted byCSL C staff entai l only th e lands for wh ich Co mmission h as jur isdict ion, DEP M’s

environmental review is required by law to evaluate th e w h ole of each project (e.g. , th efull extent of a several-mile- long oi l pipel ine from sh ore to a n offshore platform locatedin federal wa ters).

Ty pically, DEP M staff determines that any project th at may result in an oi l spi llrequires the prep aration of an EIR, since the impacts of a spill wo uld potentially besignificant and unmitigable. On beh alf of th e C SLC , specif ic tasks undertaken by DEP Mstaff often include th e fol lowing .

¯ Rev iew project application materials, determine final acceptance of projectdescriptions and data requirements, and determine the level/type ofenvironmental documentat ion needed.

Represent the CS LC on Joint Review P anels or similar interagency groupscreated to fulf il l the a bove functions in th e preparat ion of EIR/EISs by the C SLC ,as a CEQA Lead Agency. (DEPM staff also participates in review panelsassociated w ith CEQA documents prepared by oth er Lead Ag encies, for w h ichthe C SLC serves as a Responsible and/or Trustee Ag ency under CEQ A.)

P repare a Statement of Interest and select a consultant from th e submittals.

39



Prepare a Notice of Preparation (NOP) and hold a public scoping meeting.

Meet w ith the Applicant and public interest groups.

P repare a public Draft EIR, and Final EIR. De velop significance cr iter ia, analyze

potent ial env ironmental impacts, identify and analyze project alternat ives, h oldaddit ional public h earings, and prepare responses to comm ents.

Determine final acceptance of consultants’ materials, as mo dified by DEP Mstaff ’s env ironmental scientists, for comp liance w ith ap plicable statutes andregulat ions. Determine f inal acceptance of products for public h earings and theCommission.

P repare a staff report and agenda item for Comm ission h earings, w ithrecomm ended actions such as ov erriding considerations, f indings, etc.

The CSL C is held accountable by the t ime frames mandated under CEQA andthe S tate Pe rmit Streamlining Act. The outcome is the t imely processing o f a leaseapplication culminating in th e consideration for approv al by the C omm issioners at apublic meeting w he reby act ion w ill be taken on the applicat ions.

The CSL C is current ly the C EQA Lead A gency on six marine oi l terminal leaserenew als and three proposed oi l development projects, and DEP M staff are alsoparticipating in the rev iew o f th ree oth er related projects w h ere the local jurisdictions arethe C EQA Lead Ag ency (see l ist of pro jects below).

W here CSLC is the CEQA Lead W here CSLC is a Responsib le o rAgency Trustee Ag ency

Oil and G as¯

Carone P etroleum Corporat ion -¯

Venoco Line 96 ModificationDevelopment Oil and G as Lease Project [Santa Barbara County]

and/or ¯ Venoco Full Field Dev elopment ¯ Venoco Paredon Project [city ofPipeline ¯ Venoco PRC-421 Carpinteria]Projects Recommissioning Project ¯ Venoco Montalvo W ells

[Ventura County]Marine ¯ Ch evron El Segundo MarineTerminal TerminalProjects ¯ Ch evron Long W harf Marine

Terminal Mitigation M onitoring¯ Nustar Selby Energy LP (Shore)

Marine Oil Terminal Lease

¯ Sh ell Martinez Marine Terminal¯ Tesoro Avon & Amorco W harfs¯ Venoco EIIwood Marine Terminal

Mitigation Monitoring

4O



After th e CS LC co nsiders the ap plication, and if the issuance o f a lease o r projectis approve d, DEP M staff and its contractors continue to monitor th e construction andimplementation of each a pprov ed project to ensure that all mitig ation measures arebeing met by the App licant.

3. Exam ples of Oi l Spil l-Re lated A nalyses and M it igat ion M easures

EIRs prepared by DEP M include an analy sis of Operational Safety/Risk ofAccidents for the project if applicable. For ex ample, in the A ugust 2 01 0 public Draft EIRfor th e proposed renew al of Ch evron’s El Segundo Marine Oil Terminal lease, th eProject EIR "describes and assesses the system safety, reliability, and hazardousmaterials associated with both current and proposed operations at the [MarineTerminal]. System sa fety an d reliability includes issues such as fires, ex plosions, and oiland product spi lls from th e Marine Terminal (both the o nsh ore port ion and the offsh orepipelines and berths) and from v essels that v isit th e Marine Terminal."

DEP M EIRs prepared for marine terminal lease renew als also:

Describe tho se aspects of the ex isting environment that may impact operationalsafety (e.g ., g eolog y , seismicity , soil, w ind, w av e, and potential sea-level riseconditions tha t directly or could pote ntially a ffect th e structural integ rity o f th eterminal or the v essels th at w ould use the terminal over the lease pe riod), or thatmay be affected by an accident associated w ith the o perat ion of the project,including transportat ion o f crude oi l and petroleum p roducts to and from th eterminal.

¯ Sum marize the ex isting v essel traff ic levels and patterns and othe r marine

terminals w ith in th e project area.

Sum marize the h istorical casualties involving tank v essels and marine terminalsw i th in the area.

Describe mea sures in place to al low the safe m oveme nt of marine vessels w ith inthe project area and to respond to emerg ency situat ions.

Apply modeling and prese nt modeling results to estimate the po tential effectsand ex tents (areas th at could be impacted) of h y poth etical oil spill scenarios.

¯ Sum marize the law s and reg ulations th at may affect the safety and potent ial r isk

from the facility and its operation.

¯ Analyze th e potent ial for impacts associated w ith the p roject and th e projectalternat ives, evaluate cumulat ive impacts from th e proposed project and otherprojects in th e reg ions, and present appropriate mitigation.

41



Approv ed mitig ation can include both structural improve ments and me asures toimprove response p lanning a nd reduce eve nt frequency and size. For example, in th eCh evron Long W har f Mar ine Terminal lease renewal , w h ich w as approved by theComm ission in March 2 007, the project EIR a nalyzed (among other potent ial impacts)

the p otential for spills, and the resp onse ca pab ility for containmen t of oil spills, from th eterminal during transfer operat ions. Mit iga t ion me asures approv ed by the Com missionfor this potentially significant impa ct included the follow ing:

O8-3b. Instal l tension-monitoring devices at Be rth 1 to monitor moo ring l ines an davoid excessive tension or slack conditions that could result in spills. An alarmsystem (visual and sou nd) that incorporates com mun ication to the control-building operator shall also be a part of the system. In a ddit ion, i f any vesse ldrifts (surge or sway) m ore than 7 feet from its norma l manifold or loading armposit ion at a ny other term inal berth, Chevron sh all instal l, within 6 mon ths afterthe incident, tension-mon itoring devices at su ch berth.

O8-3c. Instal l Al l ision Avoidance System (AAS ) at the terminal to preventdam age to the pier and/or vessel during docking operations. Prior toimplementing this measure, Chevron sha ll consult with the Sa n Francisco BarPilots, the U.S Coa st Guard, and the staff of the CSLC and provide informationthat would al low the CS LC to determ ine, on the basis of such consultations andinformation regarding the nature, extent and ad equacy o f the existing be rthingsystem, the mo st appropriate application and t iming of an AA S at the C hevronLong W harf.

OS-4. Ch evron sh al l confer with the Cali fornia State Lands Comm ission (CSL C)regarding G roup V oi l spi ll response technology including potent ial new responseequipment and techniques that may be appl icable for use at the Long W har f .Ch evron shal l work w i th the CS LC in apply ing these new technolog ies, as agreed

upon, if recommend ed for this facility.

O8-6b. Ch evron sh al l develop a set of procedures and conduct training and dri llsfor dealing w ith tank vessel f ires and ex plosions for tankers berthed at the LongW h ar f. The procedures sho uld inc lude the steps to fo llow in th e eve nt of a tankvessel f ire and describe h ow Ch evron and th e ve ssel wi l l coordinate act iv i t ies.Th e procedures sh all also identify oth er capabilities th at can be procured ifnecessary in th e eve nt of a major incident. Th e procedures sh al l be submitted tothe U .S. Coast G uard and California State Lands Commission w ith in 90 day s oflease renewal.

OS-Tb. Ch evron sh al l respond to any spi ll from a v essel travel ing to or from th e

w h ar f, moored at i ts w h ar f, re lated in any w ay to th e w h ar f, or carry ing carg oow ned by Ch evron, as i f i t w ere i ts ow n, witho ut assuming l iabi li ty, unt i l such t imeas the v essel ’s response organizat ion can take over manag ement of theresponse actions in a coordinated manner.

42



In many cases, the MOTEM S implemented by th e MFD h ave establishe drequirements for preventative m aintenance th at include periodic inspection of allcompone nts related to transfer operat ions. Ch evron is required to comply w ith thoserequirements. For potent ial impacts not addressed by th e MO TEMS , th e abov e

mea sures he lp to reduce the p otential for spills and th eir associated impa cts. How eve r,eve n after implementat ion of al l mitigat ion measures, the EIR concluded th at theimpacts associated w ith the consequences of large r spi lls, greater than 50 barrels wouldremain significant.

Oth er EIRs w ith oi l spi ll prevention and response compone nts th at w ere recentlyapproved by the C ommission or that are current ly being prepared or review ed by DE P Mstaff include the follow ing.

On June 1,2 009, the C ommission approved the renew al of an exist ing lease forVenoco’s Ellw ood Marine Terminal, w h ich is located in Santa Barbara County .At the t ime o f the lease renew al, th e barg ing operat ion transported produced oi l

in a single-hul led barge. As an e xa mple of reducing the r isk of an o i l spi ll , amit igat ion measure w as incorporated in the EIR and a pproved by theCom mission that requires Venoco to replace the single-hul led barge w ith adouble-hul led barge w ith in 18 month s of lease renew al to lessen th e r isk of an oilspill from potential hull penetration. A double-hulled barge (Olympic Spirit) iscurrently being approv ed for use at the marine terminal.

Th e Venoco Line 96 Modif icat ion P roject, wh ich is a new , proposed onshore oi lpipeline in Santa Barbara C ounty , if approve d and operational, wo uld eliminatethe barg ing operat ions at the Ve noco EIIw ood Marine Terminal. Rep lacing th eVenoco EIIwo od Marine Terminal w ith a n onsh ore oi l pipel ine w ould great lyreduce any oil spill impacts to th e marine env ironment since barging th e oil w illbe el iminated. CSLC staff is working w ith Santa Barbara Coun ty to he lp th ispro ject get approved and constructed and w ork w i th the C ounty dur ing thedecommissioning phase of the marine terminal.

Toge ther w ith th e other CSL C Div isions and in coordinat ion w ith o ther agencypartners, DEP M strives to (1 ) include in its CEQA documents all applicable, feasiblemea sures to prev ent oil spills from o ccurring or to m itig ate potential oil spill impacts tothe max imum ex tent feasible and (2) ensure that al l applicant-proposed measures andCEQ A-required Mitigation Measures are implemented for any a nd all approved projects.EIRs prepared by DEP M staff in the future w i ll also continue to provide modeled resultsof w orst-case oil spills and w ill briefly add ress the use of dispersants, dispersant use

protocols, and potential impacts in th e marine env ironment.

43



Chal lenges

As can be seen from the va r ied and g reat array of w ork done by staff , thecomplexity of faci li ties and adv ances in technolog y, and the unique expert ise required

for th e ag ency , th e abil ity to h ire, train, and keep know ledgeable and ex perienced staffis paramount to the staff ’s effect iven ess. Loss of staff throug h attr it ion (to h ig h er pay ingindustry positions) and rapidly increasing retirements h as left a stratified w orkforce andincreasing v acancy and loss of inst itutional knowledg e. Recent budg et cr ises and new saccounts regarding th e state w ork force (furlough s, lay -offs, and pay reduct ions) has noth elped the situat ion eith er. The abili ty to successfully address th e ch al leng es describedbelow , regarding staff ing , h ir ing , retent ion, and training, w i ll determine w h ether th eCom mission’s oil spill prev ention progra ms can maintain the h igh standards reflected inthis report.

A. Staff ing

1 . MR M D Inspec t ion P rogram St ruc tu re and Sta ff ing

Th e structure and staffing needs of th e MR MD’s Inspect ion P rogram requireupgrading to address the chang es in complexity and technological make up ofthe o perat ing systems on offshore platforms in State w aters.

Th e upg rades required are largely in the organizat ional structure of th e prog ram.A new h ierarchy of skills and responsibilit ies w ill need to be created tha t canprovide a full range of platform o versigh t functions and cap abili ties that w i ll al lowthe M RM D to more effect ively analyze inspect ion data, eva luate systemperformance a nd reliability, perform equipme nt and system function trends, andbetter assess and h elp predict failure occurrences.

Spe cifically , the Inspe ction org anizational structure needs to add skilled staff toperform th ese analyses. Special ist ski lled in equipment design, funct ion, anddata analysis are neede d to f il l the g ap th at presently ex ists in the org anizat ionbetween inspector and supervisor.

Adding a Specialist position to the prog ram w ill require reclassifying the Inspectorseries. Efforts in th is area hav e been attempted in th e past, with no successbecause of recurring State budg et crises.

The M RMD h as long recog nized the importance and need to upgrade th e

Inspector prog ram since its early formation as a surve illance and recordingfunction. Data and information taken from th e inspect ion process, ho w eve r,could not be fully ev aluated into the most me aningful form, so the benefi ts of theinspection we re only partially rea lized.

44



W ith a restructuring and reclassification of the Inspection position series,upg rades in salary w i ll also be required. Recruiting indiv iduals w ith the ski llscapable of assessing and eva luating the my riad of complex data requirescompeting w ith pr ivate industry. Th e pr ivate sector is th e only source of qualif ied

individuals for this type of work. They are highly paid, and in great demand. Atour present Inspector ser ies salary lev els, we are unable to attract th ese pe ople.Ev en h iring qualif ied Inspectors to fi ll vacan cies in th ose ranks is ve ry diff icultbecause of th e g reat discrepancy in salar ies for those ski lls. A salary surv eyconducted a few yea rs ago dem onstrated that salaries lagg ed those in equivalentpositions in other g overnment ag encies and pr ivate industry by as much as 30% .As our Inspector ranks become depleted throug h attri tion or movem ent to th eprivate sector, the abili ty to replace them w ill become extremely diff icult, to thepoint that the program capabili ties and object ives w ill be th reatened.

Th is situat ion is a very h igh pr ior ity need for the MR MD, and one that w i ll beeffectively resolved w ith th e full support of agency and Com mission

management.

2. MFD Staffing

Additional staffing is needed to accomm odate an increased scope of ove rsigh tfor marine terminal operat ions and eng ineering . Th ese include:

ao Tw o Eng ineering Inspector positions to monitor and enforcecompliance of all State marine terminals w ith the Marine OilTerminal Engineering a nd Maintenance Standards (MOTEM S). Inaddition to monitoring MOTE MS -driven construction projects, staffmust continue to track and asse ss MOTEM S audits, to beconducted ev ery th ree to s ix yea rs. Post-event inspect ions must beconducted after sign ificant, potentially dama g e-causing ev ents suchas earth quakes, storms, vessel impact, etc.

Three Special ists to establish and carry o ut Safety S ystems Auditsat marine terminals. Th e ope rat ions at th ese m arine terminals areph ysical ly co mplex, and include a sign ificant number of h umaninteract ions. Staff sh ould review closely h ow marine terminalow ners and manag ers are performing in identify ing sy stemic r isksbased on properly conducted r isk assessments. This w i ll provide abasis for determining th e adequa cy o f th e risk control measuresemployed at State marine terminals

45



B . Hiring & R etent ion

Salary compa ction and pay pa rity de ficiencies ha ve led to severe diff iculties inh iring and retaining q ualif ied individuals to fil l va cancies in all the va ried and multi-

discipl inary se ct ions of the Com mission. Few er and few er of the a pplicants are found tomeet th e minimum quali fications for th e posit ions. Eve n w h en found, successfulapplicants h ave declined job offers due to insuff icient salary and w e h ave lostemployees accepting industry jobs offer ing h igh er salar ies.

The cha l lenges expe rienced in the Inspector series discussed above h ave alsobeen ex perienced in the engineering ranks. Salary comp action disparit ies h ave resultedin eng ineering supe rvisors receiv ing less salary than the e ngineers they supervise. Theexam ination process produces few qualif ied ap plicants from outside th e ag ency, andfew successful applicants accept job offers, due to better pay oppo rtunities elsew h ere.As in the inspector ranks, several employees h ave left the Div ision to accept jobsoffering be tter pay in pr ivate industry.

Hiring and retent ion chal lenges hav e been ag gravated in the last few years by aw ave o f ret irements. Replacement of these posit ions h as come largely from w ith in.Besides the loss of talent, expertise, and institutional know ledge o f division h istory andinvolvem ent in operator projects, replacem ent of th ese positions by promo tion fromw ith in has reduce d the d epth of our resources. Additionally , strat if icat ion ofCommission personnel and experience, and more near term retirements ofmanag ement, w i ll inev itably reduce the inst itutional knowledge and t ra in ing . W h i le th eDivision actively p ursues qualif ied can didates to fi ll technical position vaca ncies tomaintain the ski ll leve ls and ex pert ise required by those posit ions, and to al low forsenior staff to pass on institutional know ledge , this situation seriously jeop ardizes theability of th e Co mmission to maintain an active an d critical role in all of the prog rams

discussed in this overview.

C. Training

Successful conduct of the above programs requires expert ise in a v ar iety ofspecialty disciplines, as w ell as exp erience and training in oilfield dril ling, production,offsh ore construct ion, and faci l ity inspection procedures. Maintaining currency w ith newdev elopme nts in these sp ecialty disciplines requires continuing e ducation, wh ich isprovided throug h industry training courses and professional society conferences andw orkshop s, many of w h ich are outside the S tate. Training budg et limitat ions andlimitations on th e num ber of out-of-state trips presen t severe o bstacles to providing staffadequate opp ortunity to receive th e information necessary to stay abreast of currenttechnolog y and dev elopments. In addit ion, ret irements and conseque nt replaceme ntsincrease the a moun t of training required for new staff to perform the ir duties.

46



D. Fund ing (OSPR )

Th e Oil Spill P reve ntion and Resp onse Act (Act) prov ided for th e collection of afee sufficient to carry o ut th e purposes of the A ct. Th e fee is imposed on o w ners of

petroleum received at m arine terminals from outside the state. Addit ionally, an op eratorof a pipeline pays th e fee for each barrel of crude oil originating from a p roductionfacility in marine w aters and transported via pipeline operating a cross, under, or throug hthe state marine w aters. These fees const i tute the Oil Spill Prev ention andAdministrat ion Fund (OSP AF). Current ly the Board o f Equalizat ion is col lecting $0.05per barrel. The fund is administered by the Administrator of the O ffice of Spil lP revent ion and Response (OSP R).

In FY 201 0/201 1, CSL C is budge ted for more th an $11 mill ion of th e more than$39 mil lion avai lable for appropriat ion. The OSP AF makes up 3 9% of the C SLCbudge t. Each y ear the leg islature appropriates funds for ag encies to carry out themandates of th e Act. Althoug h th e OSP AF ha s carried over a positive balance in past

ye ars, recent OSP R project ions show a def icit of over $3 m ill ion at the e nd of FY20 1 1 /201 2 if additional funding is not identif ied. Action, such a s raising th e per barrelfee, w ill be necess ary to av oid a deficit. Failure to act w ill likely result in reductions toboth CSLC and DFG’s programs.

47



Recommendat ions

o

Bonding. Add a provision to new leases al low ing CS LC staff to review and adjustinsurance and b ond am ounts every f ive to ten yea rs. Consider leg islat ion to

manda te adequate bo nding prov isions for oil and g as ma rine facil it ies in order tocove r al l the terms of the lease, including f inal abandonme nt. This is requiredbecause an inadequate aba ndonment, or non-abandonment, by insolventcompanies w ould not ensure that a lease be left in a safe and pollution freecondition.

Enforcement (Cease & De sist Auth ority) . Renew the e ffort f rom 2 000 forlegislat ion to g ive the Comm ission cease and de sist authori ty over op erat ions instate w aters (add to Oil Spill Act?)

Traininq in W ell Co ntrol. Redefine the requirement that our lessees provide, orensure tha t, eve ry dril ling crew , operator personnel, and contractors h ave

adequa te training in w ell control and be "certified" by pa rticipation in a minimum3-day course on w ell control every 4 y ears, and require a one-day refreshe rcourse eve ry y ear (that includes review of w ell control equipment, its use in w ellcontrol situations, and a kick control simulation (using a comp uter or test well).

Mitiga t ing Loss of Tech nical Expert ise and Insti tut ional Know ledge. . Meet thecha llenge s required to maintain th e know ledge and ex perience by h iringtechnical persons hav ing dr i ll ing and g eological expert ise, and ex pedite cross-training efforts of existing staff in all disciplines w ith direction and me ntoring bysenior staff with in 3 -5 yea rs of leaving state serv ice.

Update MRMD Dril l inq & Production Requlations. Update current regulations,

and re-adopt al l oth er Com mission reg ulations pursuant to P RC §8755, for oiland g as dr i ll ing and p roduction o n state lands. As detai led w ith in th is report, staffis currently com pleting an upda te of the C omm ission’s oil and g as drill ing andproduction reg ulations, including a new Article spe cifically addressing our facilitysafety audit prog ram, and plans to move tho se throug h th e Off ice ofAdministrative L aw (OAL) process in th e near future.

Resubm it Reclassif ication of the Mineral Resources Inspector Se ries to includethe Inspector Special ist posit ion and adjust th e pay scale by January 1 ,201 1 , tocreate a modern fully functional inspection prog ram structure.

Increase Marine Facilities Division staff to accommodate an increased scope ofoversigh t for marine terminal operat ions and engineering by requesting addit ionalstaf f th rough the budg et process.

Support le.qislation to increase the Oil Spill Prev ention and Administration Fundper barrel fee to provide additional funding for th e S tate’s oil spill preve ntionprograms.

48




BP DEEPWATER HORIZON OIL


SPILL

Attachment 26

Institute for Energy Research Testimony of Thomas Pyle



INSTITUTE FO~ENERGY RESEARCH

National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling

Testimony of Thomas Pyle

President, Institute for Energy Research

Washington, DCAug ust 25, 2010

Senator Graham, Mr. Reilly and Mem bers of the Comm ission:

Thank you for the op portunity to present testimon y today on the matter of offshore drilling andthe importance of dom estic energy production to our nation. By w ay of introduction, theInstitute for Energy Research (IER) is a not-for-profit organization that conducts intensiveresearch and analysis on the functions, operations, and governm ent regulation of global energy

markets. IER is a public foundation under Section 501 (c)(3) of the Internal Revenue Cod e and isfunded entirely by tax deductible contributions.

W e at IER are extremely concerned that in the wake of the BP D eepwater H orizon Oil Spill, thegovernment seem s poised to take actions which w ill only result in the furthering of the failedenergy policy that has characterized the United States approach for nearly four decades, resulting

in less energy at higher prices, fewer jobs, m ore imports and the loss o f the United States’position as the world leader in oil and gas techno logy. W e wish you luck in sifting through themyriad policies in place that affect the balance of interests in the offshore energy productiondiscussion and urge y ou to look deep er to gain a better understanding than is generally presentedin the public debate.

To place our energy policy failure in perspective, it is important to establish some irrefutablebaseline data concerning w hat has really been happening w ith the lands that belong to thosewho se lives and livelihoods depend up on the energy those lands hold. The failed energy policyof which I speak is the governm ent’s increasing unw illingness to allow access to Am erica’senormous en ergy resources.

Of the nation’s 1.76 billion acres of outer continental shelf lands, the governmen t has only 3% ofthe area leased; 97% of these taxpayer owned resources lie fallow. M ost Am ericans who wo rryabout paying their heating bills or buying gasoline for their cars would probably be su rprised tolearn that their government’s answer to our national energy problem has been the "3% solution."

That 3% includes the leased acreage in the Gulf of M exico, which, as you know , is under aSecretarial mo ratorium for exploration condu cted from floating rigs in deeper water, as well aswhat amou nts to a de facto permitting moratorium in the shallower waters (including theexploration which has been suspended in Alaska’s waters).

1100 H Street NW ¯ Suite 400 ¯ Washington, DC 20005 ¯ Phone 202.621.2950 ¯ F ax 202.637.2420

www.instituteforenergyresearch.org



This is directly contrary to som e of the rhetoric that surrounds gov ernment leasing decisions,especially by Interior Secretary Salazar. For exam ple, in January of 2 010, the JVe~ l’ I1ork Times

reported that the S ecretary said:

The previous adm inistration’s ’anywhere, anyhow ’ policy on oil and gas developm ent ran

afoul of com munities, carved up the landscape and fueled costly conflicts that createduncertainty for investors and industry," said M r. Salazar, a former sen ator from C olorado.W e need a fresh look -- from inside the federal government and from outside -- at howwe can better manage Americans’ energy resources.

W e at IER w ere surprised that the Secretary would contend that leasing took place "anywhere,anyhow" on the public lands under the previous Administration, as the Bush Administrationleased significantly less lands and waters for energy than the Clinton Administration before it.As y ou can see by the attached table from the Co ngressional Research Service (originalappended to testimony ), since the implem entation of the Ou ter Continental Shelf Lands LeasingAct of 19 78, the offer to lease lands for energy both offshore and onsho re has fallen dramatically

through successive Administrations. This has coincided with a steep drop in energy productionand a corresponding steep increase in oil imports.

Table 1. Federal Land Offered for Lease by Administration

1969-2008

Administration Offshore Acreage Onshore Acreage Total Acreage

Nixon/Ford (1969-1976) 18,645,676 n/a (see note below) n/a

Carter (1977-1980) 1 10,959,513 n/a n/a

Reagan (1981-1988) 652,490,269 n/a n/a

Bush (1989-1992) 2 259,554,410 36,651,813 296,206,223

Clinton (1993-2000) 420,277,357 46,427,365 3 466,704,722

Bush (2001-2008) 403,953,986 31,488,455 435,442,441

At IER , we believe that if the Secretary of Interior- the manage r of our nation’s 2.4 billion acrefederal energy mineral estate - is so uninfonmed abo ut his own D epartment’s record that hewou ld conclude that leasing was increasing wh en it was actually decreasing, his involvement indecision making about energy leasing requires serious review. That is why we welcome theopportunity your service on the Com mission affords you to set the record straight, particularly asit pertains to the fundamentals and history of leasing policies in the United States.

W e also believe that the public has been misled into believing that the United States does nothold sufficient energy resources to supply our need s. For exam ple, the JVew )’ork Times reportedthat President Obama said "W e consum e mo re than 20 percent of the world’s oil, but have lessthan 2 percent of the world’s oil reserves" despite a ~ by the Co ngressional Research

~ OCSLA was passed under President Carter, implementation began under President Reagan2 President George HW Bush served a 4 year term

a O nshore leasing acreage offered under President Bill Clinton was fully 50% more than under President G eorge W.

Bush



Service in 2009 that found the US has eight times as much recoverable oil as the 2 percentcounted by the president~ven without the inclusion of the largest-in-the-world oil shaledeposits in the United States (relevant graph append ed). The report concluded that the UnitedStates’ actual fossil fuel endow men t rivals that of any nation in the w orld, but for thegovernment policies that preclude the production and use of this resource.

OCS Moratorium

IER b elieves that the moratorium im posed by S ecretary Salazar was ill-considered, counter-productive and should be imm ediately repealed. From the beginning, when the engineers andexperts emp owered to review offshore drilling by the S ecretary publicly disagreed with the lastminute inclusion o f a m oratorium in their report, it was apparent that the "heat of the po liticalmo men t" seemed to outweigh all the expert advice concerning the ban on exploration in the Gu lf(which was extended to A laska). This was confirmed by F ederal Judge Martin Feldman, who inhis decision imm ediately prohibiting the governmen t from enforcing the moratorium , said, "Theblanket moratorium , with no parameters, seems to assum e that because one rig failed andalthough no one yet fully know s why , all com panies and rigs drilling new w ells over 500 feetalso universally present an imminent danger."

It is becoming clear that despite the judge’s ruling and the u pholding of that decision by theAppeals C ou1% Secretary Salazar continues to p ursue a p olitical, rather than properly legal,approach to the matter of the moratorium. H is imposition of a separate but equally damagingmoratorium to skirt federal law continues to reverberate thi’oughout the region, denying w orkingmen and wo men the jobs they so desperately want and need at a time of record nationaljoblessness. The disclosure in the l,~lll S1reet .]Om ’~al that the Secretm2¢ chose a m oratoriumover other options recommended to him by his Department in full knowledge that it could cost23,000 jobs on ly adds to the body o f evidence that suggests that stopping energy explorationoffshore became S ecretary Salazar’s Raison d’etre in the wake of the understandable publicconcern during the spill.

How ever, even the Department seem s to have understated the potential impacts the moratoriumhas had on the people and businesses of the region who supply almo st 1/3 of our domesticproduction of oil . According to the Louisiana M id-Continent Oil and Gas A ssociation, almost80% of the oil produced in the Gulf comes from wells in the deeper waters. They estimate thatthe costs of the exploration suspension range from between $8.25 m illion and $1 6.5 million perday in rig costs, $1 million per day in costs for support boats and $165 to $330 m illion per month

in lost wages for all 33 deepw ater rigs.

W e at IER believe the Secretary has a higher d uty than politics, including ensuring that hisactions do worsen the lives of those residents of the Gulf region already facing difficult times asa result of the oil spill. As has been reported, Louisiana G overno r Bobby Jind al and others havestipulated that the ongoing econom ic devastation of the spill may be surpassed by the imp acts ofthe m oratorium and the slowed perm itting for activities relating to offshore developm ent in theGulf.



The Secretary also has a responsibility to foster our national energy security. To date, his

performance in that venue has been seriously deficient. While we do not know, it is easy to

surmise that the foundation of his deficiency in this area stems in part from his gross

misunderstanding of the state of our nation’s leasing and energy production history, as

previously discussed.

We would hope that the Commission would review not only the moratorium on activities in the

Gulf and Alaska, but also the history of permitting that has taken place in the shallower waters

since the spill. In addition to those rigs idled because of the moratorium and all the appurtenant

jobs directly and indirectly affected, those who operate in the shallower waters have also been

severely impacted because the pace of drilling permits has been significantly slowed. As of

August 18, 30% of the jackup rigs in the shallow waters have been idled and the operators have

estimated that if no new permits are offered by the end of September, 63% of the rigs will be

idled.

This de facto moratorium is especially worrisome because the record of drilling in the shallowerwaters of the Gulf of M exico is extraordinary. For exam ple, since 1949, 46,011 w ells have beendrilled in waters less than 1,000 feet in depth; during the last 15 years, 1,070 wells have b eendrilled. Clearly, the experts, engineers and men and women of the Gulf know, how to drill wellsin shallow w aters with little or no impac t to the marine environ men t. In fact, in the last 15 years,a m ere 15 barrels of oil have spilled in those areas.

Given that record, there is no apparent reason for the slowdow n in the processing of perm its inthe shallow waters. W e are very concerned that this de facto moratorium raises the likelihoodthat even if the moratorium for the deep er waters was lifted, the Department of Interior and other

agencies cou ld effectively stop activity in those wa ters, as well. The bluep rint has already beentested for this evasive tactic in the shallower waters.

In closing, we hope the Commission will look deeply into the US record of leasing and energy

production, bearing in mind that energy is, quite literally, "the capacity to do work." Our nation

needs more work. It needs more affordable energy to do that work. Please do what is in your

power to free Americans to produce the energy that we have in abundance, but that is not

produced due to a failed national energy policy that seems focused on politics, not producing

energy. Thank you.

Attachments:

Congressional Research SelMce:¯ Federal Lands Offered for Lease Since 1969 by Administration¯ Graph of CRS findings re US recoverable oil supplies



CongressionalResearchService

MEMORANDUM

To: House C omm ittee on Natural Resources

From: Marc Humphries

Subject: Federal Lands Offered for Lease Since 1969 by Administration

January l4,2009

This m emorandum is in response to your request for information on the am ount of federal lands offered

for lease by various Administrations (President Richard Nixon through President George W. Bush). Thetable below provides offshore and onshore data by Adm inistration. The Bureau of Land M anagement(BLM ) does not have data for onshore acreage offered for lease prior to 1988, according to BLM M ineralLeasing Specialist Gregory Shoop.

I hope this information m eets your needs. If you have any further questions, please give m e a call at

extension 7-7264.

Table 1. Federal Land Offered for Lease by Ad ministration

1969-2008

Administration Offshore Acreage Onshore Acreage Total Acreage

Nixon/Ford (1969- n/a (see note

1976) 18 ,645,676 below) n/a

Carter (1977-1980)

10,959,513 n/a n/a

Reagan (1981-

1988) 652,490,269 n/a n/a

Bush (1989-1992) 259,554,410 36,651,813 296,206,223

Clinton (1993-2000) 420,277,357 46,427,365 466,704,722

Bush (2001-

2008) 403,953,986 31,488,455 435,442,441

Source: M inerals M anagement Service(offshore data). Bureau of Land Management (onshore data)

Note: n/a - not available

Congressional Research Service 7-5700 www. crs.gov






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