[Senate Hearing 111-1071] [From the U.S. Government Publishing Office] S. Hrg. 111-1071 THE GULF OF MEXICO OIL SPILL: ENSURING A FINANCIALLY RESPONSIBLE RECOVERY PART I AND II ======================================================================= HEARINGS before the FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY SUBCOMMITTEE of the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE of the ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION __________ JUNE 16 AND JULY 22, 2010 __________ Available via the World Wide Web: http://www.fdsys.gov Printed for the use of the Committee on Homeland Security and Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 58-035 WASHINGTON : 2011 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected]. COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS JOSEPH I. LIEBERMAN, Connecticut, Chairman CARL LEVIN, Michigan SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona MARY L. LANDRIEU, Louisiana GEORGE V. VOINOVICH, Ohio CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada JON TESTER, Montana LINDSEY GRAHAM, South Carolina ROLAND W. BURRIS, Illinois EDWARD E. KAUFMAN, Delaware Michael L. Alexander, Staff Director Brandon L. Milhorn, Minority Staff Director and Chief Counsel Trina Driessnack Tyrer, Chief Clerk Patricia R. Hogan, Publications Clerk and GPO Detailee ------ SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY THOMAS R. CARPER, Delaware, Chairman CARL LEVIN, Michigan JOHN McCAIN, Arizona DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma MARK L. PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio CLAIRE McCASKILL, Missouri JOHN ENSIGN, Nevada ROLAND W. BURRIS, Illinois John Kilvington, Staff Director Bryan Parker, Staff Director and General Counsel to the Minority Deirdre G. Armstrong, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Carper............................................... 1, 35 Senator McCain............................................... 3 Prepared statements: Senator Carper...............................................61, 66 Senator McCain...............................................64, 68 WITNESSES Wednesday, June 16, 2010 Hon. Frank R. Lautenberg, a U.S. Senator from the State of New Jersey......................................................... 4 Darryl Willis, Vice President for Resources, BP America, Inc..... 6 Steven Newman, Chief Executive Officer, Transocean Ltd........... 8 Craig Bennett, Director, National Pollution Funds Center, U.S. Coast Guard.................................................... 11 Susan A. Fleming, Director, Physical Infrastructure, U.S. Government Accountability Office............................... 12 Thursday, July 22, 2010 Kenneth R. Feinberg, Administrator, Gulf Coast Claims Facility... 37 James T. Hackett, Presdient and Chief Executive Officer, Anadarko Peteroleum Corporation......................................... 38 Naoki Ishii, President, MOEX Offshore 2007 LLC, accompanied by Fujiko Sato, Interpreter....................................... 39 Alphabetical List of Witnesses Bennett, Craig: Testimony.................................................... 11 Prepared statement........................................... 83 Feinberg, Kenneth R.: Testimony.................................................... 37 Prepared statement........................................... 115 Fleming, Susan A.: Testimony.................................................... 12 Prepared statement........................................... 90 Hackett, James T.: Testimony.................................................... 38 Prepared statement........................................... 117 Ishii, Naoki: Testimony.................................................... 39 Prepared statement........................................... 120 Lautenberg, Hon. Frank R.: Testimony.................................................... 4 Prepared statement........................................... 70 Newman, Steven: Testimony.................................................... 8 Prepared statement........................................... 78 Willis, Darryl: Testimony.................................................... 6 Prepared statement........................................... 72 APPENDIX Notes requested by Senator Tester appears in the appendix on page 122 James W. Ferguson, Sr. Vice President and Deputy General Counsel, Halliburton, prepared statement for June 16, 2010 hearing...... 123 Responses to Senator Carper's letter of June 10, 2010 from David C. Nagel, Executive Vice President, BP America Inc., with attachments.................................................... 126 Questions and responses from the Congressional Research Service (CRS) for the June 16, 2010 hearing............................ 149 THE GULF OF MEXICO OIL SPILL: ENSURING A FINANCIALLY RESPONSIBLE RECOVERY--PART I ---------- WEDNESDAY, JUNE 16, 2010 U.S. Senate, Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, of the Committee on Homeland Security and Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 3:31 p.m., in room SD-342, Dirksen Senate Office Building, Hon. Thomas R. Carper, Chairman of the Subcommittee, presiding. Present: Senators Carper, McCaskill, and McCain. Also Present: Senator Pryor, McCaskill, and Tester. OPENING STATEMENT OF SENATOR CARPER Senator Carper. The Subcommittee will come to order. I want to welcome our colleague, Senator Frank Lautenberg from New Jersey, my neighbor across the Delaware River. Before I call on him as the first witness to address us on the first panel, I would like to give an opening statement, and once we are joined by other colleagues, if Senator McCain joins us before I recognize Senator Lautenberg, Senator McCain will be asked to give his opening statement. I will then call on Senator Lautenberg, and then as other Members of our Subcommittee show up, if they show up before our second panel, they will have an opportunity to give opening statements. Otherwise, they can submit their statements for the record. Welcome, one and all. For 58 days, the American people have watched a tragedy unfold in slow motion before our eyes. It was nearly 2 months ago when we first heard the horrific news of an explosion on an oil rig in the Gulf of Mexico and the loss of 11 American citizens. While today we will be discussing the financial costs of the oil spill to the American taxpayers, there is no value that one can place on the tremendous loss of human life in this catastrophe. These were sons, these were brothers, these were husbands and fathers, and for those who they left behind, my colleagues and I extend our most sincere and heartfelt prayers. While there is nothing we can do, unfortunately, to bring back these men to their families and friends who love them, we can make sure that the communities and industries that they helped to build survive and again thrive. As we all know, the coasts and wetlands, the bogs and fisheries of much of the Gulf have sustained enormous damages. These vital natural resources are the lifeblood of an economy and a way of life. They are national treasures that must be protected, and we will demand that they be fixed, if you will, by those who broke them. Today this Subcommittee will explore how we can ensure that America is made whole again without putting a hole in our pockets. From the beginning, President Obama and senior members of his Administration took this disaster seriously, as they should. The White House deployed Cabinet members to help manage the response, dispatched the Coast Guard and in some cases the National Guard, and brought together stakeholders and industry experts in an ongoing effort to get the damaged well plugged as quickly as possible and to coordinate the clean-up response. As I like to say, however, if it is not perfect, let us make it better. And it is clear that there is more that the Federal Government can do to make things right in the Gulf. There is also more that BP and others can do as well. I hope today that we will gain a better understanding of how much the BP Deepwater Horizon oil spill has cost and may continue to cost American taxpayers and how we intend to recover the money from those responsible for this disaster. Earlier today, the President and BP officials announced the establishment of a $20 billion independent trust fund to ensure that BP continues to pay claims in the future as they have to date. This is something that my colleagues and I called for, and I look forward to exploring how such a fund might work today at this hearing. It is clear that the financial mechanisms we have in place, including the Oil Spill Liability Trust Fund, were simply not designed to handle something of this magnitude. I look forward to hearing from the Government Accountability Office (GAO), about the risks and vulnerabilities of the trust fund that they have found in the past and how this spill encompasses a perfect storm of factors that will easily make it the most expensive ever. In addition to the enormous financial burden the spill has placed on citizens and businesses in the Gulf, the Federal Government has been incurring costs in other government units, too. To date, over $120 million has been spent by the Federal Government on ships and personnel to respond to this incident, and much of it has been billed to BP and the other responsible parties. This past Friday, I understand that BP wired their second payment of over $69 million to the Federal Government. I also understand that the Coast Guard will be sending their third bill--this one for roughly $50 million--to BP and to the other responsible parties perhaps even today. I am sure that American taxpayers appreciate BP's prompt notice and payment, and I hope we will continue to see similar responses as those costs mount. While we have seen several checks from BP and others, I hope to find out today how the other responsible parties view themselves--and one another--when it comes to paying for this disaster. We are pleased to see Mr. Newman of Transocean here today. I understand he has come all the way from Geneva, Switzerland, and we are grateful. I look forward to hearing about how he views Transocean's role in these ongoing efforts. We also invited Anadarko Petroleum to today's hearing, which owns a 25-percent stake in the Gulf well, and MOEX Offshore, which owns, I believe, a 10-percent stake in the well. Their names are also on the bill from the Federal Government. Unfortunately, they declined to send witnesses today. I am disappointed that they chose not to attend. It was my hope to have all the responsible parties at our table. We hope that they can find some time in the very near future to come to discuss these issues with us and with the American people. The hole we are trying to plug is, as you know, some 5,000 feet under the surface of the water, but men and women whose livelihoods and communities have been disrupted by this disaster live in many cases right down the street. Surely we can do a better job of protecting not only the Gulf, but our entire Nation from the costs and impacts of this spill. The spill has now lasted, as I said earlier, 58 days-- nearly 3 weeks longer than it rained during Noah's flood in the Book of Genesis. If the story of Noah tells us anything, it tells us that with faith, a dedication to do what is right, and hard work, we too will find something akin to a rainbow at the end of this calamity. I do not know that we will find a rainbow, but my hope is that at the end of the day we will find the end, and my hope is that at the end of the day this sad chapter in our Nation's history will somehow serve as a catalyst to convince us to change course as a Nation and to focus our energy maybe less on recovering petroleum and more on finding ways to become independent of petroleum, independent of foreign oil, independent of fossil fuels, to make ourselves more energy independent and enhance our security and maybe launch a whole new generation of technologies and innovations in business that will enable us to build a different kind of economy for our country as we go forward. We have been joined by our Ranking Member, Senator McCain. Senator, you are recognized, and after you have spoken, we will turn to Senator Lautenberg for his comments, and then we will recognize others on our Subcommittee. Thank you all for joining us. OPENING STATEMENT OF SENATOR MCCAIN Senator McCain. Well, thank you, Mr. Chairman, and thank you for holding this hearing today. I do not need to repeat how outraged and saddened all of us are by the Deepwater Horizon rig explosion that killed 11 people and spewed millions of gallons of oil into the Gulf of Mexico. I think every American is aware of that situation now and the catastrophe. As of June 14, BP estimated that the cost of the oil spill had reached $1.6 billion, including the cost of the spill response, containment, relief well drilling, grants to Gulf States, claims paid, and Federal costs. The company's CEO, Tony Hayward, has publicly assured the Federal Government and the American people that BP will fully meet its obligations from the spill and pay all legitimate claims even if aggregate claims exceed the $75 million legal liability limit. Despite the government's unfortunate response at the outset of the oil spill, it has incurred substantial costs in recovery and response operations. Since the explosion, the Federal Government has sent two invoices totaling nearly $71 million for reimbursement to responsible parties. Another invoice of approximately $50 million is expected to be issued imminently. The disaster should provide many lessons for all of us, including the Administration and Congress, including a reminder that the Jones Act should be repealed. Within a week of the explosion, 13 countries, including several European nations, offered assistance from vessels and crews with experience in removing oil spill debris. However, the Jones Act, a protectionist law enacted in the 1920s, prevents foreign- flagged vessels from operating and transporting merchandise between points abroad and the United States. The Administration may grant a waiver to any vessel, just as the previous Administration did during Hurricane Katrina so the international community could assist in recovery efforts. But they have not done so. There are other concerns. For example, U.S. Attorney General Eric Holder also made an unprecedented announcement 2 weeks ago that the Department of Justice (DOJ) has opened criminal and civil investigations on the Gulf of Mexico oil spill. However, if a civil settlement results from the investigations, the settlement charges may receive favorable tax treatment depending on how the settlement is drafted. Effectively, the Federal Government and the American taxpayers could indirectly pick up a portion of the tab for the responsible parties' mess. Obviously, that is unacceptable. BP failed to prevent this catastrophic disaster from occurring while the Minerals Management Service failed to exercise robust enforcement of safety standards. We cannot allow the cost of their failures to be placed on the backs of American taxpayers. I am pleased--and I think you may have noted, Mr. Chairman, a recent wire story, ``BP OKs $20 billion escrow fund.'' That is certainly a step in the right direction. I thank you, Mr. Chairman. I thank you for holding this hearing. Senator Carper. I am delighted that we could be here together, Senator McCain. Let me turn to our first witness, our colleague from New Jersey, someone who serves on the Environment and Public Works Committee, a senior member, and we are delighted to welcome him here today for his comments. Then we will turn to our other colleagues for their opening statements. Senator Lautenberg, please proceed. TESTIMONY OF THE HON. FRANK R. LAUTENBERG,\1\ A U.S. SENATOR FROM THE STATE OF NEW JERSEY Senator Lautenberg. Thanks, Mr. Chairman and Senator McCain. I join you to express my condolences to those families who lost loved ones in this horrendous catastrophe, and I thank you for giving me the opportunity to appear before the Subcommittee on this critical issue. --------------------------------------------------------------------------- \1\ The prepared statement of Senator Lautenberg appears in the Appendix on page 70. --------------------------------------------------------------------------- Last night, the President spoke to the country, and he could not have been clearer. The needs of Gulf families, fishermen, business owners, must not and will not take a back seat to BP's bottom line. That is why I am pleased that earlier today President Obama secured an agreement for BP to put $20 billion into an escrow account to pay for the damage from the spill and to remove BP from deciding which claims are valid. I commend the President for his strong leadership on this disaster, and I know he is determined to do everything in his power to hold BP accountable. The behavior of this company and its executives could not be more reprehensible. Their greed led them in the first place to gamble with the lives of workers on a rig, the marine life in the Gulf, and the economy and culture of the entire region. And when the inevitable happened and the Deepwater Horizon exploded, burned, and sank, BP's leaders downplayed the true size of the spill, and we learned that they lied about their ability to contain it. Mr. Chairman, we have seen this kind of catastrophe before. It has been more than 20 years since the Exxon Valdez went aground, and oil is still contaminating the soil there. Now, I was in Alaska within 3 days of the Exxon Valdez crash, and I saw the destruction caused by that oil spill firsthand. When the press coverage was intense, Exxon issued a string of apologies. It promised to do the right thing by the communities, and it vowed to make sure that the way of life these Alaskans knew would resume. But as soon as the cameras were turned off, Exxon changed its tune, and it fought the communities, the families, and the fishermen over every penny. Instead of making those victims whole, Exxon chose to make its lawyer rich. Exxon drew things out for years and knocked down a punitive damage claim from $5 billion to $500 million, and we cannot let history repeat itself. And every 4 days--we are just reminded that the spill the size of the Exxon Valdez spill occurs every day--every 4 days. Every 4 days we are witnessing the size of a spill that took place at Exxon Valdez. And that is why I proposed an amendment to last month's emergency supplemental bill to make it clear that companies responsible for the oil spill must reimburse the American taxpayer for every dollar the government spends on clean-up. And while the amendment was not considered on the floor, the Administration made it clear that BP will pay the bill. Americans are fed up with hollow words and false assurances and broken promises, and that is why we also must pass legislation to eliminate a measly $75 million liability cap on monetary damages from these spills. Big oil, with enormous profits every month, can afford to pay for their recklessness. I want to thank you, Mr. Chairman, and the rest of the Subcommittee for inviting me to speak today and, more importantly, for holding this critical hearing. I hope that we are going to hear honest and candid answers from BP and the other executives about how they are going to live up to their obligations. Thank you again, Mr. Chairman. Senator Carper. Senator Lautenberg, thank you. Thanks for joining us. Thank you for lending your voice to this hearing as well. I think in terms of who should go first--Senator Tester? Senator Tester. I will make it easy for you, Mr. Chairman. I am going to forgo opening remarks for the questions. I will defer to the good Senator from Arkansas. Senator Carper. All right. Fair enough. Thanks so much. Thanks for coming. Senator Pryor. Mr. Chairman, thank you. I do not have an opening statement. Senator Carper. I think with that we can turn to our second panel, and if the witnesses will make their way to the table, that would be good. [Pause.] Senator Carper. I have had a chance to already welcome the witnesses individually, and now I am pleased to welcome you collectively to testify. I will just provide a very brief introduction for each of you. Our lead-off witness will be Darryl Willis. Mr. Willis is Vice President for Resources for BP America. He has been with BP for 18 years and is currently leading the claims process efforts for BP. Thank you for joining us. Steve Newman is our second witness. He is the President and Chief Executive Officer for Transocean, Ltd. Mr. Newman has worked, I am told, for Transocean for 14 years and first served in his current position as President and CEO in 2008. Welcome. Our third witness is Craig Bennett. Mr. Bennett is the Director of the U.S. Coast Guard's National Pollution Funds Center. The National Pollution Funds Center oversees the Oil Spill Liability Trust fund and tracks the direct Federal costs of the oil spill. Mr. Bennett has served in the U.S. Coast Guard for over 20 years, and prior to his appointment as Director, he served as the Chief of the Financial Management Division of the National Pollution Funds Center. Finally, our final witness is Susan Fleming, Director of the Physical Infrastructure team at the Government Accountability Office. Before joining GAO, Ms. Fleming served as a financial analyst for General Electric. Good to see you. Thank you for joining us. Your entire statements will be made a part of the record. We invite you to proceed. I would ask you to try to stay fairly close to 5 minutes. If you run a little bit over that, that is OK. If you run a lot over that, it is not OK. Mr. Willis, if you will just lead us off, please. Thank you. Thank you all for coming. TESTIMONY OF DARRYL WILLIS,\1\ VICE PRESIDENT FOR RESOURCES, BP AMERICA, INC. Mr. Willis. Thank you, Mr. Chairman. Chairman Carper, Ranking Member McCain, Members of the Subcommittee, I am Darryl Willis, Vice President of Resources for BP America. On April 29, I accepted the role of overseeing BP's claims process, which was established in the wake of the explosion and fire aboard the Deepwater Horizon drilling rig and ensuing oil spill. I am here to share information with you about the claims process. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Willis appears in the Appendix on page 72. --------------------------------------------------------------------------- This horrendous incident, which killed 11 workers and injured 17 others, has profoundly touched all of us. There has been tremendous shock that such an accident could have happened and great sorrow for the lives lost and the injuries sustained. I would like to make one thing very clear. BP will not rest until the well is under control and we discover what happened and why in order to ensure that it never, ever happens again. As a responsible party under the Oil Pollution Act of 1990, we will carry out our obligations to mitigate the environmental damage and economic impact of this incident. I would also like to underscore that the causes of the accident remain under investigation, both by the Federal Government and by BP itself. So I am prepared today to answer your questions regarding the claims process and our reimbursement of Federal response costs. I cannot, however, respond to inquiries about the incident itself or the investigation. Above all, I want to emphasize that the BP claims process is integral to our commitment to do the right thing. We will be fair and expeditious in responding to claims. We have already paid out over $90 million in claims as of today, and we understand how important it is to get this right for the residents and businesses as well as for State and local governments. To that end, we have established 33 walk-in claims offices operating in Louisiana, Mississippi, Alabama, and Florida. And we have a call center that is operated 24 hours a day, 7 days a week. We have also established an online claims filing system to further expand and expedite our capacity to respond to potential claimants. Altogether we have approximately 1,000 people handling claims and over 660 experienced claims adjusters on the ground working in the impacted communities. We will continue adding people, offices, and resources as required and are committing the full resources of BP to making this process work for the people of the Gulf coast. Our early focus was on individuals and small businesses whose livelihoods have been directly impacted by the spill and who are temporarily unable to work. These are the fishermen, the crabbers, the oyster harvesters, and shrimpers with the greatest immediate financial need. BP is providing expedited interim payments to those whose income has been interrupted. Approximately 18,000 claims have already been paid, as I said, totaling $90 million to date. And we have recently begun sending out second advance payments to individuals and businesses. We are also working hard to address business loss claims. Over the last few days, we have paid out over $16 million in business claims. The claims process was established to fulfill our obligations as a designated responsible party under the Oil Pollution Act of 1990 (OPA). Thus, we are guided by the provisions of OPA 90 as well as the U.S. Coast Guard regulations when assessing claims. I am not an attorney and, therefore, cannot speak to the particular legal interpretations or applications of OPA 90. I can, however, reiterate that BP does not intend to use the $75 million cap in the OPA 90 statute to limit our obligation to pay these claims. We have already exceeded it and will not seek reimbursement from the Oil Spill Liability Trust Fund. As an additional means of ensuring a fair and transparent process, today an independent mediator, Kenneth Feinberg, has been appointed to oversee the claims process, and BP has committed to setting aside $20 billion in an escrow fund to pay legitimate claims. I would also like to briefly discuss the reimbursement of the Federal Government response costs. To date, the Coast Guard has sent BP and other responsible parties two invoices for Federal Government costs totaling slightly more than $70 million. BP has paid these invoices promptly by wire transfer. In closing, I would like to add a personal note. My ties to the Gulf coast run deep. I was born and raised in Louisiana. I went to high school there, college there, and graduate school there. My family spent many summers on the Gulf coast. My mother lost her home of 45 years in Hurricane Katrina, and the recovery process was sometimes time-consuming, and at many times it was incredibly frustrating. I know firsthand that the people in this region cannot afford lengthy delays in addressing economic losses caused by this spill. I volunteered for this assignment because I am passionate about the Gulf coast. It is the place I call home, and I want to be a part of the solution. With that, I welcome your questions. Senator Carper. Thank you for adding that to the close of your testimony. Thanks very much. Mr. Newman, welcome. Please proceed. TESTIMONY OF STEVEN NEWMAN,\1\ CHIEF EXECUTIVE OFFICER, TRANSOCEAN LTD. Mr. Newman. Chairman Carper, Ranking Member McCain, and other Members of the Subcommittee, I want to thank you for the opportunity to speak with you today. My name is Steven Newman. I am the Chief Executive Officer of Transocean. Transocean is a leading offshore drilling contractor with more than 18,000 employees worldwide and more than 4,500 employees in the United States. I am a petroleum engineer by training, and I have spent considerable time working on and with drilling rigs. I have been with Transocean for more than 15 years. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Newman appears in the Appendix on page 78. --------------------------------------------------------------------------- Since April 20, 2010, the heartache I and my company feel for the 11 crew members who died, including nine Transocean employees, and their families is with us constantly. The safety of our employees and crew members is of the utmost importance to us, and the loss of lives on the Deepwater Horizon is devastating to us and to their families. I also salute the courage of the 115 crew members who were rescued from the rig and the extensive response team that has worked tirelessly since the event. Transocean has been actively involved in the activities since April 20, including providing support and comfort to the families of the lost men, and I would like to provide the Subcommittee with more details about these efforts. Transocean is a people-focused company. Since the events of April 20, our human resource (HR) teams have focused on providing grief counseling and a range of benefits and employee services to those directly and indirectly affected. We are currently taking a number of steps, including providing the families of the nine Transocean men who were lost continued full pay and benefits, providing injured crew and those receiving ongoing counseling continued full pay and benefits. Compensation for personal possessions lost in the incident was offered to all crew and families and accepted by most. On May 25, we held a memorial service in honor of the men lost in the Horizon tragedy. It was attended by all 11 families, by many Transocean personnel, and by people from across the industry. It was a moving event and an opportunity for all of us to celebrate the lives of these exceptional men. Our goal is to continue our support of the families and our employees as we all move forward. As I have said many times in the past, we believe that we have the most advanced equipment in the offshore drilling industry, but our people are the real reason for the success of Transocean. This belief has been articulated through the guiding principles of our company which go by the acronym FIRST (Forum of Incident Response and Security Teams). My written testimony provides additional details about these principles, so today I will focus on the R, which stands for respect for employees, customers, and suppliers, and the S, which stands for safety. Our respect for our employees and our goal to be a responsible employer guided our actions before April 20, and will continue to do so in the future. This respect is borne out in a number of ways. For example, Transocean provides our employees with extensive training for all offshore and shore-based activities. We work with employees who seek supervisory positions and management roles and provide flexible work hours and monetary assistance for education to maintain or improve job skills, to increase competencies and qualifications for future opportunities. Our company's culture of safety has long guided our actions. Transocean was a key partner in developing the U.K. North Sea's Safety Case methodology and then in developing the IADC's Safety Case guidelines. We subsequently applied what we learned to our operations around the world, even where no formal Safety Case is required. We have also implemented a Major Accident Hazard Risk Assessment across all Transocean operations. Transocean's full commitment to environmental and social stewardship is demonstrated by our active participation in a range of scientific, social, and conservation research programs around the world, including the Gulf of Mexico. We have invested millions of dollars over the past few years in projects aimed at better understanding the environment in which we work and the communities that support our operations. One such example is our support of a global program addressing scientific and environmental issues associated with remote-operated vehicles. For over 7 years, we have been using our rigs as places of research to allow scientists to explore the deepwater environments with cutting-edge technology to better understand the largely underexplored deepwater area of the ocean. Another example is our membership in the Gulf of Mexico Foundation through which Transocean supports a range of coastal restoration projects and educational efforts across all five Gulf States, Mexico, and the U.S. Virgin Islands. Many of these projects are in collaboration with NOAA's Coastal Restoration Program along with other federally funded programs. With respect to the events of April 20, immediately after the explosion Transocean began working with BP and the Unified Command in the effort to stop the flow of hydrocarbons. Our operations and engineering teams have been working around the clock under BP to identify and pursue options for stopping the flow as soon as possible. Our drilling rigs are actively engaged in drilling the relief wells at the site, and our drill ship is involved in crude oil recovery operations. We will continue to support BP and the Unified Command in all of these activities. Throughout this time we have also been working hard to get to the bottom of what happened on the night of April 20. There are critical questions that need to be answered in the coming weeks and months, but we simply do not have all of the data to know the answers at this point. To understand what led to the April 20th explosion, we must work together in a collaborative effort to collect information and to recommend any corrective measures. We remain committed to this effort. As the Subcommittee Members are likely aware, the Oil Pollution Act of 1990 makes clear that we are responsible for fluids originating from the rig above or below the waterline, but not for fluids emanating from the well. Once the extent of these liabilities for any materials or substances allocated to the rig are understood, Transocean will continue our cooperation with the National Pollution Funds Center to fulfill any OPA obligations applicable to our operations and to process any relevant claims. To support this effort, we have conducted sampling to determine the potential presence and any potential impacts that may have been caused by diesel released from the rig. At this time the presence of diesel released from the rig has not been detected. However, we will continue to work to verify this as well as to determine whether or not there is any diesel fuel still contained in the rig's tanks on the bottom of the ocean. Additionally, as the National Resource Damage Assessment has barely begun, it is too early to ascertain the company's responsibilities in that context. As that process advances, we will cooperate with the NRDA trustees and will stand ready to fulfill any potential obligations that may be found to originate from our duties under OPA. Regardless, Transocean will continue to lend our expertise to the spill containment and relief well drilling efforts currently underway. The foundation of our company's strengths has always been the people who work at Transocean and the communities where we live and operate. Our commitment to both has been regularly demonstrated over the years, and I believe our continued commitment throughout this incident is evident. We remain ready and willing to assist the Subcommittee and all involved as the work progresses. Thank you for the opportunity to speak to you today, and I am happy to answer your questions. Senator Carper. Thank you very much for coming today and for your testimony. Mr. Bennett, please proceed. TESTIMONY OF CRAIG BENNETT,\1\ DIRECTOR, NATIONAL POLLUTION FUNDS CENTER, U.S. COAST GUARD Mr. Bennett. Good afternoon, Chairman Carper and distinguished Members of the Subcommittee. I am grateful for the opportunity to testify today about the Oil Pollution Act of 1990 and financial responsibility. As someone who graduated from high school in southern Louisiana, who met his wife and was married in Houston, Texas, and who later raised two children for a while in St. Petersburg, Florida, I have a deep appreciation for the people and environment of the Gulf coast. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Bennett appears in the Appendix on page 83. --------------------------------------------------------------------------- My role as the Director of the National Pollution Funds Center (NPFC), in this response covers four areas: First, I fund Federal response using amounts Congress has made available from the Oil Spill Liability Trust Fund, the so- called emergency fund. Second, I ensure the responsible parties are advertising its availability to pay claims for removal costs and damages. If claimants are not fully compensated by a responsible party, they may present their claims to the NPFC for payment from the fund. Third, I recover Federal response costs and claims paid by the fund from any and all responsible parties. Finally, I administer the Certificate of Financial Responsibility Program which ensures that vessels operating in U.S. waters have demonstrated that they are financially able to pay their obligations under OPA. With respect to response costs, the cost of the Federal response to this event as of this morning was $217 million. These costs include the funding of over 27 Federal entities as well as over $12 million that has been given to States for their response efforts. A key element of the OPA liability and compensation regime is that the polluter pays, not the taxpayer. All of the costs incurred against the fund will be billed to the responsible parties. As has been mentioned, two bills for a total of $70.9 million have been sent, and both have been paid by BP and both were paid in less than 5 days. A third bill for over $50 million is being sent this afternoon. At the end of the event, the fund balance will not be impacted because all response costs will have been reimbursed by the responsible parties. With respect to claims, the National Incident Commander, Admiral Thad Allen, met with BP executives at the National Pollution Funds Center last Wednesday to direct faster progress and more transportation regarding the claims process. I met with BP officials in Louisiana last Thursday, and my staff has worked with the BP claims people over this past weekend to oversee the progress on the expectations set forth by Admiral Allen. These expectations included getting more detail and context in the reports that we receive from BP, as well as acceleration of the payment for business claims. Progress has been made, and as Mr. Willis said, BP has in the last week paid $17 million in 337 checks to small businesses. Also, based on the operational concept of no wrong door, the National Incident Commander has established an integrated services team to monitor BP claims and coordinate delivery of Federal programs that can provide social services and small business assistance to individuals, families, and small businesses affected by the oil spill. The team is made up of two parts: A national-level team located in Washington, DC, to coordinate strategic policy-level issues, as well as to provide support and issue resolution for the field-based teams. Field-based teams are established in each impacted Gulf coast State to identify gaps in the claims process for resolution by BP and to provide residents with full, streamlined access to all Federal assistance programs. Each field team is led by a Federal resource coordinator with a State point of contact identified by the governor. Individuals, communities, and businesses have suffered as a result of this spill. The OPA liability and compensation regime is working to ensure a robust Federal response that those damaged from the spill are compensated and that the polluter pays. The Department and the Administration are working to ensure a full recovery throughout the affected States. Thank you for the opportunity to testify today, and I look forward to your questions. Senator Carper. Mr. Bennett, we thank you for joining us. Thanks for your work and for your comments. Ms. Fleming, please proceed. TESTIMONY OF SUSAN A. FLEMING,\1\ DIRECTOR, PHYSICAL INFRASTRUCTURE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Ms. Fleming. Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to discuss the costs of major oil spills. The recent disaster in the Gulf coast not only caused the tragic loss of 11 lives, but also untold economic and environmental damage to Gulf coast communities. This spill has reminded us that, despite the fact that major oil spills are infrequent, they can happen at any time across coastal and inland waters of the United States. It has also reminded us that vessels involved in the petroleum industry are not the only risk. Cargo, fishing, and other types of vessels also carry substantial fuel reserves, and as we are now keenly aware, mobile offshore drilling units like the Deepwater Horizon also represent a threat. Besides being potentially lethal and damaging the environment, spills can be expensive, with considerable costs to the Federal Government and the private sector. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. Fleming appears in the Appendix on page 90. --------------------------------------------------------------------------- My testimony today has three parts: I will discuss the factors that affect major oil spill costs, how oil spills are paid for, and the implication of major oil spill costs on the Oil Spill Liability Trust Fund. First, there are a number of factors that combine in unique ways and affect the cost of spills: Location, time of year, and type of oil. Although we have not evaluated the current spill or the factors affecting its costs, some of these and the magnitude of the spill will likely drive costs. For example, the spill occurred in the spring in an area of the country, the Gulf coast, that relies heavily on tourism as well as commercial fishing industry revenues. One estimate puts the loss of revenue from suspended commercial and recreational fishing at about $144 million a year. In addition, spills that occur in proximity of tourism destinations, like beaches, can result in additional removal costs in order to expedite spill clean-up or because there are stricter standards for clean-up which increases the cost. Another factor affecting spill cost is the type of oil. The oil that continues to spill into the Gulf of Mexico is a light oil, specifically a light sweet crude oil, that is very toxic and can create long-term contamination of the shorelines and also, as we have seen, harm waterfowl and fur-bearing mammals. According to the U.S. Fish and Wildlife Service, many species of wildlife face grave risk from this spill as well as 36 wildlife refuges that may be affected. In recent testimony the EPA Deputy Administrator described the Deepwater Horizon spill as a ``massive and potentially unprecedented environmental disaster.'' I will now turn to my second point. The Oil Pollution Act established a ``polluter pays'' system that places the primary burden of liability and the cost of oil spills on the responsible party. Under this system, the responsible party assumes up to a specified limit the burden of paying for spill costs, which can include both removal costs and damage claims. Above the specified limit, the responsible party is no longer financially liable. The fund was established to pay the costs above this limit or potentially all costs a responsible party does not pay or cannot be identified. The fund, as you know, is financed primarily from a per barrel tax on petroleum products. Now I will move on to my final point, the implications of major oil spills for the trust fund. To date, the fund has been able to cover the costs not paid for by responsible parties, but the fund's future viability may be at risk. In particular, the fund is at risk from claims that significantly exceed responsible parties' liability limits. We reported, in 2007, that the current liability limits for certain vessel types, such as tank barges, are disproportionately low relative to costs associated with such spills. The fund faces other potential drains on its resources, including ongoing claims from existing spills, claims related to sunken vessels that could leak oil, and as in the case with the Deepwater Horizon, the threat of a catastrophic spill. As of early June, the response costs for this spill had already tolled over $1 billion, and to date, the spill has not been fully contained. As a result, the Gulf spill is likely to eclipse the Exxon Valdez, becoming the most costly offshore spill in U.S. history. The fund is currently authorized to pay up to $1 billion per spill with up to $500 million for damage claims. Its current balance of about $1.6 billion may not be sufficient to pay such costs for a spill that is likely to have catastrophic consequences. While BP has said--and we heard it today--that it intends to pay all legitimate claims associated with the spill, should the company decide it will not or cannot pay for these costs exceeding its limit of liability, the fund will have to bear these costs. Given the magnitude of the spill, the cost could result in a significant constraint on the fund. In closing, major oil spills are rare, but the risk of such spills exists daily. Further, spills are expensive, with significant costs to the Federal Government, the private sector, the environment, the economy, and the public at large. Although the fund has been able to cover non-catastrophic liabilities, the uncertainties and unprecedented nature of the current spill and potential future spills could threaten the fund's viability. Mr. Chairman, this concludes my statement. I look forward to our discussion and would be pleased to answer any questions you or Members of the Subcommittee have. Senator Carper. Good. We look forward to it as well. Thank you so much for coming today. We will be providing each member 7 minutes for questions in this first round, and we will take it from there on a second round. I want to start off with a couple questions--or at least one question, if I could, for Mr. Willis and for Mr. Newman. And then my next question will probably be for you, Mr. Bennett, and then one for Ms. Fleming. Mr. Willis, as you and Mr. Newman, I think, know we invited representatives from Anadarko and from MOEX Offshore here today. They declined to join us. This is an invoice, a bill that the Federal Government sent to the responsible parties on June 2, asking for the reimbursement of some $69 million. Anadarko's and MOEX's names are right here on the front alongside of BP and Transocean. How do your companies view Anadarko's and MOEX's role in helping to pay for this disaster? That is the first part of my question. How do you view their role in helping to pay for this disaster? Have you communicated with these companies to clarify what they feel is their role in paying for this disaster? Mr. Willis, do you want to go first? Mr. Willis. Mr. Chairman, our commitment from the very beginning of this incident was to make sure that any legitimate claim or costs associated with this spill, that we honor that obligation and our commitment to make those payments. My focus since being involved in the claims process has been on making sure that when something is submitted to us and when it is substantiated, that we pay those bills quickly. The focus has not been at this point on working through any issues with partners, but making sure that we, as BP, do the right thing and live up to the commitment we have made, which is to honor our legitimate claims and to pay them quickly. Senator Carper. That is commendable. Let me just go back to my question. How does your company view Anadarko's and MOEX's role in helping to pay for this disaster? Have you communicated with these companies to clarify what they believe to be their role in paying for it? Mr. Willis. Our view is that there will be plenty of time to sort that out, but in the meantime, when the bills come in and we look them over and they are legitimate and associated with the spill, they need to be paid, and we are going to pay those bills. Senator Carper. Thank you. Mr. Newman. Mr. Newman. Senator, my understanding of the framework that Congress has established would put the well owner and the well owner's partners--in this case, Anadarko and MOEX--in line as responsible parties for damage resulting from fluids emanating from the well bore. And so if I apply that framework to BP, Anadarko, and MOEX, I think they are all in that comparable tier. Transocean is a member of the subcontractor community that BP hired to carry out the well construction process, and so we are subordinate to BP in their role as responsible party for the fluids emanating from the well bore. Senator Carper. OK. And when you say ``we,'' that includes Anadarko and MOEX? Mr. Newman. No. I put Anadarko and MOEX and BP all as well owners or partners of the well owner. Transocean is one of the many subcontractors that BP hired to carry out the well construction process. Senator Carper. Before I turn to Mr. Bennett, Mr. Newman, let me just ask you a follow-up. Can you explain to us how does Transocean view itself in terms of responding financially to the costs associated with this oil spill? I think you alluded to that in your comments. What sort of discussions have you had between your company and BP to discuss what Transocean might or might not be liable for? Mr. Newman. Transocean's liability under the Oil Pollution Act, as I understand it, relates to fluids that emanate from the rig, either above or below the surface of the water. And so we continue to monitor the drilling rig on the seabed, and so far there has been no indication of any fluids escaping from the drilling rig. But we will continue to monitor the drilling rig, and we stand ready to meet our obligation for any fluids that emanate from the drilling rig. Senator Carper. Mr. Willis, do you share that view with respect to Transocean's liabilities? Mr. Willis. Mr. Chairman, honestly, we are focused on making sure that the costs associated with this clean-up and spill in the Gulf of Mexico are paid and that the people who have been hurt along the Gulf coast are compensated for their losses and any Federal costs that are associated with the clean-up are paid back to the American people. And that is what we are going to do. Senator Carper. All right. Thank you. Mr. Bennett, the next question for you. Again, I hold up the invoice, the first one I believe to be sent to the responsible parties, including BP and Anadarko and MOEX all received this invoice. Let me just ask, how does your office view these two companies and what communications have you had with them to ensure that they understand their responsibility here? And perhaps a more important question is: What is their responsibility here? Mr. Bennett. Mr. Chairman, I would be glad to answer that question. When we go to issue bills during a response or after a response to reimburse the fund for any costs that come out of the fund, we send the bill to any and all of the responsible parties that have been identified up to that point in time. As you know, it is joint and several liability, although in this case there is sort of tiered liability, as has been mentioned, and there could be different amounts of liability that different partners might have, depending on their relationship. The lessees are generally in this case responsible for the ocean floor release, which is clearly the biggest part of the release in this case, so that is why BP and the minority lessees would probably have the most liability. But early on we do not worry about trying to sort it out. We send the bill to all responsible parties. It is not uncommon in a case like this for the majority responsible party or major insurance company to set up, pay the bills, and then they work it out behind the scenes amongst themselves, and we do not really typically have a lot of visibility on that as long as somebody is paying the bill. If one person pays it or if they all decide to split it up, as long as I get repaid, that is what we care about. Senator Carper. All right. Thank you. Mr. Willis, one more quick question for you and then I will turn to Senator McCain. A little over an hour or two ago, the President and BP announced the creation of a $20 billion fund, an independent escrow fund, out of which claims would be paid to those damaged by the oil spill, and we commend you for that. This fund will be administered by Ken Feinberg, who oversaw the September 11, 2001, victim compensation fund, and he has done a number of other things as well. It would seem that this new fund and claims process would replace the current BP claims process of which you are, I believe, in charge. What discussions, if any, have you had with your colleagues at BP and with the Federal Government about this proposal, how it might work, and how your team would transition to this new process? Mr. Willis. As you mentioned, Mr. Chairman, this was recently announced after conversations between our executive team and the Administration. There are lots of discussions that will be taking place over the next few days and weeks to determine how the transition will take place. But at this time, I do not have those details. Senator Carper. I understand. All right. Senator McCain, thank you. Senator McCain. Thank you, Mr. Chairman. Just to follow up on the Chairman's question, Mr. Newman, you stated that you feel that your liability is only that may have been caused by diesel released from the rig, either above or below the surface. Is that correct? Mr. Newman. Yes, sir, that is my understanding of the company's responsibility under the OPA. Senator McCain. Ms. Fleming, do you have a view of that? Ms. Fleming. This is beyond my level of expertise, but it is our understanding that the Coast Guard interprets BP and Transocean to be responsible parties. However, there may be contractual relationships as well that come into play. But it is definitely beyond my level of expertise. Senator McCain. Mr. Bennett. Mr. Bennett. Senator, that is correct. They are all responsible parties, but ultimately how much each of them might be liable for will be determined as a result of really the investigations and how it all settles out. They might not all be equally responsible for all the damages, and it is too early to know what that might be. Senator McCain. Well, since we are paying claims, it might be nice to try to start figuring that out pretty quick, because BP is paying all the bills right now. Is that right, Mr. Willis? Mr. Willis. That is correct. Senator McCain. So there are other entities, including two who refused to testify here today, that may have some liability. So what do we have to go through to find out who is responsible and the extent of their responsibility? Mr. Newman, if his position holds, then they really are not going to be liable for anything, so to speak. Mr. Bennett. Senator, under OPA they are all joint and several liable, so if we get the payment, we do not typically look beyond that. Now, in this case---- Senator McCain. Who is supposed to determine it then? Mr. Bennett. I suspect the Administration and Department of Justice will be following up with the investigation on all those questions and looking at that. Senator McCain. Well, Mr. Chairman, I think we ought to get some readout of the liability here. I am not holding any brief for BP, but if they are the only ones paying the bills and there are others who were involved, maybe some of them should be paying some of the bills, too. Do you share that view, Ms. Fleming? Or is that above your pay grade as well? Ms. Fleming. Well, I mean, I think that the biggest concern is we do not know what the true costs of this spill are going to be. We are dealing with an unprecedented spill. Senator McCain. That was my next question. Ms. Fleming. And the impact of the spill on the fund, how it is going to affect the fund's ability to pay for future spills, as well as some of the ongoing claims. So there is a lot at stake here. Senator McCain. Well, you did not answer my question, but it does not matter. The Oil Spill Liability Fund, henceforth known as ``the fund,'' that is clearly going to be exhausted. Right? Ms. Fleming. Well, I think that this oil spill's catastrophic consequences could have a severe strain to the fund. There are other risks that come into play as well. However, as we heard today, if BP honors its commitment to pay all those costs, even those above the liability limits, then the risk to the fund could be minimal. But if they will not or cannot pay, and/or if the other responsible parties will not or cannot pay, then that could threaten the fund's viability, quite frankly. Senator McCain. In your statement, you mentioned that in 2007 you identified areas which further attention to the liability limits appear warranted and made recommendations to the Commandant of the Coast Guard regarding both to adjust limits periodically in the future to account for significant increases in inflation and the appropriateness of some current liability limits, but nothing was ever done on that? Ms. Fleming. The limits were adjusted for inflation. However, in the Coast Guard's recent report, which was very much in line with our findings as well, they note that for certain vessel types, notably tank barges and cargo vessels, the limits of liability are disproportionately low relative to their historic spill costs. But they stopped short of making recommendations as to how the limits should be adjusted. Obviously, having the limits out of whack costs tens of millions of dollars to the fund, and now we are dealing with an unprecedented spill on top of those additional risks. Senator McCain. Mr. Willis, I think you were asked this, but you do not know whether your company has the ability to deduct from taxable U.S. income payments resulting from civil claims? Mr. Willis. Senator McCain, I will preface my comments by saying that I am not a tax attorney. My understanding is that there are deductions that are available to us, and we will take them within the constraints of the law. Senator McCain. Well, maybe you could have your legal department provide for the record what your corporation's view is on the ability to deduct from taxable U.S. income payments that result from civil claims. Could you provide that for the record for us? Mr. Willis. I will definitely take that away as an action, sir. INFORMATION FOR THE RECORD Section 162 of the Internal Revenue Code (the ``Code'') provides that ordinary and necessary expenses that arise out of the conduct of a trade or business are currently deductible when paid or incurred, including payments made pursuant to a settlement or judgment relating to the conduct of such trade or business activities. See 26 U.S.C. 162(a). Exceptions to this general principle of immediate deductibility include expenses that are (1) disallowed as deductions, such as fines or penalties, or (2) capitalized, for example inventory costs, in which case they are deductible over time. See 26 U.S.C. 162(f), 263 and 263A. BP believes that payments of alleged costs and damages pursuant to Section 1002 of the Oil Pollution Act relate to the conduct of its trade or business activities and are thus deductible under the Code. Whether any particular expense must be capitalized is a separate, and extremely fact- specific, inquiry that BP will determine in accordance with applicable federal and state laws. Senator McCain. So, obviously, even though this is the 57th or 58th day, you still have not sorted out the liability issue of the various entities who were associated with the rig. Is that a correct statement? Mr. Willis. What I can tell you is that what we have been focused on over the last 50-plus days is making sure that we got a claims process that was up and running, making sure that we got money into the hands of the folks along the Gulf coast who needed it the most--the fishermen, the shrimpers, the folks who work in the restaurants, the seafood processors. That has been the primary focus. Senator McCain. I understand that. The answer I guess is no. Mr. Bennett, have we made any progress in that area? Mr. Bennett. Sir, I want to make sure I have the question right. Is it the area of identifying who is liable for what? Senator McCain. Yes. Mr. Bennett. No, sir. As I said, we bill them all, we get payment, and we expect them to sort it out in court if they do not agree on how those payments came. Senator McCain. Ms. Fleming, do you have a view on that? Ms. Laufe. We have done some preliminary research in this area-- Senator Carper. I am sorry. Would you identify yourself, please? Ms. Fleming, will you introduce her? Ms. Fleming. She is general counsel at GAO, Hannah Laufe. Senator Carper. Go ahead and just have a seat for a moment, please, and identify yourself again with your name. Ms. Laufe. My name is Hannah Laufe. I am an assistant general counsel at GAO. Senator Carper. And the last name? Ms. Laufe. Laufe. Senator Carper. Thank you. Ms. Laufe. We have been doing some investigations in this area, but it is preliminary to really say anything for certain because there are a lot of legal implications to this. And we have contacted MMS, and we are going to be looking at the lease to identify the names on the lease, and that will help us make some determinations about responsible parties. But it is very preliminary to say anything at this point. Senator McCain. Do you have any preliminary conclusions? Ms. Laufe. No, I do not. It is my understanding that Anadarko and MOEX are partners, but I really cannot say more at this point. Senator McCain. Well, thank you. When you do, again, I hope you will provide the Subcommittee with that. Ms. Laufe. We definitely are working on that and we will do that. Senator McCain. When we are talking about the extent of the costs here, which, as we all know, are unprecedented, I think that should be sorted out fairly quickly so that we can expedite the claims for all the reasons that I do not have to explain. I thank you very much. Thank you, Mr. Chairman. Senator Carper. Thank you to both witnesses from GAO. Senator Tester, welcome. Senator Tester. Thank you, Mr. Chairman. I do not want to go back to this, but I have just got to--whose responsibility is it to determine liability? Is it the GAO's responsibility? Whose responsibility is it? Ms. Fleming. No, not GAO's. Senator Tester. It is not GAO's? Ms. Fleming. No. Senator Tester. Is it the Coast Guard? Mr. Bennett. I believe we do it. I mean, when there is a spill, my staff will---- Senator Tester. Determine liability and the percentage that the liability applies to which company? Mr. Bennett. I do not determine percentage. Senator Tester. Who determines percentage? Mr. Bennett. We will bill them all for all costs. Senator Tester. I know. But if BP says, ``Forget it, I am not paying anymore,'' who determines percentage? Mr. Bennett. A judge will. Senator Tester. A judge will? Mr. Bennett. If we do not get paid, then the Department of Justice takes them all to court, and a judge will decide. Senator Tester. OK. Just for clarity. There are a couple of things I have to ask, and, Mr. Bennett, I will just ask you. Mr. Bennett. Yes, sir. Senator Tester. There are about 51,000-plus claims; 26,000 have been paid in regards to this event as of June 14. Are you familiar--does that sound about right? Mr. Bennett. Yes. Senator Tester. Now, those folks who got paid, is their legal recourse done? Mr. Bennett. No. Nobody that has been paid has been asked to do a release for any payments or give away any right. Most of those payments are interim payments for loss of wages or incomes, primarily to fishermen. They can continue to get interim payments, and they can continue to make other claims as it goes on. Senator Tester. OK, thank you. Mr. Willis, there is a whole bunch of information out there on BP and violations with OSHA and previous incidences that have happened. Could you tell me if there were any shortcuts that were taken because this project was over budget? Mr. Willis. Senator Tester, I am actually over the claims process, and that has been my focus for the last 50 days, and I can answer any questions you might have about the claims process. Senator Tester. But not about this issue? Mr. Newman, maybe you can answer the question. You were punching the hole, right? Ocean Energy was punching the hole? Mr. Newman. Transocean was hired---- Senator Tester. Transocean. I am sorry. Mr. Newman. That is all right. Transocean was hired to provide the drilling rig and the people to operate the rig's machinery. Senator Tester. OK. Are you aware if this project was over budget? Mr. Newman. I received a copy of a letter written by Congressman Waxman and Congressman Stupak that did make reference to a concern about the financial status of the project, yes. Senator Tester. So it was over budget. Mr. Newman. That was referenced in Chairman Waxman's letter. Senator Tester. OK. I am not asking whether Senator Waxman or Representative Waxman said it. Mr. Newman. Senator, the budget is not Transocean's. It is a BP budget. And so I cannot comment on what the original budget was, and I have no idea where they were with respect to that. Senator Tester. OK. So that is a different issue for BP. Mr. Willis, can you tell me--I mean, there are all sorts of stuff out here that needs to be cleared up. For example--and this, by the way, it would not point a finger at you guys-- well, it kind of would, but not in a real bad way. There were inspectors out there, and maybe pay attention to this, too, Mr. Newman, because it might end up in yours. But there were inspectors--or maybe even Mr. Bennett's. I do not know. But there were inspectors out there that I have been told were on fishing trips, going to LSU games, college football games, that were not doing their job. Can you shed any light on that? Mr. Willis. Senator Tester, I am the claims guy, and I have been involved in---- Senator Tester. That is OK. I understand. Mr. Newman, can you shed any light on that? Because if you are out there drilling a well if the inspectors are doing their job or not. Were they doing their job? Mr. Newman. From Transocean's perspective, the MMS regularly visits our drilling rigs. They conduct inspections of those drilling rigs. They leave notes with our people that result from those inspections, and that is the nature of the relationship between Transocean and the MMS. Senator Tester. Did they inspect your drilling rig? Mr. Newman. They were last on the Deepwater Horizon on April 1. Senator Tester. Did they leave any notes? Mr. Newman. I do not know whether they left a visit report from the April 1 visit. Senator Tester. Who would know? Mr. Newman. Certainly somebody in our operations group would know the answer to that question. We can certainly provide that information back to the Subcommittee. Senator Tester. That would be great. Can you tell us what is on those notes?\1\ You can tell me when they get back to the contact---- --------------------------------------------------------------------------- \1\ Notes requested by Senator Tester appears in the appendix on page 122. --------------------------------------------------------------------------- Mr. Newman. We will make the results of those visits available. Senator Tester. That would be great. Ms. Fleming, we have $20 billion, which seems like a lot of dough, in an escrow account now, and you talked about we do not know what the damages are. I believe it was you who said ultimately we do not know what the extent of the damage is. In your expert opinion, do you think that is going to be adequate? Ms. Fleming. I think it is going to take months or even years until we really have a good sense of the total economic and environmental impact to the gulf coast. So we do not know. Also, I think the devil is in the details, too, in terms of how this escrow account will work, and how it will be administered, and implemented. Senator Tester. As long as you are going down that line, it is supposed to be implemented by a third-party administrator? Ms. Fleming. Yes. Senator Tester. Right now the money that is--with the question I asked Mr. Bennett, BP has claims processors on the ground now doing it. Is it going to be BP's claims processors that deal with this $20 billion escrow account? Ms. Fleming. I do not know. Senator Tester. Does anybody know? Ms. Fleming. We have not looked in great detail on this. Senator Tester. Mr. Willis, maybe you know. Mr. Willis. Senator Tester, this information is hot off the press. These are the conversations that will be taking place over the next few days and weeks to work out the details of how the process is actually going to be run. Senator Tester. OK. Are you going to advocate for BP to have their claims processors? Or is BP going to allow a third- party administrator to determine that? Mr. Willis. I would like to start by saying, Senator Tester, that the primary concern we have is making sure that the resources are available and that the people who need the money get the money as quickly as they can. Senator Tester. Yes. Mr. Willis. And we will work with the details around how and who is going to do the actual on-the-ground management of the--how the on-the-ground management of the claims process is going to work. Senator Tester. OK. One last question, because I have only about 15 seconds left. You talked about an investigation. You cannot talk about the investigation. You can talk about the claims process. Can you tell me where they are at in the investigation? Mr. Willis. I cannot. I am 100 percent focused on cutting checks for the folks of the Gulf Coast. Senator Tester. OK. Sounds good. I appreciate your commitment to that. I appreciate all the people being here to testify today. This is one hell of a mess that we need to get our arms around, get cleaned up, and get the people held harmless as soon as possible. Thank you all for being here. Senator Carper. Senator Tester, thank you very much for being here. Mr. Willis, in our business we like to say that you are on message. [Laughter.] That is not a bad thing. I spoke with the U.S. claims monitoring team this morning, the integrated services team. They were appointed by Admiral Allen, and this team has been working hard to oversee BP's claims process on behalf of the Federal Government and the American people. I was concerned to find out, however, that BP still has not provided Admiral Allen and his team the entire claims databases they have requested. In fact, I am told that they requested this information over a week ago, and without this information we are told that they are unable to determine the extent of the claims or what the waiting period is for those who have asked for and who need assistance. Mr. Willis, can you just share with us, if you know, why hasn't this data been provided to the government? And when can we expect it to be provided? Mr. Willis. Mr. Chairman, I can tell you that I actually attended that meeting last Wednesday with Admiral Allen and was a part of that conversation. And on Thursday, members from the integrated services team and from our claims team met via phone to talk about how and what data we needed to make sure was captured and incorporated into future claims reports. In addition, our software engineers worked over the weekend to reconfigure systems to make sure we can extract the appropriate data. Some of that date we are already capturing, but in many cases, based on a letter that the Admiral sent to our chairman, our CEO, the new data that will have to capture. On Monday of this week, I was in Biloxi, Mississippi, with members from the integrated services team, and our groups got together again to finalize the details, and I can tell you they are working hard to get that completed and into the hands of the appropriate people ASAP. That work is underway, and the teams are working closely together. Senator Carper. OK. So I think you responded to the first half of the question, and I appreciate that. I think your response to the second half of the question--And when can we expect it to be provided?--you are saying ASAP. Mr. Willis. If that has not happened, I would expect it within this week. Senator Carper. All right. Thank you. A question, if I could, both for you, Mr. Willis, and this one you can share with Mr. Bennett. I understand that any claims denied by BP or that have not been handled in, I think, 90 days can then be brought to the government's Oil Spill Trust Fund. I believe no claims have been denied to date, which really I find hard to believe. Are you telling us that no one person has tried to take advantage of this system, that no one has put forth some sort of false claim? If they have, can you provide us with some examples and tell us why they have not been denied? Mr. Willis. What I can tell you is that we have not denied any claims to date. We have had thousands of claims put into the system. We have paid, as I mentioned in my testimony, $91 million worth of claims, and no claim has been denied. We have a variety of claims in the system, everything from a boat captain to a deckhand to a waitress to a lawn man, and we are looking at every claim we get carefully, and we are being fair and reasonable and practical in our evaluation of those claims. I also can tell you, Mr. Chairman, that you are right that we have up to 90 days to pay a claim, but so far, from the time a person calls our 1-800 number to the time they receive a check, once they have provided us with the documentation that substantiates their income or loss, for an individual it is running about 4 days on average, and for a business that has a claim less than $5,000, it is running about 6 days from phone call to actually walking out of the claims center with a check. So we are working hard to make sure the process is fair and expeditious, and I always preface my comments by saying that we have not denied any claims yet, because I suspect with the number of claims in our system that there will be some denials. But none have been denied to date. Senator Carper. All right. Thanks. Ms. Fleming. Mr. Chairman, may I add to that? Senator Carper. Yes, Ms. Fleming, please do. Ms. Fleming. I just wanted to note that for our ongoing work for you, we will be delving more deeply into the claims process. However, it is not unusual, when you are dealing with large catastrophes such as Hurricane Katrina, that the likelihood of improper payments and claims can occur. So it is really important that you have a framework in place so that you have reasonable assurance that an improper payment could be identified or detected. But at the same time, you also have to balance the need to have that structure with the need to try to make sure that your claims process is working effectively and efficiently. So you have to have that balance. We are going to delve deeply into this for you. Senator Carper. Well, good. There is a tension---- Ms. Fleming. There is a tension. Senator Carper. One, trying to be responsive; second, trying not to be foolish. Ms. Fleming. Yes. Senator Carper. Mr. Bennett, could you respond to this question I have asked of Mr. Willis? Mr. Bennett. Mr. Chairman, I would like to do that, because I have been asking BP as well--I would like to see some denials because I know that with 56,000 claims, there has got to be some. And what I found, my staff working with their staff and also information that comes in to us, we have a 1-800 number that is out there. Also, it is communicated to claimants when they get information from BP, if they have questions or concerns. Interesting to note, out of the 56,000 claims that have been submitted, we have had 256 calls in the last 5 weeks; 210 of those calls were really not about claims. They were about people's opinions about how the response is going. The 40 of the calls that were about claims, we contacted BP or we followed up with the people that called. We have been able to reach about half of them, about 20 of the 40 people, and then we worked with BP to find out what the situation is. What we are finding working with BP is that in most cases there is either an incomplete claim or not all the information is there, and it would appear to us that BP is trying to give the claimant every opportunity to get the right information and to understand how the process works before they deny. But I had a conversation this morning with some of Mr. Willis' folks about I want to see some denials because I want to understand it, because certainly when we start getting claims, if we get any, we will have the internal controls to make sure there is no waste, fraud, or abuse. And I have encouraged BP to do the same thing. I know they are. So I do not think it is an indication that they are not acting on it. They are just bending over backwards to make sure that before they deny, the claimant really did understand and had all their ducks in the row. Senator Carper. All right. Thank you. Thanks for that clarification. Mr. Willis, back to you, if I might. Going back to the conversation I had this morning with the folks in the U.S. claims monitoring team earlier today, they told me of some concerns they had involving the reported lack of denials, and we talked a little bit about this here. Specifically, there have been reports of individuals who come to BP with a claim that are being told that the claim--just are sort of told up front that the claim will not be covered, and so they never file it. In some of these, there might be claims that are actually coverable. And if so, maybe we are not really getting an accurate picture of the claims that are being accepted or denied, because ultimately people hearing that their claim is not coverable, they just do not make the claim. Have you heard of any such reports? And to what extent do you think this might be happening or not happening? And, Mr. Bennett, I would really appreciate it if you would sort of chime in on this as well. Mr. Willis. Mr. Chairman, I have not heard any reports like that, but I can tell you, given the fact that we have gone in the last 50 days from zero to 33 claims offices and from zero checks cut to thousands of checks cut and from zero to $90 million, that the process we have put in place is not perfect. And we have taken some steps to make sure people are aware in our offices that fraud is not going to be tolerated. We have posted signs in offices in English, Vietnamese, Spanish, and Khmer languages. And the process is not perfect, but I have not heard of any instances. I can also tell you that our process is an open claims process, and anyone who feels like they have been damaged, have property that has been damaged, or if they feel like they have lost income or wages as a result of the spill has a right to call our 1-800 number, go onto our Web site, or walk into one of those 33 offices and file a claim. And they should not be denied that right. Senator Carper. All right. Thank you. Mr. Bennett, do you want to take a shot at this again? Mr. Bennett. Yes, Mr. Chairman. One thing I would add, in addition to my earlier comments, is when we started asking about the number that was claimed, it is really cases opened, because you see this 56,000 number and then you see that there has only been 27,000 that have been paid. And the question that jumps to your mind is that there must be a lot of claims that have not been acted on. What we are finding is--and I do not know the number, and that is why we are working with BP to get more transparency. But what we are finding is that a number of claims--and we are finding this from the people that call us-- the claimants do not even--have not provided in some cases a dollar amount for what their damage is, so they filed the claim, but under OPA, if the claim were to come to us, there has to be a sum certain. You have to say what the dollar amount was, and you have to document what the loss was. So a certain number--and I do not know what the percent is--of those open claims are really--they are kind of tickets that somebody took, and a good example I know of is a hotel early on thought that you have to get in early because the $75 million is going to run out. So they took a ticket, they called the claims center to submit a claim. They are actually full from responders, so they have not suffered any loss yet. But they are holding, in case the response winds down and maybe later in the season they do suffer, then they can submit a claim for the actual demonstrated losses later in the season. But that ticket is sitting there open on the books, and that is why we are working really hard to try to get better transparency on what is happening with those claims and those tickets. Senator Carper. OK. Thanks. A question, if I could, both for Ms. Fleming and for Mr. Bennett. I do not know if it was Mr. Bennett or Ms. Fleming, but in the testimony of one of you, you state that BP may also choose to pay a claim with less documentation than the government would be required to obtain. I would like you to both take a moment and explore that comment a bit further. If that statement is true that BP is providing payments for claims that the government would not pay, what might that mean for the independent trust fund? And could this third-party process, following your office's guidelines, actually be maybe less liberal in its payments than BP? Mr. Bennett. Mr. Chairman, I can first address that, and we do know that BP is paying for things that are not necessarily OPA-compensable. They are entertaining personal injury claims, which are specifically precluded, and also because it is a private entity, they are not bound to the same Federal laws and even OPA. If they want to pay a claim, they can pay a claim. So they are leaning forward very hard, and if people are harmed from the event, whether it is really strictly OPA or not, it would appear that BP is being liberal. And at least in some cases, I am sure there are people that are not happy and getting paid. So we know that there are claims that have been paid that we probably could not pay under OPA. Senator Carper. All right. Ms. Fleming, do you want to comment on what Mr. Bennett has said in any way? Ms. Fleming. Well, he certainly has more insight into the current claims process, but it is my understanding that it is certainly within BP's prerogative to pay beyond the OPA- compensable costs. But as I highlighted earlier, BP has said that they will pay for all legitimate claims. But if for some reason that changes and they cannot or will not, then the trust fund could be threatened because we do not really know at this point the true costs of the spill. We will not know for many months or years to come. The spill has still not been contained, and we already know that the number keeps growing each day, in terms of the volume that is being spilled. So this is obviously an unprecedented spill, where the costs are already in the billions. Senator Carper. OK. Another question just for you, Ms. Fleming. How does the Deepwater Horizon spill compare to prior spills in terms of its special circumstances and sheer magnitude? Ms. Fleming. Well, I just highlighted a couple. It is my understanding that this has been the worst offshore platform spill in U.S. history. It still has not been contained. Exxon Valdez, by comparison, spilled about 11 million gallons and took a little over about $2.2 billion just to clean up. BP is at about $1.6 billion already, in terms of response costs as well as damage claims. It is going to take many months and years to really have a sense of the true costs of this spill and the impact to the environment and economy in those areas, as I do not think we have a good grasp on the full effects of this spill. However, but it is definitely unprecedented, and the magnitude will drive these costs. And as I said earlier in my opening remarks, there are so many factors besides the magnitude that come into play, including the location of the spill--which may have affected many species since it is the time of year when they migrate and breed. Additionally, the type of oil is a factor that affects costs. It is the type of oil that is very toxic and creates long-term contamination to the shores. So all these factors will influence and drive the costs of this spill. Senator Carper. I think your statement discussed factors that can affect the cost of cleaning up an oil spill like this. How do these factors come into play in the Deepwater Horizon spill? Ms. Fleming. Well, again, I think it is the location, along the Gulf Coast. It is an area that is in proximity to about 36 wildlife refuges. It is at a time of year when many birds migrate. Also, the location and the time of year are going to have and are already impacting the fishing and the tourism communities. Another factor is the type of oil that is being spilled, it is a light sweet crude oil, which is very highly toxic and long-term contamination effects. And top of it, you have just this unprecedented magnitude of oil and the fact that it still has not been contained. So all of these factors will interplay and will ultimately impact the final costs of the spill, which, again, may take us a long time to determine. Senator Carper. How much did you say was spilled in the Valdez accident? Ms. Fleming. It is my understanding that it was 11 million gallons, but---- Senator Carper. Does that sound about right, Mr. Bennett? Ms. Fleming. Mr. Bennett has confirmed---- Mr. Bennett. That is correct. Senator Carper. All right. And how much money was ultimately paid out? Ms. Fleming. Well, my understanding is that it is about $2.2 billion for the clean-up costs. I am not sure what the claims amount is. Mr. Bennett may have a better handle on this, and I am not sure if it is fully settled, quite frankly. Mr. Bennett. Yes, Mr. Chairman, Exxon has reported that they spent $3.5 billion for the response and claims and damages. And we would not know the details because since they paid the bill and did not submit a claim for any kind of limit, all we know is what they report. Senator Carper. All right. So that was, I think you said, 11 million gallons. And do you know in terms of the amount of oil that has leaked to date--can anybody help me with how much we believe has actually leaked today? It seems like the amount of the leak has grown, as you know, over time. Now at least it looks pretty small from the first day, but now it is going to be enormous, and despite our efforts, despite BP's and other efforts. But somebody help me out. In terms of comparing this to the Valdez, 11 million from Valdez, 11 million gallons, and where are we today, with the meter still running? Anybody know? No. All right. So $3.5 billion from Exxon Valdez. Was that everything all in? Mr. Bennett. That is what has been reported by Exxon according to our records, yes, Senator. Senator Carper. And they paid that? Mr. Bennett. They paid that. Senator Carper. They paid that. Mr. Bennett. Yes, that was Federal response cost then, as now, and Exxon reimbursed the Federal Government for those costs. Senator Carper. All right. That was about 20 years ago, and we are 20 years later with a different amount of oil, and most people are saying more this time than last time, maybe even in more fragile areas of our country. I would just ask Ms. Fleming--and others are welcome to respond, if they would like--do you find comfort in a $20 billion independent fund? That seems like a lot of money. Is your reaction that ought to be enough, that might be enough? Do you have any thoughts? Ms. Fleming. Well, I think when we are dealing with such an unprecedented spill that it is likely to have catastrophic consequences, all options needs to be considered. And I think that anything that will both make the communities whole and at the same time to try to preserve the viability of the trust fund is certainly a step in the right direction. But I would say that it is going to be important with the details how it is implemented. I think the legal structure in terms of the laws and regulations and whether or not the liabilities are impacted, all these things are still questions that need to be addressed and answered. How this new process will interact with the existing process that is in place that BP and NPFC have established, I think these are all questions that probably need to be explored and addressed. Senator Carper. All right. Anybody else want to take a shot at that one? Mr. Bennett. Mr. Chairman, I would just say that over the last 19 years since the National Pollution Funds Center was stood up after the Exxon Valdez, there has been over 11,000 spills that have accessed the fund. In every single one of those until now, there was a defined amount. A container, a ship can only hold so much oil. So in every single one of those, there was an event, there was a spill, and then we commenced the clean-up. This is unprecedented because we are still in the middle of the spill. It is still spilling. So this is really more than an event. This is a campaign. And that is what really makes this so different and so hard to anticipate and measure and forecast because it is unprecedented. And I would say the $20 billion that the President got in an agreement with BP last night is--I would say it is a very good assurance to the American people that BP intends to stay in this for the duration. Whether it is enough or not, I think it is too early to tell. Senator Carper. Yes. All right. Thank you. Mr. Willis, BP has promised, I think since the beginning, that the $75 million liability cap that we have been talking about here would essentially be irrelevant. And with the discussions and negotiations at the White House, I guess yesterday and today, do you know if BP and the Federal Government entered into any kind of contractual agreement to this effect? Mr. Willis. Mr. Chairman, I do not know. Senator Carper. All right. A question, if I could, for Mr. Newman. Last month, Mr. Newman, you filed a petition in Federal court under the Shipowners' Limitation of Liability Act to limit your liability for the Deepwater Horizon accident to $27 million. As the owner of this facility, shouldn't you bear some more, some additional responsibility greater for the cleaning up of the damage that is being caused by the oil spill? We talk, on the one hand, about a trust fund of as much as $20 billion, and that BP and the other owners of the well would be assuming. And your company has suggested that your liability is limited to $27 million. Mr. Newman. If I could offer a couple of comments to clarify that, Mr. Chairman. Senator Carper. Please. Mr. Newman. First of all, the filing of the limitation of liability action was done as a result of two things: First of all, a direct instruction from our insurance underwriters to file that action; and in terms of the company's ability to meet our obligations, the preservation of our insurance program is a vital asset of the company. And so we responded, we complied with our insurance underwriters' directive to file that limitation action. The second reason we filed the action was to consolidate all of the non-environmental claims, all of the numerous personal injury lawsuits that are being lodged against the company in multiple venues, from States, Federal court. The limitation of liability action serves to consolidate all of those non-environmental claims into one venue. So there were two reasons we filed that. The number that the Chairman referred to, the $27 million, is a calculation, according to the statute, and so we applied the statute and we applied the methodology in the statute to calculate that number, and that $27 million is an outcome of that calculation. Senator Carper. All right. I am not quick enough on my feet to be able to figure out what percent of $20 billion $27 million would be, but it has got to be a small percentage. Mr. Newman. The limitation of liability applies to non- environmental claims, so it is only in response to personal injury claims. The environmental claims are handled under the OPA process that Mr. Bennett has laid out. Senator Carper. All right. Thank you. Mr. Bennett, another one for you, if I may. Your office is in charge of the government's Oil Spill Liability Trust Fund and manages any claims made to that fund. I understand you have been in pretty much constant contact with BP claims officials since the whole process began. Is that a fair statement? Mr. Bennett. That is a fair statement. Senator Carper. What instructions has the White House given you about how this newly created independent trust fund might interact with your office and with the current claims process being led by BP? Mr. Bennett. Mr. Chairman, we are still working the details of that out, so we do not have anything to say about that right now because that was done at a pretty high level and just in the last day or two. I think in the coming days we will be meeting and working out the details. Senator Carper. OK. Do you expect that process to start right away? Mr. Bennett. I cannot say. Senator Carper. All right. Thank you. Mr. Newman, if I could for you, please. I understand that Transocean has rejected a claim of, I think it is called, force majeure from Anadarko yesterday. As I understand it, force majeure relieves a company from liability when it cannot fulfill contractual obligations because of natural and unavoidable catastrophes. Could you just go back and explain for us why Anadarko made this claim and why Transocean rejected it? Mr. Newman. I believe, Chairman, that Anadarko's claim of force majeure would be in response to the Administration's moratorium on deepwater drilling activity in the Gulf of Mexico. And, because those are ongoing discussions between Transocean and Anadarko, I would prefer to let those conversations carry through to their conclusion, before I comment too freely on the current state of those conversations. Senator Carper. All right. Another question for you, and then I have one for Ms. Fleming, and then maybe a closing statement. You have heard your colleagues at this panel give their testimony. You have heard them respond to the questions that have been asked of them, and you have given an opening statement. I am going to ask you to give just a very brief closing statement and any reflections or any additional comments you would like to bring, particularly in response to what you have heard others say, or not say. But be thinking about that, please. Meanwhile, for Mr. Newman, I understand that State lawmakers both I think in Louisiana, I think in Mississippi have invited officials from Transocean to participate in hearings that they are holding to examine the spill's effects on residents in those States. I also understand that Transocean has declined to send any representatives to those hearings. And while I understand how busy you and your team have to be right now and I appreciate very much your appearance before our Subcommittee today. Why has Transocean decided not to send representatives to those hearings? And could you commit for us today to work with local lawmakers to provide the answers that they are seeking from Transocean? Mr. Newman. Mr. Chairman, we were unable to participate in the Mississippi hearing, and despite our inability to participate, we have been responsive to the Mississippi lawmakers' request for information. We have provided them with all the same documentation that we have provided to the Federal Administration and to Congress. We have a representative who is attending the Louisiana hearing, which I believe is taking place tomorrow. So we are able to participate in the Louisiana hearing. We were unable to participate in Mississippi. Senator Carper. Well, again, we appreciate your being here today. You said you have somebody at the Louisiana hearing? Mr. Newman. We will have somebody at the Louisiana hearing tomorrow. Senator Carper. We appreciate that, and I am sure they appreciate that in Louisiana. I would urge you to continue to work with the local folks down there to provide the answers that they are seeking. Finally, a question for Ms. Fleming. How does the Deepwater Horizon spill--no, I am not going to ask that. I think we have beaten that one enough. I would just ask you to think, reflect back on the conversation we have had here today, the questions that have been asked, some of the responses given, maybe some of the questions not asked, and just make some short closing thoughts for us before I close it out. Ms. Fleming. I think we have covered the fact that we are dealing with a spill that is---- Senator Carper. Let me just interrupt. For you especially, a question that my colleagues and I should have asked that we did not, if you can think of that before we adjourn here, that would be good, too. But go ahead. I am sorry I interrupted you. Ms. Fleming. OK. Sure. I think we basically have covered the fact that we are dealing with a spill that is unprecedented in nature. It is clear that it is going to take many years until we have a real good sense of the costs. We already have determined that it is probably going to be of greater magnitude than we have seen in history. The trust fund is in place to cover liability costs for parties, responsible parties that cannot be identified or cannot pay costs. We have heard and BP continues to say that it will honor and pay all legitimate claims, the $20 billion escrow account is certainly a step that can be a vehicle for that and to try to make the communities whole. If for some reason the costs just get to be a point where they cannot or will not, I think the trust fund is threatened or could be threatened, and that obviously comes into play in terms of future spills or even being able to pay the claims that we are still seeing from the 2007 San Francisco spill and others. Senator Carper. All right. Thanks. Mr. Bennett, any closing thoughts you would like to leave us with? Mr. Bennett. Mr. Chairman, I would just like to say that the Coast Guard and all of our Federal partners and State and county and parish partners on this response are unrelenting. I spent 4 days down in the Gulf at the end of last week and through the weekend. The work is phenomenal. We know the American people are not happy. We know not everybody feels that they have been treated well and that the right thing is happening. The National Incident Commander, Admiral Allen, is moving heaven and earth to respond to these things, to be more transparent, to get answers to questions that people have. We know we owe it to the American public, and we are doing what we can to do that. Senator Carper. All right. Thank you. Mr. Newman, a closing thought, please? Mr. Newman. Thank you, Mr. Chairman. The closing thought I would like to leave is the way business is conducted on the outer continental shelf is pretty fundamental. And it is a result of the statutory framework that Congress has established, it is a result of historical industry practices, and it is a result of the contractual relationships between the parties. So if you think about the process that the well owner goes through in identifying and securing the lease through an arrangement with the Federal Government, in developing an exploration program for that lease, in designing a well or wells to carry out that exploration program, in hiring a number of subcontractors to help them execute that well design, and then benefiting from assessing the commercial quantity of hydrocarbons in those wells, and then benefiting from the production of those hydrocarbons--all of that creates a process of ownership and control for the well owner. And the well owner derives all the benefits from that ownership and control. So in terms of establishing that framework as it applies to liabilities, I think it is appropriate for the well owner who derives benefit from the production to also bear the risk if those hydrocarbons are released into the environment inadvertently. Senator Carper. OK. Thank you. Mr. Willis. Mr. Willis. Mr. Chairman, what I would say is that I am here as a representative of BP, but I am also here as a representative of the Gulf Coast. And as much as BP is counting on me, the members and citizens of the Gulf Coast are counting on me as well. And we have said from the beginning that we would do the right thing, and I am confident that we will. We have an obligation to pay for the damage that has been caused by this spill, and we will. And we are serious, and we have to continue to demonstrate a seriousness to the response that we have underway in the Gulf of Mexico. And hopefully through things like the block grants that were given to the States, for $175 million, the $70 million for tourism, the $90 million in claims we paid to date, and today the announcement of the $20 billion escrow fund, we are demonstrating our seriousness to fixing the challenges that have been created as a result of this spill along the Gulf Coast. We will do the right thing. We will do the right thing not only because it is the right thing to do, but because the folks of the Gulf Coast are counting on us to do the right thing. And we realize at the end of the day our company will be judged by how we respond to this spill. Senator Carper. I expect you are right. I will close with just reflecting, if I could, what you just said that caused me to think of this. The four core values that I have tried to instill in any organization I have been privileged to lead, whether it was in the U.S. Navy or State government or the Federal Government, really fourfold: One, figure out the right thing to do and just do it; Two is to treat other people the way we would want to be treated if we were in their place; the third is really to focus on excellence. I like to say if it is not perfect, make it better. I know everything I do I can do better. And, last, just do not give up. And I think those are actually four pretty good core values to bring to bear to this catastrophe that we face and are dealing with in the Gulf of Mexico today. We have, sadly, in this country an enormous dependence on foreign oil. We have, I guess, 60 percent or so of our oil that we consume in this country, use in this country, comes from other places around the world, some of it from unstable nations, undemocratic nations, and I fear as we fill up our gas tanks in our cars, trucks, and vans every week that we end up inadvertently sending money to some places, some people, leaders like Ahmadinejad in Iran and Chavez down in Venezuela. And I am convinced some of those countries use our money to hurt us. We have found in this country that some of the low- hanging fruit, some of the easier-to-recover oil, we have extracted that. And a lot of the oil that is available today is in hard-to-reach places, as we found out all too dearly here in the Deepwater Horizon spill and some places where we invite not just danger but calamity, disaster. We have to be smarter than this, and I realize that we are going to be dependent on petroleum in this country for some time, but I hope, if nothing else, that we will use this awful experience to do what Einstein encouraged when he said, ``In adversity lies opportunity.'' And in the midst of all this adversity, to find the opportunity not just to stand up and meet your obligations, as I think, Mr. Willis, you are attempting to do on behalf of BP, but that we will find a way to move away from our dependence on fossil fuels, on petroleum, especially the stuff that is in these unstable countries around the world and in place where it is hard to extract, and that we will find some opportunity and a way to move our economy in a new direction. I think there is that opportunity, and we just have to be smart enough, as we like to say in Delaware, carpe diem, to seize the day. We need to seize the day. First, we have to get through this day, through these days and these weeks and these months in a way that gives not just the people in the Gulf of Mexico but the people of this country the satisfaction that our best has been done and will continue to be done on behalf of those who have been harmed and that we do our dead level best to make sure this just does not happen again. Our thanks to each of you for joining us today, for your testimony, and for your responses to our questions, and some other Members of our Subcommittee will want to ask questions for the record. They will have that opportunity. They have 2 weeks to submit those questions, and we would ask that you respond to them promptly. Again, our thanks, and with that this hearing is adjourned. Thank you. [Whereupon, at 5:12 p.m., the Subcommittee was adjourned.] THE GULF OF MEXICO OIL SPILL: ENSURING A FINANCIALLY RESPONSIBLE RECOVERY--PART II ---------- THURSDAY, JULY 22, 2010 U.S. Senate, Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, of the Committee on Homeland Security and Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 2:30 p.m., in room SD-342, Dirksen Senate Office Building, Hon. Thomas R. Carper, Chairman of the Subcommittee, presiding. Present: Senators Carper, McCaskill, McCain, and Ensign. OPENING STATEMENT OF SENATOR CARPER Senator Carper. The Subcommittee will come to order, please. Well, good afternoon, or as we say in Delaware, konnichiwa. A week ago today, BP successfully placed a containment cap on the Gulf of Mexico oil well which had blown out nearly 86 days before. It is a welcome development and one which many in our Nation were probably beginning to doubt they would ever see. While this accomplishment brings us cautious hope, that cautious hope is tempered by the harsh reality of what is left in the wake of this disaster: The 11 men who lost their lives on the Deepwater Horizon rig and who leave behind families who are forever altered by this horrific accident; the over 185 million gallons of crude oil dumped into the Gulf of Mexico, which blackened beaches and damaged countless wildlife habitats; and the businesses and communities which some fear may not be fully rebuilt for a generation or more. Indeed, while we may have removed the bull from the china shop with the capping of this well, we have a lot of pieces left to pick up. Last month, our Subcommittee held a hearing to explore how we were ensuring America would be made whole again following this disaster--without putting a hole in our pockets. We learned that the U.S. Coast Guard has been tracking the Federal costs in responding to the oil spill and sending bills to the responsible parties for reimbursement. To date, the Federal Government has billed the responsible parties for over $222 million in incurred costs. The most recent bill--totaling over $99 million--was sent last week. At our hearing last month, we learned that BP had been cutting the checks for these invoices, and they promised us that they would continue to do so for as long as we continued to send them. While BP is the principal owner and operator of the oil well and is recognized by the government as the primary responsible party, there are other companies who have also received these bills and have obligations under Federal law-- among them, Anadarko Petroleum Corporation, which owns a 25- percent stake in the oil well, and MOEX Offshore, which owns a 10-percent stake. But while the Federal Government has received payments from BP for taxpayers' costs, we still have not heard back from Anadarko or MOEX. This Subcommittee has obtained invoices that BP sent these two companies asking them to share in the costs of responding to the spill so far. We have also received the companies' responses to those bills, and it is clear that they have declined to date to pay them. In the event that BP is unwilling or unable to continue carrying the full weight of this spill's costs, the American people will want to know who else is responsible. Under the law, Anadarko and MOEX are responsible and liable for this spill. Today I hope to hear more from them about how they view their relationship with BP and their roles in responding to and helping to pay for this disaster. Our hearing last month also featured testimony from the Government Accountability Office, which reported significant ongoing risks and vulnerabilities related to the Oil Spill Liability Trust Fund. This fund is responsible, as you know, for claims made by individuals and businesses who are denied or left unsatisfied by BP's claims process. Since that time, President Obama and senior BP officials have announced a new independent claims process that would be created and funded by a $20 billion escrow fund established by BP. Kenneth Feinberg, who joins us here today--former Special Master of the 9/11 Victim Compensation Fund, among other distinctions--was named by the Administration to be the Administrator of this new claims regime. Today I look forward to hearing from Mr. Feinberg about his progress to date and how the fund he manages will interact with the statutory framework that already exists within the Oil Spill Liability Trust Fund. Our collective sigh of relief due to the good news coming from the Gulf in recent days should not distract us from the significant challenges that lie before us. And while the well may now be capped, this spill will continue to play out at the kitchen table of every American whose livelihoods and way of life have been affected by this calamity. My colleagues and I will do whatever it takes to get residents of the Gulf Coast back on their feet again, to protect our Nation from the costs and impacts of this spill, and to make sure that those who are responsible for this disaster are held to account. As my friends at the witness table may have noticed, we were joined briefly by Senator McCaskill, and my guess is she is going to be rejoining us here in just a moment. And rather than wait until that moment occurs, what I am going to do is begin the process of witness introduction, and this will not take too long, so hopefully she will beat the clock and be ready to make a statement, if she would like, before witness statements begin. On panel one our first witness today is Kenneth Feinberg, Administrator of the Gulf Coast Claims Facility. The Gulf Coast Claims Facility site the new independent claims process funded by a $20 billion escrow fund established by BP. Prior to his appointment as Administrator, Mr. Feinberg served as Special Master of the September 11th Victim Compensation Fund and Special Master for Compensation. Welcome. Mr. Feinberg. Thank you, Mr. Chairman. Senator Carper. Our next witness is James Hackett. Mr. Hackett is Chairman and Chief Executive Officer of Anadarko Petroleum Corporation. Anadarko, as many know, is one of the world's largest independent oil and natural gas exploration and petroleum companies and owns a 25-percent interest in the Deepwater Horizon oil well. And our final witness today is Naoki Ishii, President of MOEX Offshore 2007. Mr. Ishii has worked with Mitsui Oil Exploration, MOEX's parent company, for nearly 20 years. MOEX Oversight owns a 10-percent interest in the Deepwater Horizon oil well, and we welcome you to our country and particularly to this hearing today. Thank you for coming. Domo arigato. All right. Mr. Feinberg, and to our witnesses, I am going to ask you to lead off for us. Each of you will be given roughly 5 minutes. If you go a little bit beyond that, I will not complain, but I would ask you to try to stick fairly close to that. If you go way over that, we will have to rein you back in. But your entire statement will be made part of the record, and I would ask you to proceed at this time. TESTIMONY OF KENNETH R. FEINBERG,\1\ ADMINISTRATOR, GULF COAST CLAIMS FACILITY Mr. Feinberg. Thank you, Mr. Chairman. I understand the rules governing the 5 minutes. As a former special counsel to the Senate Judiciary Committee and former chief of staff to a colleague of yours, Senator Edward Kennedy, it is good to return to the Senate to testify. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Feinberg appears in the Appendix on page 115. --------------------------------------------------------------------------- I want to thank you for this opportunity to testify. Yes, I am the independent--and I want to emphasize ``independent''-- Administrator of the Gulf Coast Claims Facility. Now, that was a facility established by agreement between the Administration and BP to set up a process, a voluntary process to invite any claimant in the Gulf, or elsewhere, that has an eligible claim arising out of the spill to voluntarily come in, have their claim evaluated, and if it is found eligible and calculated correctly, that individual or that business would be entitled to compensation out of a $20 billion escrow fund that was established by BP and the Administration. I am not part of that escrow fund. I did not create it. I have not negotiated it. I am strictly drawing on it, beginning next month, in order to pay all eligible claims. Now, hopefully the $20 billion will be sufficient to cover all claims not only from my facility but also government claims--Federal, State, local--which I have no jurisdiction over. Any government claim must be filed by that governmental entity against BP. The facility that I have been asked to administer will deal with individual claims--wages, etc.--small and large private businesses--business interruption, lost profits, etc. So I am in charge of a facility that will draw on the $20 billion, but I am not the exclusive distributee. Governments will also draw on it. Now BP has stated, as you know, Mr. Chairman, that if the $20 billion is insufficient, it has stated publicly that it will honor any and all eligible financial obligations above the $20 billion. So it is not a capped amount in terms of BP's financial obligation to pay claims. Now, as I get ready to transition from the BP claims process, I note with some degree of credit that BP has already paid over $200 million in claims without my involvement, without this new facility. So they have set up 35 claims offices throughout the four-State Gulf region to process claims and have been doing so. I believe we will do better. I think we will accelerate the claims process, make it more efficient, allow people to file online on the Internet without ever even visiting a claims process. But I am confident that when the claims facility is up and running next month, it will have a seamless transition from BP, which will be out of the private claims business and will be part of this facility. There are difficult challenges ahead. What constitute eligible claims for damages? How are those damages going to be proven? I mean, you cannot just file a claim without any corroboration. But I will work with the people of the Gulf. I am not beholden to the Administration. I am not beholden to BP. I am working for the people and the businesses in the Gulf to try and make sure that equity is done, that justice is done, and that I distribute the funds that are available as soon as I can. I want to note with gratitude the staff of this Subcommittee. I have been working with the staff of this Subommittee over the past few weeks in trying to listen to concerns that have been expressed by you and other Members of the Subcommittee, by citizens of the Gulf. I have been coordinating with the staff and will continue to do so. So I am fairly confident that, despite the challenges ahead, we will be able to make this facility function the way it should independently so that the citizens of the Gulf are served by this program. Thank you, Mr. Chairman. Senator Carper. Thanks very much, and I think I speak for my colleagues to say thank you for taking on this responsibility. Mr. Hackett, welcome. We are delighted that you are here. Please proceed. Thank you for joining us. Mr. Hackett. Thank you, Mr. Chairman. Senator Carper. Again, your full statement will be made part of the record, and feel free to summarize. TESTIMONY OF JAMES T. HACKETT,\1\ PRESIDENT AND CHIEF EXECUTIVE OFFICER, ANADARKO PETROLEUM CORPORATION Mr. Hackett. Thank you. I am eager to be here to answer questions. I am Jim Hackett. I serve as Chairman and Chief Executive Officer of Anadarko Petroleum. I just wanted to make some brief oral comments that are consistent with the written comments that we gave to your Subcommittee. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Hackett appears in the Appendix on page 117. --------------------------------------------------------------------------- The Deepwater Horizon explosion has been an unprecedented environmental disaster, as well as has impacted many families of the 11 men lost. And our feeling is that this pain continues in terms of the Gulf Coast region and the communities in that region. And while BP's capping of the well has, I think, brought guarded hope that the situation may soon be brought under control, we must continue to keep the people of the Gulf in our hearts and prayers until the environment and the economy there have recovered. We, along with others in the industry, have continued to support the response effort of the Unified Area Command, offering technical expertise, providing specialist equipment, and pledging to donate any net revenues from any oil we receive to local charities and civic organizations in the Gulf region. We share the desires of all Americans that we are arriving at a point where efforts can now turn to restoring the Gulf region as quickly as possible. The Gulf has already suffered significance losses, and the Subcommittee is rightly concerned that American taxpayers must not pay the costs associated with the spill. We appreciate BP's recognition of its central role as operator of the well and its frequently stated public commitment to continue to pay all legitimate claims in order that the American taxpayers are not burdened. To prevent that from happening as well, we are committed to meeting our obligations under the Oil Pollution Act. Let me reemphasize the central point for the Members of the Subcommittee and you today. I strongly believe that the taxpayers of America should not be stuck with the bill for the tragedy in the Gulf. I am before you today because Anadarko was a non-operating investor in the Macondo well. According to longstanding industry practice and standard contractual arrangements, as a non-operator we are essentially a passive investor in the Macondo well. Although we receive some limited information regarding plans and progress, all day-to-day operational decisions were made by the operator, BP. Our company and our industry have many highly skilled and committed individuals that work hard every day to safely deliver the energy resources America needs. All energy resources must be found, developed, and produced safely and in a manner that protects the environment. We all agree the well must be plugged, those that have suffered related losses must be compensated, and the Gulf must be restored. I and the 4,300 employees of Anadarko are eager to help make that happen. I look forward to your questions. Senator Carper. Good. Mr. Hackett, thanks for that testimony. Mr. Ishii, please proceed. TESTIMONY OF NAOKI ISHII,\1\ PRESIDENT, MOEX OFFSHORE 2007 LLC, ACCOMPANIED BY FUJIKO SATO, INTERPRETER Mr. Ishii. Chairman Carper, Ranking Member McCain, thank you for the opportunity to testify at today's hearing. I am Naoki Ishii, President of MOEX Offshore 2007 LLC, based in Houston, Texas. MOEX Offshore 2007 LLC has a 10-percent non- operating interest in the lease on which the Deepwater Horizon rig was drilling. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Ishii appears in the Appendix on page 120. --------------------------------------------------------------------------- We are deeply saddened by the tragedy of the Deepwater Horizon accident. Our thoughts and prayers go out to the families of those who were lost and to all of those who have been affected by this spill. We understand the significance of this matter to the people of the Gulf Coast. MOEX Offshore will continue to cooperate with all of the parties who are responding to and investigating this accident. MOEX Offshore does not conduct actual field operations or activities to develop oil and gas. MOEX Offshore had no role in the selection or operation of the Deepwater Horizon rig. We are a minority non-operating investor. MOEX Offshore shares the Subcommittee's concerns about these tragic events. We are closely monitoring the ongoing investigations. We look forward to working in good faith with Congress. MOEX Offshore will work with all levels of government to assist in their efforts to restore the Gulf Coast. I have submitted written testimony to the Subcommittee that supplements this statement. I look forward to answering your questions. Thank you again for the opportunity to share MOEX Offshore's view. Thank you very much. Senator Carper. Thank you for your oral testimony and for your written testimony. I have been joined by Senator McCain and Senator Ensign. I have asked Senator McCain if he wanted to make any brief statements, and he has declined. And, Senator Ensign, would you like to as well? OK. Mark this day as an unusual day when we have my colleagues on either side declining that opportunity, but we will get right into the questions. I am glad my colleagues are here. I will just lead off with a question for Mr. Hackett and Mr. Ishii. Let us do 7 minutes for questions, if we could, for each Member. Mr. Hackett and Mr. Ishii, as you both know, your companies, Anadarko and MOEX, have received, I believe, four bills from the Federal Government for costs related to this spill. It appears under the law that your companies are liable for these costs. However, we have yet to see any reimbursement for these costs from your companies. Could you please tell the Subcommittee and the American taxpayers watching us today why Anadarko and why MOEX believe that you do not have to pay? Mr. Hackett, would you like to go first? Mr. Hackett. I would be happy to, Senator Carper. The important thing to note is that the taxpayers are being paid, and this operates very similar to the Superfund legislation on which the Oil Pollution Act was based or formed from, and that is that the operator or the lessee is the primary payer, and then the allocation of liability occurs behind that payment. So we view this as a very good process, a very standard process in terms of billing, and the important thing is the American taxpayer is being kept whole. Senator Carper. Let me ask you again: Why do you feel you do not have to pay? Just one more time explain it. Why do you feel that Anadarko does not have to pay in response to billings from the Federal Government? Mr. Hackett. The Federal Government is being paid. BP is paying the Federal Government, has stated that they want to continue to do that. Should the American taxpayer be paid double? As long as there is a paying party--and this is the same way it works under the Superfund regulation as well, and the Administration. And I think even the testimony from the government witnesses to your Subcommittee in the earlier hearing ascribed to the same principle. As long as the American taxpayer is kept whole, that is the key. And then the allocation of reimbursement is done behind that payment between the parties involved. Senator Carper. All right. Mr. Ishii, the same question, if I can. Can you please explain to our Subcommittee and to the American taxpayer watching us today why you feel that MOEX does not have to pay in response to the billings presented to it by the Federal Government? And we understand, to those who have joined us in person here or through the media, that Mr. Ishii gave his testimony orally in English. He will be working through an interpreter to respond to our questions. Mr. Ishii [through interpreter]. Mr. Chairman, regarding the invoice from the Coast Guard, there is a contract in place among the partners, and that contract states that BP, as the operator, would make the payments in the first instance. And, therefore, based on that contract provision, BP has been making the payments. Senator Carper. All right. A question again to follow up, if I could, for you, Mr. Hackett, and for you, Mr. Ishii. Have either of your companies contacted the National Pollution Fund Center to contest what we describe or call a Notice of Designation? In other words, have you told the Federal Government really to stop sending you these bills? Mr. Hackett. Mr. Hackett. We have not, Senator. Senator Carper. Could you explain why or do you anticipate what your anticipation is in terms of contesting this notice or reaching out to the Federal Government to ask them to stop sending the bills? Mr. Hackett. No. We actually have stated publicly that we view ourselves as being a responsible party under the Oil Pollution Act, so we do not see a need to send that note. Senator Carper. All right. Mr. Ishii, if I may, the same question. Has your company, has MOEX contacted the National Pollution Fund Center to contest the Notice of Designation? And have you told the Federal Government to stop sending your company these billings? Mr. Ishii [through interpreter]. Mr. Chairman, I do not have any recollection that we have been contacted by them, nor of any response that we made to them. Senator Carper. I see. May I ask you to go beyond your recollection and respond to us in writing for the record, please? Mr. Ishii [through interpreter]. Mr. Chairman, I understand. I will do that. Senator Carper. Thank you. Next question, again for Mr. Hackett and Mr. Ishii. Our Subcommittee received documents, I am told, this week that show BP has now sent your companies two bills for a share of the costs that have been incurred. I believe that the most recent bill to Anadarko totaled some $900 million and to MOEX I believe about $400 to $450 million. I think I know the answer to this question, but I will ask it anyway. Will either of your companies be paying these bills? Mr. Hackett. Mr. Hackett. Senator Carper, as has been reported, we have withheld reimbursement to BP. Again, the taxpayer is being kept whole, which is the important thing. We have a dispute behind our own agreement between the parties that I think is better left to the parties, and that is where we stand, and we are in discussions with BP on that. Senator Carper. All right. Mr. Ishii, same question, please. Mr. Ishii [through interpreter]. Mr. Chairman, regarding the invoice from BP, what we are most interested in is, first, to try to find out why this tragic accident occurred, and so we need to first clarify the cause of the accident. I think it is a little too early to talk about things that would follow because we have to wait for the cause to be clarified. However, we have properly stated that any proceeds that would be obtained from the recovered crude oil should be used for the people in the Gulf Coast impacted by this accident. And, therefore, we have relinquished our rights to those proceeds. Senator Carper. All right. To my colleagues, I indicated we would go 7 minutes. I am going to go one more minute, and then everyone will have at least 10 minutes. Just to follow up, if I could, again, for Mr. Hackett and Mr. Ishii, as a responsible party under the Oil Pollution Act, your companies are joint and severally liable for damages relating to the Deepwater Horizon incident. If BP begins to pay only their share, what they believe to be their share of the bills received from the Federal Government, will Anadarko and MOEX pay their respective shares in the interim? Or will you wait to litigate this issue with BP? Mr. Hackett. Mr. Hackett. Senator, I think that the arrangement that is currently underway, as I mentioned, is very typical and I think the right arrangement for the government to have with the operator. We expect, as BP has committed to and as the government has suggested they will do, that those arrangements will stay in place. We think it is the best thing for the American public. We think it is the best thing for the taxpayer. And I think that the contractual issues between the parties can be sorted out separately. Senator Carper. Have there been communications between Anadarko and BP on this issue as to whether or not they intend to continue to pay 100 percent of the billing or if at some point in time they anticipate saying that is enough and to invite their partners to pay their share? Mr. Hackett. We understand--we have not asked them for any modification of their public, frequently repeated commitment to pay all bills first. Senator Carper. All right. I will stop there and yield, if I could, to Senator McCain. Thanks for joining us today, Senator McCain. Senator McCain. I thank the witnesses. Mr. Hackett, BP has set aside $20 billion in an escrow fund. Has your company set aside any funds? Mr. Hackett. We have not, Senator McCain. Senator McCain. Why not? Mr. Hackett. We do not think it is necessary to do so. Senator McCain. Look, here are the following facts: The Federal Government has named four companies as ``responsible parties'': Deepwater Horizon/Transocean, BP, Anadarko, and MOEX. And under the Oil Pollution Act, responsible parties, which you have been named one of, are obligated to pay all cleanup costs and economic damages. So right now, my understanding of the law is that responsible parties have to pay. But you are not paying. Is that right? Mr. Hackett. Senator McCain, if I can go back again, the issue is one---- Senator McCain. Are you paying or not paying? Mr. Hackett. We are not paying. Senator McCain. And you have not set any money aside. Mr. Hackett. We have not set any money aside, but we have substantial assets. Senator McCain. You have been billed for $900 million. What would be wrong with going ahead and paying that, and then if you can prove gross negligence or willful misconduct from BP, you would then get that money back? Because right now the people who are in the Gulf need the money, not the litigation. Mr. Hackett. Senator, as I understand it, nobody is being disadvantaged today from our lack of setting up that sort of fund. Senator McCain. Because BP is paying the whole bill. Mr. Hackett. BP is paying the bill, and they have committed to doing that, and---- Senator McCain. Even though you are designated as a responsible party. Mr. Hackett. We may be confusing two different issues. Under that Oil Pollution Act, I think that any proceedings there, as I mentioned, traditionally have occurred similar to the Superfund where the operator pays the bills first, and then they allocate the responsibility amongst the parties. Senator McCain. Well, let me turn to Mr. Feinberg. By the way, thanks for all your good work. Your reward will be in heaven, not here on Earth, Mr. Feinberg. We thank you for all your great work. Mr. Feinberg. Well, your praise helps heaven. Thanks. [Laughter.] Senator McCain. Mr. Feinberg, do you agree with me that there are ``responsible parties'' here under the Oil Pollution Act? Mr. Feinberg. I do not know. All I know is that the Administration and BP entered into an agreement to set up an escrow account for $20 billion, which I will draw on. I do not know. And it can be on that. Senator McCain. You do not know anything--do you want to venture an opinion? Mr. Feinberg. No, I am not an expert in the field, and I would not dare venture an opinion. Senator McCain. Now, Mr. Feinberg, you have ventured many opinions of which you are--and so have I, on which we are not experts. But, anyway, let me, Mr. Feinberg, again thank you and thanks for going down and meeting with the people and talking with them. I think that is really vital, and I thank you for doing that. I have seen a lot of clips of you because they not only need support, financial support, but they need sympathy and understanding, so thank you for doing that. Mr. Feinberg. Thank you. Senator McCain. Do you believe that local government should be compensated for lost tax revenue and reimbursed for additional expenditures related to the response and cleanup efforts? Mr. Feinberg. Yes. Senator McCain. You do. Mr. Feinberg. Yes, I do. Senator McCain. And where should that come from? Mr. Feinberg. Under the arrangement entered into on this Gulf Coast Claims Facility Center that I am setting up, any government claim--local, State, Federal--does not go to me. By agreement, it goes to BP. I have no jurisdiction yet--maybe it will change, but I have no jurisdiction over reviewing and authorizing payment for government claims, but they do come out of the $20 billion escrow account. Senator McCain. OK. During one of your town hall meetings, you were asked about claimants who work or operate in all-cash businesses and do not necessarily have tax returns, profit and loss statements, and check stubs. You were quoted in a July 16 article as saying, ``Well, tell the captain of the boat or your priest to vouch for you.'' Does that maybe open the door for a little bit of fraud here? Mr. Feinberg. I have reminded everybody down there I will bend over backwards to try and authorize emergency payments to people in need down there. Now, I agree with you, Senator, as I usually do, that it does raise a real serious question. I have told everybody in the Gulf that even if I authorize payments, I must send them by law a 1090, tax verification. Hopefully we will find a way to prove those claims without at the same time encouraging fraud. That is a challenge. Senator McCain. And so do you have a policy or a way that you could preemptively take measures or steps to prevent fraud? Mr. Feinberg. Yes. First, we have been in constant communication with the Department of Justice, Criminal Fraud Division. As you will recall, Senator, in the 9/11 Victim Compensation Fund, there were 7,300 applications, and there were only 35 fraudulent applications. It worked. With the help of the Department of Justice and with my own internal auditing program, I am confident that we will be able to prevent or deter fraudulent claims. We have to do that. Senator McCain. Have you got a handle on yet or a rough estimate of what the costs are going to be here? Mr. Feinberg. No, because the oil just stopped. We will have in the next 30 days for you, Senator, a budget as to what we think the infrastructure will cost to administer the program and how many claims there will be and how many eligible claims, whether the $20 billion will be sufficient--unclear as yet until we see the claims. Senator McCain. Have you got a guess as to whether $20 billion is sufficient? You have no guess? Mr. Feinberg. I have no guess. I would hope $20 billion would be sufficient. I would hope so. But, fortunately, as you know, BP has stated that if $20 billion is not sufficient, they will step up and honor all additional claims that may be eligible and compensable. Senator McCain. Mr. Ishii, do you have a contingency fund, an escrow fund set aside for payment of damages as a result of the oil spill? Mr. Ishii [through interpreter]. Senator, MOEX has not established a fund. Senator McCain. Well, look, let me just say, here we have a situation where at least the Federal Government has named both of you as ``responsible parties.'' Obviously, BP feels that you should pay a share of the repayments that are necessary to try to fix and repair the damages from this terrible disaster. You have not paid anything, and you have not even put any money aside. I do not think that is the right thing to do. It is pretty clear what you are going to do is litigate as to whether BP had gross negligence or willful misconduct caused by the accident. So I strongly recommend that you step forward, frankly, as BP has--I did not think very often I would be praising BP. But I strongly recommend that you set aside funds and that you start paying some bills so that the people will know that you are a responsible organization whose first obligation is--if indeed you are responsible parties, which is what you have been designated and you are going to have to prove that you are not--that you start paying some of these bills and set up an escrow fund. And I think it would be in the best interest of the people of this country and, frankly, the image of your corporations. I thank you, Mr. Chairman. Senator Carper. Thank you, Senator McCain. Welcome, Senator McCaskill. Senator McCaskill. Thank you very much. Mr. Feinberg, I am curious about what is compensable and what is not, and it is not clear to me what is compensable and what is not in this situation. Let me draw on your experience, and I do think that you are a remarkable, talented lawyer. And lawyers hardly get any praise around these parts, so let me just tell you that I think you are a remarkable lawyer. Mr. Feinberg. Thank you. Senator McCaskill. Tell me, after the tragedy of September 11, 2001, as you administered that claim fund, were there non- pecuniary damages available to the surviving spouses? Were they able to access loss of consortium--which for lay people means the value of your loss of companionship, your inability to have more children, those kinds of damages--and punitive damages? Was that available to the surviving spouses of the tragedy in New York? Mr. Feinberg. By statute, punitive damages, no, unless you opted out of the fund and wanted to litigate. Senator McCaskill. Right. Mr. Feinberg. Virtually 97 percent came into the fund voluntarily. No punitive damages. Pain and suffering, emotional distress, yes, if and only if that pain and suffering and emotional distress was accompanied by either: A, death of a loved one; or, B, physical injury. You could not recover by statute just for loss of consortium, pain and suffering, emotional distress. It had to be part of a physical injury or death arising out of the attacks. Senator McCaskill. I am sure you are aware, because I am sure you have researched and had lots of folks help you get a handle on the law, that we have what I think is a terribly unfair situation here in that the Jones Act limits the liability for the surviving spouses of the men who lost their lives in this tragedy. And I think, if my research is correct, I think Senator McCain helped take the airplane exemption out after a tragedy air crash. This used to apply to the seas, the air, all kinds of methods of transportation that were not landlocked. But we did not remove this unfair limit for vessels, and so these women, many of them with small children, many of them who live day in and day out knowing that their spouses were engaged in--and, frankly, I think some of them even have some evidence that will come to light that some of their spouses were worried about this particular rig and the problems they were having. I am curious as to your take on that limit. And is it fair that, depending on where you lose your spouse, if it is on the water, you cannot recover, but if it was on land you could? Mr. Feinberg. I would urge the survivors of those who lost their lives to first voluntarily come into this fund. They are eligible to come into the Gulf Coast Claims Facility. Deaths are included, as well as physical injury. I am not limited by the Jones Act or any other law in terms of my ability to at least calculate damage, if eligible, and to offer voluntarily some sort of compensation. No one is obligated to take that compensation, so it is sort of a free preview. So I am sure that all of these widows that you reference have excellent lawyers who are well regarded, but I would urge them to first consider voluntarily providing an application to me to review, which could take into account not only existing law but equity and what would be fair and just. Senator McCaskill. So you can do a complete equitable decision without any limitations of existing Federal law? Mr. Feinberg. That is correct. Senator McCaskill. Well, would you think that if someone who--it is certainly their right. If they decide that they want to go into the courts and have justice the old-fashioned way that we do it in this country, is it fair that their limit on damages would be in place, whereas if there was an airplane crash or if there was a building that was blown up, they would not have that limitation, do you think? Mr. Feinberg. I am not an expert in the Jones Act, but I would question the legitimacy of making that distinction. Senator McCaskill. And I question it also. I think it is something that we need to look at quickly in Congress just as a matter of pure fairness that these women should not have that limitation. I understand the point you are making about a free preview. It is almost like a non-binding dispute resolution--in fact, it is a non-binding dispute resolution. That is exactly what it is, and I think that would be something that is available to them. But at the same time, I think they should have every mechanism in the law that any other surviving spouse would have after this kind of problem, regardless of the location of the tragedy. Mr. Feinberg. I would also say that under the facility as it currently is planned, anybody who is eligible can receive immediately from this facility up to 6 months of emergency payments without any obligation, without any requirement to waive any legal rights. If you are eligible and we calculate that loss and it is provable, we will immediately issue up to 6 months' emergency compensation. Senator McCaskill. For businesses that have gone out of business as a result of this crisis, that have actually lost their businesses, are you able to do blue sky value also? Mr. Feinberg. I would consider it. I am not sure how blue sky value exactly would apply here, but such businesses who are now defunct are certainly eligible. Senator McCaskill. OK. Mr. Hackett, I am curious. You had to know going into this hearing that you were going to get some tough questions, both you and Mr. Ishii, about the failure to set up a fund or to set aside any money to address whatever part of this you may have some responsibility for. And if you say you have plenty of resources to do that, and if it is never tapped into, I am just curious why, just from a public perception, would you resist this. I mean, you look like that you are not stepping up. It looks like you are not taking responsibility to the members of this panel and to the American people. Why would you suffer that kind of public relations disaster if it is not going to make a difference in terms of how much money you might be called upon to pony up for your share of any responsibility for this occurrence? Mr. Hackett. Senator, I think we start with the fact that the American taxpayer is being kept whole, so we do not view it as a situation where they are not being kept whole. The second place we start is what legal position we should take. The third position is, frankly, to do what is right, and we feel very strongly about this, for our shareholders, our employees, and our industry. What we have learned in public testimony--and we withheld any opinions for 2 months--causes us grave concern. We have contractual dispute mechanisms within the joint operating agreement that we think we are entitled to exercise. We understand from many decades of practice that the Oil Pollution Act, modeled after the Superfund legislation, operates in a fashion where the operator pays the bills, and then we apportion liability. We do not feel it is right for us to have to pay first. We think it is right that BP pay first. They publicly stated they are committed to doing it. Senator McCaskill. Well, nobody is asking you to pay anything. I mean, I guess what I am saying is obviously the lawyer department won out over the public relation department. Mr. Hackett. I think I said what is right, ma'am. I did not say that the lawyers won out. Senator McCaskill. Well, no one here is saying that you should have to be paying something right now. I understand that there are liability issues that have to be determined, and there are going to be some real cat fights among lawyers, among all of the four parties, as to how that liability ultimately plays out. BP knows that they have primary liability. They have stepped up--after the President asked them to, I think, in a show of strong leadership--and they put $20 billion cash on the nose. I think that is appropriate, and I think frankly it has gone a long way with the American people that they understand this. I guess what I am saying is, if no one is asking you to pay anything, if all we are asking you to do is to acknowledge somewhere in your corporate accounting that there may be a day that you might have to pay something, and to show the American people and to show these Senators and to show the people in the Gulf that, if that day came, you are prepared to address it. If it is not going to make any difference in your bottom line right now, why on God's green Earth wouldn't you do it? Mr. Hackett. Just as a piece of information on the Department of Justice, as you know, they had sent us a letter regarding any extraordinary transactions that would compromise that asset position. We have committed to them that we will fully inform them of that. We have a very strong balance sheet. There is cash on hand. We do not believe that an escrow fund is required for us to show bona fides with regard to our ability to pay. We are going to be very careful about not compromising that position because we understand the concern you have. Senator McCaskill. Well, I do not think you completely understand it because I think you are so focused on what it might signal in terms of liability that you are losing sight of what it might signal in terms of acknowledging that there may be a day that others might have to pay something besides BP. I think you have made a mistake. I think you have come to this hearing in a much weaker position because of it. I think both of your companies have. And I would certainly ask you to reconsider that. No one is going to make you pay anything unless you are liable for something. BP is paying because they know they would be liable, and they believe that what they are gaining in the short run by a cooperative agreement and by working with Mr. Feinberg in long run is going to serve their company, and I think they are spot on. And I think both of your companies have made a mistake, but we do appreciate you being here today. And, Mr. Feinberg, wherever that place is in heaven that you find, I hope there is someone there that has a dispute that you can negotiate. Mr. Feinberg. Thank you. Senator Carper. Senator Ensign. Senator Ensign. Thank you, Mr. Chairman. Thanks for holding this important hearing. I want to start with Mr. Feinberg. You mentioned before that the local governments and State governments do not have jurisdiction over those payments. Who has jurisdiction over those payments? It comes out of the $20 billion, correct? Mr. Feinberg. It comes out of the $20 billion, but those claims should be submitted, right now at least, directly to BP. Senator Ensign. And then BP would draw from that money, and they would authorize the payments? The point of the question is, if we are getting down toward the end of that money and you have governments over here claiming they are owed money and you have the private sector over here claiming they need the money, who gets that money? Mr. Feinberg. Well, there is $20 billion to hopefully defer any argument. There is no priority. Whoever has a claim, first in, first considered. The claims have to be proven, of course. And finally, BP has, again, made it clear that if the $20 billion proves to be insufficient--and I hope it will not be insufficient. But if it is, BP has stated publicly it will honor any additional financial obligations that are proven. Senator Ensign. OK. Taxes will be owed, I would imagine, on those if they have State and local income taxes on that money to be paid. Mr. Feinberg. Sales taxes--oh, I see. Yes, it is the equivalent of wages or lost income, yes. Senator Ensign. These are questions that probably need to be answered. What if you have a hotel and part of that lost revenue is from rooms, but now that local government does not get room tax? Mr. Feinberg. I assume that local government is going to submit a claim for lost room taxes, sales taxes, ad valorem real estate taxes. I can see some innovative claims. Senator Ensign. Right. The reason for the question is, if they submit that to BP, then do you deduct that value because the hotel would have had to pay those taxes? In other words, are you just going to be looking at the net? Mr. Feinberg. That is right. I think I have to mitigate if there are other sources of income, yes. Senator Ensign. OK. One of the concerns you always have during these times, when you have massive potential lawsuits and things like that--and I know you are a lawyer, so maybe you are going against your own interests here--but, how do we minimize fees going to lawyers so that the money actually gets to the victims? Mr. Feinberg. Well, that is a controversial question. I am a lawyer. First of all, I want to remind--Senator McCain will recall that in the September 11, 2001 fund, we had over 1,500 lawyers who worked pro bono to help September 11, 2001 victims. I am committed to setting up in this program some sort of pro bono program so that lawyers can represent claimants without fee. When it comes to any private arrangement that a claimant has with a lawyer, that is not on my watch. That is a private contractual understanding. I would say that when I calculate awards under the $20 billion, those awards are the damage awards that are owed the claimant, and there will be no add-on or gross-up for lawyers' fees. Senator Ensign. OK. Try to give us some idea how you determine who is eligible. This is very difficult, and I understand you have a monumental task ahead of you. There is no question, you are probably going to get criticized some day because there will be some fraud. Mr. Feinberg. You say ``some day''? Senator Ensign. Yes. It is impossible not to have some fraud in there, and you have to try your best to minimize that. There are going to be some shysters out there and people trying to take advantage, and there will be stories on cable news and the Internet and blogs and you will be made to look bad because you were not doing your job. I think it is impossible to not have that. But try to give this Subcommittee an idea of some of the criteria that you are going to be looking at for legitimate claims. Mr. Feinberg. Let us start as a base point, what does the law of Louisiana, Alabama, Mississippi, Florida, and especially the Federal Pollution Control Act say about who is eligible? That is the first question. That is a base point. ``Mr. Claimant, you are ineligible and, frankly if you litigate, you will be declared ineligible.'' So I am trying to use as a base point what the law would say. Then, above that, I want to try and do better. I think equitably I want to try and do better. So the problem is going to come, there are the easy cases, Senator, the easy cases. Oil on the beach, I cannot fish in these waters, I cannot shrimp, I cannot harvest oysters--those claims are relatively straightforward, pay them 100 percent under any fair reading of law. Senator Ensign. Except that you do not know how long this is going to last. Mr. Feinberg. Well, that is a separate question, which is there is no oil on the beach yet. Now, fortunately, the well is capped, so we are starting to get a handle on where that oil may be---- Senator Ensign. No, but what we do not understand is maybe the damage that was done by the dispersants and some of the other things on the oyster beds, on the shrimp, and we do not know 2 years from now, 3 years from now, the potential damage that could be done to the industry. Mr. Feinberg. I am going to have to get some expertise and some help on that. This program will be up and running for 3 years. Hopefully we will have a pretty good handle on that. You have focused exactly on one of the big problems: The indirect claims: ``Mr. Feinberg, I have a motel four blocks from the beach. There is no oil on the beach. None. But because of the publicity and the tourism, I am off 30 percent. Here are my records from the past. Here are my records post-spill. I have a claim. Pay me.'' You are absolutely right, I am going to have to draw some lines and some distinctions, make those distinctions well known, and try and do equity as best I can. Senator Ensign. Are there types of businesses that you will not give claims to? Mr. Feinberg. Well, I do not know off the top what those businesses might be. There are some types of businesses I obviously will pay: Fishermen, shrimpers, oyster harvesters, motels right on the beach. The problem is going to be--there may be a restaurant that is right on the beach that is dependent for its livelihood on the shrimp from the Gulf. What do I do with a restaurant in Las Vegas who writes a claim and says, ``We have lost 30 percent of our business because here in Vegas we are the only restaurant that has that Gulf shrimp,'' and now it is gone and people are not coming to that restaurant? Where the proximity is so far removed from the Gulf, where do you draw the line? And I am trying to figure that out now. Senator Ensign. One of the reasons I ask, I actually just thought of this. Some people might have a problem with you because you have casinos in Gulfport and down in Biloxi and everything that can be affected by this. Do you have a problem with reimbursing if a casino is down 20 percent of their revenues? Mr. Feinberg. Not if they can demonstrate that they are on the beach, that they are down 20 percent, that people come to gamble but they also use the beach, they go on fishing charters, they sightsee. I mean, I will look at each claim. But I do not have a problem with tourism being compensable under this program. The question is: What tourism? And exactly what you are saying, where do you draw that eligibility line? Senator Ensign. OK. Thank you, Mr. Chairman. Senator Carper. I have one question, if I could, for Mr. Feinberg. Mr. Feinberg, I want to go back to a point by Senator McCain, if I could. The President signed in a signing ceremony today at the White House legislation that I had introduced with the support of a number of my colleagues, Democrat and Republican, on this Subcommittee, and that legislation is called the Improper Payments Act of 2010. Last year, we learned that almost $100 billion of Federal funds were improperly paid to payees--in some cases mistakes, honest mistakes; in other cases, fraud. And the legislation that the President just signed into law today says, Federal agencies across the board from A to Z, we want you to: One, report improper payments; two, we want you to stop making improper payments; and three, for the improper payments that have been made, we want you to go out and recover as much of that money as you can for the Treasury Department or in some cases for the Medicare Trust Fund. I just want to underline again the concern that we have, especially on the same day that this law has been signed into effect, that you be diligent. And there is a tension here between being diligent and trying to make sure that we protect ultimately the fund from which these monies are going to be paid, but at the same time trying to be fair. You spoke to this once before, but could you just respond to it again? Mr. Feinberg. Mr. Chairman, nothing will undercut the credibility of this fund that I am administering more than fraud. Nothing. And if it gets around that $20 billion is being wasted, there are fraudulent payments, it will destroy the credibility of the program in the eyes of the public, and frankly, in the eyes of the claimant. So I am determined, as I was with the 9/11 Victim Compensation Fund, to make sure that fraud is addressed promptly, quickly, efficiently, that we deter any fraudulent payments. And I have the cooperation of the Department of Justice, Criminal Division--no better than them--and also we will have internally in the infrastructure that I am designing, we will have anti-fraud mechanisms to deal exactly with the problem you are raising. Senator Carper. Good. Thanks. Eternal vigilance. Continue to be vigilant. Thank you. Mr. Hackett, again for you, please, you have said publicly that you believe BP may have acted with willful misconduct or with gross negligence as the operator of the Deepwater Horizon rig. This has been Anadarko's primary argument for withholding payments, I believe, to BP. Could you please take a moment and tell us what evidence or information you have that has led Anadarko to that conclusion? Mr. Feinberg. Yes, Senator. The information we have gathered has been through testimony and investigations and through public disclosures, because we have not received any root causes directly from the operator. The majority of the things that we make that likely gross negligence statement surrounding were covered in Congressmen Waxman-Stupak letter to BP prior to Tony Hayward's testimony. Senator Carper. All right. A question again, if I could, for you and also for Mr. Ishii, please. The joint operating agreement between your companies and BP spells out, I believe, certain data, certain information about the well's operation that Anadarko and MOEX were to be given access to on a regular basis. In fact, some information was to be provided, I am told, on a real-time basis. In addition to this information that your companies received or should have received, you also had to approve, I believe, certain expenditures for work on the well. It would seem that if BP had been doing something wrong, you would have known about it, and I would just ask am I correct in that assumption. Mr. Hackett. Would you like me to answer, Senator? Senator Carper. Please. Mr. Hackett. The standard industry practice is that you do get a budget description of a model or template well design. That is then altered, depending on what the drilling results are. You also get real-time on the geological prognosis so that once you have TD'd a well, which occurred on April 9 in this case, you then have logging runs which occurred, I think, up to the middle of April, or around April 13. At that point the real-time data is not--we do not go to the real-time data because the geological prognosis is done, and it should be a fairly routine process at that point then to finish the well. What you then get up until they no longer give you reports is a daily drilling report which is generally very broad, very high level, about actual events as opposed to procedures used or designs that were used. The last one of those we received was on the morning of April 20 for the activities on April 19. Senator Carper. All right. Mr. Ishii. Mr. Ishii [through interpreter]. Mr. Chairman, we receive daily reports from BP, and these reports are received with a 1- day delay. And in addition, we have the right to access some of the technical or detailed data. We are committed to complying with all of our legal obligations. When we made the decision to participate in this well, the drilling had already started at that time, and that drilling was started based on the government approving the drilling plan. We felt that BP, as the operator, would properly operate the well, and based on that information, we decided to participate in this project. And, therefore, we feel the same as all of the people who have suffered in this great tragedy in that we would like to know and determine why this accident occurred, and we would like to have that properly clarified. Until that is investigated and determined, we feel that it is too early to discuss anything further. Senator Carper. All right. Mr. Ishii, in America we like to play baseball. As it turns out, in your country your people like to play baseball, too. Some of your best players actually end up playing here in this country, as you know. We have a term in baseball that we use outside of baseball, and it is called a pitch that is well telegraphed. The idea behind the concept of a pitch well telegraphed is that you kind of know what the pitch--fast ball, curve ball, split-fingered, change- up--you know what the pitchers are going to pitch because he has telegraphed that in the past. I want to kind of drill down, if I can, on the communications between BP with Anadarko and with MOEX in the days leading up to April 20. Were you taken by surprise on April 20 when the accident occurred? Was this a pitch well telegraphed? Had you been receiving updates from the primary operator of the well that there were problems? We have received, as you may know, communications between BP and I believe in this case Anadarko that indicate, according to one on April 9, ``We have been aggressively fighting losses as the drilling has gone forward.'' Another one: ``I will try to post a well space shortly. We are troubleshooting some MDT issues this morning, having a difficult time getting a good seal around the well bore wall.'' And, ``It looks like LCM''-- what is LCM? Mr. Hackett. Senator, it is loss circulation material. Senator Carper. Loss circulation material ``may be the culprit.'' That was 8 days before the blowout. Just characterize for us, please, the kind of communications flowing back from BP, the primary operator of the well, to your companies as to how things were going in the days leading up to the incident. Mr. Hackett, do you want to go first? And then we will go to Mr. Ishii, please. Mr. Hackett. Certainly. As you state in the dates on the documents, that is that period when we were talking real time about the well. None of those pressure issues are unique to this particular part of the Gulf of Mexico. Again, this was not an extraordinary well either in terms of depth or complexity. What then happens is the most critical---- Senator Carper. You are saying a well at 5,000 feet below the surface of the water with this great distance under the sub-surface is not a unique or unusual circumstance? Mr. Hackett. I apologize if I am underestimating that in the American people's minds because it appears, as one person said, like NASA science to many people. But Anadarko itself is one of the most active deepwater drillers in the world. We have drilled in water depths twice this deep, wells that are nearly twice as deep, in terms of total depth. So this, again, is not an extraordinary well for the industry. The activities that occur after the period in which you spoke to are really the ones that are very critical, and that is, when you actually go to finish the well. Again, pressure response is not an issue with regard to our business. It is something you control and take care of when you go to finish that well. Senator Carper. Mr. Ishii, please. All right. Ms. Sato, if you got all that, you are pretty good. [Laughter.] Ms. Sato. Thank you. Mr. Ishii [through interpreter]. Mr. Chairman, when we decided to participate in this project, BP had already obtained government approval for the drilling plan and the drilling had already started based on this approved plan. About 1 week before April 20, BP sent an email, and in that email BP said that, based on some safety concerns, they thought it would be difficult to continue further drilling in this well, so they were going to stop the drilling. Now, this Deepwater Horizon project was the first Gulf of Mexico project that we were involved in; whereas, BP is the largest operator in that area and the largest producer. So they have a lot of experience and a track record in that area. And, therefore, since BP started the drilling based on the government-approved plan, we placed trust in that and in them when we participated. And then we received that notice about 1 week prior to the accident. And since we are a 10-percent minority interest investor, we were not involved in any direct decisionmaking with BP. So we relied on BP's experience, and we trusted that they had been operating properly. Senator Carper. All right. Thank you. Senator McCain, thank you for your patience. Senator McCain. Thank you. Mr. Hackett, have you provided personnel to help clean up the shores? Mr. Hackett. We have offered to do so, Senator. We have also provided technical expertise to the well control efforts. We have provided specialized equipment from other fields for the control efforts of the well as well. Senator McCain. Those assets have been committed or offered? Mr. Hackett. They have been offered and in some cases committed. Senator McCain. Have you sent boats or skimmers to the affected waters? Mr. Hackett. We have not been asked to do so. And we do not control those, Senator. Those would be provided by their people. They are usually contracted for. Senator McCain. You have not been asked to send boats or skimmers? Mr. Hackett. No, sir. Senator McCain. Mr. Feinberg, you mentioned that you had 1,500 lawyers volunteer their services in the compensation issue associated with September 11, 2001. And how much money was that? Mr. Feinberg. For September 11, 2001, we expended, taxpayer money, a little over $7 billion. Senator McCain. And here we are talking about considerably more. Mr. Feinberg. Yes. Senator McCain. Have you sent out the call yet for volunteers to come and assist you in this project? Mr. Feinberg. Yes. We are working right now with the ABA, with the Alliance of Trial Lawyers, with local bar associations, and law schools in the region in an effort to make sure there is plenty of pro bono assistance. Senator McCain. And the response has been? Mr. Feinberg. Positive. We are setting it up now. Senator McCain. So you are confident that you will have sufficient legal assistance, because as you mentioned, fraud is always a very significant issue but not the most significant issue. So we thank you for your hard work. It is great to have the opportunity to see you again, and I am sorry we took you away from your very busy schedule. And we feel very confident, Mr. Feinberg, with this issue under your stewardship, and I think I speak for the American people when I say that. Thank you. Mr. Feinberg. Thank you. Senator McCain. Thank you, Mr. Chairman. Senator Carper. Thank you, Senator McCain. Mr. Hackett, as I understood one of your earlier comments, Anadarko in this case is a partner with MOEX and also with BP. In this case, the primary operator is BP. And there are other instances where Anadarko is presumably the primary partner in some cases. I presume you drill these wells and you are the only participant in other cases. Did you ever partner with others, other companies? Mr. Hackett. We do that as a normal course of business, Senator. It is actually very atypical to drill a well 100 percent in our business. It is a way of managing financial and technical risk. So most of the deepwater, there are partners. And there is a very distinct relationship with the operator being the decisionmaker. Senator Carper. And are there other situations in these deep wells Anadarko has drilled where you may have a couple of other partners? Mr. Hackett. Yes, sir. Senator Carper. In most of those situations, would Anadarko be the majority partner, and you may have a couple of others, like we have here, with a 25-percent participant and a 10- percent participant? Mr. Hackett. Yes. In fact, we might have less interest than BP had in this well, in fact, as an operator. Senator Carper. Do you have many situations where you are the lead but you do so not as the majority but, if you will, in our terms here, a plurality, have a 45-percent stake or 40- percent stake rather than a 50- or 51-percent stake? Mr. Hackett. Yes, we do have situations like that where we have multiple partners, but that 40 or 45 percent is usually determinant as being the primary interest. Senator Carper. OK. In a situation--let us sort of put the shoe on the other foot here for a moment. Let us say in this case Anadarko was the lead and that you were the primary party, the primary responsible party. And we will just say you were a 65-percent participant. In a situation where they ran into trouble and had this kind of blowout and accident, and you were called upon to help set up a fund, a $20 billion fund in this case, to meet the demands by the government for reimbursement by individuals, by families, by businesses, and you were being billed by the Federal Government, and so were your partners, and you were ponying up and they were not, sort of putting the shoe on the other foot and keeping in mind the Golden Rule--I know you are a person of faith, but treating other people the way we would want to be treated--how does that mesh with treating other people the way we would want to be treated? Mr. Hackett. Senator, I think it is very consistent. I do not think my beliefs are at all compromised in this instance. We were not consulted on the escrow agreement that was set up. It was very particular to BP's circumstances, I suspect both corporately and on this well. We stand ready to honor our obligations. If BP fails, we are a responsible party under the Oil Pollution Act. We do not want the taxpayers to be on the hook for this, and we stay committed to that, sir. Senator Carper. All right. I do not pretend to understand well the financial condition or strength of both of your companies. I believe you are successful companies and profitable companies. Are you both publicly traded companies? Mr. Hackett. We are a publicly traded company, yes, sir. Senator Carper. Mr. Ishii. Mr. Ishii [through interpreter]. MOEX is not a publicly traded company. Senator Carper. I see. Since you are a publicly traded company, Mr. Hackett, could I just follow up with this question? BP, looking at the prospect of if the full $20 billion were drawn down upon, looking for an--maybe the obligation to pay the whole bill, to foot the whole $20 billion, if this apportionment would occur, 25 percent to Anadarko and 10 percent to MOEX, their obligation would be-- what?--$13 billion. Their thinking would say, well, Anadarko should handle $5 billion and MOEX would handle, I guess, about $2 billion. I think that is the way it would work out. Could you just talk with us about the ability of your company to meet that kind of demand for payment over a period of time? Mr. Hackett. Yes, sir. Understanding that those payments, as you mentioned, would be over a period of time, we generate as a company somewhere around $5 billion a year. Senator Carper. Is that gross revenue? Mr. Hackett. No. That is cash flow, sir, that is available for spending, and what we generally do is put that right back into drilling for more resources for America. That is typical of the independents in this country. And we are doing so again this year. The cash on the balance sheet at the end of the first quarter was over $3 billion, and we also had an undrawn credit facility of over $1 billion. We also have net book equity of about $20 billion. Senator Carper. All right. Thank you. Mr. Ishii, could you respond as well, to the extent that you are able to, given the fact that you are not a publicly traded company? Mr. Ishii [through interpreter]. Mr. Chairman, first of all, I would like to say that we will honor all of our legal obligations. However, before we discuss that any further, it is important that we properly investigate and find out why this accident occurred. And, therefore, any discussion about that is, I think, a bit too early now. Senator Carper. All right. Mr. Hackett, can you just share with us how--what role does insurance play in this, and to what extent can your company or another company in a similar situation cover these kinds of expenses through insurance or reinsurance? Mr. Hackett. I think it is a critical issue with regard to where we craft legislation going forward, Senator, that if, in fact, we have pilot error like this occur again, we have to make certain, obviously, for the American public and probably for global society that we are prepared to answer this in a better way than we were this time. So I think a number of us have learned lessons in that regard. The insurance market historically has not been terribly deep. You and I had a conversation about that not too long ago. We had probably per revenue unit for our company as much as anybody in our industry, and we might have been able to get another--more than that, as it turns out, maybe double that. But as we have publicly stated, that amounts to about $176 million per incident on a 25-percent work interest, about $776 million gross. And what you have to do then is make certain that people have balance sheets to back it up beyond that, which we do. And so I think we have to be, crafting the oil spill legislation properly where we both have liability limits, properly determined contributions to the fund, and also an ability to get an insurance exchange working that makes this very important resource for domestic production available to all of us long term. Senator Carper. I am going to come back on that point in just a moment, if I could. Mr. Feinberg, we are going to have the opportunity in the Senate to take up, perhaps next week, energy legislation that will attempt to conserve energy, will attempt to reduce somewhat our independence on petroleum and fossil fuels, especially on foreign oil. And we will attempt to do something with respect to addressing the cap, this cap for oil spill liabilities. Let me just ask you your recommendation or your advice, if you feel comfortable in giving it. As we take up looking at the current law on the oil spill liability cap, the actually rather modest liability that exists under the current law, then a larger fund contributed to by companies like Anadarko, like MOEX--I think it is about a billion and a half dollars where the fund is, and then beyond that it is basically, I think, on the taxpayer. BP, to their credit has stepped forward and said, ``no, we are good for at least $20 billion,'' and they certainly want to have other partners to share in that. But as we try to craft in the next week or two legislation revisiting the Oil Spill Liability Fund, what should we keep in mind? Mr. Feinberg. Well, I cannot really speak to the legislation. I am not aware of it, so I do not know the language, I do not know the public policy. Senator Carper. If you will, just keep in mind what the current law calls for in trying to say what is good or bad about that and what might we think about in changing it. Because I think it is pretty clear we are going to change it. Mr. Feinberg. All I can say--and it probably is not very helpful, Senator--is that at least in this case the cap is sort of irrelevant because BP on its own has stepped up to make the cap sort of an irrelevant consideration. Whether the cap ought to be raised--I remember I was on a commission that looked at Price-Anderson involving nuclear power years ago. That is for others to think about, but I think that at least in this case, fortunately, the cap has not been a barrier to compensation. Senator Carper. Mr. Hackett, any advice for us as we revisit this issue legislatively? Mr. Hackett. Again, I would just restate that--and I think Mr. Feinberg's reference to the nuclear industry and perhaps the marine industry is relevant. We have to, for this very important American source of energy, come up with a workable plan that allows us to have liability caps that work for the public, that have insurance capability that works for the public, oil spill response capability that works for the public, and there is a lot of detail and complexity around that, but none of them should be dealt with in isolation, in my view. Senator Carper. All right. Mr. Ishii, would you like to respond briefly to my question, please? Mr. Ishii [through interpreter]. Mr. Chairman, I am very sorry, but could I have you repeat your question? Senator Carper. Yes. A number of years ago, legislation was enacted that established an Oil Spill Liability Fund that called for oil companies to pay into that fund and set a cap or a limit out of which monies could be paid from that fund, but said if there is a party that is primarily responsible, that they would have first responsibility to pay, and I am trying to remember what the amount was--yes, $75 million. In a situation like this, obviously $75 million does not go very far. Frankly, neither does one and a half billion. We are going to change that law, and we are going to start working on it very seriously probably on the Senate floor next week. And I was asking Mr. Feinberg and Mr. Hackett if they had any advice for us as we assume that legislative responsibility, and if you have a thought on that, we would welcome hearing it. And you may not. That is OK. Mr. Ishii [through interpreter]. Mr. Chairman, I believe that is a political issue, and so we are not in a position to comment on it. Senator Carper. All right. Fair enough. I have referred to this already, but while there was some communication information exchanged between BP and Anadarko and MOEX related to the well drilling and the challenges that were being encountered in the days before the accident, there also appear to be some lapses on BP's part. I am told on April 19-- that is the day before the rig exploded--a geological adviser for Anadarko emailed a BP official asking why they were no longer receiving any drilling reports. In fact, they said that they had not received reports for 5 days. Mr. Ishii, I think you personally appeared to have had problems communicating with BP exactly what was going on with the well in the days leading up to this disaster. Let me ask both of you, Mr. Hackett and Mr. Ishii, to please give us a sense of the problems that your companies had in receiving information in the days prior to the accident. And if you do not mind starting off, Mr. Hackett, I would appreciate it. Thank you. Mr. Hackett. Senator, I am not aware of that particular issue, but in my review of the drilling reports myself, there is nothing that we would have received through that final report on April 19, that would have been a red flag for us to warn BP about. We did not have anybody on the rig, we were not consulted, and there was nothing in the materials that I have read all the way through April 19, that would have been a red flag for us. Senator Carper. Is it common or uncommon for a minority partner, in this case a 25-percent partner, not to have someone on the rig? Is that common practice? Mr. Hackett. It is very common practice to not have someone on the rig. Senator Carper. All right. Mr. Hackett. It is rare that anybody has somebody on the rig. Senator Carper. Fair enough. Mr. Ishii, would you care to respond to the same question, please? Mr. Ishii [through interpreter]. Mr. Chairman, we have the right to access the technical data from BP. However, I do not have an engineering background, and, therefore, we had a service agreement with our parent company whereby the engineers from our parent company would receive the reports from BP and monitor their progress. And, therefore, today I am not in a position to comment on that. Senator Carper. All right. The last question I will have is this: I used a baseball analogy earlier, a pitch well telegraphed. I will use a football analogy. They do not play much football in Japan, I am told, but I will use a football analogy. The concept of being a Monday morning quarterback is something that we talk about here in this country. We play college football games usually on Saturdays, we play professional football games on Sundays, and we talk about being Monday morning quarterbacks. It is a lot easier to be a quarterback on Monday morning looking back than it was to be that quarterback on Saturday or Sunday. I want to ask you to put on your Monday morning quarterback hats for us, and knowing now what you know, what might you have done differently, what should have been done differently to have averted this disaster that we are facing and are going to be facing for some time? Mr. Hackett. Mr. Hackett. Senator, I think proper procedures and practices need to be followed, and our view is that this accident was preventable, this tragic accident. Our answer to that is that you need to use the proper engineering practices and procedures, and it is clear that we have lessons learned from this for the industry, where if we do have, in fact, this series of bad engineering decisions ever happen again--and we hope to goodness we never do--is that we are in a position to assure the public that there is a better response capability. Senator Carper. All right. Mr. Feinberg, do you want to venture anything on that one? Mr. Feinberg. Just that what this tragedy has led to is one more example, fortunately rare, where policymakers and private individuals think out of the box and come up with a remedy, like this fund that I am administering, which will work in a way that hopefully will avoid protracted uncertainty and litigation and overhead costs and will provide a quick, efficient remedy for people in need down in the Gulf. Senator Carper. Mr. Ishii. Mr. Ishii [through interpreter]. Mr. Chairman, as I said before, when we participated in this project, the drilling had already been started based on the government-approved plan, and for us this was the first deepwater drilling project. However, BP is the largest player and had experience in this area, whereas we are only a 10-percent minority interest non- operator. Therefore, we were not involved in any of the decisionmaking. We relied on BP because BP has the experience and the drilling technology, so we placed trust in them and participated. Senator Carper. All right. Any closing comments from our witnesses? Mr. Feinberg, just a brief closing comment? No? All right. Mr. Hackett, a brief closing comment? Mr. Hackett. No, sir. Thank you. Senator Carper. Mr. Ishii, a brief closing comment? All right. Well, let me close, if I may. First of all, thank you all for taking this much time in your day to travel here and to be with us today to testify. Mr. Feinberg, our thanks to you for taking on this responsibility. Mr. Hackett, we are somewhat comforted by the fact that you have the wherewithal to--your company appears to have the wherewithal, if called upon, to participate in providing the resources needed to help not in cleanup but pay damages. It sounds like you are in a position to do that. I know you probably do not want to, but it sounds like it is comforting to know that you do have that wherewithal. And, Mr. Ishii, it means a lot to us that you would travel this far and to participate today in this testimony. This challenge is not going to go away. A lot of lessons learned and legislation to be worked on next week and probably implemented in the months to come. Again, our thanks to each of you, and we look forward to working with you on this to make sure it does not happen again, and to try to make sure that the right thing is done to those who are affected by this disaster. Thank you very much, and with that, this hearing is concluded. [Whereupon, at 4:07 p.m., the Subcommittee was adjourned.] A P P E N D I X ---------- [GRAPHIC] [TIFF OMITTED] T8035.001 [GRAPHIC] [TIFF OMITTED] T8035.002 [GRAPHIC] [TIFF OMITTED] T8035.003 [GRAPHIC] [TIFF OMITTED] T8035.004 [GRAPHIC] [TIFF OMITTED] T8035.005 [GRAPHIC] [TIFF OMITTED] T8035.006 [GRAPHIC] [TIFF OMITTED] T8035.007 [GRAPHIC] [TIFF OMITTED] T8035.008 [GRAPHIC] [TIFF OMITTED] T8035.009 PREPARED STATEMENT OF SENATOR LAUTENBERG Mr. Chairman, Thank you for giving me the opportunity to appear before this Subcommittee on this critical issue. Last night, the President spoke to the country, and he could not have been clearer: The needs of Gulf families, fishermen and business owners must not and will not take a backseat to BP's bottom line. I commend the President for his strong leadership on this disaster, and I know he will do everything in his power to hold BP accountable. The behavior of this company and its executives could not be more reprehensible. Their greed and impudence led them to cut corners and gamble with the lives of workers on the rig, the marine life in the Gulf, and the economy of an entire region. And when the inevitable happened and the Deepwater Horizon exploded, burned, and sank, BP's leaders downplayed the true size of the spill and lied about their ability to contain it. So we cannot trust them when they promise to pay for all the damage they have done. We cannot simply take their word--not when BP's CEO has repeatedly said the spill isn't that serious, calling the environmental impact ``very, very modest.'' Not when BP said before the spill that they had the tools to stop a leak at this well. and not when the company's top executives promise to pay only for ``legitimate claims.'' Since the Deepwater Horizon rig exploded, as much as 50 million gallons of oil have poured into the Gulf of Mexico-- it's threatening to turn the beaches, marches and coastlines of the Gulf into toxic waste sites. We've seen this kind of catastrophe before. It's been more than 20 years since the Exxon Valdez went aground, and oil is still contaminating the soil there. That contamination does not only continue to hurt the fishermen there--it is still damaging the area's ground, water, and marine life to this very day. I was one of the first senators to visit Alaska after the Exxon Valdez crash, and I saw the destruction caused by that oil spill firsthand. When the press coverage was intense, Exxon issued a string of apologies, it promised to do right by the communities, and it vowed to make sure the way of life these Alaskans knew would resume. But as soon as the cameras were shut off--Exxon changed its tune. It fought the communities, the families, and the fishermen over every penny. Instead of making those victims whole, Exxon chose to make its lawyers rich. Exxon drew things out for years and knocked down claims from $5 billion to $500 million. We cannot let history repeat itself. That is why I proposed an amendment to last month's emergency supplemental bill to make it clear that the companies responsible for the oil spill must reimburse the American taxpayer for every dollar the government spends on cleanup. While the amendment was not considered on the floor, the Obama Administration has made it clear that it will send BP the bill. Pollutters--not taxpayers--should pay these government expenses. When you make a mess, you have to pay to clean it up--it's that simple. I want to put the oil executives here on notice: We will not accept any answer from you that smacks of something like the check is in the mail. Americans are fed up with hollow words, false assurances and broken promises. That is why BP should start putting money into an escrow account to pay for the damage from this spill--and not pay over $10 billion in dividends to its shareholders. And that is why we've got to take the critical step of eliminating the measly $75 million liability cap on monetary damages from oil spills. I joined Senator Menendez right after the Deep Horizon rig exploded to lift that cap--and it's time our colleagues on the other side of the aisle let us move that legislation forward. Big Oil makes so much in profit every month--they can afford to pay for their recklessness. I want to thank the Chairman and the rest of the Subcommittee for inviting me to speak today, and more importantly, for holding this critical hearing. And I hope we will hear honest and candid answers from BP and the other executives about what they are going to do to live up to their obligations. 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