Interview David J. Hayes

He has been the deputy secretary of the Department of the Interior since May 2009. This is the edited transcript of an interview conducted on Aug. 20, 2010.

Editor's Note: After broadcasting "The Spill," we heard from the office of Deputy Secretary Hayes at the Department of Interior. They complained that, in response to a question posed by correspondent and co-producer Martin Smith, an answer from a later exchange with Deputy Secretary Hayes had been edited in. More »

• HIGHLIGHTS
• Making the decision to allow expanded offshore drilling in the gulf
• At what point does a company's record raise red flags?
• The problems of the Minerals Management Service
• The economic incentives that encourage deepwater drilling

When you came into office, the administration is busy reviewing a new outer continental shelf, an OCS strategy. What, if any, reluctance was there to expand drilling in the Gulf of Mexico?

Expanding drilling in the Gulf of Mexico was not, frankly, the primary focus of our review of the outer continental shelf. When we came in, we'd been presented by a literally last-minute Bush administration proposal to allow drilling virtually everywhere in the outer continental shelf. And the first thing we did was say, "We need to look at this hard, and we can't do this in 60 days," which is what the Bush administration had provided. So we had a six-month period with public hearings where we looked at all areas for potential drilling and whether it made sense to go forward or not.

So the Atlantic, Alaska and the Pacific? But any particular concerns about continuing expansion in the Gulf of Mexico?

There were not big issues raised about the gulf in terms of expanding the drilling there. In fact, we had a public meeting in New Orleans, where we essentially asked the world to give us advice on what they thought in terms of oil and gas drilling in the gulf. And the gulf was the one area, frankly, where because of the infrastructure and the history, there was certainly no sense that there were significant problems. And I would say all the players assumed that the drilling would continue in the gulf.

The focus in the gulf [was] whether you move into the eastern gulf or not. And then to the extent we had folks there who were interested in the Atlantic, we'd have points of view on that. That was virgin territory, and so much of the focus of these meetings were on the areas that had not been an area for oil and gas production, as opposed to the gulf, which had this long history.

Your agency, the Bureau of Ocean Energy Management, which at the time was known as the Minerals Management Service [MMS], had issued several reports -- one in 2000 [PDF], and then there were several more in 2004, 2006 and 2009 -- about the possible failures of blowout preventers. Had you seen those reports?

The red flags were not raised in terms of the deepwater problems by the outgoing administration [or] by the public in this very extensive outreach effort that we had. And frankly, we really thought that perhaps the best barometer of offshore issues that we would have would be this very significant public process that we kicked off within days of our coming in as a new administration.

We had over half a million comments filed on the offshore plan. And you can look at the transcript in New Orleans; there were not deepwater issues raised in any significance. So these were not in the front of our radar screen. There's not an understanding that there was a potential, lurking, major safety problem in the deepwater.

Had you seen the MMS reports that raised issues about potential problems in deepwater drilling?

Personally? No.

When the Deepwater Horizon application by BP was filed in March 2009, were you involved in any way in reviewing that?

No, no, no. The Department of the Interior of course has a large bandwidth here. Individual applications -- and there are hundreds if not thousands of them on an annual basis -- are handled typically at the regional level, and that's what happened here, by the agency involved, and that was the Minerals Management Service.

Would an application from BP receive any special attention given BP's troubled track record?

I don't believe so. The track record for BP as a company had some issues, to be sure, the Texas City, [Texas,] refinery issue being the most obvious one. But in terms of deepwater performance, I'm not aware that BP would be singled out for special attention.

They had the Thunder Horse [oil field] rig almost completely destroyed during a storm because of a malfunction. They had the Texas City problem disaster. They had problems on the North Slope of Alaska. Regardless of the fact that things may or may not relate specifically to the technology that you're reviewing, at what point does a company's record or performance start to raise red flags?

Well, it's a good question. I think the enforcement philosophy that we have, and the permanent philosophy that we have, is we expect every applicant to come in and provide the demonstration required to show that they can do the activities they're being requested to do. And so, from that perspective, we expect our permit reviewers and our enforcers to be tough on everybody.

In terms of that expectation, the MMS failed you, didn't they? In regard to this application, there was no site-specific cleanup. In fact, in that application that BP submitted to the MMS, they talked about what the result would be for walruses and sea lions. Nobody seemed to have read the application.

Well, you're talking about the spill response plan, which is --

It's part of their application to build.

It's an important aspect of it, yes. And [the] interesting thing about that is that the spill response plans are developed by these companies on a gulfwide basis, and the BP spill response plan was very robust on a gulfwide basis. They were showing the capability to handle a spill of 250,000 barrels a day, which is actually larger than this spill.

I think the problem with the BP situation was not the lack of a spill response plan in the traditional sense, but the problem was more related to the fundamental drilling safety practices that are now under investigation and that led to the blowout. The spill response plan issue was not a primary concern, I would have to say, based on the current regulations. Now we're taking a fresh look at all of this.

There was nothing in their application about what to do in the case of a blowout. How does that happen? How does the Department of the Interior approve an application with missing key data like that?

The regulatory assumption was, and has been, that there is a response to a blowout, and that's called the blowout preventer. That's the whole purpose of this multimillion-dollar piece of equipment. It is the "fail-safe" structure to deal with this problem. And then answer number two is, if you have a spill, you have a spill response plan. But again, in a fairly traditional sense of, "There's a spill; we'll clean up the oil; we'll find the ships to do the skimming, etc.," that was all there.

What was missing was that the industry, the government, other interested parties, the states, did not conceive of a situation where the blowout preventer [and] all of the redundant systems of the blowout preventer would fail and that you needed yet another set of containment opportunities and options. That was not in the field of play. It is now, after this incident demonstrated that those redundancies in the blowout preventer were obviously not enough.

So they had nothing in their application about what to do in the case of a blowout preventer failing?

That's correct. What they had was the blowout preventer assumption and then the spill response assumption. And that was industry practice, that the state, federal regulatory assumptions were all that that would be adequate.

Why were they exempted from a detailed environmental impact statement? They were granted an exclusion, right?

Let me explain the context here. The context is that under the governing law, you do at least two major environmental impact statements. One is in connection with a five-year plan, as you look to see whether you're going to allow drilling in the area. Next is in connection with a lease sale, and you do a full environmental impact statement to look at potential implications of drilling relating to a lease sale.

Then, when you get down to a specific group of wells in an exploration plan, at that point the statute says that we have to approve or disapprove an exploration plan within 30 days. There's not enough time in the statute to do a full environmental impact statement. And since 1986, there has been a categorical exclusion to allow for the approval of exploration plans based on the assumption that the prior environmental impact statements done for the five-year plan and for the lease sale plan cover this situation.

So the notion that there's no environmental analysis is not correct. There was environmental analysis, but we agree that there should be more analysis at the exploration plan, and we've asked Congress to change the law to give us the flexibility to do that.

I wanted to refer to something you said on April 29. You said after a meeting, you'd all gathered with the president, and you said that the type of explosion that led to the gulf oil spill is extremely rare, but that offshore sites are subject to close federal oversight. Would you agree that that is the case now, close federal oversight?

Here's what I was saying then; here's what I will say now. There was a sense that, first of all, the Minerals Management Service is not a well-known entity, and there are questions about whether, essentially, this is a completely unregulated activity or not. My point there, and I'd say it today, is that this is a highly regulated activity.

The Code of Federal Regulations has explicit, prescriptive regulations on what is expected for oil drilling of all types. We also have an inspection program, an enforcement program, etc. There is close oversight. Is it adequate? We're asking those questions. We are doing a self-examination on that question. It clearly was not adequate here, and that's why we actually called for --

"Not adequate here," meaning "in this case."

In this case, there was some failure. Now, whether it was a regulatory failure or simply a failure by BP has yet to be concluded. We're looking forward to the investigation of the joint Bureau of Ocean Energy Management, [Regulation and Enforcement (BOEMRE)], the U.S. Coast Guard investigation, [and] we're going have the National Academy of Engineering weigh in.

We are not apologists today for the regulatory system or for BP. We want to find out what happened, and we want to make sure that we have a regulatory system that is sound and that it oversees what may have happened here, which could have been, and probably was, mistakes by the companies.

Given all of the problems at the MMS that you knew about when coming to office, the scandals that the secretary [of the Department of the Interior Ken Salazar] went out to Denver to address, I'm wondering how you can say you had close federal oversight. Perhaps you had it in the law, but in practice, given the problems at the MMS, is it fair to say that there was, in fact, close federal oversight?

Completely different issues. The problems in Lakewood, [Colo.,] all dealt with revenue collection. There were detailed investigations that demonstrated that part of the role of this agency is to collect the royalties from offshore oil and gas. It's done by a unit in Denver that has to account for literally $12 to $14 billion of money every year. Has nothing to do with the regulation of the actual activity itself.

But that indicates an agency that was compromised by its very structure.

Right. And we moved right in, dealt with the ethical issues, fired the folks who were problems, dealt with it as a top priority for the agency. We kept going; we looked at the underlying structure of that revenue system; decided that this notion of accepting essentially oil and gas instead of cash was too much of a potential temptation, so we changed that program.

But over here, on the regulatory side, down in the gulf, in terms of the regulations that were in place, enforcement mechanisms, etc.? We had had 25 years of no significant accidents, no significant problems. There was not an indication that there was a systemic issue in terms of the strength of that regulatory system. Nonetheless, we started to reform there as well.

So you're saying that none of the problems at the MMS were affecting the way in which wells' drilling permits were being overseen?

The problems that we had, that we found out through a very vigorous effort by the inspector general at ... MMS, all related to the revenue side of the house.

And how compromised they were, how they were taking gifts from the industry. Wouldn't that tell you that there may be problems that affect their ability to oversee the permitting of wells?

And we got right on it. We're interested in making sure all of MMS was on the right track. That's why the ethics requirements that we put in place, triggered by that, applied to all MMS folks. That's why, last fall, long before this, we commissioned a National Academy study to evaluate the effectiveness of our inspection program. We wanted an independent view.

... So we're not sitting complacently on the MMS, suggesting everything was fine. We absolutely wanted to deal with this. The problems, though, were identified on the revenue side; that got our immediate attention. We had ethics requirements for the whole agency, and we had launched a special investigation of our inspection program.

But would you agree that those problems at the MMS could very possibly have affected their rigor in terms of inspections or oversight of drilling permits?

Possibly. We'll find out.

You said that you have 25 years of experience in deepwater drilling and that you hadn't had problems.

The department itself had not had a blowout like this occur with a loss of life since the mid-1980s.

How long have oil companies been drilling in water that was comparable to the depth of the Macondo well?

Since about 1995, 1997.

... So we're really talking about 15 or less years of experience in deepwater drilling. That's where the cautions were, that in very deep water, there could be real problems of loss of well control or with controlling a leak at depths comparable to the Macondo well?

Well, potentially, sure.

So is it really fair to say that we have 25 or 30 years of experience with no accidents, to use those figures, when, in fact, we've only been drilling since about 1997, maybe 1999, in those kinds of depths?

You make a good point in one sense. But here's the other point. The key line of defense are blowout preventers here, and blowout preventers have been in place for those 25 years. Blowout preventers are used in shallow water, and they are the way that so-called kicks from gas excursions are stopped. So we have had more than 15 years' experience with blowout preventers and their capabilities.

But not at those depths.

That's right -- not at those depths. We've had 15 years of experience with blowout preventers at those depths.

I want to go to this question of BP being a bad actor in the business. Was there a perception within the department that BP should get special attention for its drilling proposals?

I can't speak to that. In my job as deputy secretary, I don't have day-to-day oversight of drilling decisions.

... Was the department ever part of any discussion to debar BP from doing government business?

I don't know.

I know the EPA [Environmental Protection Agency] was looking at debarring BP from government contracts. Would that come under your --

It may or may not rise to my level in the department.

But it didn't. It never did?

No, I was not aware of that.

The question the people have in trying to understand this is this isn't just another oil company. This is an oil company with a history of problems. They're asking, at what point do we say, "Enough is enough; something is obviously wrong here"?

I think the most important thing right now is to complete the investigation as to what happened here and understand what happened here. And we'll get some insights as to whether there's a cultural problem at BP, a structural problem at BP. I assume we'll get some insights into that, but we want to see the results of that investigation.

We've done it before. We've investigated BP and come to the conclusion through numerous studies, both internal and external to the company, that there was a failed safety culture; that there were problems, that cost cutting resulted in deferred maintenance in facilities. Are we ever going to do that again?

Sure. We are absolutely committed to having safe offshore drilling, I'll leave it at that. If there's an issue with a company that is systemic and that is appropriate for special enforcement and that comes out of this incident, I'm sure this will be a trigger for that, but I have to defer to our enforcement experts on that one.

Secretary Salazar said in his Senate testimony [PDF] in May that all the departments of the government responsible here had become lax. It was in contrast to you saying that these sites are subject to close federal oversight. Was there a contradiction there?

No. If you looked at my other testimony, you know that I testified elsewhere that I thought a sense of complacency had developed with regard to offshore drilling. I testified to that effect in Congress, which is the same point that I was making, as Secretary Salazar said. My answer to the close scrutiny was to a question about whether essentially there was any regulatory system at all that dealt with offshore drilling. The answer is yes. Whether it's been enforced enough and done with enough rigor is what we have been looking at very hard. ... But there is no question -- I agree completely with Secretary Salazar -- that it's apparent, and it was apparent to everybody who looked at this issue, that there was not an appreciation for the special risks of deepwater drilling. ... So I think all of us share responsibility. That's something Secretary Salazar said.

Congress has pushed for deepwater drilling from the mid-90s with a variety of incentives. The industry has pushed for those incentives. Government agencies have gone along with that and said: "Yes, we're going to do this. This is an important frontier."

The economics were compelling. We're finding oil in these deepwater areas, and they're providing a significant portion of our domestic energy supply. And throughout this, as it turns out, there were lurking dangers that were not appreciated. Now they are appreciated. And this administration is committed that this will never happen again.

Are we going to continue to drill in deep water? Is the moratorium going to be lifted?

We'll find out. We have a moratorium precisely to address these systematic and systemic questions. We want make sure that before we drill again in deep water that it's safe.

Editor's Note: On Oct. 12, 2010, the Obama administration lifted the moratorium and issued new safety standards.