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174 VITAL SPEECHES OF THE DAY

Sustainabilitys great until we start comparing costs.Sustainabilitys great until, as with ethanol, we begin

to doubt all those rosy environmental claims made in theearly press notices.

Sustainabilitys great until we understand the physical

limits on energy so dispersed in nature as to require largeexpenditure o energy just to concentrate it enough tomake it useul.

Sustainabilitys great until perceived limits on supply osupposedly nite energy yield to advances in technologyand understanding o nature.

The claim is made that sustainable energy needs to beavailable or the day when we run out o oil and gas. Butwhen will that day arrive?

A ascinating thing about oil and gas is that the more welearn about the subsurace, and the better we become atdrilling and completing wells and extracting fuids throughthem, the more oil and gas we nd to be technically and

economically producible.It wont always be so, but the operative constraints on oil

and gas supply at this point in history are not geology andnatural endowment but rather knowledge and investment.

In 2007, the National Petroleum Council produced acomprehensive report or the Department o Energy en-titled Facing the Hard Truths about Energy. A topic paperon unconventional gas described an important conceptmodeled by the Resource Triangle.

The concept behind the model is that all resources aredistributed log-normally in nature. The easiest resources tond and extract are the cheapest and rst to be produced.

Deeper into the resource triangle, oil and gas reservoirslose quality, which usually means their permeabilitytheease with which fuids move through themdeclines.Producing oil and gas rom reservoirs like these requiresgreater application o technology and inputs o energy,which raise costs and require higher oil and gas prices tomake the economics work.

But low-quality reservoirs can be much larger than theirhigher-quality counterparts. They can hold exponentiallygreater amounts o oil and gas. With the application o su-

cient money and knowledge, low-quality reservoirs canproduce a lot o oil and natural gas.

Lessons rom the Resource Triangle play out in growingproduction o bitumen rom the lavishly endowed oil sandso Alberta. More recently, those lessons take the orm o

burgeoning gas supplyand now oilrom shales o theUnited States and Canada. Those plays are changing every-thing about energy.

We wont soon run out o oil and gas. Imminent deple-tion should not be a actor in our thinking about sustain-ability. In act, we will produce much more energy romsupposedly nite resources than well gather rom renew-able sources or many decades.

Butand heres the keycosts will begin to converge.As oil and gas become costlier, theyll need higher prices inorder to be economic. And higher prices or oil and gas willhelp renewable energy compete.

As a journalist, I look orward to writing about the pro-

cess. As a taxpayer, though, I dont want to have to pay ora utile eort to make it all happen on a political scheduleinevitably at variance with what markets will allow.

Governments do have a role in this process, espe-cially governments o developed countries. But that roleshouldnt be uel selection. Markets should handle that.

What governments can and should do is concentrate onthose crucial variables o knowledge and investment.

Governments can perorm essential research into utureenergy sources and ways to make uture consumption otraditional sources cleaner and saer.

They can support pioneering investments in acilities

needed by new energy orms.And they can enorce the ecient working o markets

so that all uels compete reely and that new uels enter themarket sustainablymeaning able to compete.

The world needs this to happen. It needs energy romall economic sources. And it can have the energy it needs igovernment will allow it to happen.

By the way, I o course do know when oil and gas willrun out. But I signed a condentiality agreement aboutthat, too.

New Era, New ResponsibilitiesBPS RESPONSIBILITIES AND THE ENERGY INDUSTRYS RESPONSIBILITIES

Address by BOB DUDLEY, Group Chief Executive, BP

Delivered at CERA Week Conference, Houston, Texas, Mar. 8, 2011

Thank you for that welcome. I very much appreciatethe invitation by CERA to speak to you all here to-day. CERA has been a part of our industry for such a longtime, and it is a privilege to be here.

Let me start by saying that no one is more consciousthan I am, in some ways, o the unique responsibility I

bring to this podium today on behal o my company - BP.Last year, our company was involved in an accident that

triggered a major spill, led the U.S. government to shutdown the deepwater drilling in the Gul o Mexico, andmost importantly, cost the lives o 11 men.

No matter what else we recall about this accident, that
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175BOB DUDLEY

will always remain our most grievous loss, the lives oriends and amily members we will never get back.

Since that accident, this is the frst chance I have had toaddress such a large gathering o industry colleagues andthe frst thing I want to say is that I am sorry or what hap-

pened last year.Everyone at BP deeply regrets the loss o lie, as well asthe impact on our Gul Coast neighbors and the environ-ment. And that o course includes the disruption o o-shore activity in the Gul.

I also want to say thank you to all the companies here inHouston and elsewhere that oered their help and support tous last year. And Id also like to thank everyone who has givenme and my BP colleagues such a warm welcome here today.

We need to earn back your trust, along with that o stateand ederal leaders and the trust o Gul Coast residentsand customers. We are determined we will once again re-store that trust and I realize this requires action, not words.

So today, I want to outline to you the actions we are tak-ing, and the actions we think our industry needs to takebased what we have learned since the accident.

Last month, ater we announced our results, one maga-zine ran a headline saying BP wraps up year to orgetThats not how we see it at all. Let me assure you - we willnever orget 2010.

Oten the response to a tragedy defnes the character oan organization. And I am determined that we will emergerom this accident as a company that is saer, stronger, moresustainable, more trusted and, in time, more valuable.

As well as meeting our commitments in the US, we have

a duty to take what we have learned deeply into the abrico our organization. It means strengthening the way wemanage our operations and concentrating on the thingsthat drive long-term valuesaety, capability, technology,portolio choices and relationships.

I want to start today by talking about how we are meet-ing our responsibilities. Then I will ask how we as anindustry can respond to this unprecedented event and thelarger implications that it raises.

BPOur Companys ResponsibilitiesWe have a number o responsibilities.

We have a responsibility to the people o the Gul Coaststates who are still eeling the ater-eects o the spill.We have a responsibility to the US, and we are under no

illusions about the task involved in rebuilding trust.We have a responsibility to our employees, giving them

reasons to believe in BP.We have a responsibility to you, our industry colleagues,

so you can have confdence in BP as a partner going orward.We have a responsibility to share what we have learned,

to demand more o ourselves and rom our industry overall.And we have a responsibility to our shareholders - to

renew their aith in the value o our company and its abil-ity to operate saely.

So how are we meeting these responsibilities?Last years crisis response involved 48,000 people, 6,500

vessels and 125 aircrat. That phase is over but we are stillvery much in action in the Gul, where we are going be-yond our legal obligations to do what is right.

The joint Incident Management Team is completing itsresponse activities and our Gul Coast Restoration Organi-zation is working towards the longer-term environmentaland economic restoration o the aected areas.

We continue to plan or the transition o day-to-daymanagement o urther activities rom the existing GulCoast Incident Management Team. We have paid over $5billion to meet claims by individuals, businesses and gov-ernments, and the Natural Resources Damages Assessmentprocess is underway.

We continue to have a local presence through our stateofces and sta. We are supporting initiatives to promotetourism, as well as seaood testing and marketing.

We have also voluntarily unded independent researchto help restore the unique environment o the Gul, includ-ing an investment o $500 million in the Gul o MexicoResearch Initiative.

We have taken a charge o nearly $41bn against incomein expectation o potential liabilities. We believe that the$20billion Trust Fund, within the overall provision, posi-tions us to meet individual, business, and governmentclaims, as well as the cost o the Natural Resource Damages.

Our internal investigation into the causes o the accidentwas completed and made public in early September o lastyear, and we continue to co-operate with the other inqui-

ries that are in progress.But our responsibilities stretch urther than the Gul o

Mexico. We have a responsibility to embed the learningrom this accident across BPs business, worldwide. And weare taking a series o steps to this end.

We have created a powerul, central saety and opera-tional risk organization headed by Mark Bly, who led ourinternal investigation o the accident. Mark reports directlyto me and sits on our executive team.

His organization has the resources and the mandate todrive sae, reliable, and compliant operations, includingintervention rights, in BPs exploration and production op-

erations anywhere in the world.The new organization is now in action across BP in ourmain areas:

First, it is strengthening and clariying requirements orsae, compliant and reliable operations.

Second, it is deploying around 500 specialist personnel with-in our businesses to guide, advise, and i necessary, intervene.

Third, it is providing deep technical expertise to our op-erating businesses.

And ourth, it is intervening where needed to stop op-erations and bring about corrective actions.

We are already seeing results.For example, we have shut in one production platorm

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to repair the re water pumps. Another platorm was shutdown ater the discovery o incorrect specications orsome asteners. And a producing eld was shut down toenable pipeline integrity work to be carried out. Further,we have decided we will not take rigs that do not conorm

to our standards and there are a number o cases where wehave either turned away rigs or are negotiating or modi-cations which could bring the rig up to our standards.

We have also made changes in our structure, introduc-ing three divisions in the upstream: exploration, develop-ments and production. This creates greater clarity andaccountability as well as bringing specialists together intoteams where they can build their capability.

For example, we now have a Global Wells Organization,responsible or the worldwide delivery o sae and compli-ant wells.

We are conducting a major review o our risk manage-ment systems to ensure we have consistent standards that

are applied in a disciplined way across BP.And in support o all o this, we are linking our peror-

mance management and reward system directly to saetyand risk management - as well as to key behavioursteamwork, capability-building, listening and compliancewith standards.

When our employees set their objectives, were askingthem to state explicitly how they will contribute to long-term goals as well as short term ones.

In short, we are taking what had been a airly de-cen-tralized 80,000-person global organization and making itinto a more systematic and standardized one, where deci-

sions are taken at the right levels and everyone under-stands exactly what standards apply to them.

In doing so, we are drawing not only on our own expe-riences and our own industry, but also lessons rom otherindustries where saety and risk management have beendeveloped to a world-class level.

One o these is the US nuclear navy, which was identi-ed by the Presidential Commission on the DeepwaterHorizon accident as a role model in saety. And I am verypleased that we now have as a board member Admiral SkipBowman, who served as director o the US naval nuclearpropulsion program.

Our upstream organization is acting decisively to addressmany o the issues identied by our inquiry and others. Forexample, we now have a very strong emphasis on havingindependent third party verication o blowout preventers.

And we have obtained conrmation rom our contrac-tors that they have enhanced the processes they use tocheck that the maintenance o well control equipment isup to date and has been veried by a third party.

Strengthening saety and earning trust are the ounda-tions on which we will build a new value proposition orBP, designed to create value or the long term, in a mannerthat is both sae and sustainable.

We will ocus on the critical inputs that drive delivery,

namely saety, capability, technology and relationships,rather than ocusing primarily on outputs such as produc-tion barrels. I we get these right, then the outputs, includ-ing dollars, will ollow. So we are emphasizing quality overquantity and value over volume.

We are resuming payment o a quarterly dividend. Weare divesting non-strategic assets. Were investing in strate-gic projects with a rich upstream portolio. Were increas-ing our investment in exploration.

Were also taking our strategic partnerships with nation-al oil companies and major resource holders to a new level,going beyond the traditional IOC model. This has beendemonstrated recently through our alliance with Rosnet inRussia and our partnership with Reliance in India.

In the downstream we are reshaping our portolio inline with the changing patterns o demand and supply, ac-knowledging that there is fat-to-declining demand or uelin the US and Europe.

That means we have taken the dicult but necessarydecision to halve our US rening capacity. We are retainingthe positions with the greatest competitive advantage andwe are divesting those which oer more value to others,including the Texas City and Carson reneries.

We intend to upgrade our Fuels Value Chains in othergeographies; explore opportunities in high-growth marketssuch as Asia; and continue to grow our high-quality lubri-cants and petrochemicals businesses.

The IndustryOur Collective ResponsibilitiesI now want to turn to the role o the industry as a whole.

We acknowledge ully the ndings o the PresidentialCommission regarding the immediate causes o the Deep-water Horizon accident which were largely consistent withthose o BPs internal investigationthat the accident wasthe result o multiple causes, involving multiple parties,including BP and our contractors Halliburton and Trans-ocean.

As I have indicated, we in BP are addressing these is-sues. So are Transocean and Halliburton. But there are also,we believe, lessons or the industry as a whole.

Never beore had anyone experienced a blown-out wellat a depth o more than 5,000 eet, more than 50 miles out

to sea, at a subsea pressure o 2,240 psi and a water tem-perature o 39 degrees Fahrenheit.As the Presidential Commission has said: Deepwater

energy exploration and production, particularly at therontiers o experience, involve risks or which neither in-dustry nor government has been adequately prepared, butor which they can and must be prepared in the uture.

Anyone who does not believe there will be industry-lev-el changes ater the Deepwater Horizon accident is, I think,being unrealistic.

Ater major industrial accidents, there are always lessonsto learn and changes to make. Sometimes these are chiefymade by governments and regulators.

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Ater the Exxon Valdez spill, the Oil Pollution Act o1990 was introduced.

The Piper Alpha disaster led to changes in regulatoryoversight in the UK.

Other events have led to major changes in the voluntary

action taken within industries.The USS Thresher submarine disaster led to the nuclearnavys SUBSAFE system.

Bhopal led to the chemical industrys Responsible Careinitiative.

Three Mile Islandand this is the example on which thePresidential Commission ocusedled to the establishmento the Institute o Nuclear Power Operations or INPO.

I think our industry, operators and contractors alike,needs to take seriously the Commissions challenge to worktogether more eectively.

O course, we have already ormed the Marine Well Con-tainment Company and this is a beginning. BP is part o this

and wants to do everything it can to contribute to its work.Regulators, o course, need to fnd the right balance

ensuring saety without placing unnecessary constraints onoperators.

But ensuring that outcome means the industry has to gourther than ever beore to ensure sae operationswiderthan the upstream, wider than the U.S. And that is becausethe industry aces an unprecedented risk profle in thecoming decades.

Back in January, we published our Energy Outlook2030, looking at likely world energy trends. We estimatethat by 2030 the world could be consuming as much as 40

percent more energy than it does today. That is the equiva-lent o adding todays United States energy consumption toworld demand nearly twice over again.

But the growth wont be coming rom the US. Almostall o itwe estimate 93% - will come rom the emergingeconomies, particularly China, India, Brazil and Russia.

Virtually all orms o energy will be needed. Most o thedemand will be or power and the share o total energymade up by oil will decline. But given overall demandgrowth or energy, the absolute volume o oil consumed islikely to rise as well.

So paradoxically, even as we become less dependent on

oil, we will still need to fnd more o it.With many o the worlds major basins in decline, ourindustry will thus have no choice but to look to new andincreasingly challenging rontiers. These include the Arctic,unconventional sources, and yes, the deep water.

Blazing new trails always carries risk. At BP, we believethat our capability and our experience in operating at therontiers gives us a continuing role in helping to meet thisemerging world energy demand. We will be doing this witha sense o great care and responsibility.

But we wont be doing it alone. Most o you will be rightthere alongside us.

And, as the Presidential Commission has recognized, I

think it would be a mistake to dismiss our experience othe last year simply as a Black Swan, a one-in-a-millionoccurrence that carries no wider application or our in-dustry as a whole. As we have learned in the past elevenmonths, one companys calamity quickly becomes every

companys concern.We have had a challenging and difcult year. There hasbeen a lot o trauma and grie. But people have also showngreat determination in the way they responded. And wehave learned important lessons.

We learned as a result o our own innovation. Welearned rom expert contractors and colleagues. We learnedabout new technologies, systems and equipment.

And this has given us a new responsibility. We believewe have a responsibility to share our learning with thosewho can beneft rom itincluding our competitors,partners, governments, regulators. Indeed we have beenasked by people around the world to explain what we have

learned. BP executives have travelled to Angola, Russia,Australia, Brazil and elsewhere in recent months, bringingour learnings to stakeholders, industry partners, academiaand governments.

And those learnings also highlight some important ques-tions we need to ask as an industry.

It is not practical or me to make the entire technicalpresentation over lunch, but Ill pick out a ew highlights.

We categorize what we learned under 5 headings: Pre-vention & Drilling Saety; Containment; Relie Wells; SpillResponse; Crisis Management.

In terms o prevention, we are enhancing our own stan-

dards or blow-out preventer testing, cementing, well-in-tegrity testing, rig audits and other well operations. Couldindustry-wide standards on these areas also be enhanced?

We think we should look at this and indeed were workingon it with industry groups.

In ten years time, I would expect that there will be anew generation o blow-out preventers that represent amajor advance on the ones we use today. But will we havestandards in place to make sure everyone has to use them?

As you might expect, we are enhancing cementing-services oversight through new standards, a new approvalprocess and stringent contractor lab-quality audits.

In terms o containment, do we all have access to theright equipment at the right time at the right place?In the North Sea, or example, were now building a

next- generation capping stack, based on what we learnedrom the one that shut in the Macondo well.

We are working to systematize what we learned in large-scale SimOps. I anyone ever has to manage a simultaneousoperation involving 50 surace vessels and 16 subsea ROVsin a radius o one mile, then our experience rom last yearmay be useul.

With respect o relie wells, we are continuing to en-hance the real-time ranging technology we developed dur-ing the incident.

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Putting Health Care on a Sustainable PathFLAWS IN THE NEW HEALTH CARE REFORM LAW, AND SOLUTIONS

Testimony by JOHN C. GOODMAN, President and CEO, National Center or Policy Analysis

Delivered to the House Energy and Commerce Subcommittee on Health, U.S. House of Representatives,

Washington, D.C., Mar. 9, 2011

This cuts the time needed or logging rom about 2 daysto about 6 hours because the drill bit doesnt have to beremoved.

We feld tested this tool on a land rig in Wyomingbeore using it in the Gul. However, more work is now

needed to improve the tools mechanical reliability or u-ture wells.Were also reviewing the physical clean up to see what

worked well and what needs urther development. One keyinnovation, or example, was the Sand Shark, which litsand sits sand to remove oil.

In summary, we are implementing a number o newpolicies that will guide what we do. Specifcally,

We will not drill a deepwater reservoir using a dynami-cally positioned vessel unless we know we can:

1. Shut the well in - with real plans and equipment onstandby;

2. Drill a relie well - again with real plans and equip-

ment identifed; and fnally3. Launch an emergency response - which builds on les-

sons rom the Gul o Mexico incident.We also learned a huge amount about crisis manage-

ment. We got some things right and some things wrong.But we learned what corporate responsibility really meanswhen the chips are down.

I hope no-one in this room ever has to do that againbut i you ever need to know what we experienced, werehereplease ask.

We also learned a lot about what crisis managementmeans in a world o 24 hour communications with massive

social media coverage as well as conventional press and cablebroadcasting. I saw how much pressure there is on everyoneto take up polarized positions and over-simpliy the issues.

I am sympathetic to politicians as well as companieswho had to respond so quickly in a time o pressure anduncertainty.

The uture will see new risks alongside new opportunitiesand I would invite anyone who shares our concern aboutmanaging those risks to join us in thinking, learning and

talking about how we as an industry proceed rom here.For example, the Arctic is the next rontier. It has all the

challenges o oshore operations, plus the challenge o iceor three-quarters o the year.

What should the industry do collectively here?

How can we prepare in advance or the next generationo major projects?Some collaboration is taking place already but I am sure

we can go urther and do more.More immediately, how are we as an industry going to

respond to the crisis engulfng parts o the Middle East?Energy security is at stake given the way events are mov-

ing. Production is down by more than hal in Libyaacountry which represents nearly 2% o global supply.

The Middle East and North Arica as a whole producenearly 30 million barrels o oil daily - over a third o globalproduction. Maintaining production is vital.

My question is whether we should be reacting in a more

co-ordinated way as an industry.Are there steps we should be taking collectively to ad-

dress some aspects o the situation in the Middle East?Can we enhance our monitoring, our security systems, ourplanning or our understanding o the situation?

ConclusionSo thank you again, Dan, and everyone, or the opportu-nity to participate in and contribute to this great event.

I hope that my messages today have been clear. BP issorry. BP gets it. BP is changing.

Were strengthening saety, growing value and working

to earn trust.But I believe the industry also has a responsibility to change.

We will ace new challenges that demand new ways oworking in the uture, and we need to think hardeach ousabout what that means.

One thing I can promise. BP plans to be part o that utureand to work with all o you to bring energy to our customersand value to our shareholders - saely and sustainably.

Thank you.

There are major structural faws in the Patient Protec-tion and Aordable Care Act (PPACA), what somecall Obama Care. Each is so potentially damaging, Con-gress will have to resort to major corrective action eveni critics o the new health care law are not part o it.Further, each must be addressed in any new attempt

to create workable health care reorm.

An Ever-More-Costly MandateHealth costs per capita have been rising at twice the rateo per capita income or the past 40 years. This is not auniquely American problem. On the average, the same

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