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United States Government Accountability Office: 
GAO: 

Testimony: 

Before the Subcommittee on Coast Guard and Maritime Transportation, 
Committee on Transportation and Infrastructure, House of 
Representatives: 

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Wednesday, November 2, 2011: 

Deepwater Horizon: 

Coast Guard and Interior Could Improve Their Offshore Energy 
Inspection Programs: 

Statement of Stephen L. Caldwell, Director:
Homeland Security and Justice:
and:
Frank Rusco, Director:
Natural Resources and Environment: 

GAO-12-203T: 

GAO Highlights: 

Highlights of GAO-12-203T, a testimony before the Subcommittee on 
Coast Guard and Maritime Transportation, Committee on Transportation 
and Infrastructure, House of Representatives. 

Why GAO Did This Study: 

The April 2010 explosion of the Deepwater Horizon, a mobile offshore
drilling unit (MODU), showed that the consequences of an incident on an
offshore energy facility can be significant. A key way to ensure that
offshore energy facilities are meeting applicable security, safety, and
production standards is through conducting periodic inspections of the
facilities. The Coast Guard and the Department of the Interior 
(Interior) share oversight responsibility for offshore energy 
facilities. The Coast Guard is to conduct security inspections of such 
facilities, whereas based on an agreement between the two agencies, 
Interior is to conduct safety compliance inspections on some offshore 
facilities on behalf of the Coast Guard as well as its own inspections 
to verify production. This testimony addresses: (1) the extent to 
which the Coast Guard has conducted security inspections of offshore 
energy facilities, and what additional actions are needed; (2) the 
extent to which Interior has conducted inspections of offshore energy 
facilities, including those on behalf of the Coast Guard, and 
challenges it faces in conducting such inspections; and (3) the Coast
Guard’s oversight authority of MODUs. This testimony is based on GAO
products issued from September 2008 through October 2011. 

What GAO Found: 

The Coast Guard conducted about one-third of its required annual 
security inspections of offshore energy facilities from 2008 through 
2010 and does not have procedures in place to help ensure that its 
field units conduct such inspections in accordance with its guidance. 
The Coast Guard’s guidance does not describe specific procedures for 
the way in which Coast Guard staff should track whether annual 
inspections have been conducted. For example, Coast Guard field unit 
supervisors and marine inspectors GAO interviewed from five of the six 
Coast Guard field units that are to conduct annual security inspections
said that they do not maintain any tool to track whether such 
inspections had been conducted. GAO recommended in October 2011 that, 
among other things, the Coast Guard develop policies and procedures to 
monitor and track annual security inspections. The Coast Guard 
concurred and stated that it is planning to update its guidance for 
field units to address these issues. 

Interior’s inspection program has not consistently met its internal 
targets for production inspections, and faces human capital and 
reorganization challenges, but has met its limited target for 
compliance inspections conducted for the Coast Guard. In March 2010, 
GAO found that for four district offices it reviewed, Interior only 
met its production inspection goals once during fiscal years 2004 
through 2008. Further, GAO reported that difficulties in hiring, 
training, and retaining key staff had contributed to challenges in 
meeting its inspections goals. However, in recent years, Interior 
reported that it met its 10 percent target to conduct compliance 
inspections of staffed, fixed offshore energy facilities on behalf of 
the Coast Guard. In fiscal year 2010, Interior reported that it 
exceeded its target and conducts such inspections on 169 of the 1,021 
staffed, fixed offshore energy facilities and has met this target for 
such inspections for the previous 5 years. In May 2010, Interior 
reorganized its bureau responsible for overseeing offshore energy 
activities. In June 2011, GAO reported that while this reorganization 
may eventually lead to more effective operations, GAO is concerned 
with Interior’s ability to undertake this reorganization while meeting 
its oversight responsibilities. Among other things, Interior plans to 
hire additional staff with expertise in inspections and engineering. 
Amidst these changes, Interior reported that it was difficult to 
determine how many inspections it would conduct in fiscal year 2012. 

The Coast Guard has limited authority regarding the security of MODUs 
registered to foreign countries, such as the Deepwater Horizon. MODUs 
are subject to Coast Guard security regulations if (1) they are self-
propelled or (2) they meet specific production or personnel levels. 
Whereas the Coast Guard may physically inspect a U.S.-flagged MODU to 
ensure compliance with applicable security requirements, the Coast 
Guard’s oversight of foreign-flagged, self-propelled MODUs, such as 
the Deepwater Horizon, is more limited. The Coast Guard is conducting 
a study designed to help determine whether additional actions could 
better ensure the security of offshore energy facilities, including 
MODUs. Further, the Coast Guard has implemented a risk-based oversight 
policy for all MODUs to address safety and environmental protection 
issues. Although this policy does not directly address security, 
increased oversight resulting from this policy could help mitigate the 
risk of a terrorist attack to a MODU. 

What GAO Recommends: 

GAO has previously recommended that the Coast Guard develop policies 
and procedures to monitor and track annual security inspections for 
offshore energy facilities and that Interior address its human capital 
challenges. The Coast Guard and Interior agreed. 

View [hyperlink, http://www.gao.gov/products/GAO-12-203T]. For more 
information, contact Stephen L. Caldwell at (202) 512-9610 or 
caldwells@gao.gov and Frank Rusco at (202) 512-3841 or ruscof@gao.gov. 

[End of section] 

Chairman LoBiondo, Ranking Member Larsen, and Members of the 
Subcommittee: 

We are pleased to be here today to discuss oversight and inspections 
of offshore energy facilities. The April 2010 explosion of the 
Deepwater Horizon mobile offshore drilling unit (MODU) showed that the 
consequences of an incident at offshore energy facilities can be 
significant. The explosion resulted in 11 deaths, serious injuries, 
and the largest oil spill in the history of the United States. Recent 
reports on the Deepwater Horizon incident, including the Incident 
Specific Preparedness Review, On Scene Coordinator Report, and Joint 
Investigation Team Report, have raised questions about the oversight 
of such offshore energy facilities.[Footnote 1] Our recent work raises 
similar concerns about federal inspections and related oversight of 
offshore energy facilities and MODUs.[Footnote 2] 

Offshore energy facilities include facilities that operate on the 
outer continental shelf (OCS) and are generally described as 
facilities temporarily or permanently attached to the subsoil or 
seabed of the OCS and which engage in exploration, development, or 
production of oil, natural gas, or mineral resources.[Footnote 3] 
There are currently about 3,900 such facilities in the Gulf of Mexico, 
which include fixed and floating offshore energy facilities as well as 
MODUs.[Footnote 4] The nation's economy and security are dependent, in 
part, on the domestic offshore exploration and production of oil and 
natural gas that occur at offshore energy facilities. However, if an 
incident occurs at one of these offshore facilities, it could be 
difficult for the Coast Guard and other federal or local agencies to 
respond quickly because such facilities are generally located many 
miles from shore. 

A key way to ensure that offshore energy facilities are meeting 
applicable security, safety, and environmental standards is through 
conducting periodic inspections of the facilities. The Coast Guard and 
the Department of the Interior (Interior) share oversight 
responsibility for offshore energy facilities. The Coast Guard--a 
component of the Department of Homeland Security--is the lead federal 
agency responsible for maritime security, including the security of 
offshore energy facilities. Interior, through its component agencies, 
is the lead federal agency responsible for enforcing safety, 
environmental oversight, and conservation compliance regarding 
offshore resources on the OCS.[Footnote 5] 

Our testimony today will address three main objectives: 

* the extent to which the Coast Guard has conducted security 
inspections of offshore energy facilities, and what additional actions 
are needed; 

* the extent to which Interior has conducted inspections of offshore 
energy facilities, including those on behalf of the Coast Guard, and 
what challenges it faces in conducting such inspections; and: 

* the Coast Guard's oversight authority of MODUs. 

This testimony is based on an October 2011 report on the Coast Guard's 
efforts to ensure the security of offshore energy facilities[Footnote 
6] as well as our body of work on Interior's oil and natural gas 
leasing and royalty collection programs issued from September 2008 
through June 2011.[Footnote 7] We conducted the performance audit work 
that supports this statement in accordance with generally accepted 
government auditing standards. Detailed information on the scope and 
methodology for our prior work can be found in those reports. Further, 
we reviewed memorandums of understanding or agreement between the 
Coast Guard and Interior regarding how the two agencies regulate 
offshore energy facilities as well as agency documents, such as budget 
justifications. 

Background: 

Memorandum of Understanding Regarding Jurisdictions on the OCS: 

In 2004, the Coast Guard and the Minerals Management Service--a 
component of Interior that was subsequently reorganized into the 
Bureau of Ocean Energy Management, Regulation, and Enforcement 
(BOEMRE), and, most recently, the Bureau of Ocean Energy Management 
(BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE)--
signed a memorandum of understanding (MOU) to delineate inspection 
responsibilities between the agencies. Per the MOU, the Coast Guard is 
responsible for ensuring (1) the safety of life and property on 
offshore energy facilities and vessels engaged in OCS activities; (2) 
workplace safety and health, including enforcement of requirements 
related to personnel, workplace activities, and conditions and 
equipment on the OCS; and (3) security of offshore energy facilities. 
The MOU assigns Interior responsibility for, among other things, 
managing the nation's oil, natural gas, and other mineral resources on 
the OCS in a safe and environmentally sound manner. 

In addition to delineating inspection responsibilities between the 
Coast Guard and Interior, the MOU is further divided into five 
memorandums of agreement, one of which addresses the agencies' 
responsibilities where jurisdiction overlaps. In accordance with this 
memorandum of agreement, the Coast Guard is the lead agency with 
responsibility for the inspection and testing of all marine and 
lifesaving equipment onboard fixed and floating offshore energy 
facilities and MODUs, and Interior is the lead agency with 
responsibility for the inspection and testing of all production and 
drilling equipment on these facilities. The Coast Guard, however, had 
authorized Interior (specifically, what was then the Minerals 
Management Service) to perform inspections of fixed offshore energy 
facilities and to enforce Coast Guard regulations applicable to such 
facilities. For example, the Coast Guard is to conduct an initial 
inspection of each new fixed offshore energy facility to determine 
whether it is compliant with Coast Guard safety regulations. However, 
after the initial inspection, the Coast Guard has authorized 
Interior's inspectors to conduct such safety inspections on behalf of 
the Coast Guard and enforce Coast Guard regulations applicable to 
those facilities as a means to avoid duplicating functions, reduce 
federal costs, and increase oversight for Coast Guard compliance 
without increasing the frequency of inspections. Therefore, with 
respect to fixed offshore energy facilities, the only inspections for 
which the Coast Guard is exclusively responsible beyond the initial 
safety inspection are the annual security inspections, to the extent 
that these facilities meet the applicable criteria, as described 
below. The Coast Guard continues to have responsibility for conducting 
inspections and enforcing its regulations on floating offshore energy 
facilities and MODUs. 

Coast Guard's Security Inspection Responsibilities: 

In accordance with federal laws, agreements between the Coast Guard 
and Interior described above, and Coast Guard guidance, Coast Guard is 
responsible for conducting annual security inspections of offshore 
energy facilities that meet or exceed any one of three thresholds for 
production or personnel--(1) producing greater than 100,000 barrels of 
oil a day, (2) producing more than 200 million cubic feet of natural 
gas per day, or (3) hosting more than 150 persons for 12 hours or more 
in each 24-hour period continuously for 30 days or more.[Footnote 8] 
We refer to the 57 offshore energy facilities that met or exceeded 
these thresholds at some point from 2008 through 2010--and were 
therefore subject to security inspections during those years--as "OCS 
facilities."[Footnote 9] Of these 57 OCS facilities, all of which are 
located in the Gulf of Mexico, 41 are fixed OCS facilities and 16 are 
floating OCS facilities.[Footnote 10] 

Staff at Coast Guard headquarters oversee and develop policies and 
procedures for field staff to follow when conducting security 
inspections of OCS facilities and to assist affected owners and 
operators so that they can comply with maritime security regulations. 
Among other things, Coast Guard marine inspectors in the field units 
conduct security inspections of OCS facilities by taking helicopter 
rides to facilities that can range up to 200 miles offshore. Once 
arriving, inspectors are to conduct on-site interviews with facility 
security officers and observe operations to verify whether required 
security measures are in place. As of August 2011, the Coast Guard had 
about 12 active marine inspectors who were qualified to conduct 
security inspections of OCS facilities. These inspectors work out of 
six field units near the Gulf of Mexico--Mobile, Alabama; Morgan City, 
Louisiana; New Orleans, Louisiana; Corpus Christi, Texas; Galveston, 
Texas; and Port Arthur, Texas. 

Interior's Inspection Responsibilities: 

In line with the responsibilities set forth in the MOU discussed above 
and to ensure compliance with applicable laws and regulations, 
Interior has an offshore oil and natural gas inspection program 
intended to verify that the operator complies with Interior 
regulations and requirements at a well site. Interior's offshore oil 
and natural gas oversight includes inspections of production 
activities including drilling, regular production activities, meters, 
abandoned platforms, and pipelines, among other things.[Footnote 11] 
Also in accordance with the MOU between the two agencies, Interior 
conducts both "full" and "limited" inspections of fixed offshore 
energy facility on behalf of the Coast Guard. During the full 
inspections of staffed, fixed offshore energy facilities, Interior's 
inspectors are to review all applicable Coast Guard requirements, 
which include 27 safety items. During limited inspections, which are 
to be conducted on all fixed offshore energy facilities in the course 
of conducting inspections at those facilities for Interior's purposes, 
Interior's inspectors are to review less than half of the safety 
items. During these inspections, Interior's inspectors are to, among 
other things, check for safety items such as the presence of equipment 
designed to prevent tripping, slipping, or drowning. 

Coast Guard's Security Inspection Program Has Faced Challenges and 
Could Be Improved: 

Coast Guard OCS facility guidance provides that Coast Guard personnel 
are to conduct security inspections of OCS facilities annually, but 
our analysis of inspections data show that the Coast Guard has not 
conducted such inspections for most of these OCS facilities.[Footnote 
12] For example, the Coast Guard conducted about one-third of the 
required annual inspections of OCS facilities from 2008 through 2010 
(see table 1).[Footnote 13] Specifically, our analysis of Coast Guard 
inspections data shows that in 2008 the Coast Guard inspected 7 of 56 
OCS facilities, which was 13 percent of the required annual 
inspections. More recently, in 2010, the Coast Guard inspected 23 of 
51 (45 percent) OCS facilities that the Coast Guard should have 
inspected.[Footnote 14] 

Table 1: Security Inspections Required and Conducted of OCS 
Facilities, Calendar Year 2008 through 2010: 

Coast Guard field unit: Corpus Christi; 
2008: Inspections required: 2; 
2008: Inspections conducted: 1; 
2009: Inspections required: 2; 
2009: Inspections conducted: 1; 
2010: Inspections required: 2; 
2010: Inspections conducted: 1. 

Coast Guard field unit: Galveston; 
2008: Inspections required: 5; 
2008: Inspections conducted: 2; 
2009: Inspections required: 4; 
2009: Inspections conducted: 3; 
2010: Inspections required: 4; 
2010: Inspections conducted: 4. 

Coast Guard field unit: Mobile; 
2008: Inspections required: 1; 
2008: Inspections conducted: 0; 
2009: Inspections required: 1; 
2009: Inspections conducted: 0; 
2010: Inspections required: 1; 
2010: Inspections conducted: 0. 

Coast Guard field unit: Morgan City; 
2008: Inspections required: 31; 
2008: Inspections conducted: 3; 
2009: Inspections required: 32; 
2009: Inspections conducted: 7; 
2010: Inspections required: 31; 
2010: Inspections conducted: 7. 

Coast Guard field unit: New Orleans; 
2008: Inspections required: 10; 
2008: Inspections conducted: 1; 
2009: Inspections required: 7; 
2009: Inspections conducted: 2; 
2010: Inspections required: 6; 
2010: Inspections conducted: 5. 

Coast Guard field unit: Port Arthur; 
2008: Inspections required: 7; 
2008: Inspections conducted: 0; 
2009: Inspections required: 7; 
2009: Inspections conducted: 7; 
2010: Inspections required: 7; 
2010: Inspections conducted: 6. 

Coast Guard field unit: Total (%); 
2008: Inspections required: 56; 
2008: Inspections conducted: 7 (13%); 
2009: Inspections required: 53; 
2009: Inspections conducted: 20 (38%); 
2010: Inspections required: 51; 
2010: Inspections conducted: 23 (45%). 

Source: GAO analysis of Coast Guard data. 

Note: The number of OCS facilities fluctuates year-to-year based on 
whether a facility continues to meet or exceed the threshold criteria. 
For example, in 2009 there were 53 OCS facilities, but in 2010, 2 of 
the facilities became "deregulated." Once a facility (1) is below the 
production thresholds for a year or below the personnel threshold for 
30 days; (2) has informed the Coast Guard; and (3) provided relevant 
documentation supporting that the facility is below the thresholds, 
the Coast Guard considers it no longer subject to 33 C.F.R. part 106 
requirements and the facility will no longer be subject to security 
inspections. 

[End of table] 

Our analysis of Coast Guard inspections data shows that the Coast 
Guard generally inspected a greater percentage of floating OCS 
facilities than fixed OCS facilities (see table 2). For example, from 
2008 through 2010, the Coast Guard conducted annual security 
inspections of 54 percent of floating OCS facilities compared to 24 
percent of fixed OCS facilities. During our interviews with Coast 
Guard marine inspectors and their supervisors, we learned that some 
field units did not know that they were responsible for conducting 
security inspections of these fixed facilities, approximately one-
third of which are not staffed because operations are automated. For 
example, marine inspectors in the Coast Guard field unit that oversees 
more than half of the OCS facilities stated that they had only 
recently learned that they were responsible for conducting security 
inspections of fixed OCS facilities. These marine inspectors stated 
that they thought that security inspections of the fixed OCS 
facilities within their area of responsibility were carried out by 
another field unit and that they had only been conducting annual 
security inspections of the floating OCS facilities. Further, other 
Coast Guard officials stated that it is easier to arrange for security 
inspections of floating OCS facilities because marine inspectors visit 
those facilities more frequently for other types of inspections, such 
as hull or safety inspections, whereas for fixed OCS facilities, the 
Coast Guard is required to conduct an initial safety inspection of 
each new facility and then is solely responsible for conducting annual 
security inspections of fixed OCS facilities once a year for annual 
security inspections.[Footnote 15] 

Table 2: Security Inspections Required and Conducted at OCS 
Facilities, by Type, Calendar Year 2008 through 2010: 

Type: Fixed OCS facility; 
Inspections required: 119; 
Inspections conducted: 28; 
Percentage: 24%. 

Type: Floating OCS facility; 
Inspections required: 41; 
Inspections conducted: 22; 
Percentage: 54%. 

Source: GAO analysis of Coast Guard data. 

[End of table] 

The Coast Guard does not have procedures in place to help ensure that 
its field units conduct annual security inspections of OCS facilities 
annually in accordance with its guidance. Standards for Internal 
Control in the Federal Government state that internal controls should 
include control activities, such as policies, procedures, and 
mechanisms that help ensure management directives are carried out. 
[Footnote 16] However, the Coast Guard does not have such control 
activities in place. For example, the Coast Guard's OCS facility 
guidance does not describe specific procedures for the way in which 
Coast Guard staff should track whether annual security inspections 
have been conducted. Further, Coast Guard district officials and most 
local field unit supervisors and marine inspectors we spoke with do 
not maintain any kind of tool, such as a spreadsheet or calendar, to 
remind them when annual security inspections of OCS facilities are 
due. Coast Guard officials from five of the six Coast Guard field 
units that conduct annual security inspections of OCS facilities told 
us that they do not maintain a spreadsheet or other management tool to 
track whether annual security inspections had been conducted. For 
example, at three of these locations, Coast Guard officials told us 
they rely on owners and operators to inform them when inspections were 
due rather than independently tracking when annual inspections were 
due. As a result of no procedures or control activities to manage the 
offshore security inspection program, the Coast Guard is not complying 
with its established maritime security requirements for most of the 
OCS facilities. Without conducting annual inspections of OCS 
facilities, the Coast Guard may not be meeting one of its stated goals 
of reducing the risk and mitigating the potential results of an act 
that could threaten the security of personnel, the OCS facility, the 
environment, and the public. 

In our October 2011 report, we made a recommendation, among others, 
that the Coast Guard develop policies and procedures to monitor and 
track annual security inspections for OCS facilities to better ensure 
that such inspections are consistently conducted. The Coast Guard 
concurred with this recommendation and stated that it is planning to 
update its OCS facility policy guidance for field units to monitor and 
track annual security inspections for OCS facilities to better ensure 
that such inspections are consistently conducted. 

Interior's Inspection Program Has Faced Challenges in Meeting Some 
Inspection Targets: 

Interior's inspection program has not consistently met its internal 
targets for production inspections, as we have reported in recent 
years. In 2008, we reported that Interior had not met its targets for 
conducting production inspections--examining metering equipment used 
to measure oil and natural gas production. Interior officials 
responsible for conducting production inspections in the Gulf of 
Mexico told us they completed about half of the required inspections 
in 2007, raising uncertainty about the accuracy of oil and natural gas 
measurement.[Footnote 17] In March 2010, we found that Interior had 
not routinely met its oil and natural gas production inspection goals. 
Specifically, we reported that Interior met its inspection goals only 
once--in 2008--during fiscal years 2004 through 2008, for four 
district offices we reviewed in the Gulf of Mexico and the Pacific. 
[Footnote 18] Interior inspection staff told us that, during these 
years, there was a shortage of inspectors and that inspections were 
delayed because of cleanup related to Hurricanes Katrina and Rita in 
2005. We are unable to present data for these years because, according 
to Interior officials, district offices often did not correctly record 
production inspections on their inspection forms; since then, Interior 
instituted a policy to record inspections correctly. Also in March 
2010, we reported that Interior had encountered persistent human 
capital challenges in its inspection programs designed to ensure 
accurate measurement of oil and natural gas from federal lands and 
waters.[Footnote 19] In particular, we reported that Interior was 
hindered by difficulties in hiring, training, and retaining key 
inspections staff. We reported that this difficulty in attracting and 
retaining key staff contributed to challenges in meeting its 
responsibilities to conduct inspections, thereby, reducing its 
oversight of oil and gas development on federal leases, potentially 
placing the environment at risk. In our report, we made a number of 
recommendations to Interior to address these issues, some of which 
Interior is already in the process of implementing. 

Although Interior has not consistently met its internal targets for 
production inspections, it has exceeded its target for Coast Guard 
compliance inspections. For fiscal year 2010, the most recent year 
reported, Interior's goal was to conduct full inspections covering all 
applicable Coast Guard regulations on 10 percent of the estimated 
1,000 staffed, fixed offshore energy facilities. For fiscal year 2010, 
Interior reported that it more than met this goal by conducting such 
inspections on 169 of the 1,021 staffed, fixed offshore energy 
facilities--about 17 percent.[Footnote 20] Further, Interior reported 
that it has met internal targets for these inspections for the 
previous 5 years. In addition, Interior reported that in fiscal year 
2010 its inspectors also conducted limited inspections for compliance 
with Coast Guard regulations on all other fixed offshore energy 
facilities in the course of inspecting these facilities for their own 
purposes. 

Interior has recently been reorganizing its offshore inspection 
program, which has resulted in some uncertainty regarding its 
inspection capabilities. After the Deepwater Horizon incident in April 
2010, Interior initiated a reorganization of its bureau responsible 
for overseeing offshore oil and natural gas activities. Specifically, 
in May 2010, Interior reorganized its Minerals Management Service--the 
bureau previously tasked with overseeing offshore oil and natural gas 
activities--and created the Bureau of Ocean Energy Management, 
Regulation, and Enforcement (BOEMRE). On October 1, 2011, Interior was 
further reorganized by dividing BOEMRE into two separate bureaus, the 
Bureau of Ocean Energy Management (BOEM)--which oversees leasing and 
resource management, and the Bureau of Safety and Environmental 
Enforcement (BSEE)--which is responsible for issuing oil and natural 
gas drilling permits and conducting inspections. We have reported that 
Interior could face challenges during its reorganization. In June 
2011, we testified that Interior's reorganization of activities 
previously overseen by MMS will require time and resources and may 
pose new challenges.[Footnote 21] We stated that while this 
reorganization may eventually lead to more effective operations, 
organizational transformations are not simple endeavors. We also 
expressed concern with Interior's ability to undertake this 
reorganization while meeting its oil and natural gas oversight 
responsibilities. We believe that these concerns are still valid today. 

While Interior was reorganizing its oversight responsibilities, it was 
also reforming its inspection program and, according to Interior, 
these reforms have created uncertainty regarding future oversight 
inspections. As part of the inspections program reform, Interior plans 
to hire additional staff with expertise in oil and natural gas 
inspections and engineering and develop new training programs for 
inspectors and engineers involved in its safety compliance and 
enforcement programs. Specifically, Interior reported in February 2011 
that it was seeking to hire additional inspectors for its offshore 
inspection program to meet its needs during fiscal years 2011 and 
2012.[Footnote 22] Interior reported that it had 62 inspectors--which, 
it reported, was not sufficient to provide the level of oversight 
needed for offshore oil and natural gas production. Interior has also 
requested additional funding to implement these changes. Further, 
Interior has stated that its new inspection program may involve 
inspectors witnessing more high-risk activities, and in-depth 
examination of some aspects of Gulf oil and natural gas production, 
and so inspections may take more time in the future and be more 
difficult to fold into the existing inspection schedules. As a result, 
Interior reported that it was difficult to determine how many 
inspections would be conducted in fiscal year 2012. 

The Coast Guard Has Limited Authority over the Security of MODUs 
Registered to Foreign Countries: 

While the Deepwater Horizon incident was not the result of a breakdown 
in security procedures or the result of a terrorist attack, the loss 
of the Deepwater Horizon, a foreign-flagged MODU, and the resulting 
oil spill have raised concerns about U.S. oversight over MODUs that 
are registered to foreign countries.[Footnote 23] In this regard, 
various circumstances govern the extent to which the Coast Guard 
oversees the security of MODUs. In general, MODUs operating on the OCS 
implement security measures consistent with applicable security 
requirements--specifically, they implement requirements in accordance 
with U.S. security regulations and the International Maritime 
Organization's International Ship and Port Facility Security (ISPS) 
Code.[Footnote 24] Depending on the particular characteristics and 
operations of the MODU--for example, its method of propulsion or its 
personnel levels--it may be subject to Coast Guard security 
regulations governing vessels (33 C.F.R. part 104) or OCS facilities 
(33 C.F.R. part 106). MODUs will fall under applicable Coast Guard 
regulations if (1) they are self-propelled--that is, they are capable 
of relocating themselves, as opposed to other types that require 
another vessel to tow them--in which case they are subject to the ISPS 
Code and 33 C.F.R. part 104, or (2) they meet production or personnel 
levels specified in 33 C.F.R. part 106. Whereas the Coast Guard may 
physically inspect a U.S.-flagged MODU to ensure compliance with 
applicable security requirements, the Coast Guard's oversight of 
foreign-flagged, self-propelled MODUs, such as the Deepwater Horizon, 
is more limited.[Footnote 25] In the case of self-propelled, foreign-
flagged MODUs, the Coast Guard will assess compliance with part 104 by 
reviewing a MODU's International Ship Security Certificate, which 
certifies compliance with the ISPS Code. While Coast Guard inspectors 
may also observe security measures and ask security related questions 
of personnel, absent consent from the flag state, the inspectors 
generally do not have authority to review a self-propelled, foreign-
flagged MODU's vessel security plan. In all other cases where MODUs 
are subject to Coast Guard security requirements, the Coast Guard 
assesses compliance with part 104 or part 106 through annual security 
inspections.[Footnote 26] Figure 1 illustrates the types of MODUs, the 
applicable security requirements, and the means by which the Coast 
Guard assesses compliance.[Footnote 27] 

Figure 1: Coast Guard Security Requirements Applicable to MODUs 
Operating in U.S. Federal Waters: 

Refer to PDF for image: illustration] 

Self-Propelled (ISPS Code Applicable): 

U.S.-flagged: 
33 C.F.R. part 104; 
The Coast Guard assesses compliance through annual security 
inspections[A]; 
1 MODU[B]. 

Foreign-flagged: 
33 C.F.R. part 104; 
The Coast Guard assesses compliance by verifying that the MODU has a 
valid International Ship Security Certificate, which reflects 
compliance with the ISPS Code; 
9 MODUs[B]. 

Not Self-Propelled (ISPS Code Not Applicable): 

U.S.-flagged: 

33 C.F.R. part 106 Applicable if threshold criteria are met; 
The Coast Guard assesses compliance through annual security 
inspections; 
0 MODUs[B]. 

33 C.F.R. part 106 Not Applicable if threshold criteria are not met; 
The Coast Guard does not assess compliance; 
5 MODUs[B]. 

Foreign-flagged: 

33 C.F.R. part 106 Applicable if threshold criteria are met; 
Coast Guard assesses compliance through annual security inspections; 
0 MODUs[B]. 

33 C.F.R. part 106 Not Applicable if threshold criteria are not met; 
The Coast Guard does not assess compliance; 
34 MODUs[B]. 

Source: GAO analysis of ISPS Code, 33 C.F.R. parts 104 and 106, and 
Coast Guard MISLE data, and U.S. Coast Guard. 

[A] A self-propelled, U.S.-flagged MODU must also comply with the ISPS 
Code and possess an International Ship Security Certificate if it is 
on an international voyage. 33 C.F.R. part 104 security regulations, 
which govern self-propelled, U.S.-flagged MODUs, are consistent with 
the ISPS Code. 

[B] There are no MODUs operating in U.S. federal waters that meet the 
threshold criteria of 33 C.F.R. part 106. The numbers for other 
categories of MODUs shown above--those that are subject to 33 C.F.R. 
part 104 and those that do not meet the threshold criteria of 33 
C.F.R. part 106--are the number of MODUs in each category that are, 
according to the Coast Guard, drilling in the Gulf of Mexico as of 
September 23, 2011. 

[End of figure] 

The Coast Guard may not be fully aware of the security measures 
implemented by self-propelled, foreign-flagged MODUs because of its 
limited oversight of such MODUs. The Coast Guard and BOEMRE, BSEE's 
predecessor, conducted a joint investigation into the Deepwater 
Horizon incident, and the Coast Guard's report from the investigation 
emphasized the need to strengthen the system of Coast Guard oversight 
of foreign-flagged MODUs. The Coast Guard's report from the joint 
investigation stated that the Coast Guard's regulatory scheme for 
overseeing the safety of foreign-flagged MODUs is insufficient because 
it defers heavily to the flag state to ensure safety. While the 
investigation focused on issues that were not related to security, 
such as safety, these findings may have implications for security 
oversight because the Coast Guard also relies on the flag state to 
carry out responsibilities for assessing compliance with security 
requirements. The joint investigation team recommended, among other 
things, that the Commandant of the Coast Guard develop more 
comprehensive inspection standards for foreign-flagged MODUs operating 
on the OCS. The Commandant concurred with this recommendation and has 
chartered an Outer Continental Shelf Activities Matrix Team, which has 
been tasked with providing recommendations on the establishment and 
implementation of an enhanced oversight regime for foreign-flagged 
MODUs on the U.S. OCS. 

According to Coast Guard officials, it is likely that MODUs operating 
in deepwater would be subject to security requirements because the 
industry is increasingly using dynamically positioned MODUs that are 
able to maintain position without being anchored to the seabed, and as 
such MODUs are self-propelled, they would be subject to the ISPS Code 
and 33 C.F.R. part 104.[Footnote 28] Additionally, the Coast Guard is 
conducting a study designed to help determine whether additional 
actions could better ensure the security of offshore energy 
infrastructure in the Gulf of Mexico, including MODUs. This study is 
expected to be completed in the fall of 2011. Gaining a fuller 
understanding of the security risks associated with MODUs could better 
inform Coast Guard decisions and potentially improve the security of 
these facilities. Further, the Coast Guard has implemented a new risk- 
based oversight policy for MODUs, including foreign-flagged MODUs, to 
address safety and environmental protection issues. This policy 
includes a targeting matrix to assist inspectors in determining 
whether a foreign-flagged MODU may require increased oversight, based 
on inspection history or other related factors, through more frequent 
examinations by the Coast Guard. Additionally, the policy calls on 
Coast Guard field units to conduct random, unannounced examinations of 
a portion of all MODUs in their areas of responsibility. Although this 
policy does not directly address security, increased oversight 
resulting from this new policy could help mitigate some of the ways in 
which a MODU might be at risk of a terrorist attack. 

Chairman LoBiondo, Ranking Member Larsen, and Members of the 
Subcommittee, this completes our prepared statement. We would be happy 
to respond to any questions you may have at this time. 

GAO Contacts and Staff Acknowledgments: 

For questions about this statement, please contact Stephen L. Caldwell 
at (202) 512-9610 or caldwells@gao.gov, or Frank Rusco at (202) 512- 
3841 or ruscof@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this statement. In addition to the contacts named above, key 
contributors to this testimony were Christopher Conrad, Assistant 
Director; Jon Ludwigson, Assistant Director; Lee Carroll and Erin 
O'Brien, analysts-in-charge; and Alana Finley. Thomas Lombardi 
provided legal support and Lara Miklozek provided assistance in 
testimony preparation. 

[End of section] 

Related GAO Products: 

Maritime Security: Coast Guard Should Conduct Required Inspections of 
Offshore Energy Infrastructure. [hyperlink, 
http://www.gao.gov/products/GAO-12-37]. Washington, D.C.: October 28, 
2011. 

Deepwater Horizon Oil Spill: Actions Needed to Reduce Evolving but 
Uncertain Federal Financial Risks. [hyperlink, 
http://www.gao.gov/products/GAO-12-86]. Washington, D.C.: October 24, 
2011. 

Maritime Security: Progress Made, but Further Actions Needed to Secure 
the Maritime Energy Supply. [hyperlink, 
http://www.gao.gov/products/GAO-11-883T]. Washington, D.C.: August 24, 
2011. 

Oil and Gas: Interior's Restructuring Challenges in the Aftermath of 
the Gulf Oil Spill. [hyperlink, 
http://www.gao.gov/products/GAO-11-734T]. Washington, D.C.: June 2, 
2011. 

Maritime Security: DHS Progress and Challenges in Key Areas of Port 
Security. [hyperlink, http://www.gao.gov/products/GAO-10-940T]. 
Washington, D.C.: July 21, 2010. 

Oil and Gas Management: Interior's Oil and Gas Production Verification 
Efforts Do Not Provide Reasonable Assurance of Accurate Measurement of 
Production Volumes. [hyperlink, 
http://www.gao.gov/products/GAO-10-313]. Washington, D.C.: March 15, 
2010. 

Mineral Revenues: Data Management Problems and Reliance on Self- 
Reported Data for Compliance Efforts Put MMS Royalty Collections at 
Risk. [hyperlink, http://www.gao.gov/products/GAO-08-893R]. 
Washington, D.C.: September 12, 2008. 

Maritime Security: Coast Guard Inspections Identify and Correct 
Facility Deficiencies, but More Analysis Needed of Program's Staffing, 
Practices, and Data. [hyperlink, 
http://www.gao.gov/products/GAO-08-12]. Washington, D.C.: February 14, 
2008. 

Maritime Security: Federal Efforts Needed to Address Challenges in 
Preventing and Responding to Terrorist Attacks on Energy Commodity 
Tankers. [hyperlink, http://www.gao.gov/products/GAO-08-141]. 
Washington, D.C.: December 10, 2007. 

Maritime Security: The SAFE Port Act: Status and Implementation One 
Year Later. [hyperlink, http://www.gao.gov/products/GAO-08-126T]. 
Washington, D.C.: October 30, 2007. 

[End of section] 

Footnotes: 

[1] U.S. Coast Guard, BP Deepwater Horizon Oil Spill: Incident 
Specific Preparedness Review (Washington, D.C.: January, 2011); On 
Scene Coordinator Report: Deepwater Horizon Oil Spill (Washington, 
D.C.: September 2011); and Report of Investigation into the 
Circumstances Surrounding the Explosion, Fire, Sinking, and Loss of 
Eleven Crew Members Aboard the Mobile Offshore Drilling Unit Deepwater 
Horizon in the Gulf of Mexico, April 20-22, 2010, Volume I 
(Washington, D.C.: September 2011). 

[2] GAO, Maritime Security: Coast Guard Should Conduct Required 
Inspections of Offshore Energy Infrastructure, [hyperlink, 
http://www.gao.gov/products/GAO-12-37] (Washington, D.C.: October 28, 
2011); Oil and Gas: Interior's Restructuring Challenges in the 
Aftermath of the Gulf Oil Spill, [hyperlink, 
http://www.gao.gov/products/GAO-11-734T] (Washington, D.C.: June 2, 
2011); and Oil and Gas Management: Interior's Oil and Gas Production 
Verification Efforts Do Not Provide Reasonable Assurance of Accurate 
Measurement of Production Volumes, [hyperlink, 
http://www.gao.gov/products/GAO-10-313] (Washington, D.C.: Mar. 15, 
2010). 

[3] See 33 C.F.R. § 101.105. The OCS is a designation for all 
submerged lands extending seaward from generally 3 nautical miles off 
the coastline to at least 200 nautical miles, and of which the subsoil 
and seabed appertain to the U.S. and are subject to its jurisdiction 
and control. See 43 U.S.C. § 1331(a); 33 C.F.R. § 140.10. 

[4] A fixed offshore energy facility is a bottom-founded facility 
permanently attached to the seabed or subsoil of the OCS, including 
platforms, guyed towers, articulated gravity platforms, and other 
substructures. A floating offshore energy facility is a buoyant 
facility securely and substantially moored so that it cannot be moved 
without special effort. This term includes tension leg platforms, 
spars, semisubmersibles, and shipshape hulls. A MODU is a vessel 
capable of drilling operations for exploring or exploiting subsea oil, 
natural gas, or other minerals. 

[5] On October 1, 2011, the Bureau of Ocean Energy Management, 
Regulation, and Enforcement (BOEMRE), reorganized into two independent 
entities: the Bureau of Ocean Energy Management (BOEM) and the Bureau 
of Safety and Environmental Enforcement (BSEE). BOEM is responsible 
for managing development of the nation's offshore resources in an 
environmentally and economically responsible way, and its activities 
include oversight of leasing, environmental studies, and economic 
analysis. BSEE is responsible for enforcing safety and environmental 
regulations. More information on this reorganization is provided later 
in this statement. 

[6] [hyperlink, http://www.gao.gov/products/GAO-12-37]. 

[7] [hyperlink, http://www.gao.gov/products/GAO-11-734T]; [hyperlink, 
http://www.gao.gov/products/GAO-10-313; and GAO, Data Management 
Problems and Reliance on Self-Reported Data for Compliance Efforts Put 
MMS Royalty Collections at Risk, [hyperlink, 
http://www.gao.gov/products/GAO-08-893R] (Washington, D.C.: Sept. 12, 
2008). 

[8] See 33 C.F.R. § 106.105(a). In accordance with the Maritime 
Transportation Security Act (MTSA) of 2002, as amended, and its 
implementing security regulations, codified at parts 101 to 106 of 
title 33, Code of Federal Regulations, the Coast Guard undertakes 
efforts to ensure maritime security by, among other things, reviewing 
and approving security plans produced by owners and operators of 
regulated vessels and facilities. See Pub. L. No. 107-295, 116 Stat. 
2064 (2002). An amendment by the Security and Accountability For Every 
(SAFE) Port Act of 2006 provides that, subject to the availability of 
appropriations, the Secretary of the Department of Homeland Security 
shall verify the effectiveness of facility security plans at least 
twice a year, one of which shall be an inspection of the facility 
conducted without notice. See Pub. L. No. 109-347, § 103, 120 Stat. 
1884, 1888 (2006) (codified at 46 U.S.C. § 70103(c)(4)(D)).The Coast 
Guard undertakes to assess the effectiveness of such facility plans 
by, for example, conducting security inspections." 

[9] Facilities that meet these thresholds are subject to 33 C.F.R. 
part 106, which include additional security related requirements. For 
more information on the security of facilities regulated under part 
106, see [hyperlink, http://www.gao.gov/products/GAO-12-37]. 

[10] A fixed OCS facility is a fixed offshore energy facility that 
meets at least one of the applicable threshold criteria to be 
regulated for security under 33 C.F.R. part 106. Fixed OCS facilities 
include (1) production platforms that produce oil and/or natural gas; 
and (2) transmission platforms, whose primary purpose is the pumping, 
maintenance, and/or inspection of transfer pipelines. A floating OCS 
facility is a floating offshore energy facility that meets at least 
one of the applicable threshold criteria to be regulated for security 
under 33 C.F.R. part 106. This term includes tension leg platforms and 
permanently moored semisubmersibles or shipshape hulls, but does not 
generally include MODUs or other vessels. However, for the purposes of 
this report, we include non-self-propelled MODUs that meet relevant 
production or personnel thresholds in the category of floating OCS 
facilities because such MODUs are also regulated for security under 33 
C.F.R. part 106. From 2008 through 2010, there was one such MODU that 
was regulated for security under 33 C.F.R. part 106. 

[11] For the purposes of this testimony we refer to "production 
inspections," which are measurement-related inspections that Interior 
defines as "site security" inspections. These inspections are designed 
to verify that offshore platforms and other measurement facilities 
meet Interior regulations concerning the handling of oil and gas 
production. Site security inspections typically include a visual 
examination of piping to verify that oil and gas do not flow around--
or bypass--measurement meters. 

[12] We use the term OCS facility guidance to refer to the Coast 
Guard's NVIC 05-03, Implementation Guidance for the Maritime Security 
Regulations Mandated by the Maritime Transportation Security Act of 
2002 for Outer Continental Shelf Facilities (December 15, 2003). 

[13] We present security inspection data only from 2008 through 2010. 
We also analyzed security inspection data for 2011 (through June 24, 
2011), but did not report on this information because most of the 
annual security inspections on OCS facilities are typically not 
conducted until the fall. From January through June 2011, the Coast 
Guard conducted four inspections of the OCS facilities. 

[14] These data come from the Coast Guard's Maritime Information for 
Safety and Law Enforcement database. As discussed in GAO-12-37, we 
found that the database had limitations that make it difficult to 
determine if security inspections were conducted. To address these 
limitations, we worked with Coast Guard officials and took additional 
steps to assess the reliability of the data, which are described in 
that report. We recommended that the Coast Guard make improvements to 
the database or its guidance to better ensure that all OCS facilities 
are accurately and consistently identified and that the results of 
security inspections are consistently recorded to allow for better 
data analyses and management of the security inspections process. The 
Coast Guard concurred with this recommendation. 

[15] As noted above, per the memorandum with Interior, the Coast Guard 
is solely responsible for the initial safety inspection of fixed 
offshore energy facilities, which includes fixed OCS facilities, after 
which Interior is authorized to conduct annual safety inspections of 
and enforce Coast Guard regulations applicable to such facilities. 
However, for floating facilities the Coast Guard still carries out 
various inspections throughout the year, including hull inspections. 

[16] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). These standards, issued pursuant to 
the requirements of the Federal Managers' Financial Integrity Act of 
1982 (FMFIA), provide the overall framework for establishing and 
maintaining internal control in the federal government. Also pursuant 
to FMFIA, the Office of Management and Budget (OMB) issued Circular A-
123, revised December 21, 2004, to provide the specific requirements 
for assessing the reporting on internal controls. Internal control 
standards and the definition of internal control in OMB Circular A-123 
are based on GAO's Standards for Internal Control in the Federal 
Government. 

[17] GAO, Mineral Revenues: Data Management Problems and Reliance on 
Self-Reported Data for Compliance Efforts Put MMS Royalty Collections 
at Risk, [hyperlink, http://www.gao.gov/products/GAO-08-893R] 
(Washington, D.C.: Sept. 12, 2008). 

[18] In 2008, Interior changed its goal for measurement inspections 
for the Gulf of Mexico, its major production area. In 2008, the goal 
was to inspect the 100 highest-volume measurement locations in the 
Gulf. From 2004 through 2007, OEMM's goals were to conduct measurement 
inspections on 100 percent of all measurement locations. During those 
years, the agency performed about half of the inspections required to 
meet these annual goals. 

[19] GAO, Oil and Gas Management: Interior's Oil and Gas Production 
Verification Efforts Do Not Provide Reasonable Assurance of Accurate 
Measurement of Production Volumes, [hyperlink, 
http://www.gao.gov/products/GAO-10-313] (Washington, D.C.: Mar. 15, 
2010). 

[20] Interior officials told us that Interior has never received 
additional funding to cover the inspections agreed upon in the MOU, 
and that Interior may review the MOU in the future based on level of 
future funding and its own inspection mandates. 

[21] [hyperlink, http://www.gao.gov/products/GAO-11-734T]. 

[22] The United States Department of the Interior, Bureau of Ocean 
Energy Management, Regulation and Enforcement, Budget Justifications 
and Performance Information, Fiscal Year 2012 (Washington, D.C.: 
February 18, 2011), 28. 

[23] The Deepwater Horizon was registered to the Republic of the 
Marshall Islands. 

[24] The Coast Guard's security regulations--33 C.F.R. parts 101 
through 106--are consistent with the ISPS Code. The International 
Maritime Organization is the international body responsible for 
improving maritime safety. It primarily regulates maritime safety and 
security through the International Convention for the Safety of Life 
at Sea, 1974. Among other things, the ISPS Code establishes an 
international framework, involving cooperation between contracting 
governments, government agencies, local administrations, and the 
shipping and port industries to detect and assess security threats and 
take preventive measures against security incidents affecting ships or 
port facilities in international trade, and to ensure confidence that 
adequate and proportionate maritime security measures are in place. 

[25] As a self-propelled, foreign-flagged MODU, the Deepwater Horizon 
was subject to the requirements of the ISPS Code. In July 2009, Coast 
Guard inspectors conducted a certificate of compliance examination on 
the Deepwater Horizon in which the inspectors reviewed all applicable 
licenses and other compliance documents, including those related to 
security; the inspectors found no deficiencies during this examination. 

[26] The Deepwater Horizon was self-propelled and foreign-flagged. 

[27] For more detail on the applicable security requirements for 
MODUs, see [hyperlink, http://www.gao.gov/products/GAO-12-37]. 

[28] According to a 2006 report from Interior's Mineral Management 
Service, deepwater is traditionally defined as those water depths 
greater than or equal to 1000 feet. See Department of the Interior, 
Minerals Management Service, Leasing Oil and Natural Gas Resources: 
Outer Continental Shelf (Washington, D.C.: 2006). 

[End of section] 

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