bets on what is going to happen to interest rates, what will happen to various economies. it became a giant casino. indeed, something even worse because, unlike in a casino when you know generally what the house of our on cracked or roulette, no one knew what odds were any longer so it was completely out of control. host: the book above " capital offense." talking to michael hirsh, chief correspondent at the national journal group and also served as senior editor and national economics correspondent for newsweek, based in the washington bureau. you have seen him on the show before. the numbers to call if you want to join the conversation -- in your book, as we mentioned, you go back in time 30 years and look at the various administrations.

you did a section on how things like a financial crisis we just experience. guest: it is important to do that and understand -- i don't demonize either side of the aisle. this is a show in which we hear from republicans and democrats on separate lines. i spend just as much time criticizing the clinton administration as i do the george w. bush administration. what you had was officialdom that came to buy into an idea that economists knew was false, that financial markets could be left untouched. one of the most fascinating figures to me and my narrative is larry summers, who just announced recently he is leaving as obama's chief economic adviser. because larry summers is truly one of the great economist of his generation. the winner of the very prestigious prize awarded every two years to an economist under 40.

and he knew -- some of his own work in the 1980's have shown the fallacy of the idea of rational markets in finance. and yet when he became a policy maker, first in the clinton administration under robert rubin, the treasury secretary, and then later under obama, he became influenced by this idea that you could leave the financial markets alone. there was one famous moment in 2005, the height of the bubble just before things went bad -- went bad, at a retreat in jackson hole that central bankers hold every year, when a smart compression -- economist presented a paper saying we might be in trouble, the banks are getting loaded with all of this risk and they don't seem to know how to handle it, and larry summers got up and sort of ridiculed him, basically called him a sandy-luddite and he could

cobbling enough, this was the man that president obama chose, not only as chief economic adviser, but the man that would fix the same system that summers helped to create. host: richard from the villanova. democrat line. caller: i am not a trained economist, but i have always been of the opinion that the deregulation of savings and loans was the seminal event that led to the eventual meltdown of the system. what is your opinion? guest: i do not know if it is the central event, but it is a key event. it is what can happen when a subsection of the banking industry is left unregulated. it also led to the securitized

of bad assets, which was initially organized by the government, to deal with the problem of these bankrupt s&ls. key moments in the past couple of decades, but there are lots of key moments, that lead to a market that is out of control. joseph stickups if -- steiglitz, who had been a longtime supporter of the markets, wrote a paper prickly question in the securitization phenomenon, where is that going to lead? will it lead to lenders being less responsible out the loans they were issuing? of course, that was a question that we sell answered in the most devastating sorts of ways,

when we found there were no standards for lending, making sure that loans were made responsibly, because of this phenomenon. they were only connected by an interest payment. yes, that is a key moment in this phenomenon. host: mike on the independent line, michigan. caller: i have several comments i want to make, but i disagree on with your comments about the clinton administration.

i keep hearing that they are going to vote out days people in november, but they are just going to vote in these shills for wall street. these grass-roots organizations, the tea party, they are so upset, they are going to vote republican. host: what should the obama administration do at this point to help what is happening and to the economy, wall street? caller: if you look back to the clinton administration, a lot of democrats lost their seats in the house. it was not until 1996 that the economy started to pick up. what do people expect of the obama administration, wave a magic wand and wipe out eight years of bad policies from the

republican party? guest: your caller makes some good points. i do not want to demonize anybody. certain economists like robert rubin but they were doing the right thing. most people maintained that they would not have let things get out of hand as they did in the bush administration. that is hard to say, but that is another datapoint. his final point, how people expect, in this current election environment, that you are going to get back to where you were in the high-growth areas, will be difficult. they are saying out there, we have turn the economy around, even though it is slow growth.

even though it feels like a recession, we have been growing .teadily fo this sort of thing takes time. you simply do not get out of this sort of disaster in 18 months. it seems like that message, however, is not carrying well with the public. host: as you speak to leading economists, those who are influential in forming the u.s. policy, do they feel like divided government led to compromises that did not work? for example, the stimulus package that was passed. some say that we need much more but this is as much as we can get in order to get some republicans are aboard. has the compromise bread

problems, has the administration done what they wanted and what people aboard? guest: i think there is a sense the obama administration made too many compromises with a conservative movement, which as we have seen, has been taken over by more right wing-leading elements. that they made too many compromises with a republican party that has not addressed their role in any of this. we continue to hear the fantasy from the right that these were government program that led to the crisis, fannie mae, freddie mac's were encouraging all these bad mortgages, and that was the source of the problem. they were an element, but no more. you do not hear the republican dealing with the real implications of affectively 30

years of runaway reaganism, which was have a healthy reaction to what was happening at the time, but had run its course. you do not hear a discussion in washington about rethinking the proper balance between markets and government. we are capitalists, we want market growth, but you need the right degree of growth as well. one of the criticisms of obama is he did not realize that soon enough and handed to many things the way to republicans, centrist democrats, not taking a more fdr-type role and fixing what needed to be fixed. host: our guest is the chief correspondent for the national

journal. the bill, republican line. -- let us go to bill, republican line. baltimore. caller: i have a question on the capital requirements that the banks were required to keep. i think that is the root of the problem. i do not think there is a problem with derivatives, securitization of assets. what really got the whole system on the wrong path was when the capital requirements for the banks were losing. that allowed the banks to become extremely leveraged. that is the fundamental problem. i lay that at the foot of congress, who allowed those capital requirements to be reduced. guest: another important part of the story.

there is a tendency in discussing the crisis to be a lot about like the blind man and the elephant. you are feeling one part of that -- this must feel like something else -- not getting your hands around the hole. -- the whole. banks were required to keep less and less of their own capital in these instruments, which led to some recklessness. one character in my book, paul o'neill, president bush's treasury secretary, was left out of town at the time. he was not robert rubin. he was sort of the ill at ease in front of the camera, but i went back to talk to him, and a

lot of his ideas sounded pretty good. he said, this venture reform bill that they just passed, we could have done it in two pages. one page would say that the banks would have to stake 25% -- not a 7% that we have now internationally -- 25% of their capital on any loan that they make. and then on page two, mortgage holders would need to put down 20% of their capital to buy a home. he said that would fix the problem. what he says makes practical sense. so yes, the reduction of capital standards, as everyone recognizes, was a key problem. one of the problems out there now is how much of a raising of the standards is necessary to

prevent this from happening again? host: a tweet from a viewer -- guest: what the repeal of glass- steagall did was remove all of the fire wall that existed in the financial industry. that was enacted when it became clear, that when banks, as part of a new deal, were being injured by the government, began to behave recklessly, like investment banks. there was a lot of risky behavior happening on wall street. you do not really what those two to mix. when glass-steagall was repealed, -- which some people call the citigroup conglomeration act -- would have

been traditional islands of safety, they also became infected by this risk-taking behavior and that securities on their books. so you no longer had fire walls of any kind to prevent a conflagration tfrom spreading. that is why the whole system was in danger of going down. host: let's hear from jimmy, democratic caller picke. it's burke. caller: -- pittsburgh. host: unnecessary. good morning, charlie. you are on with michael hirsch. caller: your book is dealing

with what you are proposing as the main cause of the financial crisis. i would like to question -- your thesis seems to be, deregulation was instrumental in causing the crisis. you have mentioned other things that contributed to it. one of the problem with your argument, it seems to me, if you look at ireland, as one example, they did not have a glass-steagall act. certainly, they did not have fannie mae, freddie mac. ireland is in bad shape, they simply had too much lending.

it seems fairly clear that the core of the problem is lots of institutions basically bought the same security, which were tied to the price of housing. the question in my mind is why did these people think owning all the securities was a good idea? guest: because wall street induced them to do so, these european, asian banks. you are right, and different circumstances, you have universal banking model where you do not have a glass-steagall separation. but you also had, traditionally, a lot of supervision and oversight over the activities they were getting into. these banks also got involved in

buying up these dubious securities. one of the most famous cases we saw in recent months involve goldman sachs. it created a collateralized debt obligation, these complicated instruments built on mortgage assets, which were designed to fail. made up of securities that were based on bad mortgages, designed to go down, so that short sellers on that side of the transaction could win. of course, on the other side of the transaction was, among others, a german bank that did not seem to realize it was being played for a patsy. so you had a lot of things like this occurring at these wall street firms. these so-called quants were

former physicist that were simply creating products that no one could understand. it is true, there were different circumstances, but it comes down to the same phenomenon, and it comes from wall street. host: james on twitter says -- that is his opinion, but is there a discussion among the folks you talk to about a dichotomy between having a hard line between the alley on wall and needing to work with the industry? guest: he has had to walk a fine line. it has been the subject of internal debate in the administration, which i go into in my book. there is a key moment when obama is hemming and hawing about

taking a tougher stance on these bankers, -- and the kind of goes back and forth. some days he is really frustrated with them, other days, tim geithner is saying that we need to get some of them under control. then you have paul volcker saying that we need to forbid them from doing this risky trading. obama is hemming and hawing, over this, over a year. this is just at the time when wall street is announcing new record bonuses. two years after the crisis, they are awarded themselves these bonuses. according to my records, obama is stunned by this behavior and is considering what paul volcker is saying.

eventually, obama and raises paul volcker and does what he says. but it is sort of too little, too late. he has been divided on this question, has been getting conflicting advice. he has not been becoming franklin roosevelt, as some people thought he would be. host: next phone calls. caller: i was just making a comment. there was an earlier caller who said it takes a long time for the economy to come back. obama is probably not to blame. my issue with obama and his administration is the way he is forcing things on us, which is no different than any government in the past 30 years. health care, he has forced us to

take it. he did not care what people wanted. that is my issue with obama, not what he is or is not doing for the economy. guest: i think that is a very pertinent comment. i am also of the opinion, that while health care needed to be addressed, clearly it is a crisis in the economy, was not the most pressing crisis. i think it smacked with a bit of hubris that they were going to had onlys on when they die taken on have of the economy. the problem taking on health care when he did, he sort of used his political capital. now we need more stimulus, more government intervention, but it is politically impossible because of this rebellion over

big government. i think it was a political mess copulation. host: michael hirsch is the author of "capital offense." he is also the chief correspondent with "national journal. when we talk about the decision that were made over decades that had led to the financial situation we are in, as you mentioned in your book, it is very character-driven. these characters were brought into the inner circle of the white house. why is it that people like larry summers and tim geithner came back? they were the month responsible for early, failed policies, so why did obama go back to them instead of the people that you described as the canaries in the coal mine, the people who had identified some of the problems? guest: one of the people i quoted in my book, a former senior regulator, said this to

me. obama did not run for president to fix derivatives. this was not his area of expertise. he is a brilliant man, he certainly understand the gravity of the problem, but he did not understand until he became president just how deep it was. he saw people like summers and tim geithner as fix-it guys. i think he assumed that they would be able to fix it, considering they were partly responsible for it. certainly, we are seeing some signs that obama has realized, as sommers is leaving -- the

president recently named elizabeth warren the head of this consumer panetta protection bureau, which is a great part of this new law. she is certainly considered a very progressive voice. she is one of the few people in the it ministration that does not have robert rubin on her speed dial, the former treasury secretary, who was the mentor to a lot of these current officials. host: austan goolsbee, talk to me about him. guest: the interesting role that he played was he was one of these people that was sort of nudge aside by larry summers, who at the beginning of the administration, obama was waxing poetic over. goolsbee ended up being

relegated to a council of economic advisers. now larry summers is leaving, and he is coming back as the chairman of the council of economic advisers. he is a centrist economist, who i think, has been more with the paul volcker-pipes, those that wanted to see a deeper fix, but is also cautious in his advice. so i do not expect a huge amount of change. host: wesley. germantown, maryland. democratic caller. caller: here are some of the things that i have seen in the past few years. i have a landscaping company that i had to shut down last year.

the problem is not the housing crisis that started this. the problem started with jobs. the bottom line is, i am a democrat, sort of independent as well. i have voted for both republicans and democrats, along with ross perot. the situation that i saw, bill clinton started the free-trade agreement with china, the economy lifted, and today what market are we most controlled by? the chinese market, almost every product is made in china. this is a lot of american jobs we are talking about.

that kind of stopped everything from the bottom up, and then that went to the housing crisis. our home of the use started to devaluate. -- values started to devaluate. guest: these are all important factors, there is not one factor, but you bring up a good point. during this time, when we were deferred to wall street, their view of the economy, short-term, quarterly-type games over long- term, strategic thinking. all of our fortune 500 companies became caught up in this idea that any time market cap took a

leap, they should get a generous slice of it, they became obsessed with having stock options. we were ignoring what was happening to the job base, what was happening to the middle class. it is not that free trade is bad. free trade is generally good, and most of these agreements are ok, but we were not noticing that our middle-class was being completely hollowed out, sustaining itself with the illusion of prosperity that was based on taking on more debt. part of it was the debt that the banks for issuing as part of the subprime phenomenon, and it was all tied together, and then we realized, what happened to the middle class? it cannot sustain itself anymore in this restricted,

austere environment. where are the jobs? that is where we are now. one of my criticisms is, going back to the early 1990's, with all the glorification of globalization and financial markets, what the clinton the administration was boasting -- there was no protection for the middle-class. host: talking about the 1990's, late 1990's, were you have robert rubin and alan greenspan, an odd pair representing both sides of the political aisle. they were able to make things happen because it looked like there was political unity. you say in your book --

guest: and that was the consensus that was achieved. clinton ran as a centrist democrat but he was always a little bit skeptical of wall street. he wanted to be fdr in his political impulses, but he was persuaded that assuaging the bond market, stock market was the way to go. he sort of famously declared, what is going on here, we are here to make the bond market happy? then his head by the james carville said, when i want to be reborn, i want to come back as the bond market so i can be all- powerful. so you had this environment where rubin and greenspan were persuade people of this, and at the time, they were seen as the

greatest team in economic history. all timidly, what inspired me to write this book was it -- ultimately, what inspired me to write this book was the characters. seeing their reputation crashing down to earth. these guys were the best and brightest. how did they turn out to have such clay feet? i thought that was a fascinating story. host: charles, a republican in georgia. caller: good morning. i have a couple of comments. historically, you may disagree with them, but talking about financial advisers, regarding

the resolution to pull out our savings and loans. if you look at the interest rates, historically, compared to the 15% range when carter was in, the responsibility of the government is to control the money supply. carter allowed inflation to get way out of control. if you look at a historical time line, there has been a decrease in interest rates, to where we are now. guest: interest rates are artificially low right now because the federal reserve is

trying to facilitate the recovery. there are a lot of issues here. one of the first character of focus on is milton friedman, the great economist, whose concept were influential, but paul volcker, the fed chairman quashed a lot of that carter- era inflation. he found the money supply was not working as an effective regulatory tool. so there are a lot of questions regarding interest rates, it is all complex, but the bottom line is, they are being kept as low as they are, partly by the government policy, partly because we continue toto be

>> a story today about the delaware senate race. mike castle, who lost his state senate republican primary, but the tea party backed candidate christine o'donnell says today that he will not endorse any candidate for the general election. castle said last month that he would not endorse o'donnell, but there was speculation that he might back democratic nominee coons.kuhn we will have that debate live for you here on c-span at 7:30. later a discussion of key races in the midterm election and the debate for the governor of

hawaii. >> now, discussion on offshore oil and gas drilling with officials representing shell, chevron, and exxonmobil. this comes one day after the obama administration lifted a moratorium on exploratory deepwater drilling. the center for strategic and international studies host this event. it is an hour and 15 minutes. >> good morning and welcome. i am senior vice president here at csis. i am director of the energy national security program. i would like to welcome you here today. in this town, commodity timing is a very viable commodity. with yesterday's announcement, while a call several of our presenters to revise slightly at the last minute, just moderate changes, we think it is

appropriate to kind of get a number of things on the record. we have been working on the oil spill since the week after it started. this is the second in a series of what we hope to be four or five public sessions. we had the director general from mexico appear about a month ago. the offshore is their future, so we have to figure out how to get it right. a month from now we are looking at doing international best practices to compare with what the u.s. is doing with other areas around the world. we will look at brazil, australia, and norway. we invited director bromwich to be here today. when we contacted him a couple of weeks ago, he said the middle of october may or may not be a good time, but let me see what we can do. that was on wednesday. on friday we got an e-mail back that said maybe we will wait

until january, but your timing is pretty good. yesterday even though we had conceptualize what wanted to cover today, we were heartened by the fact that a lot of the same issues are getting that same focus. we do have a change in our program. we had a chevron rep, but gary was called away on other business. we scrambled over a three-day weekend. with the help of a chevron, we were able to find a knowledgeable and confident replacement and they also provided some of their slides. we have a replacement for gary for today's presentation. he runs the u.s. oil and gas association here in washington, but for purposes of today, he also serves on the governing board of the joint industry task force. charlie williams has joined us today from shell. he is the chief scientist who deals with well technology and

drilling. we asked him to go through drilling 101. initially we did not think that was necessary, but the more we saw the complexity of the drilling technologies, you look at well intervention in containment, there are only two ways for oil and gas to come up through well. comes up for the middle of the casing, or it comes up around the outside. how you train your people, and how you deal with containment capture and spill response. we have represented here from exxon. exxon has been charged with marine well containment corporations, which was started the idea of putting up $1 billion to develop extra

capability to be able to intervene and then provide quick response. this is one of those incidents the joint industry task force and the containment company were the basic standards don't work anymore, so the lowest common denominator is not what we need 14. it is time for companies that are leaders to step forward. this is a mind changing events, the notion that if we cannot continue to go in the offshore, a development could be stymied. there were gaps exposed in what we had been doing, even though the safety record and offshore development is actually pretty good. four thousand wells in the gulf of mexico, 14,000 wells globally, and only a couple of incidents. but this accident expose things that really need to be addressed. so we are really pleased that your here with us today. we think we have a really good

panel. part of it is getting the issues right and part of it is getting the panel right. we look forward to an interesting an animated discussion. in the interest of low probability, high impact events, in the event we have to evacuate today, out to the left there is an exit sign. there's a stairway that take you to the lobby and the exit is on k streak. there are two ways to go. this would also be a great time to turn off your cellphone in the interest of courtesy to the folks around you and also to our panelists. with that, we will get started. the first thing we wanted to talk about was the offshore resource development. one of the concerns we have, and it was said yesterday, there is a good likelihood that even when the moratorium is lifted, and

they talked about removal of the drilling suspension, which was an interesting turn of phrase. when the moratorium is lifted, there will not be permits tomorrow or next week. the question is, what will be acceptable level of risk, and when the new hurdles are set in place, how long will it take for new permits to be developed, prepared, submitted, and then approved on the interior side? they need people and inspectors and regulatory folks to look at these things. the impact of the moratorium, we have seen some of this before. this is just a snapshot. the gulf of mexico represents about 30% of u.s. oil output. deepwater represents a% of the -- 80%. if you look at the profile for the gulf of mexico, the deep water is increasingly important, not only for here but around the world. the moratorium represents loss

of royalties, taxes, and you can debate the impact on jobs. the ranges between 23,100 50,000. the six-month moratorium that delays expected output a range. if you take the interior at its worst, it was a pause. the projects that would have come online in the third and fourth quarters of this year are necessarily pushed into 2011. the range of production loss is between 30,000 and 80,000 barrels a day for 2010, but the number increases in 2011. if the moratorium and permits are delayed, the number also increases may be exponentially. $80 a barrel, the loss for six months of 200,000 barrels a day

means we are paying $3 billion more for oil imports. this is thewood-mackenzie slide. shows the impacts in 2010 and 2011. as you get out to 2015, the potential production losses are on the order of 300,000 barrels a day. as you go forward you start stacking up the delays. when you look at global deepwater, and this is also an interesting phenomenon, in 2005, or in 2000, the impact globally, non-u.s., was about 1.5 million barrels a day from the offshore. by 2009 it was almost 6 million, and by 2015 it will be between 8 million and 9 million barrels a day. this includes malaysia, australia, the u.k., norway,

angola, a bunch of places. the implications are far- reaching. significantly, it is a big source for the international oil companies, because increasingly now with the national oil companies, they have been forced to go to technologically more challenging zones, necessarily more expensive, and they are using their technology to develop lower tertiary the well formations in the old for deep water. the loss would increase reliance on opec and the noc supply. as the surplus erodes, if you take opec's depletion rate at 30 million barrels a day capacity, it is roughly 05%, million barrels a day. that is not even counting new demand growth. conceivably if you are looking forward to 2012, if we don't

bring production on line as demand increases, we could get into a situation where prices rise. the conclusion of all this, and i think the administration is in the same place, is that you must get back to deepwater drilling. the question is how to do it in an environmentally responsible way with new safety standards and the ability to intervene and contain problem wells. there is an issue that these are that dealt with workplace safety and drilling safety. there is the prospect of other regulations, whether through the oil spill commission or the congress, and even the director has talked about how this needs to be a dynamic system. so the more we are, we may change the regulation. the question that is looming large is whether or not you have

to do an internal impact assessment that is site specific for every well as opposed to an area. the first applications will be tested against whatever the new standard is. that will determine how fast the applications are approved. we talk about what level of enhanced prevention readiness and responses actually enough. this is like proving a negative. charlie will talk about the drilling aspects and help he deals with the joint task force. we will talk about blowout prevention, better intervention in containment and capture. loyd will talk about the marine will containment system and what new capabilities the industry has actually developed. in a lot of ways, this was on the shelf because there was such overconfidence in blowout preventers. no one really looked at the idea of what you had to do with a containment and captors bill at

depth. there are still things we need to learn about water quality. when you use dispersants and emulsify it over time, there is subsea current you have to do with. there is a lot of -- a lot more to explore. if the ground shifting and there is a guidance given, as these companies prepare their applications, that will be accepted by the new regulators at the bureau, what constitutes an acceptable application that meets this new standard, that the industry in the internal community and the public at large all seek, because we have to reduce the risk? then there is the threat of losing ricks and expertise. there was the notion of the redeployment of rigs. if the gulf was shut down, would

rigs that were actually operating in the gulf pick up and move offshore? this was not an issue for those operating in 500 feet of water or less because they actually can pick up and go other places. but the notion of the deep water rigs, if they were stymied and had to wait in place, over time to the extent that you had real ready prospects around the world, that some of these rigs would actually moved. the industry by and large to the administration at their word that this was a pause, not a stop. we lost 45 rigs over the summer. mostly they were independent and decided the risk was too high. so they redeployed the rigs or gave them to their partners. the rich to rick's scheduled to come online in 2011 never commissioned -- there were two rigs scheduled to come online that were commissioned. the concern going forward is that if this turns into an

eight-month delay or a nine- month delay, if there are other prospects around the world that the regulatory process seems to be shifting, what does that mean going forward? the final point is on spill liability and actually the risk. there is no risk free energy alternative, whether cyber security or renewable energy grid, or you are dealing with nuclear cold, mine disasters, oil or natural gas. i think the president has recognized this. this notion that we have to get back to drilling, you can still make the transformation to a clean energy future, but you damn well better keep the conventional system robust as you make that transition. when you start looking at actually the concerns about offshore drilling and the development of the top 10 skills , six out ofopment

the top 10 or more related to tankers. one that was a pipeline in the bering sea that was undetected for months. one was over 30 years ago in the gulf of mexico and then there was the macondo spill, and then the mother of all spills was the result of the iraq war in the early 1990's in kuwait. that was like 6 million barrels to 11 million barrels, depending on the flow rate. we have to be better equipped to deal with well intervention in the event of a problematic well. that is part of the discussion. i will turn this over to charlie williams to talk about drilling 101, and i hope it is educational to all of you. i look forward to a great discussion. thank you all very much. [applause]

>> thank you very much. i am going to talk about some of the basics about how we drill but i will have the focus really on deep water. the first thing i wanted to talk about was just a little bit about the scale of what we do and really what we drill with. sometimes there is a lot of confusion even about what we drill with in deep water. here are three things we drew within deep water. there is this semisubmersible rigs at sea in the middle. these are the risks that float and have zero more in line that goes to the bottom of the ocean or they have propellers that run all the time to keep those rigs in place. they move around from well to well as they drill. the drill ships that you see on the right are similar except

that they are ship shake. as you see on the left, it looks like eight semisubmersible, but it is actually a production facility. it is actually attached to the bottom. it has a drilling rig on there and we drove from there in deep water. the drilling rig is more similar to or read that would be on land. a lot of times when you hear people talk about drilling in the deep water, they get mixed up between the production facilities like the one on the left and these drilling rigs that actually move around. we drill wells from all three. the next thing i wanted to talk about is the scale. just to give you an idea of the scale of what we do. this is a picture, this is a tension leg platform, but it would be the same if you had a

semisubmersible. this is over the city of new orleans. it would be the equivalent of 3,000 feet of water. you can see the scale of what we are dealing with in deep water. the yellow lines or the mooring lines that are going to the pattern.deanchor you can see the magnitude of doing this activity in the water. here is another view of the challenge. people that are familiar with us map of the city of new orleans, this is the whole crescent. this is a well that we drove off of one of our tension leg platform. you can see this well, if you measure the depth of this well, it is 31,000 feet. it does not go down completely vertically. almost all wells now except exploration wells are drilled at an angle. it ends up going a great distance as well as great depth.

this is where the rig would be that is reeling. the bottom of the well is over where it shows td for total debt. not only are these wells really deep, they go great distances away from where you start drilling. now i will switch. everybody has seen a lot of diagrams in the paper about what the oil well looks like. as you can see, it looks like an upside-down telescope. the way you drill is you set up a string of pipes and use it meant that in the ground. the cement is the seal on a piece of pipe that you put in the ground. it will drill again and set another piece of pipe and cement it in. it has to be a smaller pie because it goes inside the bigger pie.

-- a smaller pipe. it goes all the way back to the surface, and this is intended to contain the production systems for the well. all wells in deep water get produced through a tubing stream that goes inside the production string. it is like the pressure back up in containment for the production. now i am going to talk about, why don't we just run one string of pipe and be done with it? what i want to talk about now is the most fundamental thing, in my view. the most fundamental thing about drilling is the hydraulics of drilling.

a lot of people don't realize that in the earth, the entire subsurface of the earth is filled with fluid. it is usually salt water, but hopefully lots of hydrocarbons. it is filled with fluid, and the fluid has weight and density just like the pressure at the bottom of a dam. the deeper you go, the higher pressure gets just because of the density in the wake of this fluid system. you start out at the surface of the earth and the pressure is at the same, but the deeper you go, the higher it gets. it happens everywhere because of all this limit in the earth. it is a fairly linear relationship over a certain distance. when you get to around 10,000 feet, things start to change and the pressure is still there, old tappan says, these pockets of fluid get trapped -- what happens is, the pockets of fluid get trapped in a get squeezed by the way of the earth.

you can have much higher pressure. when people talk about high- pressure drilling, that is the reason the pressure is so high. this is important because the way you maintain primary will control on a well is you have to have a weight, a density of fluid inside your well that is higher than the pressure from the fluid in the formations your drilling through. you always have to have this blood system -- mud system that overcomes the pressure. you have to keep increasing the weight so that you have more pressure. the pressure wants to flow into the well, and you have to keep holding it back with this density of fluid. the density of the fluid has to keep going up. the problem is that the formation to drill through earlier were relatively weak, and if you keep just making the fluid heavier and heavier, all

of a sudden it is going to factor out into the shallower formation because they cannot contain this pressure. that is why we have to keep putting these strings of pipe in here. we put pipe in the ground to protect the shallower formation. then we drill some more and keep raising the mud weight and then we have to set another string of pipe to protect the next formation. that is why we have to keep doing the strings of pipe, one after another. finally you get the final string at the bottom and that is why they all have to be cemented an isolated. the other thing about this is that -- the drilling normally is an open system. there is nothing closed at the top of the well what your drilling. again, the prevention is the mud that your circulating white

or drilling in that is what keeps the formation back. the hydrocarbons want to try to flow into the well if the pressure was lower. when you get really deep, when you get down to the high pressure below 10,000 feet, these things -- the expansion ratio -- if you have a small ball of gas that comes in your if you allow a small bubble to get in, it comes up with the mud and the higher it gets in the well, the faster it goes and the bigger it expands. by the time it gets to the surface, it is really huge and it is moving at a high rate of speed. you can see the importance of maintaining this and maintaining, and not allowing things to flow into it, in addition, the mud system lubricates and moves the

cuttings out of the well. it is the fundamental function. as you go down and you drill, sometimes you have to predict these pressures. you want to project when you need to put a pipe and the whole. we have different ways of predicting that. you will get into a pressure regime just a little bit different than you expected courage might actually get some of these bubbles that come into the well. that is okay. we deal with that every day. if you are aware of the fact that they come into the well, you circulate them out. you want to close your blowout preventers. raise your mud late said they did not comment any more. --, any more.

>> you have to monitor all the time. you need to make sure that you control them when you do. the way you do that, we know how much money you put in. we know how much money is coming out. it's more mud is coming in and then you are putting out, that is bad. if glass mug is coming out than you are putting in, that means you have fractured deformation. it is not staying inside the well. if you let that happen too long, you also have a problem because you do not have this density to hold back the production. fundamentally, well-designed is really about this density and making sure you have your system right. primary will control is around the density and making sure you

have your system right. when people talk about a blowout preventers, this is really the fundamental issue around drilling and drilling design. you end up starting out with a 36-inch pipe. we had to pull all the strings to protect these previous shallow formations. this is just another picture of this from another angle. it adds another dimension. this is showing the subsurface of the earth and it is showing these layers that we drove through. on top of the well is the blowout preventer. this yellow looking device is the blowout preventer. above that is the it riser. to the riser is the thing that goes from the blowout preventer up to the red -- rig.

this allows you to be attached to and find the well. the writer goes with the -- riser goes with the rig. there are a lot of unfortunate terms in the oilfield. everybody talks about a month. mud used to actually be mud. people drilled into the earth and the earth mixed with water. now it is an engineered drilling fluid. it can be several hundred dollars a barrel. we would still call it mud, but it has density data does, -- density additives to prevent the interaction with deformations. you do not want the clays to swell. there are all kinds of chemical interaction. these are highly engineered and

explosives blew it. we use them over and over again. they are expensive and this is an engineered part of the design. i did not know i had all of these -- anyway, what this shows was the shallot section. we have a deep well on the ocean bottom. then we have a blowout preventers, which are the large devices. it is important to note that blowout preventers also go with the rig. they are attached to the top of the well. above that is the riser. this riser is in sections and it goes with the rig. the other purpose is your

control system, your control lines go out to be a blowout preventers. your hydraulic fluid goes down your riser. your fiber optics goes down the riser. this rise are also conducts power and control systems for what is on the ocean floor. it allows you access to the well. the riser is that important device. now i want to talk a little bit about a blowout percenters. it is really hard to see, but if you look at the right hand side of this picture, you can see the white hard hat. that is one of the people. you can see the scale of a blowout preventer. this is a scale of that equipment.

it is important, i think, to know that the blowout preventer it is in many different sections. the bottom part of the prevent heart is aware of the rams are. a lot of people talk about gramm's. that is where the ram devices are. above there is what we call the lower marine riser package. usually, in that package is another kind of well control device. it is like a big don't act that you close around the pipe. that can be removed from the top of the blowout preventers. it is intended to be part of the riser system. the riser connector on to the top of that. that is what this looks like. i think it is important -- i talk about -- and another thing that is a misperception, you talk about a blowout preventers.

it is preventing a blowout. but we actually use these devices all the time in drilling. we close these devices and if we get this small bubble into the well, we close these devices and circulate out the small bubbles using these devices. there is only a 1 cent of all brands -- one set of rams, the rest of these devices are used routinely as a normal part of drilling. in fact, these devices look like donuts at the top. they are used all the time in normal drilling operations. there are a lot of functions to this device besides preventing a blowout. this is just another picture. this looks more like what you would see on a land read.

a gives you a view of what a ram looks like. hydraulic fluid goes in there and moves these devices to close around. i will wait. i have another picture that will be easier to explain. those are the devices and that is what they look like outside. there are two types of control systems. there is direct hydraulic like the brakes on your car. there is electrohydraulic. when you get into deep water, you send down an electrical system that tells the hydraulic system to activate. i want to show this. this is the inside of the drama. this is the inside. there are days -- this is the inside of the ram.

the seal weld and a cut the pipe into. -- they seal well and did cut the pipe in two. it is the drill string at a cost that conceals the well. the rest of the devices actually has a small hole in the middle. it is intended to close around the pipe and steel well. -- and sealed the well. it allows you to circulate fluids and do normal operations and a while. not all of them are sheer rams. i just wanted to show this real quick. what this is is a connector. this is a typical connector. this is to pieces. there is a big piece on the outside. this is a cross section that looks like a big circular

device. if you have plugged in and hydraulic hose or an air hose, this is similar to that. these kinds of connectors are what connects the blowout prevention to the well. these kind of devices are what connects the lows are marine and riser package to the well. these connections are made on weld's routinely every day. these things can be activated and they can also be deactivated. that allows you to install a the blowout preventers. but beyond there are a lot of these mechanical connections. i have one graph that gets a little bit complicated. it was just showing a the -- it was just showing -- if you are

the one two-step whilell, on the left shows the situation where you would be installing a liner. the one on the right shows the situation where you would be running one continuous string. you have a design choice or a choice driven by the conditions of the well about which one you do. the one on the left, you run a small piece of pipe. you run the best -- the rest of your casing. on the right, you take all of your production case and you run it in one sequence. i thought i would show that. another aspect i wanted to mention about a deepwater drilling is that most people that are drilling in deep water have a real time operation capability. this was a picture of a real- time operation center. that allows that you have real

time data that flows on shore to the centers. if you had a 24-hour based center, generally, we have experts that sit there and watch this data as an additional set of eyes. this additional set of eyes advised -- they watched the mud system and the well and do we need to change the weight and what is going on? they helped advise if they see changes. the next thing i want to talk about was safety. i thought this might be interesting. a safety case -- and this is a little picture up there that tries to describe is a case.

what happens in is a case is that you go and on a well and you describe all the hazards in this well. what are the major hazards? then you put barriers in place to protect you from the hazards. this is called a boat tied. this is one way of doing it. -- this is called a boat tied analysis. on the right, is if you had a failure. that is the consequences. you try to put controls in place and mitigate what happens if you had a barrier failure. identify all of these barriers that are needed. these barriers are like the casing and these things generally are barriers to allowing the well to flow. identifying those barriers and making sure you have the right number of barriers and making sure you maintain those barriers over the life of the well. that is fundamentally what a safety case is.

it is a great piece of a dialogue so that everybody knows what the hazards are. everybody knows what the barriers are. you can explain to people what their job is relative to the barriers. if your job is to maintain this barrier and it is really helpful and having people understand what they have to do about primary will control. -- well controlled. . right now, the safety cases are done by a deep red contractors. but the people -- we have a safety management system and we have our own safety cases. what you want to be sure and do is build a. in document. this is what this is intended to show. you have d.c. case on the left. you have the person who is contract and on the right. you build an interfacing

document so that your safety management system and the safety case are linked together and everybody understands the responsibilities and how these systems work together and there is actually a lot of training going on right now. we are writing a new recommended practice on a deep water well designed. one of the parts of that is to talk about the safety case. that was really in it for my comments. thank you very much. [applause]

>> thank you very much. i am very pleased to be here. he really is one of the jewels of our industry and i hope the has the opportunity to come and talk to you. chevron was very generous and i want to thank everyone who court vented everything. i am happy to do that. -- that coordinated everything. it is eight new creation from the industry. it started in the summer following the accident. the acorn for the idea started at a hearing on the hill. pretty soon, the industry was asked to come up to the hill and at that time, we have a lot of

expertise in our industry. why don't we make sure that we put all of the expertise in the same box? we know we have a lot of work to do. that idea got picked up. the groups that are part of this task force are many hundreds of companies. we were able to coordinate and gather ipaa, noaa, and u.s. oil and gas. we sat down. it was very clear that we had to sit down and look at how you reduce the risk. the industry was comfortable in some levels. an accident is always a series of things that happen in the right order. how do you take the risk out of that? how do you squeeze down the

probability of those things? at the same time, we have a need to go back to drilling in the deepwater gulf. before i get to this slide, a personal note. i had an opportunity to be at mms for a while. the most important thing that we carry with us was a culture of safety. i know i had an opportunity to go back into the old agency and talk with them. and i did. my concerns were three things. we had the extraordinary privilege of working in the offshore. one of the things that i made in terms of priorities was indian royalties. the special relationship with

collecting indian royalties. and safety. i did not bring up leasing because that is a political issue. it was not a management issue. safety is a culture. we decided that we had this culture up safety and how do we bring it forward? the idea is that you have to prevent another. that is the goal. clear and simple. hopefully, you get there. that is the best of all worlds. to demonstrate the increased intervention capabilities. when we have a blowout, everybody was working off of plans and will books. we began to intervene and things work credit on the spot. the -- that is definitely going

to happen. intervention, charlie williams and chairs that. and as bill response. those are the three large areas. i am very proud of our industry. we have very few industries that when an accident happens, it is so willing to drop the business activities that have been joined together in a group. we do not get enough credit for that. here we took people that were very senior working on very senior business plans and took them off for several months at a time. several hundred. to put them together to work on documents to be helpful to the industry and to the government.

that is exceptional. at a cost of many millions of dollars. the cost being secondary to the idea that we have this extraordinary expertise. so we did that. i want to talk about -- that is a very sensitive bullet. the new mms -- we were supposed to go to them and give them these recommendations and talk with them. there is a lot of sensitivity about that. in the press, there have been a host of stories about the relationship between industry and its regulators. again, having been a regulator, it is not that cozy. [laughter] in fact, you have to work hard to prevent, to put a wall between you and your lessee.

we all do it. that is the role we take on when we become regulators. i believe it makes a wonderful story. but it is not true. the people in the service that go out to do the inspections, they worked in the interest of public safety, environmental safety brigit this is very serious. we were concerned that we had all this talent, but we wanted to make sure that the talent and opportunity and expertise are received in an environment in which they are expected and not -- accepted and not dismissed. some of the best new procedures in medicine happen post mortem. this is in some sense a post going forward. we did have an interesting report on september 3 that we did not make public. as you can see, the different parts of the prevention, the

intervention, and the response group did move forward and issued a lot of recommendations. as part of this api, the recommended practice on cementing and we have the new recommended practice on a well instruction. we were just talking about that. the idea is also that i think within the industry stepped up, we will talk about that in a sector. we created the marine dwell containment company, committing billions of dollars to make sure that all the lessons that we've learned over the summer are inc. and institutionalized. this is to the industry's credit. there are very few industries that would take in as large sums of financial resources and put into this use. we're very proud of it. this is an ongoing activity. people have come and gone a little bit. the amazing thing that it was a joint effort of -- it reflects

the memberships. the major companies, and they have time and effort. -- when i went to the larger independents and passed for people to participate, there was not a second doubt about it. they stood up and raise their hands and contributed people. that is even more significant when you might have an engineering staff of 100 and not 1000, that you are willing to let people work on these activities. and it is an open-ended process. you will see that we are already working on the prevention, well construction, recommended practices. we have secured the equipment, i think. i think we will have to find that out. i think it was just given over recently, transferred.

the idea of meeting these requirements and moving forward with recommendations, this will be very critical. so that we do not get caught -- you have managers that tell you, we have a display case in your job is to get iraq. what we're talking -- gets a rock. the manner in which they called the moratorium still leads us to believe that it is possibly a get a rock management. that is not really the rock that i wanted, the managers say. this could be the forever theory.

that is not the case. moving forward, the delays that will be caused by not defining as specifically as we can, we will find ourselves in that management theory. i hope that does not happen. some specifics on the task forces themselves, the operating procedures task force, that was thrilling and completion. you can see what they were focusing on. these were all critical concerns over the summer. mechanical loads and all that charlie was talking about, the barriers. we had 25 different groups working on and over 70 people over the summer working on that. the offshore equipment task force, protocols, regulation, i

think it was misunderstood that it was a five-story building. you never really got beyond that. we had a much better understanding of it today. there is a lot of issues within the system that this group is working on. especially the idea of remote operated vehicles. there are not many vehicles that can go that deep. they are spread around the world. once they get down there, it was interesting to work in that environment. there will be a lot more done about the physical ability to get down to where you have to work. we had over 60 people and 30 organizations on that. the work group for the sharing of workgroup, the original " to manufacturers, they will help us out on the access to their web sites.

remote operating the vehicle work group, called we make sure that we can get down there? we had not been developing technology for these environments that we were adapting technology from others that use it as a scientific piece of -- this is intervention and containment. what do you have to do? weaver talking about hydraulics and electrical and there was a question of how do you shut it out. this will be a continuing issue with this group. it is 20 organizations this is not a small effort. this is self-explanatory.

intervention and containment would then be well. incredibly important. how can you have the intervention from the outside when you do not have access to your primary. how do you make sure that when you get back to the surface you know what you are doing? how do you manage that? that is incredibly important because we kept seeing that picture day after day after day. intervention and containment. we will obviously continue research and development and relief wells. the oil spill response taskforce the idea that over

time, we did have a cookie cutter type of response plan. we did not do as good a job as they probably should have. again, in developing will spill response plans, one of my concerns is that we have enacted understanding about the kind of cases that we are responding to. what is the worst-case scenario now? what point is the worst case scenario reflect that you are taking a risk? anyone can build a worst-case scenario that is unrealistic? this is a public issue.

mms, weirst got to bthe had an accident up in alaska. some of you remember that one. we were called in to the secretaries emergency conference room and we were working the way. one of the more brilliant engineer said, light a match. that is probably what we should do, like a match grade the epa came back and said, you cannot light a match. you will have air pollution. by the time that kept going around and around the room, it did not happen. well kept flowing. i think we need to learn more about -- we need to have the

environmental work with how we institute -- that takes part of the service problem out. we can talk about the servers -- dispersants later on. now is the time to figure out to does and who does not. again, the pictures that the public saw were the bones that busted, not the guns that worked. -- booms that busted, not the booms that worked. we had 60 participants, 30 organizations working on that. we have significant process that we made. we always do. there is great urgency. the public expects it. we have early recommendations that came out earlier in the

summer. now we have to go beyond that. the contractors must comply with these new hires standards. we're all in this together. we are committed to making future progress. we are committed because we do have the people, we have the expertise, we have the public demanding it, and rightly so. thank you very much. [applause]

>> good morning. we appreciate the opportunity that you continue public dialogue. this is well set up to have this discussion. this is unprecedented. i have never seen companies come together and the leadership with pro-active leadership to develop something to help response. we should be proud of it. this is a system that would capture oil in the event of a blowout. i want to talk about the system and about the project efforts

that are under way to build the system. first of all, to frame will containment, and you've seen this picture before, to frame will containment within say that drilling operations, along with industry drilling standards and the ability to respond, containment offers that the third leg of the stool for safe driving practices. if any of you have read the decision memorandum yesterday, the expectations that we have containment capability, this system will build the capability. the initiative is aligned with the administration and congressional expectations. that is obvious after yesterday's decision. let's talk about the system and the project efforts.

as you know, chevron conocophillips, and shall, along with the leadership of exxon mobil is developing the system. it will fully contained oil flow. it is designed for various scenarios in the gulf of mexico. we will get into some of those details. it will be ready for rapid response. instead of taking weeks to prepare, the system can be deployed within 24 hours and be operational within weeks. some of the function requirement of the system, it will be able to operate in water depth of to 10,000 feet. far exceeding the incident this past summer. the initial investment for the system is expected to be a billion dollars. that is for the assets that you will see and the concept slide next. that is also in addition, it will take annual operating

expenses to maintain the system and to run the containment companies. let's take a look at the system. we will take a brief overview. you see the containment assembly. now you are experts after charlies talk. back in timid cap will be able to shot in the flow. if we want to increase the wellhead pressure, we have a capture system that comes from the containment assembly. free flow lines and the production, police will be captured, stored, and safely offloaded. we will get into some of the details next. first of all, the containment

assembly, it will be able to adapt to connect the various scenarios. it will connect to the lower marine riser package. it will connect to the well head itself through connectors. from the containment assembly, if we do not shut in with that assembly, we can flow through alliance -- a float lines. if we have a situation where we may have wellborn integrity problems, we are developing a system that uses common standard technology that could fit over and around to contain those deployed and capture them and follow them into the marine capture vessels. that is shown here.

these fluids would leave either the case on that you salt in the previous slide for the containment assimilate -- assembly. these risers systems are common technology. they are called self sustaining risers. the advantage of this system is that it can be designed or installed in the various water? , up to 10,000 feet -- water depths, up to 10,000 feet. it will be connected through a flexible flow lines. those flexible flow lines have the ability to be disconnected in the event of a hurricane in a controlled manner. after the hurricane passes, these vessels can return to the

site and quickly reconnected to continue capture operations. the marine capture vessels will have a modular processing equipment that will be installed during the response. the notion right now is that we have to buy 25,000 per barrels. you can see where the flexible flow lines come up. it is the bread module on the side of the ship. -- red module. when the ships are not responding, they will be used in a ladder in service and the gulf of mexico. it improves safety and environmental protection. it does have the potential to shut in the well. the containment assembly can come out within days.

it can actually shot in the well at that point. if it needs to continue to flow, the kit and a marine capture vessels reduces congestion at the surface. that is a big advantage of this design. it will be pre designed, have the ability to be deployed within hours and set up within weeks. it is flexible for various water depths and flow rates. the idea of the system is expandable, it can rapidly deployed, it has flexibility and will be fully tested. ok? over the first six months, what we are planning to do now is mandy project. we now have a staff of close to 100. we are working with bp to assess current equipment and capability in the industry. we will continue to work over

the 18 months to build a new system and have that system operational in the first months of 2012. as the marine at well containment company becomes a form, it will continue to look at technology advancement and continued to advance the system. it will get more on project progress, -- a little bit more on a project progress. all companies have provided staffing. we have a very dynamic team. a lot of experience. we have about 70 focus full-time and about 60 or so halftime. the engineering and design work has begun. we have awarded contracts just this past week to start early engineering and procurement activities on the concept.

we have started discussions with ship owners for the marine capture vessels. those discussions are continuing. mainly with north sea shuttle tankers suppliers that have dynamic position capability with their vessels. we have initiated water contracts. the design has to be flexible. we talked about the bp and equipment. we do not quite have it all assessed yet. we are very close and expect to have that by early november. we continue our engagement with the government and agencies and that discussion will continue going forward. about the containment company. the notion of the containment company is that it will take custody of this asset and be able to employ it it reduplicate

rapidly with trained crews. it will ensure that the equipment is maintained, which is critical. it will have operating procedures are ready in case a deployment was required. the structure of the company is that it will be open to all at you as operators. there are two types of memberships expected. membership where we have membership in the company itself and those members will share development costs per cent for those operators to do not have as much activity, there will be a nonmember feet opportunity to join. -- fee. but it requires standard service contracts and there will be a mutual aid component of membership, which is very important that increases the capability to respond.

the idea of mutual aid is that each company that may have the equipment or assets backing their operations that could help the response, they would commit to provide those assets, complementing the new system capability in the event of an incident. we have started discussions with operators. we had our first internet -- informational meeting. we have another one scheduled october 40, tomorrow. at the first meeting, we had about 25 companies, about 70 representatives. we expect about 20 companies tomorrow with about 50 representatives. that dialogue will continue. in fact, it will accelerate here in the early november. we are committed to develop the system. it is an unprecedented activity preyed on a personal note, i've

had many projects around the world. north sea, africa, asia. i have never built a system that i hope it gets never used. this is one of them. we expect this system will never be used it said drilling operations our practice. that is the opposite -- that is the expectation. it is funny to lead a project where you expected to never be used, but that is a goal. the system will exceed the capacity that was built this past summer. it will be expandable, it will be able to be deployed more rapidly, and in greater water depth. the containment company will operate this system, its formation will be concluded by the end of october. membership discussions will continue in november. we hope this system is never used. thank you very much. [applause]

>> thank you. the purpose today was twofold. part of this is public education. a lot has happened since early may. i wanted you all to be aware of what is going on. there are still some gaps to close. the second part is the dialogue. let me exercise a prerogative here. yesterday, the short question, the director made a statement yesterday about the expectation that participants in drilling ventures in the gulf of mexico which participates in the marine containment system, right? it is voluntary at this stage. the nonmember feet, to understand how that works. -- fee. the people who will manage this, when you get to the point where it actually is mandatory to participate, so that that is

available to meet one of the hurdles, so that drilling to go forward, how fast can you be operational? >> frank, the timeline we are on right now is how the company formed by the end of october. we want to continue the discussion of membership in early november. we will be open for membership in the november-december time frame and continue discussions with operators all through that period of credit that is the time line that we're on right now. >> and the staffing? >> from a staff in standpoint, the company itself will have an interim management team. that management team will be named in november. we will continue to build staff and from that point on. eventually, when the 18-month system is developed, we will have a full staff and

operational personnel to operate the equipment is deployed. we will have to build up to that point from november on. when we had the early response system -- when the assets are collected, it will be around january. we begin to build a capacity to operate that equipment first through vendors and then it support, slowly building operational capacity within the company. >> the second question is for all the panelists. any surprises from yesterday's announcement? >> i guess they were surprised that it was yesterday. [laughter] know. -- no. the question was about the content company.

the obligation is that people have to demonstrate that they have capability. that is usually by having a contract with a company that provides that. it will be similar for marine while containment -- well containment. we were pleased and it was what we expected. >> there were no surprises. i think there was a bit of concern that ec expressed in the industry back throughout the time that it has taken to evaluate how we do -- how we deal with this economy, that we would perhaps like to have stronger definitions of the structure of how these decisions are going to be made but we still have references to developing a mechanical process. i know the industry wants to

stand up and be counted and get the very specific definitions that we can, that we need to proceed with as soon as the town. so that the idea that people are saying that there will be a moratorium through process does not happen. with each passing month, you have a double or triple impact on the out years. now the we are committed to being back there any way that everybody reexamines its own risk of production, let's get on with the business of defining what the needs are. so that we know what the hurdles are. so that we do not have to keep going up and down. >> with attribution, i will use a "get a rock." i like that. >> we are pleased the government recognized the industry's efforts to create safety

standards. it is unprecedented. we are proud of this. i am proud to be a part of it. one clarification, it was not mandated that everyone joined the company. it was an expectation that we have, containment response capability. we hope that all operators, and joined the company. i want to clarify. >> the sign that she will be in the back. -- sign-up sheet. [laughter] >> identify yourself and your affiliation. interesting. let me start back here. >> [inaudible]

can you describe the relationship between [unintelligible] >> the main difference, we have not seen the complete final rule. the basis of the rule is the safety management system and the safety management system has hazard identification in it. it has what is in the safety case. what is different about a safety case is that you systematically take all of the hazards and build barriers for each hazard and you actually assess the risk around each one of these hazards. actually, rp75 is a big first step to moving to a safety case.

it helps to develop the rest of the safety case. the other thing i would say about that is this. rp75 had been voluntary before it was put into regulation. most people had safety management systems that actually exceeded the requirements of that already in place. >> based on our discussions with the administration, is there a sense that some of these issues through continued dialogue will be cleared up? most of the recommendations were accepted and put in the report. some of the recommendations that showed up in the notice work industries recommendations. there has to be an understanding on the government side -- are there areas that need to be further clarified? otherwise, you will go back and forth. >> definitely.

we will be working hard on how to make that process even more effective and efficient. i think there is commitment from everybody to make that happen. >> go ahead. >> [inaudible] two-part question, really. one has to do with your rules, which have all been focused on the gulf of mexico right now. is there any reason or thought given to whether or not the new standards be applied or could very for other locations? on the containment response system that you are building, you are building it for the gulf, but we're talking about drilling in alaska's waters,

the east coast. what is the flexibility? are similar systems going to be needed elsewhere? somebody just announced that they wanted to drill a well well over 10,000 feet. >> maybe i will take the second part of the question first. the system has been designed for the gulf of mexico, obviously. if there are similar environments, the system could potentially be deployed in those areas in the u.s. waters. where we get out into arctic areas and those types of things, some of the components could be used. when you think about the capture vessels, it becomes problematic. that is the state of affairs for the system.

that is how the system will work. >> charlie? >> as far as the rules themselves, at least i have not seen any of the rules that really work too much area specific. i think they were applicable everywhere. as far as the containment system, i would just add the difference on the containment system when you get into shallow water depth, the way that you have to access the while is different -- well is different. we have to remember that the containment device is randomly deployable. the first thing we would do is send it out.

we would not have to install the rest of the system. it is a two-step process. on the shallow waters, like arctic systems, the industry is already looking at the kinds of systems that would work for containment. >> i like the optimism of talking about the east coast. [laughter] >> let me address one part of the question. the deeper than 10,000 -- the contain a cap that we have got really is designed for 15,000. it could potentially go a little bit deeper than 10,000 if they contain its assembly was used to shut in the flow. as you get to some of the other

components, we have to increase the capability of the system consisting with technology. as technology advances, that technology will be available to enhance the system. it will be lockstep as the industry steps out. >> we are examining the idea of doing a separate session on the arctic. it presents a different case >> all you have to do is start attaching hoses, when you evacuate oil. with that accelerate the response time? >> i think the focus is going to be on obviously figuring out the root cause of what happened with the blowout preventers in this

particular case, which none of us know now. if there are things we can address about quickly, effectively closing the blowout preventers and preventing whatever the root cause turns out to be, it will actually function as the well capped. i think the focus is going to be around that. once we know what the issue is, the second part of the question is, it is part of my task force to look at would be useful to have additional places on blowout preventers to connect and have additional connection points on a blowout preventer would be a good feature to improve response time. >> going back to the point -- the first person could send that they have the availability of this containment system.

are you setting yourself up in a situation where if you have something that is more universally available? >> the focus of this morning has been on the technology, the application of the technology and the recognition of the advancing technology that is unique in the world. most importantly, the single thing we want to do from the start is to prevent it from happening at all. let's not forget that, even though we have talked about steel and metal. that is the hardest of all, the psychology of making sure that people on a daily basis understand that job one is to reaprevented from happening. it is critically important because it is as simple as making sure in your everyday lives, when picking up a heavy

iron, use your legs, not your back. how many times do we just slip and forget about that? it is as much as psychological challenge as it is the engineering feat. both are on a grand scale. every company, every person who is operating has to remember to be safe and to protect the environment, to protect company assets, and at the end of the day, when you add it up it gives you protection of life. that is the baseline. i am glad we are talking about the technology. >> the whole notion that historically, there has been a range of best practices, legally compliant practices. what the new proposal does is streamline and compressed what is legally complain into more of a range of what best practices should look like, which is a step in the right direction.

>> about the notion of a de facto moratorium, obviously we have seen what happened with permits being issued for shallow water, and that seems to be what has the industry concerned, from discussions i had yesterday and before that. what do you think is an acceptable rate? there is going to be more back and forth, each side has to be used to things. when do not worry about a de facto moratorium? what is it you need to see? is it a number of permits, a magical number of permits that are approved every month for deep water, for you to feel comfortable going forward? my second question is about safety.

how problematic is it for oil companies to adhere to ntl 6, when so many of them are already operating in the north sea? >> i will take the first part of the question. i think when you are running a race to see how fast you are going, you know you are erased. there will be a time when we say we either have of the fact of moratorium or we don't. that is not going to happen. the rest of the relationship buildup between industry and the government with the understanding that the rules of the road to accomplish the internal expectations, the safety expectations, the commitment to reduce risk, and

these are all swirling around in the same liquid. then people have a commitment to drink. then i think people will start moving forward. they understand and is transparent. there is a trust between the industry in the government's that we are moving forward and making progress. we cannot define it in the number of leases, but we can define it in commitments to move forward. if this process is hijacked for things other than getting the job done, which is assessing leases and proving them, then in fact you will be placing a moratorium on it. because it is external to the process you are trying to complete. my concern is you will have a de

facto moratorium but if it becomes hijacked for other reasons external to what we are trying to do, there are those who say i cannot find any other reason to prevent drilling but to slow this process down. it becomes a political issue, not an issue of having a way to proceed, that those who want to use it as a megaphone to make statements about, fossil fuel development, that is not helpful to the process. if this is a process where there is a commitment to certain resources, it can be used and developed, and these resources can be used and developed when we all agree to what is in the cup, then i think we should proceed. >> i have a slightly different take on that. i agree with what you said. i think this sends is that once you get to the point where you have established an acceptable template, the first application is approved that it sets the bar

at an acceptable level. maybe you'll get clarity so is not an 1 per minute or four permits, but if the dialogue keeps going on so you get clarity of what is supposed to look like, i think meeting those expectations is a lot easier. the problem comes in the vague expectation, and then you are throwing things against the wall to see if they stick. hopefully it will be approved by the end of the year. step number two is working on the permit process. >> my view unsafety case, when they put them in the north sea it was a four-year process to implement that. it did not happen quickly. my beyonce cases, the most important thing is not a piece

of paper, it is the dialogue and making it a living document. the key is they understand the hazards and barriers and understand their role in maintaining these barriers. it is really around the dialogue. the reason i make that point is, when people started out thinking about safety cases, they made these really huge documents. it was so huge that it was cumbersome and you could not really have a dialogue around it. it was not easy to modify as things change. now in the intervening time, people have spelled these down to really focus documents, the focus on the key barriers and allowing a real dialogue and allowing it to be a living document. the answer to your question is, i think with all the experience that people have had in making safety cases, that it is not a big step to go off fromrp 75 to

save the case, in my view. >> and a large operators already operate in this a case area. -- in the safety case area. >> i wonder if you could go little deeper into an issue alluded to. can you talk about the electronics and all the sensor technology that goes into the well-designed, and how that fits with the whole interface and protocols that you are talking about? >> the bulk of the instrumentation right now is really around the blp's. when you get into the deep water depths, it takes time for a hydraulic signal to go over that distance. we switched to electronic signals because they are faster. there is a requirement by us and other regulators around how fast

you can activate blowout preventers and all that, so we have to have rapid response system. essentially these more modern love printers that have the small computers there that receive the signals and tell the blowout preventer what to do -- a more modern blowout preventers. there has been a lot of discussion around should we be able to collect more data from blowout preventers? i think that is going to be an important part of the task force on equipment, to look into that and see what other important data and we can add it to that system. >> my question is a scenario.

let's just present -- pretend that someone bids permits the day after tomorrow and then we have a spill. what does the response look like? is the structure going to be smooth? i would actually effectively work if this happen tomorrow? -- how would effectively work? >> it somewhat does depend on the scenario. if the scenario was to require containment, for example, similar to an incident this past summer, capability exists today in industry to respond. obviously we have the equipment dedicated over the summer. we have a lot more experience now in the industry to respond. that equipment is available today and the response would be much more rapid than it was, with the exception that it might not have full flexibility on all

the areas that we might see in our operations. that is what the expanded system seeks to do over 18 months. the industry has the ability to respond today, and that equipment would be used to respond, as well as contractors and other capacities in the industry, just like it was used this summer. >> what is the liability of the company? what if you become the red adair of the oil spill? >> the company exist to maintain the equipment and be ready to deploy the equipment to the incident of the, it would come under unified command and the liability for the use of that equipment would be with the engineering company. that is the may it -- that is the way the model will work. i have answered part of your question.

>> [unintelligible] is it set out to where some of the -- if it is all dictated and it would go really smoothly ?uestion mar >> a lot of it depends on the ability and the knowledge of people working with each other. in the short term, we do have people who have worked well with each other and gone through the drill in the government and private industry. it was not just one company that had the incident. there were people from all over the industry, so the expertise does not reside just in one company and one skill. norway sent people to help us. we had worldwide help, and people understand and know each other. we don't have to sit around wondering who the person is

sitting across from them in both the government and industry. that is a plus. the trick will be, over time, to institutionalize their relationship so that a year from now or two years from now when these people move on to other activities, for them to have trust in the procedures that were left by the people before us. then you have saved a lot of time and increase your efficiency with which to attack the problem. >> one of the things that think was underreported was the amount of collaboration. if you talk to either the government or the industry side, people were on the scene and talking about this, and the second piece is roles and responsibilities. if you were to ask admiral allen what he would do differently, there is a list of things. bp said they had to hire people to walk the beaches.

maybe if the governors were involved on the shore clean up, the national guard could do that. there was domestic, political constraints about what to use the fisherman for. there should be lessons learned, and a ports -- post- mortem on the whole exercise will be completed at some point. we will take one or two more questions. >> i was just wondering, do you think the industry itself regulation body modeled on something like the [unintelligible] proposed during the summer?

>> the model of the company is really modeled around this, it is going to exist to have these assets and be able to have assets that can respond to subsea containment and to have crews to operate those assets, and that they would be available to member and through nonmember fee operators. the use of that equipment to respond to an incident. it is not an insurance company, is really a company to provide those assets, and that is the model we have right now. >> i think it is more on the watchdog peace, not the containment corporation. whether or not any of that is applicable to a competitive industry with this many members. >> the company is just to provide assets, is not to be a design. for well-designe

that is not the core competency that will be provided. >> the other thing i would say is that around safety and safety procedures and technology for safety, we absolutely don't compete. we absolutely sure that. it is in the best interest of everybody that we do that. there is a lot of sharing on that. back your question, we also have a lot of opportunity to work together, and the standards that are created in the u.s. or national consensus standards and they are done by at a broad group in the industry, including contractors and small operators and academia and all. i think is going to be studied. you can always improve those kinds of things and the way you collaborate and communicate together. i am quite sure that will be

looked at, and maybe we want to really enhance things so that we have even better collaboration and cooperation around that. >> let me just make one other comment. i wanted to emphasize what charlie just said in a little bit different way and also reinforce how much collaboration there was in the response this summer. i am very proud of being in an industry where there is so much collaboration and focus on safety. i think sometimes that is not recognized enough on how the industry comes together and everyone is focused on safety. i think that is a very important point to remember. >> all of our goal is that it

never happens again. if we are successful, we will get back to a very positive record. your containment company has got to be on its toes, if months and years go by with no call on these assets, how are you going to keep the those people, hundreds of people or however many people the containment company will hire -- how do you keep them on their toes? how do you keep those assets readily available if it is 10 or 20 or 30 years from now that we see another trips bill? >> this is the maytag repairmen analogy. >> that is the correct way to frame it. it is a great question. it is court you are really how we do this, because that is a fundamental question. -- is core to how we really do

this. having no marine captor vessels come over, we think there is a number of things. kicks the ship running, and the worst thing you can do with equipment is not use it and have it held up. you ever on a boat and have and use it for a year and then hope you can come back from a fishing trip, you know sometimes you get worried. so that is one thing. the marines captured vessel model is built around trying to allow those ships to continue working. you have an excellent point. the expectation is that through drills and for equipment maintenance, we will be able to keep that system ready. how those drills are conducted, how we keep the people fresh and ready to respond, is going to be a critical part of that company. we will have to pay attention to that going forward.

we have to look at how we test equipment and maintain equipment and ensure that people are ready to respond through operational drills. that is the focus, but it is something we need to work on, i agree. >> final thoughts and comments. i think we have covered the topic. >> just one final thought. i think everybody witnessed during the summer of a cooperative nature of the oil and gas industry to respond to a common threat, environmental threat, and safety threat. i would hope they understand that this is the way that business is done and will be done, and that there is a commitment through all the things we have talked about this morning, that in each board room and with each ceo of all companies, whether they be the

largest of the largest, mid- size, or the smaller, it is an obligation as good corporate citizens and environmental stewards to continue these activities. we want to be out there drilling for oil and gas, but want to do it safely. we are improving our ability to reduce the risk so it is not an environmental issue at all. we will be there tomorrow if it happens and we will be there for years from now if it happens. the point is to try not to let it happen, but we will be there. that is the commitment by this industry. >> the formation of the marine will contain company shows that commitment. the leadership of the four companies, the sponsor companies, to come forward and invest $1 billion to have a company where we are inviting

membership across the gulf of mexico, to have those assets ready to respond and to never have to use them, the leadership is indicative of the collaboration around coming together to solve problems. i am proud to be part of an industry that has that collaboration. i don't think we get enough credit for it, but the marine will contain an the company should help to be able to respond and shows that a commitment to enhance response capability. >> what i would say in closing is that, and i hope you saw it in my presentation, we have a significant amount of technology. technology is really on the leading edge. certainly it can always be better and we can improve things if there is any possibility we can improve things that will reduce our risk even lower and make incidents even less likely, that is a good

thing. it was mentioned earlier, we have to have the technology and we have to have the systems and the people. it is about being diligent every day, understanding your barriers, making sure you have your barriers in place, and making sure you understand the data and respond to the data appropriately. we have a great record on being able to achieve that with 14,000 deep water wells. it isn't every day, every minute, every hour job to have this -- is every day to have this vigilance and have the capability and training and knowledge to respond and prevent escalation. that is the job and that is the job we intend to do and want to do. >> let me just thank you all for

your attention and participation. it heartens me that the audiences get bigger and they tend to stay longer, so the information is actually getting out there. please join me in thanking our panelists. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> the midterm elections are on november 2. we are showing debates from key races around the country. in view minutes, will have a live debate between the candidates for delaware's u.s.

senate seat. then our campaign coverage continues with the candidates for governor of california, jerry brown and meg whitman. that is followed by a discussion of key races, and for governor of hawaii. russ feingold is running for reelection. president obama will join the first lady on the campaign trail over the weekend in cleveland and columbus. there will be stops at 17 events in nine states. we are moments away from a debate between democrat chris coons and republican christine o'donnell. the debate will include one hour of questions from the moderator and 30 minutes of questions from students. the candidates' first televised debate is being held at the university of delaware. here are a couple at that are running in delaware.

-- a couple of ads that are running in delaware. >> in america where jobs are being cut, in delaware where the economy is suffering and families are losing their homes, there is one man who stood against the tide that raised taxes. one man who thought that a 911 call should be taxed. one man who bought property taxes should be hiked almost 15%. one man who as county executive helped move it to the brink of bankruptcy. he is taxing everything. he is the tax man.

>> i spent eight years working with one of the most innovative companies in the world. i know what it takes to help businesses create jobs. we have to invest in education. we have to make the tax code more fair and more predictable for small business. we have to stop subsidizing companies to ship american jobs overseas. we should do more to invest in companies that invest in us. if we don't fight for this economy, fight for good jobs, we are just giving up on the future. i am chris coons, and i approve this message. >> you can watch many more campaign ads on our politics website. you'll also find video of debates and other campaign events, along with the analysis from political reporters. visit us online at c- span.org/politics. chris coons is the county executive in delaware, and marketing consultant christine o'donnell ispo